Archives for "Credit Score Facts"
Big News about Authorized User Accounts
Breaking News
Fair Isaac Corp. has announced a modification of their software which will block the credit score benefits of authorized user accounts. Here is our take on the news and the impact it may have on your life.
Questionable Credit Repair Practices
A small sub-set of the credit repair industry has been operating in a gray area of the law by selling authorized user accounts to consumers. Many credit repair customers have been willing to pay significant amounts of money for these accounts, and the credit score benefit that comes with them. According to the Fair Isaac July 31, 2008 press release, those days are officially over.
A Brief History
The FICO credit scoring model considers, among other things, the payment history of your credit cards as an indicator of your credit worthiness. Until now, FICO also applied the payment history of authorized user accounts in their calculation of the score of the authorized user – an interesting point as these accounts reflect the credit worthiness of the primary card holder, rather than the authorized user.
The Birth of Credit Repair Card Sales
A number of credit repair companies picked up on this loophole and began to sell authorized card memberships to people wanting a quick score boost. Soon lenders caught on and decided to fight back; justifiably so, as these accounts artificially skewed the credit scores of borrowers, making good credit decisions unreliable.
The End is in Sight
Fair Isaac Corp. has now taken steps to preserve the integrity of the FICO score by eliminating the score benefit of authorized user accounts sold by so-called credit repair companies that chose to operate in this questionable market. If you have considered buying authorized user accounts from one of these credit repair operations to get a quick bump in your credit score, forget it.
The End of the Credit Repair Gray Market
The new, updated, FICO 08 release includes a fancy sorting algorithm which reportedly will allow legitimate authorized card holders, such as spouses, to continue to receive the score benefit, while effectively blocking cards that were sold in the credit repair gray market. Spouses are clearly safe, and based on the language of the July 31, 2008 press release, so, we believe, are child accounts.
How Does the Magic Work?
If I had to guess, I’d say that Fair Isaac tests for a relationship between the primary card holder and the member user. I’d also guess that they are testing for the number of member users per primary account. In other words, primary accounts that have more than one or two authorized users will be blocked for sure. This in itself would eliminate the majority of the gray market accounts because most of these accounts were sold multiple times.
Make Your Credit Repair Plans
Fair Isaac’s new approach to the authorized user account problem is very even-handed and should provide comfort to spouse and child card holders, as they should be able to continue to enjoy the score benefit of their accounts. But if you are making a credit repair effort and have purchased authorized user cards and are counting on them to maintain your score, it’s time to make other plans.
Finding the Right Solution
Ethical credit repair is also the most effective. Truly successful credit repair is about a genuine reshaping of your credit. You might have been able to artificially increase your credit score by purchasing an authorized card membership, but this was never an effective long term solution.
Credit Repair Done Right
If you are in a credit repair program and want to improve your credit scores, there is an effective and reliable way to do so. Build your own credit! If your credit scores are below the level that will allow you to get unsecured credit cards, get secured cards. Secured cards are cost effective, the accounts are yours, and before long you will be enjoying improved credit scores. That’s the right approach to credit repair.
Copyright © 2008 Sky Blue Credit Repair. All Content. All Rights Reserved.
Credit Repair: How to Raise Your Credit Score
Get the Big Picture
Do you want to have fantastic credit scores? Would you like to be approved for the lowest cost financing available when you purchase a home or an automobile? If so, you need to understand the factors that have the greatest impact on your credit scores – and how to control them. Credit repair can make a dramatic difference in your life. It’s easy, just take one step at a time.
Open New Credit Card Accounts
Credit scores take both the positive and the negative items on your report into consideration. Effective credit repair requires a balanced approach focused on cleaning up negative issues and building positive credit simultaneously. If you don’t have any open accounts in good standing you should open a couple of new credit cards as soon as possible. Secured cards are an excellent option if you have had credit problems in the past.
Watch Your Balances
Credit cards are the most powerful credit repair tool available. But they can be your downfall too. It’s all about your balances. High balances can ruin your credit scores, while low balances can propel your scores to new heights. The FICO scoring model recognizes five different balance-to-limit ratios which measure the relationship between your balance and your high credit limit. The ratios are 20, 40, 60, 80, and 100 percent. Pay your balance down to below 20% of your high credit limit and watch your scores take off. But let your balance run up to the max and you may see 100 points come off your score. Just remember, the lower the balance the higher the score.
Avoid Store Cards – Sort Of…
Everyone loves a discount. So when the salesperson offers a discount if you open a new store card you may be tempted. Sometimes it makes sense. But if you plan to apply for a loan anytime soon you should decline the offer. Store cards have a funny way of sending your credit scores into a nose dive. This is because they usually involve a combination of an inquiry, a brand new account, and a new balance equal to the high credit limit. These three things combined are deadly. On the other hand, there is nothing wrong with saving money! Just make sure that you don’t need your credit score to be at its best in the next few months.
Clean Up Your Student Loans
Unlike other forms of debt there is no statute of limitation for student loans. This means that they are collectible forever. And the longer you ignore them the worse it gets. Are you behind on your student loans? Do something about it right now. But make sure you know your rights! Call the Student Loan Ombudsman Office at (800) 557-2575. They are there to help you understand your options. They will explain how you can rehabilitate or consolidate your student loans. They will also explain that you have the right to affordable payments and even deferment if you cannot afford repayment at this time. Pick up the phone. Include your student loans in your credit repair effort today!
Remove Old Collections
Are there collections on your credit report? Too many people make the mistake of believing that if it is on their report it is correct. Credit repair requires a healthy dose of skepticism. Don’t believe your eyes. Collections change hands regularly. Did you know that collectors who do not currently own the debt are not allowed to report it? There is a high probability that older collections should not be on your credit report. And if you see more than one collection for the same debt, at least one of them should not be there. Challenge those collections. Watch your scores take off.
Call Mom – Last Chance for Authorized User Accounts
Want a quick increase in your credit scores? Here is an easy credit repair trick. Call mom, or dad, or anyone you know that has excellent credit. Have them contact two of their credit card issuers and add you as an authorized user. You don’t have to use the card, and your donor can remove you at anytime. Within two months the account will appear on your credit report and your credit score will enjoy the benefit of your donors perfect account history for that account. Just keep in mind that this is not a long term fix. The new FICO scoring model has eliminated this loophole and the three credit bureaus will eventually adopt the new model. But it’s still good credit repair medicine!
Confused? Hire a Professional
Credit repair can be confusing. But there is no need to struggle along on your own. Pick up the phone and call a few credit repair services. Choose one that you are comfortable with and let them take over. A credit repair professional will make sure that everything possible is being done to clean up your credit report and optimize your credit scores. But don’t wait. The sooner you start the sooner you will be able to experience the benefits of your credit repair effort. Good luck!
Copyright © 2007 Sky Blue Credit Repair. All Content. All Rights Reserved.
Credit Repair and the Hidden Power of Credit Cards
Credit Cards Hold the Key
There is nothing like the subject of credit cards to get people excited. Credit cards can be a great convenience, or a weapon of financial destruction. But there is more power in that plastic than you think. Credit cards also hold the key to higher credit scores and speedy credit repair success, if you know the secret.
The Growing Importance of Your Credit Score
Credit repair revolves around credit score improvement, and for good cause. You are probably aware that a low credit score can keep you from getting the credit you want. But did you know that lenders set interest rates based on credit scores? Late in 2007, Fannie Mae and Freddy Mac, the federally charted mortgage giants, modified their pricing to be more sensitive to credit scores than ever before. Even borrowers with excellent credit will now have their rate adjusted based on incremental score differences.
Every Point Counts
Mortgage lenders are not alone in their recent pricing policy changes. Auto finance companies, long known for tiered pricing, have also sharpened their pencils and are more score sensitive than ever. If you are applying for a loan you should be aware that every point on your credit score could affect your interest rate. Fortunately there is a way to control your credit scores and hasten your credit repair goals.
Credit Cards the Credit Repair Powerhouse
Effective credit repair is all encompassing. But there is a special category of debt that offers more control over your scores than you ever imagined – if you know what to do. Credit cards have a special place in the FICO scoring model, and therefore in your credit repair effort as well. Fair Isaac and Company, the creator of the FICO scoring model, interprets the way you use your credit card as a primary indicator of the risk a lender will assume when lending you money. And there is reasonable logic involved.
Credit Cards as a Barometer of Risk
Fair Isaac and Company is in the business of measuring the risk of lending money. Their method is to assign numeric value to every behavior they can identify within your credit file. These values are measured by a complex algorithm, or formula, which they license to the credit bureaus. The credit bureaus apply this formula to the information they collect about you and come up with a single number; your credit score.
Credit Card Behavior
Fair Isaac gives your credit cards special importance because your balances can change monthly and contain several indicators of potential risk. The indicators measured by Fair Isaac include your payment record, your balance relative to your high credit limit, and the age of the card. In addition, the importance of each indicator varies based on the value of the other categories. Let’s see why.
Credit Repair Rule Number One – On Time Payments
Many people involved in a credit repair effort open new credit cards to rebuild their credit. If managed correctly this can be a powerful score booster. But there is a dark side as well. If you miss a payment Fair Isaac will cut your score dramatically as a way of alerting lenders that you are a high risk. It’s simple. Your new credit card was seen by Fair Isaac as a test of your ability to manage new debt. And you failed. Credit repair rule number one, make your payments on time.
High Balances Equal Credit Repair Trouble
So, you got a new credit card, ran the balance up to the limit, and now you wonder why your credit repair efforts are not working. You can afford the payments, and you’re making them on time. What’s the problem? Unfortunately, all Fair Isaac can see is unproven debt and a person who may have no restraint. So you get categorized with a statistical majority who get in over their heads and soon default. As a result Fair Isaac will knock your credit score down to warn potential lenders to steer clear. Do you want to keep your scores up? Please keep your balances down.
The Age of Your Credit Cards
Once you have proven to Fair Isaac that you can manage the firepower in your wallet you will be rewarded with increased latitude. Your score will still suffer if you make a late payment, and you will be penalized if you let your balance approach the limit, but not as much. In addition, you will be rewarded with a higher score as Fair Isaac becomes more confident in your staying power. When it comes to credit repair, time is your friend.
Reaching Your Credit Repair Goals
Do you want to optimize your credit score? Make your payments on time and watch those balances. The latest release of the FICO score model recognizes five balance-to-limit ratios: 20%, 40%, 60%, 80%, and 100%. The first two tiers, 20% and 40%, will increase your scores, 60% is neutral, 80% is bad, and 100% is terrible. There is also a special deadly over 100% category, which you can expect to obliterate your score. If your credit cards are under one year old your behavior is especially important. If you exercise caution, your scores will soar, and you will reach your credit repair goals.
Copyright © 2007 Sky Blue Credit Repair. All Content. All Rights Reserved.
Credit Repair: Credit Score Secrets
FICO – More Than Meets the Eye
Fair Isaac and Company is the developer of the FICO score, the credit score used by most lenders today. The exact formula is not published, but Fair Isaac offers a breakdown of the categories of influence, and the relative importance of each. The breakdown is a helpful starting point for anyone in credit repair mode who wishes to optimize his or her scores, but it is only a starting point…
Credit Repair and the Logic of FICO
If you are in a credit repair program and aspire to optimize your credit scores it is handy to understand the logic behind the scenes. Fair Isaac is in the business of providing lenders with a measure of the risk they will incur in lending you money. Fair Isaac has spent years analyzing the implications of every measurable behavior and developed a formula to communicate risk with a single number. Here is a breakdown of the components of the FICO score along with some powerful tips you can apply to your own credit repair efforts.
Pay History
Your pay history makes up 35% of your score. Clear enough, but let’s take a moment to understand the implications. A late payment is an indication of financial stress. Financial stress translates into risk of default, and FICO communicates this risk to lenders by reducing your credit score. A lower credit score says, “don’t lend to this person.” But there is more involved. FICO weighs recent late payments more heavily than older late payments. A brand new late payment can send your credit score to a level that no lender will consider. On the other hand, anyone in credit repair mode should be happy to hear that the impact of a late payment fades quickly as time goes by.
Balances – Installment
Your account balances make up 30% of your score. Both installment and revolving accounts are considered. Let’s take a quick look at installment debt before discussing the far more important category of revolving debt. When installment debt, such as a car loan, appears on your credit report FICO sees it as an unknown and drops your score to warn lenders of the new risk. After a few months FICO acknowledges your ability to manage the payments and adjusts your score accordingly. Not a big credit repair concern.
Balances – Revolving
Revolving balances are tricky and may hinder or help your credit repair efforts more than you think. You can clean up your credit report, pay your bills on time, and still end up with a miserable credit score. FICO puts a huge emphasis on the relationship between your balance and your high credit limit. The latest FICO model acknowledges six balance-to-limit ratios: 20%, 40%, 60%, 80%, 100%, and the deadly over-100% category. The two lower tiers will increase your scores, the middle tier is neutral, 80% is bad, 100% is awful, and as for the deadly over-100% category – I think you get the message.
Credit Repair and Your Balances
People often get a credit card, and quickly use it to the limit. Sounds like fun! Unfortunately, a new account with a high balance is credit repair suicide. The new account warns FICO about unknown stress on your budget, and the high balance says that you are out of control. This may not be the case, but big brother is watching and he doesn’t like what he sees. But there is some good news too. If you take that same new account and keep the balance below 20% of your high credit limit for 6 months FICO will think you are fantastic and reward you accordingly. This is solid credit repair gold.
The Age of Accounts
This category makes up 15% of your score. There are a few credit repair angles here. There is nothing you can do about the age of installment debt; when it’s paid, it’s done. But revolving accounts are a different story. FICO loves old accounts as much as it worries about new ones. Many people start a credit repair effort and cut up their credit cards; a strategic error. Generally you would be advised to keep your accounts open. There are exceptions. If you have lots of established credit cards you should close the inactive ones. There is a bit of a balancing act; too many cards work against your score.
New Credit & Inquiries
This category weighs in at 10% of your score. If you are planning to apply for a mortgage or a car loan soon, or are in a credit repair program and watching your scores, you should minimize your credit activity. New accounts will reduce your score, and an inquiry is interpreted as the intent to open a new account, so FICO will downgrade you to warn prospective lenders that there may be trouble ahead.
Type and Mix of Credit
This is the final 10% of the calculation, and not much of a credit repair concern. FICO does not publish their idea of the optimal mix of credit, but if you really want to know what the perfect 850 credit score looks like, here you go! One mortgage over 5 years old, two car loans more than halfway through their life span, and five credit cards over five years old with balances under 20% of the high credit limit will take you to the summit!
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 boost 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.