Credit Repair Services

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

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

by Jeremy M. Simon
Sunday, November 29, 2009

Disclosed for the 1st time, ‘damage points’ taken off for late payments

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The “damage points” data, unveiled recently by FICO, are part of the most revealing glimpse into the firm’s once-secret — and still mysterious — credit scoring model. The new information discloses how many points borrowers’ scores will drop when they make the most-common mistakes.

‘Help People Understand’ Scores

“I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble,” says FICO spokesman Craig Watts. “Getting and maintaining a good score isn’t complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. ”

The greater transparency about FICO scores is important because American consumers’ ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit. Other companies also offer scores, but FICO’s version is the most widely used by lenders in determining whether a consumer can borrow, and at what rate.

FICO’s credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they’re figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The “damage points” information, revealed in a report by personal finance writer Liz Pulliam Weston, will be made available through its myFICO.com Web site starting this weekend.

FICO’s information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit — so-called prime borrowers — put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score — 780 — that same delinquency can send a FICO score tumbling by 90 to 100 points.

The Cost in Dollars

In order to show just how badly a drop in your FICO score can hurt your wallet, we spoke with members of the home mortgage, auto and credit card lending industries. We presented hypothetical scenarios of a consumer who decided to apply for a $200,000, 30-year mortgage; a $20,000, five-year auto loan and a credit card. While all the industry insiders stressed that a FICO score isn’t the only factor in determining who gets credit and at what cost (other factors they cited include the borrower’s debt-to-income ratio and whether they have already established a relationship with the lender), they were able to provide an idea of what a borrower who had the following credit scores could expect.

For a Consumer Who Started With a FICO Score of 780:

Following a 30-day late payment, the consumer’s car loan rate would jump nearly 3 percent, costing the borrower $26 more each month.

Following a debt settlement, the consumer would pay as much as $109 more each month on a home mortgage.

For a Consumer Who Started With a FICO Score of 680:

Following a 30-day late payment, the consumer would pay $41 more each month for a car loan.

Following a 30-day late payment, the consumer would pay as much as $95 more each month on a home mortgage.

Following a debt settlement, the consumer would no longer qualify for a credit card.

Some Surprised By the Details

Consumer advocates say it’s important for borrowers to know what can damage their FICO scores. “If they know it in advance, they won’t go out and step in a pile of doo-doo. They won’t go out and do some of these things,” says Linda Sherry, director of national priorities with advocacy group Consumer Action. Even experts found some surprises in today’s news. “FICO imposes bigger hits than I would have thought for being maxed out or 30-days late just once, reinforcing my view that it is a cruder, blunter instrument than they like to claim. Nevertheless, it is a powerful, widely used crude blunt instrument,” says Ed Mierzwinski, consumer program director for the U.S. PIRG consumer advocacy group.

Of course, knowing the impact on a FICO score and actually avoiding these mistakes are two separate things: Amid rising unemployment and other daily financial struggles, paying bills and staying on-track financially becomes a much bigger challenge for many borrowers.

“Some of these things are out of their control,” Sherry says of consumers.

Additionally, as Weston points out, consumers with identical FICO scores can have different credit histories. That means the same slip-up — such as maxing out a credit card — could have different impacts on consumers who have the same FICO score. In the examples they provided, FICO assumed each borrower had several active major credit cards, a mortgage, car loan and student loans.

Sherry acknowledges the benefit of putting a number to a financial blunder. “I don’t think we necessarily knew the numbers that a bankruptcy could apply to a credit score,” Sherry says.

Helping You Make Better Decisions

While knowing the numbers may not keep you filing for bankruptcy if given no other choice, the information may help you make the best decision when faced with a bad situation.

FICO scores — and the access to credit they provide — are a valuable asset to consumers and supply a safety net when incomes are stretched. It’s an asset that needs to be protected, Sherry says, even if job loss or catastrophic illness makes bill paying problematic.

“In that period of time, paying down debt is the last thing on your mind. Paying the minimum payment may also be the last thing on your mind, but you’ll be doing yourself a big favor if you do,” Sherry says.

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