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Get the information you need in Consumer Credit Repair Services

Can I fix my own credit or do I need to hire a professional?

Credit repair is hard enough to be interesting and easy enough to be doable. Planning and study are the keys to effective results. Can you do it alone or do you need to hire a credit repair company? Years of experience have taught me that most people will benefit from at least starting the process on their own. Proceed very carefully. In order to achieve and keep a high credit score with staying power it is necessary for you to understand some of the fundamentals of the credit scoring process. Having someone else do the work for you or being told to do something without knowing why will not make the lasting impression necessary to carry you through to a lifetime of high credit scoring. Your understanding is helped by a hands on approach. Do not waste money on national credit repair firms. The 2 biggest, Lexington Law and Credit Repair.com, are being sued in US District Court by the Federal Agency Consumer Financial Protection Bureau (CFPB) in a 5 count complaint for deceptive and abusive telemarketing and bait and switch tactics. Their unrealistic promises are designed to separate consumers from their money. They use a slow and ineffective cookie cutter one size fits all approach.

Stop the bleeding and get on top of the situation. Do the “no-brainer” stuff in a careful measured way. If you get lost in the weeds don’t hesitate to seek qualified help. Just what is the no-brainer stuff?

Get your latest free credit reports from Annualcreditreport.com to check for mistakes
Pay up to date any credit card or installment loans that are overdue
Resolve that there will be at least the minimum payments made on time for credit cards and installment loans from this date forward. Even one recent late payment hurts a lot.
Do not take out unnecessary new credit
If you have a family member or friend with a credit card with a spotless payment record, good age and low balance to available credit ratio (more on that later) ask them to make you an authorized user without giving you a card
Do not start paying off charge offs, collections and stale claims until you have had time to read about defenses, priorities, strategies, deletions, discounting and more
Do subscribe to free credit monitoring sites such as Credit Karma, Bankrate.com or any other free credit monitoring sites you may want to try
Do not think the monitoring site’s more lenient FAKO score is your FICO score. FICO is a unique scoring system used by more than 90% of lenders

Just remember there is a hard learning curve to credit repair. It is difficult to be totally objective with your own finances. Don’t be afraid to seek help if the time comes when you need the clear eyed unemotional help of a trained professional. Mistakes can be very expensive. The harm done by an amateur’s mistakes can be difficult to undo. Saving money through self help credit repair can be illusory.

What is a FICO score?

FICO stands for Fair Isaac Corporation. This company developed the first and arguably the best means of crunching your financial records into a system of measuring your risk for default on future loans. FICO gets its information from the big 3 credit reporting agencies: Experian, Equifax and TransUnion. The FICO score is measured on a scale from 300-850 for most purposes. Ninety percent of lenders use the FICO system to help analyze default risk of individual loan applicants. There are at least 50 different customized variations of Fico scores. The most important are Real Estate, Auto and Bank card scores.

What information is used by FICO to calculate my score?

The information compiled by the credit reporting agencies falls into 5 categories. Each category carries a defined percentage of influence on the final credit score as follows:

- Timeliness of Payments…35%. You guessed it. Nothing is more important than making those payments on time. A single recent late payment on a credit card, auto or mortgage loan will have a dramatic negative lasting effect on your score for 7 years. That influence gradually fades with the passage of time as current payments replace it. Aged late charges are considered less predictive of future performance than recent late charges.

- Debt to available credit ratio…30%. You may be surprised to learn that the amount of debt you carry on your revolving credit accounts (credit, store and gasoline cards basically) relative to your credit limits has a huge effect on your score. If you owe $500.00 on a card with a $1000.00 limit you are carrying a debt to available credit ratio on that card of 50% of your limit which is very high. If you owed the same $500.00 on a card with a $5000.00 limit you are only carrying a debt of 10% of your limit which is a fine low debt to available credit ratio. In other words…how close are you to your credit capacity on your revolving debt? Many experts advise keeping this ratio below 30%. I can assure you that much lower than 30% is a lot better. The difference between 30% and 10% is significant. It may jump you into a more favorable trust category with the lender.If you have several cards the most important figure is the aggregate percentage. You get this by adding up all your limits. Then add up all your balances. The aggregate relative percentage of these two totals is the most important debt to available credit percentage. This is the category over which you have the most control. Don’t confuse your debt to available credit percentage with your debt to income percentage. Your debt to income percentage is very important to your lender but does not influence your credit score.The percentage owed relative to the payoff on installment debt such as car loans and mortgages is not nearly as important as your revolving debt to credit limit percentage ratio in this category. Installment debt can be defined as debt with a fixed amount for a monthly payment. Revolving debt can be paid in any amount monthly as long as that payment at least meets the minimum payment requirement.

- Age of Credit History ….15%. This category has 2 distinct subsections of equal weight. The first section is the age of your oldest account. The second section is the average age of your accounts.

- Mix of Credit Types ….10%. FICO wants you to prove you can handle different types of credit. Ideally you should have at least one installment loan as well as credit cards, all with a flawless payment history.

- Hard Inquiries ….10%. Applying for too much credit in a short period of time raises the question of why are you suddenly so needy? Hard Inquiries stay on your report for 2 years but only count in a negative way for 1 year. Most people worry about inquiries more than they deserve. If you make a series of applications for a mortgage or auto loan within 30 days the separate inquiries will only count as one inquiry. Hard inquiries are defined as those inquiries triggered by your loan applications. Soft inquiries made by others such as promotional inquiries for insurance, credit card offers or credit monitoring services like Credit Karma have no effect at all on your credit score. Check your own score as many times as you want without ill effect.

What information is not in my credit reports?

Criminal records including Driving under the Influence (except landlord’s background search).

Overdrafts on your checking account that settled prior to going into collections.
Checking or savings account balances
Paying high interest rates even though it was the bad credit score that forced you into those high interest rates in the first place.
Records of credit counseling…so don’t shy away from seeking credit counseling if you think you need it.
Your spouse’s credit history.
Your age is there as an identifying point. Age cannot be a factor in credit scoring although age of accounts is important.
Receipt of unemployment checks.
Receipt of food stamps or public assistance.
Late rent payments with the rare exception of landlords who have opted into Experian’s rental payment history service.
Utility and cell phone bills that are late but have not gone into collection.
Race, color, religion, national origin, marital status.
Salary, occupation, title, employer, date employed or employment history that has not been reported by the employer or submitted by you in a credit application.
Any information that is not proven to be predictive of future credit performance.
Parking tickets and library fines.
Alimony and child support payments unless back child support has become a matter of court collection intervention.
Only the last 4 digits of your social security number show.
Payday loans that have not gone into collection

What is a good credit score?

Most lenders break down the scoring categories as follows with some variations:

Poor: Below 620

Fair but Sub-Prime: 620-660

Good: 660-720

Very Good: 720-760

Excellent: 760-850

Only 1% of the population can boast of an 850 credit score. For an auto loan a 720 or above FICO auto score should get you the best available deal. For a mortgage 760 or above will get you the best available deal as long as the rest of your application is in fine order. Some lenders may be a little more lenient than 760 for offering their top deal on interest rates.

What are some common credit report errors I should look for?

Incorrect or misspelled name and addresses past and present. Try to be consistent in your use of any suffix that may apply such as Jr., Sr, Maiden name, resumption of maiden name, the IId, the IIId
Unauthorized hard inquiries. Do not worry about harmless unauthorized soft inquiries. Soft inquiries do not affect your score in any way.
Illegal re-aging (incorrect date of first delinquency. The date of first delinquency starts the 7 year expungement clock when the record of delinquency is removed).
Reported credit limits that are lower than the true credit limit.
Incorrect balances owed
Late payments that were paid on time.
Duplicate collection accounts.
Paid accounts still showing a balance.
Credit lines not listed.
Debts of a stranger with a similar name especially if you have an unusual name.
Debts older than 7 years starting from the date of first delinquency.

Why is there sometimes different information in the 3 credit reports?

The 3 major credit reporting agencies are independent private businesses in competition with each other. They each collect and sort through billions of bits of information every day. Mistakes are inevitable. It is up to each consumer to be pro-active about watching out for mistakes and ferreting out information that doesn’t belong there. Not every lender reports to all 3 bureaus. Big operations like Capital One, Sprint, Verizon and major banks seldom miss a trick but small time bill collectors, hospitals and private businesses don’t necessarily have a department dedicated to strict compliance. They may report to only one credit reporting agency to save money. This usually messes up the consumer’s credit enough that they feel they have no choice but to pay. Inquiries are many times made only of 1 credit reporting aenc.

Should I consider a debt settlement service to reorganize and stop the calls?

Debt Settlement Services are never a good idea for anyone. All they do is hold onto the monthly payments you make to their service in hopes of settling for less than the full amount several years later.. In the meantime your credit gets worse and worse. They do nothing for you that you can’t do for yourself. For instance you can stop collection calls with your own “cease and desist” letter to the collector. If you demand in writing that the collectors stop calling they have to stop. Consider this warning from the official literature of a major debt collecting company:

“The use of debt settlement services will likely adversely affect your credit worthiness, may result in you being subject to collections or being sued by creditors or collectors and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest.”

The above quote is their words, not mine. Forget their use of the word “likely”…it will adversely affect your credit worthiness. I can’t think of a single situation where a debtor improves their standing by utilizing the services of a debt settlement company.

Does my employment history affect my credit score?

This myth persists because your occupation is listed under personal facts as a further identifying factor. This entry is frequently out of date. Employment data is not included in the credit scoring algorithm. When you change jobs your new employer is not required to report anything to the credit bureaus. This employment information is not usually updated unless you do it yourself or a new credit application listing it is reported. You can write the bureaus and update this section yourself if you want. A fast food minimum wage worker can easily have a better credit score than a professional with a high salary. Your employment history will be important to a banker weighing the merits of your mortgage application. It will not affect your credit score.

How does my income affect my credit score if at all?

One of the many things about credit scoring that seems to defy common sense is the fact that your income is not considered in your credit score. It is understandable that this fact comes as a big surprise to many people. The practice of including income in credit reports was stopped many years ago for several reasons. Many times income varies wildly from year to year. Opportunities for deception abound. Reports of income are just too unreliable. Income is not that great an indicator of whether or not you can be trusted to pay your bills, live within your means and handle credit responsibly.

Does my age affect my credit score?

Your age is not factored into your credit score. Federal laws against age discrimination ensure that this iron clad rule cannot be violated. Your age is there because your date of birth is such an important factor in identification. The age of your credit history and your oldest account are very definitely significant factors so older people have the advantage there.

Does my utilities payment history affect my credit score?

Utilities do not send records of your payments to the credit bureaus. There will be a record of their inquiry when you applied for the utility service or for a cell phone but that’s the only record that shows unless you default and the account goes into collection. A utility collection will cause great damage but on time payments do not help.

All those on time utility payments that would prove your reliability won’t show but neither will the occasional late payments show to hurt your score. If the account goes to collection these collection accounts can be hard to get rid of even if paid in full. An account marked paid in full is better by far than an open collection. There is still nothing better than complete expungement as if the negative entry never existed.

Do courts send records to the credit reporting agencies?

Courts do not send records to the credit bureaus. There are several companies that supply the credit bureaus with public court records. The ink will barely be dry on a bankruptcy filing when it becomes a matter of public record with the credit bureaus as well. Bankruptcy courts have nothing to do with it. These records along with tax liens and judgments are picked up by a system called PACER as well as LexisNexis and other vendors of public records. Judgments and tax liens are no longer reported by the big 3 credit reporting agencies because of stricter verification requirements. LexisNexis was not part of the agreement limiting reports of judgments and tax liens so your lender may find out about them through extra probing with the Lexis Nexis company. Remember that lying on a mortgage application can be considered a felonious criminal attempt to obtain money under false pretenses

Must I remind credit reporting agencies to remove negatives after 7 years?

The credit bureaus must remove most negative entries after 7 years and 6 months have expired from the date of first delinquency. In practice they usually do expunge as a matter of policy after 7 years. Exceptions to this include Chapter 7 bankruptcies at 10 years after filing and successfully completed Chapter 11 bankruptcies at 7 years after filing. The credit bureaus are supposed to remove expired negative entries on their own. It is common but illegal for credit bureaus to start the expungement clock ticking from the date the collector reports the debt rather than the legally mandated date of first delinquency. It is up to you to monitor your report to ensure credit bureau compliance in this critically important area.

Does denial of credit hurt my credit score?

No. The hard inquiry that was made that leads up to the denial of credit is a negative factor worth a few points in most cases for a year from the date on which it was made at the credit reporting agency or agencies where it was made. The notation of the hard inquiry stays for 2 years but FICO only counts it for 1 year. The denial of credit itself has no effect. Dispositions of applications for credit are not housed in the credit reporting agencies’ data banks.

Can too much available credit hurt my credit score?

FICO does not contain a negative component in its scoring algorithm to harm the score of people with too much available credit according to FICO spokesman Craig Watts. If your lender tells you your credit score has been affected by too much available credit he must be in the small minority using one of the FAKO scores such as Vantage. Another possibility is that the lender may be using the claim of too much available credit as an excuse to deny you for other reasons that he prefers not to tell you.

Will opting out of unsolicited credit card offers help my credit score?

No. Unsolicited credit card “pre-approved” or “pre-qualified” offers do no harm. These offers are made only after a soft inquiry. They don’t affect your score one way or another.

Does checking my own credit hurt my credit score?

No. Check it as many times as you want. Self checking is always considered a soft inquiry. These self initiated inquiries have no effect on the scoring process.

Do credit scores merge after marriage?

There is no merger. Marriage can have a profound effect on your finances. There are many entanglements, particularly in community property states, but there is no merger of credit scores anywhere. There is no provision for such a merger at the credit reporting agencies.

Does carrying a balance on my credit cards help my credit score?

This is a very persistent myth. Nothing could be further from the truth. Ethan Dornhelm, Vice President of scores and predictive analysis at FICO states: “The FICO score does not contain information that would indicate whether you are carrying a balance on the card”. The balance you carry compared to your credit limits determines your debt to available credit ratio. This ratio on your revolving debt accounts for 30% of your credit score. A high balance hurts badly. A low to zero balance on credit card debt is a key component of any good credit score, second only to timely payments.

Can payday loans help me build my credit score?

Payday loans are not reported to credit bureaus. Even if you successfully pay the balance with its near 400% interest it will have no impact good or bad on your credit report. Payday loans do not exist as far as the credit reporting agencies are concerned unless they become a collection. That collection will be reported like any other collection. Payday loans can hurt you that way. Payday loans are truly the last rung on the ladder of desperation. They can’t help you but they can hurt in a cruel way. If you think it is hard to make headway on old credit card debt with its unforgiving compound interest just try it with payday loan debt.

Does my credit score change often?

Your credit score can easily be different in the afternoon than it was on the morning of the same day. There is no report on file sitting on a shelf somewhere. Billions of bits of information both good and bad go in and out of credit reporting agencies at all times of the day and night. A new obligation may knock your score down at 10AM followed by an old collection aging off your account at 2PM raising it back up.

Credit card lenders usually report balances after the close of every monthly statement. Do not confuse the closing date with the due date. The due date is usually 4-5 days earlier than the closing date. Higher or lower credit card balances can dramatically affect your score. Report of a late payment can cause major damage at any time. Never be complacent about your credit score status.

Why do some lenders label some collections as “charge offs”?

After a debt such as a credit card has been delinquent for more than 180 days the lender is required to treat the matter as a lost cause for tax purposes. A charge off is a debt on which the lender has given up collection for accounting purposes. The lender now reaps some benefit by declaring it a tax deductible loss. This does not mean you no longer owe the debt! It does mean that the lender is likely to settle for less, particularly as the debt keeps getting older. If you do settle for less that debt will be reported to the credit collection agencies as having been paid for less than the full amount. This is better than not having been settled but settlement by partial payment is still a factor with some negative credit scoring consequences. Paid or not paid, charge offs are expunged as if they never existed 7 years from the date of first delinquency.

What is “pay for delete”?

Many bill collectors and original creditors will delete the record of delinquency entirely if you demand expungement of it in exchange for payment. This means total expungement of the record of delinquency as if the problem never existed. Get the agreement to delete in writing first. Don’t believe them if they tell you they can’t do it. There is nothing in their agreement with the credit reporting agencies that forbids them from retracting an entry without explanation.

If I absolutely positively must be late on an obligation what should I do?

The bills that don’t report anyway would be your first line of defense up to their limit of tolerating being late. When it comes to choosing between a credit card payment or a mortgage payment be late for the credit card payment. Most credit card issuers will forgive up to one late payment a year for an otherwise good customer if you call their consumer relations department and ask. As far as your mortgage late payment you can call the bank ahead of time if you see trouble coming. Banks encourage you to do this. See what they can work out for you sooner rather than later.

Can I help myself by becoming an “authorized user” on someone else’s good credit card account?

This practice to artificially boost your credit score is called “piggybacking”. Although lenders resisted it for years for those who are not immediate family members the courts finally decided that it is legal for all. Otherwise there would be too much opportunity for discrimination.

If you become an authorized user on someone else’s credit card that person’s record of credit age, faithful payment and debt to available credit ratio become yours for most purposes. If the card is good in all respects you can achieve a remarkable boost in your credit score when the card reports to the credit reporting agencies at the close of its next current monthly statement. You will not fool the bank’s mortgage department because authorized user accounts are clearly marked on the bank’s Tri-merge report from all 3 bureaus. Beware because if the card goes bad you will get the bad influences on your reports just like you got the benefits.

Do I really need an installment loan for “mix of credit” to help my score?

At 10% of the total picture, mix of credit does have enough importance to motivate you to go out of your way to satisfy it. By this I don’t mean to buy an expensive car or boat just to have the mix.. Many banks and credit unions offer “credit builder loans”. These are installment loans secured by your own CD for the express purpose of creating an installment loan track record. Ninja Trick… Creditstrong.com offers an internet savings account. Your regular monthly payment of as little as $15.00 is reported as an installment payment although the money really goes into a savings account you can cash out of 2 years down the road. Much easier than the credit builder loan while achieving the same result. Sounds too good to be true I know but check out their website. Little known but ultra cool perfectly legitimate trick.

If I’m not sure if I owe the money is it OK to challenge the claim?

Sure. Put them to their proof by writing a letter to each credit reporting agency that has it with the magic words stating that the negative entry “cannot be verified”. That shifts the burden of proof and works at least half the time. Verifiability is the test. If it can’t be verified within 30 days you win an expungement by default.