8 credit score myths debunked
Misconceptions abound when it comes to the ways credit scores are determined. Here are some of the more egregious falsehoods surrounding the process
Myth No. 1
Every inquiry for credit costs five points
Fact No. 1
There is no fixed set number of points that a credit inquiry will cost. Generally speaking, inquires make a relatively minor contribution to overall scores. (up to 10%)
Myth No. 2
Part of my credit scores is calculated based on where I live.
Fact No. 2
Credit score calculations do not factor in where you live (city or ZIP code, for example). Effectively managing your credit, on the other hand, will result in higher scores — regardless of whether you live in Beverly Hills, Calif., or Zanesville, Ohio.
Myth No. 3
A bankruptcy will haunt my credit scores forever.
Fact No. 3
While most negative information must be removed from your credit report after seven years, the Fair Credit Reporting Act allows bankruptcy to be listed on your credit report for up to 10 years. It’s true a bankruptcy will negatively affect your scores, though the impact on your scores lessens over time as the bankruptcy ages
Myth No. 4
A short sale has less of an impact on a credit score than a foreclosure.
Fact No. 4
The presence of either a foreclosure or short sale information on a credit bureau report is considered negative, as it is predictive of future credit risk. Generally speaking, both will have a similar impact on a credit score. It’s what you had before the default that matters most (Good credit).
Myth No. 5
Making a lot of money results in higher credit scores.
Fact No. 5
Your income does not have a direct impact on credit bureau scores, as your income information is not recorded on your credit report. The scores focus on how you manage your credit, not on how you could manage your credit given your income.
Myth No. 6
Going to a credit counseling agency will hurt my scores
Fact No. 6
Not true. An indication that you are working with a professional credit counselor will not, in and of itself, hurt your credit scores. However, negotiated settlements on balances owed to your creditors may affect your scores if the lenders report them as such.
Myth No. 7
Carrying smaller balances on several credit cards is better than having a large balance on just one card.
Fact No. 7
Not always. A credit score will often consider the number of accounts or credit cards you carry that have a balance, in addition to your overall utilization of available credit. Thus, you may lose points for having a higher number of accounts with balances
Myth No. 8
850 is the perfect credit score.
Fact No. 8
While 850 may be the highest FICO score, it is not a “perfect” score. The “perfect score” is what a lender requires to approve you for the credit and credit terms you are seeking.
By Tom Quinn, for Credit.com
Credit Repair: The Truth About What Can and Cannot be Done
As I have stated, credit repair does work, but…don’t let anyone tell you that credit repair is effective every time. Its success varies with the number of players in the game, some of whom never perform consistently. Even if you have a true master of credit repair on your side, you have to take into account that sometimes the other players perform in a way that throws your master off his game. Take Kobe Bryant. Although he has the ability to win every game for his team, there are going to be times when the other team has a formation that takes him off his game and causes his results to be less than optimal. Given that fact, you still cannot predict to any level of certainty whether or not he will perform well or poorly the next time he faces that team. Credit repair is similar. Sometimes the opposing side shows up strong, other times they don’t. Even if you follow the same approach with every situation that arises when doing credit repair, your results will still vary due to the other players involved. So the next time someone tells you they can get everything repaired on your credit, run the other way, because, at best, the pendulum will swing widely both ways for the same situation.
Credit repair limitations occur almost 100% of the time under the following situations. These situations make it nearly impossible for credit repair to help someone needing results within six months to a year. Please keep in mind even when you can’t be helped in the short term, the advice that can be given now, if coming from a professional, can prevent you from making a mistake in the near future that may worsen your situation. Here are examples of situations where not much can be done with-in a six to twelve month period.
1. If more than 50% of the negative accounts showing on the credit report appear as unpaid collections, charge-offs, repossessions, or foreclosures and you do not have the money to either pay the accounts in full or settle them. Due to the negative accounts remaining unpaid, these items will simply reappear on your report once removed. Any negatives, even unpaid accounts, can be removed-but, unless the negative account is current, paid or settled, it will simply reappear in 10-90 days.
The only way to prevent this is to bring the account current by paying the past due amount, or, in the case of a collection, charge-off, repossession, or foreclosure, pay the balance in full or settle it for pennies on the dollar. Unpaid accounts that do not have collection, charge-off, repossession or foreclosure status require only that the past due balance be paid to be considered current. Unless the negative account is a public record, the only way to keep it from being re-reported is to make sure the status is “current, paid, settled, transferred or sold.” In other words, if deleted, any negative account that does not show one of those five statuses will most likely get re-reported, unless the account is a public record.
Public records are the only negative items that do not need to be paid to prevent re-reporting. Because they are only reported once, public records, such as unpaid judgments and tax liens, can remain unpaid and yet will not reappear once they are removed. In fact, the only time they reappear is when the initial reason for removal was the public record agency failing to respond the credit bureaus’ verification request with-in the 30 day period outlined by the Fair Credit Reporting Act, in which case the credit bureau would reinsert the public record if and when the public record agency responds to the credit bureaus after that 30 day period.
2. Credit repair is nearly impossible if you can’t pay your minimum monthly payments and you keep adding new late payments to your report. This is a “spinning wheels” scenario that rarely yields much improvement to your credit score.
In conclusion, you can repair your credit if you hire a pro and listen to his or her professional advice. The effectiveness of the credit repair depends not only on the skill of the professional you hire and your ability to cooperate with his or her advice, but also, a little luck.
“If you think nobody cares if you’re alive, try missing a couple of car payments.” Earl Wilson
What’s your score? How healthy is your credit? Are you sure about that?
As a credit restoration business, we are often amazed that people have no clue what their credit profile looks like until they get turned down for a loan. They have no idea as to why a clean credit history and high scores are necessary. Let’s take a minute to see what one has to lose by not having a good credit history.
For starters, having good credit will help determine whether or not you will get the financing you are seeking. When you apply for a loan, whether a mortgage, car loan or new credit card, your lender is going to check your credit to get an idea of whether you’ve been responsible with your use of credit in the past. They will also evaluate your current financial position. They will want to see if you are currently paying your bills on time, in order to decide whether you have the ability to carry the loan you are trying to acquire. If your credit history or your credit scores are in bad shape, then the prospective lender is all but guaranteed to deny your application.
If you have bad credit and you somehow get lucky enough to acquire a new loan, you better believe that loan is going to come with highly unfavorable terms. Specifically, the loan you receive is going to come attached with a very high interest rate. A high interest rate hurts your financial position in two ways:
- Your monthly payments will be considerably higher
- A high interest rate compounds over time, so when you finally pay off your loan you will have spent 2 or 3 times more than you would have if you had qualified for a lower interest rate
As if these financial realities weren’t bleak enough, your credit plays an increasingly important role in seemingly unrelated areas of your life. For example, poor credit is now being used as a disqualifying factor for everything from getting a job to acquiring a new apartment as well as determining the rates you receive for various insurances.
All of this is to say nothing about the emotional toll that poor credit will have on you with. Guilt and feelings of being out of control, will add to the financial burden of poor credit. When you take these factors into consideration, it’s clear improving your credit is one of the wisest decisions you will ever make.
The ever important part of all of this is to take that first step. It is but 1 step that begins the journey of 100 miles. Let us help you through your journey as guided support. Call us today at (909) 570-9048 to learn how you can reach your goals.
You can protect yourself against identity thieves by understanding how they work, then taking the appropriate precautions with your credit card accounts.
Identity theft is often in the news, but there are a lot of misconceptions swirling around about how to best protect yourself.
While some identity thieves focus on getting your credit cards and maxing them out before you even realize they’re missing, an increasing number are using one piece of information about you — often a credit card number — to steal your entire identity.
Though many folks worry about keeping their credit card information secure when shopping online, the top methods that identity thieves use to steal personal data are still low-tech, according to Justin Yurek, the president of ID Watchdog, an identity theft-monitoring firm. “Watch your personal documents, be careful to whom you give out your data over the phone, and be careful of mail theft,” he says.
Indeed, a February 2009 study by Javelin Strategy & Research found that of the 9.9 million identity-theft cases reported in 2008 — resulting in a loss of $48 billion — online theft accounted for only 11% of incidents. Stolen wallets, checkbooks and credit and debit cards made up almost half.
No one is immune to identity theft, but armed with a little knowledge about how identity thieves operate — and a little common sense — you can stay one step ahead of them.
1. Thieves don’t need your credit card number to steal it. Conversely, they don’t need your credit card to steal your identity. Identity thieves are crafty; sometimes all they need is one piece of information about you, and they can easily gain access to the rest. As a result, says Heather Wells, a recovery manager at ID Experts, an identity-protection company, it’s crucial to lock up important documents at home. “Secure birth certificates, Social Security cards, passports — in a safe deposit box or in a safe hidden at home,” she says. “And that includes credit cards when not in use.”
2. The nonfinancial personal information you reveal online is often enough for a thief. Beware of seemingly innocent personal facts that a thief could use to steal your identity. For example, never list your full birthdate on Facebook or any other social-networking website. And don’t list your home address or telephone number on any website you use for personal or business reasons, including job-search sites.
3. Be careful with your snail mail. “Follow your billing cycles closely,” says Lucy Duni, a vice president of consumer education at TrueCredit. “If a credit card or other bill hasn’t arrived, it may mean that an identity thief has gotten hold of your account and changed your billing address.” Al Marcella, a professor at Webster University’s School of Business and Technology in St. Louis and an expert on identity theft, suggests that when you order new checks, pick them up at the bank instead of shipping them to your home. “Stolen checks can be altered and cashed by fraudsters,” says Duni. And never place outgoing mail in your mailbox or door slot for a carrier to pick up. Anyone can grab it and get your credit card numbers and other financial information. Bring it to the post office yourself.
4. Review bank and credit card statements monthly — and preferably more often. Watch for charges for less than a dollar or two from unfamiliar companies or individuals. Thieves who are planning to purchase a block of stolen credit card numbers often first test to check that the accounts haven’t been canceled by aware customers. They do so by sending a small charge through, sometimes for only a few pennies. If the first charge succeeds, they’ll buy the stolen data and make a much larger charge or purchase. They’re guessing — often correctly — that most cardholders won’t notice such a tiny charge. In addition, many of the fraud alerts you can set on your accounts aren’t triggered by small dollar amounts. Reviewing your credit report on a regular basis is also a good idea, but usually by the time a fraudulent transaction reaches your credit report, it’s too late.
5. If an ATM or store terminal looks funny, don’t use it. “Make sure there is no device attached to any ATM card slot you use,” says Wells. “As a general rule, the mouth of a card receptacle on an ATM machine should be flush with the machine or have only a very slight lip.” If it looks or feels different when you swipe your card, or has an extra piece of plastic sticking out from the card slot, it may be a skimmer, an electronic device placed there by thieves that captures your credit card information when you swipe it. If you notice it after you’ve already inserted your card, you should alert your bank so it can watch for any fraudulent charges to your account.
6. Identity thieves love travelers and tourists. Scott Stevenson, the founder and CEO of Eliminate ID Theft, an ID theft protection company, said that when traveling, you should be alert to strangers hovering when you use a credit card at an ATM or phone, and to avoid public wireless Internet connections unless you have beefed-up security protection.
7. Identity thieves are sneaky; you need to be sneaky, too. There are a few simple things you can do to protect your credit card in case it falls into the wrong hands. “Sign your credit card with a Sharpie so your signature can’t be erased and written over,” suggests Echo Montgomery Garrett, a writer in Marietta, Ga. Consultant Sarah Browne of Carmel, Calif., had all but one credit card stolen from a hotel room. The card that was spared still had the “please activate” sticker on it. Though Browne had activated the card, she forgot to remove the sticker. “The thieves must have known that you have to activate a new card from the phone number listed with the credit card company, so they didn’t bother with it,” she said. Since then, she leaves the activation stickers on all of her cards. Indeed, when a thief struck a second time at a public function, Browne’s stickered cards were again left untouched.
8. Pay attention at the checkout line. If a cashier or salesperson takes your card and either turns away from you or takes too long to conduct what is usually a normal transaction, she may be scanning your card into a handheld skimming terminal to harvest the information. Thieves don’t need a handheld scanner to capture your information. According to Mark Cravens, the “Anti-Scam Doctor” and author of “The Ten Commandments of Investing,” they can take a picture of the front and back of your card with a cellphone or merely swap out cards. “Look at your card when they hand it back and make sure it’s yours, and not another gold, silver, or blue card that looks like yours,” he says. “You may not notice they swapped your card for days.”
9. Go paperless in as many ways as possible. Sandy Shore, a training manager with Novadebt, a nonprofit, New Jersey-based credit-counseling agency, suggests clients cut back on the mail they receive from banks and financial institutions by discontinuing paper bills and statements. “Access your financial statements at the issuer’s website instead,” she says. This strategy has the added bonus of an environmental benefit. Similarly, Vaclav Vincalek, the president of Pacific Coast Information Systems, an IT security firm, recommends that whatever paper receipts and financial statements you do receive go through the shredder instead of into the wastebasket. “Never throw away a credit card slip,” he says. “Instead, shred anything that has any number, name, address on it.”
10. Identity theft insurance can pay off, but you need to read the fine print. Several companies offer identity theft insurance, which covers the money you shell out to repair your identity. This includes whatever you spend on phone calls, making copies of documents and mailing them, hiring an attorney and, in some cases, lost wages. However, the insurance — which costs about $50 a year — does not reimburse you for funds you lost. Your current homeowners policy may include identity theft insurance in your package, so check first before signing up with an outside company. Also, some companies are starting to offer identity theft insurance as an employee benefit.
This article was reported by Lisa Rogak for CreditCards.com
This is part 3 in a series of videos on the basics of credit, that is Credit 101. What is your credit profile? How do we explain what makes up your scores? This is something that should be taught in high school. A brief explanation of credit. Interview between Adam Villaneda and Cesar Marrufo. Elite Financial, LLC credit repair in Yucaipa, California. Learn how to fix your bad credit report and position yourself to purchase a home. I do NOT own rights to this music and am not claiming that I do.
7 weird ways to hurt your credit score
Kept a library book out too long? There are plenty of surprising ways to damage those all-important credit numbers.
The FICO credit-score equation might be a black box, but thousands of articles have been written about what you should and shouldn’t do when it comes to your credit score. Most of them are pretty obvious: pay your credit card bills on time, don’t apply for a lot of credit, and keep your nose clean. There are, however, a lot of weird ways you can hurt your score without you even realizing it.
Closing credit cards
This has become less “strange” in recent years, but closing your credit cards can hurt your score. What seems like simple financial housecleaning affects a variety of factors that go into your credit score. When you close a card, your credit limit drops, which increases your credit utilization (bad). If that card is older than most of the other cards you have, the average age of existing accounts will also fall (bad). These are not as bad as an account in collections, but they could mean the difference between a good credit score and a bad one.
Not filling out a moving form
When you move, it’s important to report your change of address to the United States Postal Service or you risk missing important mailings such as credit card and utility bills. The last thing you want to do is get behind on payments, because that will be reported to the credit bureaus. Some credit card companies will report you as soon as you are 30 days late. While you’re at it, be sure to hold your mail when you go away. You don’t want someone stealing your mail and your identity.
Asking a banker to check your score
If you have friends who work at banks, especially if they are in lending, you might be tempted to ask them to check your credit score for free. Rather than jump through the hoops of free credit-score companies or paying for it yourself, it might seem harmless to ask a friend to look it up. Besides probably being misuse of company resources, that small favor will result in a hard inquiry on your report, which will hurt your credit score. When you look up your own score, the credit bureaus treat it as a soft inquiry because you are asking about yourself. When you ask your bank, all the bureau see is a bank requesting your score, as if you had applied for a loan.
Not paying library fines
Years ago, owing the library a few dollars wasn’t a big deal. Today, with local budgets in a pinch, everyone is trying to find ways to make more money and fund valuable community services. This means that some libraries are sending even the most trivial of debts to collection agencies. Those agencies tack on their own fees and penalties and report the debt to the bureaus, and that can have a devastating effect on your credit.
Unpaid parking or speeding tickets
Did you get a parking ticket in another state? What about a speeding ticket or other citation? Since citations are considered debts to the county and governments are not in the business of ignoring debts of any kind, this will almost always be turned over to a collections agency. That agency will tack on penalties and fees and report it to the bureau, and, much like unpaid library fines, this will be extremely painful for your credit score.
Paying less than owed
Let’s say you already have a past-due amount on your report and you want to get the debt off your back, so you agree to pay 75% of the debt. That actually hurts your score because the 25% you don’t pay will be reported as a new charge-off on your credit report. You can prevent this when you negotiate with the debt holder, but if you fail to do so, most will report the charge-off. The debt will be settled, but the impact on your credit report will persist. It does seem counter intuitive to be punished after paying, but that’s how it works.
Cards with no limit
Some credit cards come with no listed limit, which at first may seem like a good thing. In reality, those credit card companies aren’t reporting a credit limit to the credit bureaus, so the bureaus assume the limit is $0 for their calculations. This makes make your credit utilization on such cards artificially high, which hurts your score. If the only credit card you had was one of these limitless credit cards, your credit utilization would be infinite.
By Jim Wang, U.S. News & World Report
Credit Inquiries: Everything You’ve Ever Wanted to Know
First things first, let’s define “credit inquiry.” A credit inquiry is simply a record of someone gaining access to your credit reports. The inquiry record has two meaningful components, the date of the access and the name of the party doing the accessing. The credit reporting agencies maintain a record of inquiries from anywhere between six months and 24 months, depending on the inquiry type.
All inquiries fall neatly into two categories, hard and soft. Hard inquiries are usually generated when you apply for something (there are exceptions though). Soft inquiries are generated when access to your credit report is granted for a reason other than the underwriting of an application. Below are just a few examples of each type.
|Hard Inquiries||Soft Inquiries|
|Mortgage applicationsAuto loan applicationsCredit card applicationsPersonal loan applicationsCollection agency skip-tracing||Consumers pulling their own credit filesLenders sending you a pre-approved credit offer in the mailLenders with whom you have an existing relationship viewing your credit periodically|
Hard inquiries are what we in the credit-scoring world refer to as “fair game,” meaning they are viewed and considered by credit scoring models, lenders and anyone else who has access to your credit reports. These are the types of inquiries that CAN lower your scores. Notice the obnoxious bolding of the word “CAN.” Hard inquiries don’t always lower your scores but they certainly can.
Soft inquires are off limits. They’re off limits to credit scoring models and off limits to lenders. In fact, they aren’t shown to anyone other than you when you ask for a copy of your own credit reports. Most credit reports are polluted with soft inquiries so thankfully they have no impact to your scores, at all.
Just like everything else on your credit reports, there is no fixed value per inquiry. So, when you read things like “My score went down 12 points because of an inquiry” or “Inquiries are worth 6 points each” you can ignore what you’ve read because it’s incorrect. The number of points you earn in the “Inquiry” category is based on how many hard ones you have on your file over the previous 12 months. That’s right, hard inquiries over 12 months old don’t have any impact on your FICO scores despite the fact that they’ll be on your files for another 12 months.
Now, let’s address the method which FICO uses to count inquiries. This is complicated, which is why there’s so much incorrect information on the subject floating around in the web world. Remember, we’re just talking about hard inquires at this point and only those that have occurred in the previous 12 months.
30-day “Safe Harbor” period
Mortgage, Auto and Student loan related inquiries that are less than 30 days old have no impact, at all, on your FICO scores. That’s why the date of the inquiry and the party accessing your reports is so important, because that’s how the inquiry is dated and categorized. So, if you want to split hairs, these types of inquiries only count for a maximum of 11 months because they’re ignored for their first 30 days on file and then only counted while they’re up to one year old.
45-day “Rate Shopping Allowance”
Over a decade ago FICO changed how they treated multiple inquiries caused by lenders in the mortgage and auto lending industries. And more recently, they’ve changed how they treated student loan inquires. The issue was how to not penalize consumers who were interest-rate shopping and, thus, filling their credit reports with multiple inquires in a very short period of time. The 45-day logic considers inquiries from mortgage, auto and student loan lenders, which occur within 45 days of each other as 1 inquiry. So, you can apply for 15 auto loans in as long as the lenders pull your reports within a 45-day period the 15 inquiries will be counted by the FICO score as only one search for credit. The idea, which makes perfect sense, is that the shopper is really only looking for one loan, not 15. There was a time when the 45 day period was only 14 days, but that was in much older versions of the scoring software.
You’ve probably noticed that credit cards, retail store cards and gasoline cards are not protected. That’s because people don’t generally shop for plastic like they’d shop for an auto loan. You don’t apply for credit cards with Capital One (COF), Discover (DFS), American Express (AXP), Bank of America (BAC) and Wells Fargo (WFC) and then choose whichever issuer gave you the best deal. What you’ve actually done is to open new cards with Capital One, Discover, American Express, Bank of America and Wells Fargo and opening so many accounts in a such a small period of time is indicative of elevated credit risk, so no dice my friends.
The same is true for retail store cards. You don’t rate shop at Macy’s stores at every mall in your city. The rate you get is going to be the same regardless of which store you apply at. This is very troubling news for the people who use their credit reports as “15% off” coupons at the mall and apply for instant credit at the register just to save a few bucks. Each of those is really an application for a new store credit card, and those inquiries can sting.
There are also some notable exceptions to the hard inquiry rule (that they are always seen and considered). For example, employment inquires do not count in your credit scores. Neither are insurance or utility inquiries counted in your scores. As you can imagine, it’s hard to argue that applying for a job, insurance (which is generally a legal or lender requirement) or utilities leads to a debt obligation and you certainly don’t want to penalize people for applying for these basic needs.
There you have it. Everything you ever wanted to know about inquiries but were too afraid to ask.
Sep 20, 2010 / By John Ulzheimer for Mintdotcom
OG Article here: http://www.mint.com/blog/credit/credit-inquiries-09202010
Credit Score Recovery…
Wondering how long it will take your credit score to recover from a home foreclosure or short sale? That depends on how good your credit was in the first place, says John Ulzheimer, a credit score expert who blogs on the subject for mint.com.
Somewhat depressingly, the better your credit score was before your mortgage woes started, the longer it will take you to recover. Citing data from credit reporting firm FICO, Mr. Ulzheimer said it would take roughly three years for a consumer with a 680 FICO to recover to that level after a foreclosure, compared with seven years for someone with a 780 score. That’s because high scores require “pristine” credit files, he said, while a middling 680 doesn’t.
Late mortgage payments follow the same pattern. A person with a 680 score who pays 30 days late can bounce back to that level in about six months, compared with three years for someone with a 780 score. His (somewhat obvious) advice? Don’t miss payments.
This is where we can help. Want to get back to that status from earlier? Simply contact us for information on how to get your credit life back on track.
4 Mistakes Your Credit Card Issuer Wants You to Make
If I asked you to describe the profile of the riskiest (most likely to default) credit card borrower, what would you say? Would you say things like they pay their bills on time, revolve small balances, and never approach their credit limits? Or, would you describe them as maxing out their card, missing payments, and exceeding their credit limits? Clearly, the latter is going to be the riskiest profile.
Now, describe to me the profile of a credit card user who is going to be the most profitable to the issuer. Would you say things like they pay their bills on time, revolve small balances, and never approach the credit limits? Or, would you describe them as maxing out their card, missing payments and exceeding their credit limits? Again, the latter is going to be the most profitable to the issuer.
What we’ve just identified in our little exercise is this: the riskiest credit card users are also the most profitable credit card users. And even though no credit card issuer would ever admit to this, they really do want a mixture of card users who trip up from time to time. Their biggest risk management dilemma is being able to tell the difference between a cardholder who is going to default and one who is simply going to remain a cash cow.
1) Missing Payments
A missed payment is very profitable to the card issuer if the consumer “cures” or catches back up. Not only has interest been incurred but a late fee of approximately $35 has also been assessed. And, in some cases, the late payment can trigger an increase in the cardholder’s interest rate, thus making any future revolving balances more expensive.
Keep in mind that missing payments if very different from refusing to pay or defaulting on your obligation. This is what we refer to as a non-default delinquency, and most large credit card issuers have between 1.8% and 10% of their population in this stage of delinquency.
2)Exceeding Credit Limits
The credit limit on your card is the upper bounds of your spending limit, but that doesn’t mean it’s a hard and fast cap on your spending. Some credit card issuers are actually fine with you exceeding your credit limit by a small amount. Today, over-limit fees run around $35 but you have to give the card issuer permission to charge it.
And while this might make you sound like you’re in control, you really aren’t. Thanks to the CARD Act the credit card issuer has to get your “opt in” before they can charge you the over limit fee but if you choose to withhold permission they’ll just deny your transaction.
3)Ignoring Grace Periods
I’m not referring to the grace period you have before your bill is due. I’m talking about the grace period before your introductory rate or teaser rate expires. There are more 0% balance transfer and 0% on purchases offers hitting mailboxes than I’ve seen in the past 20 years. But, that 0% only lasts for between 6 and 18 months, depending on the card. If you’re still carrying a balance after the introductory grace period expires, you may have to pay interest retroactive to when you opened the card.
4)Applying For Credit With Poor Credit
This might seem counter intuitive, but credit card issuers don’t mind you applying even if you’ve got poor credit. First off, if you’ve got poor credit but still qualify, then you’ll be what’s referred to as “adversely approved.” That means you got approved but with less than stellar terms. This means you won’t be getting even an average interest rate, which is about 13% to 15% right now. You’re more likely to be approved in the 20 percent plus range.
And, if your credit is so bad that the creditor denies you, it’s not the end of the world for them either. Many credit card issuers have a subprime subsidiary that can approve you for a subprime credit card alternative. Of course, the terms include very low limits and rates in excess of 30%. For some of these folks, it might be best to wait until their credit is in better shape.
May 21, 2012 / By John Ulzheimer
For mint.com /blog/credit/4-mistakes-your-credit-card-issuer-wants-you-to-make-052012/
‘Cheat’ your way to better credit
Great credit scores mean a healthy financial future. If your scores are less than ideal, here are some quick, legal ways to push them up.
To err is human, to forgive takes time — at least when you’re dealing with credit scores.
Even small missteps can deal big blows to your scores that can take months or even years to heal. Bigger screw-ups can keep you in the credit-score basement even longer.
Fortunately, there are ways to speed up the recovery process. Each of the methods described below is perfectly legal, even though we’re calling them “cheats.” They’re more like shortcuts to get better credit.
None of these methods will work for long, though, if you don’t have your financial act together. You’ll quickly lose any improvements in your scores if you miss a payment or wind up with new collection accounts.
Once you’re in a position to pay all your bills and start using credit responsibly, though, you might consider some of the following:
Cheat No. 1: Piggyback on someone else’s credit
Being added as an authorized user to someone else’s credit card can raise your own scores, if the credit card issuer is cooperative. Many issuers will export the cardholder’s history with that account to your credit reports.
Some issuers won’t do these exports, and some credit-score formulas ignore authorized-user information in their calculations. But the leading credit score, the FICO, still takes authorized-user information into account.
You’ll need to first find a cooperative person with good credit (obviously), and that person will need to check with his or her issuer to make sure the information will be exported to your credit reports. If all systems are go, you don’t need to have access to the card — the other person’s responsible use of that plastic will help your scores.
Caveat: The flip side is that your scores can suffer if the other person suddenly skips a payment or maxes out the card, so make sure you find someone you can trust to continue handling credit well.
Cheat No. 2: Make your credit card debt disappear (Option 1)
A big part of the FICO credit-scoring formula is credit utilization: how much of your available credit you’re using at any given time. The formula is more sensitive to balances on your revolving accounts, such as credit cards, than it is to balances on your installment loans, such as mortgages, auto loans, student loans and personal loans. When it comes to credit cards, the less of your available credit you use, the better. Using less than 30% is good, less than 20% is better and less than 10% is best.
If you have big credit-card balances, consider paying them off or down with a fixed-rate personal loan from a bank or credit union. These loans, which typically last for three years, can not only help you get out of debt but can transform the nature of that debt in the eyes of credit-scoring formulas. A balance that is hurting your credit scores because it’s on a credit card could be a neutral or even a positive factor in your scores if it were transferred to an installment loan.
Caveat: Lender policies differ, but not everyone will be able to qualify for a personal loan.
Cheat No. 3: Make your credit card debt disappear (Option 2)
If a personal loan isn’t an option, you can consider paying off your cards with a loan from your 401k or other retirement plan. Retirement-plan loans typically don’t show up on your credit reports and aren’t a factor in your credit scores. As far as the credit bureaus are concerned, that debt just disappeared.
It didn’t really, of course. You’ll still owe the money, just to a different account. And retirement-plan loans are risky: If you lose your job, you may have to pay back any outstanding balance quickly, or the loan will turn into a withdrawal — and that’s very, very bad. Not only will a withdrawal trigger a hefty tax bill, but you’ll lose all the future tax-deferred compounding that money could have earned. If you’re in your 30s, a $10,000 withdrawal could cost you $100,000 or more in lost future retirement income. If you’re in your 20s, you could be out $200,000 or more.
There’s another downside: If you’re in over your head with debt, your credit card bills could be erased in bankruptcy court. A retirement-plan loan isn’t eligible for the same treatment. In essence, you’re taking money that would be protected from creditors to pay a debt that would otherwise be wiped out.
Caveat: Consider a retirement-plan loan only if your job is stable and you’re not a financial basket case.
Cheat No. 4: Spread your debt around
The FICO formula looks at how much of your total available credit you’re using, but it also looks at the credit utilization of each individual account. A big balance on a single card can hurt you more than the same debt distributed over several cards.
So spread your debt around. You don’t want to open a bunch of accounts at once, because that can hurt your scores, but see if you can transfer some of your debt to your other cards.
Caveat: Your ultimate goal should be to pay off your debt, not keep moving it around. And if you’ve already maxed out all your cards, it’s way too late for this tip; you should be talking to a legitimate credit counselor (you can get referrals from the National Foundation for Credit Counseling) and a bankruptcy attorney (referrals from the National Association of Consumer Bankruptcy Attorneys).
Cheat No. 5: ‘Bribe’ your creditors
The FICO formula treats a collection account as a “severe negative derogatory,” in credit-scoring parlance. That means “seriously bad news” for your credit scores.
Many collection agencies, however, can be persuaded to wipe a collection from your credit reports with the right motivation. That means cash.
This is a technique called “pay for deletion,” where the borrower settles the debt, usually with a lump-sum payment, in exchange for its deletion as a collection account.
You may not have to pay 100 cents on the dollar to settle the debt, because chances are good the collection agency paid only a few pennies on the dollar to buy it. But whatever deal you negotiate, make sure to get the agency’s promise — in advance and in writing — that the account will be deleted from your credit files and that the collection agency won’t sell any unpaid portion of the debt to another collector. (You may wind up with a tax bill for any “forgiven” portion of the debt, however.)
Caveat: Erasing a collection account won’t erase what the original creditor has to say about you. If the account was charged off before it was turned over to collections, for example, the charge-off will remain on your credit reports and have a larger negative impact on your scores than the collection did. But even so, getting rid of the collection certainly won’t hurt your scores and could help them considerably.
Cheat No. 6: Disavow all knowledge
About a third of us have a collection on our credit reports, and many of those are for piddly amounts: a small doctor bill, an unpaid parking ticket, a tiny balance on a cellphone account. Those small amounts can have outsized effects on our credit scores.
The good news is that collection agencies think those amounts are piddly as well and may not bother to verify the information if you dispute it. Typically, this works for collections that are small (less than $100) and old (close to the seven-year mark where it will fall off your reports anyway). After pulling your free credit reports at AnnualCreditReport.com, you can try disputing small, old collections as “not mine” and see what happens.
Caveat: A collection agency might fail to verify an account within the required 30 days after you dispute it, but the company could report the account again later. You’ll need to keep checking your reports to see if it pops back up. Also, this technique is unlikely to work on larger and more recent accounts. It really is meant for those who screwed up in a minor way once, long ago, and just want to hurry the black mark off their reports.
Cheat No. 7: Erase the evidence
Defaulting on a federal student loan has serious consequences. Your tax refunds can be seized and your wages subjected to garnishment, and you’re shut out of future student aid. Student-loan collectors don’t need to get a court order to make this stuff happen; they can just do it.
If you can get back on track with your payments, however, you have an option not available to most other borrowers: Your default can be erased from your credit reports and thus your credit scores.
How do you make this miracle happen? It’s called rehabilitation, and it’s available on a one-time basis with federal student loans only. If you default again, you won’t be eligible for rehabilitation. Private student loans aren’t eligible.
To rehabilitate most federal student loans, you’re required to make nine out of 10 consecutive payments on time. (“On time” means within 20 days of the due date.) With Perkins loans, you must make nine out of nine consecutive payments on time. The required monthly payment must be “reasonable and affordable,” as worked out between the borrower and the student-loan collector.
Caveat: You’ll have to pay collection costs of up to 18.5% of the unpaid principal balance, as well as accrued interest, which can be substantial if the loan has been in default for a while. But even if you didn’t enter into rehabilitation, you’d still owe that interest, plus collection costs that are likely to be higher.