Did you know that your income is not listed on your credit report? It’s not even passed along to the credit bureaus with the rest of your information. Experian, Equifax, and TransUnion are not concerned with how much you make. They don’t even care if your checking, savings, or investment accounts have been neglected or mismanaged since your personal banking is not included in the report.
Now, this is not a free pass to go wild spending, or to lose track of your good financial sense when it comes to banking. Rather, it is a caution. Please do not fall into the trap of thinking a great income will automatically earn you a good credit score. Credit bureaus value how you manage the accounts you have wisely, whether it be two or twelve. When it comes to credit, the old adage holds true, “It’s not what you have, but how you use it!”
I make LOTS of money, so my credit score must be awesome. Wrong!
May 5th, 2010But I only missed one payment!
May 5th, 2010CNNmoney.com just released a report that gives us some insight into how credit scores are impacted by missed mortgage payments. Up until now it was mostly guess work, and to a certain extent, it still is. There are so many variables taken into account for each individual’s credit history, that a set scale would be nearly impossible to produce.
Here are some figures that show an average range of impact:
30 days late: 40 – 110 points
90 days late: 70 – 135 points
Foreclosure, short sale or deed-in-lieu: 85 – 160 points
Bankruptcy: 130 – 240 points
As you can see, the spectrum of points you can lose is quite wide. If you have a credit score that is already in good shape, a one time 30 day late payment will hit you harder than it would a consumer with a lower credit score; a consumer with a lower credit score and short credit history will suffer a more dramatic loss than a consumer with a moderate score who has a lengthy credit history. All consumers experience severe point losses if their homes fall into foreclosure, or if they claim bankruptcy.
Though it is far from an exact system, these numbers are a good glimpse into how easily your credit score can slip from the high score you have worked so hard to achieve.
Feeling nervous? We understand completely. The key to success is reaching out for help before you are completely overwhelmed. Contact us today to let us know how we can help you navigate through the credit situations you are experiencing.
What if I only use one of my credit cards?
April 11th, 2010Are you sitting there wondering why your credit score is not so hot even though you only use one credit card? This is one of the most common mistakes we see. Look at the balance on your card compared to that card’s limit. If the balance is more than around thirty percent of the card’s limit, you are hurting your credit score. By exceeding thirty percent of the card’s limit, you earn the label “repayment risk” by credit card companies.
Example: Credit limit- $2,500 Credit balance- $1,850 $1,850 divided by $2,500 = 74%
Your balance on a $2,500 limit would have to remain under $750 to stay below the 30% threshold.
Multiply your credit limit by .30 to find your ideal 30% credit limit to credit balance amount.
Many of our clients find themselves in this boat for various reasons. They want to use only one card so they don’t lose control and take advantage of all their available credit. Or maybe they just want to streamline their bill paying and prefer to only have to pay a higher amount to one company each month. Perhaps they only have one line of credit available. Unfortunately, these seemingly logical approaches will hurt their credit score.
So what can you do? The first step is the most obvious; pay down the balance as much as you can. The second step is to use other accounts/ lines of credit to spread your debt out over a few different cards, reducing your balance to credit limit percentage. As long as you keep it under thirty percent across the board, your credit rating will actually improve, even though you still have the same amount of debt.
Here at New Financial You, we are all about working smarter not harder. Don’t you think it’s time to make your money work smarter not harder for you? We do! Let us help you take that first step today! Visit our contact page and tell us how we can get you on the track to financial freedom.
Life Happens
April 5th, 2010Life happens without warning. Job layoffs, serious illnesses, and divorces wait for no one. In order to maintain all that you have worked so hard for, it is recommended that a reserve for expenses for six to eight months be kept aside, just in case. Imagine how much easier it would be to take a devastating situation in stride, if finances were not a component.
Six to eight months worth of expenses on reserve?! Sounds crazy, we know. That’s why we are here. We can help you raise your credit score, lower your debts, and devise a plan for financial freedom. Ask us today how we can help you!
Women & Debt
April 5th, 2010Statistics show that on average, women across all age groups tend to spend more money than their male counterparts. Generally, women also have a larger number of debts because they tend to owe many small debts to store card, credit card, and catalogue providers. Men, on the other hand, generally have fewer store cards and catalogue debt. Instead, they have larger balances on fewer accounts such as credit cards and personal loans.
Ladies, take a quick look in your wallet or purse and inventory how many retail store cards you actually have. GAP? Macy’s? Foot Locker? Borders?
They add up quickly…
Words of Advice
Don’t fall prey to retail stores and the alluring discounts offered by signing up for their card. If there are one or two stores that you frequent enough to merit the discounts of that store’s card, keep them for the savings but make sure you pay off the balance in full when you receive the bill. Drop the other cards you have in a bowl of water and freeze them so the temptation to use them is gone. Most importantly, do not apply for any new cards. Each new application is a ding against your credit score and another opportunity to dig your debt hole deeper.
Most people are aware that credit scores impact the chances of getting approved for loans as well as the chances of qualifying for the best rates on credit cards. However, did you know that your credit score can also impact your chances of being considered for a new job or promotion? More and more employers are using credit scores as part of their evaluation process. Request your credit report annually and review it for accuracy; if you do find an error, report it and have it removed as soon as possible.
Think twice before co-signing for a relative or friend, or before adding a child‘s or spouse’s name as an authorized user on your credit account. It may be your instinct to want to help, but putting your good credit on the line is not worth the risk.
Knowledge is power. If you are seeking a loan, research the interest rate you qualify for based on your credit score, and don’t settle for less. This will reduce the amount you pay in interest, over the period of your loan.
Don’t become frustrated. Take a few deep breaths and decide where to start. Then take a step in that direction. Before you know, you will be on your way to financial freedom!
Where is all this debt coming from?
- Unexpected expenses (home repairs, car repairs, etc.)
- Relationship breakdown or divorce
- Illness, health issues
- Unemployment or lack of a steady job
- Over-spending (buying things regardless of price)
- Shopping addiction (shopping for unnecessary items to make yourself feel good again)
- Student loans
Don’t let financial snafus bring you down. Get on board with New Financial You! We can, and will, help.
They Sell What?!
April 5th, 2010It’s true. Consumer reporting companies do sell the following information to creditors, insurers, employers, and anyone else with a legitimate need for information:
- Identification information – Name, birth date, Social Security number, employer, spouse’s name. Also, employment history, home ownership, income and previous address, if requested by a creditor.
- Payment History – How much credit you have extended, late payments
- Inquiries – Credit inquiries for the past year, employment related inquiries for the past two years
- Public Record Information – Bankruptcies, foreclosures, tax liens
What does this mean for me?
The sooner you raise your credit score, the better. Creditor’s are in a position that requires them to make decisions based solely on the information they receive from the consumer reporting companies. And yes, it’s legal. So don’t let a creditor get the upper hand! Ask us today how we can help you.
Taking Action: Simple Steps Towards Repairing Your Credit, for FREE!
April 5th, 2010The mere thought of venturing out on your own to help repair your credit score may seem daunting, and possibly make you break a sweat. However, if you focus on a single step at a time, and take deep breaths, you can successfully complete the process on your own, and be one step closer to your credit goals.
Before you embark on this adventure, familiarize yourself with who you will need to contact. Experian, Equifax, and TransUnion are the three major consumer reporting companies (CRC) in the United States. Your credit card companies, mortgage company or landlord, loan holders, and other individuals or organizations through whom you have borrowed money are called information providers, because they provide the three major consumer reporting companies with the information they use to determine your credit score.
Step 1: Request a copy of your credit report from each consumer reporting company, for a total of three reports. You are allowed one free copy per company, per year, under the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act.
Step 2: Review each report thoroughly and check for any information that may not be accurate or complete.
Step 3: Write a letter to the consumer reporting company stating the information that you believe is inaccurate. Include your full name and address, and if possible, provide documentation (copies only) supporting why you believe the information is incorrect. Keep copies of all these documents in case you need to reference them later in the process. * Tip: Use certified mail with a return receipt requested so you have documentation that it was indeed received.
Step 4: Sit back and wait. The consumer reporting company has 30 days to investigate your report. During this time, the information provider is contacted and must review the dispute and report the findings to the CRC. If the information in question was indeed inaccurate, the information provider is required to report the mistake to all three nationwide consumer reporting companies so they can rectify your file. When the investigation is complete, regardless of the outcome, the CRC must give you a written copy of the results. If the dispute resulted in a change of information, the CRC will also send you an updated copy of your credit report at no charge.
For more in depth information about this process, check out www.FTC.gov.
Obtained through FTC.gov
Did You Know?
You are entitled to one free copy of your credit report from Experian, Equifax, and TransUnion annually, but you must request it from them. It will not automatically be sent to you. The consumer reporting company must disclose to you any and all information, positive or negative, that is in your file when you request the report. You must also be given a list of anyone who has requested your credit report within the last year; requests related to employment will be listed for the past two years.
How much do you know about the Credit Repair Organizations Act?
April 4th, 2010The Credit Repair Organizations Act is a federal act that was created in order to protect consumers from fraudulent companies looking to take advantage of people in vulnerable situations. The three main points of this act are as follows:
- A credit repair company cannot request payment from the consumer until their services have been rendered in full.*
- A contract containing a detailed description of the company’s services and time in which said services will be completed must be given to and signed by the consumer.
- Consumers must be given a separate discolsure called “Consumer Credit Rights under State and Federal Law,” stating their right to a obtain a free credit report and dispute inaccurate information on their own, before the contract is signed.
*Unless the company has a surety bond and surety account in place.
Also, credit repair companies are not allowed to perform any services until the consumer signs a written contract. Once the contract is signed, the consumer then has three business days to cancel the contract without penalty. A thorough contract should contain:
- The agreed upon payment amount
- The exact services to be performed and date at which they will be completed
- A disclosure clearly stating the three business day cancellation policy
If at any time you feel that any of your rights under the Credit Organizations Act have been violated, you have the right to take legal action against the offending company.
*Obtained through FTC.gov
What’s the Bottom Line?
The truth is, no one can legally remove accurate negative information from your credit report. If you are hesistant about hiring a company to sort through your credit situation, you are not alone.
Don’t Fall for Fraud
Did you know that some unscrupuloous credit repair companies actually suggest that their clients create a “new” credit identity? They accomplish this by having you apply for an Employer Identification Number, to use in place of your Social Security Number, to create a new credit report. If you follow this illegal advice, you could be charged with fraud, a federal crime, for misrepresenting your Social Security Number.
How can I tell if it’s a scam?
- The company does not give you a copy of the “Consumer Credit File Rights Under State and Federal Law”
- They ask you to pay in full before their services are complete
- The company offers to create a “new” credit identity for you
- They tell you there is nothing you can do , without cost, to help yourself
- They assure you that they can remove accurate negative information from your credit report
- The company does not provide you with a written contract guaranteeing their services
Do You Know How Your Fico® Score is Calculated?
February 23rd, 2010The FICO credit scoring system uses five different categories to calculate your credit risk, which translates into your overall credit score.
The most heavily weighted category, payment history, includes payment information on accounts such as credit cards, loans, retail accounts (Macy’s, Gap, etc.), and your mortgage. It also weighs adverse public records including bankruptcy, lawsuits, liens, judgments and wage attachments as well as collection items and delinquency. Delinquent items, or those that are past due are weighted by the dollar amount past due, the severity or length of time past due and number of past due items on file. Also taken into account is the recency, or time since having past due items or adverse public records on your account.
Amounts owed encompasses how much is owed on specific accounts, number of accounts with balances remaining, the proportion of balances to total credit limits on accounts (ex. $1,796 on a card with a $2,000 limit) and the proportion of loan balances still remaining to original loan amount (ex. $48,571 left on a $356,000 loan).
Length of credit history includes the time since the accounts were opened, as well as the time since any account activity has occurred.
New credit takes into account credit inquiries and the time since credit inquiries, as well as number of recently opened accounts and the time since recent account openings. It also includes the re-establishment of positive credit history, following past payment issues.
Types of credit used is the number of and recent information on various types of credit (ex. credit cards, loans, mortgage, etc.)
What does FICO mean?
FICO is a registered trademark of the Fair Isaac Corporation. In 1956, Bill Fair, an engineer, and Earl Isaac, a mathematician, founded Fair Isaac Corporation as a consulting service and enterprise decision management system. In 1958, they began developing their credit scoring system. By the 1970’s it was a success and the first credit scoring system that could predict credit risks related to its existing customers. Today, FICO scores are the most widely used credit scores in the world.
Did you know?
- That every time a potential landlord or lender pulls your credit up for review, an inquiry is placed on your credit report?
- These inquiries can remain on your credit report for up to two years, negatively affecting your credit score.
- To minimize the number of inquiries, make all loan requests within a two week period so the credit report lookups are bundled together as one single request.
