It’s true that many companies assess a job candidate’s report before hiring, and having one that looks terrific rather than awful can work in your favor. But why would an employer pull your report in the first place?
They’d do it because they’re looking for objective insight into your character, financial responsibility and overall level of stability. After all, you may say you’re a perfectionist, but if they see a bunch of unpaid bills on your credit report, those words may not mean much.
Still, your concerns about the impact of your credit reports may be having at this stage may be unfounded, especially if you’ve yet to be invited in for a face-to-face interview.
There are many myths surrounding credit reports and employment.
Employers don’t randomly access credit reports from all job applicants. They only do so for those who are solid candidates. If they are pulling it, congratulations! They are doing a background check, and that is good news, as they are seriously considering you for the position. They won’t run it before you are a finalist. Not all occupations or industries are checking credit reports for new hires either. Most employers are looking at credit reports for people applying for positions that are clearly related to finance or have access to cash or credit. And in general, they don’t access credit reports for people applying for minimum wage jobs.
The only way an employer can pull your report is with your permission.
Do know, though, that a potential employer does not have access to the same type of reports that lenders do. The reports employers can see never include your credit scores or list your date of birth. All they can view is your credit history. In addition, these reports are considered “soft inquiries” and will not show as a “hard inquiry” to anyone else viewing your reports.
As for the real impact of your credit damage, employers are very sensitive to the fact that credit reports are not perfect. And everyone in the world knows there is a recession, and employers take that into consideration. It’s a misconception that people are being blacklisted because of their credit reports. However, if the employer makes an adverse decision based on your report, you have a right to know about it and get a copy of the report they used.
So here is the second half of the list from yesterday. Filled with nice little gems of information.
6. “It’s easier to ruin your score than improve it.”
Increasing a FICO score could be harder than lowering it. That’s partly because negative behavior, like missed payments, counts toward 35% of a consumer’s FICO score. In contrast, paying down debt helps boost a segment that accounts for 30% of the FICO score. The same is true with competitor VantageScore where payment history counts for 28% of the score while the percent of credit limit that’s used counts for 23% of the score.
FICO says score movement isn’t that clear cut. Sprauve says that borrowers can improve their FICO score through consistent positive behavior, such as paying all of their bills on time every time, keeping their balances low and only opening new credit when they need it.
Wrecking a score can also be a lot easier for a borrower with a high credit score. A borrower with a 780 score who’s 30 days behind on a payment will see their score tumble by up to 110 points, according to FICO. A borrower with a 680 score will drop by up to 80 points. The spread grows as the severity of events gets worse: In foreclosure, the 780 will fall up to 160 points while the 680 will shed up to 105 points. After filing for bankruptcy the 780 will tumble by as much as 240 points while the 680 will fall 150 points. “There’s more incentive for someone with a high score to not mess up,” says Paperno.
Sprauve says the lower score already reflects a person who is a greater risk because they have exhibited negative behavior previously. “If someone has maintained an impeccable credit history, their score is going to be hit harder the first time they trip up because statistically it is an indicator of increased risk,” he says, adding that low scores don’t stick around forever — depending on the next steps borrowers take. “They can begin to recover soon after by consistently demonstrating responsible credit management over time.”
7. “Some debts are better left unpaid than others.”
For all the talk about keeping debt to a minimum, wiping out mortgage or car loan debt might not raise a score at all. Ulzheimer says he paid off a $249,000 mortgage two years ago, which resulted in a meager four-point rise in his FICO score. In contrast, paying off all credit-card balances can boost a score by triple digits, he says, assuming no late payments or other credit problems. FICO’s Sprauve says, “Paying off the loan completely has small statistical value when predicting credit default risk.”
The rules change when borrowers are cash-strapped. If they can’t pay all their monthly bills, missing their mortgage payment could hurt their score more than missing a car or credit card payment, says Paperno. The larger the dollar amount of the past due debt, the bigger the initial hit to the credit score.
To be sure, what’s better for a credit score might not be better for borrowers. For example, advisers point out that they won’t have much time to catch up on car loans if they fall behind. Cars are being repossessed after 60 to 90 days of nonpayment.
8. “We’re sometimes wrong.”
After living in China for seven years, Lonnie Hedge returned to the U.S. last year and discovered that $8,000 in fraudulent charges were on his credit reports, and his credit score had dropped from the low-800s to the low-600s. Six months later, Hedge, a disabled veteran, says he’s still trying to clear up the error by contacting Equifax, where his score is the lowest, but has made no headway. He hasn’t been able to connect with the bureau on the phone. Even after mailing paperwork he says proves he didn’t make those charges, he says they have yet to be removed.
Daryl Toor, a spokesman for Equifax, says the bureau is focused on resolving disputes, though due to a variety of factors not often in its control, the amount of time it takes to help a consumer get resolution can vary.
Credit scores are determined by the information in consumers’ credit reports. Those reports aren’t always accurate and the repercussions can be severe: an error or fraudulent charges that are left unpaid can result in a lower credit score, which can derail borrowers’ attempts at getting credit. A report by consumer advocacy group U.S. Public Interest Research Group in 2004 found that 79% of credit reports contained an error. A separate report last year by the Policy Economic Research Council, which is funded by the credit industry, found approximately 0.5% of credit reports had material errors. The Federal Trade Commission will release its report on credit report accuracy later this year.
Debt counseling groups say they deal with errors often. “We probably see someone once a week who has something on their credit report reported incorrectly,” says Melissa Whittaker, branch manager at Augusta, Ga. nonprofit Consumer Credit Counseling Service. She says it’s often a creditor that hasn’t updated a late payment that was received, medical bills that patients assume their insurance has covered, or cases of identity theft.
This month, the Consumer Financial Protection Bureau announced plans to supervise the major credit reporting bureaus, such as Equifax, Experian and TransUnion, starting this fall. The CFPB says the move is partly in response to consumer filings about errors on credit reports.
9. “Our numbers don’t add up.”
The average FICO score — the number most lenders use to gauge a potential borrower’s credit-worthiness — stood at 690 in April, according to data released in July. That is roughly in line with both last year’s average score and the average in 2007, before the market meltdown and recession wiped out many Americans’ wealth.
Many credit pros say that data doesn’t make sense. Since 2007, nearly nine million homes have gone into foreclosure and over six million people have filed for personal bankruptcy — events that typically send FICO scores tumbling. Borrowers who previously had high FICO scores (above 750) may see their scores drop by more than 200 points in such events, says Ulzheimer. “Something stunning isn’t showing up in the data,” says Anthony Sanders, a professor of finance at George Mason University, who studies credit scores.
FICO defends its calculations. There are roughly 200 million U.S. consumers with a FICO score, so in order for the average score to change more noticeably, a much larger number of consumers on one end need to be affected, says Anthony Sprauve, a spokesman for myFICO.com, the consumer division of FICO. In addition, over the past several years, even though the average has stayed roughly the same, more consumers have moved away from the middle in both directions, Sprauve says. There are “two opposing forces at play,” Sprauve says.
10. “You can game the system.”
For years, financial planners have told their clients to pay off their debts before signing up for a mortgage. With less debt, they’ll have a better shot at having a higher credit score, which would in turn lead to a lower interest rate on their home loan. But just how much a certain action would boost their score was unknown to the consumer until after they actually implemented it.
Much of that mystery is gone now. A credit management software company in Baltimore, Md., called CreditXpert offers a simulator where consumers can plug in their credit information and run what-if tests, like paying down debt on one credit card or paying off a student loan to see to what degree each action could impact their credit score. David Chung, managing director of CreditXpert, says mortgage loan officers and brokers are using this system to help their clients. After reviewing an applicant’s credit scores, they run theoretical scenarios on CreditXpert’s simulator to see if paying down a certain debt (or another action) will raise a borrower’s credit score enough to qualify for a lower rate.
The incentive for the mortgage officers, he says, is to close the loan rather than lose it to a competitor, and to possibly gain referrals from satisfied customers. Donnelly, of the Mortgage Bankers Association of Washington, D.C., says some lenders don’t encourage their loan officers to use this since it could be seen as gaming the system. FICO’s Sprauve says the only simulator that’s based on the FICO scoring model is on its web site.
By ANNAMARIA ANDRIOTIS
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
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.
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.
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.
‘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.
How Many Credit Cards Should You Have?
I’m asked this question on a weekly basis and have been for years. The infatuation with the optimal number of credit cards makes me smile because I know a secret that not many other people know. That secret is this… there is no right number of credit cards to have.
The basis for the question is purely credit score driven. Consumers rightly care and want to earn and maintain solid credit scores. One of the ways to do so is to become familiar with the things that matter, and by how much. The assumption is that you should have an exact number of credit cards, which would help your scores.
Haters Keep Hating
The hater crowd will undoubtedly suggest that 0 credit cards is the optimal number and that debt is evil… blah blah.
And while I respect the right to have your own opinion on the topic of consumer credit, I’ll be the first to point out when it’s wrong. Having credit cards is an easy and inexpensive way to establish, build, maintain, or rebuild credit. In fact, the vast majority of you started your consumer credit lifecycle by opening some form of plastic.
I’ll give you the same answer I gave for 7 years while I was at FICO and have given for the 7+ years I’ve been gone. As it pertains to your FICO score, the number of credit cards you have isn’t remotely as important as how you’re managing them. And while you can have too many inquiries or too many accounts with balances, it’s hard to have too many credit cards.
Same Numbers, Different Impact
Having only one credit card that also happens to be maxed out is incredibly damaging to your credit score. Having only one credit card that also has a very low balance relative to the credit limit is very helpful to your credit score.
Having fourteen credit cards, like me, that are all paid on time and have $0 balances is very helpful to your credit scores. The last time I checked my FICO scores, my lowest was an 801. Having fourteen credit cards that all have balances is very damaging to your credit scores. Same numbers, different impact.
As For a Hard Number…..
If you really want me to give you a number of cards to have, fine… how about five?
If you can end up with five general use credit cards (those issued with a Visa, MasterCard, Discover, or American Express logo) that each have $20,000 credit limits, then you’ll be in great shape.
First off, you’ll have $100,000 of capacity or buying power (that’s probably enough for most of us). Next, you’ll have a large aggregate credit limit, which means you can charge as much as $10,000 in any one month and still not be over 10% “utilized.” That’s what I call “utilization insurance” because it’s unlikely you’ll cause any serious credit score damage simply because you had one month of expensive charges.
Finally, and this might be my favorite reason, you’ll have a diverse enough set of cards that you won’t run into any situation, in the United States anyway, where you’ll hear “we don’t take that kind of card.”
If five sounds like too many, then have fewer. If you’re responsible with your plastic and you want more, then have more. If you don’t want to have any credit cards, then don’t have any credit cards.
Opinions about how many credit cards to have are just that, opinions. None of them are fully correct and none of them are fully incorrect.
By John Ulzheimer
For mintdotcom /blog/credit/how-many-credit-cards-should-you-have-052012/