How Is My Credit Score Calculated?

The FICO scoring model looks at more than 20 factors in 5 categories.

1. How are your bills paid? 35 percent

What is most important is your past history of paying your bills. Do you pay on time?  Do you pay late?  Do you pay them late consistently?  The biggest emphasis is on the recent history so 10 late payments 6 yrs ago will not have the impact that 1 late payment in the past year will have. Accounts that have been sent to collection is worse than late payments and declaring bankruptcy is the ultimate negative on your report/score.

2. The amount of credit you have vrs the amount charged. 30%

A whopping 30% of your score is determined by this which is good and bad.  Good because it is something you can work at the make an immediate increase in your score.  Bad because many people can’t just pay down their debt at will so they can’t do anything to improve their score on this front.

What they do is look at the available credit you have and then how much you have charged.  So if you have $20,000 and have $15,000 charged to those accounts, you’re using 75% of your available credit.  This is not good.  They want to see it under 30% to give you the best boost in your credit score.

They do look at other factors such as car loans, mortgages etc as well but it is the credit card ratio that can really kill your score.

People who are always near the max of their cards limits are perceived as a much higher credit risk. 

3. Age of credit history 15%

Unfortunately, there is nothing you can do to change this or alter this.  The age of your credit is what it is.  The older your accounts are, the better.  Keep this in mind before you close an old card that you don’t use.  It is better to keep it open and use it yearly and pay it right off to keep it active.
The third factor is the length of your credit history. The longer you’ve had credit — particularly if

4. Types of credit 10%

What they want to see her is both revolving credit and installment credit. Revolving credit is credit cards while installment is a set amount that you pay down and when paid down, the loan is closed-like a car loan or mortgage.

5. Applying for credit 10%

Every time you apply for credit, you will see an inquiry on your report. Generally, each inquiry will lower your score slightly. But more than that, if a potential creditor sees you have recently requested credit from several other places, they are much less likely to approve you.  The FICO model does allow for you to do some comparison shopping for something like a car.  If you go to several dealerships to see who can give you the best rate, as long as they are within a short amount of time (a few days), they will only ding your score for one inquiry. The final category is your interest in new credit — how many credit applications you’re filling out. The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score, Watts says, is when you have previous recent credit stumbles, such as late payments or bills sent to collections.

Now it is important to understand that credit reports are not perfect.  They do contain errors and it is up to you to check your credit report and check carefully for any errors.

If you believe you may be in the market for a new car or mortgage, you should check your report a few months before so you can fix any errors you may find.  There is nothing worse than finding what you want and then have your credit bite you.

TaTaa

Clean Credit? Improve Credit? Rebuild Credit? How?

Many people ask, “how can I get Clean Credit, Improve Credit or Rebuild Credit?”

Many people believe that they can’t get clean credit or even improve credit on their own.  They feel that going to a credit repair agency is their only option.  This is false.  I won’t ever say that it is ‘easy’ to do-it does require time, it requires you to be active and keep good records and follow through but if you take it one step at a time, it is not overwhelming and you will feel a huge sense of accomplishment when you see things falling off your report and your credit score going up.  To improve your credit score, on your own, is a very powerful feeling. You’ve been in a bad place and now is the time to start the rebuild credit process and start fresh!

For more detailed information see the previous post on pulling your credit report and credit disputes. And this previous post on how to improve credit.

There are far too many steps to list on one post so I’ll focus on credit disputes. Once you have your credit reports  (see link above for details on where to get them) in hand, it is time to begin.  You really should prepare yourself for the process.  Depending on how much credit repair you need to do, you need to have either one binder with dividers for the three CRA’s (credit reporting agencies) or a binder per CRA.  You will want to copy or print two copies of your credit report so you can make notes on the copy and keep one untouched.  Every single letter you send out should be placed in the binder as well as any notes you make about issues on your credit report.  Every bit of correspondence that is mailed back to you should be placed in the binder.  You will forget steps you have made so you need this information all contained.

The second thing you need is patience.  To clean and improve your credit it takes time and the 30 days the CRA has to give the lenders to respond to your dispute will seem like it is a year.  Just think of all the months that have passed with poor credit and now you are taking the steps to rebuild your credit. While it seems like you aren’t doing anything… things are happening in the background.

Now there are two theories on disputing. Some people believe you should dispute everything-even if you know it is your account/issue.  They believe that they are one side of the equation and the lender can verify the account is reporting accurately and then the tradeline stays on your report  or if they fail to respond within the 30 days, it is their issue-they had their chance and now it comes off your report.   The other theory is if you know it is your debt, then man up and take care of it.  I’ll leave you to which viewpoint you subscribe to.

When you send your letter for the credit dispute, you can make it very simple.

My name is xyz, my address is xyz, my date of birth is xyz.  Credit report # is xyz.  (It is optional to include a copy of your Drivers License but know that you may get a request back asking you to provide it)

I am disputing the following items listed on my credit report as they are not mine:

Item 1: list account information as shown on report.

Item 2:

Now when you get the letter back from the CRA with the list of items they updated or deleted, you can dispute again, for a different reason but it is possible you may get a letter back saying ‘already verified’.  The success of a 2^nd dispute varies but it is always worth a try-especially if you know the item is reporting incorrectly.

More steps to improve and clean your credit will be coming.  There are many steps you can take to rebuild your credit and credit disputes is just the beginning.  Shortly you will have the answer to “Can I Clean Credit, Improve Credit or Rebuild Credit?”  YES YOU CAN!

TaTa

My FICO 26% Off Credit Report and FICO Score

FICO has extended a special to get your credit report and FICO score at 26% off by using the code listed at the end of this email.

To take advantage of this special click here. When you get to the page,  click on tab shown in image below:

On the next page, click as shown below:

Now, you will follow through and select the report/reports you would like.  When you get to the check out page, enter the code 26Until2010.  The cost will only be $11.80 vrs the nromal $15.95 per report so jump on this now.  Perfect report to get at the beginning of your process of Credit Repair and Improving your credit so you can see what your real FICO score is before you start your disputes.

The Lengths We Go To To Rebuild and Improve Credit

By CANDICE CHOI (AP) – Dec 17, 2009

NEW YORK — It’s no mistake. This credit card’s interest rate is 79.9 percent.

The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It’s a strategy other subprime card issuers could start adopting to get around the new rules.

Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line.

In a recent mailing for a preapproved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.

“It’s the highest on the market. It’s the highest we’ve ever seen,” said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.

The terms are eyebrow raising, but First Premier targets people with bad credit who likely can’t get approved for cards elsewhere. It’s a group that tends to lean heavily on credit too, meaning they’ll likely incur steep financing charges.

So for a $300 balance, a cardholder would pay $20 a month in interest.

First Premier said the 79.9 APR offer is a test and that it’s too early to tell whether it will be continued, according to an e-mailed statement. To comply with the new law, the bank said it will no longer offer the card that has $256 in first-year fees as of Feb. 21, 2010. However, customers will still be able to use their existing cards.

According to First Premier’s Web site, the credit cards are issued by its sister organization Premier Bankcard. The company, based in Sioux Falls, S.D., says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers.

In a mailing sent to prospective customers in October with the revamped terms, First Premier writes “…you might have less-than-perfect credit and we’re OK with that.” The letter notes that an online application or phone call is still required, but guarantees a 60-second status confirmation.

The letter also states there are no hidden fees that aren’t disclosed in the attached form. That’s where the 79.9 percent interest rate and $75 annual fee are listed. There’s also $29 penalty if you pay late or go over your credit limit. The credit limit is $300.

The bank did not say how many people were offered the 79.9 APR card, but noted that it needed to “price our product based on the risk associated with this market.”

Even if First Premier doesn’t stick with the 79.9 APR, it will likely hike rates considerably from the current 9.9 percent to offset the lower fees, said Shahani of Synovate.

The revamped terms may not be the only changes; First Premier also appears to be moving away from the riskiest borrowers.

The bank typically mails offers to subprime households, meaning those with credit scores below 700. In the third quarter, however, 84 percent of its offers were sent to subprime households, down from 91 percent the same period last year, according to Synovate.

First Premier could be cleaning up its credit card portfolio since the new regulations will limit its ability to raise interest rates. That could mean First Premier won’t issue cards as liberally to those with bad credit.

As harsh as First Premier’s terms seem, that could be a blow to those who rely on the card, said Odysseas Papadimitriou, CEO of CardHub.com.

“Even when the cost of credit is astronomical, for people in true emergencies, it’s much better than not having access to credit,” said Papadimitriou.

Until Feb. 21, First Premier is still offering its even-higher-fee card online. So the price for credit the bank charges is at least $256 in first-year fees.

Copyright © 2009 The Associated Press. All rights reserved.

How To Improve Your Credit Score

How To Improve Your Credit Score?

It isn’t always easy getting those bills paid and now you know there is damage but wonder what steps you can take to improve your credit score. Even if your credit score is ok, you can only benefit from taking a few steps to raise your credit score. The higher your score, the lower interest you will pay on your loans. If buying a home is in your horizon, you especially want a score as high as you can get it. The very first thing you need to realize is you can improve credit. You should understand you are not alone. In the US, there are over 30 million people with credit problems severe enough that obtaining a loan or a credit card would be very difficult, if not, impossible. You can, however, take some steps to change your score.

What Is Your Credit Score?

The first step you need to take in fixing your credit score is to know what your scores are today. See pull credit report for details on how to pull your credit report and where to pull your credit report from. Now, your score will range from 350-850.  Remember that with some simple steps, you will start to see your credit score rise.

1) Pay down your credit card balances. Your goal here is to reduce your credit card balances so you have are using less than 30% of your available credit.

2) Lightly use your credit cards. It is important to use your cards but use them lightly. Also remember that credit card companies report balances are different times each month and it is rarely right at the due date. So if you rack up a big balance and plan on paying it off, you need to realize that the account may be reported while the balance is high, therefore reducing your credit score.

3) Verify your credit card limits. If your credit card lender is a limit that is lower than you actually have, this may have a negative effect on your score.  If it is incorrect, make a quick call to your lender and they should be able to update your credit limit with their next update to the CRA’s.

4) Get out that old card. The older your credit history is, the better it is for your credit score. So it is very important to not stop using your oldest cards. If you stop using the cards, the card issuer may stop reporting updated information to the credit bureaus. So use the card every few months and then pay it off when the statement arrives.

5) Get some goodwill love. Some people believe this is easily achieved and others have had no success but it is still worth a try. If it works for you-great. If not, you have only wasted a short amount of time. If you have a  good history with the lender, they might agree to delete a late payment from your credit report.  Your goodwill request should be made in writing.  Another solution for accounts that have a serious history of late payments etc is to ask that they be “re-aged.”  If you have an account that is open, your lender may agree to delete any prior delinquencies as long as you make several payments on time.  Be sure to get any agreements in writing.

6) Credit Disputes. When you get your credit report, you should go through it carefully and dispute items that you don’t agree with. I always suggest you mail your dispute certified return receipt. ALWAYS. You can simply dispute using the reason ‘Not Mine’. The older the negative item, the easier it is to get removed. Also a small amount is one that some lenders do not bother taking the time to investigate, therefore they do not respond to the credit bureau within the 30 day time limit and the item must then be removed from your credit report.  If you have credit with a lender that has joined another company, you may have more success as oftentimes the merge creates a mess of their records and they can’t verify the loan.  Credit Disputes can rapidly improve credit.

7) Blast significant errors. Credit scores are calculated off of the information from your credit report so it is important to really check carefully. You should realize that there are many items in your credit history that do not impact your credit score.

Things that do improve your credit score and are worth disputing or correcting:

• Charge-offs,  late payments, collections or items you find on your credit report that are not yours.
• A lower credit limit than you actually have.
• Accounts that show “paid charge off”, “settled,” “paid derogatory,”  or other labels other than “paid as agreed” or “current” if they were paid in full and on time.
• Accounts you listed in a  previous bankruptcy but are still showing as unpaid.
• Items older than 7 years and are showing negative status.

Things you really don’t need to worry about includes:

• Your name is not spelled right. (unless there is a concern for identity theft)
• An old address or an incorrect address.
• Incorrect employer information.
• Account that is closed but is listed as open. (don’t fix this, leave it showing as open as this is better for your score.)

Other actions to beware when you’re trying to improve credit scores:

• Don’t ask a lender to reduce your credit limit.  Lowering your credit limit,  will reduce the available credit that is so important. Remember you need to keep your balances under 30% of your total available credit. This value is worth 30% of your score so it is important to follow this.
• Don’t make a late payment. If you have a bad credit history with a lot of late payments, adding another one isn’t going to hurt your score much but since the goal here is to improve your credit score, you need to avoid any late payments at all. When your score gets in the 700 range, one late payment can lower your score by 100 points!
• Consolidating your accounts. You need to be careful when doing this. Remember you need to keep your total utilization of credit down under 30% so whether you have one card maxed out but all others are open or small balances on several cards, keep that number under 30%.
• Don’t apply for new credit, if you have plenty.  If you do not, you should get an installment loan if you do not have any. Remember to have a variety of loan types.

Improving your credit is easier the lower your score and the older your negative items. Once your score reaches the 700 range, you are in a good zone and probably won’t benefit much but you should always pull your credit reports at least once a year and review it for any errors. Paying attention to the above items can help you Improve Credit right away.

Pulling your credit report and credit disputes

Bad credit can stop you cold.  It will leave you unable to purchase a home, a car, have a credit card for emergencies.  It forces you to live solely on your income.  Now this isn’t always a bad thing but life doesn’t just roll smoothly.  We have times when something unexpected comes up and we don’t always have a thousand dollars sitting to replace the refrigerator that just went out or money to pay cash for an expensive car repair.  So what can you do to help rebuild your credit?  The good news is there are effective credit repair techniques that can help you repair bad credit.

The first thing you need to do is pull your credit reports.  You can pull one per year, from each of the three cra’s at annualcreditreport.com.  The only problem with their reports are you do not get your FICO score.  You do have the option of paying, on average, $7 per each report for your scores but you need to be aware that they are FACO scores.  A FICO score is what all lenders see and you can only get your credit report with FICO here.  I, strongly, suggest that you pull your report from FICO at the beginning of your repair.  This way you can judge your progress in an accurate way.

When you request your report, you will be given questions that you should be able to answer based on items in your report.  If you answer the questions correctly, you will be given immediate access to your credit report.   Once you receive your report, review it carefully and identify any inaccurate information.

Each report should have a file # and an address that you can dispute.  I strongly recommend making all disputes via snail mail and certified, return receipt.  You do have the option of disputing via phone or internet but again, this is strongly not advised.  Doing your disputes gives you proof of when something was mailed and received.  This is important because the CRA’s allow the data furnisher 30 days to reply to a dispute.  If they do not reply within the 30 days, the CRA must remove the tradeline from your report.

After 30 days has elapsed-or sooner if the data furnisher responds quickly-the CRA will send you an updated copy of your credit report.  This report will not have your score but it is a good record to keep of your progress.

You can dispute as many items as you find are inaccurate, there is no need for one dispute per mailing.

Many people are surprised how many mistakes can be found on a credit report and how easily it can be to get some items removed.

8 Things That Affect Your Credit Score

Does It Affect Your Credit Score?

Have you ever closed a credit card account because you weren’t using it, only to find out that it made your score drop 100 points?  There are many things that you may not realize affect your credit score.

There are certain things you should know about how certain actions hurt or help your credit score. You may be surprised at what you will learn.

Your Credit Limit is Reduced By The Lender:

1/3 rd of your credit score is based on credit utilization.  If your card issuer lowers your credit limit, this also lowers the amount of available credit which therefore raises utilization.  Ideally it is best to not go over 30% of your available credit.   If your amount is lowered, and your utilization goes over 30%, you will notice a drop in your credit score.

Closing Your Credit Card

Be very careful before you close a credit card.  When you close a card two things happen:

1-It will eventually fall off the report.  You get points on your score the older your report is so it is better to keep an old account open and sitting then to close it and lower the age of your report.

2-When you close a card, you risk lowering your utilization.  Again, if you go over 30% of your total available credit, your score will be adversely affected.

Lower Your Balances

Paying down your balances or paying off a credit card is a, very effective, way to see an almost immediate rise in your credit score.  The rise in your score is due to the fact that you have lowered your utilization of credit.  You should aim to have less than 30% of your total available credit used.

Multiple Inquiries

Multiple Inquiries are  not favorable and can be seen as a credit risk.  It is best to only apply for credit with lenders that you know you meet their requirements.  Try look at www.whogavemecredit.com to see what credit was given by what lender.

Adjustable or Sub Prime Mortgages

These kinds of loans do not reduce your score as those details are not released to the CRA’s.  It is advisable to refinance when your credit score qualifies you as you will usually pay less interest.

Debt Relief

Whenever you sign up with an agency that works to settle debts for you, this will lower your credit score. There are times, however, when this has to happen to get you back on track.  If you must use a debt relief agency, you should work hard to get back on top of things. The sooner you can pay things off, you can truly begin the track upwards.

Getting Some Goodwill Love:

A Goodwill Letter is when you send a letter to your creditor and ask them to remove a bad mark.  Whether this is a late payment or an entire tradeline.  Some people report good success with this and others say it has never worked.  It is always worth the effort.  If it is removed, your score goes up.. if not, it stays the same-no loss.

Paying Late

Remember that nothing is reported to the credit bureau unless it is over 30 days late.  So while paying late is seen internally by the company you have credit with, FICO doesn’t see any late payments unless they are 30 days + late.

As you can see there are actions you can take that ultimately affect your credit score. Some actions will cause a credit score raise but other have the opposite effect.  Remember to think through all of your actions.