• Who’s Looking?

    Everybody is looking at your credit, not just potential creditors. Today, employers, landlords, insurance companies, and anyone else who may be taking a “risk” to do business with you requires that you allow them access to your reports. It may be unfair but your character is often summarized by your credit history. Gone are the days of phone calls to check personal references. A business can access your complete credit history in a matter of seconds. What does your history say about you? What assumptions will be made about you based solely on your past credit?

  • Let’s Review The Basics

    Consumer credit reports are a compilation of an individual’s reporting trade accounts, payment history and personal information. These reports are compiled, by consumer reporting agencies also known as credit bureaus, from information provided to them by creditors and other businesses with whom the consumer has done business. Both creditors and credit bureaus are regulated by law in part as to how they collect, store, and report information about the consumer. The largest three credit bureaus are Equifax, Experian, and Transunion. Anyone who has ever applied for any type of credit or loan, or who has failed to fulfill a financial obligation to a reporting business such as a landlord or utility company, has a credit history on a credit report. Credit bureaus do not need your permission to establish a history about a consumer. Creditors and other reporting businesses are however required to have your permission as part of their contracting process to have to report data about you and your payment history. Your credit record contains information about your employment, debts, and credit payment history. It also indicates whether you have defaulted on any debts, have any outstanding judgments, child support, or other public records as well as whether or not you have any bankruptcies. It is a common misbelief that derogatory information stays on your credit report for seven years but in fact the reporting length of time is determined by the type of account and the state in which you incurred the debt, which is not the same as the state in which you live.

  • Credit Scores Are Not Equal

    You may have noticed that your credit score seems to change all the time, even from day to day or from site to site depending upon whom and where your reports are pulled. These changes are not necessarily because the information provided by your creditors is changing daily. It’s more likely due to the different credit scoring models being used by the credit bureaus, lenders, and creditors. While it is wise for you to order your credit reports, and review what is being reported about you before applying for new credit, the scores you see may be very different than the scores the lender will see. That’s because the data from the credit bureaus is put through a scoring software to produce a creditworthiness score before it is presented to the end user. Each credit report provider, whether that is a credit bureau, a credit monitoring company, or a creditor or lender, determines which scoring software they will use. Naturally, in most cases that decision is based upon cost. You are probably familiar with the term FICOscores but maybe not VantageScore. FICO originally stood for Fair, Isaac, and Company. Today it is more commonly defined as Fair Isaac Corporation. In 1989 FICO was the first to develop a credit scoring model to measure consumer credit worthiness. In 2006 the three credit reporting companies, Experian, Equifax and Transunion, developed a new scoring system that they named VantageScore. They claim many reasons for developing the new scoring model but its most likely because theyhave to pay FICO licensing fees for using the FICO system. Since they developed the VantageScore system, they don't have to pay another company for using it. VantageScoresare utilized by many creditors but Fannie Mae, Freddie Mac and the FHA all continue to rely on FICO scores for evaluating credit so the mortgage industry follows suit. And, just like any software, new versions of each software are released every few years. With each new version comes new scoring algorithms which means the same information can produce different results. As a matter of fact, in 2015 FICO reported that there were 19 versions of its FICO scoring software in use and each one calculates just a little different. Now, isn’t that clear as mud?

  • What Is A Good Credit Score?

    There is no simple answer to that question simply because of the variables discussed above with not only the two scoring models but the many versions of each model. In general, you want to maintain scores that are no less than 700 with all credit reporting agencies using any scoring model. You have no control over what scoring algorithm a creditor will use to determine your credit worthiness but you have lots of control over how you use the credit you obtain. We’ll speak in general terms here, relying more heavily on the FICO system, to address how much weight is given in each of the five categories considered when determining credit scores. Remember though, even FICO has dozens of scoring algorithms and each one differs slightly.

    35% - Payment History – You must pay your bills on time. Your new lender doesn’t want late payors so this is the most important factor.

    30% - Debt Ratio–We recommend that you keep your usage at 30% or less. Using close to your available credit can indicate that you are likely to make your payment late or even miss a payment.

    15% - Length of Credit History – Longevity is important to your scores. For this reason, you should never close revolving accounts even if you pay them off and no longer want to use them. We recommend that you use these accounts occasionally to keep creditors from closing inactive accounts. Having open accounts with available credit that you don’t use often will also calculate into your Debt Ratio helping to keep you under a 30% aggregate balance.

    10% - Types of Credit – Creditors want to see a good mix of credit types. They want to see that you are able to manage your use of credit. Types of credit to consider are credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.

    10% - Number of Credit Inquiries–PLEASE Stop Applying For Credit! While a 10% impact may not seem like a lot, creditors don’t want to see that you’ve been applying for credit every chance you get. And you don’t want creditors to see inquiries that don’t match up to new accounts. That’s simply preventing new potential creditors with proof that others aren’t willing to take a risk with you so why would they be the foolish ones to take a chance. Unless you truly need the credit, or are applying in a strategic manner that will build your credit, DON’T APPLY!

  • Consumer Have Rights, Know Yours!

    The Federal Trade Commission regulates credit bureaus and credit repair organizations. To read the full Acts mentioned below, and other consumer credit related information, please visit the Federal Trade Commission website.

    You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any 'credit repair' company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years. You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud. You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations. You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.

    Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur. You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau. If the credit bureau's reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.

    The Fair Credit Reporting Act (FCRA) is designed to help ensure that credit bureaus furnish correct and complete information to businesses to use when evaluating your application. To summarize your rights under the Fair Credit Reporting Act:

    You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request. You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes. Any company that denies your application must supply the name and address of the credit bureau they contacted, provided the denial was based on information given by the credit bureau. You have the right to a free copy of your credit report when your application is denied because of information supplied by the credit bureau. Your request must be made within 60 days of receiving your denial notice. If you contest the completeness or accuracy of information in your report, you should file a dispute with the credit bureau and with the company that furnished the information to the bureau. Both the credit bureau and the furnisher of information are legally obligated to investigate your dispute. You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.

    The Equal Credit Opportunity Act (ECOA) prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance. Creditors may ask for this information (except religion) in certain situations, but may not use it to discriminate when deciding whether to grant you credit. To summarize your rights under The Equal Credit Opportunity Act (ECOA):

    You cannot be denied credit based on your race, sex, marital status, religion, age, national origin, or receipt of public assistance. You have the right to have reliable public assistance considered in the same manner as other income. If you are denied credit, you have a legal right to know why.