How Banks are Spying on You

Posted on: December 30th, 2010 by

Financial Planning - Rockville, MDWith lenders still especially skittish about making new loans, credit bureaus and others are offering services that help banks probe into your financial skeletons.  The new offerings include ways to look at your rent and utility payments, figure out your income, gauge your home’s value and even rate your banking habits based on details like whether your direct deposits have stopped.

When applying for a loan, your credit record still matters, of course, but here are some newer ways lenders and financial-services companies are sizing up your financial behavior and credit-worthiness:

Bank-Depositor Behavior Scores

Fair Isaac, the creator of the widely used FICO credit score, is marketing bank-depositor behavior scores, which are used by banks to assess their own customers.  The scores are based on balances, deposit records, and withdrawal activity.  Unlike credit scores, which are most affected after payments are late or credit is maxed out, behavior scores can be a leading indicator of credit risk.  They also can help banks identify which of their customers might be ripe for additional services and rewards programs and which might need special attention because, for instance, their direct deposits had stopped.

Income Estimation

The bureaus are able to use credit-record information, such as the size of your credit lines and the age and size of your mortgage, and plug it into models to predict your earnings.  Those estimates also may be used to double-check the income you report on credit applications or to determine if you should be preapproved for credit.  You can’t see those estimates. But if you are denied credit because of them, you must be given a chance to provide additional information.

Rent Payments

Experian, one of the three major credit bureaus, bought RentBureau, which collects rental-payment data from large property managers and expects to integrate that information into credit records before the end of the year.  Even if those consumers don’t want credit, that information could help them win better rates from insurers, which may use insurance scores based on credit records, and fatten up thin credit files, which some employers check before making hiring decisions.

Collection Triggers

If you owe money, you can run, but you can’t hide.  Credit bureaus can now send daily reports to collection companies when a debtor’s financial status changes—say, if new employment information appears or if a debt starts to decline.  A drop in credit use would indicate that the consumer has more capacity to pay and a better chance of repaying other outstanding debts.

Home Values

As home values have plummeted and foreclosures have soared in many states, all lenders have become more cautious.  Using home values as a factor in credit decisions doesn’t appear to be widespread, but it may come into play.  Of course, it also could work in your favor if you are one of the roughly 25 million Americans who owns a home outright.

Your Wealth

Information about your assets other than homes and cars, which aren’t part of the credit record, may soon play a bigger role in your financial life.  With a better sense of a consumer’s balance sheet, lenders might be able to target potential customers better and also have a fuller sense of their likely risk.  Equifax, another of the big three credit bureaus, offers financial-service providers an estimate of liquid wealth as part of a financial “suite” of information.

As all of these tools become more widespread, those are careful in all aspects of their financial lives may be rewarded, while those who are irresponsible, may face further penalties.



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