Credit Repair and Credit Scores Explained
Article by Ian Webber
The Credit Bureaus
Many people starting a credit repair program are under the misconception that the credit bureaus are in some way connected to the government. It is easy to understand this perception. But, as influential as they are, the credit bureaus have no government blessing, charter, or otherwise. They are big business. There are three credit bureaus that count. They are Experian, Equifax, and TransUnion. They are in the business of gathering credit data about you and selling it to potential creditors.
The Fourth Contender
There is one other credit bureau of substance called Innovis. Innovis is a significant player in the credit data markets, but is not a concern for your credit repair effort. They specialize in gathering and sorting data for pre-screened credit card offers. The mortgage giants Fannie Mae and Freddie Mac were instrumental in the accent of Innovis when, in 2001, they demanded that their mortgage servicers report payment histories to Innovis. At the moment Innovis operates behind the scenes, but there have long been rumors that they are planning an assault on the consumer market.
The Credit Score of Choice
Almost without exception lenders use a single type of credit score in making loan decisions. This is called the FICO score and will become a focal point of your credit repair project. FICO is an acronym for the inventor of the score, Fair Isaac and Co. The three bureaus sell these FICO scores directly to lenders and have re-named them for marketing reasons; Equifax calls it a BEACON score; TransUnion calls it an EMPIRICA score; and Experian calls it the EXPERIAN/Fair Isaac Risk Model.
Your Scores May Vary
At the outset of your credit repair project you may want to benchmark your effort by checking your credit scores. You will notice that your scores with the three bureaus are different. This is because each bureau receives data from a different mix of creditors. Some creditors report to all three bureaus, but many don’t. If you examine your three reports you will see that some accounts are missing on each bureau. Reporting schedules also play a roll. Changes in your balances are normally picked up sooner at one bureau than another.
The Makeup of Your Score
The precise formula for calculating your credit score is kept secret. But Fair Isaac offers a significant amount of information about the rudiments. If you are looking for credit repair results it is wise to familiarize yourself with the basics. As you start to work on optimizing your scores you will begin to develop an intuitive grasp of the nature of the scoring model.
Payments
Your payment history comes first and plays a major roll. This includes installment and revolving debt payments. The age of each derogatory event reduces the impact it will have on your score. For credit repair purposes, don’t worry about the past, just make sure that you make all payments on time from now on and you will be fine. Fair Isaac says that this category represents 35% of your score.
Balances
Your balances are the next category, and although in second place, they may be the most important to your credit repair project and to any effort you are making to optimize your scores. Revolving balances carry the most weight, and the relationship between your balance and the limit on your revolving accounts is the key. Installment balances come into play as well; older, time-tested installment debt will help your scores. Fair Isaac indicates that this category makes up 30% of your score.
Age
The age of your credit plays a role as well. New credit will depress your scores for the simple reason that it is untested. You may need to build new credit as part of your credit repair project, but as each month passes the negative impact of new accounts fade quickly. Old accounts are a credit repair asset and should be preserved. This category makes up 15% of your score.
Inquiries
Credit inquiries have a negative but small impact on your scores. Inquiries indicate to the FICO model that you are planning to incur new debt. Fair Isaac credit score engineers will lower your scores temporarily when you have inquiries as a warning to prospective lenders that your budget may be facing new challenges. The impact of inquires fade quickly. Fair Isaac weighs this at 10% of your score.
The Right Mix
Last and least, the type of credit makes up the final 10% of the score calculation. This last category brings to light the fact that there is an ideal mix of debt types for credit score perfection. Fair Isaac does not reveal what the perfect mix is, but when it comes to credit repair success you should focus on building a nice balance of accounts, making your payments on time, and keeping your revolving balances down.
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Categories: Credit Score Articles Tags: Credit, Explained, Repair, Scores
Credit Scores and Mortgage Loans
Article by Pink Realty
In today’s economy, it’s becoming more and more difficult to get your bills paid on time. After a few late payments, you may wonder what the impact is on your credit report and your credit score. Whether you have lost a job, gone through divorce, lost a spouse, or dealt with a serious medical issue, you know that any hardship can wreak havoc on your financial responsibilities. You are not alone, and we at Pink Realty help people who have dealt with these all the time. More than 43 million people in the United States have credit issues that are severe enough to make obtaining credit with reasonable terms very difficult. If you want to repair your credit and improve your score so that you can buy a home, there are some things that you should understand.
If you are looking to buy a car, auto credit scores range between 250 – 900. If you are looking to purchase household furniture or other goods, a consumer credit score is between 300 – 900.
The economy, with its high unemployment rates and increased cost of living has made it virtually impossible for the average person to maintain perfect credit. The sum of this equation has about 40% of the people who are trying to qualify for a new home loan are being denied for a mortgage.
These days in Colorado Springs, the agents at Pink Realty see that about 2/3 of the real estate listings are either short sales or REOs and 40% of the people trying to buy a home, can’t qualify. Are you one of the 40% that wants to buy a house but you can’t because your credit score isn’t high enough? What can you do about it? We’re going to take a look at what the credit score requirements are for the different types of home loans and then we’re going to address some important credit report facts so you can create your own credit report action items that will help you succeed in getting that mortgage for your dream home.
We’re going to take a look at what components makes up your score and give you some tips on how you can raise your score in the fastest amount of time.
Below is a chart that defines the 5 components that comprise your FICO scores (credit score). 35% of your total score is determined by past delinquencies, 30% by your revolving credit-to-debt ratio, 15% on the average credit age, 10% based on credit mix, and 10% on credit inquiries. Past delinquencies weigh the most heavily on your total score, which probably makes you think you should pay off all past delinquent accounts. This is not necessarily so. Depending on the age of older past due delinquent accounts, it isn’t always best to pay them off. Bad debts can only stay on your credit report a maximum of 7 years from the date of last activity. If you pay them off, the account will show paid, but the derogatory status remains and the account will now stay on your report for a maximum of 7 years from the date you paid it off. Therefore, check the dates on older past due accounts, charge-offs or collections. If the accounts are from several years ago, they will fall off your report on their own soon enough. Remember, the maximum amount of time information can remain on your report is 7 years. It doesn’t mean they will stay on there for 7 years. If you have extra money and you want to use it to better your credit score, you can pay off some recent charge-offs or collection accounts. While the derogatory status will stay, the account will show paid. Once older past due accounts drop off your report, your score will automatically improve.
The next big bang on your credit report is your revolving credit debt ratio. There are a lot of myths about credit cards and how they impact your credit score. Some people think you should only have a couple of credit cards, others think you should combine all credit cards balances into one credit card balance. Some people don’t think you should have high credit limits and some people think if you have a lot of credit cards, but don’t use them, you should cancel them. Finally, some people think if you pay off your credit card every month, you won’t establish credit. All of these are myths. The longer you have had a revolving account in good standing, the better impact it makes on your score. Remember average age of a credit file is 15% of your credit score. Keep those old accounts open! If you have one or more credit cards with high credit limits and manage them wisely, high credit limits can actually be advantageous. If you have several different types of credit cards, including department stores, keep them open. Closing credit card accounts can actually lower your score. But be aware, lenders have started cancelling inactive accounts or lowering credit limits on inactive credit card accounts. 30% of your credit score is determined by your debt-to-credit ratio. The lower your ratio, the better! Therefore, if you have cards that have a high credit limit, but you use the cards conservatively and keep small balances, it improves your score. The rule of thumb is to keep credit card balances less than 30% of the credit limit. For example, if you have a credit card with a 00 credit limit, you want to keep the balance on that account less than 0. The more credit cards you have with a limit and the smaller the balance you keep on those cards, the lower your debt-to-credit ratio is. If you have ‘maxed’ out your credit cards and your debt-to-credit ratio is 95 – 10%, the best way to improve your credit score is to work hard to get the balances down below 30% of the limit.
The older your credit history is the better. The longer you keep and maintain accounts in good standing, the more positively it impacts your score. If you have a credit card account that has been opened for 10 years, don’t stop using the card or the issuer might decide to close the account or stop reporting to the credit bureau. While the information might still be available, it won’t add as much weight to your score. So keep older card accounts active even if it means charging a recurring monthly bill to the account and then paying it off each of month.
While the mix of credit you have on your file only makes up 10% of your total score, it is important for lenders to see how you handle different types of credit. If you are trying to build new credit, one of the best ways is to take out an installment loan. This might be for a car or household goods. Showing that you can make regular monthly payments over time is very important.
Finally we get to inquiries, which also make up 10% of your score. There are two types of inquiries: Hard inquiries and soft inquiries. If you are requesting your own annual credit report or applying for a job and your potential employer is pulling your report, these are soft inquiries and do not impact your score, however, hard inquiries do. If you are shopping for a new car and go to 3 or 4 different car dealerships and each one runs a report, it will impact your credit score. However, the credit bureau system detects the similarities in reports pulled and the 3 or 4 reports will count as only one inquiry. The same happens if you are shopping for a home loan. If 3 different mortgage lenders run your report, it will count as one inquiry. Where inquiries really begin to hurt your score is when you apply for various types of credit in a short period of time. If you are trying to apply for credit cards and buy a car and a house at the same time, the inquiries will not only lower your score, but raise a red flag for lenders!
In summary, we mentioned the following points that can help improve your credit score:
• If you have old past due accounts, leave them alone. Let them age and fall off your report on their own.
• If you do have past due or delinquent accounts that are current, you can pay them off. The derogatory information remains, but the status changes to paid. While this does not impact your score, it is beneficial.
• Pay down your credit cards. Lenders like to see a big gap between your balance and your credit limit. While it makes sense financially to pay down high interest cards first, if you are looking to raise your credit score, it is best to pay down the cards that are closest to their limit! Work to keep a low debt-to-credit ratio on all of your revolving credit card accounts. Keep long standing accounts active, keep high balance accounts open, but use your cards conservatively so your debt-to-credit ratio stays low. If you have high balances on your credit card accounts, you will be most rewarded by paying the balances down until they are less than 30% of the credit limit. This is where you will get the biggest bang for your buck.
There are a few other things you can do to improve your score.
• If you have accounts that are old and due to fall off your report soon, you can contact the credit bureau to dispute the account. If it is old and has a small balance, there is a good chance the collection agency won’t dispute the charge and it will be removed.
• Look for errors on your credit report. If you see accounts that are not yours, dispute them. 70% of the credit reports have errors on them. The chances of there being an error on your report are good. So review your report and if there are errors, dispute them to have them removed.
• Old, past due accounts don’t get discarded because you have new, current accounts. Sometimes time is required to raise your score. Let old bad debts just fall off when they’ve aged. To mess with them will add 7 more years of derogatory information.
• There are a few other things you can do to increase the improvement. If you have accounts that are old and due to fall off your report soon, you can contact the credit bureau to dispute the account. If it is old and has a small balance, there is a good chance the collection agency won’t want to dispute the charge and it will be removed. Other things to consider:
Your credit score is based on the information in your credit report, so check for errors. Some of these errors can really hurt you, so review your credit report thoroughly and look for any errors in the following areas:
• Correct any late payments, charge-offs, collections or other negative items on your report that are not yours.
• Correct any credit limits that are incorrect. If your credit card company has reported a credit limit lower than what it actually is, get it fixed. • Correct any accounts that may be listed as “settled,” “paid derogatory,” “paid charge-off” if you paid them on time and in full.
• Correct any accounts that are still listed as unpaid that were included in a bankruptcy.
• Negative items older than seven years (10 in the case of bankruptcy) that should have automatically fallen off your reports.
• If you’ve closed accounts and they still show open, don’t correct this. Closing accounts can actually lower your score.
• If you are trying to establish credit because you have not credit, apply for a credit card. Charge something small each month, such as a tank of gas or dinner, and pay it off each month. After establishing some credit with a credit card company, apply for an installment loan. It can be a simple personal loan that you can pay off in 12 months. You want to do this to build a mix into your credit file.
Avoid these common credit mistakes when you are trying to improve your credit scores:
• Don’t ask a credit to lower your credit limit because it reduces the gap between your balances and your available credit. The lower the gap, the more it hurts your scores.
• Avoid making late payments. While a missed or late payment will do more damage to a good credit score than it will an already low score, you definitely want to avoid missed or late payments if you are trying to improve your score.
• If you are trying to improve your scores, applying for a new account or additional credit when you already have enough credit can ding your scores, unless you are recovering from a bankruptcy. In this case, applying for an installment loan can help.
• Don’t transfer credit card balances from a high-limit card to a lower-limit one or transfer small balances to a high limit card. It’s better to have smaller balances on a few cards than a big balance on one. Remember the debt-to-credit ratio.
Having good credit and being an educated consumer can save you money. You will get better interest rates and better terms, which saves a lot of money in the long run. Additionally, you can save money on insurance. Know what is in your credit report and know what your score is. Lenders are in business to make money. If you don’t know what’s in your credit report or what your score is, a lender can charge you more. Understanding what’s in your credit report and knowing what your score is can give you bargaining power when negotiating interest rates and terms.
For more information on your credit, how to improve it, or to see what kinds of loans you qualify for, call Pink Realty today at 719-393-7465 (Pink) and ask to speak to our lender. She will gladly help you. Once you are qualified for a loan, one of our experienced agents will help you find your perfect Colorado Springs dream home!
Persons seeking Colorado Springs Homes will be intrigued to learn that tourists from around the world visit Colorado Springs to see the amazing rock formations as well as to experience the popular tourist spots such as Seven Falls, Garden of the Gods Park and the Cave of the Winds. More about these homes will be explained to you by Pink Realty.
Categories: Credit Score Articles Tags: Credit, Loans, Mortgage, Scores
Are Your Credit Scores Hurting You?
Article by Jordan Crouter
Don’t believe anyone who tells you that credit scores are irrelevant to your financial health. But you also should not believe that credit scores are any reliable indication of your financial health. You can be a multi-millionaire with no credit score or someone with excellent scores who’s on the brink of a financial meltdown. Indeed, economists currently are worried about a steep rise in foreclosures among “prime” customers, those who had good credit when they got their mortgages but who took on too much debt or lost their jobs in the recession. The confusion over what credit scores are, and what they do, leads to some unfortunate attitudes:
– Some people dismiss credit scores entirely, either believing scores have no effect on their finances or out of a general disdain for credit and debt.
– Others understand that scores are important but believe that if they handle their money well, their scores automatically will be good.
– Still others are positively obsessed with their scores, focused on boosting them as fast as possible without considering how their actions might affect the rest of their financial lives.
All of these folks are misguided and could be risking some serious fiscal fallout. Let’s take these myths one at a time.
Myth No. 1: Credit scores don’t matter.
Here’s the truth: Credit scores are increasingly critical to the financial lives of most people.
In today’s credit crunch, only people with good scores are snagging the best rates and terms on mortgages, credit cards and other loans. They can effectively fight back against the credit card rates increases and limit cuts so prevalent today. Meanwhile, many people with bad scores are paying far more for credit or being turned away entirely.
Even if you’ve paid off your home and never plan to borrow another cent, you may still need to be concerned about your numbers. Credit scores are used by insurance companies to determine premiums and by landlords to evaluate applicants. (Employers often review credit information as well, although they tend to look at your entire credit report, rather than just a three-digit credit score.)
Furthermore, you can have great scores without being in debt.
While having installment accounts such as mortgages and auto loans can boost a score, they’re not essential.
You can achieve a score of 750 or above over time just from credit card accounts that you pay off in full every month, according to FICO, the company formerly known as Fair Isaac that created the leading credit scoring formula. In other words, you don’t have to pay a dime of interest to get and keep good FICO scores.
Myth No. 2: Great finances make great credit scores
I wish.
Credit scores were designed to help lenders gauge a borrower’s risk of default. That’s it. The only information used is what’s in your credit report. The formula is particularly affected by:
– Whether you pay your bills on time.
– How much of your available credit you’re using.
– How long you’ve had credit.
– How recently you’ve opened a new account.
– The mix of credit you use.
Here’s what does not go into a score:
– Your income or how much of it goes to pay debt.
– Your net worth.
– Your retirement account balances.
– Your investment returns.
– Your employment history or prospects.
– Whether you live within your means.
– Whether you pay your credit card bills in full each month or carry a balance.
The bottom line: If you don’t have and regularly use credit, the scoring formula will have a tough time assessing your creditworthiness. That’s how folks who’ve paid for everything with cash wind up with low scores or no scores.
It’s also how people who don’t carry balances can score lower than they deserve. If they use up most of their available credit each month, that can ding their scores even if they pay their bills in full. Savvy credit users continue to pay their balances, but make sure they use only a fraction of their available credit at any given time: 30% is good, under 10% is better.
Score creators — and lenders — don’t particularly care that the credit scoring system isn’t fair to the unwitting or the credit-averse. What they care about is that the formula works in general to help separate the good risks from the bad. If you get unfairly lumped in as a bad risk because you don’t use credit “right,” it’s no skin off their noses, but it could ultimately cost you a bundle.
Myth No. 3: Great credit scores make great finances
Look again at that list of what isn’t included in your score. Some of the most important gauges of your financial well-being are missing from the credit-scoring algorithm.
That’s because credit scores were never designed to be an indicator of your overall financial well-being. They do not measure your worth, monetary or otherwise.
You can take pride in a good score, of course, but you shouldn’t assume it means your finances are sound. In fact, some of the things people do to boost their scores can come back to bite them.
One of the quickest ways to increase your score, for instance, is to pay down credit card bills. Some people do this by taking out 401k loans to pay off debts. The debts effectively disappear from their credit reports, because 401k loans aren’t reported to the credit bureaus, and as a result borrowers may see a substantial increase in their scores.
But if these borrowers later lose their jobs, they could be in a world of hurt. In most cases, the loans become due shortly after employment ends, and any unpaid balances become inadvertent withdrawals, triggering big tax bills. The money can’t ever be put back into the 401k, so these borrowers lose out on future tax-deferred returns as well.
Other people use their great scores to pile on cheap debt. People with excellent scores still get 0% balance-transfer offers on credit cards, low rates on auto loans and below-prime rates on home equity lines of credit.
But at some point, that debt load can topple them. Even a small setback — a higher interest rate, a cut in hours at work, a lowered credit limit — can be a crisis when you’ve borrowed too much. People who resisted the urge to load up on debt are likely to do better in this recession than those who didn’t. As with everything else in the personal finance world, you have to look at the big picture — and your credit score is just one of the factors you need to manage.
Are Your Credit Scores Hurting You?
Jordan Crouter
cell: 949-310-6998
www.jordancrouter.com
About the Author
I am on a personal MISSION to empower all of you frustrated stuck entrepreneurs & give you the strength, courage & support to finally turn all of your dreams into reality!
Categories: Credit Score Articles Tags: Credit, Hurting, Scores
Free Credit Report Scores Online – Checking Your Credit Scores Online Is Easy!
Article by Check My Credit Report For Free
Many people understand the value of regularly monitoring their credit report scores. Identity theft affects millions annually. Furthermore, credit report score errors can result in credit card or loan denials. Sadly, many people do not take the necessary precautions to safeguard their credit. There are many ways to protect our credit. To begin, you should make a habit of checking your report every six months.
Why Check Your Credit Report Score Online?
Checking your free credit report score online is the first step to protecting your credit rating. It does not take long for someone to steal your identity. Within a few weeks, a thief may have attained several credit card or credit accounts in your name; and these accounts will appear on your credit report score.
The Purpose of Personal Credit Report Scores
A person’s credit worthiness is judged by information included in their credit report score. When applying for any type of credit, lenders will review your credit score or full credit report. The credit scores are often reviewed by retailers and lenders that offer instant credit. However, if you are hoping to obtain a major credit card, auto loan, major purchase, or mortgage, the credit lender will request a detail copy of your credit report & scores.
What Is A Credit Report Score Used For?
Credit report scores include information such as number of credit accounts, balances, past due accounts, judgments, collection accounts, etc. Based on the information, a lender will determine whether you qualify for a loan. People with several negative scores, or credit report score errors, have a lower chance of getting approved and a higher chance of larger interest rate payment terms if accepted..
When Should I Check My Credit Report Scores?
However, creditors make mistakes. An example, a creditor may have failed to report a past due balance that was paid in full. By checking your credit report score every six months, you will be able to detect suspicious activity and resolve inaccuracies. For double credit protection, subscribe to a credit monitoring service. For a low monthly fee, these services notify subscribers whenever new credit accounts are opened in their name.
It’s Easy To Review Your Online Credit Report Score
Checking your credit report score online is free and convenient. Various credit reporting companies offer free credit report scores online. Simply verify information such as your name, address, social security number, and within minutes you are able to gain access to your report. Reports are easy to read and viewable for a month.
Go to Check My Credit Report For Free.com for more information
Check Free Credit Scores at Check My Credit Report For Free.com
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