The Government Accountability Office states that as much as 80 to 90% of credit reports have serious errors on them. In other words, only 1 or 2 people out of every 10 actually have a credit report that is 100% accurate! Not exactly the best success rate. Granted not every error on a credit report will directly effect that person’s credit score, but a huge majority of them will. The credit score world we live in is not like our judicial system, you know “innocent until proven guilty”. This system is the exact opposite, you are guilty unless you can prove yourself innocent, that is assuming you even knew how to do this.
If you were wrong 80 to 90% of the time and most likely every time it happened you were responsible for costing someone thousands of dollars or worse crushing their dreams, how would you respond? Most people would do everything they could to fix the problem and help their victims recover as fast as possible. Sadly when it comes to the accuracy of your credit report there is a different philosophy being employed.
The “Big Three” (Transunion, Experian, and Equifax) have a much different way of dealing with this major problem. Most of us know that if there is something wrong or inaccurate on our credit report we have the right to dispute that information. Disputing it is how it will get fixed, but did you know that there are several ways or methods to go about disputing something?
If you look at the websites of the “Big Three” they will make it really easy to dispute anything that is inaccurate on your credit online with just a few clicks of the button through their online dispute process. Have you ever wondered why they would push this option so hard, and make it so easy for you to complete? It has to be so their product (your credit report) is as accurate as possible, in the shortest amount of time possible, and this is the best way to ensure future accuracy, correct? How would you feel if you learned that by following these instructions to fix their error, in reality all you are doing is waving several of your rights and changing the things they are required to do by law?
By disputing online you agree to make the “Big Three’s” job easier by having preselected generic ways that you can dispute something. There is no paper trail to even prove you actually do dispute something, and you allow them more time to “investigate” your dispute. All of this along with a few other minor details like waving your right to be notified if a previously deleted negative item is re-inserted back on your credit report. By using the online method, you allow them to not have to send you any results of the investigation and lastly give them more loopholes as to what information the original creditor has to provide. All these things will greatly hinder the chance of you getting your credit report corrected.
Don’t just assume the bureaus are right or that they are doing anything in reality to help you improve or maintain a good credit score. That is not the business they are in. Having you dispute online is just one more way they prove how little they really care about you having an accurate credit report. It is pretty clear that the real motive of the credit bureaus is only to make money, to sell you worthless add on products, and confuse you. Even when they recognize their product has flaws, their first instinct is to create a way of dealing with that problem by making their job easier, not one that will ensure the best accuracy possible. Credit bureaus make money storing and reporting data, unfortunately for us nowhere in that statement is the word ACCURATE data.
Thursday, April 21, 2011
Thursday, March 17, 2011
Why are you paying that Collection?
When it comes to collections, and more importantly paying past collections, there are two common myths that consumers have. The first is that paying a collection will remove it from your credit report. It would be great if that were the case but unfortunately that is not how the FICO system works. Paying a collection will just have the account updated to a zero balance, but will not do anything for you as far as removing the collection from your report. Collections can stay on your report for 7 years from the date of first delinquency.
The second most common myth I hear about collections is the idea that paying a collection will somehow drastically improve your FICO score. If you understand the purpose of the FICO scoring system, which is to predict the statistical chance of consumer being 90 days late or more in the next two years, you will understand how this belief is flawed. If the purpose of the FICO score were to predict the statistical chance of a consumer paying a collection then yes, paying that collection would be fantastic advice for credit score improvement. In most cases paying a collection will have a neutral to slightly positive effect on your FICO score.
I am not saying don’t pay your collections if you have them, I just want you to know what to expect by doing so. There are several reasons for paying your collections, just understand that if you are hoping for a large score improvement or that the item will be removed from your credit report you are greatly mistaken.
The FICO score cares about the incident, meaning the fact that you had the collection in the first place, not the balance. After paying a collection the incident needs to be addressed. If you are able to get the collection removed from the credit report one way or another then you will see the improved credit score you were hoping for.
Obviously the best advice is to not let accounts get to the collection stage, but there may be circumstances that you cannot control which lead to collections. If you get a collection letter and have the ability to pay it, always ask the Collection Company if they will remove the incident from your report when you make the payment. This doesn’t always work, but it is worth a shot, if you are successful you will save your FICO score, which in this day in age is extremely important.
The second most common myth I hear about collections is the idea that paying a collection will somehow drastically improve your FICO score. If you understand the purpose of the FICO scoring system, which is to predict the statistical chance of consumer being 90 days late or more in the next two years, you will understand how this belief is flawed. If the purpose of the FICO score were to predict the statistical chance of a consumer paying a collection then yes, paying that collection would be fantastic advice for credit score improvement. In most cases paying a collection will have a neutral to slightly positive effect on your FICO score.
I am not saying don’t pay your collections if you have them, I just want you to know what to expect by doing so. There are several reasons for paying your collections, just understand that if you are hoping for a large score improvement or that the item will be removed from your credit report you are greatly mistaken.
The FICO score cares about the incident, meaning the fact that you had the collection in the first place, not the balance. After paying a collection the incident needs to be addressed. If you are able to get the collection removed from the credit report one way or another then you will see the improved credit score you were hoping for.
Obviously the best advice is to not let accounts get to the collection stage, but there may be circumstances that you cannot control which lead to collections. If you get a collection letter and have the ability to pay it, always ask the Collection Company if they will remove the incident from your report when you make the payment. This doesn’t always work, but it is worth a shot, if you are successful you will save your FICO score, which in this day in age is extremely important.
Tuesday, February 22, 2011
Don’t try to outsmart your FICO score…
When it comes to FICO scores people have lots of ideas about how to build or improve credit scores. One of the most common I hear has to do with how to use credit cards. For those who don’t have a credit card, some of the most common advice that they are given is to get a credit card, max it out, and then pay it off when the bill comes. People who are giving this advice will then tell you to repeat this process, and by doing this, it will look good on your credit report and improve your FICO score because it shows you can manage your debt. If this is advice that you commonly give…stop giving it!
Here is the truth about this advice and why you don’t want to follow it. Your FICO score is a real time calculation based upon what is on the credit report, at the exact moment and time that a score is requested. Meaning your FICO score doesn’t care what your balance was last month, or the month before, it cares about what your balance is at that exact moment in time! Also it is important to remember that by the time you receive a statement on your credit card, the balance has already been reported to the credit bureaus and will not be updated until the next billing cycle ends.
Following the max it out, pay it off when the bill comes theory means that what you have most likely done is cost yourself a lot of time and tanked your score in the process. Remember that following credit score advice that is just a little bit wrong, can cost you thousands of dollars in the long run!
So what is the best way to properly handle this situation; get a credit card, only charge less than 10% of the credit limit, and when the bill comes pay it off. Repeat this cycle every 3 to 6 months just so that your new card doesn’t get closed for you. See how much easier that is? Don’t try to outsmart your FICO score, most likely all you will do is hurt yourself in the long run.
Here is the truth about this advice and why you don’t want to follow it. Your FICO score is a real time calculation based upon what is on the credit report, at the exact moment and time that a score is requested. Meaning your FICO score doesn’t care what your balance was last month, or the month before, it cares about what your balance is at that exact moment in time! Also it is important to remember that by the time you receive a statement on your credit card, the balance has already been reported to the credit bureaus and will not be updated until the next billing cycle ends.
Following the max it out, pay it off when the bill comes theory means that what you have most likely done is cost yourself a lot of time and tanked your score in the process. Remember that following credit score advice that is just a little bit wrong, can cost you thousands of dollars in the long run!
So what is the best way to properly handle this situation; get a credit card, only charge less than 10% of the credit limit, and when the bill comes pay it off. Repeat this cycle every 3 to 6 months just so that your new card doesn’t get closed for you. See how much easier that is? Don’t try to outsmart your FICO score, most likely all you will do is hurt yourself in the long run.
Tuesday, January 25, 2011
What is the FASTEST way to improve your credit score?
I get asked all the time, “What is the one thing I can do to improve my credit score the fastest?” Now my answer is, “Usually it depends, but good advice for anyone is to always pay down credit card debt.” This is the easiest and most efficient way for most people to quickly improve their credit score. A very important piece of your FICO score is balance-to-limit on revolving accounts (credit cards). More people quote poor advice about this piece of your score than anything else.
The two things you need to know are; the lower percentage of your credit card you are using, the better. And the second thing to know, if you are crunched for time you need to pay the extra on your card before the billing cycle ends. If you are not sure when your credit card’s billing cycle ends, check your statement or call the company and ask.
Let’s assume that I want to buy a house and I only have a month till closing, but also let’s assume if my FICO score were 10 points higher my loan would be approved. In this situation I have a few choices but the best choice I could make is to take some money and apply it towards my credit card debt. However, I want to make sure I know when the billing cycle ends. If I don’t know this date, my efforts might not do me any good. This will also prevent me from being able to help my Mortgage Loan Officer in letting them know when to pull a new report.
If I know the date the billing cycle ends, I will take all the money that I can apply towards this debt and make that payment a few days before the cycle ends. Then I will tell my Mortgage person to pull my credit report a few days after the billing cycle ending date. By doing this, the new updated (lower) balance will now be reporting on my report and my FICO score will calculate off that, which in most cases will improve my score and make everyone happy now that I am approved to be a Home Owner!
It can be a relatively easy process with just a little education and proper planning instead of just guessing and then being frustrated when my score doesn’t improve the way I had hoped it would. Balance-to-limit is extremely important on revolving accounts, be careful about this number.
A lot of people wrongly assume that as long as I pay my bills on time my FICO score will be good. Unfortunately it is not that simple. If you want to score the best you can in this area of your score 7% is the magic number. Meaning if I have one credit card with a $100 limit, the best thing I can do for my score is to have my balance at 7% of $100 or $7. Remember this tip, it just might allow you to qualify for your dream home now!
The two things you need to know are; the lower percentage of your credit card you are using, the better. And the second thing to know, if you are crunched for time you need to pay the extra on your card before the billing cycle ends. If you are not sure when your credit card’s billing cycle ends, check your statement or call the company and ask.
Let’s assume that I want to buy a house and I only have a month till closing, but also let’s assume if my FICO score were 10 points higher my loan would be approved. In this situation I have a few choices but the best choice I could make is to take some money and apply it towards my credit card debt. However, I want to make sure I know when the billing cycle ends. If I don’t know this date, my efforts might not do me any good. This will also prevent me from being able to help my Mortgage Loan Officer in letting them know when to pull a new report.
If I know the date the billing cycle ends, I will take all the money that I can apply towards this debt and make that payment a few days before the cycle ends. Then I will tell my Mortgage person to pull my credit report a few days after the billing cycle ending date. By doing this, the new updated (lower) balance will now be reporting on my report and my FICO score will calculate off that, which in most cases will improve my score and make everyone happy now that I am approved to be a Home Owner!
It can be a relatively easy process with just a little education and proper planning instead of just guessing and then being frustrated when my score doesn’t improve the way I had hoped it would. Balance-to-limit is extremely important on revolving accounts, be careful about this number.
A lot of people wrongly assume that as long as I pay my bills on time my FICO score will be good. Unfortunately it is not that simple. If you want to score the best you can in this area of your score 7% is the magic number. Meaning if I have one credit card with a $100 limit, the best thing I can do for my score is to have my balance at 7% of $100 or $7. Remember this tip, it just might allow you to qualify for your dream home now!
Friday, December 10, 2010
A 2011 goal you MUST have...
By Dan Beck, Certified Credit Scoring Expert
The New Year is here and with that comes a time of reflection. If you are a person that is not in the habit of setting goals, I would encourage you to do so. Having goals gives you direction and clarity about where you are headed in life. If you normally set goals for yourself I want to strongly encourage you to add a goal that I bet you have never had.
Many people have goals based around; health, relationships or finances. The goal I believe that everyone MUST have will help you in just about all of these areas. Whether directly or indirectly there is one goal that can positively affect your finances, health and relationships. The goal that has to be a part of your life, especially in this day in age, is to get control of your FICO score. I don’t care how good or how bad your score currently is, you need education and you need a plan moving forward to improve your score.
Credit scores can be linked to all kinds of other things. Think about the stress that people have. A lot of this comes from worrying about your financial future. Relationships, how many divorces are caused because financial issues are a big part of the problem? Just about everyone has one or two financial goals; the most common are to get out of debt or create more wealth. Understanding your credit score and the options that are available to you will help you get out of debt. Having a better FICO score will allow you to pay less for just about everything you do. This then allows most people the monthly savings they need to begin investing, or to increase their available investing dollars monthly!
Learning the things to do, or not to do that will affect your FICO score is the first step that I want everyone to understand. By doing this, awareness is created. I am a strong believer that when people are aware of how things affect them they make different choices. No longer is it the time to stick our heads in the sand when it comes to credit and hope that things will be ok. If you are hoping your FICO score is good, I will tell you most likely, it isn’t.
The other most common reaction from people is to get angry or call the system stupid. Whether this is your belief or not, one thing I can promise you is that lenders don’t care. I don’t mean that to be mean, but it’s the truth. You are not going to change the current system which leaves you with two choices; get educated and reap the benefits or, call the system stupid or unfair and continue to be told “no” which means you pay more for everything you want or need.
The other reaction people employ is to believe it makes good financial sense to “exit the system”. This is a very strong belief by some very popular financial experts. I agree that not having debt can be a fantastic financial plan for people. But I believe this advice goes too far to an extreme, which will then take it over to the bad advice column.
If you do not have any credit there are two big problems that come up even if you don’t have any debt. The first, for most of us, is that at some point in time something will come up that we need that we cannot just pay cash for, then what do we do? The second problem is that there are things we have to have such as insurance. Most insurance carries factor your credit score into the equation to determine your premiums. So by exiting the system, you hurt your FICO score which makes you pay more for something you have to have. I don’t think any financial expert will ever tell you that paying more for something that you have to have makes financial sense, especially when you can easily avoid it!
Think twice about adding credit scoring education or credit score planning to your 2011 goals. You will be amazed about how many ways it can affect your life. Credit Score Planning is a term that we all need to add to our lives.
Even if you have an excellent FICO score, what most don’t understand is one small wrong move could plummet your score. Take some time and make this a priority in your life. Even if you don’t, lenders everywhere are doing it for you. Hopefully I have encouraged you to start addressing this three-digit number.
The last very important thing you need to understand is where you get education or advice. Most of the things you will hear, read, or find about FICO scores are unfortunately made up, misleading, or just flat out wrong. Be very careful who or what you listen to when it comes to something as important as this. Good luck with your Credit Scoring Planning in 2011.
Monday, November 22, 2010
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.
Wednesday, October 20, 2010
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.
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.
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