For the last edition of the credit card roundup series, we touched on the biggest credit card story of 2019. This time, we are asking a panel what the biggest consumer credit story in general was, which may include both credit cards and general credit happenings:
“What was the biggest story in consumer credit in 2019 and why?"
Louis DeNicola - Personal finance writer who works with Fortune 500 financial services firms, FinTech startups, and non-profits to help promote financial literacy.
A lot has happened in 2019 -- so much, that it's hard to keep track of everything. There were data breaches, but unfortunately, that's the norm in every year. But there was also the Equifax data breach settlement. Remember? When everyone scrambled to claim their big paycheck because their information was compromised, only to realize they might wind up getting pennies instead.
Overall, I think the biggest trend has been a shift away from traditional sources of consumer credit data. Experian Boost and add utility and phone bill information to your Experian credit report. There are also a number of credit cards and loan products that are using alternative forms of information (sometimes in addition to your credit reports, sometimes instead of) to underwrite new customers. That will be an interesting trend to watch.
But also, keep an eye on what's happening with the mortgage industry. The Federal Housing Finance Agency (FHFA) set new rules and mortgage lenders may be able to consider alternative credit scores. Traditionally, many mortgage lenders had to use specific FICO scoring models when you applied for a mortgage. With the shift, VantageScore's credit scores might become an alternative.
Andy Shuman - Travel and credit expert and an author of the Amazon bestselling Lazy Traveler's Handbook series.
The latest consumer credit trends haven’t made a lot of splashes; yet, I believe, they have tremendous implications for millions of people. It seems that America has become reckless with credit card debt again. Most millennials I’ve spoken with over the years strike me as a tough anti-credit-card-debt crowd. And yet, if you believe this article, more than half of them have credit card debt, and one third don’t sweat it. Since I derive a lot of joy and profit from credit cards (which wouldn’t be possible without paying off my balances religiously) that’s sort of mind-blowing to me! After the credit crunch of 2008, when banks stopped giving away credit cards to anyone with a pulse, things slowed down considerably. In addition, so many people lost their jobs, homes, and life savings that taking on new credit card debt became a taboo for millions of families. For a while it seemed as if people learned their lesson, and they were done achieving their “wannabe” lifestyle with long-term high-interest credit card loans. However, over the years the economy has gotten considerably better, and we returned to the wide-eyed optimism of the pre-recession days. In 2017, our credit card debt slammed through the $1 trillion mark for the first time since 2009. Since then, everything has been rising: the amount of the revolving (mostly credit card) debt, the interest rates, and the delinquency rates that always tag along for the ride in these circumstances. And yet, it seems people keep asking for more, and pay for these easily avoidable loans without a care in the world. Last time we were so confident and optimistic was 11 years ago, and it didn’t end well.
Bill Hardekopf - CEO of Lowcards.com
Some of the world's largest tech companies made some major moves in 2019 that could have a significant impact on the financial industry.
Apple teamed with Goldman Sachs to introduce the Apple Card, a new credit card that offers daily cash back which is loaded into the consumer's Apple Wallet. Facebook continued to develop Libra, its own cryptocurrency, even though the project is riddled with controversy and privacy issues. And Google may be entering into a partnership with Citigroup to launch a checking account aimed at individuals.
These companies are dripping in cash so their entry into these arenas would shake up the industry. This has already taken place with the Apple Card. But since these companies have so much information on their users, consumers are raising substantial concerns about the privacy of their data.
Michelle Black - Founder of CreditWriter.com
In August of 2019, the Federal Housing Finance Agency (FHFA) made a big announcement. The agency published a rule that will allow Fannie Mae and Freddie Mac consider VantageScore credit scores for use in the mortgage environment.
The announcement was significant because it could change the way people are approved for home loans in the future. When you apply for a mortgage, your lender can only use a credit score that is approved by the GSEs. GSE is short for government-sponsored enterprises — or Fannie Mae and Freddie Mac.
Currently, mortgage lenders must use older versions of FICO Scores to evaluate mortgage applications. Lenders can’t upgrade to newer FICO Scores or use alternative scoring models, like VantageScore, even if they want to do so.
VantageScore, a joint venture between Equifax, TransUnion, and Experian, has long been lobbying for entry into the very profitable mortgage marketplace. The company reports that it can score around 40 million more consumers than the FICO scoring models used in the mortgage space today.
Around 10 million of those consumers, according to VantageScore, score 620 and above. 620 is a significant number because it’s generally the minimum score you need to qualify for an FHA loan. VantageScore argues that if lenders are allowed to use its scoring model, as many as 10 million more U.S. consumers might be eligible for a home loan.
Of course, just because the GSEs are considering VantageScore doesn’t mean it will receive approval. FHFA still has concerns that using VantageScore might have “an impact on competition in the industry.” (Remember, VantageScore is owned by the three major credit reporting agencies.)
Nonetheless, it looks like some sort of change is on the horizon for consumers who need a new mortgage in the coming years. Whether that change will involve the use of more up-to-date FICO Scores, VantageScores, or something else entirely, only time will tell.
Matt Listro - President of National Credit Fixers
The biggest change in credit for 2019 was the proliferation of alternative data mixed into scoring models. The idea here is to empower consumers to contribute their own data to achieve better scores.
Experian’s Boost product allows consumers to incorporate their utility and rental payments into the score model to “boost” their score. The drawback to Boost is, even though it is free to do, very few lenders are accepting he Boost scores.
Under FICO’s new product UltraFICO program, consumers can grant access to their banking data. Consumers who manage their checking and savings accounts well can see a pop in their FICO score when the banking data is taken into account. Consumers who otherwise were credit invisible by virtue of having no credit and hence previously had no FICO score, can get a score through UltraFICO by providing their banking data.
Just a couple months ago we saw the introduction of eCredable Lift. eCredable Lift allows consumers to link their power, water, gas, trash, some cell phones, cable TV, satellite TV, internet, and yes even old landline phone accounts to their TransUnion credit report (Experian and Equifax to follow). Because of the stringent account verification process of eCredable, I am optimistic that more lenders will endorse and use the eCredable Lift scores than did with Boost.