FICO scores, based on the formula developed by the Fair Isaacs Corporation, are the industry standard.  All the other scores are ‘consumer scores’, most of them developed and marketed by the credit bureaus to compete with FICO scores and get a piece of the revenue generated by consumers’ growing awareness of the importance of credit scores.  These consumer scores are generally not an apples-to-apples comparison of scores so when someone takes their ‘credit’ score to their lender, they are often disappointed to find out their actual FICO score is much different than what they purchased.

I just read an article in Stephen Snyder’s newsletter detailing an account from a reader who was told by an Experian representative that none of the three credit bureaus used the FICO score formula any more.  This is completely inaccurate.   As the industry standard, FICO scores are used by:

* Over 4,000 financial services providers

* The two largest mortgage securitization companies

* Nearly 75% of the top global banks

* The top 10 U.S. property and casualty insurers

* More than 100 retailers, including half of the top 50 retailers in the US

* 8 of the top 10 pharmaceuticals companies

So, again, we say, DO NOT SPEND YOUR MONEY ON ANY SCORES OTHER THAN FICO SCORES.  All of the others are just informational, they do not give you an accurate picture of how your lender will see you.  Keep in mind, there is a reason the ‘consumer scores’ are being heavily advertised on pricey television commercials – they expect to make lots of money.  Make sure you’re getting something that is beneficial to you, not just some three digit number. 

NOTE: “FREE” credit scores that require you to give your credit card number and sign up for something are not FREE!  More info here.

You can get two of your FICO scores, with complete credit reports, for $16 each.  Contact us for current discount codes that can save 15 – 20%, making them about $13 each.

.

THE BANKRUPTCY ITSELF
Whether you file Chapter 7 or Chapter 13, it will be listed in the Public Record section of your credit report.  This item can stay on your credit for 10 years from the filing date for Chapter 7.  For a completed Chapter 13 bankruptcy, the public record stays on for 7 years from the filing date.  A dismissed, or unfinished, Chapter 13 can stay on for ten years from the date filed.  Click here for more information on how long things can stay on credit reports.

NOTE: The county recorders offices do not report to the credit bureaus.  The credit bureaus go out and retrieve the public records.

ACCOUNTS INCLUDED IN THE BANKRUPTCY
In Chapter 7, the accounts that were discharged through the BK should have zero balance listed on the credit report.  This is a common error that we see on credit reports after bankruptcy filings. 

NOTE: Accounts in repayment through a Chapter 13 will continue to show a balance as they get paid off over time.

 The Chapter 7 accounts themselves, which are listed as “included in bankruptcy”, can stay on the credit file for seven years from the filing date.  Late payments associated with these accounts will come off 7 years from the date reported.

WHAT TO DO
Check all three credit reports two months after a Chapter 7 discharge.  If you find balances on any of the accounts included in the BK, contact the credit bureaus to request those balances be removed.

Watch for late payments reported after the BK filing date and request removal for any that you find.

Continue to monitor your credit regularly to check for any collection accounts listed for items that were discharged in the BK.

Begin a credit rebuilding plan immediately.  Yes, a bankruptcy filing is very detrimental to credit scores.  However, many people use this fresh start to learn how to use credit responsibly as part of their financial fitness program.

CONTACT US FOR YOUR CREDIT CHECK-UP
We offer a Credit Analysis for only $100 that identifies errors and gives our clients the information and step-by-step details on how to rebuild their credit for their future goals.  Call or email today to get yours.

.

A secured credit card requires you to open and maintain a savings account as security for your line of credit. The amount required for a secured card typically starts at $300 to $500.  Some banks and credit unions will pay interest on your deposit comparable to what you would be getting if you opened a regular savings account.  There may be application and processing fees. Typically, a secured card requires an annual fee and has a higher interest rate than an unsecured card. 

Questions to ask when applying for a secured credit card:

What are the total fees (application, monthly and annually) and will they be refunded if you are denied a card?

What is the minimum amount you need to deposit to obtain the card?

How much interest will the deposit earn, and what kind of account does the deposit have to be in?

How long does the money have to stay on deposit after the account is closed?  (Some banks will want to keep the deposit for a couple of billing cycles to cover any stray charges that arrive.)

How long does it take to qualify for an unsecured card? (Most banks will qualify you for an unsecured card after a period of making all your payments on time.)

Do you report to all three credit bureaus?  This is extremely important when using the credit card as a tool to build or re-establish your credit record.  If your card issuer does not report to a bureau, the card will not help you build a credit history. 

REMEMBER:  THIS IS A TOOL TO BUILD YOUR CREDIT RATING.  THIS IS NOT AN ACCOUNT TO CARRY BALANCES ON.   

After receiving your new card, use it once for a small purchase ($25-50).  PAY THE ENTIRE BILL AS SOON AS IT ARRIVES!!   Do not use the card again.  Put it away in a safe, secure place and use it once every three months in the same manner.   This will keep it active and save you money on interest charges. 

 It will show up on your credit report as a revolving credit card account.  It takes six months and a day for a new credit account to be included in your scores.

A secured credit card with a national company that reports to all three credit bureaus is a great way to build your credit rating.  With the tightening of the credit markets, it can also be an alternative way to have credit available for your business or personal needs.

You can also get two of your reports and actual FICO scores, the scores most lenders use, at FICO’s own site.  Because they are celebrating their 8th anniversary, you can save 30% on your scores!  That takes the price for each one from $16 to just over $11, saving you almost $10 and giving you the opportunity to review your TransUnion and Equifax credit reports along with finding out your FICO scores. 

NOTE: The 30% offer is available until March 31st.  The code to use is: myFICOis8

CHECK FOR ERRORS
When reviewing your credit reports, check for these common errors:
1) Accounts that you don’t recognize as yours.

2) Closed accounts that still show a balance due.

3) Late payments reported after the date the account was closed.

4) Collection accounts listed for paid off items or without identifying information.

5) Accounts that were included in a bankruptcy that still show a balance due.

6) Extra or incorrect Social Security Number.

7) Incorrect birth date and/or different names, or incorrect middle initial.

8.) Addresses listed as yours for cities or states you have never lived in.

NOTE: Click here for a list of how long items can stay on your credit report.

CORRECT THE ERRORS
Your consumer rights under the FCRA allow you to contact all of the credit bureaus to request correction and/or deletion of the inaccurate items listed in your credit file.  The report itself should have contact information and correction instructions or you can get info on all three credit bureaus here.

Some items can be corrected through the online dispute process.  However, if you have documentation to submit such as receipts proving an account was paid off or proof of your social security number, you may need to file a written dispute to include your documents.

When you find an error on one report, you should submit the written correction request to all three credit bureaus just to cover all the bases.  Include all correction requests at one time, in one letter; it is okay to have several items on the page you are sending to the bureaus.  Keep a copy of the letters and note the date you mailed them.  Don’t send original documents and receipts, only copies.

When they respond to your dispute letter, which can take up to 30 days plus mailing time, you should receive an updated credit report.  Review the entire report, not just the accounts that you requested correction on.  If you find additional errors, send in another letter to correct them. 

You have the right to accurate credit reports and because your credit scores are calculated using the information compiled in your credit file, you want to be sure it is as accurate as it can be.

Checking your credit report and correcting errors is imperative to your Personal Financial Fitness.  Getting better credit scores can provide you with money savings through lower interest rates, lower insurance rates, and giving you more financial options.  Knowing your scores now can help you effectively reach your goals.

For a personal Credit Analysis or One-on-One Consulting services, contact us today.

DIFFERENT CREDIT SCORE TYPES
As we talked about on January 21, 2009, most lenders in the U.S. use the FICO score model for their credit scoring needs.  The Fair Isaac Corporation, FICO, is the pioneer of consumer credit risk scores and continues to be the industry leader. 

Over the past several years, the credit reporting agencies, Equifax, Experian and TransUnion, who compile the consumer information, or reports, that the credit scores are based on, have developed their own scoring formulas to compete with the FICO score.  They even banded together to present a united front a few years back in creating the Vantage Score.  Why?  They probably make more money selling one of their own scores than having to go through FICO. 

They’ve done a great job with media advertising and catchy jingles to help consumers become aware of credit reports and credit scores.  What they don’t tell consumers is that purchasing their “consumer credit scores”, which are anything other than a true FICO score, really don’t give them a fair and equal comparison to what their lender sees when they review their credit.  Our experience in reviewing thousands of credit scores over the years is that the consumer scores are higher than the true FICOs, and people are often surprised and disappointed when they go to apply for a loan.

FICO 08 MAJOR CHANGES
1) NO MORE PIGGY-BACKING, this concerns the area of Authorized Users.
Historically, a spouse or relative would add someone to their credit card account as an Authorized User, (AU) allowing them to utilize the credit card and the account it was attached to.  The AU is not financially reponsible for the account.  However, it is reported on their credit file and any information about the account is reflected in the person’s credit rating.  So if the account went delinquent and had 30 day late payments reported to the bureaus, the AU suffered the negative impact.  Conversely, the AU could benefit with a higher credit score from being added to a long-time account in good standing with a low utilization ratio.

Some creative companies sprang up this decade offering to place someone with low credit scores onto an good-standing, revolving account that could potentially help their credit score jump significantly.  Of course, the hopeful AU had to pay big bucks for the privilege and the account holder could make quite a bit of money just for letting someone they didn’t know “borrow” their credit history for a while.  The abuse of the Authorized User strategy and its obvious attempt to mislead lenders caused Fair Isaacs to announce changes in the scoring formula regarding AU accounts.  Many lenders also changed their individual requirements and sometimes exclude AU accounts in their approval decisions.

The FICO 08 formula is supposed to recognize legitimate AU accounts, such as between spouses and/or children, and include those in the scores, while ignoring the illicit AU relationships and not including those accounts in the scores.

2) PENALTIES FOR HIGHER UTILIZATION RATIOS
Fair Isaac says their research concluded that people with credit card balances that are close to the account limit are at greater risk for default.  Therefore, FICO 08 penalizes consumers with high utilization ratios more than previous FICO score formulas did.  Keeping balances under 25% of the credit limit usually helps scores grow.

3) SMALL COLLECTION AMOUNTS ARE IGNORED
The research showed that very low dollar collections and public records such as judgments and liens do not equal a poor credit risk as much as they previously did.  FICO 08 will ignore collections and public records that have an original balance of less than $100.  It is best to not have any collections, however this is great news for anyone who has experienced a $75 medical collection they never knew about or that $20 library fine that was forgotton.

4) DON’T CLOSE ACCOUNTS
With FICO 08, you will get more points for having open accounts in good standing.  Having a higher proportion of closed accounts can hurt scores.  You can set up a small, monthly bill such as cable or the fitness club on a credit card to keep it active and open.  Just be sure to pay it off every month to save money on interest and avoid late payments.

WHAT IT MEANS
FICO 08 seems more in tune with the times and offers some much needed benefit to consumers.  Although the penalty for higher credit card balances will impact many consumers who find themselves using their credit cards to finance their lives during corporate down-sizing, reduced work hours or medical disability, other changes will help those that have generally good credit.

The big news is that TransUnion made it available.  However, it may be quite some time before companies pay to upgrade their current scoring formulas and get on board with the newest version and before it is available to consumers. 

You can get your TransUnion and Equifax reports and FICO scores here.  Good news, checking your own reports and scores doesn’t count against you.

WHY IT MATTERS 
The largest factor in your credit score is your payment history.  Just one 30 day late payment can cause a significant drop in your score.  Generally, companies do not report late payments of a few days or weeks to the credit bureaus; only when an entire month’s payment was skipped does it show up on the credit report.

WHAT TO DO
If you are traveling during the holiday season, review your past three month’s bills to determine which bills are due on what date every month.  Then look at the current month to see which bills you have already paid.  You can then pay the bills that are due during your travel time BEFORE you leave.  It’s okay if they are early.  That is a much better alternative than having them be late.

NOTE: Be sure to have the post office hold your mail or have a trusted someone collect it every day to protect yourself from mail theft.

If you are not traveling, you still may want to get the monthly bill paying out of the way so that you can enjoy friends and family without having to take time out to deal with finances.  Getting out of our normal routine sometimes allows things to slip between the cracks and get missed.  Don’t let your credit score drop because of a missed bill.

For an in-depth, personal analysis of your credit and what you can do to increase your score, order your Credit Analysis today.

DO NOT Regularly Carry These Items:
Social Security Card
Passport
Birth Certificate
Personal Identification Numbers (PIN)
Checkbook
ALL of your Credit Cards – just carry one or two frequently used cards. 

1. File a report with the police in the jurisdiction where the loss happened.  Keep a copy of the police report. 

2. Cancel the credit cards that were in your wallet by calling the issuer(s) immediately. Many companies have 24-hour toll-free numbers to deal with emergencies; the number is on the back of the credit card that you have copied and safely stored or on the monthly statement.5. Contact all other companies whose cards were in your wallet, such as the library, fitness clubs, grocery stores, etc.

8. Change your home and car locks if your keys were there, too and change your security codes as well.

9. Call the fraud departments of the credit bureaus to place an initial (90 day) Fraud Alert on your account. Contact all three directly.

Equifax: 1-800-525-6285; P.O. Box 740241, Atlanta, GA 30374-0241
Experian: 1-888-EXPERIAN (397-3742); P.O. Box 9532, Allen, TX 75013
TransUnion: 1-800-680-7289; Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, CA 92834-6790

Request the free credit report provided by the Fraud Alert; this will give you a baseline to which to compare future credit reports in the event of identity theft.

10. If your wallet was stolen and you suspect identity theft, contact the Federal Trade Commission (FTC), the federal clearinghouse for complaints by victims of identity theft.  They provide information to help consumers resolve the financial and other problems that can result from identity theft.Call the FTC at 1-877-ID-THEFT (1-877-438-4338) or go to the FTC online , click on ID Theft listed under the Quick Finder section. 
File an online complaint form with the FTC and keep a printed copy for your records.  After 90 days, contact the credit bureaus to extend the Initial Fraud Alert, if needed.  This is recommended if your wallet and its contents are not found or recovered. For the next year, continue to monitor your credit reports to assure that no fraudulent activity has occurred.  You can do this at no cost through the Fraud Alert provisions and/or with your free, annual credit reports.      

1) CHANGE YOUR MIND

-Decide that you want to be debt free and have no credit card debt.  This includes major credit cards, retail store accounts and gasoline cards.  Be realistic and realize that this will take time and probably will not be easy.  Remind yourself of your long-range financial goals to keep motivated and on track.

-Credit cards are not money, they are convenience loans.  There is no federal limit to the interest rate that credit card companies can charge and many states do not have usury laws, meaning there is no state cap on the interest rate. Eight of the top ten credit card issuers have their charter in states with no usury laws.

-Credit cards are not free, they cost you money.  Many credit cards charge an annual fee; others require a minimum, monthly payment of less than 5% of the account balance.  This can lead to a longer period of time before the account is paid off and subsequently, more interest charges over that time.

2) CHANGE YOUR HABITS

-Do not carry your credit cards.  There will not be an emergency that requires you to have every single credit card with you in your wallet.  This also decreases your chances of being the victim of fraudulent credit card use or identity theft.

-Do not use a credit card for something you do not have the cash for at that moment.  A $500 impulse purchase can cost $625 or more when it finally gets paid off several months later.

-Pay all bills on time, every time.  Especially credit card accounts.  Many companies have included the “Universal Default Policy” in the fine print of their credit card agreement.   This allows them to increase a customer’s interest rate if there are late payments on ANY of the customer’s accounts that are reported to the credit bureaus.  Not just the credit card with their company, ANY other company that reports a late payment can trigger the much higher Universal Default interest rate.

3) MAKE A PLAN

-Stop using the credit cards you have so that you stop accumulating more debt.  If you do not have a budget, make one and stick to it.  Give yourself a certain amount of cash each week and hold yourself accountable to only spending that amount.  Remember your long-term goals are more important to your financial fitness plan than short-term impulses are.

-Contact your credit card companies and request a lower interest rate.  Some online research at sites such as bankrate.com will show what offers the major credit card companies are giving to new customers.  As an established, loyal customer, you can use this information to ask for at least that same rate on your existing accounts.

-Pay off your highest interest rate accounts first.  Pay more than the monthly minimum, even if it is only $5 more.  Do not close credit card accounts when they are paid off.  A major factor in FICO credit scores is the utilization ratio, which is account-balance-to-credit-limit.  Closing accounts decreases the available credit, which makes for a higher ratio and lower scores. 

4) FOLLOW YOUR PLAN

-Continue to use your budget and keep your spending under control.   Once you have eliminated credit card debt, establish your “Smart Fund”.  Start with a goal of at least $1000 in a savings account that can be used for emergencies or unexpected items such as a new car battery or plumbing repair.  Using the Smart Fund instead of a credit card saves money and keeps the credit card debt from returning.  Replenish your Smart Fund as soon as possible.

- Shred the “convenience checks” that credit card companies send to you.  Do not open any new credit card accounts; consumers with long established, good credit do not need more than 3 – 6 open, revolving accounts.

Becoming credit wise and learning how to use credit cards as credit building tools can lead to a better financial future, more money in your pocket and peace of mind.  Contact us today to get your personal Credit Building Plan.

The consumer credit scores that are heavily advertised, particularly by the credit bureaus, are not necessarily FICO scores.  This means that someone who does their homework, checks their credit before going to apply for a loan and thinks they have a 700 score, may be surprised to find that their lender has a much lower score to evaluate the loan with.

The reason: the consumer went in with something other than a FICO score so the comparison is not fair; it is not apples to apples, so to speak.  When the Fair and Accurate Credit Transactions Act (FACTA) was passed in 2003 as an amendment to the Fair Credit Reporting Act (FCRA), it gave consumers the right to see their credit reports at no cost. 

However, the credit bureaus maintained the right to charge for credit scores when a consumer got their credit report.  And, most likely, there were some fees for them to pay when they used the FICO formula to give the credit score to the consumers.   In 2005, the three major credit bureaus, Experian, Equifax and TransUnion, developed the Vantage Score, which was launched in March, 2006.  It was promoted as a consistent model to be used across the three credit bureaus making it easier for consumers to understand.

It also did not require the credit bureaus to pay a fee to Fair Isaacs when they generated a score for someone; perhaps a new revenue stream for these major corporations.  Which may explain why there are now so many television advertisements for credit reports and scores.  Well, it turns out that the majority of companies still use the FICO scores.  So even though many people are checking their credit and getting their scores, it doesn’t mean they are seeing the same numbers their lender is looking at.

Everyone can get their FICO scores at http://www.myfico.com/Products/Products.aspx.  The “FICO Credit Complete” is all three credit reports and scores.  And for the month of April, they are offering 25% off all products.  The discount code is   7yrsale.  This brings the price to under $36 for all three actual FICO scores.  This is recommended for anyone who is considering a major purchase in the next year such as a home or auto loan; or a mortgage refinance, so that you can check with lenders ahead of time for the current score requirements.

NOTE: Checking your own credit does NOT count against your scores.  It will show up on your credit report as a Soft Inquiry, but is not figured in the scoring formula. 

Contact us with any questions about credit scores and credit reports.

Be aware that the credit bureau replies, usually a complete or abbreviated version of your credit report, WILL NOT BE FORWARDED.  If you move within a month or so of writing to the credit bureaus, you may want to notify them via mail or online that you have a different address.  Otherwise, you may not receive the updated information about your credit file.  OR someone else who now lives at your old address has access to your personal and financial information.

BOTTOM LINE: Keep track of the dates you contact the credit bureaus to be sure that they do their job in a timely manner as required by law and to insure that your information is safe.