What is the cost of bad credit?

Example B's total lifetime penalty for poor credit? Over $250,000!! The above example underestimates the true financial costs of poor credit:

● Interest rates in the example are from 2004 - a time when interest rates were at record lows. Higher rates are now prevailing.

● Example B probably paid insurance premiums that were 20-30 percent higher than Example A's, and he/she might of had trouble finding an apartment, all because of his/her credit score.

● The example does not count "opportunity costs" - what Example B could of bought if he/she was not paying so much more interest.

Since more of Example B's paycheck went to lenders, he/she has less money available for other goals: vacation, a second home, college education for children, and retirement. We do not want to see you waste anymore money.

You’ve got your credit reports. Now what?

Request credit reports from all three agencies. Some businesses only use Experian and not the others. They all have different scores as they utilize different algorithms to determine scores. Some creditors do not report to all three agencies. A late payment may be reported to Experian, but not to TransUnion.

A credit score is determined by a combination of negative and positive marks. Negative marks on a credit report are averaged with positive marks for the final score. Negative marks do not always have a major impact on the total score. Take note of negative marks and review them for inaccuracies. Consumers have the right to dispute any incorrect information, including your name, date of birth, dates, creditor, or amounts.  

Request verification the debt belongs to on the report. If the agency cannot provide this information, they must remove the mark. Remove as many negative marks as possible.  Send dispute letter  to each agency. Most agencies allow disputes  directly on their website. The longer the debt has been on file, the less likely proof will be provided. Later, discussing how to add positive credit to increase your score will addressed.

New accounts are easier to verify. (“New” is approximately 18 months.)  Do not submit more than 5 to 8 items at a time. Otherwise, it will look like you are trying to take items off of your account whether they are legitimate or not. Request for negative deletions are less likely to be approved in a mass submission. There is no limit on the number of times an item can be disputed. If it doesn’t come off the first time, send in another request.  Once a mark is removed, a score can increase in as little as 30 days.

Next post will be on sample letters and agency contact information.

Submit your credit repair questions

Monday, I will be answering any credit repair questions you may have. Questions and answers will be posted on the site anonymously. Please submit your questions to: elizabethlane@live.com

How To Get A Free Copy of Your Credit Report

Very few people have ever gone through their financial life without having a few bumps in the road. Job loss, medical issues, divorce, and many other instances can cause you to fall behind on your bills. At some point, you get past the problems, but now you have to deal with poor credit. It really doesn’t matter where you are at; it only matters that you get started. Here are some tips for do-it-yourself credit repair.

Before you can fix your credit, you have to know where you currently stand with your credit. There are a lot of ways to do this. There are many services that charge monthly or annual fees to keep you updated on your credit. If you know you have bad credit and you’re only trying to start the road to recovery, I wouldn’t suggest paying for a service. There are a couple of sites that are my favorite.

CreditKarma.com is a site you can register with. They don’t give a detailed report of your credit with each credit bureau, but rather a compiled score. It also updates every month so you can have some idea where you are at and if you are going in the right direction. To get a detailed report from all three credit bureaus you can order your free credit report at www.annualcreditreport.com. As implied, you are able to get your credit report free one time every 12 months.

If you are turned down based on your credit history, you are entitled to get a free credit report. The company who turned you down must supply you with the credit bureau’s name, address, and phone number. You have 60 days to contact the bureau and request a free copy of your report.

You need to get reports from all three credit bureaus in order to get a clear and accurate view of your credit. Not all companies report to all three agencies, thus you may get different scores. One may have a delinquent account the others do not. The three bureaus are Equifax, TransUnion, and Experian.

The Economy and Credit Repair

Wow! Who's credit has not been effected by the economy. People have lost their homes, retirements funds, jobs, and savings. It's hard to fathom how anyone is going to be able to even use credit as a standard in the future. If you're credit has faltered and you still want to salvage it through the economy, here are a few tips:

1. Keep at least two credit cards open and keep them up to date. If you can arrange other installment loans, go ahead and do so. This will help rebuild your credit.
2. Pay all of your accounts when they come due.
3. File disputes against any derogatory entries on your credit report.

If you're not sure what your credit score is, but want to get a good idea--you can also use the free service at creditkarma.com. It will update you monthly with any changes and is a great way to monitor your progress if you are trying to get back on track.

Don't give up! The economy will make a comeback and when it does, you want to position yourself to have the good credit you need. 

Best Credit Repair Sites

If you decide to use a credit repair company, get sound advice. Ask your friends and family who they have had success with. You may be surprised by how many people have used credit repair. The following link has rated the top ten credit repair companies:

www.top-10-credit-repair.com/

The Credit Repair Scam

When most people hear the words "credit repair" they almost automatically think of a scam. I recently received a call from a client. He told me how he had spent over $1,500 with two other credit repair companies. His score is currently in the 500's.

He felt like he had been scammed. So many companies make promises that they can delete bankruptcies, judgements, and negative credit. It's not hard to put out a sign and claim to be an expert in credit repair. However, if you don't understand how credit works, you may be making the problem worse instead of better. Most people just don't understand the rules of the credit game.

Anyone can bombard the CRA's (credit reporting agencies) with dispute letters. They might even get lucky and have some of the negatives removed. Your credit score, is unfortunately, a game, with some self-appointed powers that be making up the rules as they go along. Oftentimes, the rules change. Most people don't even know that negative credit only makes up 35% of your credit score. Which means, you have 65% to focus on positive credit.

Don't go into the credit repair game with high hopes and lots of cash. You may be disappointed, unless you can find a true educator who can guide you through the murky waters and help you with true credit improvement.

Improving your FICO score.

If you need a loan, do your rate shopping within a focused period of time, such as 30 days. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Generally, people with high FICO scores consistently:

• Pay bills on time.
• Keep balances low on credit cards and other revolving credit products.
• Apply for and open new credit accounts only as needed.

Also, here are some good credit management practices that can help to raise your FICO score over time.

• Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them on time will raise your FICO score over the long term.
• Check your own credit reports regularly, before applying for new credit, to be sure they are accurate and up-to-date. As long as you order your credit reports through an organization authorized to provide credit reports to consumers, such as myFICO, your own inquiries will not affect your FICO score.

What to know about "rate shopping."

Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, the score ignores mortgage, auto, and student loan inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for mortgage, auto, and student loan inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

Does the formula treat all credit inquiries the same?

No. Research has indicated that the FICO score is more predictive when it treats loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, the FICO score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for rate-shopping inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

How much will credit inquiries affect my score?

The impact from applying for credit will vary from person to person based on their unique credit histories. In general, credit inquiries have a small impact on one's FICO score. For most people, one additional credit inquiry will take less than five points off their FICO score. For perspective, the full range for FICO scores is 300-850®. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. While inquiries often can play a part in assessing risk, they play a minor part. Much more important factors for your score are how timely you pay your bills and your overall debt burden as indicated on your credit report.

The Truth About Credit Repair

Does applying for credit affect my FICO score?

Fair Isaac's research shows that opening several credit accounts in a short period of time represents greater credit risk. When the information on your credit report indicates that you have been applying for multiple new credit lines in a short period of time (as opposed to rate shopping for a single loan, which is handled differently as discussed below), your FICO score can be lower as a result.

Will my FICO score drop if I apply for new credit?

If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

Learn the tips, tricks, and techniques of the professionals

On Saturday, August 8th, we will be holding a

Do It Yourself Credit Repair Workshop

in St. George, Utah at 10 AM. Cost is $59 per person.

You will learn how to:

• Understand how your credit is scored
• Legally dispute all negative items on your report
• Challenge items in collection on your report
• Understand positive ways to improve you credit score
• Get a 3 step action plan that will improve your score in as little as 30 days

This is a great workshop. It is an awesome way for people who need to improve their credit score, but don't have the money to pay high-priced credit repair agencies. Some people attend the workshop to do their own credit repair, and then are able to help others with their credit as well. It's all-inclusive and includes trade secrets about the crazy credit game! The credit bureaus don't want people to know how their credit is rated and scored. But, I have learned how to understand, build, restore, and increase your score.

Call for more information: (435) 628-0254 in St. George or 1-888-795-7739. We can also be reached via: email at beesmartanswers@gmail.com; text to (702) 539-7571; or fax us at (702) 947-2547. PRE-REGISTRATION IS REQUIRED.

I have so many inquiries on my report.

I get asked this question quite often. People assume those inquiries are affecting their score. They may be. I will be running a series of answers on this in the next of couple of weeks.

What is an "inquiry"?

When you apply for credit, you authorize those lenders to ask or "inquire" for a copy of your credit report from a credit bureau. When you later check your credit report, you may notice that their credit inquiries are listed. You may also see listed there inquiries by businesses that you don't know. But the only inquiries that count toward your FICO score are the ones that result from your applications for new credit.

Why Is My Credit So Bad?

Explaining how the credit reporting bureaus work can be downright confusing. And, there's a reason it is so confusing--because it is. Yes, that's right they purposing make it confusing so that consumers don't have any idea how to manipulate their credit score. The FICO score was established as a way to determine the likelihood that a person would pay back a debt. This is a mathematical equation that uses 22 different algorithms to compute your score. On top of that, each CRB (credit reporting bureau) uses a different scoring module. THEN, add to that: your score is completely different when pulled by 1) mortgage lender/bank; 2) auto reseller; or 3) consumer self-reporting. Aaah....sigh.

To simplify it, I like to break it down into 5 different categories:

Top 5 Factors Affecting Your Credit Score

There are five primary factors that account for the magical credit score which determines you acceptance or rejection for most loans or credit cards, and strongly influences the interest rates or total cost for you to borrow the funds.

How Payment History Affects Your Credit Score – 35%

Payment history accounts for about 35 percent of your credit score (this will vary depending on the scoring agency). It makes sense that this would be a top factor, since someone with a long history is of never missing a payment is likely to continue to be a safe person to lend money to.

If you do have negative marks on your credit score, three factors will determine the size of the deduction to your credit score:

1. Time Since The Event – how long ago did you miss a payment? If it was a long time ago, and you have a good payment history since that time, it will not affect your score very much. Whereas a recent missed payment will cost more against your credit scoring.
2. Number of Missed Payments – obviously matters. One missed payment in ten years of good history won’t matter very much, but the more missed payments in your history, the more risky you are seen to be and this will be reflected in a lower debt score.
3. How Bad Was The Blunder? – being late or missing one credit card payment is a small deduction. All the way up to having a bill go to a collection agency to the biggest black mark of all: bankruptcy.

How Much You Currently Owe – 30%

If you think of your credit score as a kind of “worry index” for lenders, you’ll understand why how much of your possible credit you are using would be a concern for lenders.

Think of this aspect of credit score as a percentage. The amount you owe on all possible credit sources (credit cards, auto loans, home loans, your current mortgage and so on) divided by the total of all credit available to you.

To put it into perspective, statistically most Americans use less than 30% of their available credit and only about 12% use more than 80%.

How much you currently owe compared to your total available credit accounts for about 30% of your loan score. Knowing this straightforward measurement, to improve your score, simply pay down any loans and avoid the temptation to get cute and improve your ratio by getting a larger amount of “available credit”. As we’ll see in the next sections, this can actually hurt your credit score more than improve it.

In general people who have a debt scenario near to or at the limit of their credit are much more likely to default and therefore are given a lower credit score. If you are in this situation credit counseling, to develop a debt management plan, may be something worth considering to reverse the trend and lower your debt ratio.

How Long You Have Had Credit – 15%

This metric accounts for about 15% of your credit score, with favorable weight going to those who have had credit for the longest time. The reasoning behind using time as a credit score factor is because in time it is easier to establish patterns of behavior.

Even if someone has never had a credit incident (a late payment for example) but they have only had a credit card or loan for a short period of time, they may not have encountered any of the critical life events that can cause major stress.

Credit statistics show that people with the highest ratings for example, have not missed a payment even when they have lost their job or been ill for extended periods.

Your Last Application for Credit – 10%

The typical American consumer last applied for some sort of new credit 20 months ago. Recent credit applications can indicate a “need” for money and needing money is a negative factor on your credit score.

Your last credit application date accounts for about 10% of your total score. In fact, even having many lenders check your credit score can have a negative impact on your credit score, so make sure you don’t authorize lenders or banks to “pull” your credit score unless you are in fact, seriously shopping for a loan or other credit instrument.

Ordering your own credit score report from one of three bureaus should not count as a negative on your actual credit score.

The Types of Credit You Are Using – 10%

In short there are two major types of credit: revolving and installment.

Installment loans are items like car loans and mortgages. Revolving are credit cards and the like where even if you pay them in full, you still retain the credit to use it again. Generally credit cards are seen as higher quality revolving credit, than department store cards. And mortgages are seen has higher quality than revolving credit, simply because they are more difficult to obtain ( the recent sub-prime loans excluded ).

The type of credit you are using represents about 10% of your score, and a higher score is give to people with a blend of credit from various sources. This is seen as a reflection of trust, due to each credit card or loan being seen as an endorsement from a different company.

Credit Score Conclusions

It is clear when you read through the 5 credit score factors that they are derived from a statistical analysis of many years of loans versus default rate data. This is both good and bad. For the lenders it can be a fairly accurate predictor of the “typical” borrower’s behavior and for the consumer it does provide a clear roadmap for improving their credit score.

The downside to this statistical analysis is, of course, that it doesn’t account for the human factor or treat people as individuals. In the old days, before FICO Scores, the bank manager or loan officer knew their clients and included the client’s “character” as a major factor in making a decision whether to lend or not. Now that the decision is largely automated, it is possible to be unfairly represented, and be forced to pay higher lender fees, by a credit scoring models based on other people’s behaviors.

What is the average American FICO score?

­The credit score that haunts your dreams at night and can awaken you in a cold sweat is based largely on the history of your financial life. The three major credit bureaus (Experian, TransUnion and Equifax) have their own version of the FICO score, based on the mathematical model Fair Isaac refined in the late 1970s. Each of the credit bureaus' scoring systems is slightly different, which can result in different scores for a single person. As a result, lenders generally use the middle score for reference.
Credit scores are based on your payment history, how much outstanding debt you have, the length of your credit history, what type of credit you've received and the frequency with which you fill out new credit applications. The factors that have the most bearing are payment history and outstanding debt, which account for 35 and 30 percent of your score, respectively. By the way, the average American score is 692.

A tip to increase your score

Do not close your old credit card accounts. Old established accounts show your history, and tell about your stability and paying habits. If you have old credit card accounts that you want to stop using, just cut up the cards or keep them in a drawer, but keep the accounts open. Closing your account will actually hurt your score. Eventually, your score will go up again. I don't recommend closing an account if you are in the process or planning to get a loan soon.

Estimate your own Fico Score

I found this estimator at: http://www.bankrate.com/brm/fico/calc.asp It is fairly accurate and can give you an idea of what your score is.