Category: CREDIT BLOG

Okay, let me just preface this post by saying that I know the question I’m going to ask is a little over-the-top …
But I’m going to ask it anyway.
First, though … I wanted to pass along pics from my family vacation to the Bahamas. Several people left comments on my blog asking, so here they are:

(Just the six of us: Philip, Lily and baby-to-be, Dominic, Lucas, and Ava)

(Daddy and Ava, my oldest canoeing)

(Lucas, the trooper)

(Dominic, my middle child perfecting his swing)

Poor little two-year-old Lucas split open his lip while we were on the trip. Fortunately, we called the front desk, who had paramedics and a doctor on staff, so within about 90 minutes, he was all stitched up and ready to continue the vacation.
And it really was a “Heaven on Earth” type vacation… as you can see from the pictures!
Speaking of “Heaven on Earth,” my family has started asking a new question. We want to create the ideal life for ourselves and our children. So about once a week at dinnertime, we ask a question:
“If we were to create Heaven on Earth, what sort of things would we be doing?”
And then we try to do those things—vacations to tropical locations, dinner parties with great friends, etc. An added bonus of this question is this …
Lily and I learn all sorts of amazing stuff about our kids by asking this question. We find out what they are interested in. If they have fears, we find out about those too because they tell us what Heaven on Earth doesn’t look like.
Of course, I’m a Catholic boy, so the “Heaven on Earth” concept might be a little over-the-top for your tastes.
But how about asking yourself and/or your family this question …
“If we were to be living the ideal life, what sort of things would we be doing?”
By asking this question, you might identify a lot of things that don’t feed into your vision of the ideal life. And this is great information to find out because then you can make a plan to change your situation.
But you have to identify your ideal situation first!
So what does that ideal life (or Heaven on Earth) look like? Feel free to share your answers below.
– Philip Tirone

“Would you like to save 10 percent on your purchase today by applying for a retail store credit card?”
Does that sound familiar? Just about every major clothing and electronics store has promotion aimed at getting people to sign up for a store-specific credit card. But what you don’t know about retail store credit cards could hurt your wallet and your credit score.
In 7 Steps to a 720 Credit Score, I talk about the importance of revolving credit cards in building your credit score. Indeed, a large portion of your credit score is determined by your credit card behavior. One of the best ways to earn a high credit score is to responsibly manage three to five revolving lines of credit, which include your major credit cards (Visa, MasterCard, and the like) as well as retail store credit cards, which are credit cards affiliated with a store like Gap or Chevron.
Before we talk specifically about how retail store credit cards can hurt your credit score, let’s take a look at the method credit-scoring bureaus use to gauge your creditworthiness. The credit-scoring bureaus want to see that you can responsibly handle a number of credit accounts at the same time. Having three to five credit cards allows them to tell whether you can make regular payments and determine whether you are a responsible person.  If you do not have at least three cards, they do not have enough information about you to tell whether you are reliable or not. On the other hand, if you have fifteen credit cards, they know that you could quickly get in over your head by racking up huge credit card bills you are unable to pay.
In the words of Goldilocks, three to five is “just right.”
Of course, you must also show a record of timely payments. Doing so will cause your score to increase whereas failing to make payments on time will cause your score to drop.
You must also keep a card active.  Inactive cards don’t tell the credit-scoring bureaus anything about your ability to manage debt.
Though retail store credit cards will help you boost your score, they cause unnecessary problems:

1. How will you keep your retail store credit cards active? If you do not need to buy a new washing machine each month, you might have a hard time keeping your Sears card active.
2. If you are limited to no more than five revolving credit cards, why waste one on a card that will only be accepted by one merchant?  You cannot book a plane ticket using your Old Navy credit card (but you can purchase an Old Navy shirt using a MasterCard).

Retail store credit cards have limited use. If you apply for too many of these cards on top of the Visa, American Express, MasterCard, and Discover cards that you use for traveling, meals, and other expenses, you will soon find yourself with more than five credit cards.
And there is another downside to consider. Many stores promote their store-specific credit cards by offering a 10 or 15 percent discount on same-day purchases if you open an account.
Let’s do the math and see how this adds up. Imagine that you are buying a pair of $60 jeans from the Gap when the cashier tells you that you will get 10 percent off your entire purchase—$6—if you open a Gap credit card. You figure it is a wise move, so you sign up on the spot.
Consider all the downsides:

• I should take advantage of this offer, you might think, piling a few more items in your shopping cart. Sure, you “saved” 10 percent, but you also just made a rash decision to splurge on things you probably do not need.
• You have added a credit inquiry to your credit report. Credit inquiries count for 10 percent of your credit score, so your score drops a few points. This might not be a big deal, unless you plan to open another credit card, apply for a home loan, or get a car loan in the next few months. If you do, you might pay higher interest rates, which means that $6 “savings” just cost you a bundle.
• If you do not pay this and subsequent bills immediately, you will have to pay interest
• Ever heard of retail therapy? Having credit cards in your wallet strengthens your ability to make emotional buying decisions by creating opportunities for you to charge things you do not need.
• Especially during the holidays, you will be more likely to make purchases you cannot afford.

My point is that you most certainly do not save a single dollar by opening retail store credit cards.
Still not convinced? Think of it this way: Why would retail stores promote these cards with discounts unless they know they can eventually make money off the retail store credit cards?
A final note: Upon reading this article, you might be inclined to close those retail store credit cards. Resist this temptation as closing credit card accounts could damage your credit score by lowering the average age of your credit cards.  Instead, pay off your retail credit cards so the credit-scoring bureaus know you are being a responsible borrower. Then make a commitment to say good-bye to retail accounts.

Perhaps the most difficult part of trying to build your credit score to 720 is tackling collection accounts.
But tax season offers a great opportunity for you to eliminate your collection accounts, once and for all.
First, though, a little background on collection accounts …
When you pay off your collection account, your credit score could be damaged.
You see, the payment renews the seven-year timeframe that the collection account will stay on your credit report, and it causes your score to drop.
Isn’t that crazy? If you do not pay the debt at all, the item will fall off your credit report sooner than if you make a payment!
Of course, paying off your debt is the moral thing to do. You could also be sued if you do not pay the debt.
So what’s the solution?
If you want to build a 720 credit score, your goal is to negotiate with the creditor/collection agency so that you can pay the collection account but not have it impact your credit score.
You can accomplish this through something called a letter of deletion.
As I mention in my program, this is not something that works every time, however, you have to ask!
And this is where tax season offers a great opportunity to remove the collections accounts from your credit report. Let me show you how…
Let’s say you are expecting a tax refund, and you have a $1,500 outstanding collection account.
You can call the collection company/creditor and say something like this:
“I have a tax refund coming my way, and I’m trying to figure out how to spend it. I’d like to use it to pay off some of my outstanding debt, but I want to be wise about it. My account with you is outstanding in the amount of $1,500. If I pay, would you consider the account settled in full, and would you give me a letter of deletion in exchange for sending 100 percent of my tax refund to you?”
Given the terrible economy, the creditor/collection account will be thrilled to get a payment, but the creditor or collection agency might not be so thrilled to give you a letter of deletion.
The key here is to keep asking… ask, and ask again.
Be polite—after all, paying the debt is your responsibility.
If one collection company says “no,” if you have another collection, call the other one up and offer the same to them.
Let the collection company know that you will send the money to a different creditor if it does not agree to your terms.
This is a golden strategy for paying off collections and helping to build a 720 credit score. When it works (and it will!), be sure to leave a comment on my blog!
Make it a great day.
Philip Tirone
P.S. Because collection accounts are complicated, I suggest that you review our credit lessons on dealing with collection offices before you do anything.

For those of you who missed the Q&A call yesterday, here was a common theme that I want everyone to understand:
Rebuilding Your Credit – The easiest way to rebuild your credit is by applying for new credit.  However, if you have more than five credit cards, this does not apply to you.
Please read this entire email…
Keep one thing in mind: I do not want you to apply for just any credit. Apply for credit that is going to help build your credit score.  As I teach in my program, according to a Federal Reserve Board Study, 46% of credit cards hurt your credit score.
Reminder #1: If you are married, do NOT apply for joint credit.
Reminder #2: You need three new credit cards after a major financial meltdown (Bankruptcy or Foreclosure), so apply for all three credit cards right away.
Reminder #3: Don’t put this off… this is the #1 reason people do not have the big jump on their credit report.
I’ve done all the research for you and there are different credit cards you should apply for, depending on where your credit score is:
For those with a credit score of 660+: Click Here

For those with a credit score below 659: Click Here

Please Note: For those of you with a credit score of 660+: if you don’t get approved for any of those credit cards listed, then go to the other site for credit scores below 659.
Remember, these are not going to be your credit cards forever. You will have them for just enough time to rebuild your credit, and then I’ll show you how to get the great credit cards!
Promise yourself right now to take the time and apply for new credit this week. Put it in your calendar… And when you accomplish it, give yourself a gift or a bonus.
In six months you will be THRILLED with the results.
Philip Tirone
P.S. This one step is the biggest mistake people make, don’t let it be yours.

One of the most frequently asked questions about credit is this:
Can I raise my credit score by paying off my debt?
The short answer is yes, but there’s a big caveat: You must keep your credit cards active.
Two of the factors that the credit-scoring bureaus consider when assigning credit scores are:

1. Your balance-to-limit ratio.
2. Whether your accounts are active.

Let me start with your balance-to-limit ratio. Credit-scoring bureaus award higher scores to people who have credit card balances that are no more than 30 percent of their overall limit. If your limit is $10,000, for instance, your balance should never exceed $3,000.
One of my first strategies for helping a person build a 720 credit score is to lower each credit card balance to no more than 30 percent of the credit card’s limit.
That 30 percent target is the minimum you should aim for. If you can pay your credit cards entirely, great! Your score will be higher.
Important: Many people think that if they pay their credit card balances in full each month, they don’t have to worry about having a high balance the rest of the month. This is a common misconception.
From a credit-scoring perspective, bureaus look at your credit-card balances as a snap shot in time, which means that if you have a credit card with a $2,500 limit and a $2,000 balance on the day your credit report is pulled, your score will be lower … even if you just sent in a check for $2,000 that simply has not cleared the bank.
That is why in my Webinar, I teach people to never charge more than 30 percent of their credit card balance. And the closer they can keep their balance to $0, the better!
This brings me to my second point.
You must keep your credit cards active. When I give my webinar, I explain to people learning how to build credit that they must use their credit cards. Otherwise, the credit-scoring bureaus have no way of telling whether you are a responsible borrower.
Consider it like this: Let’s say you own an airplane. Owning an airplane isn’t enough to be granted a pilot’s license. You must first demonstrate your ability to take off and land, you must have hours of flight practice under your belt, and you must hold the proper certification.
Likewise, owning credit cards is not enough to demonstrate that you know how to use them. And because credit-scoring bureaus consider the most recent activity to be the most important, you must use them regularly.
So how do you keep a low balance on your credit cards while still keeping them active?
Simple. Let’s say you have four major credit cards that you want to pay off but keep active. (Ideally, you should have between three and five major revolving credit cards.) Here is a plan that shows you how to raise your credit score by paying off your debt.
1. Identify four bills that have a set monthly payment. For instance, your gym membership, magazine subscription dues, car insurance, and health insurance bills are probably the same amount each month.
2. For each of your four credit cards, schedule an auto pay of one of these bills.
3. Then, create an auto payment from your checking account to each credit card company. This auto payment should occur two days after your credit cards are charged for the bills. Let’s say, for instance, that you create auto payments for your Visa, MasterCard, American Express, and Discover cards to pay your gym membership, magazine dues, car insurance, and health insurance bills (respectively), on the 5^th of the month. You would then create another level of auto payments so that your checking account pays your credit card balances two days later.
This way, you will never pay interest, keep your credit cards active, and keep your credit cards paid off.
So what about other debt, like loans? Here’s a tip on how to build credit by getting small loans:
Let’s pretend you are going to buy some new furniture. Assume that you have enough money to buy the furniture outright; however, you would like to build your credit.
If the bank will report the loan as an “Installment Loan” to all three credit bureaus, it’s a great idea to finance part of the purchase. Then, pay the bills for three months before paying the remaining balance in full.
Let’s assume you finance $5,000 and pay 10 percent as an interest rate. Your monthly payments are $41.66, and you pay these for three months before paying the balance in full. During these three months, you pay only a little bit in interest, but you have a new item on your credit report that appears as “Paid in Full” and “In Good Standing.”
If you have any other questions about credit, be sure to post them below.
Make it a great day,
Philip Tirone

Sometimes, people wonder whether I really read all the comments on my blog.
I do …
… even when I just got back from a nine-day vacation with my wife and kids.
You see, I just got back from the Bahamas. Technically, I’m “out of the office” until Monday, so my beautiful wife, Lily Tirone, is going to shoot me if I spend too much time writing this. But just to prove to you that I do read every single comment, I wanted to respond really quickly to one of them from last week’s email and blog…
One of my readers asked why I didn’t take a simpler vacation with all the kids instead of buying all those plane tickets and hauling my brood through security. True, we could have driven just 20 minutes and had a nice family vacation. I could have saved the money on airfare and taken my wife to the Bahamas another time.
But here’s the thing…
If I took the kids on a trip down the road, I would have ended up working a ton more than I worked. It wouldn’t have been enough of a change in scenery to cause me to make the psychological shift necessary to focus 100 percent on my family.
Because I was a very long way away from home, I felt separated from all the distractions. In fact, I didn’t checked in with my staff while I was in the Bahamas. Lily, the kids, and I enjoyed our time together, and I made sure that my time was protected so that I could spend it with the people who matter most.
I’ve found that in reaching a goal, it is critical to create an environment that allows a psychological shift to occur. This is true with the delicate balancing act of family and work. It’s also true when it comes to getting your finances in order.
If you are struggling with debt, credit, or other financial problems, ask yourself how you can change your physical environment so that you are more likely to create the psychological shift necessary to fulfill your financial goals.
Maybe that means logging your purchases and reviewing your budget monthly. Maybe it means dedicating 10 minutes a day to reading books about financial management. Maybe it means joining Debtors Anonymous.
And be sure to share your ideas below! I promise to read them all!

If you want to learn how to build credit and raise your credit score, you simply must pull it.
I’m talking about your credit report.
I tell my clients that they must review their credit report at least once every six months, and, depending on how low their credit score is, perhaps even quarterly.
In Step Five of my book, 7 Steps to a 720 Credit Score, I explain that almost 80 percent of people have errors on their credit report, and 25 percent of these are severe enough to cause a person to lose a loan or a job opportunity.
So what do you do if you spot an error?
First and foremost, if you think you are a victim of identity theft, call the three credit bureaus right away to put a freeze on your credit account. This way, no one else can open credit in your name.
If the mistake doesn’t seem to indicate that you are a victim of identity theft, you can start by filing an online dispute at each of the three credit bureaus. Following are links:

• TransUnion
• Equifax
• Experian

As well, contact the credit card company or the bank in question. If they are reporting incorrect information, you can get the ball rolling by asking them to investigate the mistake.
One of the most common (and dangerous) mistakes you will find is an inaccurate credit limit.
So why does an inaccurate credit limit hurt your credit score?
The credit-scoring agencies give higher credit scores to people with lower utilization rates (your credit card balance as a percentage of your limit.) If your limit is, for instance, $2,000, and your balance is $600, you have a utilization rate of 30 percent.
This is a good utilization rate, and it should help your credit score.
But if your credit card company is reporting your limit as $1,000 instead of $2,000, your utilization rate will appear to be 60 percent (a $600 balance on a $1,000 limit). This is a bad utilization rate, and it will cause your score to drop.
So if you want to build your credit score, start by filing a dispute with all three credit bureaus. At the same time, place a call or send a letter to your credit card company demanding that they report your correct limit.
Then, be sure to pull your credit report again to make sure that the mistake has been corrected.
Oh, and one more credit repair tip: Your credit score will never be damaged if you pull your own credit report. Though inquiries into your credit score by lenders will cause a dent in your score, pulling your own credit report is considered responsible behavior. So do it freely!
Have any questions? Need a credit repair tip that will help you build a 720 credit score? Be sure to leave a comment below.