What’s a Credit Score?

A credit score is a mathematical computation that results in a number that’s used to help lenders determine how likely it is that you’ll pay back a loan. Your score is based on how you’ve handled paying back loans in the past. The higher your score, the less risk you pose of paying late or defaulting and the lower your interest rate. Hence, a higher credit score makes a loan less expensive for you.

The most frequently used credit score is the FICO score, which ranges from 300-850. They are created using software developed by Fair Isaacs Corporation. Most people score in the 600-700 range. Scores above 700 are desirable. Scores below 600 are considered a financial risk to lenders and creditors. While scores may vary among bureaus, they generally represent the same credit risk.

FICO scores are based on five factors. The level of importance of each factor varies by credit profile, and your profile changes over time. In general, they’re weighted as follows:
Payment history (35%)
Amounts owed (30%)
How long you’ve have credit (15%)
Amount of new credit (10%)
Types of credit used (10%)

News That Affects Payday Loan Customers – New Developments in the Dodd-Frank Act

The consumer agency created by the Dodd-Frank legislation we mentioned previously may not be able to regulate non-bank entities such as Ameriquest, Countrywide Financial, New Century Financial and other lenders, which are currently exempt from federal regulation. In case you need a refresher, the Dodd-Frank Act allowed for the creation of a committee to regulate the financial industry. This committee known as the Consumer Financial Protection Bureau is set to enact national regulation that will affect pay advance lenders along with many other types of financial institutions.

The agency, temporarily headed by Elizabeth Warren, is in need of a permanent director. According to a report by the inspectors general of the Treasury Department and Federal Reserve, the Trump administration needs to get a nominee approved by the Senate by July in order to maintain the power to regulate non-bank financial institutions. That means pay advance lenders, mortgage lenders and other personal loan and cash advance services that are not considered to be banks would continue to be supervised solely by their respective state legislatures.

However, part of the intention of the law was to bring banks and non-banks under the same government oversight, so as not to give non-banks an unfair advantage. Payday lenders, mortgage lenders and other non-bank lenders have been subject to very little federal regulation over the years. Up until now, it has been up to states to oversee the industry. On the other hand, the federal government has regulated and audited banks for many years.

Even if the agency is not able to get a director in place by December, it will still be able to oversee consumer lending by banks worth more than $10 billion. This is because bank regulators already have this authority. In this case, though, the agency would not have the new authority to regulate non-banks.

As we mentioned before, leading payday industry trade group the Community Financial Services Association (CFSA) reacted positively to the new legislation, agreeing that it would be best to weed out any predatory lenders in the industry. However, a secondary trade association known as the Financial Service Centers of America (FiSCA) has decided to take some preemptive action. This group has moved its headquarters from Hackensack, N.J. to Washington, D.C. in order to gain influence in the legislation to come. Not only are they in the city where the new regulations will be created, but they are two doors down from the offices of the Consumer Financial Protection Bureau.

If the Obama administration isn’t able to push through a nominee to head the agency, this could all become a moot point, but FiSCA isn’t taking any chances. They represent a variety of check cashing stores and payday lenders that could be strongly affected by any new regulation.

For you payday loan borrowers out there, this means the way you get money when you’re in a financial emergency could either change drastically or stay pretty much the same, depending on what happens in the next six months. During that time we will keep you updated on all new developments and make sure you’re informed about news that affects you.