Category: CREDIT BLOG

Part II: What does a credit score mean?

Posted on August 18, 2010 by - CREDIT BLOG, CREDIT SCORING

In “Part I: What does a credit score mean?” we took a look at the meaning of credit scores in being approved for a loan and in obtaining the best interest rates.
“Part II: What does a credit score mean?” looks at:

  • What a credit score means in your job hunt.
  • What a credit score means for your insurance premiums.
  • What a credit score means in your search for a rental unit.

What does a credit score mean when searching for a job?
More than half of employers run credit checks on potential job candidates at least some of the time. This means that you must learn how to improve your credit score if you are one of the millions of unemployed Americans, particularly if you are applying for jobs that require you to handle money.
A potential employer considers a person’s credit score an indication of how reliable they are. And if the job requires you to handle money, a low credit score could also mean that you are financially strapped and might be tempted to skim a little money from the register. Whether you are a financial advisor or local hardware store cashier, a low credit score means that you might be less employable.
If you have a mediocre or bad credit, be sure to read my post about credit scores and jobs so that you can learn strategies for combating this problem.
What does a credit score mean for your automobile insurance premiums?
In some states, a low credit score will increase your auto insurance premiums! Auto insurers have found a correlation between a person’s credit score and the number of accidents in which they are involved, so the lower your score, the higher your premium.
What does a credit score mean for your rental application?
Landlords almost always run a person’s credit score before approving a rental application. The last thing a landlord wants to do is evict a tenant, a time-consuming and costly process. If your score is too low, you might have a problem finding a lease to sign. Be sure to read my article about renting and credit checks.
What does a credit score mean? A high credit score means that you are more employable, pay lower insurance premiums, and have more housing opportunities. A low credit score means you should learn how to improve your credit score!

Part I: What does a credit score mean?

Posted on August 10, 2010 by - CREDIT BLOG, CREDIT SCORING

I spend a lot of time talking about the importance of building a good credit score, but a lot of people want to know: What does a credit score mean?
In this blog post, I’m going to answer that question, taking a look at two factors:

  1. What does a credit score mean to a lender?
  2. What does a credit score mean in terms of monthly payments?

What does a credit score mean to a lender?
A credit score is designed to give creditors an answer to one question: “What is the likelihood that this borrower will be more than three months late on a payment within the next two years?”
A credit score generally ranges from 300 to 850. A borrower with an 850 credit score (a rarity) is considered the least likely to default on payments while a borrower with a 300 credit score is considered the most likely to default.
A credit score above 720 is considered wonderful. These borrowers will qualify for the best loans and interest rates. Anything below 660 is considered weak credit, and anything below 620 is considered bad credit. A borrower with a score below 620 is considered “subprime,” which tells the lender that the borrower is highly likely to default.
A person’s credit score is the single most important factor in determining whether lenders will approve your credit card application, mortgage loan, and car loan. Generally speaking, lenders look at four things when determining your creditworthiness:

  1. Your credit score.
  2. Your salary.
  3. Your savings.
  4. Your down payment (for a home or car loan).

A person with a high credit score and a modest salary would be much more likely to receive a loan than a person with a modest credit score and a high salary.
What does a credit score mean in terms of monthly payments?
We always say that on a $300,000 30-year, fixed-rate home loan, the difference between a 720 credit score and a 620 credit score is $589 a month, or $212,040 over the life of the 30-year loan. Though this statistic is certainly an accurate representation of the difference a great credit score makes, the truth is that interest rates change daily. During the peak of the credit crisis, a person with a 719 credit score (normally considered a great score!) didn’t even qualify for credit.
The interest rates on a loan are updated daily in tandem with the Federal Reserve’s adjustments. As well, different types of loans call for different interest rates.
According to MyFICO.com’s August 2 listing of interest rates, a person with the best credit score would pay $753 a month on a three-year $25,000 car loan; a person with a 620 credit score would pay $919, a difference of $166 a month or almost $6,000 over the life of the loan.
As you can see, if you want to qualify for a loan and receive the lowest payments, you should learn how to improve your credit score.
And next week, we will take a look at several other reasons to build credit in Part II: What does a credit score mean?

Should I Add a Consumer Statement to My Credit Report?

Posted on August 2, 2010 by - CREDIT BLOG, CREDIT SCORING

The Fair Credit Reporting Act allows a person to add a 100-word consumer statement to their credit report. Often, people use the consumer statement as a chance to explain a derogatory mark or a bad credit score.
The consumer statement does not change a person’s credit score; it simply gives the consumer a voice. The statement, which can be 100 words or shorter, can be used to dispute a mistake:
The Visa credit card account ending in 1234 does not belong to me, and I am currently in the process of disputing this with the credit card company and credit bureaus.
The statement can be used after bankruptcy to explain that a person’s bad credit was caused by a medical condition:
You will a bankruptcy on my report from January 2007. I was the victim of a hit-and-run car accident and was unable to work for eighteen months. As a result, I fell behind on my payments and declared bankruptcy.

Some say the consumer statement will hurt a person. After all, it draws the lender’s attention to derogatory information. Others say the consumer statement is pointless as it most often unread.
Still, consumer statements do have their uses. If you are trying to rent a home, the landlord might read the explanation. If you know a potential employer is running your credit score, you can be upfront—let them know about any mishaps, and direct them to the consumer statement.
How to write a consumer statement:
A consumer statement should always be short and to the point. Never place blame on someone else (unless you are a victim of identity theft). If you decide to write a consumer statement:

  • Do not complain or present yourself as a victim (unless you truly are a victim of identity theft)
  • Take responsibility
  • Do not blame anyone or anything
  • Do not justify what happened
  • Keep in 100 words or less

Let’s take a look at two examples:
An effective consumer statement:
I experienced bankruptcy because I naively expected the value of my home to go up. Instead, the payments grew and became unmanageable, so I began charging them to credit cards. Have since gone back to the basics and am working on building my credit and my savings. Also taking classes in financial management.

An ineffective consumer statement:
The bankruptcy is NOT my fault.  I was sold a home that I couldn’t afford, and while the agent earned his commission, I lost my home, racked up huge credit card debt, and was stuck with poor credit! As far as I’m concerned, the mortgage broker should go to jail!
Do you see the difference? The first consumer statement makes the borrower seem responsible and mature. The second might sound entitled, immature, and irresponsible!

Authorized Users—The Secret to Building Your Score Fast!

Posted on July 30, 2010 by - CREDIT BLOG, Credit Cards, CREDIT SCORING

One of the first pieces of advice I give to people who have suffered severe financial crises and want to learn how to build credit is to become authorized users on credit cards. Authorized users are allowed to use credit cards but have no contractual obligation to pay the bills.
For this reason, a person does not need to have a high credit score to qualify for authorized user status on a credit card. However, the credit card’s history will often be reported on the authorized user’s credit report, so long as the authorized user is related to the account holder.
Becoming an authorized user on a family member’s credit card will quickly raise your credit score (even after bankruptcy or other financial disaster) by allowing you to “borrow” the account holder’s clean credit history.
However, the account holder—fearful that you will rack up huge charges you cannot or will not repay—might be reluctant to add your name to his or her account. Let the account holder know that she or he can be protected.

  1. First, the account holder should shred the credit card that arrives for you.
  2. Second, the account holder should never give you the account number, credit card expiration date, or card security code.

In this way, your credit score will increase while still protecting the account holder from any irresponsible behavior on your part.
Authorized users should also protect themselves by choosing the account wisely. Only authorized users who are related to the account holders will see their bad credit scores benefit from this strategy. Therefore, be sure you choose an account holder who is also a relative. Try to choose someone with the same last name and address. Otherwise, the credit-scoring bureaus might not recognize your status as an authorized user, and your credit score might not improve.
To make sure that the credit card company is reporting your status as an authorized user, call them and ask. You can also check your credit report to see if the account is appearing. If not, choose another account holder.
Be sure that you also choose a responsible relative with an account in good standing. If you become an authorized user on an account that becomes delinquent, guess what happens? Your score will drop. As such, be sure to pick an account with a clean history of payments. Be sure, too, that the balance on the card stays low—preferably about 30 percent of the limit. If the balance exceeds 30 percent, or if the account holder makes a late payment, you should immediately remove your name as an authorized user so the negative information does not hurt your credit score.
Authorized users usually see a quick jump in their score. After twelve or eighteen months, you might be able to remove yourself from the account and qualify for loans on your own.

Foreclosure, Bankrucptcy, and Short Sale on Credit Report

Posted on July 23, 2010 by - CREDIT BLOG

Foreclosure, Bankruptcy, and Short Sale on Credit Report
Credit Bad, How to Build Credit, Credit Score
Question submitted by Mike Lavios, Lake Oswego, OR
Question: How long will the following stay on a clients credit report? – Foreclosure, Personal bankruptcy, Business bankruptcy, Short Sale
Mike – here is your answer:
– Foreclosure – 7 years
– Chapter 7 BK – 10 years
– Chapter 13 BK – 7 years
But remember, you do not need a clean credit report to have a high credit score. The key is to reestablish your credit from the beginning, if you do that, your credit score will jump quickly. As I say often, if you reestablish your credit the right way, you will have a 720 Credit Score 7-8 years before the bankruptcy falls off your credit report.
Foreclosure, Bankruptcy, and Short Sale on Credit Report
Credit Bad, How to Build Credit, Credit Score

Everything You Need to Know About Credit Scores and Jobs

Posted on July 23, 2010 by - CREDIT BLOG

A statistic reported by Inc. Magazine could be troublesome for job seekers with poor credit scores. According to a survey cited by the magazine, about 60 percent of employers run credit checks on potential job applicants at least some of the time.
Given the high unemployment rate, 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, fear not. Two rules can offset your low credit score.
Credit Scores and Jobs Rule #1: Be sure to highlight other areas of your life that demonstrate responsibility. Have you been entrusted with the position of treasurer for a nonprofit organization? Do you have a glowing letter of recommendation from a previous employer who charged you with tasks that required a tremendous amount of trust, loyalty, and responsibility?
Credit Scores and Jobs Rule #2: If you are able to show that you are trustworthy, your credit score might be overlooked, particularly if you explain the events that caused your bad credit. Your best bet is to be candid with a possible employer who is going to run your credit report. Since the recession has had unfortunate consequences for many people, the employer might be sympathetic to your plight. Pitch your situation as a learning experience so that you can show the employer that you are wiser as a result of your mistakes.
By taking serious steps to repair your credit, your credit report might indicate that you have had a shift in the positive direction. If you walk into a job interview armed with a the facts about your credit score, 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.

Credit Bad after Identity Theft – Fastest Way to Fix

Posted on July 14, 2010 by - CREDIT BLOG, CREDIT SCORING

Credit Bad, How to Build Credit, Credit Score – Question #4
Question Submitted by:  Kevin, Tempe, Arizona
I’ve heard you shouldn’t challenge every negative item on your credit report, but my credit is bad due to identity theft.  If I disputed them individually it would take me years to clean it up, any thoughts?
Answer
Good point Kevin.  Yes, if you dispute all your bad credit or items on your credit report at once, the bureaus can deem the request “frivolous” and ignore it.  That is why in 7 Steps to a 720 Credit Score, I recommend you only dispute three items at a time.
Now, if your bad credit is because you were a victim of identity theft, its’ a different story.  In that case, simple submit your police report with the dispute and the credit bureaus will not deem your request “frivolous.”
Make sure you follow my video lessons on how to build credit, as just because you get the bad credit off your credit report, it does not mean that your credit score will be above 720.

Credit Bad, Loan Modification, Behind on Payments, What to Do?

Posted on July 6, 2010 by - CREDIT BLOG, Loan Modification

Credit Bad, No Credit Score, How to Build Credit – Question #2
Question Submitted by:  Jan, Slidell, Louisiana
I refinanced our home into a poor loan with Countrywide.  Our loan is now with Bank of America and we are two payments behind.  Our credit is bad, any solutions?
Answer:
Jan – Thank you for your reaching out, and I know how difficult it can be when your credit is bad and you feel you have no options.  It’s impossible to give you all your options with this information; however, here are a couple thoughts:
1) Your bank will not tell you this, but as long as you are paying any part of your payment, your bank will not negotiate with you on your loan modification. Myself and too many of my clients have gone through this – when you pay your bills, you don’t qualify for these programs.  The irony of that statement amazes me every time I say it.
When dealing with the banks on the loan modification, be very nice (I guess most people with credit that’s bad are not that kind) and keep asking them for a solution.  The banks are so overwhelmed that they cannot keep up with the requests they have and you won’t get their attention if you are paying.
2) There is no way around it; at the end of this process you will say, “My credit is bad.”
3) Your bank is going to tell you that you will be “unlendable” for 7 years because of credit bad. That is false.  If you understand how to build credit, you can have a 720 credit score 5-6 years before those late payments fall off your credit report.
The key is to reestablishing your credit score is to start now.  Also, don’t beat yourself up about this process, we have all had learning experiences over the past two years, and this too shall pass.
Credit Bad, No Credit Score, How to Build Credit – Question #2

First Time Entrepreneur with No Credit wants Business Credit – Possible?

Posted on July 6, 2010 by - CREDIT BLOG, CREDIT SCORING

Credit Bad, No Credit Score, How to Build Credit – Question #1
Question Submitted by:  Benjamin, Aliso Viejo, CA
How can a first time entrepreneur, with virtually no credit score, who is starting his own business, apply for business credit – the correct way, and not have to use personal collateral to obtain the credit?
Answer by Philip Tirone:
In short, especially in today’s market, you will need to learn how to build credit personally, before anyone gives you business credit without personal collateral.  In short, they will consider your credit bad, and not lend to you.
This was possible before the mortgage meltdown, but now, it’s not possible and anyone that tells you it is, is just dreaming.
I’m a big believer in entrepreneurs!  The key is that you start establishing your credit immediately, and the good news, since you have no credit, you will have a 720+ credit score in a very short time as long as you take the right steps.   At that point, the lenders won’t consider your credit bad.
I recommend you attend our free 60-minute teleseminar, it’s jam packed with information, and at the end of the call you will be invited to enroll into our full program (that is why it’s free).  Even if you don’t enroll in our program, you will find this very valuable.
If you can’t attend, here is a link to our full program, however, since you are a start up – I will give you our $997 program for whatever you can afford.  I’m really committed to riding America of bad credit or no credit.  The only way I can do that is with people like you, if you help me spread the word.
If you want to enroll, email me at Philip (at) 720CreditScore (dot) com and I will get you enrolled immediately.