Your credit score is a measure of the risk that lenders take when lending you money. Your credit score will determine your financing options and the interest rate that you pay on every dollar you borrow. Credit repair expert Jim Kemish offers a clear explanation of credit scores and how they work.
Not all Scores are Equal
There are many credit scores available, but the only one that matters is your FICO score. FICO, by the way, is an acronym for Fair Isaac and Company, the developer of the score. This is the score that virtually all lenders use. Other scores attempt to approximate the FICO score, but frequently vary by a significant margin.
One Score with Three Names
The FICO score may be referred to by three different names. This is because the three bureaus have branded it for their own marketing. Equifax calls it a BEACON score, TransUnion calls it an EMPIRICA score, and Experian calls it the EXPERIAN/Fair Isaac Risk Model. Because of this you will hear of three different scores, although they are all a product of the same formula.
Why Are Your Three Scores Different?
Your three scores are different because each bureau gathers information from a slightly different mix of creditors. If you were to look carefully at your three reports you will notice that some accounts are missing on each bureau. Timing also plays a roll. A recent change in your credit may be picked up sooner at one bureau than another.
What is Included in Your Score?
Are you working on credit repair? Be proactive. But in order to influence your score it is essential to understand how it works. Here is an overview of the contributing factors.
Pay History
Your pay history is the big ingredient. This category includes installment and revolving accounts, as well as public records and collections. The age of a derogatory item diminishes its impact on your score. The first step in the credit repair process is to examine your report for obvious errors in this category which makes up 35% of your score.
Balances
Your account balances make up the next category. The relationship between the balance and the credit limit on your revolving accounts is a major factor. Anyone involved in a credit repair effort should minimize their revolving balances as much as possible. The relationship between the current balance and the original balance on installment loans is also taken into consideration. This category makes up 30% of your score.
The Age of Accounts
New credit will have a negative impact on your score, and those accounts that you have kept alive and healthy for years have a good impact. Closing old accounts is a common credit repair error to be avoided. This category makes up 15% of your score.
New Credit & Inquiries
New credit and recent inquiries are a factor. Many credit repair candidates open new secured credit cards for the long term benefit. But generally, anyone involved in credit repair should limit new credit activity. Either way you will lose a few points on this one. Fair Isaac weighs this at 10% of your score.
Type of Credit
The type of your credit is the final 10% of the calculation. Fair Isaac won’t define the perfect mix of mortgage, installment, revolving, and consumer debt, but in our experience the key to a long term successful credit repair effort is to be a moderate user of credit, make your payments on time, and try to keep those revolving balances down.
False Credit
As you begin your credit repair effort it is important to have reliable information. Amazingly, the same three credit bureaus that sell authentic FICO scores to lenders also sell unreliable estimated scores to consumers. Every day untold numbers of consumers go to TransUnion's "True Credit" website and pay for what they believe to be their credit scores. What they get are deceptively named "TrueCredit" scores which vary significantly from the FICO scores used by lenders. Here is the (almost impossible to find) small print from the TransUnion website. "TrueCredit is not connected in any way with Fair, Isaac and Company; the credit score provided here is not a so-called FICO score. The credit scores of TransUnion may not be identical in every respect to any consumer credit scores produced by any other company."
Real Credit Scores
Are you starting the process of credit repair? Do you want to see your real FICO scores? MyFico.com is the only place that consumers can purchase their authentic FICO scores. Want to save some money? It is handy to know that mortgage brokers typically look at all three FICO scores when pre-qualifying you for a mortgage. If you ask, they just might give you a copy of your report along with all three scores. It can’t hurt to save a few dollars!
Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.
Saturday, September 22, 2007
Wednesday, September 12, 2007
Credit Repair: Avoiding Scams!
Credit repair can be the greatest business in the world. But, as in every industry, there are those that do it right, and those that don’t. It helps to know what to avoid. We would like to offer a few suggestions, some of which may surprise you!
The Credit Repair Professional
The credit repair business requires a clear grasp of the interaction of many factors. Credit bureaus, creditors, and collectors are each regulated under their own set of federal laws. There are state laws that may supercede the federal laws. In the background of all of this activity is Fair Isaac and Company that formulates your FICO Score based on the makeup of the information on your report. Credit repair professionals must have a working knowledge of all of these factors and more.
And the Not-So-Professional
True credit repair professionals provide an incredibly valuable service. But there are also those that misrepresent themselves and the services they offer. These deceptive practices will waste your money, and in some cases leave you worse off than ever. Here is our list of the top offences…
Authorized User Alert
Some so-called credit repair companies have been brokering "authorized user" status on credit card accounts. This involves making the customer an authorized user on someone else's credit card to boost the customers FICO score. This is not illegal, but you should be aware that Fair Isaac and Company, in response to this practice, has eliminated authorized user benefits from the new FICO scoring model. According to Fair Isaac, one of the three credit bureaus will begin using the new scoring model in September 2007. The other two credit bureaus will adopt the new model by mid-2008.
The New Identity Trap
There is a busy little credit repair sub-culture that offers to help you establish a new identity by applying for an Employer Identification Number (EIN) which they suggest that you use in place of your Social Security Number. This amazes us! And it is a serious crime that could put you in prison. Steer clear.
Promises Promises
Watch out for companies that guarantee results such as a specific increase in your credit scores in a specific period of time. Professional, reputable credit repair companies can produce dramatic results! But given the fact that there is no way to predict the responsiveness of the credit bureaus, creditors, or collectors it is inappropriate to make such promises, and a sure sign of bad business.
The One-Dimensional Credit Repair Problem
Beware of credit repair companies that offer credit bureau disputes, and nothing more. They are most likely using software that simply pumps out dispute letters - repeatedly. This one dimensional approach to credit repair is certain to produce disappointment. Effective credit repair requires the skill to challenge the bureaus, creditors, and collectors alike; all with the knowledge and understanding of the legislation that governs them, and a grasp of how each change in your report can affect your FICO scores.
Power Corrupts
I’m going to stray a bit from the category of credit repair scams and touch on two of the more egregious offenders in the credit reporting industry. Many people mistake size for honesty. Power can corrupt, and the journey to the dark side is often led by corporate attorneys who constantly test the limits of consumer’s tolerance. Credit repair can be tricky enough, but getting hoodwinked by the credit bureaus can be downright discouraging. Here are offenders that we encounter on a daily basis.
False Credit
Every day untold numbers of consumers go to TransUnion's "True Credit" website and pay for what they believe to be their credit scores. What they get are deceptively named "TrueCredit" scores which vary significantly from the FICO scores used by lenders. Here is the (almost impossible to find) small print from the TransUnion website. "TrueCredit is not connected in any way with Fair, Isaac and Company; the credit score provided here is not a so-called FICO score. The credit scores of TransUnion may not be identical in every respect to any consumer credit scores produced by any other company."
Not Free Credit Report
Are you starting your credit repair effort? You can get all three of your credit reports for free, one time per year, from AnnualCreditReport.com. Don’t be fooled by Experian's freecreditreport.com website! Here is the fine print: "When you order your free report here, you will begin your free trial membership in Triple AdvantageSM Credit Monitoring. If you don't cancel your membership within the 30-day trial period, you will be billed $12.95 for each month that you continue your membership." And it may not be so easy to cancel. The Office of the Attorney General of Florida lists the following issues in their investigation of Experian: "Deceptive advertising, misleading domain name, and failure to honor cancellations in violation of Chapter 501, Part II, Florida Statutes (Florida Deceptive and Unfair Trade Practices Act)."
Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.
The Credit Repair Professional
The credit repair business requires a clear grasp of the interaction of many factors. Credit bureaus, creditors, and collectors are each regulated under their own set of federal laws. There are state laws that may supercede the federal laws. In the background of all of this activity is Fair Isaac and Company that formulates your FICO Score based on the makeup of the information on your report. Credit repair professionals must have a working knowledge of all of these factors and more.
And the Not-So-Professional
True credit repair professionals provide an incredibly valuable service. But there are also those that misrepresent themselves and the services they offer. These deceptive practices will waste your money, and in some cases leave you worse off than ever. Here is our list of the top offences…
Authorized User Alert
Some so-called credit repair companies have been brokering "authorized user" status on credit card accounts. This involves making the customer an authorized user on someone else's credit card to boost the customers FICO score. This is not illegal, but you should be aware that Fair Isaac and Company, in response to this practice, has eliminated authorized user benefits from the new FICO scoring model. According to Fair Isaac, one of the three credit bureaus will begin using the new scoring model in September 2007. The other two credit bureaus will adopt the new model by mid-2008.
The New Identity Trap
There is a busy little credit repair sub-culture that offers to help you establish a new identity by applying for an Employer Identification Number (EIN) which they suggest that you use in place of your Social Security Number. This amazes us! And it is a serious crime that could put you in prison. Steer clear.
Promises Promises
Watch out for companies that guarantee results such as a specific increase in your credit scores in a specific period of time. Professional, reputable credit repair companies can produce dramatic results! But given the fact that there is no way to predict the responsiveness of the credit bureaus, creditors, or collectors it is inappropriate to make such promises, and a sure sign of bad business.
The One-Dimensional Credit Repair Problem
Beware of credit repair companies that offer credit bureau disputes, and nothing more. They are most likely using software that simply pumps out dispute letters - repeatedly. This one dimensional approach to credit repair is certain to produce disappointment. Effective credit repair requires the skill to challenge the bureaus, creditors, and collectors alike; all with the knowledge and understanding of the legislation that governs them, and a grasp of how each change in your report can affect your FICO scores.
Power Corrupts
I’m going to stray a bit from the category of credit repair scams and touch on two of the more egregious offenders in the credit reporting industry. Many people mistake size for honesty. Power can corrupt, and the journey to the dark side is often led by corporate attorneys who constantly test the limits of consumer’s tolerance. Credit repair can be tricky enough, but getting hoodwinked by the credit bureaus can be downright discouraging. Here are offenders that we encounter on a daily basis.
False Credit
Every day untold numbers of consumers go to TransUnion's "True Credit" website and pay for what they believe to be their credit scores. What they get are deceptively named "TrueCredit" scores which vary significantly from the FICO scores used by lenders. Here is the (almost impossible to find) small print from the TransUnion website. "TrueCredit is not connected in any way with Fair, Isaac and Company; the credit score provided here is not a so-called FICO score. The credit scores of TransUnion may not be identical in every respect to any consumer credit scores produced by any other company."
Not Free Credit Report
Are you starting your credit repair effort? You can get all three of your credit reports for free, one time per year, from AnnualCreditReport.com. Don’t be fooled by Experian's freecreditreport.com website! Here is the fine print: "When you order your free report here, you will begin your free trial membership in Triple AdvantageSM Credit Monitoring. If you don't cancel your membership within the 30-day trial period, you will be billed $12.95 for each month that you continue your membership." And it may not be so easy to cancel. The Office of the Attorney General of Florida lists the following issues in their investigation of Experian: "Deceptive advertising, misleading domain name, and failure to honor cancellations in violation of Chapter 501, Part II, Florida Statutes (Florida Deceptive and Unfair Trade Practices Act)."
Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.
Thursday, September 6, 2007
Credit Repair: Student Loans
A Tough Spot
There is no statute of limitation for collection of defaulted student loans. And unless you are totally and permanently disabled, there is no way that you can discharge your student loans in a bankruptcy. What to do? Credit repair expert Jim Kemish offers some insight and a cure.
The Default Story
Legally, a default occurs the first time you fail to make a payment when it is due. But if you fail to make your student loan payment for 180 days, your loan will enter the “official” default status and take on a life of its own. This is the point at which the lender will report your student loan as defaulted to the credit bureaus. It is also the point at which a long list of bad things can start to occur. Your tax refund checks can be seized and your wages can be garnished.
What Happened?
Why are student loans so different from all other debts? Well, prior to 1991 the U.S. Department of Education was empowered to collect delinquent student loans for only six years. But in 1991 an amendment to the Higher U.S. Department of Education Act lifted all time limits for collection. And the amendment was retroactive; student loans that were past the statute of limitation for collection prior to the amendment became collectable again. And to further reinforce the longevity of student loan debt, a 1998 change in federal law made it virtually impossible to discharge student loan debt in a bankruptcy.
The Reason for All This
The theory behind making sure that student loan debt can be collected forever is simple; the cost of student loans can be kept low by minimizing the number of borrowers that don’t repay. And since education, and the availability of low cost education loans, is always a political priority, it was not all that difficult to enact these changes.
The Ultimate Collectors
There is simply no way to escape the U.S. Department of Education and their army of private collection agencies that collect on their behalf. In addition, Sallie Mae, the nation’s largest student loan lender, has been purchasing collection agencies to track you down. So, what if they find you and you say you have no money? Well, the U.S. Department of Education now has the right to garnish wages, grab your tax refunds, and even seize your Social Security Checks (you read that right!), all without a court order. And, although Sallie Mae does not wield the same powers, they have started to turn over hard cases to the U.S. Department of Education to get the job done. Anyone attempting credit repair must realize that student loans must be dealt with head on, and the sooner the better.
Credit Repair Options
There are two great solutions that are designed to solve all of your student loan problems. Both of these options can stop all collection activity, lower your interest rate and payment, and reinstate your right to borrow more money for school (in case you want to go back to school). There are no qualification requirements and you are not punished for having bad credit. Everyone gets the same low interest rate. These two options are consolidation and rehabilitation. Both are a good fit with any credit repair process.
Student Loan Consolidation
Just contact the lender or collector and tell them that you would like to consolidate your defaulted loans. You will be required to make three monthly payments on time. Once you have done this you will qualify for consolidation. If you are attempting credit repair you should note that after consolidation your credit report will be updated to show the consolidated status, but the default notation will remain, like most derogatory information, for seven years. If you are in a rough patch the consolidation program allows for up to three years forbearance. Ask your lender for details. My focus has been on defaulted student loans, but it may be handy to note that you do not need to be in default to enjoy the benefits of consolidation.
Rehabilitation
This is a slightly longer process, but has the extra benefit of removing the default status notation from your credit report. To rehabilitate your loan you need to make nine to twelve consecutive on-time payments (depending on which type of student loan you have). Once you have completed this process your loan is considered “seasoned” and is sold to a new lender, and the default is wiped off of your credit. Once done, it is like it never happened. If you are attempting credit repair you should note that your payment history, including any late payments that you made, will remain, but your credit score will benefit from the removal of the default. Borrowers are allowed to rehabilitate a defaulted student loan one time only. As always, contact your lender to discuss the details.
Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.
There is no statute of limitation for collection of defaulted student loans. And unless you are totally and permanently disabled, there is no way that you can discharge your student loans in a bankruptcy. What to do? Credit repair expert Jim Kemish offers some insight and a cure.
The Default Story
Legally, a default occurs the first time you fail to make a payment when it is due. But if you fail to make your student loan payment for 180 days, your loan will enter the “official” default status and take on a life of its own. This is the point at which the lender will report your student loan as defaulted to the credit bureaus. It is also the point at which a long list of bad things can start to occur. Your tax refund checks can be seized and your wages can be garnished.
What Happened?
Why are student loans so different from all other debts? Well, prior to 1991 the U.S. Department of Education was empowered to collect delinquent student loans for only six years. But in 1991 an amendment to the Higher U.S. Department of Education Act lifted all time limits for collection. And the amendment was retroactive; student loans that were past the statute of limitation for collection prior to the amendment became collectable again. And to further reinforce the longevity of student loan debt, a 1998 change in federal law made it virtually impossible to discharge student loan debt in a bankruptcy.
The Reason for All This
The theory behind making sure that student loan debt can be collected forever is simple; the cost of student loans can be kept low by minimizing the number of borrowers that don’t repay. And since education, and the availability of low cost education loans, is always a political priority, it was not all that difficult to enact these changes.
The Ultimate Collectors
There is simply no way to escape the U.S. Department of Education and their army of private collection agencies that collect on their behalf. In addition, Sallie Mae, the nation’s largest student loan lender, has been purchasing collection agencies to track you down. So, what if they find you and you say you have no money? Well, the U.S. Department of Education now has the right to garnish wages, grab your tax refunds, and even seize your Social Security Checks (you read that right!), all without a court order. And, although Sallie Mae does not wield the same powers, they have started to turn over hard cases to the U.S. Department of Education to get the job done. Anyone attempting credit repair must realize that student loans must be dealt with head on, and the sooner the better.
Credit Repair Options
There are two great solutions that are designed to solve all of your student loan problems. Both of these options can stop all collection activity, lower your interest rate and payment, and reinstate your right to borrow more money for school (in case you want to go back to school). There are no qualification requirements and you are not punished for having bad credit. Everyone gets the same low interest rate. These two options are consolidation and rehabilitation. Both are a good fit with any credit repair process.
Student Loan Consolidation
Just contact the lender or collector and tell them that you would like to consolidate your defaulted loans. You will be required to make three monthly payments on time. Once you have done this you will qualify for consolidation. If you are attempting credit repair you should note that after consolidation your credit report will be updated to show the consolidated status, but the default notation will remain, like most derogatory information, for seven years. If you are in a rough patch the consolidation program allows for up to three years forbearance. Ask your lender for details. My focus has been on defaulted student loans, but it may be handy to note that you do not need to be in default to enjoy the benefits of consolidation.
Rehabilitation
This is a slightly longer process, but has the extra benefit of removing the default status notation from your credit report. To rehabilitate your loan you need to make nine to twelve consecutive on-time payments (depending on which type of student loan you have). Once you have completed this process your loan is considered “seasoned” and is sold to a new lender, and the default is wiped off of your credit. Once done, it is like it never happened. If you are attempting credit repair you should note that your payment history, including any late payments that you made, will remain, but your credit score will benefit from the removal of the default. Borrowers are allowed to rehabilitate a defaulted student loan one time only. As always, contact your lender to discuss the details.
Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.
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