Popular advice that can be costly…

By Dan Beck, Credit Management Specialists

How many times can you think of that you had the best intentions, did just about everything right, but the end result turned out to be negative? Some of the most popular advice about how to improve your FICO score is just like this, great intentions, just about all the right advice advise but one key element is not addressed. This key element can take great advice and turn it into devastating results.

A lot of people think they have a handle on what makes up a FICO score, and consequently what needs to be done to improve it. I am certain we have all heard the advice to; “Just pay your credit card off in full every month and your FICO score will improve” or “If you don’t have a credit card, get one and use it, then when the bill comes just pay it off in full every month.” Now this advice is never meant to be misleading or harmful, I am certain of that. The one key factor that is not addressed with this advice is the element of time.

Following the advice can actually cause your score to go down all because one little piece was over looked. For purposes of illustration let’s assume I want to buy a house, I go apply for a mortgage and my scores are a little shy of what is needed to secure a mortgage. The mortgage broker looks at my credit report and trying to be helpful tells me to go get a credit card, use it and then pay it off in full when the bill comes. So being a good listener I go out and get a credit card with a $300 limit. I decide instead of paying cash this holiday season I will just use the card and then use the money I have set aside to pay off the card. A month later I get the bill in the mail, write a check for $300 which pays the card off and takes my balance to $0. I go back to my mortgage broker to pull a new report so I can buy the house I want and to my surprise, and that of my mortgage broker’s, my FICO score is lower than it was the previous month!

To understand why this happened, we need to understand that balance-to-limit on a credit card is actually the second largest component of our FICO score. It makes up roughly 30% of our overall score. Now before I had no credit cards, which is negative to my score, so I followed the advice and did exactly as I was told. I got the new card, used it and paid it off in full when the bill came. The element that was overlooked is by the time the statement comes in the mail the balance has already been reported to the credit bureaus from my credit card provider. The new credit report that I have will show the one credit card I have has 100% utilized, thus causing my scores to drop, most likely severely.

An easy solution to this problem is just a little more education. If we are educated we can avoid a lot of frustration and heartache. If the advice that was given to me would have contained one more step, the plan would have worked perfectly and I would be approved for my new house. We know that balance-to-limit is extremely important to our FICO score. I will also share with you the absolute best percentage to utilize for your credit card limit is 7% for maximum gain to your FICO score. 7% of $300 is $21, so if I would have had a balance on my card of $21 I would have seen the most improvement to my score with this advice. But only if I knew the proper time to pay down my card, this is the ingredient that was over looked from the beginning.

Credit cards have cycles. It is important to know when you’re billing cycle ends. Most cards tell you that date on your statement or you can call and they will tell you. Mechanically what happens is when my billing cycle ends my credit card reports to the credit bureaus that my balance is $300, and then they mail me my statement and give me a 21 day grace period to pay my bill. So you can see that this piece of the equation being over looked is a huge problem. By the time I paid my card off in full, it was too late! The damage has already been done. My FICO score is showing the effects of being maxed out on my credit, even though I just paid it off in full! Talk about frustration.

To keep this original advice from resulting in a negative outcome, all we need to do is know that paying the card when the bill comes is too late. The simple solution or the last part of the advice that I needed to have received should be, call my credit card company and pay it off in full, five (5) days before the billing cycle ends. Now instead of being frustrated and angry, I am a homeowner and I am telling everyone I know how wonderful my mortgage broker is! Just one little thing can have a huge effect to overall success of the advice. Credit education is extremely important, make sure that the advice you follow is from an expert and complete.

The Easiest Financial Plan…

By Dan Beck, Credit Management Specialists

It seems that everywhere you go people are discussing the economy. The proof of the bad economy is everywhere, and millions of people are searching for answers. Whether the economy is doom and gloom or it is booming, one constant is the number of financial plans that people have come up with or tried to implement in order to get ahead.

Some of these plans are very complex and some still are very simple. Think about all the different types of plans or approaches you have personally heard about. They start out as; “the best way to get ahead with your finances is…” I am not saying any of these plans are bad or that they can’t work, but I will tell you why I believe so many of them end up failing.

I believe that one of the biggest reasons people end up not being successful with different plans is they associate the journey that leads to the final destination as one involving pain. Most people I see know the plan will work and try to convince themselves they can do the things they need to reach the final outcome they desire but more often than not they fall short. The pain that is associated with getting ahead for most people ends up stopping them from staying on track.

The pain I am referring to is “don’t”. Such as, don’t go out to dinner, don’t go to a movie, don’t go on vacation, don’t buy the kids new school clothes, just to name a few. Some people even go as far as not running the air conditioner at their house or wearing coats inside instead of turning up the heat. All these kind of things will save people money, which is the pivotal part of their financial plan, but so many lose interest of the goal because they get tired of the not doing the things they want to do.

We don’t like the pain of doing away with things we want to do and in the end that alone is enough for most people to just give up. Therefore the well constructed plan fails.

How about a way to get ahead that doesn’t involve pain? Personal finances can be very basic in terms of complexity. You have a few options; make more money or spend less money. Doing either of these things if you don’t increase your monthly obligations will give you flexibility to get ahead. Once you have the extra money that is where you can get into many other options and much debates as to what is the best way to use those funds. That is for you to decide.

So keeping this as simple as possible let’s assume that just going out and making more money is not an option that is viable for most people. If that option is off the table it comes down to saving money every month, but how do we do that without getting back into the cycle of pain, otherwise known as not doing what we want or sacrificing? Drum roll please…Pay less for the things that we have and have to have.

No I am not telling you to only shop at Wal-Mart that would put many people back into the pain cycle. Instead, simply pay less for most of your monthly obligations by improving your credit score! Think about it, credit scores are vital in determining your rate on Mortgages, Auto loans, credit cards, Insurance, personal loans, etc. Improve your FICO score, and pay less for things you have. It’s really pretty simple, and pain free. You then have the ability to take the monthly savings awarded to you by having a better score, and use that to get out of debt faster.

Incorporating your FICO score into your financial plan needs to be at the foundation of any variation of a plan that you want to use. This is simple. You can do it. Best of all, it is relatively pain free! The only pain involved with this plan, is you need to get credit education, or hire an expert to help you with the things you need to do to improve your FICO score.

Improving your FICO score becomes a lot simpler if you actually know what is good for your score and what is not. It is a lot easier to make good choices or decisions once you know what the outcome will be. Most people if they know doing something today will be negative for their FICO score will no longer make that same mistake once they get over the myth that they have no real control of their FICO score. Very few people understand the scoring system; therefore they try to add common sense to FICO scores. This just causes people to end up mad which yields negative results. Education is key.

The last step is getting education from an actual expert. Not just a person that thinks they know the rules or someone that you think should know the rules. There is a big difference from an actual expert vs. someone that just should know the answers because of their job. So, be very careful who you listen to when it comes to credit score advice.

There you have it. Simply put, improve your FICO score and save money. One of the easiest, most effective and pain free plans you will ever come up with.

How Bad is Bad?
By Dan Beck, www.expertcreditrepair.net


New numbers have been released that I believe are very informative, but can also be scary unless something is done. When talking about FICO scores, remember the whole purpose of the system is to predict the statistical chance of a consumer being 90 days late, or more, in the next 24 months on an obligation. This model has been created to evaluate certain things on our individual credit reports that have been classified as predictive information, and then a 3-digit number is generated. These numbers most commonly have been said to range from 300 as the low to 850 as the high. This is not 100% accurate but for our purposes it is close enough.

All the information on our credit report is analyzed then a 3-digit number is produced to determine our credit score. Lenders, for example, love this system because it makes their job easier and faster. They have predetermined ranges that they use to approve clients and also know what rate to charge.

So for lenders, a lot of the guesswork is out of the equation. The model has always been somewhat secretive because the more information that we know as consumers, the less predictive the model becomes. Lenders take this number and base decisions from it.

Some of the new facts that are coming out are that a lot of lenders have not been validating the performance of their lending portfolio as often as the system would suggest. Most lenders want to re-evaluate their portfolio every six months, for whatever reason many of them have not been doing that and now we have even more problems when it comes to the stability of the credit arena.

To illustrate this let’s assume that a lender knows that if they have 10 borrowers with a 720 FICO score, one of those ten will become 90 days late or more in the next 24 months on any one payment. Also, let’s assume that if the same lender approved 10 people with a 650 FICO score that 5 of those will go on to become 90 days late or more in the next 24 months on a payment. Again these are not actual numbers just showing you how the system theoretically works. What has been found is that borrower’s that had a 720 three years ago are now performing more like borrowers with a 650.

What this tells us is that more and more people are having problems. But you can see how this can cause huge problems for lenders, if they give loans assuming that 1 in 10 will have problems in the next two years, but in reality it turns out that 5 out of ten are non-performing, this presents some huge challenges.

The most recent numbers say that 25.5% of the American population has a 600 FICO score or lower, and 35% has a 650 FICO score or lower. Lenders usually classify 650 or lower as subprime (talking about industries).

This tells us that 35% of US population is currently subprime or less, which equates to about 70,000,000 people! The scariest part about all this new information is that most people don’t drop down to the 600 category just by maxing out a credit card. Most of them get down to this level by a severe negative incident occurring on their credit report. The biggest problem with this is most of these people are not going to have the desire or the ability to just make a quick change and jump themselves back to the level they were before.

Most of these items will stay on the person’s report for 7 years. These people are in great need of credit repair.

This is important because it shows the real effect of the economy and the potential recovery as well. A lot of these 70,000,000 will not be able to buy houses, cars or other goods unless they make a huge change and become cash buyers for everything. Which is great until they need to, or want to, buy something they can’t just write a check for.

Looking at housing for example, prices steady or increase with demand. If more and more people are becoming credit challenged or just un-financeable the demand goes down which as we have all seen; slows, stops, or reverses financial recovery. Rates can be low, prices can be low, but if no one is out there that can qualify to buy the houses, we all have problems.

All the new legislation or potential legislation is making credit qualifying harder. I am not debating whether that is a good thing or not, but I am saying that credit as we know it is not going away.

The system is not going to change, and until we as Americans start getting educated and actively start implementing Credit Score Planning into our financial lives, the road to recovery is just going to get longer and longer.
Credit Education and Credit Repair works, but make sure you are working with an expert, get started today!

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Why aren’t the rules just given?
By Dan Beck, www.CMSconsultants.net

When most people start being educated about how the FICO scoring system works some of the most common responses are; “that is crazy”, “that doesn’t make sense” and “why can’t they just tell us the rules!”

Just in case you are not aware, FICO scores are designed not to be common sense.

The purpose of the FICO score is to predict the statistical chance of a consumer being 90 days late of more in the next two years, that is it. The key word there is predict, or predictive. So don’t get hung up on trying to add common sense into the equation, because unfortunately that will just confuse you more.

To better understand this whole process or system it is helpful to understand how the model was created in the first place. Fair Isaac (FICO) went to the credit bureaus and requested 1.5 million random credit reports; two years later they went back and requested new reports on the same 1.5 million people.

From there they started to find similarities between the reports more importantly between the reports of the individuals that had become 90 days delinquent or more on a debt during that course of time. That is how the FICO scoring system that we all know now was created. As you can see it is all about predictive information. Why that is so important to know is because now you understand why FICO is not in the practice of sharing much information about their model.

The more information people know about the model, the less predictive the score becomes. If you know all of the factors that will hurt or help your FICO score more people will change the things they do so their score will improve. As people do this, the model loses some of its value. FICO doesn’t want you to know the rules and the rules are not common sense, they are all about predictive information.

Lenders don’t know how the model was created or the ways your information is being valued, they are just looking at scores and then based on that score, they have done research to know if they will approve you or not and also what rate you will receive. The FICO scoring system has made the world of credit much more efficient and streamlined.

Having said that, the more things that we learn that will positively affect our score the more money we will save. To illustrate just how important this is The Consumer Federation of America found that consumers could save $28 Billion a year in lower credit card finance charges if they improved their credit score by 30 points!

The rules are not going to change nor is the process going to change any time soon. The system is the way it is and we all need to become as educated as possible, or just continue to waste money by having higher interest rates.


The biggest challenge that we as consumers have is not finding information about FICO scores, but finding correct information. The world of credit has become cluttered with new companies sprouting up every day.

All of them have some new way of packaging a product that will either help improve your score, allow you to monitor your score or save you all kinds of money on your current bills.

The challenge for us as consumers is to sort through all of these offers and find out which ones are actually basing their education or advice on actual factual information. To help you with this, one of the first things you need to look for is if the advice you’re getting is being based off “credit scores” or FICO scores. Many companies are using “credit scores” as a way to get the attention of their potential customers.

A FICO score and a "credit score" can be summed up quickly as they both are evaluating the information on your credit report, and that analyzed data then produces a score.

The big difference is just about every lender is only checking your FICO score, not many people or industries care about any of these other “credit scores” or models. So if no one uses those other models to determine your credit worthiness, then why should we care about them? The answer is we shouldn’t. Why get advice on any model or system that is basically irrelevant when it comes to getting a loan? When it comes to credit scores FICO is king.

Knowing that FICO is not in the habit of publishing their model, it is pretty safe to guess that just about all of these new companies are either purely guessing about the FICO system, or they have created new ways to sell you information based on some other “credit scoring” model. Long story short, they are teaching you how to improve a score that no one cares about.

Make sure any product or service that you are buying or getting advice from is actually giving you your FICO score or information that is FICO factual. Most of these credit monitoring systems or credit score simulator systems will tell you if you read the disclaimers that they are not tied to FICO in any way and they are evaluating your “credit score” based on some other model than that of FICO. Knowing this doesn’t make the products completely worthless, but in a lot of cases pretty close.

Potentially the only thing worse than not knowing anything about our FICO score, is paying for something that we think will help us improve our FICO score only to find out we just became an expert on a model that is basically worthless.

If you have any questions or just need some Credit Repair advice -- Please contact me at: 970.302.5185