Good Morning!
Ninety-nine percent of all failures come from people who have a habit of making excuses.
--- George Washington Carver
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The financial market turmoil the past two years has wreaked havoc for many people's credit. Late payments, increasing credit lines, closed accounts and even foreclosures can do serious damage to one's ability to obtain and use credit. In this article, we will explore some things you need to know.
More than ever, it is important to have a good grasp of where you stand with the three major credit reporting bureaus-- Equifax, Experian, and TransUnion. In addition, Fair Isaac Corp, also known as the developer of the FICO credit score is often used by lenders simply because it boils down all the data into a simple score ranging from 300-850. Today, financial institutions use these reports and scores to determine how to grant credit and how to price credit. Good scores can help in getting insurance, cell phone usage and sometimes even a job. Here is a step-by-step guide so have fun!
Step #1 GET YOUR CREDIT REPORT
In the past, getting a credit report could be onerous and costly. Today there are a number of free resources to get started. The big one which is the FICO score can only be obtained by paying a fee to one of the big three reporters. You can also get this by signing up for a service. Rather than paying, why not just dig into the free stuff for now and stay away from some of the pricy (and often they are scams) services. By the time you go through the exercise of going to six free sites, you should know more about your score and what to do to repair any flaws.
The first thing you want to do is go to the official, authorized government sponsored site,www.annualcreditreport.com. Note, it is not the freecreditreport.com site which is not recommended. You should be able to click the link to get to the site. You are entitled to a free report each year from each of the three agencies. Rather than pull all three, we recommend that you only do one for now. In four months, do the second one and the third and final one four months after that. By pulling a report every four months you can stay current and do any damage control necessary. Each of the three companies will offer your FICO score which is $7.95. Again, stick with the free stuff for now. Remember, we all need to save money right now!
The next step in getting reports is to take advantage of three new sites that will give you a pretty good indication of your credit score free of charge. All three are tied to the credit industry and are making money through advertising and product sign-up fees. They will also offer tips on improving scores, how your credit stacks up against others and key factors in computing your score. Of the three, which are: www.quizzle.com, www.credit.com and www.creditkarma.com we liked Quizzle. They give you an estimated score which was very close to what I already knew. Credit. com gives you a range and gives a score from A to F. Both of these gave me a slap on the back for a good report while Credit Karma gave me a slap on the rear! Credit Karma gave me a 100% for on-time payments but docked me for applying for several department store cards to save on my first purchase. According to one of the sites, they recommend that I don't try to open more cards at department stores. The savings are not worth the hassle of a negative credit report.
You will want to get all three because they report differently, use different credit reporting agencies and have suggestions based on their criteria.
Step #2 REVIEW THE REPORTS
Grab a highlighter and start with the obvious. Surprisingly enough, it is quite common for basic personal information to contain errors so review carefully. Thirty years ago, I was denied a loan because I supposedly was a commercial fisherman living in San Jose and had filed bankruptcy! Fortunately, it was an easy fix and the loan was granted.
Look for accounts that don't belong to you as well as payments that were incorrectly reported as late. Also look for past due accounts that are reported correctly as late, charged off or have been sent to collections. Also look for accounts that are maxed out and over the credit limit. In other words, check everything for accuracy with a fine tooth comb.
Step #3 DISPUTE ANY ERRORS
You always have the right to dispute any and all information that is inaccurate. Most sites have a place to make corrections. Note that one of the reasons to check your credit report regularly is to dispute a late payment. It is very difficult to fix a late payment years later. You can also send a letter to the credit bureau with your story and why something needs to be updated. Be sure to send a copy of the report and highlight the inaccurate information.
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Step #4 WORK ON FIXING DELINQUENCIES
Payment history is critical and is a major component of your credit score which means that past due accounts can have a significant effect. Take care of these immediately or as soon as possible. Strive for a goal of having all past due accounts reported as "paid" or "current." Try to make sure that nothing gets charged off. Call your creditor and explain your situation and that you are monitoring your credit and have resolved to fix delinquencies. If you need to, be sure to work with debt collectors to get accounts out of collection. Even though they may have screwed up (and we have all had those happen) do not ignore it; fix it and show willingness to cooperate. As a last resort, send a letter to the three reporting agencies and explain the dispute.
Step #5 IMPROVE YOUR CREDIT UTILIZATION
A full 30% of your credit score is credit utilization which is your total debt compared to total credit. If all your cards are maxed out, then your score will suffer terribly. To add insult to injury, you may be paying fees for being over the limits. Many credit card sponsors are happy to collect extra fees and the banking industry does, in fact, collect billions and billions of dollars each year in unnecessary fees. Work on bringing the cards below the limits and continue to strive to pay them off as soon as you can. The ultimate goal is to eliminate all credit card debt.
Step #6 DEVELOP NEW SOURCES OF CREDIT
Once you have taken care of the negatives, it is time to work on the positives. That means developing positive information on your report. Look for the items that are being reported as being paid on time. Keep it up and don't let them get away from you. Keep the balances level reasonable with the amount of available credit. And, be sure to make your payments on time. If you can, do what we do which is have almost all payments taken out of your checking account automatically and avoid late payments and late fees.
You will most likely need to apply for a new card to start re-building credit. Only apply for one because credit inquiries can cost your credit score. There is what we call "hard" and "soft" inquiries. A soft inquiry is like doing the exercises we recommend above to find out your scores. This does not affect your credit. A hard inquiry such as applying for credit can ding your credit scores so be careful. Remember my story above about the department store cards? Well, it hurt my credit but that will go away over time and the effect was minor but it still subtracted about 13 points off my score.
If you are not able to get a major credit card, try one of the big department stores. If that does not work, try a smaller firm. And if that results in a negative response then get a secured card. Many banks will do this for you. You put in an amount like $250 to $500 and then you can "charge" using your own money. Hey, it sounds funky but it works for building credit again!
Be sure you don't sacrifice accounts in good order for accounts that are not. Make timely payments on the accounts that are current. If you are still having problems, it is time to talk to a consumer credit counselor. Maintaining good credit requires time and effort. It also means that you need to stay on top of it, pull your credit reports regularly and work diligently to keep your record clean.
Step #7 CALL US AND START WORKING ON YOUR FINANCIAL PLAN; WE CAN HELP!
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Chuckle of the Day:
A manufacturer said to a storekeeper, "Thank you, Mr. Schwartz, for your patronage. I wish I had twenty customers like you."
"Gee, it's good to hear you talk like that, but I'm kind of surprised," admitted Schwartz. "You know I protest every bill and never pay on time."
The manufacturer said, "I'd still like twenty customers like you. The problem is, I have two hundred."
--- Joey Adams
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Thanks for reading this weeks Vance Advance!
Working for your Wealth and Peace of Mind,
The Vance Capital Management Team |
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