Question: What exactly are all the credit score factors I should consider when learning how to build credit?
Philip Tirone’s Answer: There are actually 22 criteria that go into determining a person’s credit score. These criteria can be organized in five credit score categories:
1. Payment History—The first of the credit score factors, your payment history, accounts for the largest percentage of your score: 35 percent. Do you pay your bills on time? How many late payments have you had? How severe are your late payments? How recent are your late payments?
This credit score factor takes a look at the answers to these questions. If you always pay your bills on time, your credit score is probably better than someone who rarely pays on time. If you have a lot of recent late payments, especially if they are more than 90 days old, your score is probably low.
This component considers your credit cards, mortgages, car loans and other installment loans, student loans, and retail credit card accounts. It also looks at the details of your late payments. Late payments within the past six months have the greatest impact on your credit score; late payments that are more than 24 months old have less impact on your credit score.
2. Outstanding Balances—This is the second-most important of the credit score factors, comprising 30 percent of your score. In short, the less you owe in relation to your limit, the higher your credit score.
Among other things, this criterion considers your “utilization rate,” which is the debt you carry on a credit card as a percentage of your credit card limits. Credit cards with balances that never exceed more than 30 percent of the limit provide for better 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.
3. Age of Your Credit History—Credit-scoring is a lot like wine: the older the better! This is the third of the credit score factors, and it accounts for 15 percent of your score. The longer an account ahs been open, the better. This component looks at individual accounts, as well as the average age of your accounts.
4. Mix of Credit—The fourth of the credit score factors, this looks at the type of credit you have, accounting for 10 percent of your score. Credit bureaus respond best if you have a mix of credit. Ideally, you should have three to five credit cards, a mortgage, and an installment loan.
Contrary to popular believe, having too little credit can hurt your credit score because the credit-scoring models will not have enough information to determine whether you can responsible manage debt and high limits.
5. Credit Inquiries—This is the final of the credit score factors, and it counts for 10 percent of your score as well. Anytime you apply for credit, the creditor will run a credit check, which causes your score to drop slightly.
But keep in mind that inquiries into your own credit do not affect your score. Only inquiries by a lender or creditor will hurt your score, and the damage will be minimal. As well, inquiries stay on your report for only two years, and they affect your score for only one year.
Category: CREDIT BLOG
2:53 second recording, by 720 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.
A dirty business…
I’m talking about my business. It’s an ugly, tough, dirty one. Despite the fact that a lot of people desperately need my service, most people think credit is boring…
And those who aren’t bored by credit repair are often scared. They bury their heads in the sand because they just don’t want to deal with their credit problems.
So getting the word out there to the 10 million people who need credit repair?
Well, like I said, it’s a tough and ugly business.
But recently, I had an epiphany that I know will help you get out of a financial mess.
First, some background…
Because I spent so much time figuring out how to spread the word about my program, a lot of my friends and colleagues ask me to help them with their business models…
After all, if a credit guy can do it, a “prettier” business can do it!
So I was recently meeting with a colleague of mine to discuss his marketing strategy. My company has been writing the weekly emails he sends to his list …
And after sending just six emails, he earned an additional $60,000!
Wow! That’s $10,000 per email.
And all he had to do was ask his existing clients and colleagues for referrals.
All he had to do was ask.
Now, this guy is really sophisticated. In fact, he’s one of the smartest people I know.
But he wasn’t asking for referrals (at least not often and not strategically).
When he did, he earned $60,000 in six weeks. And all he had to do was push the “Send” button on his computer.
So what’s the lesson in this?
You have to ask for what you want. If you aren’t calling your creditors and asking them to lower your interest rates or waive the penalties, they aren’t going to.
You have to ask.
That might be all it takes. Call up your credit card company and ask for the hardship department. Then tell them your situation. See what they say.
The worst that will happen? They will say “no.” But I’m willing to bet that 99 percent of them will work with their customers to provide at least a little wiggle room. Maybe they will let you skip one
payment.
Or maybe they will settle your $15,000 credit card bill for 40 cents on the dollar, like they did for my friend.
You will never know unless you ask.
In my program, I teach people to call their credit card companies at least once every six months to negotiate lower interest rates or better terms.
Why not make today the day you call ‘em up and ask?
As always, let me know your success stories by posting a comment below!
– Philip Tirone
Give Your Testimonial for a Chance to Win $500
As you know, I love receiving testimonials from my happy and satisfied clients. So for fun, I have decided to host a challenge on who can give the best testimonial about their success with my 7 Steps system… AND I’ve made it SUPER EASY. Just follow these simple instructions:
You will need to record your testimonial by calling 1-800-609-9006 Ext. 9038.
Please use the following script as a guideline for your testimonial (fill in the blanks):
- Hello, my name is ___________________ (first and last name) from ________________ (city), _____________(state)
- What I love about Philip’s system is ______________________________ (make sure this flows from the heart)
- The specific results I achieved because of Philip’s system are_________________________________ (examples: higher credit score, low interest rate, money saved per month, etc. – the more detailed the better)
- Philip, I want to thank you for __________________________________ (fill in the blank)
Be sure to end your recording with your phone number, as we will be contacting the winner by phone.
Once you have submitted your recorded testimonial, email a digital picture of yourself to info@720CreditScore.com. Once your entry has been received, we will confirm receipt via email. If you do not receive a confirmation email from us, within 48 hours call us at 1-877-720-7267.
All entries must be eighteen (18) years of age or older and submitted no later than Saturday, May 15th 2010.
The winning prize for the best testimonial will be $500. The winner will be selected based on the following three criteria:
- Success with the system – Increase in credit score (before and after score), time it took to increase your score, your savings per month due to your increased credit score.
- Communication – Effectiveness in communicating your success story in a clear, expressive, and genuine way.
- Presentation – Creativity of your script
The winner will be contacted by a 7 Steps to 720 representative and we will post the winning testimonial on this site on Friday, June 4th 2010.
Thanks for your support!
Bankruptcy Isn’t As Dirty as It Sounds, by 720 Credit Score
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.
Collections on Credit Report
Among the most-asked questions about credit scores is this: What do I do about my credit score if I have a collections on credit report?
For sure, having a collection account on your credit report is a big deal. Creditors will be unlikely to grant you a loan if you do not pay your bills. Though a collection account is not as big of a deal as having foreclosure or bankruptcy facts on your credit report, your credit score will suffer.
And though it sounds crazy, making a payment on a bill in collection might cause your credit score to suffer again. Bills that have been turned over for collection hurt your score only a bit after two years, but as soon as you make a payment, your score will be damaged again. As well, making a payment renews the seven-year period in which an item stays on your credit report.
So what do you do about those pesky collections on 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.
Especially in today’s economy, you might be able to negotiate to pay less than the full amount of the bill. Though this doesn’t remove the collections from your credit report, paying a lesser amount can surely help your pocketbook!
Better yet, consider negotiating for both a smaller payment and a letter of deletion.
Not to be confused with a letter of payment, a letter of deletion is basically a letter they send to the credit bureaus saying that the bureaus should remove the collections on 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 tricky, though. This technique will work best if the collection item was not correctly sent into collections.
The Fair Debt Collection Practices Act limits the ways creditors and collection agencies can contact you. If you believe that 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 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.
Is your car a filthy mess?
How about your home? Your office? Your yard?
I’m a little embarrassed to say “yes, yes, yes, and yes.”
Or, at least, that was the old me. I’m a hyper, busy guy, so everything was a mess.
When was I supposed to find time to organize my stuff when I was constantly rushing to do the next big thing?
But then I started noticing something…
By training my mind to give every physical thing a purpose, I started making better decisions about my time and my finances.
The floor of my car is not a trashcan. That’s not its purpose. Its purpose is to stabilize the car, keep me from falling through, hold the seats in place, etc. It was not created with the goal of holding my garbage.
So I don’t put garbage on the floor of my car. If I must store garbage in my car, I place it in a bag whose purpose is to hold garbage.
Now, you might be thinking that organization and cleanliness are irrelevant to credit or financial problems…
But I disagree.
If your physical space is sloppy, your life will most likely be sloppy…
Training your mind to give everything its purpose and its place allows you to make better financial and spending decisions.
If your mind is not trained to examine everything, decide its purpose, and then put it in the right place, you will make purchases that do not honor your long-term goals.
You will make buying decisions that do not have a purpose.
Your budgeting will be sloppy…
Giving things a purpose, and then placing them where they belong, gives you control over your life. It allows you to immediately eliminate dead weight and garbage.
It also gives you the opportunity to accept things that will improve your life.
Imagine the impact of training your brain to put things in its place.
You can immediately eliminate expenses that are silly. You can immediately accept ideas that will help you become more frugal.
You can immediately stop yourself from making purchases that don’t have a purpose…
What do you think? Am I crazy? Spot on? Let me know your thoughts below!
– Philip Tirone
Closing Credit Card Accounts
As part of your plan for learning how to build credit, you might wonder if you should start closing credit card accounts. After all, if you have more than five credit cards, you have more than the ideal number.
True, credit scoring systems are happiest if you have no more than five credit cards. But before you make that call to the credit card company, be aware that closing credit card accounts can have a major impact on your credit score. Keep in mind a few basics about owning credit cards.
Fifteen percent of your credit score is derived from the age of your credit accounts, with older credit accounts giving you a better score. This part of your credit score is based on the average age of your accounts. As a result, every time you terminate older accounts, you drive down the average age of your accounts considerably and risk decreasing your credit score.
You should also consider how closing credit card accounts will affect the portion of your credit score that considers your credit card limits and balances. Your “utilization rate” is the ratio of your credit card balance against your credit limit, expressed as a percentage. If you have $800 of debts on a credit card and your available line of credit is $2,000, your utilization rate is 40 percent. Since credit-scoring bureaus reward people who have utilization rates below 30 percent, you should try to always keep your utilization rate under that threshold.
Closing credit card accounts can impact your utilization rate in a couple of ways. First, if you decide to cancel a credit card and transfer the remaining debt to another card, you may cause the utilization rate on the second card to rise sharply, which will cause your credit score to drop. Even worse than transferring a balance is leaving a balance on your card after canceling the account. If you leave a $700 balance on the canceled card, your utilization rate will suffer dramatically since the limit on the card will be $0.
So what is the plan for dealing with a bunch of credit cards? Even FICO agrees that closing credit card accounts is a bad idea. Your best bet is to keep all of them active but pay them off every month. You can even find ways to live debt-free and keep your credit cards active. A steady history of payments will demonstrate to credit-scoring bureaus your ability to manage your accounts and will eventually improve your credit score. Pay special attention to the cards with the highest limits, oldest ages, and best interest rates. Be sure to keep these cards active, maintaining a utilization rate below 30 percent.
A final note: Retail credit cards (those associated with a specific store, such as Bloomingdales) are an exception to the “keep-them-open” rule. Keeping a balance on these cards may be difficult since you probably do not need to buy something from these stores each month. Letting a retail account go inactive may not be the ideal choice, but it should not be a cause for alarm unless it causes your credit score to drop, in which case you might be able to reactivate the card with a simple phone call.
For People Who Want to Raise Their Credit Score… and PRONTO, by 720 Credit Score
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.
Bankruptcy Options, James Montgomery
Listen to this interview to learn some great information on what to do when you are considering bankruptcy.
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