Archive for the ‘Personal Credit’ Category

Repairing a Low Credit Score

June 15, 2011

There are a couple points to make at the outset.  First, there are no easy fix, fast track methods to repairing and rebuilding poor credit.  It… just… takes… time.  Remember your credit score (and report) reveal your track record of managing payments.  If your score is a consequence of your actions, time is how your score will be repaired.  You didn’t drop to a low score overnight, even if “life” did happen (job loss, health problems, divorce, etc.).  This situation took time.  Don’t expect to bounce back to a 780 score overnight.  You need time to prove your ability to manage your finances and to pay expenses responsibly. 

The second point is to avoid unscrupulous credit repair service companies.  These companies often prey upon unsuspecting consumers promising to “fix” someone’s credit and to remove unfavorable information for “3 easy payments of $49.95”.  Nothing could be farther from the truth.  While errors on reports are not uncommon, truthful information no matter how unsavory cannot be removed.  If a bankruptcy or foreclosure happened, it will be reported and will be there for some time.  If you have a credit score, you are an adult.  Let’s not whine about a low score, let’s be proactive and start on a better path.  (If you have not reviewed your credit report in some time, visit http://www.annualcreditreport.com/ where you can receive a free report with your current scores once every 12 months.)

Okay, so you are behaving.  Your bills are paid as promised, you have a very low debt to income ratio, manage your money well and stick to your budget, and learn your credit score is not where you expected it to be.  Now what??

Start by reading your credit report.  Is the information listed correct?  Many times a keystroke error is all it takes to suddenly combine someone else’s credit history to yours and negatively affect your score.  If you are a “Jr.” or “Sr.” you can certainly understand this scenario.  Other times it may be that a debt has been fully paid and the creditor has stopped reporting the information to the credit bureaus so that a remaining balance still shows. 

If you believe your credit report contains an error you have the right to contact the credit bureau that reported it and dispute the information.  There is no cost to dispute this information and it isn’t complicated.  The best way to communicate with any credit bureau is in writing.  (Our website contains a sample dispute letter you can use.)  Provide your complete name and address, the item(s) in question, why the item is being disputed, and your request to have this corrected or removed.  Include a copy (never the original) of the documentation you have supporting your claim and a copy of your credit report with the items in question circled.  Keep a separate copy of everything you are sending to the bureau along with a diary of any activity, conversations and contacts. 

The reporting credit bureau has 30 days to investigate the disputed information and provide you with a written report of the findings.  The bureau is also required to send you a copy of your updated credit report if the disputed item has been changed as a result.

In general with time, a solid financial plan, and some perseverance you can repair, build and maintain your own credit standing.

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Handling Credit After a Bankruptcy

December 1, 2010

Enduring a personal bankruptcy can be a very traumatic event in a person’s life.  Those who have faced this process often find they are extremely fearful of using any sort of credit, such as a car loan, mortgage or credit card, ever again.  However there are two critical steps that must happen to begin repairing the damage done to your personal credit.  We should disclose here that we are discussing a Chapter 7 Bankruptcy where debts are discharged and not a Chapter 13 Bankruptcy where debts are paid under a monitored repayment plan.

The first step is to make sure that your debts are fully discharged by your creditors.  At this point, there is no financial motivation for them to continue reporting to the credit bureaus so your credit report may still reflect a remaining balance owed.  This can easily be confirmed by requesting a copy of your credit report from all three credit bureaus.  Our website has information on how to do this.  If anything is incorrect, you will need to challenge the information.  Don’t let the sound of this intimidate you.  We also have details on how to handle this step with a sample dispute letter you can use on our website too.

The second significant step, and maybe the part that causes the most concern, is re-establishing your credit.  As scary as this seems, you cannot just ignore the financial world.  So many things are linked to your credit score like auto insurance and even future employment that you really can’t afford to ignore this.  Here are ten tips to get you started on re-establishing and maintaining good credit.  

  1. Apply for a credit card.  To establish a strong credit history you need a line of credit with consistent activity for at least 12 months after the date of discharge.  You don’t need a large line of credit or to charge high dollar amounts, just consistent use and timely payments.
  2. Make all your payments on time.  This not only includes lines of credit, but utility payments as well.
  3. Avoid late fees.
  4. Stay current on all payments.  Since you are starting over to rebuild positive credit there is little history to work with.  A single late payment on even a $20 balance can lower your credit score by as much as 100 points at this time.  The due date is when your payment must be received, not mailed.  Make your payments early whenever possible.
  5. Keep your credit card balances at less than 50% of your credit limit.  This is a little secret with huge implications. Staying below that 50% level has a strong and very positive affect on your credit score.
  6. Do not open new credit cards as a means of increasing your overall available credit.
  7. Review your credit annually.  You can obtain a free credit report once every 12 months from each credit bureau by visiting www.AnnualCreditReport.com
  8. Establish a realistic budget.
  9. As for help if you need it.  No one has all the answers, seek support if you have questions.
  10. Start now.

Facing a bankruptcy is traumatic, but it doesn’t have to define or limit you.  Our website has more details on these tips plus other information on building and maintaining your personal credit.  You are also invited to call us with your questions too at 866-982-9273.

Physical and Financial Fitness – Who is Responsible?

February 9, 2010

We recently found a blog post by Philosophy Professor Nina Rosenstand from San Diego Mesa College where she raised the question of whether or not staying slim was a moral responsibility.  She implicitly asked who should ultimately be responsible for our own physical health, and whether or not an employer could assume this task.  While the focus of her article was on physical fitness, it got us thinking.  Who is ultimately responsible for your financial fitness? 

In the same way our weight is used as one indicator of physical health, a person’s credit score is used to portray a person’s financial fitness.  Your credit score measures your fiscal responsibility from the past up to the present.  Like your weight, this too is only one indicator of your overall financial health.   A credit score doesn’t account for factors outside of your control like a company closing leaving you without a job and therefore no income, that potentially leads to foreclosure.  Your credit score doesn’t explain a divorce that suddenly cuts your income in half. 

However, do the occurrences of life totally void us of all responsibility when it comes to our finances?  Are “we the people” to some degree responsible for this messed up economy due to our collective lack of financial accountability?  Can we be allowed to wash our hands of financial integrity just because “life” happens?  Shouldn’t we expect the unexpected to happen?   

Being financially sound (i.e.: strong credit scores, emergency savings, balanced budgets, living within our means) has many benefits such as lower health and auto insurance rates, better interest rates, and even job offers.  Should we push the blame of financial blunders onto someone else?  At what point do we say this is my life, my finances, my responsibility?  Along with teaching our children about living healthy, we need to also teach them financial responsibility.  Perhaps we might find that sound financial health can lead to better physical health.

We are not so ignorant (nor arrogant) to think that hiccups are not going to occur along the path of life.  They do.  And if you have not experienced one, odds are you will at some point.  As a company we are bound by industry and legal regulations to enforce set standards of acceptable financial health.  However, we also want to help our clients improve and maintain optimal financial health.  We cannot fix a client’s struggling credit any more than we can do sit-ups for you, but like a personal trainer we can offer guidance, suggestions and helpful ideas. 

What are your thoughts?

What exactly is a Credit Score? (part 4)

January 29, 2010

This is the last post from this series on your credit score.  To review, we discussed what information was on your credit report, contributing factors to your score, and how to build and maintain a strong credit score.  This post will highlight ways to repair a damaged credit score.

Part 4 – How can I repair a low credit score?

There are a couple points I must make at the outset.  First, there are no easy fix, fast track methods to repairing and rebuilding poor credit.  It… just… takes… time.  Remember your credit score (and report) reveal your track record of managing payments.  If your score is a consequence of your actions, time is how your score will be repaired.  You didn’t drop to a low score overnight, even if “life” did happen (job loss, health problems, divorce, etc.).  This situation took time.  Don’t expect to bounce back to a 780 score overnight.  You need time to prove your ability to manage your finances and to pay expenses responsibly. 

The second point is to avoid unscrupulous credit repair service companies.  These companies often prey upon unsuspecting consumers promising to “fix” someone’s credit and to remove unfavorable information for “3 easy payments of $49.95”.  Nothing could be farther from the truth.  While errors are not uncommon on reports (we’ll discuss this in a moment) truthful information, no matter how unsavory, cannot be removed from your report.  (For information on fraudulent credit repair services, what to avoid and how to report illegal activity visit our website for more information.)  If a bankruptcy or foreclosure happened, it will be reported and will be there for some time.  If you have a credit score, you are an adult.  Let’s not whine about a low score, let’s be proactive and start on a better path. 

Okay, so you are behaving.  Your bills are paid as promised, have a very low debt to income ratio, manage your money well and stick to your budget, and learn your credit score is not where you expected it to be.  Now what??

Start by reading your credit report.  Are the creditors listed, those you actually have or have had accounts with?  Are your name and aliases correct?  Are your date of birth, social security number and address(es) correct?  Many times a keystroke error is all it takes to suddenly combine someone else’s credit history to yours and negatively affect your score.  If you are a “Jr.” or “Sr.” you can certainly understand this scenario.  Other times it may be that a debt has been fully paid and the creditor has stopped reporting the information to the credit bureaus so that a remaining balance still shows.  Surprising as it may sound, even with all the computer systems in the world, credit reports are ultimately managed by people capable of making mistakes.  (No really.)

If you believe your credit report contains an error you have the right to contact the credit bureau that reported it and dispute the information.  There is no cost to dispute this information and it isn’t complicated.  The best way to communicate with any credit bureau is in writing (go old school here) with the letter sent by registered mail with a return receipt to confirm they now have your letter.  (Our website contains a sample dispute letter you can use.)  Provide your complete name and address, clearly identify the item(s) in question, explain why the item is being disputed, and your request to have this corrected or removed.  Include a copy (never the original) of the documentation you have supporting your claim.  (For example, if you paid off that credit card, include a copy of the final statement showing a $0 balance.)  Also include a copy of your credit report with the items in question circled.  Keep a separate copy of everything you are sending to the bureau along with a diary of any activity, conversations and contacts. 

The reporting credit bureau has 30 days to investigate the disputed information and provide you with a written report of the findings.  The bureau is also required to send you a copy of your updated credit report if the disputed item has been changed as a result.

In general with time, a solid financial plan, and some perseverance you can repair, build and maintain your own credit standing.

What exactly is a Credit Score? (part 3)

January 26, 2010

In part 1, we covered what information was included in your credit report.  Part 2 revealed the components of your credit score and how much each one contributed to your overall score.  Part 3, covers how to manage your credit.

Part 3 – How do I build good credit?

Your buying, and more importantly payment habits, have a direct impact on your credit rating.  Your rating, or credit score, is based on payment history.  The better you are at paying your debt obligations as agreed and when agreed, the higher score you will receive.  Here are 10 tips to establishing and maintaining good credit.

1.  Apply for a credit card.  Creditors want to know you can not only handle debt, but also different types of debt obligations.  This is not a free pass to open an account with every retailer in the mall however.  Limit yourself to no more than 2-4 cards and make your payments on time and for at least the minimum amount each month.  Your credit cards are to be used to maintain or to build credit, not as a way to live beyond your income level.

2.  Make all your payments on time.  As mentioned above, the due date is when your payment must be received, not postmarked.  If this is a challenge for you, consider automatic bill payment.  This is now offered by most creditors, utility companies and banks at no additional cost.

 3.  Avoid late fees.  Late fees are a key indicator that your money is controlling you, not the other way around.  Be advised though, that just because you are not being charged a late fee, does not mean your creditor does not consider your payment late.  Watch your due dates.  (Can you tell timeliness is rather crucial?)

 4.  Stay current.  If you have had a problem and are behind in payments, get current and stay current.  Call your creditor and talk to them.  They are willing to work with you, but they are not mind readers.  They cannot help if they don’t know what is going on.  Most creditors these days would rather receive some payment than nothing at all.  Communication is key, along with a willingness to make an attempt at repayment.  This step can often avoid an account going into collections.

5.  Keep your credit balances at less than 50% of the limit.  This is crucial!  A little known secret here, whether or not you pay off the balance of your card each month, keeping your balance to nothing higher than 50% of the credit limit shows you have available credit.  Available credit means you are most likely not overextended, and that can mean low credit risk.

6.  Do not open new cards as a means to increase available credit.  It is far better to manage a few accounts successfully, than to have several accounts with little to no activity.  Remember the idea is to prove you can manage your finances, not that you can open accounts.

7.  Review your credit annually.  Knowing what your creditors are reporting helps you avoid surprises or potential problems.  It is not uncommon to find errors on your credit report. 

8.  Establish a budget.  Despite how some may feel, ‘budget’ is not a four-letter word.  It is a plan for you to control your money so that it does not control you. Non-mortgage debt should not be more than 20 – 30% of your gross monthly income.

9.   Ask for help if you need it. No one is perfect or has all the answers.  If creating a realistic, working financial plan seems out of reach, ask for help.  Consider contacting a reputable credit counseling organization with trained advisors in this area.  Do not be confused with a Credit Repair Company though.  Many offer claims to remove information from your credit report.  You cannot remove truthful information.  Time is your ally for credit mistakes. 

10.  Start now.  Just because your credit has been a problem does not mean that all hope is lost.  You can have great credit again – just start.  Pay all your bills on time, every time, as agreed.

The Rules are Changing

January 25, 2010

Over the past couple of years requirements for obtaining a mortgage loan have become tougher to say the least.  For example, no longer can you simply just tell your lender what you earn – you need to prove it.  Your credit scores also need to be very good or excellent to be approved.  Just having a pulse no longer works either.

The plus side of tighter regulations is that consumers are more prepared to purchase a home.  They have worked to maintain a strong credit score; they have money to not only use as a down payment, but also funds available in reserve for after the sale.  Lenders themselves are also doing their homework.  They are paying much more attention to what is in the best interest of the borrower, and not just the bottom line.   Lenders that have not are no longer in business.

So what changes are being proposed this time?  The most significant changes are an increase in the minimum credit score, an increase in the upfront mortgage insurance premium, and a decrease in the amount a seller can contribute to a buyer’s costs. 

For most borrowers, the increase in the minimum credit score has already happened in effect because of what individual lenders will allow.  According to FHA policies, borrowers are required to have a minimum FICO credit score of 580 to qualify for the minimum down payment requirement of 3.5%.  Most lenders however, have a much higher requirement, most at a 620 score or better in order to qualify for a loan.  If you find a lender that will still accept the lower minimum score, be prepared to pay higher fees or accept a higher interest rate.

The increase in the upfront mortgage insurance premium is a significant change.  Until now, when a borrower has less than 20% invested into the home, mortgage insurance is required.  This insurance is to protect the lender in the event of a foreclosure.  FHA is a self-funded government agency that has been able to support itself from the monies raised from these premiums.  However, with the recent increase in foreclosures, the agency has had its reserves fall below the minimum level set by Congress.  FHA hopes that increasing the premium from 1.75% to 2.25% of the total loan amount will resolve this problem.  Unfortunately this means that the borrower of a $100,000 house will have the upfront premium increase from $1,750 to $2,250, or $500 more.  This change will become effective sometime this spring and for now only affects the upfront premium, not the monthly mortgage insurance premium.

The final change is a decrease in what a seller can contribute toward the buyer in a purchase transaction.  Until now, a seller could pay for up to 6% of the buyers closing costs.  This will now decrease to a 3% maximum.  This too will affect the amount of money a buyer will need to invest into a purchase transaction.  This change is expected to be effective in the early summer.

All this means that if you have been thinking about purchasing a home, ‘now’ is becoming a better and better time to do so.  Especially when you consider the extended home buyers credit that offers up to $8,000 for first-time buyers and up to $6,500 for other buyers who meet the qualifications.  If you need to wait though, don’t panic.  Simply be prepared to be more prepared when buying that home you have your eye on.

What exactly is a Credit Score (part2)

January 22, 2010

Last time we gave you some information on what components are included on your credit report.  This time we’ll dive a little deeper.

Part 2 – How is a credit score determined?

Have you ever wondered how that three digit number that so much of your life depends on these days is reached?  While no one outside of the organization that designed the number knows exactly, some basic information is known. 

Your credit score is a complex mathematical model designed by the folks at the Fair Isaac Corporation (FICO).  Three different credit bureaus use the data collected to determine an actual score based on this model.  The data is reported by creditors to these agencies – Equifax Credit Information Services, Experian and Trans Union National Disclosure Center.  (You can find links to these agencies on our website.)  A credit score can range from 300 – 850 where, the higher your score the less risk you represent.

Your score is based on five criteria that carry a different ‘weight’ in relation to the whole score.     

1)      Your history of payments accounts for 35% of your total score.  Payment history covers how you pay your bills and if there have been any collections, bankruptcies or judgments. 

2)      The balance and available credit on your accounts factor 30% into your score.  An account near the credit limit poses a much higher risk than one at less than 50% of the limit.

3)      The length of history on any account has a 15% weight.  The longer an account has been open and active, the more time you have had to ‘prove’ yourself. 

4)      The number and type of credit you have accounts for 10%.  More open accounts, has a potential for greater debt and therefore a lower score.  More variety of accounts though can show more experience with different types of credit and generally a higher score.

5)      New credit accounts for the remaining 10%.  Brand new accounts often signify new debt.  Multiple inquiries within a short timeframe can also indicate you are looking into taking on debt. 

In general, lagging payments and multiple new accounts can indicate a problem and therefore reduce your credit score.  The better you are at managing your finances and paying bills as expected, the lower risk you are and that translates into a higher credit score.

What exactly is a Credit Score? (part 1)

January 18, 2010

It is nothing new, that a report of your credit is ordered when applying for a loan.  But in recent years, your credit standings are used to determine so much more, like how much you will pay for auto and home owners insurance.  Your credit can also be used by potential employers as a criterion for offering you a job.  That 3 digit number wields a great deal of power these days.  So just how is that number determined?  Maybe more important is how can you control it?

The next few posts will touch of some of these questions to help you understand, what a credit score is, how it is determined, how to build a good credit score, and how to repair a low score.

Part 1 – What goes into a credit score?

Your credit score will include four types of information: public record, credit, credit inquiries and personal.  Information of public record are pieces reported by the judicial system.  It may include judgments, foreclosures, bankruptcies, tax liens, or overdue child support.  Depending on what type of information is disclosed on your report, the data could stay there for 7-15 years.

Credit information is data relating to specific accounts you have or have had in the past.  For each account the date opened, credit limit (or original loan amount), balance, payment amount and payment history will be listed.  Your report will also detail those accounts you are a co-borrower on.  Negative information can remain for up to 7 years from the date it was last reported.  Fortunately positive information can remain indefinitely.

Requests by other creditors to review your credit history will also be listed on your report along with the date requested.  This information is visible to anyone else who may request your credit.  Information for the purpose of extending pre-approved credit offers are only revealed to you and do not impact your overall credit score. 

Personal information includes your name, address, phone number, social security number, date of birth, employer and sometimes your job title.  The report will include both current and past information.

Knowing this, it is easy to see why your credit report is so important to understand and monitor.  The next post will touch on what goes into determining your actual score.