February 2001



Credit Bureau Scores


Credit scoring has been a mainstay of the services of Fair, Isaac & CO which it provided for numerous lenders with its FICO Credit score, itself shrouded by secrecy.


However, last year Trans Union (one of the three largest credit bureaus together with Equifax and Experian) began offering credit scores to consumers with each credit report requested as well as factors influencing the credit score.


A credit score or its common usage term of "risk score" allows credit grantors (banks, credit card companies, mortgage lenders and finance companies) an objective evaluation of the creditworthiness of the borrower or requester of credit in terms of their prediction of how likely and how timely the borrower will repay the debt.


Credit scorers maintain that the processes are complicated and confusing and are calculated in a matter of seconds based upon information that is available at that moment from a credit bureau and from a credit application and there are many different types of scores used by different creditor grantors in different ways resulting in different results for the same score.


The score is the end result of a series of mathematical calculations called a model. The model evaluates information in the credit report such as the total amount of credit you’ve used, the number of times you’ve made a late payment in the last two years, and how much additional credit is available to that person and assigns specific numerical values to each element. Some models consider how long you’ve held the same job, how long have you lived in the same house and how much money you make.


Meanwhile, industry leader Fair, Isaac has posted on its website www.fairisaac.com a comprehensive list of all the factors that go into its FICO credit score as well as an explanation of how it evaluates consumers’ credit history and soon advice on how to improve a score over time.


Generally, negative data remain on your credit report for seven years from the date of a missed payment, even if you later bring it up to date, in the case of late payments. Collections accounts-7 years; Charge-offs-7 years; Bankruptcies- Chapters 7, 11 & 12 remain on your file for 10 years; Chapter 13 for 7 years.


Positive information generally remains on your report indefinitely, while negative notations may have greater impact within the last two years.


All credit bureaus provide a dispute form to allow for submission of correcting information such as supporting documents, copies of cancelled check and the like and they will contact the source of the information for verification. Ultimately, if a discrepancy is found, the credit bureau correct the report and send a revised copy to anyone who has received a copy within the last six months for credit purposes , or the last two years for employment purposes.


Finally, if the credit bureau’s investigation does not resolve your dispute, you have the right to add a brief statement to your credit report that will be included in future copies.


Remember, good credit is something to be zealously protected, so you should continue to monitor your creditworthiness and correct any discrepancies immediately.


Alternative Minimum Tax(ATM)


The alternative minimum tax(ATM), designed by the IRS to ensure all taxpayers pay at least some tax, is a second federal tax system with its own rules, regulations and tax rates. The name implies "alternative" tax, at 28 per cent, because it become into effect only when your regular tax liability is less. More and more taxpayers are being caught with this AMT tax because its present tax rate brackets and exemptions are not adjusted for inflation.


" One might have plenty of deductions to eliminate the regular taxable income resulting in no regular tax only to be subject to the AMT" said Stephen N Langway, CPA of Langway & Company, PC.


The reason one falls trap to the AMT is because you have to add back or subtract many adjustments and items of preference, including some of the deductions, to taxable income in calculating the AMT. Taxpayers with property taxes, state and local income taxes, ISOs and large itemized deductions are prey to this AMT tax.


As to the effect of ISO’s difference in the spread between the strike price and the fair market value is not income for ordinary tax purposes, it is considered an item of add-back adjustment to ordinary taxable income to calculate the alternative minimum taxable income. However, if the ATM is triggered from exercising ISOs, you may be entitled to a tax credit. In that case, the ATM should be considered as an advance payment of a future tax as opposed to an additional tax.

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