Archive for May, 2015

How credit scores work

Do you ever feel like a number? Major corporations try desperately to make you not feel like one. They want you to feel like a person, or at least a name. But as companies consolidate to reach the scale necessary to survive in a competitive marketplace, we are often more digit than human.

We all have numerous numbers, but one number remains mysterious to most people: the famous (or infamous) credit score.

Three companies dominate the credit reporting world: Equifax, Experian and Transunion. I’ll call them “The Big 3.” Banks and finance companies report customer payment data to The Big 3 every month.

Generally, lenders report your name, address, date of birth, Social Security number, current loan balance, payment amount and whether you made your agreed upon payment that month.

The Big 3 also collect information from federal, state and county public records. Overdue taxes, lawsuit judgments, etc.

The Big 3 assemble information on you over time. Whenever lenders want help deciding whether to make you a loan, they turn to one or all of The Big 3 for a history and a score. The Big 3 has your payment history in their files, but they turn to one particularly company for the score. The company is called FICO.

FICO stands for Fair Isaac Corporation. Two mathematicians, Bill Fair and Earl Isaac, started the company in California in the 1950s. Fair and Isaac believed that a systematic review of payment-related data could better inform credit decisions.

Over time, they and their team of quants developed an algorithm that they believed could predict the likelihood that a person will repay a debt.

They pitched their idea to 70 large lenders and finally got a bite in 1972 when they built an automated credit scoring system for Wells Fargo in California. Other lenders began signing on.

By the early 1990s, The Big 3 began using Fair Isaac’s system and “FICO” became a household name. Roughly speaking, here’s how it works.

The system compares a person’s financial situation to hundreds of thousands of other people who were, at some point in time, in a very similar position.

It analyzes how likely those people were to repay their debts and then assigns a rank to the current consumer based on the average performance of the people in a like situation.

Payment history and amounts owed are the predominant factors analyzed, though length of credit history, level of new credit and types of credit used are also considered.

FICO’s score range is 300-850. The Big 3 may add a bell or whistle to the score to make it their own. That’s why your score may be slightly different between agencies or, hopefully, even above 850. (Transunion goes to 900.)

If your score is dramatically different between agencies, a particular lender may be reporting to only one or two of The Big 3. Or, heaven forbid, someone else’s information is on one of your reports.

It can happen more easily than we’d like. If a credit clerk at a lending company somewhere mistypes one digit of a Social Security number, you may have a $1,600 Dodge Viper car payment on your hands.

AnnualCreditReport.com is the best place to do so since it’s free and officially sponsored by The Big 3. Some people check all three reports at once. Others like to stagger their checks in order to monitor their information throughout the year.

Either way, it’s good to keep a close eye on your reports. If you’re going to be a number, might as well be a good one.

 

Kevin Thompson can be contacted at kevin@kwt.info.

The high cost of entrepreneurship

It was the week before Christmas and I was on vacation two states away. My customer called me from outside his company holiday party. I could tell he was pacing apprehensively.

Even in the bright lights of the season, he was enduring a dark night of the soul, the latest in a lengthening string.

He described a haunting reality. His busy season hadn’t produced enough nuts for the winter. Bills were mounting while billings fell. Checks were set to bounce. Lives were about to change. His company teetered on the edge of collapse.

He called as much for support as for money. His left brain knew I had no more money to lend. His right brain still held out hope – hope that something could be created from nothing. He is, after all, an entrepreneur.

Doubt deepened within him. Yet, inside the party, he had to maintain a sense of normalcy and control, as if the year could not have gone better and the future never looked brighter.

For entrepreneurs, perception is often reality. They specialize in impression management. It’s not that they’re fake. They can be as authentic as apple pie. They just have faith.

They believe they can move mountains. And often they do, dirt contractors and landscapers, in particular.

But the pressure of entrepreneurship can take a toll. On one hand, a self-employed entrepreneur diversifies her risk by serving a plethora of customers, not just one employer.

On the other hand, an entrepreneur’s risk is concentrated in himself. He is a “key man.” Only the key can unlock success’ door. Therein lies the burden and the root of emotional disorder.

In an award-winning 2013 Inc. Magazine article entitled “The Psychological Price of Entrepreneurship,” Jessica Bruder quotes Dr. Michael Freeman, a psychiatrist who has studied the mental health effects of entrepreneurship.

Freeman notes that “people who are on the energetic, motivated and creative side are both more likely to be entrepreneurial and more likely to have strong emotional states” (e.g., depression, despair, hopelessness, worthlessness, loss of motivation and suicidal thinking).

In other words, the chemistry that takes you to the top can also bring you down.

Psychologist John Gartner takes the biology a step further. He claims that because the United States was founded and populated by daring, “self-selecting” people (i.e., immigrants and their children), many of us have “hypomanic” traits in our DNA. We are driven and inventive but also depressive and instable.

Combine genetics with the financial and management strains that come at the top of the organizational chart and you get a roller coaster worthy of Fiesta Texas.

But Bruder describes the increasing willingness of entrepreneurs to open up. Obviously, no leader is going to spill the red ink on the annual report, but showing some emotions at work can make a leader seem more human and trustworthy. It can also provide much needed ventilation.

Other recommendations for business folks in the crucible include staying close with friends and family, taking care of oneself (sleep, diet, exercise) and building an identity outside of one’s work.

As a small business banker, it’s a high honor to venture vicariously through my entrepreneurial customers. Though their risks are high, I often pray their rewards are higher, and not just in monetary terms.

Kevin Thompson writes weekly for The Boerne Star in the Texas Hill Country. Follow him at http://www.kwt.info.

A storm has passed

After battling multiple autoimmune diseases for the last four years, Justin McElhannon of Boerne, Texas, was laid to rest last month. He was thirty-two.

At his funeral, a childhood friend recalled the days they spent in lunch detention and in-school suspension. He remembered diving into rivers and stirring trouble as members of notorious Lampasas-area gangs (e.g., “The Buttkickers”).

An adult friend told of McElhannon’s love for trucks, guns and hunting. Other friends described his constant pursuit of adventure, his unbridled passion, his entrepreneurial spirit, his arch-competitiveness. One pallbearer summarized him this way, “He was a tornado.”

Storms are tenacious, real, authentic, intentional, focused – all words used to describe McElhannon at his funeral. Storms can bring wind and destruction. They also bring rain and life.

McElhannon was certainly a storm in the car business. The owners of Toyota of Boerne lured him from Houston in 2007. Co-workers called him relentless, either persuading buyers to pull the trigger on the floor or convincing them to add on extras in the finance office.

He frequently called colleagues to higher standards. It mattered little if you worked for him or if he worked for you. He would call you out.

In 2011, unexplained bouts of fatigue began to slow the storm. Then, swelling hands and hurting feet. Joint and muscle issues followed. Perplexed doctors across the country prescribed countless treatments, surgeries and therapies. Little seemed to work.

Unfit for slow days at home, McElhannon continued working both at the dealership and on his college degree, which he completed in 2012. He walked with a cane. Then, his hips gave way. Despite his growing incapacities, his good days and bad days, the storm rolled on.

Suffering has a way of clarifying. It clarifies both the character of the victim and the victim’s priorities. In McElhannon, suffering revealed a character infused with selfless love.

Foregoing his right to sympathy, McElhannon showered love and life on his sons and wife. It only takes a few readings of Misty McElhannon’s blog to know how he treated her and what she thought of him.

McElhannon’s young sons carry an innocent joy born of a passionately loving father, the kind of father who expresses love in heartfelt, heart-wrenching posthumous letters.

McElhannon’s friends tell of his unabashed expressions of brotherly love. He routinely told them he loved them, regardless of the squirming and mumbling he got in return. With his time near, his priorities came clear.

And then, McElhannon’s love for Jesus. In the footsteps of the first century Sons of Thunder, the storm followed Christ wholeheartedly to the end. He stood boldly for righteousness. He told the truth. Among the written words he left behind: “Love the Lord more than anything and everything will fall into place.”

Before what would be his final haircut, McElhannon spoke to the owner of the barber shop.

“I’ve entered the active dying stage,” he pronounced with a comfort level eerie to most listeners. It sounded a little like the Apostle Paul’s paradox, “Offer your bodies as living sacrifices…”

In this fallen world, we are all chronically ill. We are all dying. The question is what kind of dying are we doing?

McElhannon’s dying was just like his living: active. Like a great storm, he brought water to a dry and thirsty land.

Kevin Thompson writes weekly for The Boerne Star in the Texas hill country. He can be reached at kevin@kwt.info. Read more of his columns at www.kwt.info.

The secret to Lincoln’s greatness

Last month marked the 150th anniversary of the death of President Abraham Lincoln. As John Wilkes Booth pulled the trigger that fateful night, Lincoln’s bodyguard drank whiskey in a saloon across the street. It happened on a Friday, Good Friday.

Only six days had passed since the South surrendered, ending the four-year-long Civil War. The City of Washington and half the nation celebrated. The whole nation mourned its losses. All the while Booth changed his plans from kidnapping to killing.

Lincoln always knew his end might come this way. After his election in 1860, Lincoln traveled a somewhat circuitous route to his first inauguration. From Illinois, he journeyed across the Midwest, up through New York and down the Atlantic coast.

On a stop at Independence Hall in Philadelphia, he made a brief speech about his commitment to the ideas that came to life there four score and five years prior.

The Declaration of Independence, he said, “gave liberty, not alone to the people of this country, but, I hope, to the world for all future time… But if this country cannot be saved without giving up that principle, I was about to say I would rather be assassinated on this spot than surrender it.”

Abraham Lincoln was prepared to live or die on Liberty Hill.

“I have said nothing but what I am willing to live by and, if it be the pleasure of the Almighty God, die by.”

Lincoln believed the principles that sprang forth from Philadelphia in 1776 had the power to change a country, a continent and the world. He was willing to defend them to the death. While the South considered the Civil War an act of northern aggression, Lincoln held a different perspective.

“There will be no bloodshed unless it is forced upon the (U.S.) government, and then it will be compelled to act in self-defense.”

As we know, there was in fact bloodshed and no shortage of it. Seven hundred and fifty thousand men fought and died for their concept of liberty. At each death count,Lincoln was surely tempted to call off the carnage, bring home the troops and resign himself to the coexistence of two nations. He never did.

Lincoln’s greatness stood on this: He knew when to set loose and he knew when to bind up. He set free the slaves and then bound up a torn nation. For the emancipation to live, he knew the division must die.

Through the force of his resolve and the sacrifices of his men, he saw, for six short days, a nation reunited.

After his death, Lincoln’s body backtracked by train to Illinois following roughly the same route by which he came to the presidency. The exhumed remains of WillieLincoln, Abraham’s son who died of typhoid fever three years earlier, joined him on the journey. Like those he had led through the valley of death, Lincoln was no stranger to loss.

By day, open casket viewings of Lincoln’s body drew hundreds of thousands. By night, millions of mourners lined the tracks to pay their respects amidst a bonfire’s glow.

Abraham Lincoln died on Good Friday. In his wake arose a nation more free and more resolved that, in his own words, “government of the people, by the people, for the people, shall not perish from the earth.”

Follow Kevin Thompson at http://www.kwt.info.

When Twins Came

It seems like yesterday that we welcomed a double dose of bundled joy into our home. A life-sized print of boy/girl infant twins – asleep, head-to-head, feathered angel wings on their backs – has hung in our hallway ever since. The years have flown like cherubs, but the memories remain.

When I told one gentleman back then that we were having twins, he asked if we had used fertility treatments. It was a reasonable question given the modern prevalence of multiple births. But it was unreasonable given that I had previously told him these twins had three older brothers!

On the day we found out we were having twins, I sensed the shock in my wife’s voice. She had gone to her OB appointment alone. It was, after all, our fourth pregnancy.

“Can you come home over lunch?” she asked on the drive back.

I figured she would tell me we were having son number four – that Daddy wouldn’t be getting his little girl. That was fine, of course, as long as mom and child were healthy.

At this point, she was only nine or ten weeks along, well before genders are generally recognized. But maybe something anatomically undeniable had appeared on the sonogram, I supposed.

When I walked into the house at lunch, all was quiet because all were in bed: our one-year-old, our three-year-old and my wife of eight years. She was not asleep, however. She was probably treasuring in her heart the pleasures of a lifetime with four sons.

As I approached the bedside, I gave her an understanding “I’m here for you / I’m sorry I couldn’t give you a girl” kiss and then picked up the sonogram strip off the floor.

As I ooohhed and aahhhed at the cloudy forms on the film strip, my wife slowly turned it right side up. At that point, the labels came clear. “Twin A” and “Twin B”. Like Abraham and Sarah, all I could do was laugh.

The heart-stopping moment had happened for her a few hours earlier. “Whoa!” The sonogram nurse exclaimed as she abruptly paused her examination. “There’s two in there!”

We should have at least thought it a possibility. My wife’s maternal grandmother has twin sisters. An early sonogram of our first son showed a dissolving sac where a twin had been. “Disappearing Twin Syndrome” we were told.

But after three conventional single male births (did I just call births “conventional”?), we had tunnel vision. That is, until twins thrust double vision upon us. Two cribs, two car seats, two high chairs. Mom feeds of A; Dad’s got B. Dad diapers A; Mom wipes B.

Our six-year-old showed maturity beyond his years when he heard the news. “Oh, man. That’s going to be a lot of work.” His three-year-old brother exhibited youthful vigor: “Let’s have six kids!”

A few months later, we were spring cleaning and preparing for the two arrivals. While boxing used books to take to a reseller, I came across a hard-back that had barely been cracked. The title? “Taking Control of Your Fertility.”

“Oh. There it is,” I thought at the time. Now I think, “How boring!”

Kevin Thompson writes weekly for The Boerne Star in the Texas hill country. Follow him at http://www.kwt.info.


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