The Best Part of My Job

Dear Colleague: 

One of the things I love about my job leading VantageScore Solutions is the fact that we’ve been able to develop meaningful relationships with so many different individuals and institutions over the years. Let’s face it: every organization has issues and values that are important to them. We’re no different, and neither are the groups with whom we work. What I find gratifying, however, is when those values and issues are shared.

The recent release of the Credit Score Knowledge Survey – which we produce each year with the Consumer Federation of America (CFA) – is a great reminder of this. The results of this new survey were both enlightening and sobering (you can read more about it in this newsletter). No one understands consumers better than the CFA, and its guidance on this study and consumer education in general informs the direction VantageScore takes as we work to educate consumers about credit. None of it would be possible without shared values, and the same can be said about a number of other relationships we’ve developed over the years.

We’ve worked hand in hand with the Mortgage Bankers Association and Consumer Bankers Association to advocate for legislation that will help create a more competitive mortgage market.

We are proud of our work with the National Community Reinvestment Coalition and the National Fair Housing Alliance to help provide more homeownership opportunities to minority and low- and middle-income borrowers.

We stand by the National Association of Hispanic Real Estate Professionals and the Asian Real Estate Association of America on similar issues. From the early days of VantageScore, these organizations understood that our model could help more members of their constituency obtain sustainable homeownership.

Staying in touch with the investment community’s needs is also important to us, which is why we closely partner with the Structured Finance Industry Group. We work together with issuers, underwriters, investors and ratings agencies to elevate understanding of how the credit scoring models can impact the viability and performance of consumer asset-based securities and in turn, how scoring models can impact the economy overall.

And to think that these are just a few of the great groups with whom we’ve connected. The value of these relationships and the work we do together cannot be understated, both from an institutional and a personal perspective. It really is the best part of my job.



Did you know:
What’s an adverse action notice?

If you’ve ever had the unfortunate experience of applying for and being denied credit, then you likely received a letter from the lender with the bad news shortly thereafter. It was no coincidence. Lenders are required to send these “declination” letters if they used your credit report and/or your credit score as a basis for their rejection. Those letters are more formally referred to as adverse action notices.

The requirement for lenders to send adverse action notices has long been a part of the Fair Credit Reporting Act (FCRA), a federal law that promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies.

The letters look almost identical regardless of which lender is sending it, and the reason they look so similar is because the FCRA requires that lenders share very specific information about their declination processes.

What Information Must Be Included in an Adverse Action Notice?

The notice advises that you’ve been denied credit and that you have certain rights; it names the credit reporting company that provided the credit report used by the lender; it names the actual credit score used by the lender; and it contains other attributes used in the decision-making process. Here’s a bit more information about each of these items:

Notice of Denial – Almost all adverse action letters start with a short sentence generally thanking you for your application but also advising you that regretfully your application has been denied. The letter also informs you that the decision to deny your application was not made by the credit reporting company, a not-so-uncommon assumption by consumers.

Notice of Your Rights – Because a credit report was used as a basis for the adverse decision, you have the right to see a copy of your credit report from the same credit reporting company, at no cost. The letter will include the name of one or more of the credit reporting companies — Equifax, Experian and TransUnion – as well as their address, phone number and website address. You will have 60 days to leverage this free credit report right and you must proactively request the report. It will not be sent to you otherwise.

Your Credit Score – The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the FCRA to require that adverse action notices include your credit score. As such, all adverse action notices sent since 2011 also include the actual credit score the lender used as the basis for their adverse decision.

Along with your credit score, the letter is required to provide the key factors that affected your score. These key factors are formally referred to as adverse action codes, but nobody seems to use that phrase. The factors are more commonly referred to as reason codes, but they’re all the same thing.

In the past, the language associated with the reason codes wasn’t terribly consumer-friendly, but that has changed. For example, VantageScore 3.0 and VantageScore 4.0 (which is scheduled to launch in the fall of 2017) have specifically designed reason codes that are more informative and easier to understand. Also, by using the free online resource, consumers can gain a better grasp on the deeper explanations of each reason code as well as tips for improvement.

Finally, the credit score section of the adverse action notice must also include additional information about your credit score, including the date the score was calculated and the range of the scoring model (generally 300-850). And most importantly, the score that you receive will be THE ACTUAL SCORE the lender used.

Credit Score Knowledge on the Wane

Let’s start with the good news: Americans have come a long way in terms of monitoring their credit scores.

In fact, according to the seventh annual Credit Score Knowledge Survey, jointly released by the Consumer Federation of America and VantageScore Solutions, the percentage of people who said they obtained at least one credit score in the past year has risen from 49% in 2014 to 56% in 2017.

The bad news? Consumers’ understanding of credit scores hasn’t grown in tandem. Worse yet, the latest survey suggests their knowledge has eroded.

Case in point: A significantly smaller percentage of participants this year recognized that non-lenders use credit scores to determine approval and pricing. Only 44% were aware that electric utility companies consider credit scores, a precipitous drop from 53% back in April 2016.

Meanwhile, 59% of this year’s participants knew cell phone companies look at credit scores, a number that seems pretty positive until you consider 68% of participants were hip to that fact just last year.

Consumers also were also less aware year-over-year that:

  • They have more than one credit score (down from 69% to 64%).
  • Credit scores represent the risk of not repaying a loan (down from 43% to 38%).
  • It’s important to check the accuracy of their credit reports at the three major credit reporting agencies (down from 73% to 68%).
  • A low credit score on a standard auto loan would increase costs by over $5,000 (down from 25% to 18%).

This decline in knowledge comes at a time when free credit scores are perhaps more widely available than ever before. They’re currently accessible through multiple consumer education websites or online marketplaces. Banks and credit card issuers are also increasingly furnishing free credit scores to cardholders.

Perhaps most disheartening, the survey results indicated that participants standing to gain the most from a good credit score knew the least about how to achieve one. For instance, only 55% of participants with household incomes under $25,000 correctly identified three ways to raise a low credit score, compared to 73% of participants in households with incomes $100,000 and over.

Obviously, more must be done to help these consumers learn about credit. Remember, a low score can cost someone thousands of dollars each year in higher interest rates and service fees.

As a starting point, consumers can build and maintain good credit by making all of their loan payments on time, using only a small portion of their credit card limits, paying down debt and regularly checking their credit reports for errors. These reports are available for free once every 12 months on

VantageScore and CFA’s seventh annual credit score survey was conducted by ORC International, which interviewed over 1,000 Americans nationwide via cell phones and landlines.

Think you know more about credit than the rest of the country? You can test your credit knowledge by taking the challenge at The quiz is also available in Spanish at

Four College Saving Strategies for Parents

Paying for a child’s education is an expensive endeavor. Per the College Board, the average annual cost of tuition and fees during the 2016-2017 school year was $33,480 at private institutions and $9,650 at public colleges and universities. Those numbers have been rising steadily for decades (yes, decades), and while parents admittedly have little control over that trend, there are strategies they can utilize now to prepare for high tuition bills in the future.

Plan Ahead

A 529 plan is a state-sponsored investment account designed specifically to help parents pay for college. They come with some serious tax advantages:

  • Most states will deduct contributions each year.
  • Taxes are deferred on earnings.
  • You can withdraw from the account without penalty so long as the money is used to pay for higher education expenses.

A Roth IRA, on the other hand, is a savings plan typically associated with retirement, but the assets of these accounts can also be used without tax penalty for the purpose of paying for college. A Roth IRA also offers some flexibility in that if a child does not attend college, those savings will still be available, tax- and penalty-free, when the parent retires. There are restrictions, however, to how much and when individuals can contribute. A good financial adviser or tax accountant can weigh in on whether a 529 plan or Roth IRA is the way to go.

Save Smartly

Parents don’t necessarily have to deprive themselves of nice things, but they should look at all discretionary income as potential college savings … starting now.

“Redirect windfalls and cost savings into college savings,” Mark Kantrowitz, publisher and vice president of strategy at, suggests in an interview exclusively with The Score. “When the baby no longer needs diapers or daycare, redirect the money you otherwise would have spent into college savings. If you get an income tax refund, bonus, raise or inheritance, use that opportunity to make a lump sum contribution to the college savings fund and to increase the amount you save each month.”

Another simple savings option: Automate a small portion of each paycheck to go directly into a high-yield online savings account opened solely for the purpose of paying for college.

Stay Financially Fit

Remember, it’s important to maintain good financial health. Parents will want to be especially mindful of their credit, because a bad credit score can make virtually everything, including a mortgage, car loan, credit card bill, insurance coverage or even a cell phone plan more expensive – and that means less money going into a college savings fund.

Remember the Big Picture

Parents should remember to save for their happy golden years, too. While a student can borrow money to attend school, individuals can’t get a loan to fund their retirement – and there are ways to pay for college without racking up serious debt. Students can contribute to tuition payments via work-study programs, grants or scholarships. Plus, as noted earlier, state colleges and universities are significantly cheaper than private institutions, so if a 529 plan, Roth IRA or other savings vehicle doesn’t pan out as planned, families will have to consider a more affordable state school or community college instead.

Five Questions with James Lockhart

James B. Lockhart III is the vice chairman of WL Ross & Co. LLC, where he is a member of the Management Committee, oversees the financial services investment team and serves on investment committees, including the two mortgage funds. Prior to joining WL Ross & Co. in 2009, Mr. Lockhart served as the director of the Federal Housing Finance Agency and chairman of its Oversight Board and was the director of its predecessor agency, the Office of Federal Housing Enterprise Oversight.

What is your outlook for the housing market now that the Trump administration has been in office for 100+ days?

The housing market will continue its slow recovery. Higher interest rates will slow down refinancing mortgages, but the purchase side is showing increasing strength despite low inventory levels and higher mortgage rates. Good signs are that the Millennial generation is starting to buy and the credit box is starting to prudently loosen.  

You were among those sounding the warning bells early that the GSEs posed significant systemic risk. Has regulation addressed this or do you still believe this should be part of the broad GSE reform discussion?

Fannie Mae and Freddie Mac represented extremely large systemic risks with less than 1% capital, but its regulator had limited tools to deal with that risk until reform legislation was passed that created the Federal Housing Finance Agency less than 40 days before we put them into conservatorship. At the last minute, that law included Hank Paulson’s “bazooka” that gave us the tool to put them into conservatorship. Without that Treasury financing, Lehman would have paled in comparison.

GSE reform is still unfinished business almost nine years later. A key aspect of any reform would be clearly separating private and public sector functions, including significant capital for any private sector GSE replacements and reducing government’s role in housing. Assuming some government guarantee is needed, it should be transparent, market sensitive and countercyclical.

What do you think Congress and the administration can do to promote sustainable homeownership?

Sustainability is key. We did no one any favors by pushing affordable housing goals to unrealistic and frankly destructive levels. We need to do a better job at educating potential homebuyers, assessing their capability to afford a home and creating safer mortgage products that build home equity rather than use it as a piggy bank.

What aspects of your career as a naval officer and time onboard a submarine do you draw upon still today?

It taught me to live “underwater,” which was good training for my government jobs (PBGC, Social Security and OFHEO/FHFA) and, in particular, the housing market. Seriously, the navy was excellent leadership training and very helpful in learning to anticipate problems and deal with them under pressure.

You recently have focused on Social Security funding as a critical issue facing our country. What are some of the key reforms that are necessary in order to better secure Americans in retirement?

I recently cochaired with Senator Kent Conrad the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings. Social Security reform was one of the key recommendations. To prevent large benefit reductions in the future, we had a very balanced program of about 50% from slowing down growth of benefits for higher income while increasing the benefits for the lowest income and 50% from gradually increasing taxes slanted toward the higher income. It fixed Social Security by plugging a $11 trillion present value hole. Other recommendations included making it easier for small businesses to adopt 401(k)s and improving the reverse mortgage product, since for many retirees, home equity is their largest asset. The report can be found at:

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