Author: Natalie Sanchez

There is great debate over the number of credit cards a person needs for the best possible credit score. Some say one. Others say two. Then there are those who say three. Who’s right?
A question I frequently get is: “How many credit cards should I have if I want to earn the best possible credit score? I receive a lot of credit card offers in the mail. Should I apply for them?”
My standard answer is, “Between three and five.” To get the best possible credit score, you need to have the right number of credit cards. Why? Because the number of credit cards you have is a big part of your credit score. If possible, avoid retail store credit cards since it restricts where you shop. The best credit cards to have are revolving credit card accounts. These include Visa, American Express, MasterCard, or Discover.
If your credit score is 720+ and you have an excellent credit history, one or two credit cards may be all you need. However, if you’re rebuilding your credit, one of the biggest factors in determining your credit score is the number of credit cards you have. Why? Because the credit-scoring bureaus will not have enough information to assess your ability to pay credit card debt. If they cannot judge your payment history or do not feel comfortable that you are able to pay your bills on time and in full, they will not give you a high credit score. Their only option is to lower your credit score.
You may decide to pay cash and avoid credit cards. That’s not a wise decision because no credit is just as bad as poor credit. If the credit-scoring bureaus do not have enough information about your payment history, they give you a lower credit score. Their goal is to maintain a healthy credit economy and the best way to do that is to increase the credit scores of those with a good payment history.
On the other hand, if you have too many credit cards, the bureaus worry that you might be overextended. People with more than five credit cards may be tempted to accumulate a great amount of debt, especially during financial difficulties. The credit-scoring bureaus respond to this threat by lowering your credit score.
Having three to five credit cards is the best answer. This is the ideal number of credit cards for credit bureaus to evaluate your credit card payment history and it also shows your ability to manage the cards and debt you have.
If you do not have three credit cards, seriously consider getting at least three!
Here are credit cards for people whose scores are below 550.
Here are credit card offers for people whose credit scores fall between 550 and 719.
And here are offers for people with credit scores above 719.
If you have more than five, do not close the extra accounts! Doing so will not help your score as it might lower the average age of credit cards. Instead, stop opening new accounts and be sure to keep the proper credit card balances so you can show the credit-scoring bureaus that you are responsible with all your credit cards.

When a financial meltdown occurs, you may not have the ability to pay your bills on time. Depending on the duration of the meltdown, you may receive one or more collections on your credit report.
Many people are concerned about collections on their credit report. In fact, one of the most frequently asked questions about a credit score is, “What do I do about my credit score if I have a collections on credit report?”
There is reason for concern because a collection account on your credit report is a big deal. It is usually a signal to creditors that you are struggling with paying your bills. As a result, most creditors will not consider you credit-worthy and will be unlikely to grant you a loan. Even though a collection account is a red flag on your credit report, it is not as bad as having a foreclosure or bankruptcy on your credit report. But please know that collections, foreclosure, or bankruptcy will lower your credit score.
Let’s assume your financial meltdown was temporary and you are now able to pay your bills on time again. You want to show your creditors that their trust in you to pay your bills was right. Therefore you want to pay off your collection accounts. As crazy as this may seem, paying a collection account lowers your credit score. Why?
Collection accounts hurt your credit score for two years. If you pay those accounts after not paying for two years, you renew the seven year period in which the item stays on your credit report. Even worse, your credit score decreases again.
So what do you do about those pesky collections on your credit report? Paying your bills is your responsibility, even if it causes your credit score to suffer. However, you can and should negotiate with the creditor or collection agencies to minimize the damage.
Negotiating with a creditor or collection agency is the best way to resolve a collection account. It is a win-win situation for both of you, if the creditor or collection agency is willing to negotiate because it is better to receive partial payment than no payment. Though this doesn’t remove the collections from your credit report, paying a lesser amount can surely help your pocketbook!
The best strategy is negotiating for both a smaller payment and a letter of deletion.
Please do not confuse a letter of payment with a letter of deletion. They are different! A letter of deletion is a letter your creditor or collection agency sends to the credit bureaus giving them permission to remove the collections on your credit report. Once the collection account is removed, your credit score will surge because the collection account is wiped off your credit report!  You have satisfied your debt as well as cleaned up your credit report. Awesome!
Qualifying for a letter of deletion is tricky though. This technique works best if the collection item was not correctly sent into collections. How will you know if it was or wasn’t correctly sent into collections?
The Fair Debt Collections Practices Act can help you know if your account was correctly sent into collections. This Act limits the ways creditors and collection agencies can contact you. If you believe they have violated this Act, you may be able to get a letter of deletion as long as you promise to pay the collections on your credit report. The most common violation of the FDCPA occurs when a collector fails to advise debtors about their right to dispute part or all of the debt within 30 days of first contacting the debtor.

Thousands of pre-approved credit card offers arrive in the mail daily. Prime and sub-prime lenders mail these offers to increase their customer base and it works! Many people accept the offers they receive in the mail.
If you are like most people, you have also received several pre-approved card credit offers in the mail advertising low interest rates, an amazing new credit limit, or other special benefits. You might be wondering how these offers will impact your credit score and whether they are a good deal.
Before accepting these unsolicited pre-approved credit cards, consider the following facts:
Fact Number One

Don’t be deceived! Pre-approved does not mean you will receive the credit card and all the benefits it comes with. This is a fishing expedition. You were selected because your name appeared on a list of consumers that the credit card company purchased from credit-scoring bureaus who meet their minimum credit standards for the card. If you are the recipient of one of these pre-approved offers, you may see the words “promotional” and “pre-approved” listed on your credit report. Some people may apply for the credit card simply because they were pre-approved. What they don’t understand is that a pre-approved credit card does not mean they will receive the credit card. Read the fine print. It explains that final approval is based on the information in your credit application.
Fact Number Two

Pre-approved card offers do not affect your credit score because they are a soft inquiry on your credit report. However, this soft inquiry turns into a hard inquiry when you apply for the credit card because the credit card company must then pull your credit report and do a real credit check. This results in a slight dip in your credit score. Remember that 10 percent of your credit score consists of the number of hard inquiries on your credit report.
Fact Number Three
Always, always, always read the fine print before accepting a pre-approved offer. The large words on the offer are to capture your interest and entice you to accept the card. This is a sales pitch. Most sales pitches are for people with excellent credit scores, not for those who meet the minimum requirements. Fight the temptation of zero interest rate for a year on new purchases because you may not qualify for that perk or any of the other perks. A gifted sales writer knows how to entice and persuade with words. Know your credit score! This is the only way you’ll know if you can qualify for all the card promises.
Fact Number Four

Avoid adding more credit cards if you plan to make a large purchase, usually a home or a car, within a year. Why? Because a new credit card can negatively impact your credit score in the following ways.  First, your credit score will decrease because of the hard inquiry made by the credit card company when they pull your credit report. Additionally, a new credit card account will reduce the longevity of your credit accounts. 15 percent of your credit score is determined by the age of your credit accounts. Old age means a better credit score. Finally, if the new card exceeds the 3-5 credit card limit, you’ll have too many credit cards and your credit score may drop.
Fact Number Five

Identity thieves love pre-approved credit card offers.  They don’t care if you meet the minimum requirements. All they care about is intercepting your mail and opening a credit card in your name. This may lead to your credit being severely tarnished. You will no longer worry about your credit score, too many credit checks, or applying for more credit. Identity theft will cause you to focus on repairing the damage the thief does to your account.
To avoid this threat, opt out of all pre-approved credit card offers. To opt out, send a letter to the credit scoring bureaus and ask to be removed from their lists or you can call (888) 567-8688 and ask to be removed from all credit card offers.
Note:  Always review your credit report to protect yourself from identity theft.
A final note about pre-approved card credit offers:  If you really want to apply for a pre-approved credit card, search for a credit card which accepts consumers with your FICO credit score. To get your true FICO score, go to www.720FICOscore.com. Select the card which meets your needs. Avoid signing up for the first offer you find. Compare the credit card offers to get the best credit card for you. Just because something arrives at your door doesn’t mean you should put it in your wallet. Shop around! Make wise decisions!

Building credit and qualifying for a loan is simple, if you know how to do it. For those who don’t know how to build credit or qualify for a loan, here are four easy steps to follow.
Imagine a loan as a stool with four legs: income, down payment, savings, and credit score. A four-legged stool is dependable and safe. However, a stool can also have three legs and be just as sturdy. But a two-legged stool doesn’t work. It cannot withstand pressure. A four-legged stool is best because it incorporates all the requirements for a loan. But a three-legged stool is also acceptable when qualifying for a loan.
Borrowers must know why a lender is willing to lend them money. It is not because the lender is generous but because the lender is in the business of earning a return on its investment. The lender may want to invest in the stock market, bonds, annuities, mutual funds, or any number of other things. If you can help the lender accomplish its goals then you will receive a loan. The bottom line for a lender is always earning a worthwhile return in the form of the interest payments on loans.
To determine if you’re a good candidate for a loan, the lender evaluates each leg of a stool.
INCOME
The lender considers your income. The higher your income as compared to your existing debts (your “debt-to-income ratio”), the more likely you are to make your monthly payments.
DOWN PAYMENT
After evaluating your income, the lender looks at your down payment for the loan. Your down payment for a home loan is probably greater than your down payment for a car simply because of the value attached to both.  As with everything, bigger is always viewed as better. The bigger the down payment, the more protection a creditor has.
A bigger down payment on property is better for the lender because the property will have more equity invested in it. This means a property will have enough equity to sell at a profit to pay off the loan which is good for the lender. It is also good for the borrower because the borrower has more invested in the property and will be more likely to make loan payments on time.
SAVINGS
Savings are important to a lender because savings are your reserves during difficult times. The amount of your savings or reserves allows the lender to have security if you experience a rough patch. With sufficient savings, the lender feels you are more likely to weather rough spots while making loan payments. The lender looks for security and your savings give that security
CREDIT SCORE
After evaluating your income, down payment, and savings, the final step is to evaluate your credit score. You may wonder why the lender looks at your credit score if it’s satisfied with your income, down payment and savings. Your credit score is important because it gives the lender a glimpse into your character. It lets the lender know if you are a person who keeps your word and repays your debts. Your credit score also helps the lender analyze your ability to repay by revealing your current amount of debt.
Know the importance of each step when applying for a loan. As with a four-legged step stool, all legs being equal, your position is more secure when qualifying for a loan. However, that is not always the case and some exceptions may apply. If the would-be borrower is strong on three of the four legs, a lender might make an exception, even if the fourth leg is weak. A strong income may make up for a lack of reserves. Or a high credit score can make up for a small down payment. In normal lending environments, a borrower with a strong income, lots of savings and a big down payment will probably be allowed to slide on a mediocre credit score, but s/he will pay high interest rates.
It is wise to consider these four facts at least six months to a year before making a major purchase such as a car or a home. This gives you the opportunity to look your best financially when applying for a loan.
Keep your income as high as possible when learning how to qualify for a loan. You can get a second job or work to bring home additional commission. This will help your income, savings, and down payment. Dedicate as much of your monthly earnings to a savings account and maximize your reserves. Learn how to create a budget. If you have family members willing to help you with the down payment, get the money from them in advance so that when the lender looks back at several months’ worth of bank statements, the lender will see consistent higher balances. (Keep in mind that you should discuss the tax consequences for cash gifts with a tax consultant.)
Know your FICO Score and review your credit report for errors. If there are any errors on your credit report, contact the credit bureaus and follow their steps to have the information corrected. Timely payments on current accounts and low balances on existing account are a plus. You can always join our free teleseminar which tells you how to improve your credit score quickly.
The four facts lenders evaluate are very important when learning how to qualify for a loan, but there are other factors to consider such as: how long have you been at your current job and address?

• People who move frequently are generally considered bigger risks than borrowers with proven job stability and a permanent address. From a lender’s perspective, a stable lifestyle—two or more years at the same address—equals a safe investment.
• In addition, the lender wants to know that you have a history of making plenty of money to afford the loan. Ideally, your job should also be stable, meaning you have been employed for at least two years at the same company.

Be prepared! Know how to qualify for a loan in different financial markets. Do not allow a lender’s stringent guidelines prevent you from achieving your goals. Start now to build picture-perfect credit!
 

Most people do not understand the credit process or credit score factors, even though they have credit cards.
In response to my client’s question, “What exactly are all the credit score factors I should consider when learning how to build credit?” here’s my reply.
22 criteria determine a person’s credit score. However, these criteria are divided into five credit score categories. Each category is listed and explained below:
Payment History is the single highest credit score factor. It accounts for 35 percent of your credit score. Are your payments on time? Do you occasionally make late payments? If so, how delinquent are they? Have you missed any payments lately?
Based on the answers to the above questions, your credit score will reflect your payment history. If you always pay your bills on time, your credit score is probably good. It’s certainly better than someone who rarely pays their bills on time. However, if you have a lot of recent late payments, especially if those payments are older than 90 days, your score is probably low.
This credit score factor encompasses your credit cards, mortgages, car loans and other installment loans, student loans, and retail credit card accounts. Late payment details are also considered. Without a doubt, late payments within the past six months have the greatest impact on your credit score. Late payments more than 24 months old have less impact on your credit score.
Outstanding Balances are the second-most important of the credit score factors. It is only 5 percent lower than your payment history and comprises 30 percent of your score. The lower your outstanding balances, especially in relation to your credit limit, the higher your credit score will be.
Utilization rate is definitely important because it reveals how much debt you’re carrying in comparison to your credit limit. This number is expressed as a percentage of debt to your credit card limits. Credit cards with balances that never exceed more than 30 percent of the limit have higher credit scores.
This category of credit-scoring also looks at how much you owe on home loans, car loans, or other loans versus how much you originally borrowed. If you have a new loan, credit-scoring systems usually consider you riskier than someone who is five or ten years into a loan. Loans usually take about six months to “mature,” meaning they might harm your score at first, but after six months of on-time payments, your score will probably start to climb.
Age of Your Credit History is important because it lets lenders know if you’re a beginner or a seasoned credit card holder. It’s a lot like wine: the older your credit history, the better! This credit score factors accounts for 15 percent of your credit score. This component looks at individual accounts as well as the average age of all your accounts. Remember:  the older your accounts, the better.
Mix of Credit considers all the types of credit you have. This credit score factor accounts for 10 percent of your credit score. Credit bureaus look for variety. They reward you with a higher credit score if you have three to five credit cards, a mortgage, and an installment loan.
Paying cash is awesome! But not having enough variety in your credit report or not having enough credit can lower your credit score. Why? Because the credit-scoring models do not have enough information to determine whether you can responsibly manage debt and high limits.
Credit Inquiries also accounts for 10 percent of your credit score. Whenever you apply for credit, a hard inquiry shows up on your credit report. A hard inquiry is when a creditor runs a credit check to see if you are credit worthy. Hard inquiries slightly decrease your credit score.
Please note that you can check your credit report whenever you wish. This is a soft inquiry and does not decrease your credit score.
Note:  Hard inquiries remain on your credit report for two years, but they only minimally affect your credit score for one year. Soft inquiries never affect your credit score.

Bankruptcies, collections, and slow payments are still a problem for many today.  They feel bound by past financial mistakes. But there is hope and a way to escape  bad credit. Even with bankruptcies, there is a fast way to build credit.
That’s impossible, you may think. Not true. Students in the 720 Credit Score program can verify this happened for them.
Along with my usual recommendations—paying down credit card limits and becoming authorized users—I tell spouses to leverage each others credit scores.
What’s leveraging a spouse’s credit score? The quickest explanation:  you and your spouse must have separate credit cards. In an emergency, temporarily transfer your debt to your spouse. After the emergency, take your debt back.
Some examples are applying for a loan and wanting to secure lower interest rates or if you are a candidate for a job and the company runs a credit check before hiring new employees. (60 percent of companies run a credit check at least some of the time.)
If you have a balance that exceeds 30 percent of the limit on a credit card, you can transfer a portion or the entire balance to your spouse’s credit card.
Leveraging your spouse’s credit is the fastest way to build credit because it makes a huge difference. With the credit scoring systems calculating outstanding debt as 30 percent of your credit score, your score will quickly increase if you lower your outstanding debt. You can then walk into the loan application or job interview with low personal debt and a higher-than-usual credit score.
Though you might lower your spouse’s credit score, you can quickly “buy back” the debt using your credit cards once you secure the loan or job. Of course, you will need to repay the favor if your spouse ever needs tricks for how to build credit fast!
If you would like further information, please read the following blogs:
How Can I Get Credit Cards if my Credit Score if Terrible?
How do I Build My Credit Score Fast?

After a financial meltdown, many are reluctant to view their credit reports. They know negative reports from collection companies and creditors will affect their credit score. Therefore the question they most frequently ask is: What do I do about my credit score if I have a collection on my credit report?
This is a justified concern because creditors are unlikely to grant a loan if there’s a history of slow or no payments. A collection account is not as severe as a foreclosure or a bankruptcy, but your credit score will suffer.
The best way to handle delinquent debt is to pay it, right? Wrong!
Paying a delinquent bill could be a double whammy on your credit report. Why? Making a payment on a bill in collection may cause your credit score to suffer again because bills turned over for collection hurt your credit score the most for two years. After that, the decrease in your credit score is not as great.
If you make a payment after two years, you renew the seven-year period in which an item stays on your credit report and your score will be damaged again.
So what do you do about those pesky collections on your credit report? Paying your bills is your responsibility, even if it causes your credit score to suffer. However, you can and should negotiate with the creditor or collection agencies to minimize the damage.
Negotiate with creditors or collection agencies to pay less than the full amount of what you owe. This will not remove the collections from your credit report, but it will help your pocketbook!
The best solution is to negotiate for a smaller payment and a letter of deletion.
FYI:  A letter of deletion is not a letter of payment. A letter of deletion is what a creditor or collection agency sends to the credit bureaus. It allows the bureaus to remove collections from your credit report. This is obviously the best-case scenario. Your credit score will surge if you can get a letter of deletion that wipes the collection from your credit report!
Qualifying for a letter of deletion is not easy. If the collection item was sent in error to the credit bureaus, it’s much easier to receive a letter of deletion.
The Fair Debt Collection Practices Act limits the ways creditors and collection agencies can contact you. If you believe they have violated the Act, you might be able to get a letter of deletion, so long as you promise to pay the collections on your credit report.
The most common violation of the FDCPA occurs when a collector fails to advise debtors about their right to dispute part or all of the debt within 30 days of first contacting the debtor.
Click here if you would like an introduction to a FDCPA attorney who can help you.

Bankruptcy helps in many ways but it is not a cure for everything. If you want to wipe the slate clean and get a fresh start, know how bankruptcy affects all your debt, including your student loans.

As you list your assets in preparation for bankruptcy, you may think all your debt is included. If you have student loans, that is not the case. The law surrounding bankruptcy and student loans states that you cannot discharge your student debt obligations in a bankruptcy filing.

Bankruptcy and Student Loans Fact #1: You cannot discharge student loans in a normal bankruptcy.
Bankruptcy is an excellent way to discharge credit card, mortgage, and auto loan debt. However, some debt obligations will remain after bankruptcy.
Debts not affected by bankruptcy are alimony, child support, taxes, fines, and student loans. Student loans, whether federal or private, are exempt from the bankruptcy process. In the case of federal student loans, the government can seize your tax refund or garnish your wages to make sure it collects its money.
However, there are some exceptions to this law. If you die or are declared 100 percent disabled, your student loan debts will be discharged and your estate will not be responsible for your debts. In the case of disability, your credit score isn’t affected by the student loan discharge. Also, if you attended a school that closed before you were able to complete your academic courses, your student loans will be canceled.

Bankruptcy and Student Loans Fact #2: You can request a hardship hearing.
If you believe your student loan debt is overwhelming, request a hardship hearing. This allows you to present your case to a special judge during your bankruptcy to request that your student loans are discharged. A discharge of student loans after a hardship hearing is extremely rare, but if you think you have a good reason why paying your school loans presents a hardship, talk to a qualified bankruptcy attorney.
Everyone declaring bankruptcy is experiencing some type of hardship. If your situation isn’t extremely grave, getting your student loans discharged is a waste of time!

Bankruptcy and Student Loans Fact #3: Some federal programs will pay your student loans for you!
Federal programs like Peace Corps, AmeriCorps, or Vista can relieve some or all debt obligations if you work for them. These service programs might give you a flat amount of money or they could offer to shave a percentage off your loans. You won’t be making much money but you could be relieved of as much as 15 percent of your student loans.
If you are currently struggling to repay your student loans, make sure you explore your bankruptcy options before defaulting. This also includes debt consolidation loans. If you talk to your lender, you might be able to arrange a loan deferment or a forbearance, which grants you temporary relief by postponing your loan payments for a specified period of time. You can also work out a different payment plan with your lender to help you make payments every month.
Remember that removing a student loan is all but impossible, so you might as well start finding ways to repay your student loans as soon as possible.

If you are struggling with bankruptcy and student loans, it is still possible to build your credit score to 720. Go to www.720creditscore.com to find out how.

Did you know potential employers can request a copy of your credit report?
According to Inc. Magazine, about 60 percent of employers run credit checks on potential job applicants sometimes. This causes unnecessary stress for job seekers with poor credit scores.
The unemployment rate is still high. Job seekers should focus on finding a job, not credit scores. This eye-opener about credit scores and jobs could be concerning for people with low credit scores, particularly those searching for jobs that require money management. An employer—fearful that a poor credit score is a sign of irresponsibility—might not offer a job to a candidate with bad credit.
If you have a low credit score and are searching for a job, there’s still hope! Here are two rules which can offset your low credit score.
Rule #1: Take control. Highlight other areas of your life that demonstrate you are a responsible person. Give examples. Do you have financial responsibility in community or nonprofit organizations? Has a previous employer given you a glowing letter of recommendation for services which required a tremendous amount of trust, loyalty, and responsibility?
Rule #2: If you can demonstrate your trustworthiness, your credit score might be overlooked, particularly if you explain the events that caused your bad credit. Be candid about your credit report during the interview. Employers know the recession has negatively affected many people and may be sympathetic to your plight. Let your potential employer know you have learned much from the experience and are wiser because of your mistakes.
Be serious when repairing your credit. Take positive steps to increase your credit score. Your credit report will eventually reflect a shift in the positive direction. When walking into a job interview, be armed with the facts about your credit score. Tell how you have turned over a new leaf and what your credit report indicates about your current behavior. A potential employer might be sympathetic, especially if you have extenuating circumstances brought on by the recession.
Though credit checks for job applicants might create barriers in the already-tight job market, employers are also likely to value an honest account of your situation. When it comes to credit scores and jobs, be sure you are ready to be forthright about your past mistakes and able to offer evidence of your progress. In doing so, you allow employers to look past that three-digit number and offer you the job.