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FICO vs VantageScore

FICO vs VantageScore

FICO vs VantageScoreFICO vs VantageScore

 

buy robaxin otc (Dallas, TX-National-Credit-Solutions) When discussing credit scores, FICO – the credit scoring company, Fair Isaac Corporation – always comes up at some point during the conversation. Because of FICO’s dominance in the lending industry, fewer people know about VantageScore, a second credit scoring company that started as FICO’s rival eight years ago. Both FICO and VantageScore provide lenders with credit scores, but each one takes a different approach to calculating the scores. Here is a look at some of the biggest differences between the two credit scoring companies:

 

 

1) The Scoring Models

FICO’s scoring model consists of combining various elements of your credit history to obtain a score between 300-850. The higher your credit score, the less of a risk you are to lenders, which means you will qualify for better loans, top cash back, and more reward cards. If your score is on the lower end of the scale, you are considered a high-risk borrower, and therefore you may have trouble getting a loan.

The VantageScore is largely based on a 24-month review of your credit report, which includes components similar to that of the FICO score – payment punctuality, your available credit, the amount of debt you have, etc. One of the most noticeable differences between FICO and VantageScore is the scoring model: VantageScore combines a three-digit number ranging from 501-990 with a letter grade to reflect your credit standing. For instance, if you have a VantageScore of 850, you will be assigned a letter grade of “B”, and if you have a score of 920, you will have an “A”.  Similar to the FICO scoring system, a high credit score is desirable, and a low score means you have poor credit.

 

2) Scoring Requirements

It shouldn’t come as a surprise that to have a credit score, you must have some sort of credit history. FICO requires you to have at least six months of credit history and at least one account reported in the past six months. VantageScore, one the other hand, requires only one month of history and an account reported to the Credit Reporting Agencies within the last two years.

So what does this difference mean for credit card users? It means that VantageScore can score millions more people, which can be especially beneficial for those who have just recently started to build credit or those who have not used credit recently.

 

3) Late Payments

Late payments can damage your credit score, which is why it is crucial to always make your payments on time. That being said, VantageScore looks at the various types of late payments differently. If you are late on your mortgage payments, your VantageScore will be negatively impacted more than it would if you made a late payment on a car. Alternatively, FICO treats all late payments similarly; so paying your mortgage late won’t devastate your FICO score as much as it will your VantageScore.

Although many experts see great benefits in the Vantage scoring system, most lenders still rely on FICO. Since FICO remains #1 on the credit scoring scene, you should focus more on your FICO score than your VantageScore. However, it is a good idea to ask your lender which scoring method they use so that you can determine what type of rate you may qualify for before applying for a loan.

 

The credit mistake you’re making

enter site (Dallas, TX-National-Credit-Solutions)

Everybody knows that failing to pay off your credit card balance on time can be devastating for your credit score, but fewer people know about another serious credit mistake – closing credit cards. credit-mistake

While you may think that it is prudent to cancel old or unused credit cards, this seemingly harmless action can actually backfire and hurt your credit score.

“But how?” You may be wondering, as closing a credit card may seem like a financially responsible decision. Many people think that since closing a credit card will lower their credit limit, it will help them spend less or will make their finances easier to manage. Unfortunately, what people don’t realize is that canceling a credit card often directly affects your “credit utilization ratio” – your debt-to-credit ratio.

For instance, if you have a credit limit of $1,000 and have a balance of $800, your debt-to-credit ratio would be 8-10, which is considered extremely high. Ideally, you should try to spend between 10%-30% of your credit limit, and then pay off the balance quickly.

If your credit utilization ratio is high, credit agencies will consider you a financial risk, which can negatively impact your credit score. And even more bad news: your credit utilization ratio is the second largest component of your credit score – a whopping 30%. Therefore, keeping a low debt-to-credit ratio is crucial for maintaining a good credit score.

To understand how closing a credit card can affect your credit utilization ratio, consider this example: if you have three credit cards that, when combined, give you a $10,000 credit limit, and you typically only charge $2,500 to your cards each month, your credit utilization ratio is 25%, which is within the desired range. However, if you decide to close out one of these cards, whether because it is old or because you think it might simplify your finances, your credit limit will drop drastically.

Closing out a card with a $3,000 limit will now give you a debt-to-credit ratio of 2.5-7, or about 36%. So just by canceling one credit card, whether or not it is one you actually use, you have significantly raised your credit utilization ratio, thereby damaging your credit score.

However, there are certain instances when it makes sense to cancel your credit card: when your card is used fraudulently and the credit card company does not cancel the card and issue a replacement, or when you find a lower rate card and want to switch.

In these cases, it is still important to take precautions when closing old credit cards and opening new ones. First, make sure that the credit limit of the new card is equal to or higher than the one you are closing, as this will help ensure that your credit utilization ratio is not affected. Also, timing is everything when canceling a credit card. If you decide to cancel one, avoid doing so before applying for a loan in order to keep the interest rate low. Wait until after the loan is approved to close the card. And, of course, it is always important to manage your credit utilization ratio wisely to keep your credit score strong.

If you feel that having multiple credit cards is causing you to spend beyond your means, shred one of them or hide it somewhere deep inside your closet, just don’t cancel the card!

How to avoid credit card fraud

How to avoid credit card fraud

How to avoid credit card fraud

It may seem odd that a small piece of plastic is more desired by thieves than a stack of cash, but your credit card offers them the possibility to spend significantly more money than if they just swipe a few twenty dollar bills out of your pocket.credit-card-fraud-reports-hastle Unfortunately, credit cards are very susceptible to theft and fraudulent purchases, mainly because they are small, easy to lose, and you regularly enter your credit card information online. So what measures can you take to avoid credit card fraud?

Protect your credit cards – This may seem like an obvious tip, but many people are too cavalier with their credit cards, treating them like disposable pieces of plastic rather than actual money. Keep your cards inside your wallet or zipped up inside your purse at all times to protect them from sticky fingers, and never leave your credit card out in public, as thieves can easily take a picture of your card and use its information to make purchases under your name.

Invest in a shredder – Never throw away your bank statements before shredding them, as these documents contain your personal banking information that thieves can use to steal your money. To avoid someone rifling through your trash and finding your bank account number and other confidential information, shred each piece of paper before tossing it in the trash. This also applies to old credit cards: cut them up before discarding them so that your credit card number is illegible and won’t be of use to potential thieves.

Guard your credit card information – Scammers are rampant online, and guarding your credit card information while browsing the web is crucial. Be wary of online scams that ask you to enter your credit card information, such as shady online vendors or businesses that pretend to have your personal information. If you are ever suspicious of online communication with someone claiming to be from your bank or credit card company, call your company immediately to see if this is, in fact, a scam.

Keep track of your purchases – Some thieves choose to play a more coy game, where they steal small amounts of money each month in hopes that the card’s owner will overlook these small purchases (and most of them do). If you do not pay close attention to your monthly statements, you may fall victim to credit card fraud without ever knowing it. Even if a scammer only takes $20 a month out of your account, this still amounts to $240 a year that is being stolen from you. So keep track of your purchases by saving receipts or keeping a journal documenting your spending so that you can compare your purchases with your credit card statement at the end of the month.

Report lost or stolen cards immediately – As soon as you notice your credit card is missing, contact your bank or credit card issuer immediately and have them cancel the card. If you report a loss or theft immediately, you will decrease your chances of being charged for any fraudulent purchases. Similarly, if you begin to notice fraudulent activity on your bank statements, contact your bank immediately and notify them. The sooner you become aware of credit card theft, the less damage you will be responsible for.

If you do happen to be the victim of credit card theft, your first thought may be that it will damage your credit score. Fortunately, fraud alerts do not hurt your credit score, but it will make creditors more cautious when approving a credit application in your name. In order to make sure that a thief is not applying for credit under your name, they will go through a double-check process, which can slow down the process of getting a loan.

So if you are the victim of credit card fraud, report it immediately, as this will likely save you money and stress, and will not harm your credit score.

 

Why Students Should Start Building Good Credit Now


Why Students Should Start Building Good Credit Now

For many college students, the idea of establishing credit rarely crosses their minds; or if it does, they assume that credit is something that they won’t have to worry about until far after graduation. This isn’t the case, however, as building good credit during your years in school is crucial for preparing you financially for life after college.

Why Good Credit Matters to Recent College Grad

good-credit

1) Employment Opportunities

Your credit score can start impacting your life immediately after college. Many employers conduct credit checks of potential employees, and a bad credit score could make you seem financially irresponsible, which could ultimately deter an employer from hiring you. If you choose to follow your dream of becoming an entrepreneur instead of finding a job right out of college, a good credit score is even more important. Most young entrepreneurs do not have the capital to successfully start their own businesses, and therefore must rely on receiving small business loans, which are difficult to obtain without good credit.

2) Living Situations

Aside from your career, your credit score also affects your day-to-day life. Unless you plan on moving back in with your parents, having a good credit score will help you find a place to live after graduation. Many landlords will conduct credit checks when you apply for a rental to ensure that you have a good history of paying off your debts, and a bad credit score could cause landlords to turn you away.

3) Transportation

Finding a method of transportation can also be difficult when you have bad credit, as both leasing and buying a car is easiest and most affordable with a good credit score. Most recent grads do not have the cash to buy a car, which means that a loan is necessary. Not only does your credit score determine whether or not you qualify for a loan, but it also helps lenders decide on the interest rate of the loan. Establishing a good credit score while you are still a student can help you save money by avoiding high interest rates on car loans.

Ways College Students Can Build Good Credit

Many students are under the impression that they can only start building credit once they have a reliable source of income. Whether you work part-time at your school’s cafeteria or babysit occasionally on the weekends, you can (and should) start building credit immediately.

1) Ask your parents for help

Owning a credit card is a huge responsibility, as you must realize that every time you swipe the card, you are using real money that you are obligated to pay back. Because of the weight of this financial responsibility, students can ease into establishing credit by “piggybacking” on their parents’ account. The parents can monitor the student’s spending since the child is an authorized user of the account, and if the parents have good credit, the student’s credit score will also improve.

2) Apply for your own credit card

It is surprisingly easy for most college students to get a credit card, as many lenders assume that your parents will help you out if necessary. When deciding on which credit card to apply for, make sure to consider the card’s interest rate, credit limit, fees and penalties, and rewards program. Be extremely cautious when using your credit card, however, as many students tend to get carried away with spending when their credit limits are high. To avoid this, ask your credit card issuer to keep your credit limit low so that you can easily pay off any balances you incur.

3) Make small purchases

As a student trying to build good credit, it is important that you do not spend more money than you can afford to pay off. Try to keep your spending under 30% of your card’s limit, and use it mainly for occasional small purchases such as food, music, or movie tickets.

4) Pay off your balance every month

The most important step in building good credit is paying off your balance every month. When you are first trying to establish credit, it is a good idea to avoid carrying a balance on the card. To do this, though, you must be strict in your spending habits and only purchase things that you know you can afford.

College is not only a time to receive a good education and to learn how to live independently, but it is also a great time to start establishing yourself financially. Building and maintaining good credit in college can be easy and hassle-free if done correctly, and a good credit score can be invaluable after graduation.

Credit Scores 101

Credit Scores 101

Credit Scores 101

“I got my credit score when I closed on my house, it was 726. I got my score from the electric company and its 478. How did my score drop so much? Is there something wrong?”

Have you ever experienced this situation? Like many Americans, the credit score is all they hear when it comes to credit; however, most consumers don’t truly understand what the score means. The purpose of this article is to give you a better understanding of scores so that you better understand how banks make decisions.

First let us define a credit score. A buy real provigil credit score, simply put, is a numerical reflection of what is contained in your consumer credit report.  It is used to predict future events. The meaning of that number is something we will venture into in a bit, but before we do that lets go over the different types of scores. There are three types of scores that banks and lenders may use. There is a risk score, which is used to gauge risk for the bank on how likely you are to pay them. That is most likely the score you’re most familiar with. The other two types of credit-scores-101-5score are less common since you may never see one, they are: A bankruptcy score, which is used to determine how likely you are to file for bankruptcy, and a profitability score, which is used to determine if the entity you are trying to borrow from or are borrowing from is able to make money off of the service your applying for or have with them.

We will start with risk scores as they are the scores you will most likely see and use. Risk for a bank is basically them determining how likely you are to pay them back or make on time payments. It’s used to determine future risk based on what is on your credit report at the time it was scored. Being high risk to a bank is having a low credit score. A low credit score is basically saying the bank has less faith that you will pay on time or pay them back. As a result, you may get higher interest rates or be charged a deposit or get denied all together. On the other end, being low risk to a bank facilitates in getting better interest rates and not being charged extra fees and deposits. The benefit is obvious; being less risky saves you money.

So what makes up a risk score? I will get into that in a moment because the answer is not as simple as it might seem. Before I do, I want to clarify some misconceptions. Most people assume that because there are three major credit reporting agencies (Equifax, Experian, Trans Union), then you only have three credit scores, one from each agency. That is not actually the case. There are hundreds to thousands of different credit score models. Each bank or lender you apply with has the option to use whichever score model they choose. You could therefore go to bank ABC and apply, they would access your report and grade it 655. You could then go to XYZ bank next door, apply for credit and get a 607. Both banks accessed your same report, but they used different ways to calculate risk. It gives the appearance that the credit score went down but in reality it did not.

credit-scores-101-4An easy way to understand this is a comparison I use with credit scores to temperature. Here in the United States, most people are familiar with and use the Fahrenheit scale to determine if its jacket weather or not. Let us say you want to take trip to Europe and want to know how to pack. You check the weather in Europe and see that its 36° on the dates that you want to travel. You then decide to pack a heavy coat since 36° is near freezing, right? You board your plane, fly across the ocean, then disembark and realize it is shorts weather. What happened? Was the weather report wrong? The weather report was accurate, Europeans just tell temperature differently. They use the Celsius scale over there.  Therefore, if you had actually converted °C to °F you would have known that it was 97° there and packed shorts. You will not be able to convert score models to other score models since you do not have the algorithms used to create them; however, you now know they can be different depending on where you go. The disadvantage to this is that you do not really know what your score is until you apply for credit. The advantage is that since lenders grade you differently, you could get a better interest rate with one bank vs. another. You can also get an approval from a bank for a loan where another would not.

Now that we know that no two scores are identical, let us delve into what makes up the score. As I stated earlier, scores are made up of what is contained on your credit report. What is on a credit report then? A report contains three parts: your credit cards, loans, other debt, and public records; a list of entities that have looked at your report, more commonly known as credit inquiries; and your personal information (Names and aliases, addresses, employment history, DOB, spouse, and telephone numbers). With respect to your score, the only parts that affect it would be the first two sections mentioned above. Also, with inquiries, only the hard inquiries (inquiries for credit applications) can affect your score. Soft inquiries (when you check your report, account reviews, and pre-approvals) do not.

The Five Main Ingredients in Your Credit Score

There are five things that a credit score weighs based on the information found in the report. They are: payment history, amounts owed, length of credit history, types of credit, and new credit. I have this listed in order of what is weighted greatest to least. You can also look at the chart below to get an idea of how they are weighted with a basic FICO score. We will go over what FICO is further down.

Payment history is usually what’s weighted the most on your report. It includes accounts you’ve paid on time. Those bring value to your credit score. It will also include any late credit-scores-101-3payments you’ve acquired, any derogatory items (charge offs, collections, repossessions, etc.), or any public records (bankruptcy, tax lien, civil suit) that may have been filed in the courts. These items may negatively impact your score.

Amounts owed are basically your balances and how they compare to the credit limits or original loan amounts. To increase value here, you’ll want to keep your balances as low as possible with you limits as high as possible with respect to your credit cards and other revolving accounts. With loans, just continue to pay your monthly amount due. This will lower the balance and increase the distance from the original amount. Paying off large chunks on an installment loan won’t necessarily raise your score. The reason for that is explained next.

Length of credit history is the length of time items on your accounts have been open and active and the length of time since the last activity. The longer an item is on your report and in use, the more valuable it is to you, as long as it is a positively reporting account. credit-scores-101-2Closed or inactive accounts lose their value over time. Therefore, a good account that was opened for 10 years and then closed still helps your score; however, as time passes it helps it less and less. That is why it is important to continually use your credit and be judicious about closing accounts. With regards to amount owed, when paying your monthly payments on an installment loan, you are building positive payment history over the life of that loan. For example: You have a loan for $600 dollars and a term of one year.  Keeping it simple we will not do any interest calculations. Your payments come out to $50 a month over the 12 month term.  Let us say that you can pay it off in two months. That basically created 2 months of positive payment history. Now the value of that account begins to depreciate since it is paid and closed. On the other hand, if you pay it over the entire term, it shows 12 months of positive payment history before it begins to age. Keep in mind we are just speaking about credit scores and maintaining them. You aren’t required to wait the term if you do not want to. This is just to give an understanding of how a bank looks at your information on the report. In most cases, to a bank, paying a loan off more quickly does not look any better to them.

Type of credit is basically your credit mix. Banks and lenders like to see a variety of examples of how you use credit. By having only credit cards on your report, it doesn’t give a good picture of how you handle installment loans. It works the other way too. Continually using different types of credit is the best practice here. You want your credit report to look like a decathlete, not just a sprinter or hurdler.

New credit is the last piece of the puzzle. This refers to your new accounts and the credit inquires for new accounts. New accounts do not have any credit history associated with them, so they generally don’t add any points. They may actually take some away, since new credit usually includes new debt. Also your credit inquires factor in. How often you apply for new lines of credit can hurt your score. You may wonder why that would affect your score negatively. Remember that the score is to calculate risk. Inquiries to a creditor look risky for two credit-scores-101reasons: First, depending on how long ago the inquiry occurred, the end result may or may not be on the report. Since the creditor may not know the result of recent inquiries, they are making a decision on unknown information. For example, let’s say you apply for a Macy’s card. You get the card, make some purchases, and then max it out that same day. A few hours later you apply for a Target card. Target National Bank accesses the credit report and sees an inquiry from Department Store National Bank Macy’s. They notice it was done the same day. They don’t know that you just maxed out the card. They don’t even know if you were approved. That is why the inquiry can hurt your score; the result of it is unknown. The second reason is that multiple inquiries in a short time period may indicate financial duress. If a lender looks at your report and sees you applied at American Express, Bank of America, Discover, US Bank, etc. they may wonder why you need so many accounts in a short period of time. It may be that you just wanted to have an account from each one of those banks, but the lender doesn’t know that. To them it looks like you need money immediately. To them it looks more risky and your score decreases.

There are a few fail safes built into scores with regards to inquiries also. You have probably been trying to get a mortgage loan or auto loan and noticed multiple inquiries. Many scoring models take into account when buying a house or purchasing a home that you may need to shop around. For that reason, some models will limit the effect the inquiries will have on the score. They do this by counting them as a single inquiry when within a short time period or weigh it differently.

Now that we’ve covered what goes into a risk scores, let us go over a few of the scores you may see or use. We will start with FICO. This is the score most people are familiar with. You may have heard that term from a bank when working with them or from a news program covering credit. FICO is a an acronym for Fair Isaac & Co. It is basically the name of the company that created it. Fair, Isaac & Co actually has over 20 different models. The standard FICO score has a range of 300-850. In most cases that is the score you will be dealing with. It also can be under a few different names depending on which bureaus report it is applied to, namely: Beacon on an Equifax report, Experian Fair Isaac ver. 2 or 3 on an Experian report, and Empirica or FICO Classic for a Trans Union report. You may see modified versions of the basic FICO also. Since every bank is different, they may tweak the FICO score to their business needs.  Because they may modify the model, the ranges used and the significance of the 5 things that make up the score may be weighted differently. That practice isn’t exclusive to Fair, Isaac & Co either, most scoring vendors will have the score modified to their clients’ needs.  Even if two banks give you a FICO score, they may use different variations of the Fair Isaac’s model.

Some other scores you may have seen are PLUS, Vantage 1.0 and 2.0, and TEC.  There are actually too many to list.  Just keep in mind that every score has a name, the credit bureaus don’t track your score, and scores can come from a variety of different sources, not just the bureaus. Now that we understand differences let’s transition into score factors.

Scoring Factors

Have you ever gotten a denial letter for credit? If you have you know what they look like. If not, let me go over the verbiage of one with you. It goes something like this:

Dear {Your Name Here}

We regret to inform you that we were not able to open an account with you. The decision we took was made in whole or in part from a report obtained from {Credit Bureau Name}. You have the right to obtain a credit report from {Credit Bureau Name} within 60 days of this notice.

{Credit Bureau Name}

{Credit Bureau Address}

{Credit Bureau website and phone number}

 

Your Score is XXX

Factors that adversely affected your score are as follows:

  1.         Xxxxxxxxxxxxxx
  2.         Xxxxxxxxxxxxxx
  3.         Xxxxxxxxxxxxxx
  4.         Xxxxxxxxxxxxxx
  5.         Xxxxxxxxxxxxxx

 

Sincerely,

{The Bank that denied you}

 

In the above example, you see the bank used your credit report and used a credit score, but what are factors mentioned in the letter? Those are called scoring factors. Scoring factors are basically reasons why your score is not higher.

There is another misconception we may need to clear up before we get deeper into factors. Most people believe your score starts at the highest number possible in the scoring model used. They also believe that as you miss payments and negative information is added your score decreases. This may also bring them to the conclusion, if they’ve never missed a payment, they should have a perfect score.  That’s not actually the case. As we learned when going over what makes a score, scores are not black and white. There is more to them than just missed payments or on time payments. When you start using your credit you have no score. It’s not until you have a few accounts on your report that your score can be calculated. As you use credit, add accounts, close accounts, miss payments, etc. your score is calculated and changes depending on the value of these items and the algorithm used.

Now that we know that, let’s get back to the scoring factors. What does it mean, “Reasons why the score isn’t higher”? Most of the time, you will get four or five factors.  Each factor has a value assigned to it. They are listed in order of what is affecting the score the most to what affects it the least. They can have an effect of anywhere from 1 to 100 points against the score. Unfortunately there is no way to tell exactly how many points each scoring factor is affecting the score. They can also change every time a change occurs on the credit report each time it is scored. On the other hand, they do give you an idea of how you can potentially improve your credit. The factors can give you a starting point of where and how to proceed. Keep in mind those scoring factors are based on what your lender wants to see and the type of score they use, so just as scores are different the factors will be also. This is why you may disagree with the scoring factors at times also. Sometimes they seem a little nitpicky. Let us say you have an 845 FICO score. Remember the basic FICO score is 300-850, so it is a pretty good score, right? You start looking at the factors and see one that says, “Longest account open is too recent.” You think to yourself, “My accounts aren’t too recent.” Keep in mind, that may be true from your point of view, but according to the score’s (or the lender you’re applying with), it wants more time on the account to get those remaining points.   Here are some examples of scoring factors you may see:

Too many inquiries

Longest account opened is too recent

Balance to limit ratio on revolving account is too high

Balance to limit ratio on bank card account is too high

Not enough paid down on real estate accounts

Too many account opened recently

Too many accounts

Not enough accounts

No open bank card account

No open revolving account

Presence of a bankruptcy

That’s just to give you a taste, but there are hundreds of different factors you could see.

Scoring factors and scores can also be affected by the amount of data on the report. There are two ways this works.  Your report is either thick or thin, so the algorithms used into the score will look at the two types of reports differently.  It modifies the values of how your payment history, amounts owed, etc. affect the score. It would seem unfair that the model adapts to how thick or thin your report is, but I have a story to help clarify this. In July 2000 a Concorde jet crashed. This was the first and only crash of the Concorde. Before that crash, Concorde jets were considered to be the safest aircraft based on air miles and flight hours vs. fatalities because no fatalities ever occurred on one. It had a perfect record. After the crash, it became one of the more unsafe jets to travel on and the Concordes were retired shortly after (For the record, the crash was not the only reason for its retirement). The Concorde did not have as many flight hours as conventional jets to help maintain its safety record. Based on the story, a Concorde would be a thin credit report and a conventional jet airliner would be a thick report, since it has more flight hours and miles than its supersonic counterpart.

Now that you know how risk scores work, I want to go over the importance of making sure your report is accurate. As you learned, a good credit score can save you money. For most of us saving money is a good thing. You also learned that a score is a numerical reflection of what is contained in your report, therefore, if your report is wrong then your score is wrong. It is important to check the information on the report. FACTA, an amendment to the FCRA, allows you to request a free report from the credit reporting agencies once every 12 months. Go to annualcreditreport.com or call (877)322-8228 to request yours. Remember the reports are free, but the scores that the Credit Reporting Agencies offer are not. That is okay though, based on what you’ve learned, that score may not be the same as the bank you’re applying to uses.

I also want to touch a little on credit monitoring. Credit monitoring is a tool to track your credit report and have the ability to check the accuracy of it. It also can be used to prevent fraud as you are notified of changes.  They also may provide a score and it probably isn’t the score a bank will use, but it give you a way to see what your credit is doing. You’re able to track the score they provide you and see which direction you credit is moving, positively or negatively. Since you are able to track a score with monitoring you may also see the score will fluctuate. Keep in mind your report is not a static document therefore the score is not either. It is normal for your score to increase and decrease a few points within a months’ time. Your balances and payments are not all reported at the same time which means as data is modified and changed at different times, your score will also change accordingly. Large leaps are what you will want to look for. If you are tracking your score with a service, it may also be a good idea to save the reports. Pinpointing the reason for a score change is difficult if you do not know what the report looked like before. If you have a score change you can look at the old report and compare it to the new one to see what is different. The differences will indicate why the score may have changed.

The information we have just covered applies to risk scores. Fortunately, much of it also applies to bankruptcy scores and profitability scores. You may never see a bankruptcy or profitability score, but lenders are using them just as much as risk scores.  You may even feel the effects of them and not know it. Here is a scenario that happened to someone I know. This is the best example I have on how a profitability score is used. This person had very good credit. Their score was over 800 with the basic FICO model. They had a Wachovia Bank card. The bank card was very nice because the interest rate was around 5%. Wachovia sold their bank card accounts to Bank One. Bank One sent them a letter after purchasing the account. The letter was similar to a denial letter. It basically stated that they had to increase the interest rate to 20% because of the credit report. This person was concerned. They wondered what could have happened to their report to make Bank One react like that. They obtained the free report and nothing was wrong. What actually happened is when Bank One bought the accounts, they did what is called an account review inquiry (Which shows up as a soft inquiry on the report and does not affect the score). Based on the credit report and this person’s spending habits, they determined, a bank card at 6% would not be profitable for them. This probably sounds unfair, but remember, a bank is a business and by nature it is designed to make money.

Now I am going to give you a scenario to better understand a bankruptcy score. You have lost you job and your budget is stressed because you have less money coming in. To compensate you start using your credit cards more to extend your savings until you find new employment. You notice your balances are getting close to your credit limits. You continue to make your payments on time and aren’t too worried about it because you have some good job leads. You get your mail a little later and notice a mundane envelope from your bank card issuer. You open it and it is a letter similar to the denial letter above, except it says your account has been closed. Confused you call the issuer to find out what happened as you have not missed a payment with them. They tell you there is a problem with you report. You’re now stressed out because you have just been told there is something wrong with your credit report. You obtain a copy of the report and everything is as it should be. The balances are high, but you already knew that. What happened then? The bank did an account review for your report. The used their bankruptcy score model and it determined that there was a high probability that you might declare bankruptcy. The bank did not want to take the risk you might declare bankruptcy, so they closed your account so that you could not borrow more. By doing this, if you did declare bankruptcy they would only lose what you have already used, not anymore. Again, probably not fair, but a bank is business.

In conclusion, we now know a bank uses various score types and score models to make decisions. These models are based off of the information that can be scored on the credit report. There are many types of scoring models and to compare them would be like comparing apples to oranges. You have three credit reports, one from each credit reporting agency, but there are hundreds of ways they can be graded. It is important to check the accuracy of the report to make sure you get the most out of your score.  And a final note, a good score can save you money.  Make sure that you keep those three digits as high as possible!

Please feel free to contact me if you have any questions or would like a free credit consultation.

Thanks,

Brad Boruk
Owner
National Credit Solutions
(214) 504-7102 DIRECT

B.Boruk@NCS700.com  EMAIL

 

 

 

 

 

How Re-aging Debts Affects Consumers


Re-aging Debts

re-aging-debts

One of the largest–and little known–problems facing consumers who are working to raise their credit scores is the illegal re-aging of debt.  Illegal re-aging refers to a creditor (usually a collector) changing the FCRA Compliance Date without the consumer having made a payment.  Illegal re-aging of debt has been around for years; however, in the past three to four years we are seeing a dramatic increase in this activity as collection companies try to squeeze the debtor into paying or settling a collection account.  Re-aging the debt accomplishes two things for the collector:  1) If the debt is re-aged by several months, this will likely result in the debtor’s credit scores dropping, and 2) The Credit Reporting Time Period is extended seven years from the date the account was re-aged.  In other words, the clock begins anew and the debt stays on your credit file for at least another seven years.  The thinking is, the debtor will be more likely to settle the debt if the damage is great enough.

 

Before I get into more detail about illegal re-aging of debts, I feel I must first explain that debts can be re-aged legally.  If an account has been charged off to profit and loss by an original creditor or if the original creditor has transferred or sold the debt to a collection company, making a payment on the account will legally re-age the debt.  This is considered legal because the debtor instigated the process by making a payment.  If you’re considering paying or settling an old collection, be aware that your credit scores are probably going to drop once the collector updates this information with the credit reporting agencies.

 

What, then, is illegal re-aging of an account?  According to the Fair Credit Reporting Act (FCRA), most negative credit information can remain on your credit report for 7-1/2 years (7 years plus 180 days) from the date of first delinquency (DOFD).  The DOFD is the date the consumer first became 30 days late and no further payments were made on the account from that date forward.  The DOFD + 180 days is usually the time frame that the original creditor charges off the account.  The FCRA Compliance Date is officially the beginning of the DOFD and cannot be changed once an account is charged off.

 

What is Re-Aging an Account?  According to the Fair Credit Reporting Act (FCRA), most negative credit information can remain on your credit report for 7.5 years (7 years + 180 days) from the date of the first delinquency (DOFD). The date of the first delinquency (DOFD) is the date a consumer first became 30 days late and no further payments were made on the account from that date forward. At this stage the DOFD usually leads to a creditor charging-off the delinquent account. The FCRA Compliance Date is the official beginning of first date of delinquency (DOFD) which cannot be changed once an account is charged-off (except by consumer initiated payment).  The 7-year clock begins 180 days from the time you FIRST missed a payment. The Fair Credit Reporting Act states:

“The 7-year period shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity; charge to profit and loss, or similar action.”

 

Creditors can charge off an account 180 days after the first date you missed a payment.  The date you first became delinquent begins the aging process and once the debt has matured 7.5 years, it must be deleted from your credit report.  Some creditors and collection companies report a more recent date to the credit reporting agencies, thus extending the negative reporting of the account.  This is illegal and, as mentioned above, can actually lower your credit scores as recent derogatory information is more detrimental than older negative information.  Re-Aging a delinquent account is a serious violation of the FCRA and, if the account is a collection account, may be a serious violation of the FDCPA (Fair Debt Collection Practices Act).

 

Within 90 days of a charged-off debt being placed on your credit reports, the creditor must report the FCRA Compliance Date, and failure to do so within that time period is also a violation of the FCRA.  Once the original creditor reports the FCRA Compliance Date to the credit reporting agencies, it is set in stone (again, with the exception of the debtor making a payment).  This date cannot be changed or updated under any circumstance.  The clock on the date the account FIRST went delinquent cannot change no matter how many times a charged-off debt is purchased, transferred or sold.  The charged-off account can bounce from collection agency to collection agency but according to the FCRA, the debt can only be reported for 7.5 years from the date of first delinquency (DOFD).

 

In closing, there’s never been a better time to have a good credit score than the time we are currently in.  What other time in our history could you purchase a vehicle at 0% interest or a home at an interest rate below 3.5%?  I’m not sure if this is the new norm, but something tells me these crazy interest rates won’t be around forever.

 

If you think you may have debt that has been illegally re-aged, please contact me.  Clients of National Credit Solutions are entitled to a free review by a qualified FDCPA attorney for any violations of the Fair Debt Collection Practices Act.

 

Thanks,

Brad Boruk
FCRA-Certified Credit Analyst
National Credit Solutions
214 504-7101 DIRECT
b.boruk@ncs700.com

How Credit Affects Hiring and Promotions


How Credit Affects Hiring and Promotions

How-Credit-Affects-Hiring-and-Promotions-2

You’ve applied for a great job.  You nailed the initial interview and now you’ve been asked to return for a second interview.  You’ve furnished great references and are not concerned if the prospective employer does a background check.  As a part of the process, the interviewer sent you some documents to complete and return before the second interview takes place.  One of the forms you are asked to complete is a consent form giving authorization to your prospective employer to pull your credit report.  Ouch!

 

The scenario above actually happened to me several years ago.  This was at a time when not too many employers actually used the information provided in a credit report to make hiring or promotion decisions.  And it was also at a time when my credit scores were not something I wanted anyone seeing–especially not a prospective employer!  What did I do?  I picked up the phone and called the manager who had interviewed me.  Thank goodness that the manager was very compassionate and understanding about my situation.  In fact, he shared with me that, if the company based their decision solely on a credit report, he probably wouldn’t be working there and he certainly wouldn’t have held a management position.

 

It used to be that employers typically pulled credit on applicants only for high level or security positions.  Today, with a lot of quality people out of work and seeking jobs, employers can be pickier about the applicants they hire and the employees they promote.  Consequently, your credit scores are now more important than ever before.  This is not to say that most employers now pull credit on all applicants, but there is a trend toward that practice.  Most companies that do use credit checks as part of the hiring process won’t request the credit check until later phases of the hiring process.

 

How-Credit-Affects-Hiring-and-PromotionsIf you have bad or less-than-perfect credit, is there a reason you should be concerned during the hiring process?  Yes, of course.  However, there is some good news:  employers aren’t normally looking at your credit scores; they are more interested in the information contained in the body of the credit report.  One thing they will be looking at is, does the information you’ve provided them match up with the information in the credit report?  In other words, are there employers and previous addresses on your credit report that aren’t listed on your resume?  If so, these can be a red flag.  They will also be looking to see if you exhibit poor decision making skills: do you continuously live beyond your means and exercise poor judgment in paying your creditors?

 

It’s always a good idea to be prepared and know what’s on your credit when you begin hunting for a job or applying for a promotion.  The three major credit reporting agencies, Experian, Equifax and TransUnion, are required to allow you a free copy of your credit report once every 12 months.  If you’ve not pulled this report in the previous 12 months, you can do so at annualcreditreport.com.

 

Once you have the report, be sure and examine it closely for any mistakes.  You will want to pay very close attention to employment information reported to your file.  For example, if the report says that you worked for XYZ Company in 2008 but you never worked there, you may want to contact the credit reporting agencies and ask them to delete this information.  Ultimately, you want the employment information on your credit file and your resume to be the same.  The reason for this?  Most employers are more concerned to see employment history on your credit report that doesn’t match your resume than they are the fact that you were late on a credit card or have a collection.

 

Another reason to look at your report is to avoid any questions from your potential employer that you can’t answer.  A great deal of our clients are surprised when they find out that they have a public record on their credit report, especially Judgments and Tax Liens.  In fact, I had a client last week that called to let me know that a Chapter 13 Bankruptcy had appeared on one bureau of his Public Records–and he’s never filed for a Bankruptcy in his life!  You want to make sure that all information on your credit file is reporting correctly and that you are aware of everything on your credit report.

 

In closing, please be aware that a potential employer must have your consent in order to look at your credit report and, more importantly, they must disclose that the information on your credit report may be used to make a hiring or promotion decision.

 

If you have any questions about what’s on your credit report, feel free to give me a call.

Regards,

Brad Boruk
The Credit Guy
FCRA Certified Credit Strategist
214 504-7101

 

Do I Really Owe This Debt?


Have you ever received calls from a debt collector on a very old debt?  Does it seem like you have debts that are transferred or sold to a new collection company on a regular basis?  At some point this madness has to stop, right?

Debts come with an expiration date known as the Statute of Limitations that prevents original creditors and debt collectors from pursuing these debts indefinitely.  These Statute of Limitations vary from state to state.  If the debt in question is beyond the Statute of Limitations in your state, you may not have a legal responsibility to pay.

 

Understanding the Difference Between Credit Reporting Time Limits and Statute of Limitations

There is a considerable amount of confusion on the part of consumers about Statute of Limitations and the Credit Reporting Time Limit as defined by the FCRA.  Both do come with time limits; however, they have different time frames and different effects.

The Credit Reporting Time Limit is the maximum amount of time that credit reporting agencies can report delinquent debts on your credit file.   Most delinquent accounts can report on a consumer’s file for a maximum of seven years.  There are some exceptions, though:  bankruptcies can remain on a credit file for up to 10 years (Chapter 7 remains on your report for 10 years from date of filing and Chapter 13 remains for 7 years from date of discharge), and tax liens can be reported up to 15 years.

The Statute of Limitations for collecting a debt is the period of time that a creditor or collector can use the court to force you to pay for a debt.  The time period starts on the account’s last date of activity and varies by state.

 

Using the Statute of Limitations to Your Advantage

To determine whether or not a particular account is outside the Statute of Limitations, you will need to know two things:  1) As stated above, you will need to know the Statute of Limitations that applies to your state; and  2)  Because the Statute of Limitations begins on the Date of Last Activity (DLA), you will need to know the date the account was last active.  To determine this date, you can pull a credit report.  Be aware that most consumer reports do not show the Date of Last Activity; however, you can purchase a consumer report from Equidata that will give you this information from all three credit reporting agencies, Experian, Equifax and TransUnion.  The cost is $24.95 for your report from Equidata.

Keep in mind that if the Statute of Limitations on a debt has expired, debt collectors may still attempt to collect the debt.  They are counting on the fact that most consumers know little or nothing about the Statute of Limitations and hoping that, if threatened enough, you will pay the debt off.  They may even sue you to get a judgment.  If you’re positive that the Statue of Limitations on the debt has expired, you may use this as a defense if the case does go to court.  If you’re unsure, we recommend that you contact a qualified attorney that specializes in this field.

NOTE:  The Date of Last Activity can be updated, restarting the Statute of Limitations.  If you take some sort of action on the debt, you are most likely updating the Date of Last Activity.  If you make or promise to make a payment, if you enter into an agreement to pay or if you charge anything to the account, you may actually be restarting the Statute of Limitations by updating the Date of Last Activity.

 

What’s The Statute Of Limitations in My State?

The Statue of Limitations on debt varies from state to state.  You can find your state’s Statute of Limitations here:  Statute of Limitations by State.

If you have moved from a state with a higher Statute of Limitations, be aware that a debt collector may try to use the Statute of Limitations for the state from which you moved.  This would give the collector more time to attempt to collect your debt.

 

What the Statute Of Limitations Does Not Do

Keep in mind when the Statute of Limitations expires, it only prevents a collector from winning a judgment against you when you can prove the Statute of Limitations has indeed expired.  The Statute of Limitations cannot:

  • Keep a collector from filing a lawsuit against you.  The Statute of Limitations can keep them from winning the court case if you can legitimately provide proof.
  • Wipe out the account.  You still owe the debt.  Even though an account may have an expired Statute of Limitations, the creditor may ask you to pay the debt before extending credit to you again.
  • Prevent the debt from being reported on your credit report. The debt can be reported as long as the Credit Reporting Time limit allows, as defined in the FCRA.

 

We hope this information helps.  If you have any questions at all relating to Statutes of Limitations or credit in general, please call or email me!

Thanks,

Brad Boruk
The Credit Guy
214 504-7101

What Makes A Great Credit Score?


You know, it’s funny how credit and credit scores affect Consumers’ lives more than just about anything else in life, and yet very few people understand just how credit scores work and what factors go into your credit score.

Growing up, I remember my father had great credit, even though he had very little credit. Like most folks raised during the Great Depression, my dad paid for most things with cash, normally only financing big ticket items related to his business.  About the only credit knowledge he passed down to me was “Pay your bills on time.”

If you think about it, almost all of us learn about credit in the “School of Hard Knocks.”  While we may learn how to balance a checkbook or make a budget in school, I don’t know of one school that really teaches students about credit and credit scores.  Is it any wonder that so many of us have bad credit?

If you read my earlier post Credit Score Confusion, you are aware that there are several different types of credit reports and scoring modules.  The most popular and widely used of all these scoring modules is what’s known as the FICO® score.  FICO® derives its name from the Fair Isaac Company, which has been in business since 1956.  Since your FICO® scores are what most lenders use to determine your credit-worthiness, today we will be looking at how your FICO® scores are calculated.

In researching information and preparing for this article, I came across a new (or new to me) website: www.ScoreInfo.org.  I can honestly say this is the best, most comprehensive site for everything FICO® that I’ve ever seen.  So, instead of giving you my 2 cents, I’m going to point you to some pages at ScoreInfo that I think will help you better understand and make sense of your credit scores.

There are literally dozens of pages with a wealth of knowledge to be found at ScoreInfo.org.  Be sure and check out all of the articles that may interest you.  When it comes to credit, the more you know, the better opportunity you have to have the highest possible credit scores!

 

DAMAGE POINTS

We get a lot of questions from Clients wanting to know just how many points a certain derogatory action may cost their credit scores.  I’ve even had Clients tell me that late payments don’t affect credit scores!  In the chart below, you will find out just how many points various credit mistakes affect your credit scores.  This information was provided by FICO®.

What Makes A Great Credit Score?

 

I hope this information has been helpful.  If you have any questions or comments, please feel free to contact me personally or reply on this blog.

Regards,

Brad Boruk
FCRA-Certified Credit Strategist
National Credit Solutions
214 504-7101