Entries Tagged 'scottsdale credit repair' ↓
July 8th, 2009 — Credit Repair, scottsdale credit repair
This debate is racing across our nation. It is one of the questions I am asked the most, “Should I let my house go into foreclosure or should I do a short sale?” Everyone seems to understand a foreclosure will not only demolish their credit score , but it will also ruin their chance of getting a decent interest rate on any new financing they want to get in the next few years. A foreclosure is considered a major incident by the credit bureaus. Any major incident can have a devastating impact on your credit score. Other examples of major derogatory credit incidents are bankruptcies, charge offs, judgments and short sales, which are normally accompanied by the term “account settled.” Anytime your credit report has the term, “Settled or Settled for Less than Full Amount,” it is considered a major derogatory incident and can have a major negative impact to your scores. How much it will reduce your score is determined by many reasons some of which we can discuss and some that are kept a secret by Fair Isaac, the inventors of the FICO credit scoring system. We do know the higher your credit score, the more damaging a major derogatory incident will be. In other words, a major incident affects the people that have the furthest to fall.
Foreclosure
Most people know what this is. A foreclosure is when the bank takes back a home because the homeowner doesn’t make the payments on their home loan or mortgage. In most cases a home doesn’t go into foreclosure until a homeowner is several months behind on the mortgage. A foreclosure can have a double negative impact on a consumer’s credit score. In addition to a foreclosure listing being a major derogatory incident, there are also normally a significant number of late payments reported by the lender to the credit bureaus. These late payments vary in severity from “30–days” late to the much more damaging “90-days” late incident. In many cases there are additional late payments more severe than 90 days being reported, such as the 120 and 150-day late payments. The number of the late payments and the severity of those payments will all contribute to the damage done to your credit scores.
Short Sale
Short sales are more of a mystery to consumers because there is some confusion regarding the impact they have on their credit scores. Fair Isaac has confirmed that they consider a short sale to be a major derogatory item because of it being listed as a “settled account.” Major derogatory incidents can have a severe negative impact on your credit scores. Most of the cases I’ve been involved with, the main difference between a foreclosure and a short sale is communication. During the foreclosure process the homeowner tends to be more invisible during the process. During a short -sale transaction there is constant communication between the bank and the homeowner. During that time the homeowner or the homeowner’s representative has the opportunity to negotiate with the lender. In addition to negotiating a reduced loan pay-off they could also be negotiating what the lender will report to the three credit bureaus when the transaction is closed. If the lender reports, “Settled or Settled for Less than Full Loan Amount,” the short sale will be considered a major derogatory incident. If the lender doesn’t report the short sale as “Settled or Settled for Less than Full Loan Amount,” then this will not be considered a major derogatory incident and will not have the negative impact. The homeowner may also choose to remain current on their home loan during the short sale process. If they remain current then they will not have the added negative impact of the late payments affecting their score.
Affects on Credit Score
The effect a foreclosure or a short sale has on your credit score is impossible to predict because of the variety of other variables impacting the scores. If you find yourself in the unfortunate situation of not being able to make your mortgage payment, do your research. Call your lender to see what options they have available before making any decisions. Call a professional; there are many different professionals that specialize in these types of transactions. The decision you make could have the largest impact on your credit score than any decision you have ever made.
July 2nd, 2009 — Credit Repair, scottsdale credit repair
How much can bad credit cost?
While a credit score may seem like an arbitrary number, calculated by an invisible credit agency with no real bearing on your life. However, bad credit can cost your real money. To get an idea of just how much money you can lose due to bad credit, take a look at the following examples.
Credit Cards
If you have a low credit score, you will not be eligible for prime credit cards. These cards have the best interest rates, payment terms and credit limits, making it easier for you to maintain good payment history, thus further establishing good credit. Consumers with less then stellar credit “qualify” for less attractive credit cards or “sub-prime” cards. These cards often require exorbitant fees, monthly fees, low credit lines, or cash deposits. In most cases, these cards are difficult to maintain a positive payment record with and often fail to report your positive credit activity to the credit bureaus. A sub-prime credit card cannot only cost you money, but can also make it very difficult for you to improve your score.
Car Buying
When trying to buy a car with bad credit, you will not qualify for the lowest interest rates available. This often translates to $3000 to $6000 more in interest payments. This additional interest will take the form of slightly higher monthly payments. While it may not seem like a lot on a month by month basis, when calculated over the life of the loan, it will be a sizable amount.
For example: A loan for $25000 to be repaid over 5 years:
| Credit status |
Interest rate |
Monthly payment |
Extra interest paid |
| Excellent |
8% |
$507 |
$0 |
| Poor |
12% |
$556 |
$2,952 |
| Bad |
16% |
$608 |
6,062 |
Home buying
As you might imagine, the effects of bad credit are most evident the larger the purchase, such as when you are trying to purchase a home. For most people, a home is the largest purchase they will ever make. If you have a poor or bad credit score, you may end up paying between $2000 and $3000 of interest a year over the course of the loan, which can amount to $60000 and $100000 more in interest than if you had an excellent score.
For example: A $200,000 mortgage to be repaid over 30 years:
| Credit status |
Interest rate |
Monthly payment |
Extra interest paid |
| Excellent |
7% |
$1,331 |
$0 |
| Poor |
9% |
$1,609 |
$66,140 |
| Bad |
12% |
$2,057 |
$99,019 |
July 1st, 2009 — Credit Repair, scottsdale credit repair
10% of your credit score comes from the balance of types of credit on your record. The credit agency’s evaluation of your use of various forms of credit takes into account the variety of types of credit and your management of those various types of credit. There are four specific kinds of credit: revolving credit, installment credit, automobile loans and mortgages.
Revolving credit: There are no fixed payments or a fixed monthly fee when it comes to revolving credit. The consumer may use their open lines of credit over and over again, borrowing more and paying it back. The creditor will set certain terms, like a minimum monthly payment or an interest rate. The amount of available credit increases and decreases based on the amount of money borrowed by the creditor against a fixed credit limit. The borrower may pay the debt back over time or pay the entire amount in full, depending on their financial situation. The most common kind of revolving credit is a credit card, but certain types of corporate bank loans qualify as well.
Installment credit: Unlike revolving credit, installment credit is a type of loan with set sum to be borrowed, a fixed payment amount and a fixed payment schedule. Student loans, home improvement loans and personal loans are all examples of installment credit.
Automobile loans: Loans are specific types of installment credit in which the car being purchased operates as collateral for the loan. If the repayment schedule is not met, the lender will take the car. An auto loan is a type of personal loan, but weighs differently on your credit report because of its specific properties.
Mortgage: A specific form of installment credit used to purchase a home. A mortgage creates a lien on the title of a mortgaged property. A mortgage is generally the largest of all personal forms of credit and thus is the most important to maintain and the hardest to achieve.
People with high credit scores often have three to five open credit cards as well as one of each of the other types credit. This does not mean however, that you should purchase a house and car just to improve your credit score. If you come upon these loans in the course of your daily life, be content with the knowledge that the variety will help to improve your credit score.
June 24th, 2009 — Credit Repair, scottsdale credit repair
When your FICO score is calculated by credit bureau software, 15% comes from the length of your credit history. The length of your credit history is exactly what it sounds like; how long your credit cards have been open. Unlike other parts of your credit score, there is no quick fix to improve the length of your credit history. The only way to improve a damaged length of credit is over the course of years.
Since it takes an extended amount of time to build up your credit history, the best thing you can do is protect the length of credit you have already established. Here are 3 tips to help ensure your length of credit remains as long as possible:
1. Never close credit cards. If you must close cards as part of a financial recovery plan, close the newest cards first. If you close a card that is 10 years old, you lose all of that credit history length and will reduce your overall credit score.
2. In lieu of closing older cards with higher interest rates, use them less often then other cards. It is important to continue to use your card at least once every six months on small purchases like a tank of gas. Then pay off the balance in full. If you don’t use your cards on a regular basis, credit card companies will deem your cards “inactive” and may stop reporting your card to the credit bureau and you will lose all of that established length of credit.
3. Even if your oldest card has an annual fee that you don’t want to pay, keep the card open. It is worth the extra $70 a year to the tens of thousands of dollars a good credit score can save you. Avoid opening other cards with an annual fee to avoid this situation in the future.
When calculating your credit score, credit bureau companies take your length of credit history seriously. They assume the more history they have on you, the more accurate their assessments of your reliability. Also, the longer you have had a credit card open, the less likely you are to default on the balance. It is important, when it comes to your credit, to establish not only a positive payment history, but to prove you are a desirable credit customer in the long run.
June 17th, 2009 — Credit Repair, scottsdale credit repair
Debt ratio is the difference between the amount of debt you have charged versus the amount of money the credit card has authorized for you to use, or your credit limit. The difference is your debt ratio. This can also be referred to as revolving (credit card) credit you have available. If your credit limit is 5,000 dollars and you have charged 2,500 on the card, your debt ratio is 50%
Debt ratio accounts for 30% of your FICO score, which makes it the second highest factor the credit agencies take into account when looking at your credit.
Maintaining your debt ratio can make an impact on your credit score, but unlike payment history, not everyone knows how ensure their debt ratio is a positive force on your credit score. Here are a few tips for you to make sure your debt ratio is not a drain on your credit score:
Maintain your total credit.
- Don’t ever close credit cards if you can avoid it. The more cards you have open, the higher your total of available credit. Credit calculating software takes your TOTAL available credit versus TOTAL debt into account. Closing a credit card will decrease your overall available credit without decreasing your debt.
- Keep your debt even across your credit cards. It is better to have 4 credit cards with 20% debt ratio, then 1 card with 80% ratio and 3 cards with no debt.
Know your limits
- Keep the balances on your credit cards as low as possible. Aim to keep all of your balances below 50% of the credit limit on that card.
- The FICO software ranks your credit debt based on levels. If your credit card debt is more than 75% of your credit limit, it will cause serious damage to your credit score. The next limit begins at 50%, then 25%.
- If your debt is high and approaching that 75% mark, call your credit card company and request an increase of your credit limit.
Check your credit report regularly
- Look at your credit report to ensure the credit card companies have accurately reported your credit limit. If they haven’t reported your limits, the FICO software will read all of your cards as maxed out.
- Report any errors on your credit report immediately. The sooner errors are remedied, the better.
- Maintain communication with your credit card company. Call them if there are suspicious charges on your account or if you need to make adjustments to your payment schedule.
By maintaining your debt ratio, you can ensure your credit score is as high as possible. While a solid debt ratio alone is not the only element involved in the calculation of your FICO score, it is a significant portion.
June 10th, 2009 — Credit Repair, scottsdale credit repair
Since your payment history affects 35% of your credit score, it is easily the most important part of your credit profile. It is also one that you can control. Clearly, the best way to achieve a high credit score and a positive credit report is to maintain a flawless record of full payments, made on-time, over the course of years.
However, for those people who live in the real world, things happen. It is easy to confuse dates, forget to mail a check, or come up short on funds. The important thing is to know what to do and how to manage those small mistakes, before they sink your credit entirely. Here are a few tips on how to manage your payment history:
1. Don’t be late on your payments. EVER. There are plenty of tools you can use, like calendar applications for your computer or iPhone, on-line bill pay, or automatic paycheck deductions that can help you to maintain a spotless payment record. If you are habitually late, or have difficulty remembering to make payments, try setting up an automatic payment through your bank. You can even set up a separate checking account for these static payments, and have the appropriate amount of your paycheck automatically deposited there every month.
If you shy away from automation, or have cash flow issues, companies will often work with you to move your payments around. If you get paid at the end of each month, schedule your phone, cable and credit card bills to come due the first week of the month, when you have the most money in your account. Also, you can work to stay ahead of the payment curve by making your payments as soon as the statement becomes available, usually 30 days prior to the due date. That way, in case an emergency comes up or you miss a payment because you are out of town or short on funds, you have created a 30 day cushion.
2. If you are having a rough financial month and have to miss a payment, make payments on the largest accounts, like your mortgage first. Missing a $50 credit card payment will hurt you less in the long run than a $500 car payment.
3. If you have made the rare late payment on an account in the past, call and ask them to remove the late payment as a courtesy for being a loyal or long-term customer. Point out your history with the company and recent on-time payments, and ask them to consider the late payment as an exception to the rule. If they say no, call back and try to get a different representative on the phone. Lather, rinse and repeat.
4. Check your credit report for any accounts that are marked PAST DUE. These are the accounts that are doing the most damage to your account. When working your way through your financial payments, start here.
5. If you have collection accounts, pay off the most recent accounts first, starting with the largest. Any account older than 4 years can be moved to the bottom of the priority pile, since those creditors can no longer file a lawsuit against you to reclaim their money.
June 2nd, 2009 — Credit Repair, scottsdale credit repair
President Obama recently signed the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act), which regulates the way credit card companies do business. None of these features take affect immediately, but will be introduced over a 15-month span.
Starting August 20, 2009, the first set of reforms, dealing with timing, will take affect. From this date forward, credit card companies are required to give consumers 45 days notice of any significant changes in their terms, including raising their interest rates. This reform will also protect customers who have been saving up reward points from a sudden change in loyalty programs.
Additionally, credit card companies will be required to send your bill more than 21 days before your balance is due. This will prevent credit card companies from engaging in current practices where in they send your bill 14 days prior to your due date, hoping you won’t get it in time and thus incur a late fee.
According to these new rules, a credit card company must also accept your payment prior to 5pm on its due date as “on time” instead of their current practice of requiring payments to arrive prior to a “morning deadline.” (Credit card companies currently count checks arriving in the afternoon mail on the due date as “late” and thus subject to late fees.) If your due date falls on a Sunday or a holiday, the credit card companies will also be required to accept a check which arrives a day later as “on time.”
In February of next year, the majority of the changes will go into affect. This will include restrictions on when the credit card companies can increase the balances you have already charged to your card. From this point on, the credit card companies must wait until you are 60 days late on your minimum payment before penalizing you with an increased interest rate on your existing debt.
If you are carrying various forms of debt on a single card, each with a different interest rate, the new bill will require credit card companies to apply your payments to your highest interest debt first. Banks will also need to seek your permission before allowing you to go over your credit limit and charging you a fee for it.
It will also become harder for minors to gain access to a credit card of their own. Individuals under the age of 21 must have a parent, legal guardian or spouse co-sign for the card. Students may submit proof of income and request the co-signer requirement to be waved, but in general, a parent will be needed to sign up for a card and must also approve any increase in the credit limit of a co-signed card.
The final set of reforms will take effect in August 2010, when a 6-month “make-good” policy will allow borrowers to earn back their original APR after making 6 months of on-time payments. This last set of reforms will also ensure that all gift cards authorized by credit card companies will be good for five years and requires the expiration date to be printed on the card in 10 point ALL CAPS font. Also, if the credit card company plans to charge any “dormancy fees” on the card, that information must also be printed directly on the card.
While these rules will not take effect immediately, they will eventually provide consumers with some relief from the noxious credit card industry practices. While the credit industry will always be a for-profit industry and should be regarded as such, these regulations of the industry will go a long way to helping protect responsible credit consumers from unfair practices.
May 24th, 2009 — Credit Repair, scottsdale credit repair
The good news: you took the advice of all the financial experts and checked your credit score. The bad news: your score is lower then you would like. If you find yourself looking at an abysmal score, there are plenty of ways for you to start rehabilitating your credit, but some will be more effective and faster acting then others. To fix your credit score as fast as possible, follow these steps:
1. Check your credit report for accuracy
One of the first things you should do is ensure that all of the information on your credit report is accurate. Credit bureaus occasionally make mistakes, and you should also check to be sure you have not been the victim of identity theft. Correct any errors as soon as possible.
2. Make sure your credit limits appear on your report
When your credit card companies report your history to the credit bureaus, they should also be reporting your credit limit. Without a limit listed, the credit calculating software will consider your cards to be at the limit or “maxed out.” The further your balance is from the limit and the closer it is to zero, the higher your score. The software will deduct from your score in percentage zones: Any balance higher than 70 percent of your maximum limit is in the highest zone and will cause the most damage to your score. The next zone is between 70 and 50 percent, than between 50 percent and 30 percent.
Once you make sure that your balances are present on your report, work to pay down your accounts as much as possible. If you are unable to make a significant dent on your balance, distribute your balances between multiple cards, keeping all of the balances as low as possible and out of the 70+ percent zone.
3. Pay past due accounts
After correcting all errors, look for a column titled PAST DUE. This is a list of all delinquent accounts and the software the credit bureaus use to calculate your score punish you the most for these accounts. If you have limited funds, pay off these accounts first in order to see the fastest boost in your score.
4. Pay new liens or charge-offs
Any liens or charge-offs applied to your account within the past two years are wreaking havoc on your credit score. You should pay off your balances on these accounts as soon as you pay off your past due accounts. However, once those liens and charge-offs are older than 24 months, they have done all the damage they can do. Paying them off after 2 years will not help your credit score, so put all your old liens at the bottom of the pay off priority pile. Once you have paid off any of these liens, be sure your lien holder reports the account as paid to the credit bureau.
5. Do not close credit cards
When the credit crunching computer software calculates your score, it looks at the ratio between your debt and your available credit. If you have a total limit of $10,000 across multiple cards and you have charged $5,000 worth of debt, you have a balance that is 50% of your total credit limit. However, if you close one of your credit cards, say one with a $2,500 limit, you have effectively reduced your overall credit limit to $7,500 and raised your debt to credit ration to 66%, dangerously close to the 70% zone.
If you have absolutely no self control or more than 6 open credit cards, you might be the exception to this rule. The optimal number of credit cards for an individual is between 3 and 5. If you have more than 6 cards, close the ones you have opened in the last 2 years first. Then close your department store cards and the ones with the lowest credit limit, until you reach 5.
6. Keep old credit cards active
15% of your credit score comes from the age of your credit, in this case, the older the better. The logic is that the longer you have had an account open, the less likely you are to default on that account. If you close your oldest cards, you will decrease the average age of your credit and this can reduce your score.
However, just keeping the card open and in your wallet will not maintain your credit’s age. You must use each of your credit cards at least every 6 months or your cards will be deemed “inactive” and will no longer be counted by the credit calculating software. The phrase “use it or lose it” applies here, meaning you want to keep the benefits of a low balance and a positive payment history on those older credit cards. The one thing all scores over 800 have in common are a credit card that has seen more than 20 years of use.
Looking to clean up your credit with some Credit Repair? We can help! Contact us today.
May 17th, 2009 — Credit Repair, scottsdale credit repair
Ever wonders what happens when a potential lender requests your credit score? First, they send a request to a credit bureau, and they receive a report. This report will include:
- Your name
- Your Social Security number
- Your address (and any previous addresses)
- Your current and past loan information
- Your public record information (court judgments, bankruptcies, liens)
- A list of other companies who have reviewed your credit.
- Your 3 digit credit score
While some of this information is self explanatory, some of the other aspects, especially your credit score, are a bit of a mystery to most consumers. Few people know their credit score or understand how it is calculated. Additionally, most people are unclear about how their behavior can affect their scores.
The majority of people understand the basics, like failing to make a payment will make your score go down, but there are a number of complexities that trip up the average consumer. If you pay your debts on time, don’t carry too much debt on any one card, don’t close older accounts unless absolutely necessary and only apply for new credit when you have to you will generally be in good shape. However, it is important to keep yourself informed so you can maintain a credit score that accurately reflects your consumer status.
Your credit score is determined by an algorithm developed by the Fair Issue Corporation (hence its other name of FICO score). Since its inception, three corporations, called “credit bureaus” specialize in collecting and reporting on financial histories. Those three companies are Equifax, Experian and TransUnion. While, the exact formula used to calculate your credit score is a tightly guarded industry secret, these companies provide general guidelines about financial behavior that can affect your credit score. When calculating your score, the basic formula includes:
35 percent: History of on-time or late payments of credit.
30 percent: Available credit on your open credit cards
15 percent: The age of your lines of credit (old = good)
10 percent: How often you apply for new credit.
10 percent: Variable factors, such as the types of open credit lines you have
Lenders use your credit report in order to judge your reliability as a loan candidate. Your credit report indicates your ability to handle debt responsibly and will help banks decide if you are a desirable loan customer. A high credit score can help you lock in low APR rates or secure special deals on loans. A bad credit report may prevent you from securing loans and can damage your ability to buy a car, open a credit card or rent a home. A history of inability to manage your credit successfully will make lenders uncomfortable about trusting you with additional funds in the future.
You are entitled to a free copy of your credit report once a year, an offer you should take advantage of. When you do receive your credit report, check to ensure the figures are accurate and act quickly correct any mistakes. This may include any clerical errors, identity theft issues or incorrect information. If your credit score is low, you should begin working on a financial rehabilitation plan, either on your own or with a certified debt councilor, to begin correcting your bad debt habits.
