Why Credit Matters

Credit can affect everything from home loans, auto loans, rental agreements, insurance, social status, and even employment. Bad credit means higher rates on just about everything related to borrowing money. Making a plan to try to improve your credit will help save you money. It is the right and duty of every consumer to learn about credit; this allows one to make informed decisions about purchases or loans that could have an impact on one’s life.

5 Factors Affecting Credit

  • Payment History
  • Amounts Owed
  • Length of Credit History
  • Taking on More Debt
  • Types of Credit in Use

Learn About Credit

How to Establish Credit

If you don’t have a checking account, potential lenders become very skeptical about the way you handle your financial affairs.
When potential lenders see a savings account on your credit application, it makes them more confident about your financial stability, regardless of the amount you have in your account.
These accounts are usually the easiest to get when you are new to credit.
Financial companies are usually more receptive to individuals who are just starting to build credit. The interest rate is a lot higher than a bank, but your chances of getting started are greater. Be sure you talk with your banker first to see the chances of getting a loan from your bank before applying to a finance company.
Try to get your parent to co-sign a loan for you.
PBRC connects people who lack a traditional credit history with lenders who want to reach them. They document and verify rental, utility, phone, and other recurring payment that aren’t reported to other credit bureaus. Pay Rent, Build Credit, Inc. (PRBC) is an FCRA compliant repository that enables consumers and small business owners to build a credit file and score. Credit scores are based on their history of making rent and other reoccurring bill payments, which can be used to demonstrate creditworthiness when applying for housing, credit, insurance, and employment. In other words, this facility helps consumers learn about credit.

What affects your FICO

When you hear people talking about credit scores, they are most likely referring to FICO scores. As a consumer, your FICO score can be found on your credit report, so you first need to obtain a copy of that. There are three major reporting agencies in the US: Experian, EquiFax, and TransUnion. You’ll want to get credit reports from all three, as they may all have slightly different information on them. All three credit bureaus use credit scores, but FICO is specific to Experian and TransUnion. To get a free copy of your credit reports from all three credit bureaus, you can visit Annual Credit Report, FreeCreditReport.com (a website owned and operated by Experian), or you can call 1-877-322-8228. You can also write any of the agencies directly. Note that while the credit report is free, the companies charge $6-8 each to give you your credit (FICO) score.

The point system used technically ranges from 0 – 999, but all or nearly all actual credit scores fall between 330 and 850.

330 – 619: Poor credit. In banker jargon, a person with a score in this range is considered a “Credit Leper.”

620 – 659: Sub-prime financing will be available to you.

660 – 720: Prime financing will be available to you.

721 – 750: Prime – x% may be available to you. That is, you may be able to get interest rates on loans that are even lower than the prime rate.

751+: Excellent credit. May allow you to get even lower prime -x% interest rates depending on the credit type you’re utilizing.

The exact calculation of the FICO score is kept secret as proprietary information, but there are some general guidelines we can apply.

Payment History: Approximately 35% of a credit score may be based on payment history. A credit score is negatively impacted if bills are paid late or if there is a history of delinquent payments listed on the credit report, including matters of public record such as bankruptcy, collection accounts, etc.

Amounts Owed: Approximately 30% of a credit score may be based upon amounts owed or other outstanding debt. A credit score can be negatively impacted if the amount owed is close to the credit limit. A low balance on two credit cards may be better than a high balance on one credit card.

Length of Credit History: Approximately 15% of a credit score may be based upon length of credit history. A credit score can be positively impacted the longer that accounts have been open, especially if they are with one financial institution. So, if you wish to start building credit, you might want to look into opening a credit account with an established bank.

Taking on More Debt: Approximately 10% of a credit score may be based upon how much new debt a consumer is incurring. A credit score may be negatively impacted if someone has recently applied for a number of new credit accounts. Promotional inquiries usually do not negatively impact a credit score.

Types of Credit in Use: Approximately 10% of a credit score may be based upon the types of credit currently in use by a consumer. A credit score is usually negatively impacted by loans from finance companies.

Your overall FICO score is the culmination of years of credit experience, but even in the short term, there are things you can do to raise it slightly. Always make your payments on time. Don’t carry high balances on credit cards. Ideally, you would never go over half the available amount on your credit card for any extended period of time. Building credit takes time, self-control, and consistency, so be patient.
Despite what you may have read on some internet sites, there’s no quick fix to repair bad credit. There are, however, ways to remove inaccurate information and improve your credit over the long run. If there is inaccurate negative information on your credit report, get it removed. Dispute the charge with the agencies by writing them or going online and visiting their websites. They have 30 days to respond to your dispute. If they cannot verify the negative information, they have to remove it. If you have a 30-day late blemish on your credit, you can dispute the negative information as above. If the credit bureaus can’t verify the 30-day late payment with your creditor, the information must be removed. If you have more serious credit problems such as a judgment, bankruptcy, or foreclosure, it may be in your interest to seek a non-profit credit counselor or an attorney specializing in credit repair. The latter can sometimes settle your debts for less than 35 cents on the dollar and may be able to get some of the information removed. If you simply pay off the judgment, for example, it is still going to stain your credit for a minimum of 10 years. For a foreclosure the term is seven years, for bankruptcy, ten years; and for tax liens, 5-7. Even after that amount of time goes by you will need to aggressively go after the agencies to get the information off your credit.

Should I declare bankruptcy?

There is no “quick and easy” answer to this question. You should discuss your situation with a credit counselor or a bankruptcy attorney, to evaluate the costs and benefits of bankruptcy given your personal financial situation. Not every debtor qualifies to file for Chapter 7 bankruptcy. A means test is applied to determine if you will be able to repay a substantial percentage of your debt, and if you are determined able to do so you will be ineligible for a liquidation of your debts and will likely have to engage in a repayment plan as part of a Chapter 13 bankruptcy. The type of debt you owe can be a significant factor in whether you file for bankruptcy, as well as the form of bankruptcy you pursue.

Reestablish Credit after a Bankruptcy

If you have filed for bankruptcy, your ability to rebuild credit is better than it has ever been. After you get your discharge, you will receive many solicitations from lenders offering to finance homes, vehicles and credit cards. The most important thing about building credit after bankruptcy is to remember what led you to bankruptcy in the first place. You should now be careful in choosing those you do business with.
Open a checking or savings account. Lenders may look at this to determine if you can responsibly handle money. Apply for store and gas credit cards that you would normally pay cash. Apply for a secured card where you deposit cash and charge against it. Pay advances back over two months so that they will be reflected as positive marks on your credit report. Pay your utility bills and rent on time. Find a friend or relative to cosign for you on a loan and pay it on time. Look for car dealers and mortgage brokers that attest to be “bankruptcy friendly”. Buy a used car so you do not get hit with the depreciation that occurs during the first two years of a new car purchase. Stay away from payday loans that are at high interest rates and are a “bad credit” trap. Make a budget you can actually acheive and maintain. Be realistic! Live within your means. Do not unnecessarily increase your debt to income ratio by taking on credit to purchase luxury items that you DO NOT NEED. Your payments on consumer debt should equal no more than 20% of your expendable income after costs for housing and a vehicle. Pay your reaffirmed, pre-bankruptcy debts on time.

Credit score facts and fallacies

Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high. This is why you should do what you can to learn about credit.
Fact: Just the opposite is true. A score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore, by taking the time to improve your score, you can qualify for more favorable interest rates. Again, you should learn about credit to understand just how long a poor credit score will affect you.
Fact: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.
Fact: Credit scoring evaluates the same information lenders already look at – the credit bureau report, credit application and/or your bank file. Credit scores are simply numeric summaries of that information. Lenders using scoring sometimes ask for less information – fewer questions on the application form, for example.
Fact: If it does, it probably won’t drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called “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 or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on credit scores.

Secured Cards

10 questions before getting a secured credit card

By Pat Curry, Bankrate.com

Credit cards are a fact of life. You need one to make a hotel or plane reservation, or to rent a car, even if you plan to pay cash. Many stores require a credit card to accept your check. Responsible use of a credit card builds a good credit rating, too, marking the owner as mortgage-worthy. But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card. For them, a secured credit card may be the only way to help in building credit. If you’re in that boat, here are the answers to the top 10 questions about secured credit cards.

A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500 in the account; you can charge up to $500. You may be able to add to the deposit to add more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits.
If you’re a credit union member, ask about a secured card there. About half of the nation’s credit unions offer secured cards to their members and may offer lower interest rates and waive annual fees.
This is where it pays to shop around. Look for a card that doesn’t charge an application fee. Every secured card charges an annual fee, and they vary dramatically. Read the fine print. Some people with secured cards found their entire limit consumed with fees before they even started using the card.
Again, the amount will vary by the card. Most are $300 to $500. Your credit limit will either be the amount of your deposit or some percentage above that amount.
No. Linda Sherry, editorial director of Consumer Action, says her organization is seeing a trend in banking away from secured cards and toward unsecured cards with lower limits and higher interest rates and fees. Still, secured cards are a good choice — and sometimes the only option — for people who are just starting out or rebuilding after a major life event, such as a divorce, job loss, or serious illness. In addition, some issuers only give secured cards to people who are new to credit — not those who have already had one crack and blown it. This makes a secured credit card a good option if you’re just started building credit.
Yes. Howard Dvorkin, president of Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla., a nonprofit organization that helps people get out of debt, calls secured credit cards “a Clint Eastwood movie — the good, the bad and the ugly. Some are good. They have low fees and treat customers as customers instead of as cattle. The bad ones take advantage and extort the clients because of their situations. Then there’s the ugly, which are completely despicable. They’ll give you the card, but you have to buy this insurance policy for $55 a month.” What you thought was an exercise in building credit might turn out to be the very reason for low credit scores. Act carefully!

Mortgage options for distressed sellers

If you are behind on payments and want to know what options are available, professionals could forget about presenting simple options to homeowners. For professionals in the foreclosure business, we use terms such as deed-in-lieu, forbearance, loan mod, and other terms that homeowners may not. We have come up with a few terms and options that homeowners should have available as options for available alternatives to foreclosure.
A company will attempt to stall or reduce your payment by submitting a hardship package on your behalf. Many times the lender will work with a “foreclosure assistance” company before working with an individual attempting to submit a foreclosure package.
With this option, you can actually sell your house and continue living in it. Some investors offer a buy-back program where they will step-in quickly, purchase your house, and allow you to rent it while you catch up on your bills and even allow you to purchase it back from them once you are “back on your feet”. (Be very careful — some companies are better than others, and of course, you have those predators out there.)
Restructuring is the most popular alternative for those who have fallen behind in their mortgage payments and would like to avoid foreclosure. Some foreclosure companies will negotiate with your lender to get your loan in good standing again. There are many options available to get a restructure approved like a separate payment plan for your delinquency or even adding the delinquency to the end of your loan. No one can guarantee to restructure your payments, so be careful. You should also maintain good credit scores to have a better chance of getting a fair restructuring deal.
Pay your lender(s) your entire past due payments to bring your mortgage current. This option is rarely feasible, but you could always check if it is available.
This option is rarely available traditional lenders; however, some foreclosure companies have established relationships with in-house lenders who can give loans on mortgages that are in foreclosure if there is enough equity available in your property. You should learn about credit to determine if you are being given a fair deal on your refinanced house.
You may simply sell your home before the Foreclosure Sale Date. However, sometimes, the homeowner is unable to sell the home outright at the desired sale price, and this is not an option.
In this instance the lender may take less than what you owe on the loan to avoid a lengthy and costly foreclosure process.
You or a foreclosure company can arrange for you to simply give the home back to the lender and walk away with a clean slate. This is a good option if you’re building credit, and may or may not appear in your credit report.
This is a last resort. This will only save your home temporarily. If you miss one payment during this process, the lender will put you right back into foreclosure, severely impacting your credit scores.

Resources

Credit Reports and Services

TrustedID

TrustedID provides identity theft protection services that prevent thieves from stealing a victim’s identity and committing credit fraud, and it offers a $1,000,000 guarantee. TrustedID is the perfect solution for customers whose personal information has already been compromised or who want to protect themselves against credit fraud.

LifeLock

LifeLock offers consumers protection from identity theft and credit fraud. As an alternative to traditional credit monitoring services that alert customers after their credit information has already been compromised, LifeLock blocks access to consumers credit files before thieves can access them. They also offer helpful services to your customers such as stopping pre-approved credit offers and providing a smooth experience when trying to obtain new credit.

Identity Guard

Identity Guard offers credit monitoring and identity theft prevention services with a wide range of identity theft protection plans available to help your customers secure their personal information, and they also provide access to credit reports and credit scores from the three major credit bureaus.

IdentityTruth

IdentityTruth provides credit monitoring and identity theft prevention services that can help protect your customers from credit fraud for less than $10 a month with a $2 million guarantee.

Privacy Matters 1-2-3

Give consumers access to their credit report and credit score for free through Privacy Matters 1-2-3. As one of the most popular consumer protection programs in the nation, Privacy Matters 1-2-3 comes with powerful credit management and monitoring tools – making it easy for your customers to keep on top of their personal credit information.

MyFICO

myFICO is a part of the same organization that developed the FICO Score, which is the most widely established measurement of consumer credit that is used by financial institutions and lenders today. myFICO is also a well-respected provider of credit services and information, and they offer a wide range of options including credit report and score monitoring plans as well as several packages for customers that simply want access to their credit scores and reports.

Consumer Resources

You have the right to receive a copy of your credit report and learn about your credit standing. Each of the nationwide consumer reporting companies: Equifax, Experian, and Transunion is required to provide you with a free copy of your credit report, at your request, once every 12 months. If a company denies your application, you have the right to the name and address of that credit bureau. If you question the accuracy or completeness of information in your report, you have the right to file a dispute with the consumer reporting company and the information provider. You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction. Learn More @ The FTC Web Site

This is the Fair Credit Reporting Act (FRCA) as prepared by the Federal Trade Commission (FTC). It is intended only as a convenience for the public and not a substitute for the text in the U.S. Code. Learn More

A number of government and private organizations have information about various aspects of identity theft and fraud: how it can occur, what you can do about it, and how to guard your privacy. Agencies like the Federal Bureau of Investigation, Federal Trade Commission, United States Postal Inspection Service, United States Secret Service, the Better Business Bureau, and more.

KeyPoint provides credit repair, monitoring, and other business credit services. Contact us for any inquiries about our services, or to request for a free consultation.