Changes to Credit Score Calculations

Posted by admin on February 27, 2010 · 1 Comment 

In 2007 Fair Isaac Corporation, creators of the FICO credit scoring system announced that they would change how their credit score models evaluate credit report data.  The new credit score, referred to as FICO 08, was delayed in its implementation until the second half of 2009.

The FICO score model is kept under wraps by the company that created it, but it is always a good idea to obtain a general understanding as to what makes a good or bad credit score.  With the knowledge of what drives a credit score, consumers can either engage in good habits to maintain a good credit score or work to improve an existing low credit score.

The changes to the current FICO scores are taking place in a few key consumer sections that include opening new accounts or having prior derogatory information on select accounts and authorized user accounts.

The new version is less damaging for consumers that have had limited credit problems even in severe situations.  The score gives less weight to isolated problems as long as the majority of other active credit accounts are in good standing.

The new formula gives less weight to minor derogatory or negative accounts such as small collection accounts and public records in which the original debt was less than $100.

The new credit model also reduces the weight of authorized-user accounts by reducing the potential score impact associated with the abuse of authorized user accounts.

Adding a spouse or child to a credit card as an authorized user has long been a good way to improve that person’s credit score, since the good history already established on the account had generally been imported to the credit report of new authorized user.  Some mortgage brokers and credit repair companies began abusing this feature by “renting” authorized-user accounts from individuals that had good credit accounts and selling them to individuals who wanted to boost their scores.

According to company, they have developed technology that reduces any impact on the new credit score from intentional tampering, while allowing the scores of spouses and other genuine authorized users to benefit from their shared credit accounts.

The new credit score model uses the same 300-850scoring range, score reason codes, minimum scoring criteria, and inquiry treatment as previous versions of the score.

Credit bureau scores are often called FICO scores because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company but not all credit scores are FICO scores.  FICO scores are provided to lenders by the major credit reporting agencies.  The FICO score is the credit risk score used by most lenders in the U.S.

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Credit Repair Scams Halted by FTC

Posted by admin on February 9, 2010 · Leave a Comment 

In October, 2008 the Federal Trade Commission sent out a press release regarding charges brought against another credit repair scam operation.  Credit report repair services that offer to repair credit for consumers have popped up across the nation.  Unfortunately, many of these organizations fail to help consumers and in some egregious cases, violate the law by taking money in advance and deceiving consumers regarding the services they perform to improve credit histories and credit scores.

In October, the FTC announced that two bogus credit repair companies and their principals settled Federal Trade Commission charges that they falsely claimed they could clean up consumers’ credit reports and collected up-front fees for their services, in violation of federal law.  In one case, the FTC alleged that the defendants marketed their services via Web sites and real estate investment seminars and falsely claimed that their special relationships with creditors, collection companies, public records providers and credit bureaus enabled them to remove derogatory information from consumers’ credit reports.

According to the FTC’s complaints, all of these defendants falsely promised to remove negative information from consumers’ credit reports, such as late payments, charge-offs, collections, tax liens, repossessions, bankruptcies, and judgments, even when the information was accurate and not obsolete, in violation of the FTC Act and the Credit Repair Organizations Act (CROA).  The Commission also charged them with violating the CROA by charging and collecting payment for their services before doing any work.

In the first case, Successful Credit Service Corporation, also doing business as Success Credit Services, and Tracy Ballard, also known as Tracy Ballard-Straughn, the settlement order prohibits them from collecting additional money from consumers who purchased their services before October 16, 2008, when the court halted their business practices.

The defendants in the second case are Rudolph Joseph Strobel, a/k/a Lee Harrison, and Leanna Ruth Harrison, both doing business as Lee Harrison Credit Restoration, Credit Restoration, and Lee Harrison Associates Credit Restoration.  The order bars them from collecting money from consumers who purchased their services before August 28, 2008, when the court halted their business practices, and requires them to return any money orders or other negotiable instruments received after that date.

Understanding your credit situation and the facts on how to clear up credit problems and improve a credit score is the first step to solving credit problems.  Rushing into a quick fix scheme can often lead to less than satisfactory results.  Know that facts before working with a credit repair organization to help your credit score.

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How to Read a Credit Report

Posted by admin on January 30, 2010 · Leave a Comment 

Understanding how to read a credit can be important when it comes time to review a credit report that may have been ordered as a free credit report or when credit report is ordered through a credit reporting agency to review the report and credit score or when someone may have to discuss the contents of their credit report with a creditor.

How the information is displayed in a credit report will be different depending which credit reporting agency produced the report.  However, the information is generally organized in the same manner from each of the three big credit reporting agencies.

All credit reports for consumers begin with the identifying information for the individual that the report covers.  The credit report will identity the individual’s name, current address as well as known recent home addresses, the individuals social security number, date of birth or age, the report number, and the date the report was issued.

If you need to contact any of the credit reporting agencies in reference to information on your report, to initiate a dispute about the contents of the credit report, for example you will need to provide the report number included on your credit report.

The report will sometimes include a report summary near the top of the report.  This includes a short summary of the potentially negative and positive pieces of information found within the report.

The main part of the credit report will list all of your accounts; current accounts, paid accounts and collection accounts.  Each account or item listed on your credit report is called a trade line.  For each trade line, there will be detailed information on your credit about that account. 

Account information will usually include the following:

The creditors name; this will be the name of the creditor or collection agency that has reported the information to the credit reporting agency such as a mortgage company you have your home loan with, credit card company, car loan and similar creditors.

The date the account was first opened.

The original loan amount or total credit limit.  This is the amount of the original loan when it was opened for loans such as mortgages or car loans or the credit limit will be listed here if the accounts related to a credit card or charge card.

The most recent balance owed on the account.  This is the account balance of the date reported to the credit reporting agency.

The scheduled monthly payment.  Depending on the type of account, the monthly payment will either be a fixed amount such as the payments found on installment loans or the minimum payment that may correspond to a revolving debt such as a credit card.

The high balance for this account.  This is the highest balance the consumer has put on the account if it’s a mortgage or car loan, for example, the original loan amount will be listed.  For charge cards, the highest balance put on the card to date will be listed.

The most recent recorded payment date.

The account history.  This will often include how the account was paid over time on a month by month basis.  Some credit reporting agencies will simply list the number of months reported and the number of times the account was 30 days past due, 60 days past due, 90 days past due or more.

The accounts current status.  This describes the current status of the account.  It might read, open or current, paid as agreed, collection account, paid, closed account, account closed at consumers request, paid in settlement, placed for collect ion, closed, or some variation that describes whether or not the account is active and in good standing. 

The account number or partial account number will be included.  For security purposes, some creditors list only the first or last few digits of an account number.

The type of account will also be included, indicating whether the account is an individual account or joint account and whether the account is a revolving account with a fluctuating balance and payment or an installment loan account or a collection account.

After the main body of the report with the listed account, both open and closed, there will be a list of recent credit report inquiries.  This will include a list of companies that have requested a copy of your credit report, usually over a 24 month period of time.

The next section includes public records information.  This information is usually accessed from local, state and federal court records.  Items that may be included are creditors judgments entered against the individual, bankruptcy filings or tax liens.

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Severe Negative Information in a Credit Report

Posted by admin on October 28, 2009 · Leave a Comment 

One of the four main components of credit data in a credit report includes public record information.  Public records include items such as bankruptcies, tax liens, legal judgments and other legal proceedings recorded by a court.  These records are often the biggest drags on a credit score.  Some of these accounts may be able to be cleared up or removed from the credit history or credit report with a little bit of work. 

Most of these public records unfortunately, can not be altered or ameliorated.  For example; on bankruptcies credit reports simply record the time of the bankruptcy filing and the time of the bankruptcy discharge, there is very little that can be done to improve a credit score based on new or updated information on a bankruptcy.  Other accounts may have the possibility of being removed or have the damaging impact on the credit score lessened.  A key element in lessening the negative impact of these accounts is removing the record altogether or having the account reflected as being paid in full and satisfied.  Understanding how and why the public record is on someone’s credit history in the first place is the key to handling these accounts and clearing up a bad credit report and low credit score.

Judgments

Judgments on a credit report are the result of lawsuit that has been lost and the courts have awarded a judgment against the defending party.  The lawsuit could come from a creditor such as credit card that is in default or car loan or private party in which there is a debt of money owed and the payment arrangement is in default with collection continuing to court and the end result being a judgment awarded to the party in which the funds are owed.

If you still owe money on an account that is being reported negatively and if your payment troubles are the result of unexpected job loss, illness or some other event beyond your control rather than overspending or just a casual attitude toward paying the debt, the creditor may be approachable about working with you to improve your credit record as long as it involves some sort of payment.

Generally, creditors will not seek a judgment against a consumer unless they have tried every way possible to get their money.  To get a court awarded judgment the defendant must be served notice of the court date and either lose the defense or simply not defend the matter in which case the judgment is referred to as a default judgment.  Judgments are time consuming and costly for the creditor to pursue and they are frequently the last cause of action and are generally not pursued on small dollar amounts.

When a judgment is awarded in the creditors favor, such as the credit card company or auto loan, the creditor will often not be very eager to work out a deal with you since they have already won the lawsuit against you.  The only way to resolve these situations is to pay the amount owed.  It is always best to try and settle the debt, hopefully for a lower amount, before the judgment is awarded even if that means settling right up to the court date.  If a creditor has a judgment against you can still try and negotiate a lesser amount to pay. 

Creditors may be receptive to this offer because it provides them with money that they have probably given up on, and it helps them recoup some of what they spent trying to collect on the account and getting a judgment. In other words, it is found money for them.

To explore this option, contact the creditor’s account manager and explain the reasons for the problem with your account and offer to resume payments if you had made them in the past, increase the amount of your payments or if possible pay the debt off altogether.  Obviously, it is easier to negotiate a lower amount if the account is to be paid all at once.
Find out if the credit account manager or debt collector might be willing to settle for less than the full amount owed.  Indicate that in exchange for your offer you would like the creditor to stop reporting all negative information on your account to credit bureaus or credit reporting agencies and have a release prepared for the judgment.

If your creditor agrees to vacate the judgment in exchange for payment, be sure to get that agreement committed to paper and signed.  Find out if the credit manager is willing to update your credit report to show that the adverse account information is no longer verifiable.  Also, ask that a notice be sent to each of the credit reporting agencies the creditor reports to asking that they delete the adverse information from your record.  This approach will not work with every creditor but like all debt negotiations, it is certainly worth a try. 

Tax Liens

Negotiating a deal with a taxing entity that has placed a lien on your property can be difficult.  This is because the taxing entity knows that all it has to do is wait to collect the debt, when the time comes for you to sell your property they will get the money.  Government workers also do not have the same incentives as private sector debt collectors for collecting delinquent bills.  However it still may be worth the effort to at least attempt to negotiate a deal when there is a lien on your credit record and property.

To initiate negotiations with a taxing entity, contact the appropriate office in your area, tell them what you want to accomplish, explain the cause of the problem and there is nothing wrong with being emotional, then find out whom you need to talk with as well as the paper work you need to complete a settlement request.  Should you be denied a compromise, appeal to the next level of decision making within the organizational structure of the taxing authority.  Unfortunately, you will be working with a bureaucracy, so answers and assistance may be slow and difficult to obtain.
 
One final note if you decide to seek a negotiated compromise with a taxing entity, you may want to get the assistance of a lawyer or a firm familiar with IRS or state/local tax negotiations and the tax code.  These people will know whether your tax liability is likely to be compromised, how best to approach the negotiations and which laws forms etc apply.

During the negotiations, you should try to work out a compromise for the amount of money you owe as well as a payment schedule you can meet.  You also should try to have waived all or part of the interest and penalties that will have been accruing on the back taxes that created the lien.

An integral part of the settlement agreement you negotiate there should be a letter from the taxing entity to the credit bureaus recording the tax lien has been paid and satisfied. 

IRS Liens

If the IRS has a lien in your credit report and on your property, it is important to review the possibility of an Offer in Compromise.  The IRS tax code says that the IRS may compromise a tax liability.

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed.  Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.

The IRS may accept an offer in compromise based on three grounds that doubt exists on whether the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection, a legitimate doubt exists that the assessed tax liability is correct or there is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC.

Settling and removing an IRS lien can give a tremendous boost to a credit score.  Of course, working with the IRS requires a fair amount of paperwork, patience and persistence. 

Public records generally contain the most severe form of negative information regarding an individual’s credit history and therefore have the greatest impact on pushing a credit score lower.  It is possible to have a good credit score even with public records, the length of time since the public record was recorded will factor in as well as the amount of the debt recorded and the overall credit profile.  Individuals that reestablish good credit records or maintain some good credit records while they endure the hardship of a public record may in fact have a fair to good credit score.  It is always best to assess your whole financial picture; debts, assets and income before deciding which accounts to try and clear up and which method of clearing up these debts will work best for you.

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Beware of the Little Things that can Hurt Your Credit Score

Posted by admin on August 21, 2009 · Leave a Comment 

Countless articles regarding credit inform consumers about the big events that can have a negative impact on their credit score.  But, many consumers fail to realize all the little transactions or little known transactions that may have a fairly significant and harmful influence on their credit score. 

We all now the importance of good credit and a good credit score in our society with its wide ranging impact from credit and borrowing to employment to insurance and housing and more.  Most consumers are also well aware that the higher their credit score the better.  And most consumers are aware or becoming more aware of the basics for keeping their credit score high.  What some consumers fail to realize is all the lesser know actions that can really harm a credit score.

The basics on credit and credit score management are covered within this site as well as other sources on credit management.  These are the key elements that to avoid in order to maintain a high credit score.  They are the actions that can have a clear detrimental affect on your credit report and credit score.  The obvious actions include late payments on credit accounts that are in a credit report such as credit card, car loans and mortgages, carrying too much credit card debt and more.

But there a lot of consumers and lending professional who do not know all of the not so obvious factors that can harm a credit score.  This list reviews the so not so obvious actions to avoid as well as some actions that involve common sense but, where some consumers are not aware at just how damaging their action really is.

#1.  Having credit accounts with balances near their maximum amount available.  The percentage of available credit used is a key factor in determining a credit score and having a credit account, even if it is a balance transfer on a credit card to consolidate debt, at or near its total available credit limit will eat up all of the available credit and will lower a credit score.

#2.  Short lengths of time between new credit accounts or having multiple credit accounts opened in a short period of time.  Even consumers with good credit who open multiple accounts will find their credit score may drop due to opening new accounts in a short period of time.

#3.  Having late payments accounts turn into collection accounts that in turn become accounts listed in the public records section of your credit report.  Public records like judgements, liens and bankruptcies can have a big, negative impact on a credit score.  These types of accounts can have a big impact even when the dollar amount is relatively small.

#4.  Having too many store credit cards and too few bank credit card accounts.  These accounts have a lower value as they are evaluated by credit scoring models and therefore having more of these accounts and fewer heavier weighted credit accounts can bring a credit score down.

#5.  Having no recent credit activity or no recent revolving account activity such as credit card balances and monthly payments.  It can actually hurt your score if you pay off your balance in full each month or simply don’t make transactions with credit.  Without a monthly payment history, the credit score models have very little data to work with.

#6.  Collection accounts and more collection accounts.  Collections accounts may rank as one of the more obvious credit score killers, and there are now more types of accounts that are being sent to collection companies that report to credit reporting agencies which will shift a credit score lower.  More and more local governments are reporting unpaid parking tickets, library fines and other delinquent fees to collections agencies which may get reported to the credit bureaus and impair a credit score.

#7.  Creditors showing delinquent credit records that normally don’t report to credit reporting companies are now reporting in greater numbers.  This can be especially true on those customers with a sketchy payment history.  The biggest example of this change is the utility companies such as the electric company, gas company, phone company, etc…  More utility companies are reporting seriously delinquent accounts as well as customers that are simply 30 days late to the credit reporting agencies which is definitely going to hurt an individuals credit score.

#8.  Excessive inquiries.  Every time someone looks at an individuals credit report, it is considered as an inquiry and stays with the credit history.  Too many inquiries can lower a credit score since it is indication of someone opening more credit and incurring more debt. 

And don’t forget more of the basics that will damage a credit score such as having high credit card balances, high balances relative to available credit and late payments.

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