Monthly Archives: March 2021

No Courses Offered in Credit Education

Growing up and going to school we all saw courses offered in math, history, social studies, economics, etc. I do not recall seeing courses offered in how to understand and manage your credit. In today’s society, almost everything that you want to do, rent an apartment, buy a home, finance a car, get a good job requires someone reviewing your credit. Your credit and your credit score have never been more important or a more intricate part of your life than it is today.

The Importance of Having Good Credit

Having Good Credit can affect many aspects of your life.         Listed below are just some of those:

Qualifying for a Mortgage or Refinance

The Monthly Payment on your Mortgage

The Interest Rate that you Pay on Credit Cards

The Interest Rate that you Pay on Auto Loans

The Interest Rate that you Pay on Personal Loans

The Rate that you are charged for Insurance

Whether or Not you are approved to Rent

Being approved for Phone, Electricity or Cable

Whether or Not you get that Job that you want

To qualify for or maintain a Security Clearance

Guarantor of a Business that you want to start

If you have children that want to go to College and you want to help them by co-signing for student loans, renting an apartment for them while away at school, or help them with their living expenses, your credit as a guarantor or co-signer will be important in helping them.

Never before has your credit been as important as it is today.

Knowledge is Power

There is an old saying: “Knowledge is Power.” This is especially true when it comes to managing your credit. To have total control over your credit you must know exactly how the credit bureaus and creditors work and “think.”

The credit bureaus are, in reality, repositories of information provided to them by several different sources. Credit Bureaus collect information provided to them by the creditors that report to them on your accounts, by gathering information from public record sources such as the courts, from other local, state, and federal databases, and by information that you provide to them either directly or obtained from applications that you make to creditors. Many times, this information may be recorded or reported incorrectly, and this is why as consumers we are allowed to challenge or dispute these items as is allowed by provisions of the FCRA (Fair Credit Reporting Act.)

Credit Effects Your Insurance Rates

Your insurance rates can be effected by your credit score. Many insurance companies, such as your auto insurance company, may use credit scores to determine the risk involved in insuring you.  You may have never had an accident, filed a claim or even had any traffic tickets but your insurance rate can be higher if you have poor credit and a lower credit score. Insurance companies may also review your credit information when renewing your policy and raise your rates if your credit score is lower than the score that they obtained in your previous renewal or when you first initiated the policy. The reasoning is that consumers with poorer credit and lower scores statistically make more claims (as a risk group) and will result in the insurance companies paying out more in claims.

The Three Major Credit Bureaus

The Three Major Credit Bureaus (Credit Reporting Agencies) are Experian, Equifax, and Trans Union. I will refer to them as “Credit Bureaus” throughout this book. Their mailing addresses, phone numbers, and web addresses are listed below:

Experian

P.O. Box 4500

Allen, TX 75013

1-888-397-3742

www.experian.com

Equifax

P.O. Box 740256

Atlanta, GA 30374

1-800-685-1111

www.equifax.com

Trans Union

P.O. Box 2000

Chester, PA 19022

1-800-888-4213

www.transunion.com

The three credit bureaus listed above will provide you with a free copy of your credit report if you have been denied for credit by a creditor that accessed your credit information thru them within 60 days of that inquiry date. If not denied, you may also purchase a copy of your report from each of them. Contact them individually for the information needed and for fees.

Free Annual Credit Report

Consumers may also get one free credit report annually from each of the three major credit bureaus. To do this you simply fill out one form with all of the required identifying information and indicate which of the three bureaus that you want to receive a report from. You may request to receive a report from one, two, or all three of the credit bureaus by filling out only this one form. Free credit reports are available only once per year. Many consumers request all three at the same time while other consumers prefer to receive them one at a time spread out throughout the year. If you are obtaining these reports to file disputes thru the provisions of the FCRA it is probably a good idea to request all three at the same time. Keep in mind that not all three reports may be identical since not all creditors report to all three bureaus. You may request these reports at the website listed below:

www.annualcreditreport.com

Business Credit Bureaus

The purpose of this book is to discuss consumer credit. To be complete, you should know that there are also Credit Bureaus that gather information on Businesses. If you are a small business owner, such as a sole proprietor, many times these business reports will be based on not only any business credit (trade lines) that you may have established, but also on your personal credit as a guarantor for your business.

Dunn & Bradstreet is a good example of a business credit bureau. If you have been in business for a longer time or are a Corporation, your business credit reports will be based more on the business credit references that you have established. However, your own personal credit worthiness is always a factor.

Sub Prime Credit Bureaus

In addition to the three Major Credit Bureaus, there are also repositories known as “Sub Prime Credit Bureaus.” Clarity and Data X are two examples of these types of bureaus. They specialize in providing credit reports on consumers to lenders that deal primarily with consumers with poorer credit histories. A good example of the types of Lenders that use these bureaus would be Pay Day Loan Companies. These sub-prime bureaus access can information from the three major credit bureaus (usually does not show up as an inquiry on your reports) but also get information from companies that track checking account delinquencies and other types of sub-prime lenders. If you have ever defaulted on a Pay Day Loan you are probably on their “radar.”

 Chex Systems

Chex Systems is a company that tracks information on consumers that have opened checking accounts. If you have ever had problems with your checking account or had your account closed for derogatory reasons (NSF’s, overdrafts with a balance owing, etc.) you are probably on Chex

Systems. Whenever you open a new checking account, many financial institutions will access Chex Systems for information on you. Information stays on your Chex Systems report for five years from the date of posting.

Note: Not all Financial Institutions use Chex Systems. Many banks and credit unions may also run credit reports on you from any of the three major bureaus to qualify you for a checking account.

You may obtain a copy of your Chex Systems report by contacting them:

Chex Systems, Inc.

Attn: Consumer Relations

7805 Hudson Road, Suite 100

Woodbury, MN 55125

1-800-428-9623

www.chexsystems.com

Can You Really “Repair” Your Credit?

You see advertisements all the time for “Credit Repair.” Many promise you guaranteed and rapid results. The truth is that “Repairing” your credit is actually more a matter of using the federal law known as the FCRA which is the Fair Credit Reporting Act to dispute and remove items from your credit reports. The process can take as little as 30 days (not including mailing time), but may also take longer due to having to file multiple disputes, and results cannot be guaranteed.

Any person, book, or service that tells you that they “guarantee” that they can remove any or all negative items from your credit reports is not being honest with you. If you read their “fine print” their “guarantee” usually states that if they cannot remove an item that they will not “charge” you for disputing that item.

You can easily address any negative items that you may have by disputing them under the provisions of the Fair Credit Reporting Act (FCRA). Understanding how the Credit Bureaus function and how to effectively dispute any negative items on your reports is the key to getting these items removed. The purpose of this website is to clearly explain how the Credit Bureaus work and to educate you on how to effectively address and correct any items on your reports that are impairing your ability to obtain credit.

Burden of Proof

Many consumers that end up with derogatory remarks on their credit reports will contact the creditor that reported the negative information in an effort to “reason” with them (their side of the story). Creditors will say that what they reported is what happened (late payment, charge off, etc.) and do not take in to consideration what your side of the story is and why it was unavoidable that it happened, in essence, your attempt to “reason” with them.

The next step many consumers take is to contact the credit bureaus and try to “reason” with them. The credit bureaus will tell you that they are only reporting the information that was provided to them by your creditors.

It can be very frustrating for consumers – but here is something that you need to know:

The “Burden of Proof” under the provisions of the FCRA (Fair Credit Reporting Act) falls on the backs of the Credit Bureaus. Since the Credit Bureaus allow your Creditors to report information on you (with no substantiated proof) you, as a consumer, are allowed to challenge or dispute the information on your reports as provided by your Creditors.

Important Note: Do Not Argue with your Creditors or the Credit Bureaus. If you were to try to justify why your account was delinquent or had late payments with the Credit Bureaus you are in essence admitting to them that the information is accurate. The Credit Bureaus only care that it is being reported accurately, not what the circumstances were that led to the delinquency.

There is a better way to address this situation. You challenge or Dispute it with the Credit Bureaus under the provisions of the FCRA (Fair Credit Reporting Act.) The Dispute Process, including the “exact” way to dispute information based on what “type” of account or information it is, will be discussed in detail on this website.

Types of Creditor Entries

There are several types of Creditor entries that you will find on your credit reports. The following is a list of some of those entries:

Account Entries – Any creditor that you have an account with, such as credit cards, auto loans, personal loans, mortgages, student loans and any other type of creditor that you have opened an account with.

Charge Offs – Any creditor that you have been in default with and did not resolve. These are unpaid entries and dramatically affect your credit and your score.

Collection Accounts – These are accounts that have been turned over to Collection Agencies. These accounts are unpaid and will severally effect your credit and your score.

Public Record Entries – These are entries such as tax liens, bankruptcies and other types of items that were taken from federal, state and local databases. They also will negatively impact your credit and your score.

Charge Offs, Collection Accounts and Public Record entries are negative in nature and will affect your credit and score whether paid or not. Your goal should be to get these types of entries completely removed from your credit reports.

These types of entries can be addressed with the dispute process of the FCRA and will be discussed in detail in this book.

Multiple Collection Entries

If you stop paying a creditor, after usually 180 days, that creditor will “charge off” the remaining balance owed on the account and many times will “sell” it to a collection agency.

The collection agency will try to contact you to collect the debt.

They may also add additional fees to the balance and try to collect those fees in addition to the balance that was charged off. When they “acquire” this debt from the original creditor they may also make a “collection account” entry on your credit report. The “statute” on the collection entry is that it may remain on your credit reports for up to seven years from the date the entry was posted to your report. If that agency is unsuccessful in collecting the debt it may then “down sell” it to another agency who may do the same thing.

 

This can occur multiple times and with multiple entries being made on your reports. Keep in mind that paying off the amount that these collection agencies want does not mean that they must remove the entries from your reports.

These collection entries along with the original creditor account and charge off entries need to be addressed and deleted from your credit reports.

Seven and Ten Year Statues

According to the FCRA, the Fair Credit Reporting Act, negative information can remain being reported on your credit bureau files for up to Seven Years or up to Ten Years depending on the type of information that it is.

The Seven Year statute applies to the history of missed payments on credit obligations such as credit cards, auto loans, personal loans, mortgages and most other types of credit obligations. It also applies to the filing of a Chapter 13 Bankruptcy (seven years from the actual date that it is filed, in the case of a repayment plan it may be seven years from the completion of payments under the plan or the Discharge Date.).

The Ten Year statute applies to the filing of a Chapter 7 Bankruptcy (ten years from the actual date that it is filed or discharged).

Types of Credit Scores

This is the part of understanding your credit that can be very confusing to consumers.  There are several credit scores in use. The following are the most used scores:

FICO Score – This is the one that most consumers are familiar with hearing about. These scores are generated by credit bureaus using the FICO scoring system. All three major credit bureaus can generate a FICO score. However the three major credit bureaus also have their own scoring system. These scores can be completely different in numeric value from your FICO score.

Vantage Score – The three major credit bureaus, Experian, Equifax, and Trans Union jointly developed a scoring system called Vantage Score in 2006. Their most recent version is very similar to the FICO system but puts slightly different emphasis on certain risk factors.

Drive Score – Auto dealers many times use their own scoring system putting more weight on factors that are related to the auto industry, which may include payment history, previous default on other auto loans or repossessions.

Insurance Risk Score – Insurance companies may use their own scoring system putting more weight on factors related to the insurance industry, such as claims and loss history with other insurance companies.

There are several other types of scoring systems in use but the ones listed above are probably the most common ones used.

Your Credit Score May Vary between bureaus.

Not all creditors report to all three major credit bureaus and your score is generated based on the information reported to that bureau. It is common for your score to be somewhat different on all three major credit bureaus.

Types of Inquiries

There are basically two types of Inquiries:

Hard Inquiries – When you apply for credit, such as a credit card, auto loan, mortgage or other type of loan. These inquiries stay on your credit report for two years from the date posted.

Soft Inquiries – When an existing creditor reviews your credit file, when you receive and respond to pre-qualification offers of credit (many will state that there is “no impact” to your credit score), when you apply for a job or insurance (some of these companies may do a “hard inquiry”) and other types of credit offers that you may receive. Always read the “fine print” of the offer to determine which type of inquiry that they may run. These “soft” inquiries do not impact your credit score and are visible only on a credit report that you request on yourself, and not on credit reports that other creditors may see.

Understanding Your Fico Score

An important step to mastering your credit is to understand what your FICO score is and how it is calculated. FICO stands for Fair Isaac Corporation.  Bill Fair and Earl Isaac developed a credit scoring “model” in 1956 for evaluating several different credit risk factors and promoted the evaluation system to the major Credit Bureaus. The first general purpose “FICO” score debuted in 1989.  Before the implementation of that system, Creditors that you applied to, manually evaluated the information provided to them by Credit Bureaus, as was being reported to them by your “existing creditors.”  The new FICO system allowed a streamlined computerized system to “rate” you without manual review and free of considering factors such as gender, race, ethnicity or age. This was a much fairer way of determining your “credit worthiness.”

How Your FICO Score is Calculated

Payment History is 35% of your score

Credit Utilization is 30% of your score

Length of Credit History is 15% of your score

New Credit is 10% of your score

Credit Mix are 10% of your score

FICO Numeric Score Range

FICO Scores range from 300 to 850

Excellent Credit   720+

Good Credit   690 – 719

Fair Credit   630 – 689

Bad Credit   300 -629

Recent data from FICO indicates that:

22% of consumers have scores of less than 600

23.3 % of consumers have scores of 600 to 699

54.7 % of consumers have scores of 700 and up

The average score of US consumers is 695.

The Numeric Score Range values may vary somewhat between Credit Bureaus and the actual Scoring Model used.

Changing Input Information

           There is an old saying related to the use of computers: “Garbage In / Garbage Out.” As related to your credit bureau files, this means that the information that you provide (input) to your creditors and the credit bureaus will affect the information coming out from the credit bureaus. When a credit report is generated they will ask for several different pieces of information, your first name, middle initial or name, your last name, your social security number, your date of birth, and your addresses for at least the last two years. If you vary any of the information that you provide, the information being produced by the credit bureaus can also vary. Sometimes this can result in incomplete credit reports (some accounts may not show up) or other important creditor information or even negative account information may be missing.

Foreclosures

Foreclosures can result in more than one entry on your credit reports. The mortgage company may report your loan as defaulted and in foreclosure and it may also show up as an entry in the Public Record section of your report.

Foreclosures can stay on your reports for up to seven years. When disputing foreclosure entries you will need to dispute both the creditor (mortgage company) entry and the public record (court) entry. These types of entries have a very negative impact on your credit and score and you should attempt to get them deleted. These items can be addressed thru the dispute process of the FCRA.

Medical Collections

Medical Collection accounts are a real problem for a huge number of consumers. When you obtain medical services from a provider, (whether you have insurance or not), they will request that you sign a form acknowledging that you are aware that if your insurance company does not pay for any or all of the services provided that you will be responsible.

Many times insurance companies will dispute charges with the provider and this can cause lengthy delay of payment from your insurance company to the provider.  Most providers understand this delay in payment and will work with you and your insurance company. Sometimes if it appears to the provider that the service provided may not be covered or there will be an unusually long delay in resolving the issue, the provider will bill the consumer (you) for the amount due and demand payment. If the amount remains unpaid this can result in a Collection Account being reported to the credit bureaus. It is very important that you keep on top of what is going on in this situation. If you end up with a Medical Collection on your reports it can be challenged and disputed under the provisions of the FCRA (Fair Credit Reporting Act.) This process will be discussed in detail on this website.

Health Club Memberships

Health Club Memberships can become a real problem for consumers who have been convinced to sign up for long term membership agreements (contracts) and who later change their minds and no longer want these services. Many times the Health Clubs will refuse to let the consumers “out” of their contracts and will turn them over for Collection if they go unpaid. If this results in the account membership being turned over to a Collection Agency to collect unpaid dues then these Collection entries can severally impact the consumers Credit History and Score and will need to be disputed and deleted from their Credit Reports.

Student Loans

Student Loans are a major problem for millions of consumers. Many times these loans may be co-signed or guaranteed by the parent or parents of the student who has no established credit of his or her own. When the student graduates, the start of payments may become due within a few months. If the student does not have a job when the schedule of payments start and if the parent or parents have co-signed or guaranteed the loan, the lenders may seek payment from the parent(s). This can result in a negative mark on the student’s credit report and also on the parent(s) credit report if payments are not made on time.  Student loan numbers may contain the student’s social security number as part of the loan number making it more difficult to dispute and get removed from credit reports.

Tax Liens

Tax Liens are a major concern for a large number of consumers. If taxes go unpaid, including Federal, State, or Local taxes, these government agencies can place a tax lien entry on your credit reports. These can show up as “Public Record” entries on your reports. Sometimes the debts are turned over to Collection Agencies and they make the entry on your credit reports. Your social security number may be included as part of the account number making the entry more difficult to dispute and remove.

Cellular Phone Contracts

Cellular Phone Contracts have caused problems for a huge number of consumers. Cell Phone Companies may “entice” consumers into signing long term contracts in exchange for free or discounted phones and accessories. If the consumer later decides that they no longer want (or can afford) these services the Cell Phone companies may refuse to let them out of their contractual agreement. If the consumer defaults on the agreement the full price of the equipment and monthly rate could be turned over to a Collection Agency for payment. This can severally impact the consumers Credit History and Score and needs to be disputed and deleted.

Paid Delinquent Accounts Do You No Good

Many times consumers will pay off a “Charged Off” account or “Collection Account” and expect it to be removed from their credit reports. Paying off these type of accounts does not mean that the creditors or credit bureaus have to remove them. They can still be reported on your credit bureau files for up to seven years from the “date that the debt went delinquent.” After a period of time, usually 24 or more months, some creditors will not look at these entries as severally, but the fact that these types of entries are on your reports, paid or not, is a negative reflection on your credit worthiness and will negatively impact your credit score. These types of entries need to be addressed by the dispute process and removed entirely from your reports.

How Long Creditors Retain Information

Credit Bureaus may retain information on you for up to seven years (in the case of negative information it is from the date the debt first went delinquent), or ten years (for example the Filing Date of a Chapter 7 Bankruptcy), depending on the type of information, however, Creditors, such as your credit card companies, auto loans, personal loans and most other types of credit obligations may not retain that information in their files for nearly as long. Some creditors will delete payment information on you after 25 months (if you have ever seen a manual mortgage credit report on yourself you may have noticed a column labeled “MR” which stands for “months reviewed” and many times only reflects the previous 24 months of payment history) the reason being that they are the most concerned with how you have handled your obligations for the last 24 months, and that some types of creditors may purge payment information on you after 25 months.

Some creditors will keep information on you for longer and for varying amounts of time. Not all creditors retain information for the same amount of time. Many will purge information on you to save on the cost of maintenance, or if your account is paid off. Also, sometimes if one creditor is bought out by another not all of the payment history is transferred or retained by the new creditor.

An Important Note: As information kept on you by your creditors gets older (especially more than 25 months old) the less likely it is that it will be verified if disputed. Credit Bureaus may retain information on you for up to seven years (in the case of negative information it is from the date the

debt first went delinquent), or ten years (for example the Filing Date of a Chapter 7 Bankruptcy), depending on the type of information, however, Creditors, such as your credit card companies, auto loans, personal loans and most other types of credit obligations may not retain that information in their files for nearly as long.

State Statutes for Collection Vary

The length of time that amounts owed on debts can be considered legally collectible vary from state to state. Collection Agencies may continue to contact you to attempt to collect a debt but in reality that debt may no longer be legally collectible. Check with your state to find out what that amount of time is for your state.

These individual state rules have no impact on how long creditor or collection agency entries can stay on your credit reports. The statute of seven years still applies regardless of the state that you reside in.

Universal Data Forms

Universal Data forms are used by the creditors to convey information about your accounts to the credit bureaus.

These forms are manually filed out and are usually faxed from the creditor to the credit bureaus to expedite to correction / update / deletion of account information. Almost all information is conveyed electronically from creditors to the credit bureaus but this form can be used by the creditors if they deem it necessary.

Creditors could use this form to delete negative information or an entire account (payment history, charge off status, etc.) if they wanted to, but convincing them and getting them to do so is another matter.

Sometimes collection agencies may agree to delete a collection entry entirely if you pay them in full including their “added on” fees. If you are able to make this kind of an agreement make sure that you get it in writing BEFORE making payment and follow up by requesting a new copy of your credit reports after 30 days time to make sure that it was deleted.

Secured Credit Cards VS Unsecured

When re-establishing credit, many consumers will open secured credit cards. Sometimes, this may be the only option that you have available. Secured credit cards typically have very low credit limits (usually equal to the amount of the deposit that you send them to open your account) and very high interest rates and related fees. Keep in mind that these types of cards are identified by product “codes” and are usually easily recognizable by “mainstream” (unsecured) creditors and if your report is manually reviewed by a unsecured creditor that you apply to they may not convey as much importance in their credit approval decision. They will however “get the ball rolling” in the right direction of re-establishing and re-building your credit.

Opening Low Limit Credit Cards

During the “credit rebuilding” process many consumers will try to open several “Low Limit” credit cards / accounts. These cards / accounts are usually easier to be approved for and are appealing to consumers that have gone thru “bad credit times.” They can be from companies that offer online shopping only from their own websites (many of these have “monthly” membership fees of up to $25 or more) and offer merchandise that can often be found for much less on other sites that do not offer consumer credit. Many of these companies also may require that you have an open and active checking account to qualify for their credit account.

Other Low Limit accounts may be from financial institutions offering Major Credit Cards (MasterCard, Visa, etc.). These accounts usually come with an “upfront” fee to be paid before the account is opened and high interest rates and related fees.

While all of these are appealing to the “credit challenged” consumer remember that they usually come with a high price to pay for getting them. As a “rule of thumb” it is a good idea to limit the number of these types of accounts that you apply for. Too many new Low Limit accounts in a short time does not reflect well on your credit score or to other new creditors.

Build Your Credit as an Authorized User

Once you have removed the negative items from your credit reports you will want to start adding positive references to your report. If you already have positive accounts left on your reports (after deleting the negative ones) then you are “ahead of the game” and going in the right direction.

An excellent way of adding a positive reference to your reports is to be added as an authorized user on someone else’s existing account. This could be a relative, friend or co-worker, basically anyone who is willing to request tha