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5 Common Mistakes That Can Cripple Your Credit Score

Thursday, August 19th, 2010

Have you ever been surprised when your FICO score dropped? Most likely, it’s because you made one of the five mistakes below. Most people aren’t aware of the impact some of these actions have. And what’s interesting is that it appears that the higher your FICO score, the greater the drop when you make a mistake.

#1: Closing an account
People often decide to close a credit card account for one of two reasons. One, they think they have too many cards and that closing one will increase their score. Two, their credit limit has been decreased and they decide the card is no longer useful to them. But whatever your reasons are, closing an account can lower your score.

“There’s a misconception that having too much available credit lowers your score. FICO scores don’t take this into consideration. But when you close an account, it can often raise your utilization rate and that can lower your score,” says Barry Paperno, Consumer Operations Manager for myFICO.com.

Your utilization rate is the ratio of your credit card balances to your credit limits. For instance, let’s say you have two cards and one has a zero balance and one has a $1,000 balance. If each card has a $2,000 limit, your total limit (across both cards) is $4,000. Your utilization rate is $1,000/$4,000 = .25, or 25%. Not fabulous, but not too bad.

Close the account with the zero balance and your utilization rate jumps to 50% ($1,000/$2,000). Obviously, the amount of the impact on your score will vary according to your individual circumstances, but since the utilization rate may account for almost 30% of your score, you’re FICO score will probably take a negative hit.
Trap #2: Maxing out your credit cards
Many consumers make the mistake of thinking that their credit limit is an invitation to spend until it’s gone. Now that you understand utilization rate, you probably now understand why maxing out your cards is a problem. Let’s look at our example from #1 again. If you max out your two cards, you’ll have a $4,000 balance with a $4,000 limit. It’s doesn’t take a math genius to quickly figure out that your utilization rate is now 100%.

Your FICO score will take a hit. How much? “It depends on a lot of variables, including what your FICO score was before you maxed out your cards,” says Paterno. myFICO.com recently did a comparison of how much a score drops when one individual has a FICO score of 680 and the other individual has a FICO score of 780. Maxing out credit cards was one the “missteps” they used in the comparison.

Results showed that the consumer with the 780 score experienced a 25-45 point drop and the score fell into the 735-755 range. The person with the 680 score saw only a 10-30 point drop and the score fell into the 650-670 range.

#3: Making late payments
One problem with making late payments is that, depending on the terms and conditions of your card, you might trigger the penalty APR. The other problem with a 30-day or more delinquency is that it can make your score drop like a rock. “Someone with a 780 score could experience a drop of 100 points or more with a 30-day delinquent payment. If your score is in the 680 range, expect to lose about 60-80 points,” says Paterno. Now, if this late payment stretches into collections, then expect a really big drop.

#4: Impulsively opening accounts to save 15%
This happens every holiday season, doesn’t it? Whether it’s a Labor Day sale or Black Friday, you’re standing in line in your favorite department store holding a lot of merchandise, and then the cashier tempts you with a “get 15% off if you open an account today” offer. When you open a new account, this results in a hard inquiry, which affects your score. But that’s only part of the problem.

“Typically, inquiries knock only about five points off your score. The bigger problem is opening an account with a high interest rate and putting yourself in a situation where you get behind on a payment,” says Paterno. If you’re on the bubble between having good credit and excellent credit, those five points can mean a lot. And of course, if you end up with late payments, matters deteriorate from there.

#5: Not understanding the importance of the length of credit history
This mistake often ties into the #1 mistake on this list. Sometimes when people close a card, they close one they’ve had a long time. The length of your credit history makes up 15% of your FICO score. Now, FICO scores are calculated based on the average length of time you’ve had your credit cards. The score considers both your current accounts and any closed accounts still included on your credit report. Credit bureaus typically keep account histories on your credit report for years after you close the account or pay off the loan. “If you close a card you’ve had for ten years, this can eventually bring down the average length of your credit history,” says Paterno.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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Boost Your Credit Score in 2 Easy Steps

Wednesday, August 11th, 2010

by Stacy Rapacon
Friday, May 28, 2010

Once you learn your credit score and commit to improving it, you can make big gains with simple behaviors.

Whether you graduated school last week or last decade, you still have a very important grade to worry about: your credit score. This magic number is essentially a measure of how financially reliable you are and helps determine whether you can get a credit card, car loan, mortgage or other credit product — and it affects the interest rate you’ll face on your debt.

A high score will get you better rates and big savings. The FICO (NYSE: FICO – News) score, the most widely used model, ranges from 300 to 850. If you hit 760 or higher, you’ll earn an average rate of 4.6% on a $300,000 30-year fixed-rate mortgage. Scores between 620 and 639, however, fetch a rate of 6.2%, on average. So those top marks could save you nearly $300 on monthly mortgage payments, or more than $3,500 a year.

The Challenges of Earning a Good Credit Score as a Young Adult

Earning a good score is less about your net worth and more about how you manage the money you have. In other words, there’s plenty you can do to alter your score, and the sooner you start working on it, the better.

Unfortunately, fewer candles on your birthday cake means fewer opportunities thus far to prove your creditworthiness. “It does take a certain amount of credit history to develop a high FICO score,” says Barry Paperno, consumer operations manager of MyFico.com. “Anybody who’s new to credit is going to have a little difficulty getting a loan, particularly with credit products that require a very high score.” In fact, according to a recent survey from FindLaw.com, a consumer legal Web site, 18- to 34-year-olds are more than twice as likely to be turned down for a loan as any other age group.

That’s bad news for my hubby and me. Like many young newlyweds, Dave and I are aspiring homeowners. And I worry that our credit scores — specifically mine, as we discussed in our first money talk — will keep us out of our dream house. We’ll have an especially tough time getting a good rate with today’s tightening credit standards. “What you could have gotten with a 740 in the past, you now need a 760,” says Paperno. “If you’re working your way slowly up the credit-score ladder, it’s going to take you a little longer.”

We’re still a couple years away from saving enough for a down payment, so we have plenty of time to boost our scores and improve our chances of earning the best mortgage rate.

The 2 Most Important Practices in Building a Strong Credit Score

To pump up your own score, I invite you to join me in focusing on the two fundamental practices that have a big effect on credit scores:

1) Pay your bills on time, every time. Payment history is the biggest factor in your scores, counting for 35% of your FICO score and 32% of your VantageScore. So paying your bills on time can be a big score booster.

Since first tracking my credit score three years ago, I’ve focused on paying every bill on time. Sure, I slipped up once or twice along the way, but my score now stands more than 130 points taller. As my dad always taught me, though, I can never rest on my laurels: According to MyFico.com’s simulator, if I miss even one payment in the coming months, my score could drop by nearly 100 points. “When you have a very limited amount of credit experience, the good and the negative tend to be more magnified,” says Paperno.

To ensure your payments are timely, sign up for reminders from your lender. If you use Mint.com — our favorite budgeting site — you can opt to get alerts via e-mail or text message for all your bills as the due dates approach.

2) Use available credit sparingly. The second biggest influence on your score is your credit-utilization ratio. Maxing out your cards is a big no-no, even if you pay them off every month. Since December, for example, when I had last checked my FICO score, I’ve paid special attention to limiting my new spending with an eye on my overall credit utilization at all times. That action alone already has hiked up my score by more than 50 points.

But you need to strike a balance. Locking up your cards and using no credit at all can also have a negative impact. “What’s important to show is that you use credit and you use it responsibly,” says Paperno, who recommends keeping a ratio in the single digits to get the best score. For example, FICO “High Achievers” — the goody-two-shoes with scores of 760 or more — use 7% of their available credit each month, on average.

Likewise, canceling a card — say, because credit-card companies are raising rates and imposing crazy fees, including extra charges for not even using your card (seriously) — may harm your score mainly because it would alter your credit-usage ratio.

For example, if you have two cards, each with a $1,000 limit, and you’ve charged $500 on one card and left the other card untouched, your ratio would be 25%. Closing the unused card would immediately bump your usage up to 50% and likely knock down your score.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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American Credit Scores Plunge

Thursday, July 22nd, 2010

Posted Jul 21st 2010 3:30PM by Connie Madon

Now here’s a real worry for the Federal Reserve. According to the Associated Press,25% of Americans have a credit score below 600.

A score below 600 automatically puts you in an unwanted category. If you happen to fall below 600, forget about buying a house. Lenders and landlords will look at your FICO score before renting and really don’t care what the reason is for the low score.

If a person declares bankruptcy, it will drive the score even lower. A low score may take as long as seven years to repair. Sometimes one late payment can affect a credit score.

Another big factor is the size of the credit line. When banks automatically cut credit lines for millions of customers, they automatically caused credit scores to plummet.

At the moment 620 is the magic number. You will will have free access to your credit score when the new financial reform bill becomes law. You can ask for a free credit report and a free credit score.

There are free debt management plans. The National Foundation for Credit Counseling can help people to space out their debt payments. There are also credit repair companies. However, you should be extremely careful. Many of these companies are scams. You can contact creditors on your own, but again, beware; your credit score will take a hit.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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An easy primer on understanding and raising your credit scores

Wednesday, July 21st, 2010

Lynnette Khalfani-Cox
Jun 30th 2010 at 6:15PM

Having super-high credit scores can make your financial life a breeze – helping you earn a VIP pass to the best interest rates and terms on credit cards, mortgages and loans of all kinds. A stellar credit rating can also help you land a job or a promotion, save money on insurance, and get approved for that apartment or condo you want to rent. Despite all these benefits, however, most people understand precious little about credit scores, how they work, and what can be done to improve them.

To help you get up to speed fast, here’s a quick primer on credit scores, based on eight common credit questions:

1. What exactly Is a FICO credit score? FICO scores get their name from Fair Isaac Corporation, the Minneapolis-based company that creates FICO scores. All FICO scores range from a low of 300 points to a high of 850 points. While there are various types of credit scores in the marketplace, FICO scores are the most popular, with more than 90% of top banks in America using FICO credit scores when checking a consumer’s credit history.

Your credit score serves two purposes. First, it summarizes how well you’ve handled past credit obligations by giving you a three-digit credit score, which is the equivalent of a financial grade. Additionally, your credit score tells prospective lenders how likely you are to repay (or default on) credit or a loan in the future. The higher your credit score, the more statistically likely you are to repay your bills on time. The lower your score, the more likely you are to pay late or default on a debt.

2. What’s considered a “good” credit score these days? Before the credit crunch, a credit score of 620 was high enough to get you approved for mortgages and most loans. Nowadays, many banks consider a FICO score of 700 and above to be a “good” credit score.

In my forthcoming book, Perfect Credit: 7 Steps to a Great Credit Rating, I offer the following guidelines:

If your FICO score is . . . Then your credit is:
760 – 850 Perfect
759 – 700 Good
699 – 650 Average
649 – 620 So-So
619 and below Poor

3. What does it mean if I’ve been told I have no credit score? What can I do about It? If you’ve heard that you have a “thin” credit file, “no credit file” or “no credit score,” it’s likely due to one of three causes:

You’ve never had any credit. This would be the case if you’ve never had a traditional credit account, such as a car loan or credit card. Or perhaps you opened one many years ago, but you’ve long since stopped using it and your entire credit history has been dormant for many years.
You just recently established credit. Another possibility: You may have actually had credit extended to you, but it was established so recently that the account isn’t yet being reported by your creditor or tracked by credit bureaus. According to the three major credit bureaus (TransUnion, Equifax and Experian), it can sometimes take as long as four to six months for newly opened accounts to be reported to the bureaus. In the meantime, try not to worry too much about it; those accounts should be reported soon.
Someone thinks you’re dead. No, seriously. The Social Security Administration supplies something called a “Master Death Index” to credit bureaus, other businesses and government agencies. If your Social Security number somehow winds up on that list, you’re presumed to be deceased. Obviously, that makes it pretty tough to get a Visa card.
If you suspect that one or more of your credit accounts may include a notation that references you as a person who is dead (perhaps because you’re linked on an account with someone else who recently passed away), contact the Social Security Administration at 800-772-1213 to fix the problem.

4. Why are my credit scores all different? You can have multiple credit scores for several reasons. For one thing, there may be differing information in each of the main credit files maintained on you by Equifax, Experian and TransUnion.

Another possibility: You may be looking at one type of credit score, like a FICO score, and someone else, such as an mortgage lender, is using a completely different credit score, or even a score based on a “tri-merged” credit report – one that looks at all three credit files together.

Other well-known credit scores, besides the FICO score, include the Experian PLUS score and the VantageScore. Experian’s PLUS score is very similar to the FICO score but has a different scale, ranging from 330 to 830 points. The VantageScore, which was jointly developed by Experian, Equifax and TransUnion, ranges from 501 to 990 points.

According to Barrett Burns, CEO of Vantage Solutions, the VantageScore differs from the FICO score in several key ways. For starters, the VantageScore captures a broader array of payment information about consumers, including how consistently consumers pay their utility bills and other non-traditional forms of credit. It’s also “more predictive,” Burns told me, because it relies on more recent consumer data and insights gleaned during the credit crunch, as opposed to FICO’s classic score model, which is based on older consumer data.

Burns said consumers can purchase a copy of their VantageScores from Experian and TransUnion, but not from Equifax, due to Equifax’s longstanding exclusive contract with Fair Isaac, creator of the FICO score.

When the VantageScore debuted a few years ago, most experts panned this type of score since lenders weren’t using them at all. Amid the credit crunch, however, VantageScores have grabbed a 6% market share. Some people attribute their growing popularity to criticisms of the FICO score, and whether it failed to accurately predict which consumers would default on their home loans during the mortgage meltdown. (Fair Isaac officials reject those criticisms).

In any event, even though the VantageScore’s 6% market share is small compared to the widespread use of FICO scores, it illustrates that banks are increasingly looking at alternative credit scoring models – so perhaps you should, too.

5. How are my credit scores calculated? Your credit scores are derived from the information contained in your Equifax, Experian and TransUnion reports. To calculate your FICO credit scores, officials from Fair Isaac look at the following categories from your credit bureau reports and weight them (assign them percentages) like this:

Payment History – 35%
Amount of Debt Owed – 30%
Length of Credit History – 15%
Mix of Credit – 10%
Inquiries or New Credit – 10%

As a side – but critical — note: In recent years, consumers could get three FICO scores, based on each of their credit reports from TransUnion, Equifax and Experian. As of February 2009, however, Fair Isaac stopped selling Experian-based FICO scores because of an ongoing lawsuit between the two companies. So currently, you can only purchase a copy of two of your FICO scores, one based on your TransUnion report, and the other based on your Equifax credit report.

Here’s the skinny on each category listed above:

Payment history: Having no late payments will net you the highest possible ranking in this category. But even if you slipped up in the past, the hit to your credit scores will depend on how long ago the late payment occurred and the severity of the missed payment. A delinquent payment that happened three years ago will have far less impact than one that happened three months ago. Similarly, a 30-day late payment won’t be as damaging as a payment missed for 60 days, which in turn won’t hurt you as much as a payment that’s 90 days late.

Amount of debt owed: When it comes to credit scoring, all debt is not created equally. The credit-scoring system most closely scrutinizes credit card debt, also known as “revolving” credit. So don’t worry about your mortgage debt, student loans or that car loan on your credit files – as long as you pay those bills on time. Focus instead on reducing or eliminating credit card debt.

Your goal is to have a low “credit utilization” rate – 25% or lower. That refers to the percent of credit card debt you’ve charged, compared with the amount of credit you have available. For example. let’s say you have two credit cards, each with a $5,000 credit limit, or $10,000 total. If you’ve charged $1,000 on each card, or $2,000 collectively, your credit utilization rate is 20%.

Length of credit history: Simply put, the longer your credit history, the better your credit rating. Therefore, even if you pay off some of your credit cards, don’t close those accounts, especially cards you’ve had for many years. Closing credit cards can backfire on you, by decreasing the length of your credit history and raising your credit utilization ratio.

Mix of credit: The credit-scoring world rewards you for showing that you can responsibly juggle multiple forms of credit. Consequently, you get brownie points for having a credit file that includes various types of credit, such as a mortgage loan, an installment loan (like a student loan or auto loan), and credit cards. Again, your main objective is to pay all these obligations in a timely fashion. If you do so, you’ll score major points in this category.

Inquiries or new credit: An inquiry is placed on your credit report any time you apply for a loan or credit – regardless of whether or not you get approved or accept that loan. Inquiries stay on your credit reports for two years. For the purpose of calculating your FICO scores, inquiries count against you for one year. The American Bankers Association (ABA) says a single inquiry can lower your credit score by up to 35 points. So skip those department store credit card offers; they just generate inquiries.

6. Does my age, race, gender, marital status or Income affect my credit rating? No. None of those factors are taken into consideration when your credit scores are determined. In fact, under federal law it is illegal for credit-scoring to take into account race, age, nationality, religion, sex, or marital status.

7. If I pull my credit reports or credit scores, will that hurt my credit? Not at all. It’s a common myth that pulling your own credit report or credit score will somehow lower your credit rating. But that’s just a terrible misconception. In reality, you can view your credit reports and pull your credit scores as often as you’d like – even monthly, weekly or daily if you so choose – without any impact on your credit scores.

Examining your own credit files is considered, in industry lingo, to be a “soft” pull. These consumer inquiries don’t affect your credit scores. By contrast, when you apply for credit or a loan, that’s deemed to be a “hard” pull, and “hard” inquiries are taken into account when your credit scores are computed. Those hard pulls can lower your credit scores — by as much as 35 points, as we pointed out earlier — but exactly how much depends on the number of total inquiries in your credit report within the past year, as well as all the other factors contributing to your overall score.

Unlike credit reports, which you can get at no charge at www.annualcreditreport.com, most credit scores aren’t free. You can visit Fair Isaac’s consumer website to get your FICO scores. They cost $15.95 each. An Experian PLUS score will cost you $14.50. VantageScores can be obtained directly from the credit bureaus. They cost $7.95 at Experian, $7.95 (or $9.95 online) at TransUnion.

One company that does offer completely free credit scores – without you having to sign up for credit monitoring or use a credit card at all – is CreditKarma.com.

“Ten years ago, consumers didn’t even know what a credit score was for the most part,” CreditKarma.com CEO Kenneth Lin told me when I interviewed him recently for Perfect Credit. “Today most people know what scores are, but I think there’s still a lot of ambiguity and confusion about how they work.”

That’s why CreditKarma.com provides the public with credit-education articles, a “Credit Simulator” and other online tools, along with a nifty Q&A section that lets users submit questions about their credit problems or issues they don’t understand. Launched in early 2008, CreditKarma.com now has well over 1 million registered users and has given away several million free credit scores.

“We have a very strong focus on credit education and transparency, which I think is lacking in the industry,” said Lin.

8. How can I improve my credit scores? The single best way to boost your credit scores is to consistently pay all your bills on time. You can also improve your credit rating by:

reducing credit card debt,
disputing mistakes in your credit reports,
adding positive information that may be missing to your credit files (such as loans that you paid off),
actively monitoring your credit reports, and
limiting inquiries by only applying for credit when necessary.

Mastering your credit isn’t rocket science. Just by remembering these basics, and putting the above-mentioned tips into action, you can dramatically raise your credit profile, and sidestep the numerous credit pitfalls that ensnare so many others who lack basic credit education.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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Credit scores sinking: 25% now under 600

Monday, July 12th, 2010

July 12, 2010

ASSOCIATED PRESS
NEW YORK — The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

“I don’t get paid for loan applications, I get paid for closings,” said Ritch Workman, a Melbourne, Fla., mortgage broker. “I have plenty of business, but I’m struggling to stay open.”

FICO’s latest analysis is based on consumer credit reports as of April. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

It can take several months before payment missteps actually drive down a credit score. Foreclosure alone can chop 150 points off an individual’s score.

On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. Their ranks now stand at 17.9 percent, which is notably above the historical average of 13 percent.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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From Card Fees to Mortgages, a New Day for Consumers

Monday, June 28th, 2010

At last, it’s settled.

After months of haggling, the terms of financial reform are set, so long as both houses of Congress vote to accept them in the coming days.

While elected officials spent much of their time working out the details of regulating complex derivatives and grappling with whether banks ought to make big bets with their own money, they also set a number of new rules that will directly affect consumers.

Investors and those who advocate on their behalf did not get everything they wanted. Stock brokers and annuity peddlers are still not required to act in their customers’ best interest, for instance. But mortgage shoppers stand to gain under the new rules and millions of people will now have access to a free credit score.

Here is a roundup of some of the biggest consumer issues that members of Congress addressed and where they ended up:

CONSUMER BUREAU The bill would create an independent Consumer Financial Protection Bureau, housed within the Federal Reserve. The bureau is to be headed by a single director appointed by the president and confirmed by the Senate.

The new bureau would write and enforce rules for most banks, mortgage lenders, credit-card and private student loan companies. Smaller banks and credit unions, or those with less than $10 billion in assets, would have to obey the consumer bureau’s rules — but the smaller institutions’ enforcement and supervision would remain with their current regulators, said Travis Plunkett, legislative director for the Consumer Federation of America.

CREDIT SCORES While you still can’t get a free credit score each year with your three free credit reports, you will soon be able to see the score if it has hurt you in some way.

Let’s say a mortgage lender, credit card issuer, insurance company or landlord quotes you a more expensive interest rate or premium price or refuses to rent you an apartment because of problems with your credit score. If that happens, the company or individual would have to give you, for free, the score (probably a FICO score) that led to your troubles.

Keep in mind that nothing is stopping you from asking for the score, even if you like the rate or result of your application. You may be able to get it for free even if the lender, insurer or landlord is not legally required to give it to you.

MORTGAGES The bill offers a number of new protections, many of which are a bit like closing the barn door after all of the animals escaped. Lenders, for instance, will have to check borrowers’ income and assets. Most lenders have learned that lesson by now or have ceased to exist.

Other rules include a ban on prepayment penalties for people with adjustable rate and other more complex types of mortgages. Mortgage brokers and bank employees will no longer be able to earn bonuses based on the type of loan they put you in. That will presumably eliminate any incentive to push high-interest loans on borrowers (who might otherwise qualify for a better deal) to inflate bank profits.

Julia Gordon, senior policy counsel for the Center for Responsible Lending, said there will now be a cap limiting mortgage origination fees to 3 percent of the loan. There are exceptions for required upfront mortgage insurance premiums, say for a Federal Housing Administration loan, and for points that borrowers elect to pay to lower the mortgage interest rate.

CREDIT AND DEBIT CARDS Hate those merchants that won’t let you use your credit card unless you spend more than a certain amount? Well, now they have Congress’s blessing, as long as the minimum is not higher than $10. The Federal Reserve can increase the minimum if it chooses. As for maximums, only the federal government and colleges and universities can limit what people spend. So if you are paying tuition on a credit card and earning a couple of free plane tickets each year, that fun may soon end.

Merchants are also free to offer discounts to people who pay cash instead of using cards, or use debit instead of credit cards. They will not, however, be able to charge one price for people using American Express cards and a lower price for people using Visa and MasterCard credit cards.

Merchants will also not be allowed to give discounts based on which bank issued the debit or credit card you are using. Why would a merchant want to do that? Because the bill gives the Federal Reserve the ability to set a limit on the fees that stores must pay to accept debit cards. The catch here, though, is that only banks with more than $10 billion in assets would be subject to the cap. As a result, merchants may have to pay more to accept debit cards from smaller banks and credit unions than big banks like Bank of America and Chase. And if that were to happen, stores might be tempted to offer discounts to people with big bank debit cards.

Oddly, community bankers and credit unions don’t want to end up earning more money from merchant fees than big banks do, even though it would give them a competitive advantage. Why not? They worry that the big banks will immediately put pressure on Visa and MasterCard to lower merchant fees for all debit cards, not just the big banks’ cards. Thus, the smaller institutions had hoped that the status quo would remain, with everyone continuing to earn fat fees from the merchants forever.

It is not clear what the Fed will do or how the big banks and Visa and MasterCard will react. This could take a few years to play out, or many years if lawsuits start flying. Some merchants may try to play fast and loose with the rules too. Bill Hampel, chief economist of the Credit Union National Association, figures that small retailers might happily accept debit cards with the names of big banks that they recognize and then ask shoppers with cards from no-name institutions to use cash or some other card.

FIDUCIARY DUTY The Securities and Exchange Commission was given the authority to create a new rule for brokers that would require them to put their clients’ interests first. But that won’t happen right away. Consumer advocates wanted the so-called fiduciary standard in the new law, and it appeared in the House’s original proposal.

But ultimately, negotiators compromised and agreed to have the commission first conduct a six-month study of the brokerage industry, looking at, among other things, whether there are any regulatory gaps or overlaps in regulation of brokers and investment advisers. Advisers are already required to put their clients’ interests ahead of their own, while brokers must only recommend investments that are deemed “suitable,” based on factors like their clients’ financial goals and tolerance for risk. “It is now going to be incumbent on Chairman Shapiro to stay on top of this,” said Barbara Roper, director of investor protection at the Consumer Federation of America, “to ensure that this is an unbiased study and that any rules that are proposed are strong and really provide the full fiduciary duty that investors are entitled to.”

But there are no guarantees.

EQUITY INDEXED ANNUITIES These annuities are complex financial products that promise a minimum return on your investment. But they often require you to tie up your money for long periods of time and charge hefty surrender fees if you need to pull out your money early. Unscrupulous salesmen, who collect lucrative commissions, have used deceptive marketing techniques to sell these products to senior citizens, which is why sales of these annuities have been the subject of many lawsuits.

But a provision in the legislation will prevent the S.E.C. from regulating them, a step backward, consumer advocates and the commission have argued, from what is now the case. The S.E.C. had adopted a rule to regulate these annuities as securities, but it had not yet been enacted. Now, the annuities would be treated as insurance products, which means they would be overseen by state insurance regulators.

“That means no securities antifraud authority, no rules against excessive compensation, and no securities regulators to help police the market for these abuses,” Ms. Roper said. “And there are no guarantees that the people who sell them know any more about the securities markets these products are based on than the people who buy them.”

Consumer advocates also said the amendment language is broadly written, which could allow products similar to equity indexed annuities — or those that have characteristics of both investments and insurance — to skirt S.E.C. regulation as well.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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Even Barely-Late Payments Can Impact Your Credit Score

Thursday, June 3rd, 2010

by Jeremy Simon
Thursday, June 3, 2010

Q: Dear Credit Score Report,

If a payment is late, but by fewer than 30 days, how will that affect my credit score? I mean, if the payment is not done on the due date, but is two or three weeks late, does that affect the score anyway? Also will I be reported to the credit score companies for a payment that’s less than 30 days late? Thank you. — Adriana E.

A: Hey Adriana,

Following any late credit card payment, the possible damage to your credit score depends on the lender — and on you.

Although it may be fewer than 30 days late, the bank could still report your missed payment to the credit reporting agencies (CRAs). Whether it gets reported depends on the card issuer and your own borrowing behavior, experts say. According to FICO, creator of the most popular credit scoring model, “not all lenders report late payments that are 30 days late,” says Barry Paperno, the company’s consumer operations manager. “Some hold off on reporting an account as delinquent until it reaches 60 days late. In this situation, a 30 day late will have no impact on the score, since the credit report will show no evidence of that late payment.”

But your lender isn’t the only factor. The other key consideration is whether you’ve generally been a responsible cardholder. “Card companies likely take into consideration your past payment history when deciding whether to notify the CRAs about a late payment. If this is an anomaly, they may let it slide. If it’s a common occurrence, they may be quicker to report you,” says Lauren Bowne, staff attorney at San Francisco-based consumer rights group Consumers Union.

Think about how you’ve repaid the bank in the past. How often (and how recently) have you made other late payments? If you’re not sure, scanning your credit reports for delinquencies should jog your memory. Making a late payment may be out of character for you, but it can still be damaging. Depending on your current FICO score, a single 30-day late payment can drop your FICO score by 60 to 110 points.

That drop can also occur with a payment that’s fewer than 30 days late, depending on when your bank reports your delinquency. “Be aware that when it comes to the reporting of late payments on credit reports, a payment that’s late by one to 30 days is considered ’30 days late,’ late by 31 to 60 days is considered ’60 days late,’ etc.,” says FICO’s Paperno in an e-mail. “As a result, any payment made up to 30 days will be treated as a ’30 day late’ by the FICO score.” Still, reporting just after the payment due date is unusual. “Most lenders report accounts as late when a payment is not received by the next due date. In other words, you aren’t just late, but have totally missed the payment for that month,” says Maxine Sweet, vice president of public education for credit bureau Experian.

Therefore, your wallet is likely to feel the damage before your credit score does. “She’ll still be hit with a late fee, for sure,” says Ruth Susswein, deputy director of national priorities for Consumer Action, a nonprofit consumer advocacy group based in Washington, D.C. And as with the reporting of that late payment to the credit bureau, the bank may be more forgiving if you’ve been a good customer. To see if they’ll revoke the late fee, give your card issuer a call and let them know you’ve been a long-standing customer who made a one-time error (assuming that’s all true). Of course, with banks facing added financial challenges in the current economic and regulatory environment, you may find it difficult to get that fee overturned. “It’s too early to tell, but I would suspect that lenders are going to be less apt to forgive a late fee now that their ability to raise your rate is more limited due to the CARD Act,” Susswein says. She adds that since the Credit CARD Act is still relatively new, cardholders haven’t yet reported such problems via Consumer Action’s complaint hotline. “We’re not hearing that yet, but it doesn’t mean we won’t,” she says.

Aside from contesting late fees, there’s another good reason to pick up the phone. While it sounds like you’ll be able to make a payment shortly, if personal problems (such as unemployment or health issues) are making it tough to come up with the money, be sure to let the bank know. Ideally, the card issuer will work with you to create a debt payment plan that’s beneficial to both parties and prevents further damage to your credit score.

Even a single late payment is bad for your credit score, but rather than worrying about an isolated blunder, be sure to keep your finances in order from now on. “A one-time two or three week late payment will probably not drastically affect your credit score, but repeated late payments will definitely have a more significant effect, even if you are late by only a few days each time. A pattern of lateness is worse than a one-time mistake,” Consumer Union’s Bowne says.

By taking a more holistic approach to your finances, your credit score will be better protected against one-time mistakes — and more able to recover quickly if you do run into trouble. FICO recommends that after catching up on this card payment, you pay more attention to your borrowing as a whole: Avoid making late payments, keep debt levels low and maintain a lengthy credit history. “Generally speaking, the better the overall credit picture, the sooner the recovery,” Paperno says.

Good luck!

– Jeremy

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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The Real Facts behind 10 Common Credit Score Fictions

Tuesday, May 4th, 2010

By: Ann-Marie Murphy

If you’re a fan of TV’s “Mythbusters,” then you may already know the truth about many popular fictions – like how a heated Jawbreaker can explode when you bite into it, or that a home ceiling fan cannot decapitate you, or that your toilet seat is the cleanest surface in your house. While these are fun myths to debunk, knowing the facts of these fictional stories probably won’t affect your personal finances.

What can impact your wallet is what you know – and just as importantly, what you don’t know – about your credit score. Your credit score is a three-digit numerical representation of your credit-worthiness, or how likely you are to reliably pay back money you borrow. It may seem simple enough, but credit scores aren’t always intuitive. Even when you think you’re doing the right thing financially, you may be actually hurting your credit score.

When it comes to credit reports and scores, knowledge is power. Here are the real facts behind 10 common credit score fictions:

Fiction: The more money you make, the better your credit score will fare.

Fact: Your income has nothing to do with your credit score. It’s not reported to the credit bureaus or listed on your credit report.

Fiction: Once you’ve paid a past-due debt, it will drop off of your credit report.

Fact: Late payments and other negative information remain on your credit report for seven years from the date of the initial late payment. Bankruptcies typically stick around for 10 years from the bankruptcy filing date. While that black mark may continue to soil your credit report, however, its effect on your credit score will lessen over time.

Fiction: Credit bureaus never make mistakes.

Fact: Nearly eight in 10 credit reports contain a serious error or some sort of mistake, according to a survey by the U.S. Public Interest Research Groups. Because many errors can negatively impact your credit score, it’s important to check your credit report regularly and dispute any inaccuracies you find.

Fiction: Practicing a cash-only policy will help your credit score.

Fact: Having good credit is a function of having credit available to you and using it responsibly. If you don’t have or use credit, you may have no credit history at all and if you do, your credit score won’t be as good as someone who consistently demonstrates responsible use of credit over time.

Fiction: All credit reports and credit scores are the same.

Fact: You have three main credit reports – one from Experian, Equifax and Transunion – plus a variety of credit scores. The information listed on each of your credit reports may vary and your credit scores – even if based on a single report – may also vary. No one credit report or score is better than the others. They all seek to document your credit history and assess your credit risk.

Fiction: How responsibly you manage your checking, savings and investment accounts will impact your credit score.

Fact: Like income, your checking, savings and investment account activity is not reported to the credit bureaus and does not affect your credit score.

Fiction: Closing credit card accounts will help your credit score.

Fact: When you close a credit card account, you may be affecting your “credit utilization.” Credit utilization is simply how much credit you use (balances) compared to how much credit is available to you (credit limits). Closing a credit card account lowers the amount of credit that’s available to you, which may increase your credit utilization percentage if you maintain balances on any of your other credit cards. A higher credit utilization may negatively impact your credit score.

Fiction: Pulling your own credit report will lower your credit score.

Fact: When you pull your credit report for your own educational purposes, it’s considered a “soft inquiry” and will not affect your credit score. On the other hand, when a creditor or lender pulls your credit report for the purpose of extending you credit or a loan, it’s a “hard inquiry” and may negatively impact your credit score.

Fiction: If a bill or debt isn’t generally reported to the credit bureaus, missing a payment won’t affect your credit score.

Fact: Any time you pay a bill late or don’t pay at all, that activity can be reported to the credit bureaus. Different companies have different policies about reporting late payments or negative information, but never assume that just because you’ve never seen a particular bill listed on your credit report that it can’t negatively impact your credit score if you don’t pay it.

Fiction: Disputing accurate information will remove it from your credit report.

Fact: You can only dispute information on your credit report that is inaccurate. When you dispute information on your credit report, the credit bureau has 30 days to investigate. If it finds the dispute to be valid, it will remove the inaccurate information. If, however, the dispute claim is found to be false, that information will not be removed from your credit report. Beware of credit repair companies claiming that they can get negative – albeit accurate – information removed from your credit report. This practice is illegal and these companies are generally scams.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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Signs your credit score could be in trouble

Friday, April 30th, 2010

Martha C. White
Apr 29th 2010 at 4:30PM

You have seen those ads for subscription websites that let you check your credit score, but haven’t bitten. We here at Walletpop can’t say we really blame you; they’re kind of pricey, and some consumers have complained that trying to cancel can be a bit of a hassle. Besides, you figure your credit score is just fine… isn’t it?

While ordering a credit score will of course clear up the question, there are some signs savvy consumers can watch for to see if their credit score has taken a dip. As this article from Bankrate points out, not being able to get a loan or being denied for a credit card application could mean your credit score isn’t up to snuff. (Of course, realize that if the last time you applied for a credit card was in 2005, when America was awash in cheap credit, you’re not really comparing apples to apples.)
Likewise, if you can get a loan or a credit card — but only with a very high interest rate — this could be a sign that something’s wrong with your score. It’s in your best interest to do your homework and research the current rates so you’re familiar with what you should be able to get, advises Kathleen Day, spokeswoman for the Center for Responsible Lending. Of course, Day adds, only being offered a high rate could also be a sign that you’re dealing with a predatory lender.

“If it seems like you’re not getting the prime rate or the best rate you should wonder if maybe you’re being steered into something that’s more expensive,” she warns. “It’s probably an indication you want to look further.” Don’t just stop at one provider; shopping around is the best way to insure that an unscrupulous lender isn’t trying to take advantage of you.

Another red flag can be if your premiums for home, life or auto insurance suddenly skyrocket. Although it might seem galling, insurance companies can take your credit score into account when determining your premiums.

Of course, it goes without saying that if you’re engaging in activities like blowing off your bills or running your credit cards up to the maximum, those kinds of behaviors won’t do your credit score any favors, either.

Barry Paperno, consumer operations manager for FICO, the company that administers credit scores, has warned Walletpop readers in the past that as little as a single late payment could drop your credit score by as much as 100 points.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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How foreclosure impacts your credit score

Friday, April 23rd, 2010

Les Christie, April 22, 2010, 4:44 pm EDT

If you’re delinquent on your mortgage, your credit score will suffer. Everyone knows that. The question is, by how much?

Until recently, those answers were hard to come by. Credit bureaus were uncommunicative about expressing, in points, just how much impact different foreclosure types of mortgage delinquencies have on scores.

Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.

Here are the average hit your credit will take:

30 days late: 40 – 110 points

90 days late: 70 – 135 points

Foreclosure, short sale or deed-in-lieu: 85 – 160

Bankruptcy: 130 – 240

To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)

The hypothetical person with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records.

See the chart above to see how each scenario affected each borrower.

Notice that for both borrowers a single one-time black mark results in steep drops, but it is when they fall further behind that things get really harsh, according to Craig Watts, a spokesman for Fair Isaac.

“The lending industry tends to regard an account differently when it has become 90 or more days late,” he said, “The likelihood that consumers will resume paying their overdue obligations drops off significantly after the delinquencies have reached 90 days.”

One reason credit companies were so closed-mouthed is that they often can’t definitively state how much each delinquencies will affect scores because there are too many variables.

Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation’s main credit bureaus.

“If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more,” she said. “For me, one missed payment would just be a blip.”

The point loss also depends on the borrower’s starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.

Of course, it just gets worse when you face foreclosure.

Mortgage borrowers can lose their homes three basic ways: a foreclosure; a short sale, where the home is sold for less than than is owed and the bank (generally) forgives the difference; or a deed-in-lieu, in which the borrower gives back the property and the bank again forgives any unpaid balance.

Sweet said credit bureaus generally slash scores equally for those three resolutions to someone losing their home. The important factor, she said, is that “it’s reported that you paid less on a settled account.”

Some borrowers may think that because they never missed a payment, they can “walk away” from their homes with relatively little impact on scores. Not true. “When a deed-in-lieu or short sale is reported as a partial payment, it’s treated as a serious delinquency,” Watts said, “just like a foreclosure.”

Even if borrowers made payments faithfully for years before short selling or doing a deed-in-lieu, their credit score will still take a hit. The total decline will run about 85 points for the 680 score borrower to as much as 160 for the 780 score.

Mortgage debt, combined with other financial problems, can send borrowers into bankruptcy, the worst thing that can happen to your credit score.

The effects are long-lasting, according to Sweet. In a Chapter 13 bankruptcy, which involves partial repayment over several years, the stain will take seven years to remove. A Chapter 7 bankruptcy, which involves liquidation, takes 10 years to get over.

It’s gonna cost you

Absorbing a big credit-score hit can make many transactions more costly. It’s not just paying more for credit card debt and auto loans, insurance can cost more as well.

The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of the Insurance Information Institute.

A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.

Despite the problems a poor credit score can cause, Experian’s Sweet recommends that people who are in financial dead ends, like totally unaffordable mortgages, it’s better to recognize that and cut your losses quickly; don’t prolong the problem.

“You need to do what you need to do to get your finances back in order,” she said. “Don’t worry about your credit score.”

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

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