by Brad Burnett - Monday, October 29, 2012
By Jim Wang
Kept a library book out too long? There are plenty of surprising ways to damage those all-important credit numbers.
The FICO credit-score equation might be a black box, but thousands of articles have been written about what you should and shouldn’t do when it comes to your credit score. Most of them are pretty obvious: pay your credit card bills on time, don’t apply for a lot of credit, and keep your nose clean. There are, however, a lot of weird ways you can hurt your score without you even realizing it.
Closing credit cards
This has become less “strange” in recent years, but closing your credit cards can hurt your score. What seems like simple financial housecleaning affects a variety of factors that go into your credit score. When you close a card, your credit limit drops, which increases your credit utilization (bad). If that card is older than most of the other cards you have, the average age of existing accounts will also fall (bad). These are not as bad as an account in collections, but they could mean the difference between a good credit score and a bad one.
Not filling out a moving form
When you move, it’s important to report your change of address to the United States Postal Service or you risk missing important mailings such as credit card and utility bills. The last thing you want to do is get behind on payments, because that will be reported to the credit bureaus. Some credit card companies will report you as soon as you are 30 days late. While you’re at it, be sure to hold your mail when you go away. You don’t want someone stealing your mail and your identity.
Asking a banker to check your score
If you have friends who work at banks, especially if they are in lending, you might be tempted to ask them to check your credit score for free. Rather than jump through the hoops of free credit-score companies or paying for it yourself, it might seem harmless to ask a friend to look it up. Besides probably being misuse of company resources, that small favor will result in a hard inquiry on your report, which will hurt your credit score. When you look up your own score, the credit bureaus treat it as a soft inquiry because you are asking about yourself. When you ask your bank, all the bureau see is a bank requesting your score, as if you had applied for a loan.
Not paying library fines
Years ago, owing the library a few dollars wasn’t a big deal. Today, with local budgets in a pinch, everyone is trying to find ways to make more money and fund valuable community services. This means that some libraries are sending even the most trivial of debts to collection agencies. Those agencies tack on their own fees and penalties and report the debt to the bureaus, and that can have a devastating effect on your credit.
To read the full article click here: http://money.msn.com/credit-rating/7-weird-ways-to-hurt-your-credit-score-usnews.aspx
by Brad Burnett - Monday, October 22, 2012
It sounds like a good way to help consumers who lack full credit reports, or any credit report at all: Report their utility payments to credit bureaus, to help them develop credit files.
Currently, most gas and electric utilities don’t report most consumer payments to credit bureaue. They typically report only extremely delinquent accounts that they have written off as uncollectable, rather than those that are merely late or those that are paid on time.
But proponents of full utility reporting argue that giving consumers credit for on-time payments can help them develop a credit file and a credit score, which can be key to economic advancement. Supporters include United States Representative Jim Renacci, who has co-sponsored a bill (H.R. 6363) that he says promotes reporting of on-time utility payments. “Those who have yet to gain credit should be able to use all of the tools available to them to establish their credit worthiness,” he said in a statement announcing the measure.
Read the full article here
by Brad Burnett - Monday, October 15, 2012
An inquiry occurs when someone pulls a credit report on you. There are two main types of inquiries. There is a hard pull, which is when a creditor is looking to extend you credit. And there is a soft pull, which is where a current creditor is seeing how you are doing with other creditors. Soft pulls don’t count against you like a hard pull does. Those two are very influential even though the hard pull is the only one that will actually take points off of your score. There is one final type of inquiry, but it isn’t with your financial credit reports. There are insurance weighted reports for your auto insurance, or your home insurance, and then there are employer reports, as well as apartment and rental agency reports, so each one of those can be pulled as well. The chief ones that we’re concerned with are financial reports.
Individually, a hard inquiry may count as much as three to ten points against you, depending on where you are on the point pyramid. They stop counting against you, even though they’re still on your report, after 12 months. The inquiry stays on your credit report for two years so it’s important to know the subtleties of how the credit scoring software works. Even though the three to ten points goes away after 12 months, the aggregate effect still counts against you for the full 24 months.
Let’s review the collective effect. Number one, it reduces your credit score based on how many pulls you’ve had over a certain period of time. It may not be dropping your credit score because that’s what happens individually, but you can still be denied credit because of the number of inquiries you have on your credit report.
by Brad Burnett - Monday, October 8, 2012
Installment loans are the foundation of your credit. They build resiliency and they establish both quality and quantity in your profile. An installment loan is a one time delivery of funds, it has a fixed number of periodic payments, usually includes simple interest instead of amortized interest, and it’s one consistent payment throughout the period of your loan. Installment loans yield the highest number of points per account because they come onto your report and they go into your closed accounts portfolio when they’ve been completed.
You want your installment loans to be diverse to receive the highest number of points. Your installment account portfolio must have no derogatory items. There is a little boost in credit score points if you are an elite or strategic borrower.
Your installment loan portfolio contributes to your score in two ways. One is each individual account. The other way they contribute is as a total or as an aggregate.
The most valuable part of an installment loan is actually when it’s finished, paid off, and put into your closed account portfolio because that shows longevity. If you have 15 or 20 years of successful loans that have been delivered into your closed account portfolio, it shows great resiliency. If you have paid the first twelve months of your loan, you get 40 percent of the available points for that account. If you pay for 24 months, you get an additional 30 percent, for a total of 70 percent for that 24 month period. It doesn’t matter if it is a 36-month loan or a 72-month loan, you have picked up 70 percent of the points within that two year period and the rest of the credit score points for that account are divided equally over the remaining months.
If you have a HELOC with a high balance, one of the best things you can do is work with your financial institution and convert it from a HELOC into a second mortgage. If you have a low balance on your HELOC, we encourage you to keep it for the reasons we’ve already discussed in other articles.
The next point for existing loans is to be able to optimize those installment balances. We’ve hinted towards this, but any time you have additional funds you want to apply them in the most intelligent way so that you can either pre-pay on the best accounts to receive additional credit score points or you can lower your balance to loan limit ratio on the accounts that will give you the most credit score bang for your buck. Make sure you are always strategically using extra funds to create the highest possible boost to your credit score.
by Brad Burnett - Monday, October 1, 2012
Revolving accounts show your creditors longevity, consistency, and utilization. The definition of a revolving account is that the borrower may use or withdraw up to a pre-approved credit limit. The amount of the credit available can be raised, but you can tap out the entire limit, then pay it off, then tap it out, and pay it off, it is revolving. The credit line may be used repeatedly and the borrower makes payments on a percentage, usually about 4 percent of the balance.
There are two calculations that are extremely important when considering how revolving accounts contribute to your score. One is on the individual account level and the other is on the aggregate account level, or the entire portfolio. All the factors that go into your revolving account portfolio are how the bureaus come up with your revolving account values.
It’s essential to understand that the use of your credit card creates traffic and it satisfies the financial institutions. Remember that MasterCard or that Visa is being used everywhere you go and those merchants are paying 3 percent to the banks and to Visa MasterCard for processing, so there’s a lot of money changing hands out there, just by you using that card. It also proves how well you manage your accounts. When you demonstrate the proper use of balances the FICO scoring software rewards you because it scores your revolving accounts based on what is known as a balance to limit ratio.
The type of card that is in your revolving account portfolio has a great deal to bear on how many points you get and the value of your overall revolving account portfolio. Most consumers do not know that all cards are not created equal. In fact, they’re radically different. Here is an example. All the cards that I’m going to mention right now, are five years old, they have balances of $1,000 and they have limits of $5,000. A Visa or Mastercard will have 100 percent of the credit score points, given this scenario. If you have a Discover card or an American Express Card, you’re only going to get 80 percent of the possible credit score points. If you have department Store cards you’re only going to get 60 percent of the possible credit score points. If you have finance company cards, you’re only going to get 40 percent of the possible credit score points. By having a finance company card in your revolving account portfolios, you actually put a lid on your ability to raise your credit scores. If you have a Home Depot card or a Lowes card, you’ve automatically taken away the possibility of getting 100 percent of the possible credit score points.
American Express and Discover and I’ll tell you exactly why they’re worth less in points in your revolving account portfolio. They’re cards are not ubiquitous. They are only offered by their respective company and therefore have less availability and less buying reach compared to other cards. Wells Fargo doesn’t offer an American Express card; Citi Bank doesn’t offer an American Express card. They do offer Visas and MasterCards. So American Express and Discover are the only companies that profit by use of their cards. Because they are not as widely accepted, they don’t have the same caliber of offering out in the marketplace and not as many merchants accept them for payment.
Some department stores that carry their own paper include, Target, Macy’s, Dillards, and Nordstroms. They all have their own retail sections of their organizations and they offer credit cards for their stores and some now offer credit cards that you can use anywhere Visa or MasterCard is accepted. Unfortunately, more often than not, the usage is extremely limited and, though there may be other participating stores, you can usually only use them at one store. Most of these cards don’t get up into the elite borrower limits, and again, they’re only worth 60 percent of the possible points that are reserved for Visas and MasterCards. As with Discover and American Express, the named department store is usually the only merchant that make any profit from them. No banks or other merchants get involved in the profit and earnings so they are valued less.
The last group is the finance company cards. They are listed on your credit report using three to five letter designators. An example is Care Credit, which is for medical, dental, and veterinary care as well as cosmetic surgeries. If you apply for Care Credit, that credit line is going to be limited, and it is only worth 40 percent of the possible points. Home Depot, Neiman Marcus, Saks, and Victoria’s Secret are all examples of very popular, very profitable stores that use finance companies to carry their paper. Even though it may say Visa or MasterCard, it’s still a finance company card. That’s why, when we talk about the Visas or MasterCards, we’re talking about the big national banks and the credit unions. Those are the Visas and MasterCards that you want to use.
Let’s take a look at the good things and bad things about a HELOC and why we want to keep it or why we ultimately don’t want it when we are finishing the development of your 800-plus profile. It is a revolving account, but it’s secured, so it is an exception to the rule that revolving accounts are not secured. It uses one of the vital revolving account slots. HELOCs are a good thing if it has a low balance. If it’s “tapped out,” you are going to find you’re blowing out the entire revolving account portfolio.
Beware the Secured Credit Card
Another special case, just like the HELOCs had some special conditions about them, is secured Visas and MasterCards. A secured Visa or MasterCard may be the first credit card that young borrowers, or folks who are rehabilitating their credit have access to. At CreditSense.com we have taken the time to research and find secured credit cards that meet our stringent criteria. We reviewed all the major banks and found the cards that will help build your credit score in the best way. Make sure you apply with a national bank like US Bank, Citibank, Bank of America, or with a credit union. This is important because there are many, many secured cards offered through finance companies and you’re only going to get 40 percent of the possible points. That’s not going to help you. You want 100 percent for that slot that’s in your revolving account portfolio. You also want to apply with those organizations that report to all three credit bureaus. If they’re not counting the score, it’s not worth it, so we want to make sure that what ever account you go with gets reported to all three credit bureaus. National institutions let secured cards become unsecured between twelve and eighteen months. Secured cards don’t have grace periods, they’re due when they’re due. In order for a card to become unsecured, you have to make the payment flawlessly on or before the due date for that twelve to eighteen months or it resets the calendar. They’re great at starting out a credit profile. If you have bad credit they’re great at getting back into the credit game because they become unsecured, but you’ve got to make sure you follow those rules very, very carefully.
by Brad Burnett - Monday, September 24, 2012
Credit cards have become essential pieces of plastic within the wallets of Americans. Without them, people feel out of the loop and unable to fully feel safe if an “emergency” arises.
The problem is; most credit cards aren’t strictly for emergencies. They are often over used and under monitored, causing their owners to fall into serious debt; sometimes even having to file for Chapter 7 personal bankruptcy.
MSN has detailed the 7 most commonly committed mistakes when it comes to credit card usage.
Paying Your Bill Late
This is one of the most common mistakes. This is a big one too, with higher interest rates and lower credit scores at risk when you don’t pay what’s due on your card. Experts suggest paying bills online so you can monitor your account before it’s too late.
Balance Transfer Nightmare
Some offers seem like a great idea; move high interest balances to low to no interest cards in order to save on the interest. However, some cards have fine print that states the rate will rise to much higher than the introductory rate after the promotional term is completed. Beware say the experts.
Read the full article here
by Brad Burnett - Monday, September 17, 2012
Collection agencies have the reputation of being mean, invasive bullies. They will call you repeatedly throughout the day harassing and threatening you.
If you don’t pay them they threaten you with unmentionable, although often incredibly creative, threats to “persuade” you. Recently one collection agent for Wells Fargo even went so far as to call 911 on an 85 year old woman because of a comment she made regarding the harassment she was experiencing.
If you are ever in the unfortunate position to be contacted by a collection agency the following tips will help you navigate that minefield in the best way possible.
Tip #1: Negotiate Before Being Report to the Credit Bureaus.
If you receive a letter from any collection agencies threatening to report the account to the credit bureaus if you don’t pay them, use the Collection Agency Dispute template found at CreditSense.com. You have 30 days to respond to their letter, forcing the collection agency to prove they have a right to collect this debt. Make sure they send you the appropriate proof of right to collect documentation. If the collection agency has a legitimate right to collect then it is time to open the discussion for possible settlement. We have clients that have been able to save over 60% after negotiations, and they were able to keep the collection off their credit report.
Tip #2: Fair Debt Collections Practices Act Violations.
The Fair Debt Collections Practices Act (FDCPA) is a comprehensive law designed to protect debtors from abusive practices. If collection agencies are actively collecting from you, print and use the FDCPA Monitoring Form to monitor the collector’s compliance with the FDCPA. Merrill Chandler of CreditSense.com recommends you write a letter to the collection agencies in question, informing them that you want to only be contacted through US mail. If they don’t comply they are exposing themselves to a possible lawsuit.
Tip #3: Negotiate With Collection Agencies
When calling collection agencies to negotiate the removal of one of the accounts in their possession, there are a couple of ways to go about it depending on the personality of the collector you speak with. If you get a congenial account rep, you can ask for a favor during your negotiations, and look to their good graces for the removal of the account from your credit report upon payment. If you are polite and gracious your chances are good. Be polite even if they deny your request. You can always call and talk to a different rep tomorrow. Look for a representative with whom you feel some “chemistry.”
Be Casual and Nonchalant
For most other types of personalities the strategy that seems to work well (and sometimes better) is to act casual and nonchalant about why you want to pay off their account. Ask the account rep if the receipt of payment for the balance in question is worth a letter to the bureaus requesting its removal from your credit reports. If it is, then you are willing to pay them, if not then you will continue to let it age until if falls off your credit report on its own.
Wait Them Out
Remind the account representative at the collection agencies of the age of the accounts, how close they are from falling off your credit report, and how much pleasure it would give you to let him or her get the credit for its collection.
Tip #4: Get Proof of Your Agreement
Since collection agencies are notorious for being difficult to work with, it is very important to ask for and obtain documentation that will verify any agreements that you make regarding payoff BEFORE you make a payment. “Get it in writing.” To ensure your success and not be duped by the collection agent, be sure to require a letter from the account rep on official collection agency letterhead. The letter needs to state: “Upon settlement of the account, a letter [aka hot maintenance request] will be sent to all three credit bureaus asking them to remove the account from their records because [and this is important] the account was erroneous, inaccurate, or unverifiable.” Also ask to receive a copy of the same letter/email/hot maintenance request for your records.
A Letter Can Save You
Once you have received the letter, pay off the account. If the account rep does not send the agreed upon letter to the bureaus and the account is not removed from the credit report, this letter is the only recourse you have to enforce the account’s removal with the credit bureaus. Do not hesitate to make a complaint to the collection agency management. It can also be used to file a lawsuit against collection agencies for damages. Some collection agencies are more than happy to send “deletion” letters to the bureaus in exchange for payment. Remember to cover your bases!
Tip #5: Settle For Less Than the Full Balance
Most collection agencies buy accounts for pennies on the dollar. They will still make money if you pay less than the full amount. It is not uncommon to receive a settlement amount of 20-50% off. Negotiate your best price but remember the account representative may not negotiate both a settlement and its deletion from your credit report. You may be paying for credit score points that will help you start to fix your credit score.
Tip #6: Block your Call
If you don’t want to be called early in the morning, at lunch, at dinner and all other times throughout the day, use a Google Voice creditor contact number to call your creditors. If you are not using a Google Voice number, make sure you dial *67 when making any calls to creditors or collection agencies from your regular phone. *67 makes it so they cannot trace the phone number from which you are making the call. This will help avoid future harassment.
Tip #7: Pay back
Many clients of CreditSense.com have found that the harassment is too much and they want retribution. If you monitor a collection agency and discover that they have violated any sections of the Fair Debt Collection Practices Act, you may be able to bring a lawsuit against them and be compensated. If you are considering this seek legal advice. Our suggestion here is not to be taken as legal advice and you should consult with a licensed attorney.
We hope you never need to use these tips, but you can always share them with a friend who might need them. You or your friend can also go to our credit recovery section on CreditSense.com to help them fix their credit score. These tips will help you save money and start you on the road to a great credit reputation again, and that makes CreditSense to me.
Have you ever been harassed by a collection agency? We’d love to read your responses. Maybe we’ll start a “worst of the worst” list.
by Brad Burnett - Monday, September 10, 2012
Identity theft is one of the fastest growing crimes in the world. Scam artists are continually looking for new ways to steal your vital information. The following tips will provide you with some important steps for protecting yourself from identity theft:
1. Limit the information that you put on your checks. Only use your first initial and your last name. This makes it more difficult for people to know how to forge your name or what first name they should use.
2. Do not put your social security information on your checks.
3. If you insist on paying bills through the mail, do not write the full account number when you are making payments. Use the last four to six numbers so identity thieves can’t have access to an account number and get your identity from your payment information.
4. Do not use debit cards when you are making online purchases. With debit cards it is very difficult to dispute a purchase and you have very little or no recourse to get your money back. If you make a purchase online or over the phone with a credit card, you can dispute the purchase and you are typically refunded the purchase amount in question immediately.
5. Write, “show ID” in the signature bar on the back of your credit cards. This will encourage merchants who look at it to ask for your ID.
6. Do not email or text any ID information from your phone or your computer. A good rule of thumb to remember, is that anything you send can potentially be sniped by hacker software or as we see far to often, by a service provider employee.
7. Do not use third party bill-paying services. This reduces the number of sources that have access to your information.
8. Photocopy all of the documents you carry in your wallet or purse, front and back. Do this with your credit cards, debit cards, coupon cards, and discount cards. This will enable you to contact those parties to tell them if a card has been stolen so you can limit any liability against your account.
9. Do not leave mail in your mailbox. Do not put your flag up to indicate there is mail in the mailbox for outgoing delivery. Identity thieves have been known to cruise neighborhoods looking for opportunities to steal mail hoping they will find something with identity information. Take your mail to a mail drop or USPS blue mailbox.
10. Have packages delivered in a non-visible location from the street. Packages that are dropped off on your front porch from Federal Express or UPS are easy targets for crimes of opportunity.
11. Do not keep your social security card in your wallet or purse.
12. Opt out of all telemarketing lists. You can go to www.creditsense.com and find the links to be able to opt out of mailing lists, opt out of phone lists, and be put on the Federal do not call registry.
13. Use different email accounts for different types of online purchases. This allows you to control your incoming mail in a manageable way without cluttering your main private email address.
14. Use encryption with your wireless internet. Use either WPA or WEP secured wireless routers in your home so you aren’t broadcasting your personal information to your neighborhood.
15. Use a credit monitoring service like www.mycreditkeeper.com. Although they have FAKO scores, they’re great when it comes to updating you every time there’s activity on your credit report. If somebody tries to apply in your name you will receive an immediate alert that you have received a new inquiry. They notify you of any activity within your credit report.
by Brad Burnett - Tuesday, September 4, 2012
Updating the credit bureaus so that only your permanent personal credit identity is being reported is the ultimate goal. After you contact the originators of your credit reporting, and they have updated their records to your new identity, you want to clean up your identity at the credit bureaus.
You first want to obtain a copy of your credit report from all three credit bureaus. If you are eligible for your free annual report, go to www.annualcreditreport.com. You will be able to obtain your Congress-mandated free consumer disclosures that contain all of the information the credit bureaus are reporting on you from your creditors. If you are not eligible for the free credit reports, use www.mycreditkeeper.com to request all three bureau reports.
At Credit Sense, we recommend speaking directly with a representative if you have inaccurate or erroneous items.
by Brad Burnett - Thursday, August 23, 2012
There are several different types and levels of credit profiles. Now, you may have heard of AAA credit, but there’s also A credit, B credit, BC credit, and D credit. D credit profiles are usually only approved by hard money lenders, finance companies, or payday loans.
The areas and components that make up your credit profile are your identity, your revolving account portfolio, your installment loan portfolio, your closed account portfolio, inquiries, and negative or derogatory items.
Identity is made up of identifiers and locators. When you create a single permanent credit identity, you not only protect your identity but you also create a singular experience for reporting, for all of your creditors and the credit bureaus. It is essential that your singular credit identity be used exactly the same with anybody who could possibly report about you to the credit bureaus.
Your revolving account portfolios and installment loan portfolios are called portfolios because they are the grouping of your accounts. For example, your revolving account portfolio isn’t just your Citi Bank credit card, it’s your Citi Bank credit card, Wells Fargo MasterCard, American Express card and your Discover card. All of these together create your revolving account portfolio. It is helpful for you to know that your credit portfolio tracks credit limits, credit balances, utilization ratios, the age of your accounts, and the types of account you have.
Most people do not know that you get different points for having a Visa or MasterCard revolving account versus a department store card or a finance company card. And many don’t realize that some of their department store cards are actually finance company cards. Most department stores don’t “carry their own paper,” so those credit cards are financed by a finance company. You ultimately receive a smaller percentage of the available credit score points for that type of revolving account. There are many points to be gained and lost in your revolving account portfolio so make sure your accounts are optimized to give you the highest yield of credit score points possible.
Your installment loan portfolio tracks all of your set term loans. Installment loans are measured differently than your revolving accounts. The credit scoring software tracks how many accounts are open in your installment loan portfolio, the loan limits, what the balances are, how old they are, how long they have been open, the loan type, and your payment history. Your installment loans contribute significantly to building a foundation for your credit profile. With installment loans, you will have a different point differential if you have three or four of them than if you have fifteen in your installment loan portfolio. Your score is based on each of the listed components of your profile. You need to measure, and change your installment loan portfolio, to fall in line with the ideal credit profile, in order to acquire the highest number of credit score points.
Your closed accounts have bearing on your credit profile beyond payment history. For example, if you’re going for a car loan and you have six completely paid to term car loans in your closed account portfolio, you will receive more FICO score points and a higher underwriting value than if you have one or no closed installment loans for cars. You actually derive points for the next loan you’re going after from your installment loan portfolio. Successful fulfillment of installment loans in your closed account portfolio helps bolster your credit score and underwriting ability. Conversely, it actually hinders your credit score if you have closed revolving accounts in your closed account portfolio. No closed revolving accounts in your closed account portfolio is ideal and will actually yield more points for your credit score.
Now, another measure of a credit profile is your inquiries. Inquiries generally stay on your credit report for 24 months. They generally count against your credit score for 12 months and they have the highest impact against your credit score in the month they are first reported. As most people know, too many inquiries makes it look like you are constantly trying to get more credit, and that in turn makes you a higher risk to new lenders.
Finally, derogatory items have a significant impact on your credit score and have a completely separate category in your credit profile. There are slight derogatory items, like just slow pays of between 30 and 60 days. And there are major derogatory items like 90 days late, 120 days late, charge-off, collections, foreclosures, bankruptcies, repossessions, and tax liens. Each of these will cause your score to plummet and they accumulate adding each new negative to previously reported derogatory items. The measurement of how long a collection account has been open, how long ago your bankruptcy was, how many late pays you have, are all calculated in this construct that we call the derogatory portion of your credit profile.
The values that the credit bureaus report, and that are used to create your credit score, are based on these six areas: identity, revolving account portfolio, installment account portfolio, closed account portfolio, inquiries, and derogatory items.