Watson Inc: Eliminate Consumer Debt and Build Wealth

Friday, January 29, 2010

Uncommon Money News (Vol. 85)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

This week, I participated in the Carnival of Financial Planning #125 hosted by the Skilled Investor. The featured posts were: Thoughts On Escaping the Rat Race, Is Bigger Better? Scaling Down The American Dream, and Will the “Fat Tax” Come to a State Near You? Thanks for including my posts in your carnivals.

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, twitter, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your! Thanks.

Posts Of The Week

Ford Motor Co., the only major U.S. automaker to avoid bankruptcy last year, reported $2.7 billion profit

Federal Reserve Wanted "National Security" Status Given To AIG Bailout Terms By SEC To Hide Details From Public Scrutiny

Avatar Sinks Titanic!: Avatar Now Top Grossing Film of All-Time

Business

McDonald's Beats Expectations, Upbeat for 2010

With Kindle, the Best Sellers Don’t Need to Sell

Sam's Club cuts 11,200 jobs, 10 percent of workforce

Ford Motor Co., the only major U.S. automaker to avoid bankruptcy last year, reported $2.7 billion profit (POW)

In late October, Newsday, the Long Island daily, put its web site behind a pay wall. Three months later, *only 35* people have signed up to pay $5 a week to get unfettered access to newsday.com.

Economy

Obama Seen as Anti-Business by 77% of U.S. Investors

China On Path To Become Second-Largest Economy

Federal Reserve Wanted "National Security" Status Given To AIG Bailout Terms By SEC To Hide Details From Public Scrutiny (POW)

Calif. Immigrants More Likely to Have Jobs Than Native Born

America's most overvalued cities

Entertainment Money News

Avatar Sinks Titanic!: Avatar Now Top Grossing Film of All-Time (POW)

Report: Jennifer Aniston Gives $500,000 to Haiti

Diddy's Son Gets A $360,000 Car for His Sixteenth Birthday

Offbeat Money News
How to Use Proper Job Interview Etiquette

The Real Cost Of Bringing Up Baby

Image credit: xyeshu

Wednesday, January 27, 2010

Guess Who's Looking At Your Income

By: Roshawn Watson

Many people refuse to disclose their incomes for privacy reasons; however, credit bureaus will now estimate our incomes to determine our eligibility for new cards, amongst other things.

Credit Card Act

This practice is part of the new Credit Card Act and will begin in February. The Federal Reserve wants credit card issuers to consider an applicant's income or assets and current debts before approving credit. There is some flexibility in the legislation allowing card issuers to use "statistically sound" estimates of income and assets. Consequently, Transunion, Equifax, and Experian have been working on products that estimate our incomes using information in our credit reports, such as the size and age of our mortgages or the size of our credit limits.

Credit card companies that actually ask us our incomes before issuing cards will be able to cross-reference the information that we provide with the estimates that they generate. The purpose is stop offering new credit cards to people who have no ability to pay their debts. If effective, this will limit losses and risks for card issuers, as they continue to tighten credit worthiness criteria. However, the impact of the income estimates don't stop there. Although the main use of the updated income estimates have been for marketing pre-approved credit cards or other consumer offers, there is increasing interesting in other applications of this information. For example, the income estimates may also be used to decide whether to increase a credit limit because the financial information on the credit card accounts may be non-existent or no longer accurate. Lenders may also use this information to determine a debt-to-income ratio to evaluate whether a potential borrower may be financially over-extended.

Arising Concerns With The Changes

There are many concerns arising from using these estimates. There are the obvious privacy issues with this new practice: these estimates don't require our consent, and we don't get a right to review or approve them. Also, these estimates aren't necessarily precise. Experian says that more than 85% of the incomes it estimates at about $35,000 will indeed be below $50,000. A representative for TransUnion said it isn't uncommon for estimates to be off by $15,000 or $20,000. The bureaus say that their contracts with card issuers and lenders prohibit customers from being turned down solely based on the income estimates due to this the lack of precision. Typically, the lenders will request additional information, such as tax returns and pay stubs, if the estimates suggests that the potential borrower doesn't have an income sufficient to have a new credit card or credit limit increase. Still, another concern for these estimates is other agencies using these data. For example, collection agencies have been interested in applying this data to determine the most profitable accounts to pursue.

Overall, our private information being available is a pretty scary trend. For example, Chase and Bank of America now require household income estimates. Capital One is now requesting bank account balances, investment account balances, and monthly housing costs (mortgage or rent). Fannie Mae has begun requiring mortgage lenders to verify potential borrowers income via tax returns instead of providing pay stubs and bank and brokerage account balances. Additionally, mortgage lenders are now requiring new home buyers to fill out IRS from 4506-T, which allows the IRS to release their tax filings.

I believe this regulation change is an implicit acknowledgement that the all-powerful FICO score is not adequate as the sole determinant for lending. Although this may be obvious for some, others seem to base their lives off of their credit scores. The FICO score is really just based on how someone interacts with debt and doesn't take into account someone's income and assets. The problem with using FICO as the sole determinant of financial solvency arises if someone chooses not to borrow money; the FICO algorithms often do not appropriately account for this kind of person. Thus, you can be a decamillionaire and have a non-existent or low FICO score. Clearly, this person would be better able to pay than most (i.e. good credit risk), yet FICO-based lending would suggest otherwise. Perhaps even more interesting though are the privacy concerns with estimated incomes now available. Now that we have opened Pandora's box, where will it all end?

Lastly, if you like this post, please subscribe (see upper right-hand corner), Mixx it, Propel it, Stumble it, and tag it on Delicious. Also, click here to get my eBook FREE.

Friday, January 22, 2010

Uncommon Money News (Vol. 84)

By: Roshawn Watson

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

This week, I participated in the following carnivals: the Money Hacks Carnival hosted by Ultimate Money Blog, the Rich Life Carnival hosted by Rich Life, and the Money Management Carnival hosted by Money Management 411. The featured posts were: Thoughts On Escaping the Rat Race. Multiple Streams of Income also referenced to The Rich Get Poorer. Thanks for including my posts in your carnivals.

Thanks to ashleysmith100, ebonybaker, A1BreakingNews, tipd, econinsider, moneyautopilots, mywifequit for tweeting my latest post: Americans Loss Financial Hope. You guys rock!