Repair Your Credit Before Buying Or Selling A Home

We're coming up on Summer and that is usually a hot time for buying or selling a home.  You need to consider the shape of your credit before you take the leap to either buy or sell real estate. It might seem like it doesn't matter how your credit is when you are selling your home but believe me, you are a prime target for the collection vultures. They're definitely preying on potential buyers but sellers usually have equity and they want to get hold of some of it as well.

For sellers, you're not going to be able to hide the public records like tax liens and judgments. The title company will almost always force you to pay those off before they will allow you to close escrow.  You may also get hit with claims from creditors and collectors that get wind of your transaction.  It's not hard for them to find out that you are selling your home so you really need to take care of your credit issues before you open escrow, and preferably before you even list your home for sale.  

Many times sellers are also going to be buyers. Again, you will want your credit in the best shape possible.  Even if your new lender doesn't require you to pay off certain alleged debts prior to funding, getting these things either paid or off your credit reports is most likely going to raise your credit scores, which will give you a better loan rate and save you thousands - even hundreds of thousands of dollars on your home loan and possibly other credit down the line. 

Some lenders will approve you for a loan with a mid FICO score of only 580. That is typically an FHA loan. However, debt to credit and debt to income ratios play a part in qualifying for a loan.  The higher your score, the better your interest rate. The less debt, and yes that includes 3rd party collector debt, the better your ratios are going to be. Many times your lender will tell you to pay off  the bad debts showing on your credit reports.  That's not necessarily the best advice, many times it is bad advice, but then again, they don't know credit repair the way a professional credit repair expert knows it.

I HATE, HATE, HATE anyone having to pay a 3rd party collector anything!  If you've read even just a few of my blog posts, you'll know that and you'll know that I stand firm in my claim that you don't owe a collection company a dime!  This is one of the main reasons that if you are contemplating buying or selling a home in the near future and your credit is not perfectly clear of these types of accounts, you need credit repair help soon.  You may also be in a position to need to rebuild your credit as well. This is where getting together with a professional credit repair consultant can really assist you in getting ready to buy a home.

Two other main items to address before buying a home are tax liens and judgments.  These are public record items but many times lenders don't pull public records reports on borrowers. So, if they are showing on your credit reports, you want to get them off. Otherwise, your lender might make paying them off a condition of  funding your loan.  Again, removing these types of items are where hiring an expert to assist you really helps you save many thousands of dollars.

I don't worry too much about removing bankruptcies from credit reports. It's not like you can hide the fact that you've had one (or more) in the last few years.  You have to disclose that on the loan application.  If you don't disclose it, you run the risk of being accused and possibly prosecuted for bank fraud. Don't go there.  

Bankruptcies are VERY difficult to remove from credit reports. You have to disclose the fact that you've had one when you apply for a home loan, so I just wouldn't worry too much about removing them.  Yes, attempt to remove them, but don't feel defeated if it doesn't come off.  At least it's not like a collection, tax lien, judgment or charge off showing a balance that might need to get paid in order to close escrow if it's showing on your credit reports.

Interest rates on home loans are still pretty decent but they're not going down; they're going to be going up. Now is the time to get to work on your credit if you're thinking of buying or selling a home in the near future. If you're thinking about buying in less than a year, then its probably best to hire someone to assist you. 

If you're needing to move and you're going to rent, if your credit has collections and public records, you are in the same position as a potential home buyer.  Landlords want to rent to people that have good credit. If they see you have tax liens,judgments, collections, charge offs with a balance higher than $0, they're going to choose to rent to someone with better credit  than you.  Your score will also reflect a lower number as well and that is a turn off to landlords.

 Credit repair is what I've done professionally for over 30 years.  My business partner has done credit repair for over 20 years.  We've taught other credit repair companies how to do it successfully. We are true experts. We want to help you purchase your home.  We want to help you keep the equity your home has earned.  We want to help you be able to rent your next home.  We want to help you. 

If you're ready to get your credit reports looking much prettier and your credit scores higher, we'd love the opportunity to help you reach your goals.  Email me today. Let us get you into your next home!  My email address is futurefico@gmail.com if you would like to contact me directly. You can also go to our website and fill out the form to get started with a free consultation. Just go to InsightCreditGroup.com so we can fight for you.

Where To Get Free Credit Reports And Free Credit Scores

Quite a while back I gave you some places to pull your credit reports online, for free.  Yes, I said FREE!  There has been a change and I have another place to tell you about so I thought it would be time to give you this information again.

The first place you can get copies of all 3 of your credit reports, once a year, is from annualcreditreport.com but it does not have your scores.  You will need to answer questions about some things about yourself that may be on your credit report in order to get each of them. The link to each of the credit bureaus takes you off the site temporarily.  The best way to get them through this site is to pick one, and start to get your report.  If you don't know the answer to the questions, stop and go back and try the next one. When you get questions you know that you know the answers to, proceed and get your report. Then save a copy of it to your computer.  You will use this report to help you answer the questions you'll get when you go back to get the other 2 reports.  Each time, save a copy to your computer so you have it, since you won't be able to keep logging in all year.

The next three places are also free and they ask you some questions, but they give you your credit scores. Just remember, these are NOT FICO scores, they are Vantage scores or something similar.  They are what we in the credit repair industry call FAKO scores.  These are NOT the scores lenders use, but they at least give you somewhat of an idea what your FICO score is. Unfortunately, sometimes the scores can be off by 20 points or more, sometimes higher and sometimes lower than your true FICO score, which IS the scoring model that lenders use.

Credit Karma.  creditkarma.com gives you a report from TransUnion.  It is my least favorite because so far, I have not been able to save a report in a good format from them.  To me, its kind of funky. But, it updates every single month, so its also kind of like a free credit monitoring service.  

Quizzle.  quizzle.com used to give you a free credit report from Experian.  But, in mid January of this year (2014), they changed to Equifax.  I like this report.  It looks good, easy to read, and you can easily save a nicely formatted report to your computer.  It updates every six months, so its not as good of a monitoring service as CreditKarma, but, hey, its free!  You can get a paid version that will update every month, if you want to go that route. But, there are lots of credit monitoring sites you can use, many of them being owned by Experian. They can range from $12.95/mo to $30/mo usually.  The more expensive ones, if you prefer to use them, just call first and ask them to reduce the price since you can get the monitoring service cheaper somewhere else, and they usually reduce down to about $15/month for you.

Credit Sesame. creditsesame.com gives you a free credit report from Experian.  I have to admit, I have never used this, but I probably will soon, just to see if its every bit as good as they claim.  They say you can get your Experian report free and your Experian (think Vantage) score free every single month. They claim to have free credit monitoring every single month too.  Now if these things are true and if you can save a nicely formatted report to your computer, then this would be my favorite.  Think about it. Free report and score, free monitoring every single month, why would you want to pay for monitoring somewhere else? (UPDATE:  CreditSesame SUCKS BIG TIME!  It's a huge waste. You don't get squat for free except a fake score and the opportunity to be bombarded to buy services or apply for cards, etc. Stick with the free Experian report you get from annualcreditreport.com.  No score but at least you can see what is on your credit!!)

The only thing that's left to find is a free credit analyzing tool.  Many of the paid monitoring sites have them, but I don't know if these 3 free sites will ever give it for free.  We'll have to keep our fingers crossed.  These tools are fun to play with because they show you what to do to increase your score by inputting different scenarios, like removing collections, removing balances, adding credit lines, etc.  These are very handy to have so you can set your sights on a credit goal and it will show you how to get there.

Well, hopefully you enjoy and can use this information.  Get your free reports, save them to your computer, and if you want some help with your credit repair efforts, send me an email or call me. Your reports will be super simple to email over so you can get going on your fresh start right away!

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Pitfalls Of Paying Late On Credit Cards

Before February of 2009 there was this horrendous practice by creditors called a "Universal Default" that could catapult you into credit devastation.  The main practice was if you were to make a late payment to one creditor, all of the rest of your creditors could hike your interest rate to oblivion (okay, a little exaggerated but pretty common to see around 30%) even if you had never been late on those cards or credit extensions.  They would repeatedly be checking their consumers' credit reports for these late pays and then swoop in like vultures to reap the financial paydays they were allowed to render on mostly unsuspecting "debtors."  They could raise the interest on both current and future purchases, making the interest hike RETROACTIVE!  It may have been legal, but it certainly wasn't ethical or moral.  But, since when are banks or creditors ethical or moral? You should know by now that its always about money and profit to them.

Well, in February 2009, there was new legislation that went into effect that claimed to prohibit this practice of  "Universal Default."  I say claimed because, typical of anything that affects banks or lenders and is within reach of unscrupulous lawyers, there's going to be lobbying and backroom deals to make sure that any legislation would have plenty of loopholes and spin to still stab the consumers and rake in the money for them.  The legislation is called the CARD Act (Credit Card Accountability, Responsibility, and Disclosure Act).  It was supposed to protect consumers more and rein in the creditors a bit.  It was touted as the end of  the "Universal Default" practice.

So here we are now and there's no more Universal Default.  Except, there kind of is, its just that they call it by different names and it plays out a bit different.  Here's how the CARD Act works.  If you have a credit card, or credit line, whatever, some sort of credit agreement with a lender, and you've become 60 or more days late, they can hike up your interest rate if they want to (and you know they want to), to however high they want - there is no cap on the amount they charge for a "penalty interest".  However, under this act, if you are good little children and pay your bill on time for the next 6 months in a row, they have to restore your interest rate back to what it was before you got behind.  They also can't raise your interest rate based on your performance on other credit obligations. Kind of sounds like they care about us consumers doesn't it? 

Don't be fooled.  Those are about the only "good" things for consumers in this legislation.  How about this:  You are one of the best of the best.  High FICO Scores, never late, pay more than minimum, had the credit card for over a year. Can you believe that if they want, they can practically arbitrarily increase your interest rate to whatever amount they feel like?  And the fees -- oh the fees!! They are endless!  They can fee you now if you don't go paperless, or fee  you to pay by phone, or in person, or fee you for the convenience of accepting your payment, or an annual fee, you name it. They can make up all kinds of fees and call them whatever they want, to squeeze every last dime out of you.  

If you're late on a different credit card bill or credit account that is unrelated to them, they can give your situation another name, put you into a category where they can spank you.  So, if you are a bad child and end up as a potential defaulter, they can cancel your account or lower your credit limit, or raise your minimum payment or both the last 2, if they want.  If they raise your interest rate for whatever reason they make up, they can raise the minimum payment to an amount that would allow you to pay off the balance in 5 years.  That could be quite a payment hike!  They do have to give you a 45 day notice for raising your interest rate. But, if they don't raise the interest rate, they can raise the minimum payment as high as they want, and they don't have to give you an advance warning.  They don't have to give you an advance warning if they decide to close the account, either.

So, is there anything else that is "good" about this new-ish CARD Act?  Here's a few.  If they raise your interest rate and you say, "uh, no, you don't deserve my business, cancel the card," they can't make you pay the balance off in full in such short notice.  They have to allow you to make payments and pay it off in up to Five Years.  They can't "penalize" you with a higher interest rate for being late on some other company's card, and they can't raise the interest rate as a "penalty" for being late on their card, unless you are more than 60 days past due.  They have to review your account in 6 months from the start of the "penalty phase" and lower your interest rate back to what it was.  They can't post that you were late making a payment on your credit report(s) until after you are over 30 days late.  They have to keep the same due date every single month.  They have to send you a bill at least 21 days prior to it being due.  They cannot charge you for being late for not paying them midday. The cutoff time has to be at least 5 pm, their time.

So, for those of you that are still using credit cards, make sure that you're not late, at least more than 60 days late because that is when the heavy penalties can take affect.  Just be careful, read all your disclosures carefully, especially for those accounts you've had a long time.  They put those small print, contract changing enclosures in your bills.  You don't want an unwelcome surprise and not respond in time, if you cannot accept their new terms.

If they've already beaten you down and you can't or don't want to pay them anymore, no doubt your credit report has suffered.  You may want to think about fixing your credit.  If its not a job you look forward to, and don't want to handle all on your own,  feel free to call me or email me for some help.  Fighting these out of control creditors and scum of the earth  3rd party collectors is what I completely enjoy.  I would love to help you as well!

How Bad Credit Affects Your Credit Score (Part 3/3)

Part 3:  The effect bad credit habits have on your credit score

In the first 2 parts we talked about 2 of the most popular credit scoring models. Now I'm going to try to expose how the different bad categories affect your credit.  When I say "categories" I'm talking about collections, charge-offs, liens, late pays, judgments, bankruptcies, and accounts that are showing "Settled".  All of these things are negatives and hurt your credit score.  What's worse, is that they cost you money in higher interest rates, higher insurance rates.  Even your ability to get a better paying job, (or a job at all, in this economy), can be affected.

When you have negative credit on your credit report, the negatives cost you the most points when they are newly reported.  As time goes on, your score will raise a bit, regardless if you paid off the negative tradelines or not.  I always tell people that a negative is bad and once bad, always bad - even if its paid. It is just a "Paid" bad and costs you points.  In fact, when you pay an old negative, it sets a new date for how long that negative can stay on your credit.  That's one of the reasons why I don't advocate paying old debt at all.  You need to get those off, not just showing paid.

Exactly how the scoring and how many points for each baddie is figured, I can't say.  I do know some general information.  They like to keep the percentages and algorithms a secret.  Its my opinion that they do this because they don't want everyone having good credit.  Bad credit is Big Money.  Think about it, when you are offered pre-approved cards in the mail, they are almost always attached to higher interest rates, annual and sometimes monthly fees, teaser rates to start off with and then the rate jumps, and almost always, the type of cards offered are for people needing to rebuild their credit.  

These companies get your information from the bureaus.  The bureaus sell your information. They have lists of people grouped and categorized for sale. Those with bankruptcies approaching 2 years, those with paid collections or charge-offs, low FICO score range lists.  This is one of the main ways bureaus make money.  Now, these companies offering the credit cards, the ones that buy the lists from the bureaus, they stand to make a ton of money because the interest rates and fees are higher than what someone with A credit will accept.  As I said before, bad credit is big money, its big business.

So how many points do these negative items cost you?  Its not the same amount for every person. One thing that affects the amount your score will drop is what the FICO score was before the negative was placed on the credit.  The higher the credit score, then the more points a negative mark will cost you. I believe because this is true, that the points it costs you is a percentage of the starting score.  Also, the amount of points you get back when you get the negative removed is generally going to be less than the amount it cost you because the longer the negative is on your report, the less it costs you.  In other words, every time your credit score is updated, you may gain a few points.  Sometimes it updates because a new negative is put on, but it can be offset by the score raising a little bit, from the length of time older baddies have been on the report.  So time and changes to the report affect the score.

Here are what some of the different "baddies" will cost you in points, and why you need to get these deleted from your report, not just paid off.  Remember, its based on what your starting score it.

New Collection:                   Avg. 50 - 150 point drop for each one
Points lost are based on your starting score and the dollar amount of the collection reported.  It is a confusing formula, but this is what I have learned through research.  Initial points lost 50-100 for the first $236 then another 35-50 points lost for each additional $354. Then, they add back some points ranging from 76-175.  On a $1200 collection with a starting score of 700, there would be a loss of approximately 112 points.
Charge Off:                          Avg. 50 - 150 point drop for each one
Points are lost based on your starting score, but don't forget, this point drop is in addition to all the drops your score has suffered from the points lost for each 30 day late pay (and 60 - 180+ late pays), and then, when they sell it to a collection agency, you get dinged again when they report!
Late Pays:                            Avg. 60 - 110 point drop for each one
Points are lost based on your starting score.  The higher your score was to start with, the more points it costs you. With each successive late payment, it should drop less and less because the score is lowering each time.  But, late pays really hit you hard and cost you a lot of points.
Bankruptcy:                        Avg. 130 - 240 point drop
Points are lost based on your starting score.  You see the effect right away, but it causes all the collections, judgments, anything included in the BK to show paid. By the end of 2 years, your credit score can really see some recovery.  I've seen some credit reports that had the whole payment history removed on accounts that were included in the BK.  Removing all those late pays, helps offset the huge point loss you get from BK's.
Foreclosure:                        Avg. 85 - 160 point drop for each one
Points are lost based on your starting score. Don't forget, you have been losing a ton of points all along with the late pays and NOD's (I don't know what an NOD point cost is - I figure probably similar to another late payment).
Judgment:                           Avg. 50 - 150 point drop for each one
Points are lost based on your starting score. Again, you've most likely lost points already for late pays and charge off, and collection. This is just another hit with a hammer. Time passing does help. Paying it helps because it really affects your debt ratio, and if you try to buy or sell a house, it will have to be paid before escrow can close.
Settled Account:                 Avg. 45 - 125 point drop for each one
Points are lost based on your starting score. You've probably been hit with late pays, charge off, and / or collections, costing you a ton of points before you get to this scenario, then you get to lose more!  But, I absolutely loathe settling accounts. First, I don't agree that you actually owe most creditors, and definitely not a collector.  But what's worse, is you will get a 1099 Tax Form making you pay taxes on the amount forgiven as if it was income!!!!  Can you hear me screaming not to do this?
Maxed Out Account:             Avg. 10 - 45 point drop for each one
Points are lost based on your starting score. I think the higher monthly payments you have to make on the account are worse than the point drop you get.  Besides, as you keep making payments, you'll recover from this one fairly quickly - at least if you can make more than just the minimum payments.
"Hard" Inquiries:                   Avg. 5 - 55 point drop for each one
Points are lost based on how many you have in a short amount of time. If you're applying for credit all over the place, that's going to cause a lot of "hard" inquiries - the kind that cost points and everyone that pulls your credit can see. If you're applying for a mortgage, they don't count multiple pulls against you though, if they are within a 30 day period, because they know that loan officers may be required to pull several times when "shopping" your loan to get you the best rates.  Also, points from inquiries only affect your score for 1 year, and then there is no impact from them at all.

When you remove negatives like these from your credit report, you can expect to see your score increase.  I don't know the formula for that either, but you can sort of figure it will be about half the points from the low end to half the points of the high end in the point range for each item.  This is because time heals a bit and the points you initially lost are greatest right away then slowly you start getting some back.

Well, I hope I was able to give some information that may answer some questions. Please remember that because the algorithm is not disclosed, these numbers are just from testing and tracking done by research groups trying to have a better understanding of the scoring formula, and bits of information that FICO releases to give a little insight into how they score in order to help people manage their credit.                      

How Bad Credit Affects Your Credit Score (Part 2/3)

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.

1. 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.
2. Recent Credit makes up 10-30% of your VantageScore.  This is where your recent inquiries and recently opened credit lines affect your score.
3. 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.
4. 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.
5. 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.
6. 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. 

How Bad Credit Affects Your Credit Score (Part 1/3)

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.

Disputing Bad Credit From Original Creditors

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:

1. 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.
2. 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."
3. 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.
4. 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. 

The Season to Not Worry About Your Credit!

Well, the Christmas season is here and I imagine many people are out using their credit cards to purchase gifts for loved ones.  It is wonderful to be able to have the credit available to be able to do so.  But many people are not so fortunate, and when I say many, I mean the majority of people.  Credit card companies are being very tight with giving credit, giving decent credit limits, and boy do they love to pack on the fees.

I'm not trying to be a downer, so I apologize if it comes across that way.  What I am actually getting at though, is that it is best to have good credit so when you do use those cards, you are getting the best rates and the highest credit limit possible.  Lower rates save you money and high credit limits are great for improving your credit, if you don't max out the cards. The better the debt ratio, the higher the fico score.

Now, if you have used cards or credit and are struggling to pay the bill, don't fret.  If you are behind on your payments, or you've stopped paying altogether and they have charged off or are getting ready to charge off, more power to you.  I'm not advocating not paying bills, but when the burden is too much and you have more important liabilities that need your hard earned money, credit cards are the last thing you should be paying.  Its much more responsible to pay car payments and rents or mortgage payments than credit card bills.

If you are still paying the bills but are struggling, call them up. Most will give you an extension, and many will actually work out payment plans with you, if even just for a temporary amount of time.  If they have charged off and you are starting to get harassing telephone calls and letters from collectors, you hold the power in your hands.  By the way, what I mean by "harassing", is any call or letter that you just don't care to get. You will need to respond, but only respond in writing.  Don't talk to them on the phone more than you have to.  In other words, tell them that you don't talk business on the phone so they will need to put down in writing and mail something to you.  If they want your address, tell them that since they seem to think you owe them something, they should have your address on some contract you supposedly signed with them.  That's it.  Don't give them any information other than to tell them to put whatever they had to say to you in writing and throw it in the mail.

For those who are now dealing with collectors, or you're pretty sure that you're going to be real soon, you need to know what I'm about to tell you.  If they are not the original creditor, YOU HAVE NO OBLIGATION TO PAY THEM!!  Yes, it looks like I'm shouting but I want you to take notice of what I'm saying.  You DID NOT sign any contract with them.  They are not on your original contract.  They bought an alleged debt that they were not a party to.  They did so voluntarily and they did it on their own behalf, not yours.  The law is very clear about this.  It calls them "Voluntary Payees" when they pay a debt (purchase it) when not asked to do so by you (think Refinance).  

When you are in the above situation, please don't just ignore them, that is hazardous to your wallet, your paycheck, your bank account, and your credit report.  Immediately send them a letter demanding validation. What this means is you need to demand that they prove that they have documentation that shows you entered into an agreement with them.  They don't have it and they can't produce it.  They will try to send you some stuff maybe, like paperwork from the original creditor.  Fine, but that shows a contract between you and the original creditor - NOT THEM!  Usually though, they will send a bill.  When you demand validation, a bill does not meet the criteria.  They have now violated the law. Why? Because, until they provide full, legal validation (which they are incapable of actually doing), they are prohibited from continuing or resuming collection activity.  You have also just given yourself a level of protection against being successfully sued by them,

So, that's my little tidbit for today. Now, go enjoy your shopping, breathe a sigh of relief about trying to pay illegitimate and financially overwhelming obligations.  And, remember the true reason for the season, the real purpose for gift giving - to symbolize God's gift of his Son Jesus, who died to save us.  That's what Christmas is really all about!

Feel free to contact me if you need more information or help with your credit repair.  My contact info is above.