Credit Repair and the Power of Secured Credit Cards
The Big Credit Repair Mistake
One of the big mistakes people make as they begin a credit repair program is to neglect the credit rebuilding part of the credit repair process. Removing derogatory information, as important as it is, will only get you halfway to your goal. If you clean up your credit without opening new accounts your credit scores may go nowhere; in fact, your credit scores may fall leaving you no better off than you were before.
It’s About the Score
People neglect to rebuild their credit for many reasons. Some people are under the impression they would be better off waiting until the derogatory information has be removed from their credit report before applying for new credit. This makes sense in a way. Unfortunately, the all-important FICO credit-scoring model will not cooperate with this logic.
Don’t Be Left Out
In most cases the dispute process will result in the deletion of some of your tradeline history. This reshaping of your credit profile will be beneficial in the long run, but if you have limited credit the removal of any information can leave the FICO scoring model with a lack of useable data. And as a result your credit score will fall.
Credit Repair Common Sense
FICO is an acronym for Fair Isaac and Company, the creator of the credit scoring model that generates the scores lenders use in making lending decisions. Fair Isaac does not make the exact formula public, but there is so much common sense involved that if you take time to consider the purpose of the FICO score, you will understand how your activities are interpreted and extrapolated into this powerful number.
Big Brother is Watching You
Think of Fair Isaac as an impartial observer of your financial activities who is perpetually judging your ability to repay your debt. Fair Isaac looks at everything you are doing today and have done in the past. Fortunately for anyone in a credit repair program, recent activity is more important than past history. Every day is a new opportunity to prove your willingness and ability to repay your debt. And if you really want your credit score to improve you should become proactive about managing your credit starting right now.
The Magic of Secured Cards
Secured cards provide the perfect solution for anyone with little or no open credit. Unlike regular credit cards, you don’t have to worry about your application being denied. Some people in a credit repair program may have acceptable credit scores and be able to get a regular non-secured credit card, but if you are not in that category secured credit cards are the perfect credit repair tool.
An Easy Path
A secured credit card will require a small savings deposit with the lending institution. Typically, you will be offered a line of credit equal to the amount of your deposit. In most cases once you have successfully managed your account for a period of time the saving deposit will be released and your card converted into a regular unsecured account. Most secured cards require a minimum deposit of either two hundred and three hundred dollars.
The Power is In Your Hands
You must manage your secured cards very carefully. Remember that you are communicating your financial responsibility with every purchase and payment decision you make. Making your payments on time is critical, but even more important is the way you manage your balance. These new cards are very powerful; a wrong decision can make your credit scores plummet even as you meticulously make your payments right on time.
Solid Credit Repair Gold
If you run your balance up to the limit you will communicate several things to Fair Isaac, and none of them are good. New credit is untested credit. Credit adds stress to your monthly budget, and without a track record Fair Isaac has no choice but to place you in a high-risk category, which means a lower score. But there is another side to this situation, and here is where you will strike solid credit repair gold. If you send the right message you will be quickly rewarded with higher scores.
Keeping Your Balance
The current FICO scoring model recognizes six different balance levels relative to your high credit limit, and you will be rewarded, or punished, accordingly. The balance-to-limit ratios recognized are 20, 40, 60, 80, 100, and finally - the deadly over 100% category. If you are in a credit repair program and eager to optimize your credit scores you should keep your balance below 20% of your high credit limit. You will be thrilled with the results.
Copyright © 2007 Sky Blue Credit Repair. All Content. All Rights Reserved.
Credit Repair and Bankruptcy
Choices and Solutions
A period of financial hardship may leave you with unmanageable debt. If you find yourself unable to meet your monthly obligations you may be forced to consider bankruptcy. Here is a discussion of the new bankruptcy laws along with some powerful credit repair strategies designed to minimize the impact of bankruptcy on your credit.
A Changing World
Bankruptcy is not as attractive an option as it once was. Many people attempting to discharge debts in a Chapter 7 bankruptcy are now forced into a Chapter 13 repayment plan. Many more are discovering that they do not qualify at all. Let’s take a look at the new bankruptcy laws as well as some credit repair strategies that will help you minimize the damage to your credit report.
2005 Changes
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 set up a gamut of barriers designed to disqualify applicants from discharging debt in a Chapter 7 bankruptcy. Those that no longer qualify for a Chapter 7 bankruptcy may be forced into a Chapter 13 repayment plan. Prior to 2005 individual cases were examined and judged on a rather subjective basis; post-BAPCPA applicants are subject to more restrictive guidelines, the first of which is a means test.
Chapter 7 Means Test
If your income is below the median income in your state you automatically qualify for Chapter 7. If your income is above the median you must calculate your disposable monthly income (DMI) to determine whether you a capable of making payments on your debts sufficient to qualify for Chapter 13. Your DMI is calculated by subtracting certain allowable expenses from your monthly income. If the DMI is less than $100 per month, you are permitted to file under Chapter 7. If the DMI is above $100, you must instead file under Chapter 13. Please note that there are exceptions to these rules, so please consult an attorney before making a decision.
Additional Requirements for Filers
There are a number of additional requirements that make the process of bankruptcy more difficult including mandatory credit counseling from an approved credit counseling agency prior to filing, as well as a course in personal financial management after filing the bankruptcy. If you end up in a Chapter 13 plan the new law increases the amount of debt that you will repay, and the old “super discharge” provision, which allowed the discharge of some debt under Chapter 13, has been significantly cut. Another major restriction is a new $150,000 cap on the amount of equity in your home that you can exempt from creditors claims.
Credit Repair Solutions
If you do qualify, and subsequently file bankruptcy, there is quite a bit you can do to mitigate the damage to your credit report. First, let’s take a look at the Fair Credit Reporting Act (FCRA) and then discuss the credit repair strategies that will help you repair your credit after your discharge.
Bankruptcy, Credit Repair, and the FCRA
The only reference to bankruptcy in the FCRA is as follows: § 605. Requirements relating to information contained in consumer reports [15 U.S.C. §1681c] (a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information: (1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.
Bankruptcy and the Credit Bureaus
Fortunately, the story does not end there. A critical distinction that many people miss as they consider their credit repair options is that the accounts included in bankruptcy are subject to all of the FCRA stipulations about accuracy quite separate from the issue of the reference to bankruptcy as a public record. In addition, the credit bureaus have their own internal policies about the reporting of accounts after discharge. And here is where your opportunity for credit repair really shines.
Credit Repair Strategy
The credit bureaus operate with an implicit understanding that once an account is discharged in bankruptcy it enters a new phase which nullifies its status prior to discharge; a discharged account, by definition, cannot be in collection, or with a past due balance. Discharge modifies the condition of the account as well as the legal relationship between creditor and debtor forever. The approach adopted by the credit bureaus for all items discharged in a bankruptcy is to remove all defunct derogatory information and to insert a single information line stating that the account was included in bankruptcy. But credit repair will not happen without your participation.
The Credit Repair Plot Thickens
It is crucial to know that you must initiate the restatement of discharged items on your report. The credit bureaus will not correct your report without receiving specific instructions from you. Too many people make the mistake of believing that these things will take care of themselves without attention. There is no reason that you should suffer from bad credit for years after a bankruptcy. An intelligent credit repair effort can eliminate the majority of damaging information and get you back on your feet before you know it.
Copyright © 2007 Sky Blue Credit Repair. All Content. All Rights Reserved.
Credit Repair and the Zen of FICO
What Do You Want?
How serious are you about credit repair? Some people are happy to improve their credit, others are not satisfied until they master their credit scores. If you are aspiring for credit repair perfection, then you are ready for a lesson in the Zen of FICO.
Credit Repair Matters
Your credit score is just a number, and yet it can have a huge impact on your life. And in the wake of the credit-meltdown of 2007 creditors have tightened their guidelines and will now make sure you pay dearly for any deficiency in your credit score. Credit repair has never been more important.
Looking For Credit Repair Enlightenment
Do you want to master your credit scores? Are you ready for the Zen of FICO? If so, you will need to explore the deeper truths of credit repair - to understand the meaning behind the numbers. You need to enter into the mind of the creators; you need to know what Fair, Isaac and Company is trying to do.
A Bit of Background
Lenders base their underwriting decisions on credit scores they purchase from the three credit bureaus. The bureaus all use a scoring model called the FICO score. FICO is an acronym for Fair Isaac and Company, the developer of the score. Each bureau has re-branded the FICO score for marketing so you may hear it called by different names, but the formula is the same.
Why the Scores are Different?
You may notice that your three credit scores are different. This is because each credit bureau receives information from a slightly different mix of creditors. If you were to examine your three reports you will see that some accounts are missing on each bureau. Timing is also a factor; a recent change in your credit may be reported at one bureau before the others.
A Method to Their Madness
The FICO model is designed to measure the likelihood that you will meet your obligations. The purchasers of credit scores make money by lending you money. Their earnings come from interest you pay, along with any fees they charge. These creditors may measure your qualifications in other ways, but your credit score is the final criteria.
Be the Score, Grasshopper
To master the art of credit repair means to grasp the connection between your life and your credit scores. You need to understand that you are communicating information about your credit worthiness every day of your life. You provide the data that will determine your credit scores every time you make a payment, apply for credit, or open or close an account. What messages are you sending today? Let’s take a look at the behaviors that influence your scores. As we explore the components of credit scoring you will find an intuitive understanding arising; you will begin to make sense of the way FICO interprets your behavior.
Making Your Payments
Your payment history is a big component. Every time you make a payment you are telling the FICO model that you are responsible. You need to communicate this fact on a regular basis. If you don’t have sufficient credit your credit repair effort will not succeed. Installment accounts are good, but there is nothing like well managed revolving debt to improve your scores. You should have at least three credit cards. And if you really want results you must keep them active.
Your Account Balances
Here is another category of information that can shed light on the mystery of credit repair and the Zen of FICO. Think about your revolving accounts again. What message are you sending to FICO if you run your balances up to the limit? You are telling FICO that you are irresponsible. This may not be the case, but Fair Isaac and Company figured out that people with maxed out cards are much more likely to default than people who restrain their spending. A maxed out credit card is credit repair suicide. Conversely, the lower the balances relative to your high credit limit the better you will score. Do you see the logic?
The Length of Your Credit History
Cleaning up your credit report is an essential part of credit repair, but don’t close good accounts. FICO loves old accounts; the older the better. Old accounts indicate stability. Conversely, new accounts make FICO nervous. If you give in to the temptation to spend every penny of your new credit limit you may not be able to pay your bills. Again, that may not be the case, but statistically the evidence indicates increased risk. And measuring risk is what FICO is all about.
Those Darn Inquiries
We already know that FICO is not wild about new accounts. And where do those new accounts come from? From the FICO perspective, they come from credit inquiries. That’s right, every time you have someone run your credit you are telling FICO that you are about to get into debt. New debt means new risk. And FICO is all about risk. So Zen up your credit repair efforts and make sure you communicate the right message. Let FICO know that it has nothing to worry about. The more clearly you convey this message the higher your score will be.
Copyright © 2007 Sky Blue Credit Repair. All Content. All Rights Reserved.
Credit Repair: A New Professional
Change is Natural
Everything changes. No industry stands still. Henry Ford’s Model T was revolutionary, and opened the eyes of the world to new possibilities. But by today’s standards, the Model T, as important as it once was, has its place only in the past. Virtually every aspect of the early model automobile has been improved on, far beyond what Henry Ford could have imagined in his day.
The Changing Credit Repair Industry
The Internet has grown into a vibrant worldwide business community. In this environment competition thrives and new ideas come to life at amazing speed. New participants have entered the credit repair arena and brought fresh life to the business. Some older members have updated their methods; while others, perhaps top heavy with technology, continue to stand their ground even as the earth shifts beneath their feet.
The New Breed Appears
From this dynamic mix has appeared a new breed, the credit repair professional. This new breed has a true mastery of the craft, and an impressive arsenal of tools capable of delivering results beyond the imagination of the early pioneers in the industry. Everything about the business is changing. And the changes involve you.
Credit and Your Life
There is nothing as important to your financial life as your credit. The content of your credit report, along with your credit scores, will determine the interest rate you pay on everything from your credit cards to your mortgage. The impact of your credit on your life can be staggering, and should not be taken lightly. The word is out.
The Problem of Errors
The three major credit bureaus maintain credit files on over 200 million Americans. A staggering amount of data moves through the credit reporting system. Errors are common and can translate into enormous costs for consumers; and yet, in a terrible percentage of cases these errors go unrecognized. This phenomenon is more damaging than you might think. Identifying errors on your report involves more than just spotting unfamiliar account information. The majority of credit report errors are compliance violations that you will not find without training.
FICO, A Lack of Understanding
Lenders base their underwriting decisions on the content of your credit report along with the numeric value of your FICO scores. These FICO scores have a major affect on your life, and yet few people have any knowledge of how they work. Here again, a lack of understanding results in a huge cost. A well-informed reshaping of your credit may have a dramatic impact on your credit scores. Even simple changes can bring major improvement, yet without proper information this potential remains untapped.
The Results You Need
The goal of a credit repair professional is to improve your credit. Along with the skillful identification and removal of reporting errors, the process may include specific recommendations for building new credit, managing existing debt, rehabilitating defaulted obligations, and handling collectors. All of this must take place within the context of optimizing your credit scores. The credit repair professional operates in a fiduciary capacity and will utilize the widest range of tools to insure quick and lasting results.
Personal Service
You are unique, and so is your credit. There is no generic approach to credit repair that will do you justice. No credit repair software has the ability to spot the compliance errors on your credit report, or to determine the proper balance of accounts to optimize your credit scores, or to help you determine the right approach to take with an active collector. There is no one-dimensional credit repair program that will produce the results you deserve. True professional credit repair is about personal service. You cannot afford to settle for less.
What it Means to You
The credit repair professional will make sure that everything possible is done to help you reach your goals. Do your want to see your scores improve? Do you want your credit to meet or exceed lenders requirements? Wait until you experience what a credit repair professional can do for you!
Copyright © 2007 Sky Blue Credit Repair. All Content. All Rights Reserved.
Credit Repair: The Time for Action
Jump in With Both Feet
The moment you make the decision to start the credit repair process you will feel great; empowered, light, and hopeful. For many people it is a hard step. There may be uncomfortable emotions associated with past credit issues, and revisiting old events can be difficult. But there is nothing more rewarding than regaining control over your life. How do you feel? We suggest you jump in with both feet. You’ll be glad you did.
Knowledge is Power
The first step in the credit repair process is taking inventory. You must get copies of all three of your credit reports. Did you know that each credit bureau reports a different mix of account information? Some creditors report to all three bureaus, others report to only one or two. You need to examine all three of your credit reports to get a complete picture as you begin the credit repair process.
Clean Up Your Credit
A truly effective credit repair and restoration plan may include catching up on past due accounts, evaluating collections to determine if they should be paid, negotiated, or ignored, contacting creditors to discuss rehabilitation options, and more. But before you take any of these steps you should make an effort to identify and remove errors on your credit reports. Finding and removing errors on your reports is an important and powerful step in the credit repair process. It may also be the most difficult.
Spotting Errors
An often-quoted statistic from the National Association of State PIRGs (Public Interest Research Groups) states that 79% of all credit reports contain errors. It is also a fact that people with legitimate credit problems are considerably more likely to have errors on their reports. This is because late payments, charge offs, and collections trigger activity such as re-coding of accounts for special handling, and sale or assignment to outside parties for collection. These procedures dramatically increase the likelihood of errors. Credit reporting errors translate into higher interest rates on every dollar you borrow, and many of these errors are hard to spot. Doing the job halfway should not be an option. If you do not feel comfortable tracking down errors on your report you should hire a credit repair professional.
A Disturbing Cycle
The fact that errors are most likely to appear on the reports of those with past credit issues is one of the most problematic phenomena in the credit repair world. On one hand it creates significant barriers for those who can afford it the least; it is difficult enough to regain control over your life after a period of financial stress without the system placing extra obstacles in your path. It is also damaging in a more subtle and insidious way. People with credit issues often feel reticent about the credit repair effort. The emotional discomfort following a period of financial stress makes a critical examination of their credit reports difficult. As a result they live for years with innumerable errors on their credit reports. These errors reduce their scores, cost them money in the form of higher interest rates, and place unnecessary ongoing strain on their budget. But there is good news. Awareness leads to action, and a focused credit repair effort can turn things around quickly.
Rebuilding Your Credit
Another important step in the credit repair process, which is often neglected after a period of financial strain, is the rebuilding of credit. The overall content of your credit report will determine your FICO scores, the scores lenders use in underwriting loan applications and determining the interest rate you will pay. To build your FICO scores it is essential to have current open accounts in good standing on your report. Many people avoid opening new accounts due to fear of denial. This is a mistake. You can work for months to repair your credit, but if you are left without a measurable, current, history of on-time payments your FICO score will go nowhere. Secured credit cards are the perfect credit repair tool. Secured cards require a small savings deposit, and will typically provide a credit line equal to that deposit. These cards are designed for people with credit issues, so you don’t have to worry about being denied, and most importantly they will provide the track record the credit-scoring model is looking for.
Developing a Budget
Credit repair requires effort. You will want to insure your efforts continue to pay off well into the future. It is important to make payments on time, incur only manageable debt, and build savings to cushion your budget in the case of unforeseen events. A thoughtful examination of your costs versus your obligations is a perfect complement to the hard work you put into your credit repair. A budget does not have to mean hardship. In fact, you will soon see that it is quite liberating. The effort you put into understanding your finances will give you the information you need to make good decisions in your life, maintain your great credit, build savings, and ultimately allow you to build real personal wealth.
Copyright © 2007 Sky Blue Credit. All Content. All Rights Reserved.
Credit Repair and the Art of Finding Errors
More Than Meets the Eye
Credit reporting errors can ruin your credit scores and cost you money. It is essential that you examine your reports periodically to spot these errors. But do you know what to look for? Here is some information that may surprise you.
The Invisible Threat
Most people are under the impression that the information on their reports is correct if it looks familiar. Unfortunately, a cursory glance through your reports in search of unfamiliar information is virtually guaranteed to miss a significant number of errors. Effective credit repair requires a thoughtful and informed effort and should not be taken lightly. Over 100 million Americans have errors on their credit reports serious enough to cause them to pay premium interest rates on every dollar they borrow. The cost of credit reporting errors can be significant. Can you afford to throw money away unnecessarily?
Looking Under the Hood
Have you ever had car trouble and lifted the hood to locate the problem? Unless you are a mechanic you probably didn’t achieve much. The first step in the credit repair process is the search for credit reporting errors, and it’s a lot like lifting the hood of your car. You might spot something, but your chances are better if you know what to look for.
Two Types of Errors
Credit reporting errors may be grouped into two general categories; obvious errors, and compliance errors. Obvious errors, such as accounts that don’t belong to you, are easy to find. Compliance errors generally relate to a real event, but should not report as a matter of law. These may not look like errors at all, but anyone familiar with the nuts and bolts of credit repair knows they make up the vast majority of erroneous reporting.
Collection Issues
Because compliance errors relate to a recognizable event usually means that they go unchallenged, and needlessly damage your credit scores for years. Collection accounts often fall into this category. Collections are often sold and re-sold. Collectors who no longer own a debt may not report the collection on your report. A shocking number of reported collections have no legal right to show on your report. And yet, the system provides no mechanism or incentive for collectors to cease reporting when they should. Here’s a handy credit repair fact: collections change hands regularly and should be challenged even when they look current.
Reporting Period Violations
Reporting period violations are also in the category of compliance errors and often go unchallenged. Most derogatory information should stop showing on your report after seven years. People starting a credit repair effort are usually aware of this fact, but an impressive number of these errors escape notice. Creditors are responsible for furnishing the credit bureaus with accurate start dates for these reporting periods. Unfortunately, creditors do not always provide the proper dates, and may even inadvertently reset the start dates under certain circumstances. Did you know that the reporting period starts with the original default and cannot be reset by subsequent debt holders? If an account is charged off and sold to a collector - or a sequence of collectors - the likelihood of a reporting period error increases exponentially and the damaging information may report for years past the proper expiration date.
Those Darn Credit Cards
The relationship between your credit card balance and the high credit limit can have an enormous impact on your score. Did you know that it is common for credit card issuers to misreport high credit limits? The affect on your credit scores can be dramatic. If you have a credit card with a $1,000 balance and a $10,000 limit, and the creditor were to erroneously report your card with a $1,000 limit – just equal to your current balance - your score could fall significantly. How much will it fall? Many consumers involved in a credit repair effort are confused about the effect of a derogatory item on their credit score. Did you know that the impact of an error will vary depending on the overall content of your report? The more credit you have, and the older your accounts are, the less impact a single problem will have. On the other hand, if your credit is relatively lean, a single error can be devastating. In either case, it is worth examining your report carefully to insure your high credit limits are correct.
Déjà Vu Credit
Have you ever examined your report and seen the same account more than once? You’re not alone. Duplicate accounts occur all the time and impact your scores exactly the same as if they were real, additional debt on your report. Another common error of a similar nature involve closed accounts which continue to report as open with balances. Like too many other types of errors, these are often passed over with a shrug during a credit repair effort, but may be costing you money.
Copyright © 2007 Sky Blue Credit Repair. All Rights Reserved.
Credit Repair and a Lost Wallet
Getting Started
Have you lost your wallet? You will need to cancel your credit cards and get a new drivers license, but it may be more involved. You should take steps to protect your identity too. Here is our overview of the options you need to consider…
Put Fraud Alert on Your Reports
A fraud alert is a message on your credit report notifying potential creditors that your personal information may be used fraudulently, and requests them to contact you by phone prior to extending new credit. An initial fraud alert will remain in place for 90 days, and can be cancelled anytime. You may place a fraud alert on all three reports by calling just one of the three bureaus as they are required to contact the other two. You may also initiate your fraud alert online at the bureaus websites. Once the 90 day period is past, you may place an extended fraud alert on your report which will last for seven years, if you feel that your identity is still at risk.
Consider a Credit Freeze
A credit freeze is a more dramatic step you can take to insure that no new accounts are opened in your name. Once a credit freeze is active potential creditors will not be able to access your report. There are exceptions which allow a variety of pre-authorized parties to view your reports. This includes your current creditors who have the right to review your credit, collectors that work for current and past creditors, and companies that offer pre-screened credit. You may lift a credit freeze if you wish to apply for new credit. Unlike fraud alerts, which are available to anyone, credit freeze laws vary from state to state and may not be available in your state. In many cases there are fees associated with placing and lifting a credit freeze. If you are uncertain, ask a credit repair professional for assistance.
Get a Free Credit Report
Once you have placed initiated a fraud alert or credit freeze you may access each of your credit reports one time for free. In the case of an extended seven year fraud alert you may access your reports two times for free within the first year of placing the alert. Keep in mind that everyone has the right to access their reports one time per year for free at annualcreditreport.com. This is a federal law intended to facilitate the identification and repair of credit reporting errors. Instances related to the implementation of a fraud alert or credit freeze do not count against your right to your free annual reports.
Credit Monitoring!
Credit monitoring is a fantastic high-tech tool which can add an extra layer of protection and comfort for anyone whose identity may have been compromised. It is also nice for anyone in a credit repair program wishing to track changes in their reports. Credit monitoring is offered by all three credit bureaus for a small monthly fee. At the time of this writing the cost is under fifteen dollars per month. Once enrolled, you will receive an email whenever there is a credit inquiry or any material change in your credit reports. You will also get unlimited access to your reports. Each bureau has an option that provides you with monitoring from all three bureaus simultaneously.
Social Security Card Replacement
If you have lost your Social Security Card you can get a replacement at no cost. You may get up to three replacement cards per year and up to ten in your lifetime. Just go to your local Social Security Administration office with personal identification and proof of citizenship, such as your birth certificate, certificate of naturalization, or passport, and you will receive a new card in approximately two weeks. You will also get a Social Security Number Certification letter on the spot which can be used in place of a card while you wait.
The Social Security Administration does not get involved in resolving identity theft issues, but if you inform the Social Security Administration that your Social Security number may have been used by another person, they will review your earnings to make sure no one else is using your identification for work purposes.
Copyright © 2007 Sky Blue Credit. All Content. All Rights Reserved.
Credit Repair: The Question of Inquiries
Setting Your Priorities
Inquiries may hurt your credit score, or they may do nothing. If you are in a credit repair program there are probably bigger issues on your credit report than inquiries. Since it is best to focus on cleaning up the items that have the greatest impact, your inquiries may be left until everything else is resolved. Even then, you may decide to ignore the inquiries, but before we dismiss them altogether let’s explore a bit further.
Two Types of Inquiries
There are two types of inquiries. “Hard” inquiries will affect your credit score, and occur when you apply for new credit. “Soft” inquiries will not affect your credit score, and are typically triggered by three different events; 1) when you request your own credit report, 2) when potential lenders check your credit prior to offering you pre-approved credit, and 3) when a current lender conducts a periodic review of an existing account.
The Logic of Inquiries
There is logic behind the impact inquiries have on your FICO score. If you are applying for new credit you may be in the process of incurring new debt and placing an additional strain on your budget. Hence you are placed in a higher risk class, designated by a lower credit score.
Rate Shopping
The FICO scoring model was recently modified to accommodate consumers that shop for mortgage or automobile financing. You may now have as many inquiries as you wish in a 45 day period while shopping for a mortgage or automobile loan, and they will only have the impact of a single inquiry on your credit score. To further accommodate this type of shopping, these inquiries will not appear at all for 30 days. Many credit repair customers are relieved to find out that the many inquiries which appeared after they purchased a new car had little or no impact.
Inquiries and your FICO Score
Soft inquiries, as mentioned, have no impact on your credit score. Hard inquiries typically will lower your score between 1 point and 5 points. Credit repair efforts revolve around your credit scores, and it is handy to know that the FICO scoring model considers everything on your report simultaneously. The affect of an inquiry, like other bits of information on your report, can vary depending on everything else in your file. The more credit you have, and the more established it is, the less of an impact an inquiry will have.
Time and Your Credit
Time plays an important role on the impact of an inquiry. As the months slip by the affect of an inquiry diminishes quickly. After six months the affect is negligible. If you are in a credit repair program and are deciding if you want to dispute inquiries, you want to keep this in mind. And if all of those inquiries bother you, it may be helpful to know that soft inquiries fall off your report after 12 months, and hard inquires after 24 months.
Opting Out of Inquiries
Would you like to stop all the pre-screened credit and insurance offers you get, along with all of the soft inquiries that precede them? You may do so by calling (800) 5-OPTOUT. You will be given the option of opting out for 5 years, or permanently. Many of our enthusiastic credit repair customers choose to opt out to reduce the amount of junk mail they receive, which is a nice benefit! But remember that soft inquiries have no impact on your scores, and there is some possibility that you may miss out on some legitimately great offer.
Inquiry Errors Hurt Your Score
In the credit repair business we look at inquiries as a matter of course. Often we decide to ignore them and focus on more pressing issues. Sometimes we return to inquiries for a final clean up when a customer is at the end of the program. It should be noted that not all soft inquiries are properly coded, and as a result may show up as hard inquires and lower your score.
Identity Theft
The last and more urgent warning about inquiries involves the uncomfortable possibility that someone is applying for credit under your name. If you see a hard inquiry on your report you might want to contact the creditor to see if there is an active or pending application in your name. Chances are it is just another stray or improperly coded entry on your report, but it is best to be sure.
Copyright © 2007 Sky Blue Credit. All Content. All Rights Reserved.
Credit Repair: What’s the Score?
FICO, the Score that Counts
There are many credit scores available, but the FICO score is the one that matters. FICO, by the way, is an acronym for Fair Isaac & Company, the creator of the scoring model. Virtually all lenders use FICO scores to make loan decisions. If you are in a credit repair program, any score you monitor is fine for measuring progress. But if you are planning to apply for a loan the FICO score is the one to watch.
FICO and Your Lender
When you apply for a loan, the lender orders your credit report from one (or more) of the three credit bureaus, Experian, Equifax, and TransUnion. Each credit bureau report comes with a FICO score. If you speak with your lender about your credit, they are likely to refer to each of your scores using the specific credit bureau name.
The Credit Bureau Illusion
Given the constant association of FICO scores with the three credit bureaus, you might assume they have some proprietary claim on the scores. You might also assume that if you purchased your scores from the credit bureaus, you would get the same FICO scores the bureaus sold to your lender. You would not be alone. In the credit repair business, we find most of our customers make the same assumptions. The assumptions are wrong.
Credit Score Re-Branding
As an aside, I should mention that the three bureaus have re-branded the FICO scores they sell to lenders. Equifax calls it a Beacon score, TransUnion calls it an Empirica score, and Experian calls it an Experian Score. Different names, but they are all FICO scores. Our credit repair customers often ask about numeric differences in the scores. Numeric differences arise because each bureau gets information from a slightly different mix of creditors. Timing also plays a roll in score variance; a recent change in your credit may be picked up sooner at one bureau than another.
The Business of Credit Scores
As it happens, the credit bureaus don’t own the FICO scores, nor do they sell them directly to consumers. Fair Isaac & Company owns the scoring model and licenses it to the credit bureaus. The credit bureaus use the model to score the data they have on file for consumers. Then they bundle the scores with consumer credit reports and sell them to lenders. Fair Isaac collects royalties from the credit bureaus for these sales.
Putting Credit Scores to Use
If you are planning to apply for a loan, you might want to purchase your FICO scores beforehand. You would want your real scores, not “estimated” scores that might vary widely from the ones the lender will use. Yet “estimated” scores are exactly what millions of consumers get every year when they visit the credit bureau’s websites. Many of these consumers go on to apply for a loan, and are disappointed when the lender tells them that their scores are lower than they were led to believe. We hear this story almost every day from people starting up their credit repair effort.
Estimated Scores
Fair Isaac would have been happy to have the credit bureaus sell FICO scores directly to consumers. The credit bureaus, however, seeing the opportunity, developed their own “estimated” credit scores rather than paying royalties to Fair Isaac. Equifax, the exception, offers a FICO score to consumers, which provides an economical way for consumers, or anyone in a credit repair program, to monitor their score, but on its own does not provide a complete solution.
Experian’s PLUS Score
Experian sells a credit score at their website called the “PLUS Score”. Here is the small print from their website, “Your PLUS Score is formulated using the information in your credit file. It is modeled after the hundreds of commercial credit scores that help potential lenders, landlords, and employers quickly gauge your credit history and decide what kind of a risk they might be taking if they approve your application.”
TransUnion’s TrueCredit Score
TransUnion sells a credit score called the “TrueCredit” score. Here is the small print from their website. “TrueCredit” is not connected in any way with Fair, Isaac and Company; the credit score provided here is not a so-called FICO score. The credit scores of TransUnion may not be identical in every respect to any consumer credit scores produced by any other company.”
Equifax FICO Score
Equifax, as mentioned, makes a FICO score available to consumers. If you are in a credit repair program, or planning to apply for a loan, this is the most economical way of seeing a real FICO score. But it is important to know that many lenders, and almost all mortgage companies, look at all three of your FICO scores, and base their decision on the value of your middle score. One score is simply not enough.
Myfico.com the FICO Source
So, if you want to know where you stand prior to applying for a loan, or to monitor your credit repair efforts for each credit bureau, you will need to see all three FICO scores. These are available at myfico.com, The Fair Isaac website.
Copyright © 2007 Sky Blue Credit. All Content. All Rights Reserved.
Credit Repair: A Fresh Start
Life is Unpredictable
There are innumerable reasons people fall behind on their bills. Getting back on your feet after a period of financial challenge can be hard. But if you take the proper steps you will not only succeed, but emerge stronger than ever. Here are some awesome credit repair tips along with some advice on organizing your efforts.
Post Bankruptcy Cleanup
If events of your life led to the necessity for bankruptcy, don’t feel bad. You are not alone. And if you make sure your credit report reflects the bankruptcy properly, your credit scores will suffer only a minimal impact.
Once a bankruptcy is complete the items that were discharged should no longer report as collections, charge offs, or with past due balances. If you ignore your credit reports after a bankruptcy these items can linger and continue to weigh down your credit scores for years to come. Post-bankruptcy credit repair is easy. Make a copy of your bankruptcy discharge, along with the schedule of items included, and send it to all three credit bureaus requesting them to clean up each effected item.
Student Loan Problems
Student loans are unique among all other liabilities. It is almost impossible to discharge a student loan in bankruptcy, and there is no statute of limitations for collectability. Unlike old credit card debt, you can’t just wait out the next few years until it goes away; student loan debt is here to stay. It is for this reason that we suggest to our customers that they pick up the phone and deal with it right away.
But there is good news. First, the law requires that student loan lenders accommodate borrowers by making repayment as flexible and affordable as possible. And second, there is assistance available to help you understand your rights. If you are having any kind of issues with your student loans, if they are currently past due, or even long since in default, please call the Student Loan Ombudsman Office at (877) 557-2575. Call today!
Credit Card Re-Aging
If you are currently behind on credit card payments and are working hard to catch up there is a way out. There is a little known procedure offered by credit card issuers known as “re-ageing.” This procedure will allow you to convert your past due balance into a current balance, and will eliminate the entire history of late payments on the account. That’s right! Once the process is complete your account will be entirely current, and will show on your credit report as if there had never been an issue. This is a super effective credit repair technique!
Here are the rules. The account in question must have been open for at least nine months. For your part, you must offer to make three on-time payments. Re-ageing is designed for people that have been through a period of hardship and are now ready to get back on track; so you need to be in this category, and you must communicate this to the credit card company.
Just call the credit card issuer and tell them that you are interested in their re-aging policy. Some card issuers refer to this process as “curing”. If the person you are speaking with does not know what you are talking about, please ask for their supervisor. I suggest that you organize your thoughts before you call. Remember to tell them that your life has changed and you are going to be a great customer!
Budget Thoughts
An intelligent credit repair effort can make a world of difference. But in the long run, the key to maintaining great credit is living within your means. Life will not always cooperate with your attempt to stay on a budget, but the more careful you are to plan your finances while times are good, the more resilient you will be when unforeseen circumstances arise.
Organizing a budget requires a bit of careful thought - and a pen and paper! You will need to consider all of your monthly expenses. Make sure to include everything, rent, mortgage payments, utilities, auto expenses, food, etc. Knowledge is power. Too many people lose control of their finances simply because they don’t take the time to know what their commitments are. Only when you know your limits can you make reasonable decisions about what to purchase, or what amount of new debt is manageable.
Savings Tips
While you are contemplating your budget, make an allowance for savings. In the long run savings will be the most important contributor to financial stability. Make a habit of setting aside money. Savings leads to confidence and peace of mind. In time your savings will provide the foundation of unshakable credit that is capable of withstanding all of the events of life. Good luck!
Copyright © 2007 Sky Blue Credit. All Content. All Rights Reserved.