I recently heard somebody say that your college transcript and GPA is a record of your academic profile, but today your most widely used and important number is your credit score. Think about it, credit scores are everywhere: job, insurance, loan, tenant applications…it never ends. When I started in the mortgage business back in 1985, credit reports were mostly a mystery to borrowers and certain bureaus were better in certain areas of the country than others. Lenders would use a lot of subjectivity in making a credit decision…banks even had “loan committees”. If a borrower had a negative item on their credit report, it may stay there for up to seven years and could cost them a higher interest rate, higher payment or worse, result in a credit denial.
Over the next 10 years, credit scoring gained more awareness, but by and large, there was still a of discretion and subjectivity in lending decisions. Credit Scores really integrated into most forms of lending as the internet, stock and housing markets went on their incredible runs in the early 2000’s. As the financial news channels and periodicals have reported in their forensic analysis of the economic downturn, credit scoring became an objective, formulated way to extend or deny credit and as various models have shown, the results can vary from good to catastrophic.
This posting will not be used to voice my true thoughts (balancing credit scoring with the “4 C’s” of credit) on how credit should be extended, but to illustrate the result of not controlling your credit profile and credit score to the best of your ability. I get very passionate about this type of product, yet when I see companies charging hundreds of dollars for credit repair, or per item removed I get a bit uncomfortable. Credit restoration is not intended to remove true and accurate items. It is not designed to make a poor credit risk appear like a great credit risk when they really are not. It exists to ensure that your credit profile is true, accurate and reflects accurate information. When I offer this product to clients through my business, it is bundled with other protective type services like ID Theft Protection and Pre-Paid Legal Plans to ensure clients become better educated when it comes to credit and position themselves better should they ever have to deal with credit issues again.
Here are some commonly asked questions about credit scores and what you should do about investigating, addressing and correcting items contained in your report.
Who Needs Credit Score Enhancement? Believe it or not, over 71% of American consumers—no matter how good their credit is—have errors or inaccuracies on their credit reports. If these problems do not get corrected, a person can unwittingly pay thousands—even hundreds of thousands—of dollars more in interest over the life of a home loan, auto or boat, RV or motorcycle loan. Ensuring your credit profile is accurate is an economic no-brainer. If you have ever been embarrassed by being denied credit, you should consider credit-enhancement.
Should I do it myself? Disputing a credit report is easy. Getting results from the credit bureaus can be amazingly difficult, complex, and infuriating. It is not a coincidence that the Federal Trade Commission receives more complaints against credit bureaus than any other type of business. Remember, credit bureaus are in the “for profit” business and investigating your challenge consumes these profits. Restoring your own credit is like repairing your own transmission or representing yourself in court. It is possible, but you must decide if you are willing to take the time and assume the risks of doing it yourself.
Can I save a lot? If you have damaged credit, you are already paying much more for your home mortgage (if you can even qualify), auto, boat, RV, or even a motorcycle or watercraft loan. FNMA and FHA are continuously re-assessing their guidelines and up charging for even the slightest risk. Proactively addressing your credit can provide you with truly amazing savings.
Check out kind of savings a consumer can experience when pro-actively addressing their credit profile:
Home-Mortgage Savings: This is where the really big savings occur. A lower interest rate can often save you $1000 in mortgage payments, every month, year after year. Saving $12,000 a year, over the life of a 30-year mortgage, saves you a whopping total of $360,000. If you refinance your loan at a lower rate after your credit enhancement process is complete, you can start saving whatever money you may have spent in the process the very first month. If you are looking to buy a new home, or are at risk of losing the one you have, credit enhancement can truly change your life by either helping with a refinance or allowing you to afford more home at a lower down payment. Check out this chart that illustrates savings at different credit scores for a $300K loan. http://suburbansolutionscorp.com/Credit_Copilot.php.
Car-Loan Savings: Enhancing your credit can deliver auto-loan cost savings of up to $15,000. Even a consumer with “Good” credit, is likely to overpay by over $7,000. The better your credit, the more money you save.
Credit-Card Savings: Apply for a new credit card with enhanced credit, and you’re savings start right away. Suddenly, you’re not asked to pay an Application Fee—up to $350—or a cash deposit. You will probably avoid monthly or annual fees! And of course, with much lower interest rates, you’ll save even more every month on your balances.
Is it legal to address and try to enhance my credit? It is perfectly legal to dispute items on your credit report. The law says that you have the right to fully investigate each and every item—and that the three Credit Bureaus—Equifax, Experian and Trans Union—are required to respond to each of your investigations, or remove the item from your credit report. The Fair Credit Reporting Act gives each American the right to challenge any information on a credit report based on the “completeness and accuracy” of an item.
What does my Credit Report show? Every time you apply for a loan or a credit card, the prospective creditor checks your credit reports to review your credit history. Your credit history is supposed to show promptly and how reliably you have paid other creditors so they can make an informed decision. They are especially interested in late payments or delinquencies, but other factors can have a huge impact. To make creditors’ jobs easier, credit bureaus provide a “credit score” to evaluate your credit risk, ranging from a poor 450 to an excellent 850 FICO (Fair, Isaac and Company) score. Your credit information is sold by one of the three major for-profit credit bureaus, Equifax, Experian or Trans Union, to each creditor. In turn, these same creditors report each month to the bureaus, telling them how much you owe them and how well you pay them. Every loan you apply for is reported—even if you never actually take out the loan.
What about companies that “guarantee” my results? There is always an element of chance in credit enhancement, for the simple reason that everyone’s credit history is unique, and that the credit bureaus do not always react the same way to credit disputes. Many so-called “credit repair” companies promise to “fix” your bad credit and “guarantee” results. The fact is that no legitimate credit-repair company can guarantee specific results. Unfortunately, there are credit repair companies that do prey on those who truly wish nothing more but to restore their good credit through any means possible. To those individuals, be careful. If it sounds "to good to be true" it probably is.
Is there a better way for me to understand FICO scores? Your FICO Score is determined by a complex computer program that weighs 5 separate aspects of your credit history—and which then tries to predict, to prospective creditors, how likely you are to pay them back as promised. According to Fair Isaac Corporation, the company that invented the FICO credit-risk score, FICO Scores are calculated from many pieces of credit data in your credit report. The percentages reflect how important each of the categories is in determining your score. These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.
1. PAYMENT HISTORY (35%)
Account payment history on specific accounts: (credit cards, retail-store accounts, installment loans, auto loans. insurance company accounts, mortgage, etc.)
Adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past-due items)
Severity of delinquency (how long was an account past due)
Amount past due on delinquent accounts or collection items
Time since past due items, adverse public records, or collection items.
Number of past-due items on file
Number of accounts paid as agreed
2. AMOUNTS OWED (30%)
· Amount owed on accounts
· Amount owed on specific types of accounts
Lack of a specific type of balance, in some cases
Number of accounts with balances
Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
3. LENGTH OF CREDIT HISTORY (15%)
Time since the accounts were opened
Time since accounts opened, by specific type of account
Time passed since account activity
4. NEW CREDIT (10%)
Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
Number of recent credit inquiries
Time since recent account opening(s), by type of account
Time since credit inquiry(s)
Re-establishment of positive credit history following past payment problems
5. TYPES OF CREDIT USED (10%)
Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
Ensuring your credit profile is a true and accurate reflection of your true name, social security number, credit, address and employment histories is a responsibility we must all take about securing a strong, financial future. I hope you find this information helpful and look forward to hearing from you should you have any questions or comments.
The information provided above is for information purposes only and not intended to be legal advice or consultation.
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