Part 2: Breakdown of your VantageScore
In Part 1 we covered the make up of a Fico Score. By the way, I didn't mention it, but FICO stands for Fair Isaac Credit Organization. It is the most widely used credit scoring model in the world. FICO Scores range from 300 to 850. It is rare to have a score in the 800's and terrible if you have a score in the 300's. I see more reports with no score at all than anything under 400. In fact, I think the lowest FICO Score I have ever seen was 411. That was MY score at one time long ago, but in less than 2 years, I had it up to almost 700. It wasn't hard at all. Removed the BK, removed all the bad stuff linked to the BK, and got some little credit cards, used them and payed them regularly. I don't worry much about my credit anymore. I rarely use it and when I get irritated with a creditor that is not complying with the law, being completely unscrupulous, I take revenge. I warn them, refuse to give them another dime, then start hitting them with validation till they go away!
Enough about me, lets get to Part 2. We are going to talk about another up and coming credit scoring model that is gaining popularity. This is called a "VantageScore". A number of years back, the 3 major bureaus, Experian, Equifax, and TransUnion, joined together to create a scoring system that merged their 3 scores. It launched in March of 2006. You don't hear a lot about this scoring model. It is my opinion that they started this system because they wanted to get a cut of the moolah that they saw FICO getting from the use of their scoring system. Though they "merged" their scores, your VantageScore for each bureau may be a bit different than each other because not all creditors report on all 3 bureaus and sometimes when they do report on all 3 bureaus, they don't report exactly the same things, so the 3 bureaus usually have 3 different scores on them.
The VantageScore is made up of 6 categories. These categories are A) Available Credit; B) Recent Credit; C) Depth of Credit; D) Credit Balances; E) Utilization; and F) Payment History. It is also a numeric scoring system that gives you a grade, like a school report card. The scores range from 500 to 990. The breakdown of the numeric scores that translate into "grades" is the following:
- 900-990 = A
- 800-899 = B
- 700-799 = C
- 600-699 = D
- 500-599 = F
You have to be careful when you look at your credit score. See, a great FICO Score, anything over 700 is A to A+ credit. But, a 700 score using the VantageScore model is a C- and not really that great. Its not terrible, just not real good credit. This score would cause a creditor to really review your credit report and paying habits before agreeing to lend credit to you. Always find out which model your score is based off of, so you know whether or not that great score is actually great, or really just a mediocre or even a "failing" score. VantageScore is also more affected on your last 24 months of reporting, but older accounts do still figure into the scoring a bit. Now I'm going to explain the 6 categories of the VantageScore. The percentage stated is approximate.
- Available Credit makes up 1-7% of your VantageScore. This is the ratio of credit limit to credit balance, or basically, the difference between your credit limit and your credit balance of all lines of credit that are reported.
- Recent Credit makes up 10-30% of your VantageScore. This is where your recent inquiries and recently opened credit lines affect your score.
- Depth of Credit makes up 8-13% of your VantageScore. This is where you are scored based on the different types of credit you have. Again, this would be charge cards, credit cards, revolving, installment, etc. Lenders want to see that you can handle maintaining and paying for different types of credit on a timely basis so they can evaluate your credit risk. They don't want to see "collection accounts," as these are 3rd party collection companies and always bad. I believe this section is also where you are graded for having older lines of credit. The more long standing credit lines you have, especially if they are positive, the higher you score in this category.
- Credit Balances make up 9-15% of your VantageScore. This is where you get scored for recent balances. They want to see your balances go down, which show you are making timely payments. If recent balances are going up, that means you are either using your credit or you are becoming delinquent on your payments. Balances that go up because of credit usage is not necessarily bad, but definitely is if you are consistently using it and just making minimum payments. That's when it starts looking like you are using credit to pay your bills, which in turn makes you a higher credit risk, and lowers your score.
- Utilization makes up approximately 23% of your VantageScore. This is very similar to the Credit Balances category, in that your balances are affected by the usage of your available credit. They like to see you using your credit. But they like to see it used responsibly and paid for in a timely manner. When you're trying to build your credit score, this is one of the ways to do it. Use your credit and pay more than the minimum every month for at least 6 months, and make those payments on time. You will see your score strengthened and going up. Just like I talked about in Credit Balances, too much utilization of your available credit and only making minimum or being late with payments, or not making them at all is going to affect your credit score very negatively, and this category's scoring weight is fairly high.
- Payment History makes up 28-32% of your VantageScore. This is another "biggie" category. This is where your late payments, collections, charge offs, collections, etc. all greatly damage your credit score. The scoring weighs heavily in this category also, so if you consistently make timely payments on your credit lines, the higher your score will be. 1 thing about payment history and the difference between the VantageScore and FICO, is that VantageScore is directed and effected mostly by the last 24 months of all credit activity.
If you want your FICO Scores from all 3 bureaus, you will have to get a credit report from a mortgage lender (you pay for it so you get a copy) or auto dealer (they usually wont give you a copy), and those are about the only 2 places you can get all 3 FICO Scores. This is because Experian does not allow FICO scores to be sold to consumers for their reports. Again, I suspect its mainly because they are trying to bump out FICO and make money selling scores based off their own VantageScore model. You can buy your FICO scores for the other bureaus from MyFico.com or you can buy your credit reports with your VantageScore from all of the bureaus.
When you buy your credit reports, maybe a credit monitoring service, the credit score you always get is a FAKO Score. A FAKO Score is a Fake FICO Score and VantageScore is a FAKO. Since lenders almost always determine credit worthiness off of FICO Scores, it will most likely not be what you're seeing on your freebie or bureau reports. It will usually be the VantageScore, and it will not be the same score your lender gives you from the reports that he pulls.
If you want a free credit report with free credit score - yes it will be the FAKO, VantageScore, you can go to CreditKarma.com for your TransUnion report and you can go to Quizzle.com for your Experian report. You can check them anytime, all year long, but Experian's only updates once every 6 months, while TransUnion lets you update your report all year long. You must use these 2 websites though to get the scores and get the updates. You won't be able to get the scores for free from annualcreditreport.com. You will only be able to pull your free reports from there once a year and you will have to buy your score because that site does not give it for free.
I hope you learned a lot from these first 2 parts. Stay tuned for Part 3. I will be discussing, or maybe I should say, giving you my best effort of how bad credit habits hurt your FICO Score. I will attempt to show how many "Damage Points" it costs you for different "baddies" on your credit report.
Part 1: Breakdown of Your FICO Score
Some of the most common questions I get asked about credit repair are related to how my score is figured and how much will my credit score go up by removing these negatives. I wish I could just give people an easy answer like, "Collections cost you 10 points each and charge offs cost you 20 points, etc." but its not that simple. The FICO Score is broken up into 5 categories, but also, people are broken up into categories - or more so, demographics. It is also based on what your previous FICO Score was before the negatives hit your report. The FICO Score is the model used by almost every lender when applying for major credit.
The five categories of a FICO Score are A) new credit; B) credit mix; C) credit history; D) length of credit history; and E) debt amounts. I'll try to explain them in an easy way to understand:
- New Credit: This makes up 10% of your score. This is why having inquiries from "hard pulls" affect your credit score. One or two over several months is not a big deal. But, if you're applying for credit all over town, on the internet, etc. it starts to ding your credit. New credit is not bad but when you start having lots of inquiries and lots of new credit, all in a short time, your score will go down. The thing that adds back points in this category are utilizing the new credit, paying on time, and time itself.
- Credit Mix: This makes up 10% of your score. It means different types of credit. Revolving credit, installment credit, auto loans, mortgages, charge cards, credit lines, etc. Auto loans and mortgages are installments usually but so are some furniture and appliance store accounts. Student loans are also installment credit. They like to see that you can handle paying different types of credit on time.
- Credit History: This makes up 35% of your score and represents how you have paid for your different reported accounts. This is where late pays affect your score, and they DO affect your score! It is also where charge offs and collections are factored in. Bankruptcies, judgments, tax liens and other bad credit items all are scored through this category.
- Length of Credit History: This makes up 15% of your score. This is the category that rewards you for time. If you have credit cards that you've had for several years, it is a plus for your credit. This is the category that reinforces why you should not close "Old accounts" that you are not using. Go spend $5 on something and pay it off. Those oldies offset the affects of bad credit a bit, and when you get "baddies" you really want to hang onto the good ones. In fact, these old trade lines are what really help your score when you start repairing your bad credit. Can you imagine if you remove all your bad credit but had closed all your old good credit? You would have NO credit! So, don't close those old cards, even if they have old lates on them. Lates fall off over time.
- Debt Amounts: This makes up 30% of your FICO Score. This is why finance professionals advise you to keep your debt balance at 30% of your credit limit. Ideally, you should keep it at 19% of the credit limit because this number is where people have seen the highest credit scoring when they have done tracking and studied it. Maxing out credit cards and credit lines burns your score pretty badly. Paying regularly and paying them down so there is a greater ratio between the credit limit and the credit spent (balance) improves your score.
There is also another type of score you see on your credit reports. This is a "VantageScore". I will explain this one on Part 2.
One of the most famous credit repair law firms is Lexington Law. Probably the next most famous one is Ovation Law. There are many others. I am completely for people utilizing legitimate credit repair companies, but I really take issue with ones like these that have monthly charges. Also, though they may have started out as really good companies, they have just become big repair mills that don't personalize your disputes. Also, they are not really "law firms" in the sense that they actually provide "legal services" other than credit repair. They mostly are credit repair companies that pay to use a law firm's or lawyer's name.
When you pay for a service that charges you monthly, you can bet they are going to do things that drag it out so they can keep getting that residual monthly income coming from you. Most people want to see their credit improved as quickly as possible. They don't want the service to write letters in a way that gets a "frivolous letter" response from the bureaus. That can delay progress for months and sometimes, it really blows the opportunity of getting that item removed at all.
There is another thing I really don't like about these types of law firms. They use "Good Will" letters to try to improve the credit. Why don't I like those? Well, they are basically "Pay for Delete" letters and I am adamantly opposed to paying to delete bad credit. Sometimes they delete, but many times, when they don't and you follow up to the bureaus and send in a copy of the agreement to delete, they get stubborn and refuse to take it off. Sending in a copy of an agreement is like admitting that the negative tradeline is yours. I don't ever recommending sending proof of an account to the bureaus unless it is a completely clean bit of proof that there were no lates and it was paid off completely. You have to remember that the burden of proof lies with the creditors, collectors, and the bureaus. If they can't prove something, it has to come off.
Something else I don't like about these "Good Will" and "Pay for Delete" letters, is that you are basically offering to settle with the creditors and collectors. This is so bad! Once a trade line is bad, it is always bad. It just becomes a "paid" bad. If its a couple late pays that are making it bad, its best to try to remove the lates, then there's nothing bad. You have to remove the "bad". Usually this means needing a deletion. Plus, when you "settle" with one of these types of letters, they have the right to send you a 1099 tax form for the amount you didn't have to pay and then you get to pay taxes on that as if it was income. Not a good thing.
The other thing that I know they do, is to include a "Cease and Desist" to their clients' creditors. That is a very dangerous thing to do. If it is not a time barred debt (outside of your state's statute of limitations) you are allowing yourself to be put in a position to be sued. I use a "Limited Cease and Desist" paragraph in my letters. This is what stops the phone calls to you at home, your cell phone, your work, and anyone you might possibly know that they would try to call. It forces them to communicate with you in writing only.
I have a lot of second hand experience with these types of credit repair companies. Second hand because many of my clients, past and present, have used them and came to me afterwards. It is always the same story. They've paid for months and months, past a year, spent upwards of $1500 and slim to zero results. They then have me write letters for them and poof!, all of a sudden they start seeing results. Credit repair is most successful when it is strategically done and both the creditors/collectors and the bureaus have consumer laws, case laws, and other legal documentation put in front of their faces.
My goal with credit repair is to help people see deletions and improvements as fast as possible. There is no sense in dragging it out. If you truly want to help people, then you would want what's best for them. If you are only interested in making a load of money off of people's bad credit, then you charge them up front and drag it out, month after month, year after year.
Credit repair can be done for yourself. Hopefully, if you're looking to do this, you will look through the different posts I have here so you can see how to do it most effectively. Credit repair is an undertaking that you have to stay on top of, be consistent, keep records and send disputes that fall within the legal timelines so that you don't accidentally give the bureaus more time to stall and drag their side out as well. For many people, its just a lot of work they would rather delegate to someone else to do.
If credit repair is something you need, but you just don't want to have to be writing letters all the time, I would love to help you. I provide help completely legally and use many different laws and tools to implore them to remove the bad credit from your reports. Contact me through my email or phone number above anytime if you would like some help with repairing your credit or just need some guidance while you do it yourself.
When the Fair And Accurate Credit Transactions Act (FACTA) was passed, one of the provisions it gave consumers was the right to a free credit report once a year. Because of this Act, you could get one from each of the bureaus (Experian, Equifax, and TransUnion). There's actually a couple more credit bureaus that you can get a free report from. CBC is a midwest "division" of Equifax. They are also related to Innovis, who is becoming a big player in the credit bureau game. They are starting to be considered the 4th major credit bureau. They also have to give you a free credit report once a year.
You can get your free credit reports online. Back when FACTA was first passed, all these different websites came about and offered free credit reports and you could get your scores too, but they all made you have a credit card and they'd suck you into a monthly charge for your credit score and/or credit monitoring service, offering it "free" for a trial period, knowing full well that many people would forget to cancel it in time and they could just rake in the money. The FTC and the bureaus did very little to market and make the public aware that they could get a completely free credit report by just going to www.annualcreditreport.com and request them without a credit card. However, they don't give you your credit score.
Well, they finally got a little spanking for being so deceptive. So now, they have to give you your free credit report and score for a couple different situations. If you applied for credit from a business and you were denied or if they gave you credit but on less favorable terms, the business (think lender or creditor) has to notify you plus, since July 2011, you get to have a credit report WITH your credit score since it was used against you when being denied or getting less than the best terms.
But, there are also two other places you can get your credit report with a credit score for free. The first one is by Equifax. It is called Quizzle.com. With Quizzle.com, you will get a free report and score all year long, but it only updates twice a year. Still, at least you can see where you're at and every six months, you can see if there have been any changes. The second one is from TransUnion. The website you go to for that one is called CreditKarma.com. You do not get a FICO score but you get their version which is called a VantageScore. Its similar to FICO, but does not have the same algorithms and could be higher or lower than your FICO score. They also give you a score for your auto insurance. (yep, some auto insurance companies pull your credit to factor that in as part of the basis for the cost of your premiums, or if you are even "worthy" of auto insurance from them). The additional good thing about Credit Karma is that you can check your credit score all year long from them and its always free!
So, here is some contact information to get your free credit reports:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281
By Phone: 877-322-8228
Online: www.annualcreditreport.com
Innovis
Attention: Consumer Assistance
PO Box 1689
Pittsburgh, PA 15230-1689
By Phone: 800- 457-0247
(Innovis is famous for changing their mailing address and phone number. Hopefully, these will still work for you).
Online: innovis.com (go to the tab at the top that says "Personal Services", then click on the link to "Obtain Copy of your Innovis Credit Report" for the easiest way without jumping through all their hoops. You will be able to download it to your computer from there).
Credit Karma (TransUnion with free score)
CreditKarma.com
Quizzle (Experian with free score)
quizzle.com
PS: Don't forget, there are other reporting companies like ChexSystems, Telecheck, and Certegy.
Chex Systems, Inc.
7805 Hudson Road, Ste. 100
Woodbury, MN 55125
By Phone: 800-428-9623
By Fax: 602-659-2197
Online: www.consumerdebit.com
Telecheck Services, Inc.
Attention: Consumer Resolutions-FA
PO Box 4514
Houston, TX 77210-4514
By Phone: 800-366-2425
Online: http://www.firstdata.com/telecheck/telecheck-request-file-report.htm
Certegy Check Systems, Inc.
PO Box 30296
Tampa, FL 33630-3296
By Phone: 866-543-6315
Online: www.AskCertegy.com
PSS: Don't forget, there are Residential and Tenant Screening reporting agencies too!
LexisNexis
By Phone: 877-448-5732
Online: https://personalreports.lexisnexis.com/resident_history_report.jsp
CoreLogic Safe Rent
Attention: Consumer Relations
PO Box 509124
San Diego, CA 92150
By Phone: 888-333-2413
Online: http://www.corelogic.com/industry/multifamily-housing-solutions.aspx
Tenant Data Services
PO Box 5404
Lincoln, NE 68505-0404
By Phone: 402-934-0088 or Toll Free 800-228-1837
Online: http://www.tenantdata.com/downloads/AuthorizationforFileDisclos_new.pdf
Information page: http://tenantdata.com/personalreport.php
I bet you thought this list would never end. Well, that's all I'm gonna give you for now. Ugh, it seems like everyone or every company can know more about us than we can remember about ourselves! If you want help getting rid of some of the information you'd rather not have on your reports and don't want to tackle it yourself, feel free to contact me at the email or phone number listed above on the right, or leave a comment below. I'll respond. I like to help people fight the system!
I love disputing bad credit with collectors and original creditors alike. Collection companies are easier to force to go away, and sometimes, original creditors can really get you frustrated. Its not that 3rd party collectors don't get you frustrated as well, its just a bit easier because you know for a fact you've never entered into a contract with them and just about everything they do is a violation of law. Its fairly easy to prove that you have no liability to them and force them to go pound sand. But original creditors are a little bit different.
First of all, if you have bad credit from an original creditor, most likely you at one time or another signed a contract (ie. application) to get credit from them. I say most likely, because there are times when they actually have the wrong person and your credit takes a hit through no fault of your own. But, this is not about identity theft or incompetent mistakes by original creditors. I want to talk about an actual account that you have from an original creditor that is bad and you need it gone.
The first thing to realize, is that whether you think you may owe the bad debt or not, the truth is, you don't. You may have signed a contract with them, but was it a "valid" contract? The law says NO! At least for most. In order for a contract to be valid, it needs at least 4 essential elements. They are:
- Offer. It must have a clear stated offer. One party will do something and the other party will do something. (They will lend you a certain amount of money for you to use, and you will pay for what you use.) The offer must have a deadline for how long the offer is good for before it is withdrawn. The offer has to have real numbers (if it has to do with money), not estimates or ballpark figures. The amount that is being lent, the interest, the minimum payment that has to be paid at a certain regular time. The offer will completely define who is loaning whom the money and all the terms to the offer so you know what you're getting into and whom you will owe, and for how long.
- Acceptance. If you can live with the offer and you're content with it, you accept it. If you don't accept their terms, then you don't have an acceptance. Many times in real estate a seller "offers" their house for sale at a certain price, certain terms (what may or may not be included), etc. A prospective buyer looks at that seller's offer and says, "I like the house but I don't like all the terms the seller wants." So, he makes a "counter-offer." When they finally agree, there has been an "offer" or "counter-offer" and "acceptance."
- Consideration. Consideration is generally monetary, but at least something of value is given or a promise of valuable service is offered with a promise of performance for that thing of value. A creditor offers to lend money and will receive the money back plus interest. The person receiving the money will give something back of value to show the acceptance is genuine. Sometimes its a fee for accepting a card. In all actuality, the SIGNATURE on the application is the thing of value that is the "consideration", though the creditors do NOT disclose that fully.
- Meeting of the minds. This means that each party fully understands EVERYTHING about the contract. This is one of the biggest things that FAILS in a credit card or loan contract. There is not full disclosure, which means there is a violation of REGULATION Z. There is a violation of the Truth in Lending Act (TILA). Because of these failures to fully disclose and to have an actual legal meeting of the minds, there is NO VALID CONTRACT. The contract is not voidable, no, it is actually VOID! Null and void. Does not exist.
There are actually a couple other things to a valid contract. One is "capacity", which basically means, does one have the capacity to enter into a contract? Are they of legal age and sound mind or underage or incompetent. Without "capacity," there is no contract. The other one is "legality." Is the contract for something legal? Is it a contract to perform a legal service or for something that is illegal under the law, so there is no legal way to enforce it?
So, when disputing with original creditors, you want them to prove that they actually had a valid contract. You want to know if they violated TILA (Regulation Z). I can answer that for you. Yes, they did. They didn't tell you that the "consideration" was YOUR SIGNATURE that they monetized. It was the collateral. So, you basically funded your own loan or credit. They don't tell you that.
They don't tell you that they actually lent credit, not money. They don't want you to know that it is illegal for a bank to 'LEND CREDIT'. But they do lend credit, and its illegal, and it makes a contract not a legal contract, which makes it void. So, when disputing, demand from them that they prove to you they lent their MONEY to you and didn't just lend credit and call it money.
Now, when they respond to you saying they investigated your account and everything checks out and they claim that their records are accurate, its your job to hold their feet to the fire. Respond back to them. Tell them that you received their response and you appreciate that they investigated, but they failed to validate. You want a copy of the contract with your signature and their employee's signature. You want a full accounting. Every expenditure, every payment, every bit of interest applied, fees, plus the dates every event occurred. Then, also demand that they source the funds they supposedly lent or did they lend you credit? You want them to say that they lent you credit, because then they violated federal laws that have been upheld by the US Supreme Court. It also incriminates them for trying to enforce a contract that is not legal, not valid, is null and void.
Original creditors have to comply with the the Fair Credit Billing Act (FCBA) and there are many states that also enforce the Fair Debt Collection Practices Act (FDCPA), their own version that mirrors the federal law. These laws are ammunition that helps you remove bad credit from your credit reports. They are there for you to use. Stop thinking you legally "OWE" these fraudulent debts. Stop believing that they have to be reported for 7 years. That's an outright lie. Nothing has to ever be on your credit report. The law actually says that bad credit may NOT stay on longer than 7 years. That's the truth. Its your job to challenge them and throw the law at them and make them remove it. Without a challenge, they will not remove anything that can and should be gone.
If you don't feel like its a job you want to attempt, feel free to email me or call me at the contact info above. I would love to help you have a credit report you can be proud of and a FICO score that will help you get the loans and credit you desire.
