Happy Mothers Day to all Moms!

Those “free credit score” jingles are like nails on a chalkboard to me. See—they are almost all scams.

Here’s how they work:

First, what they really offer is a free credit report. Then they try to sell you your credit score.

And here’s the problem: the credit score they try to sell you is total junk.

It’s called a “Consumer score,” and it’s not the same score that a lender, credit card company, employer, or landlord would see when they pulled your credit score.

Almost all lenders and banks use something called a FICO score. In fact, in my 20+ years in the real estate, mortgage, and credit industries, I have never once known a lender to use anything other than a FICO score.

Here’s the part that is even worse: FICO scores are almost always lower than Consumer scores. I tested this a few years ago on my own credit score. My FICO score was a whopping 237 points lower than my consumer score. I asked some friends to test it as well: Michael’s FICO score was 79 points lower than his consumer score, and Jocelyn’s was 54 points lower.

In all three circumstances, the Consumer score was higher.

Yesterday, I decided to see if things had changed. This time, my FICO score was 70 points lower than my Consumer score.

So the gap was a little narrower, but still wide enough to cause a big problem.

You see, if I relied on my Consumer score, I would have an artificial sense of security because it is always higher than my FICO score.

This can cause a big problem. Prospective homeowners do a little research, realize that lenders provide the best interest rates to people with FICO scores of at least 720, then they buy their credit scores from a free credit report website.

They don’t realize that the credit score they are buying is not a FICO score. And when their Consumer credit score comes in at 745 or 815, they think they are out of the woods. Instead of taking the steps necessary to build their credit scores, they sit back and relax.

But when it comes time to buy a house, their loan applications are either denied due to low credit, or they end up paying more interest than they expected. In Jocelyn and Michael’s case, the difference in interest on a $300,000, 30-year, fixed-rate home loan would have been about $12,000.

And this is a problem for everyone, not just prospective homeowners. What about the folks who carry credit cards and finance their cars? These people buy their Consumer scores, and then wonder why they are not qualifying for better interest rates. My credit score is high, they think. I guess these are the best available interest rates.

Little do they know that they should take a few simple steps to rebuild their real credit score—their FICO score.

So what should you do about the free credit report scam? Get an accurate representation of your credit score by buying it directly from www.720FicoScore.com.

Philip Tirone

P.S. The only place you can buy a FICO score online is from www.720FicoScore.com. Every single other website out there will have fine print explaining that the score you buy is not the same score lenders will see.

If you are getting married, you might be a little worried about how the marriage will affect your credit score, especially if your spouse’s score is lousy.

But right off the bat, let me dispel this rumor: Your credit score and your spouse’s credit score will never be merged together. What your spouse does in his or her own name (past, present, or future) will not hurt your credit score…

As long as you do not join accounts.

When you get married, your behavior still counts toward your credit score, and your spouse’s behavior still counts toward your spouse’s credit score. If you pay your Visa bill late, the late payment will not hurt your spouse, so long as the credit card is in your name only. If your spouse has a mortgage payment and defaults, the default will be on your spouse’s credit report only—so long as the mortgage is in your spouse’s name only.

Most people approach marriage and credit with a one-for-all, all-for-one attitude. They apply for car loans as a couple, open joint credit card accounts, and stop building separate credit histories. After all, they have joined their lives together; why not marry their credit histories?

This might sound like a great idea, but the truth is that you should never vow to join all of your credit accounts. Keeping some credit accounts separate has big advantages. In fact, holding credit jointly puts a couple at even greater risk during times of financial crisis. Here are two common credit pitfalls of marriage.

Marriage and Credit Pitfall #1: Keeping All Credit in One Spouse’s Name

Opening all credit cards and loans in one spouse’s name is not wise, but unfortunately, it happens all the time. This usually happens when one spouse works a nine-to-five job and the other stays home with the kids. The spouse with the paycheck opens all credit in his or her name.

Here’s the problem, though…

Shat happens if something happens to the working spouse? A bankruptcy, death, loss of income, or divorce would make the other spouse vulnerable. Because no credit is the same as bad credit, the stay-at-home spouse would have no ability to secure a loan.

There’s another problem with this strategy. Let’s switch this scenario up a bit and imagine that both spouses work. The wife has a part-time job with a small salary, so all of the credit is in the husband’s name. The couple decides to buy a home. To qualify for a loan, they need both spouses’ income.

The couple now has a big problem: The wife has no credit history, so her score is low. Putting her name on the home loan would endanger the loan. And the husband cannot qualify for the loan on his own—he needs his wife’s income for that extra boost.

Most likely, the couple would not qualify for the loan. At a minimum, the couple would pay a higher interest rate.

This pitfall can be avoided if both spouses build their own credit scores.

Pitfall #2: Joint Credit Cards and Automobile Loans

Imagine that Jack and Diane are married and have joint credit cards and joint automobile loans.

When Jack loses his job, the couple struggles to make ends meet. After a couple of months, they start realizing that they cannot afford all of their bills. So they stop making payments on several credit cards and on one of the two car loans. The credit card bills are sent to collections and the car is repossessed.

And both Jack and Diane’s credit scores are trashed in the process.

Now let’s see how the same situation would play out with Peter and Paula, a married couple with separate credit cards and automobile loans.

When Peter loses his job, the couple creates a strategic plan about their forthcoming financial problems.

Peter and Paula know they can only afford to pay all their bills for three months; the money will run out after that. Peter searches high and low for a job, but is unsuccessful. After three months have passed, the couple decides to stop paying credit cards and car loans in Peter’s name. They stay current only on bills in Paula’s name.

Of course, Peter’s credit score suffers. But Paula’s remains pristine. This means that Paula is able to apply for loans in her name, while Peter learns how to rebuild credit.

Any other questions about marriage and credit? Be sure to leave a comment on my blog, and I will answer it in forthcoming blogs.

Sincerely,

PX

P.S. One last thing: This isn’t to say you should never hold a single joint account. Sometimes, putting your spouse as an authorized user (at least temporarily) is a great way to help your spouse build a credit score. But be strategic. Make sure that you each of you build your own credit score.

I just got off the phone with a client that was not applying for certain jobs becuase she knew that the company would run her credit.

Here is what I told her (2:53 second audio).

Here’s to your future,

Philip

P.S. It’s funny, most people think that they are the only people with financial problems, that is NOT the case.

I’ve written a few posts about bankruptcy lately, but it occurred to me that I should explain what happens to a credit score after a bankruptcy.

The truth is: Sometimes your credit score will be better off in the long run. And here’s why…

If you are struggling with your finances and your credit score, and you do not see an immediate light at the end of the tunnel, you will probably continue to struggle for a few more years. As you fight to stay afloat, you will probably miss a few payments here and there.

And your credit score will suffer. In two years, it will be exactly where it is now.

But if you declare bankruptcy today, and then start the process of rebuilding your credit score after bankruptcy, in two years, you could have a 720 credit score!

I always say that bankruptcy isn’t as dirty as it sounds, so I hope this eases your mind!

Sincerely,

Philip Tirone

P.S. One more thing, certain mortgage companies are stopping their clients from reaffirming mortgage debt during a bankruptcy. Some of my clients are worried about what this will do to their credit scores. To them, I just want to say: Don’t worry—you don’t need a mortgage on your credit report to have a high credit score after a bankruptcy.

This is one of the tricks for raising credit scores that most people don’t know about …

It’s calling “authorized user.” If you become an authorized user on someone’s credit card, your credit score will increase as long as that credit card is in good standing.

In fact, I’ve seen people’s scores increase sixty points just by becoming authorized users.

The catch is that you must meet certain qualifications to become an authorized user: you must choose the right person and the right credit card. Read this article about becoming an authorized user to see how to qualify.

Sincerely,

Philip Tirone

P.S. If you have a bad credit score, and you have fewer than five credit cards, I strongly suggest that you become an authorized user!

P.P.S. I’ve been working on an exciting project for people who have been wronged by the credit bureaus. Keep your eyes peeled… I’ll be releasing it soon.