GET YOUR CREDIT SCORE OVER 720
Table of Contents
First Things First – Your Credit Report 4
FICO and You 15
Next Things Next – Finding Your Score 17
Establishing Good Credit 20
Repairing Your Credit Score 23
Chapter 7 28
Chapter 11 30
Chapter 13 33
Credit Counselors/Debt Consolidators 36
Mistakes Can Be Made 41
Identity Theft and Your Credit 46
Raising Your Credit Score 51
To Review 54
We are a country in debt. Not only is our government in debt, but we, as Americans, are in debt ourselves, and the problem is just getting worse! Recent studies have shown that ninety percent of Americans have at least one credit card – and they are using that card – A LOT!
The average family carries a balance of between $7,000 and $10,000 on all their credit cards. Over $1,000 per family goes on interest every year. And that’s just the average – some people owe much more!
Overall, Americans spend over $1 trillion every year on their credit cards, and owe more than $500 billion of it. If debt continues at the current rate, then one family in a hundred will be forced into bankruptcy. Over 90% of Americans’ disposable incomes are spent paying back debts.
When you add credit card debt to the regular bills we have to pay each month, which can tax anyone’s budget. As a result, some bills go unpaid and others are paid late.
Both of these instances can damage your credit sometimes so much that you think there’s no way you’ll ever be able to get out of debt and get credit for something important like a home or a car.
The truth is that you can get out of debt and repair your credit nearly to what it was before you had credit problems. It takes some time and a little work on your part, but it IS possible.
Loan approvals and such depend on your credit score. That number is what determines if you can get credit, what your interest rate will be, and how much money potential lenders will give you. A good median score is 720, but the higher your score is, the more financially sound you are.
While it’s always a good idea to try and stay away from credit, not everyone has a hundred thousand dollars lying around to buy a home or twenty thousand to buy a car. Heck, for some people, scraping together five thousand dollars for a good used car is difficult. That’s why we need credit. So we can buy that which we cannot afford.
Where the trouble comes in is when people begin to buy everyday items such as groceries and clothing on credit cards. Then those bills begin to get bigger and bigger until pretty soon, they’re paying the minimum amount due which will take forever to pay off. Plus, a lot of people just continue charging things even when they have a large balance on their account.
Your credit score defines who you are to businesses and you want it to be as high as it can be. It doesn’t matter how bad your credit is now. There are ways that you can raise your credit score no matter how low it is now. Don’t despair; just get started – right away!
FIRST THINGS FIRST – YOUR CREDIT REPORT
The very first step you need to take when trying to raise your credit score is to find out what your score is and what it means. Legislation called the FACT Act was passed that allows all Americans to get one free copy of their credit report every year. This report lists all of your debts you’ve had and your payment history on those debts.
It will tell you where you owe money, how much you owe, and how you pay (on time, 30 days late, etc.). All of that information is compiled together and then analyzed.
After the analysis, a number is assigned to you as to what your credit fitness level is. Potential creditors then look at your credit score and decide if you are going to be able to pay back the amount of money you are requesting to borrow.
That’s the short version. Actually, there is much, much more involved in determining your credit score. However, what should be important to you is knowing how to read your credit report and how to raise that score so that you are able to get the things you need. Remember that – the things you NEED, not the things you WANT!
Let’s start with how to get your credit report in the first place. There are three major credit reporting agencies that will offer you the one free credit report you get each year. They are Experian, TransUnion, and Equifax. You can contact each of them directly in the following ways:
- Equifax – Online, you can find them at www.equifax.com. You can also order your free credit report by mail. However, they only offer this option for free to residents in the states of Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont. All other states are required to pay a $10 fee.
If you do want to do this by mail, send your request to Equifax Information Services, LLC; Disclosure Department; P.O. Box 740241; Atlanta, GA 30374. You can also call them at 1-800-685-1111.
- TransUnion – Their web address is www.transunion.com. As with Equifax, you can also make your request via mail by getting a copy of their mail request form online and sending it to the address provided. You can also call them at 1-877-322-8228.
- Experian – www.experian.com is where you can make a request for a credit report from this credit reporting agency. As with TransUnion, you will need to download a form from their website if you wish to request your credit report by mail. By phone you can call 888 397 3742.
There are also a myriad of websites who will also allow you to download your free credit report from their websites, but they ultimately will just be forwarding you to one of the above websites anyway. However, they are worth checking out for the information that you can find on them. Here are a few:
The main thing is that you will want to get your free credit report in order to find out where you stand and how far you have to go to repair your credit. Most of the time when you download your credit report, you will be able to view and save it instantly. Save it to your computer’s “My Documents” file if you can. That way you’ll be able to print it out and refer to it as much as you need.
Also, some of these sites offer low-cost memberships that will alert you if a new item comes onto your credit report. Their services will offer many different things, but purchasing a membership is strictly voluntary and probably not necessary if you want the straight truth.
Once you get a copy of your credit report, it’s important to know how to read it. There are going to be an awful lot of numbers, abbreviations and terms you’ve never seen before. Trade lines, charge-offs, account review inquiries — how do you read this thing?
Even though you get one free credit report each year, experts suggest that if you are serious about improving your credit score, you need to examine a report from each of the three major credit reporting agencies. This will, however cost you a small fee from the other two, so keep that in mind.
Why do they suggest you have all three? Creditors can pick and choose which credit reporting agency they want to report to. Some will report to all three, but many won’t. You may find that what is included on one report isn’t on another. The reports will have different information because it’s a voluntary system, and creditors subscribe to whichever agency they want — if any at all.
A credit report is basically divided into four sections: identifying information, credit history, public records and inquiries.
Identifying information is just that — information to identify you. Look at it closely to make sure it’s accurate. It’s not unusual for there to be two or three spellings of your name or more than one Social Security number. That’s usually because someone reported the information that way. The variations will stay on your credit report. If it’s reported wrong, leave it because it might mess up the link. Don’t be concerned about variations.
Other information in this section might include your current and previous addresses, your date of birth, telephone numbers, driver’s license numbers, your employer and your spouse’s name. The data in this section is often used to verify your identity or to confirm
that the information you provided for an application is accurate. Small
variations in this data between the three bureaus are normal as each
agency may have their own recording procedures.
The personal information section of your credit report may also include a “consumer statement.” This is a statement that you asked the credit reporting agencies to add to your report. Commonly, this statement is used to explain a record on your report.
For example, “The Smith Bank account from 2004 was a shared account with my ex-husband.” This statement does not impact your credit score but may help you clarify a situation to a potential creditor or lender and improve your chances to obtain credit.
The next section is your credit history. Sometimes, the individual accounts are called trade lines. Each account will include the name of the creditor and the account number, which may be scrambled for security purposes.
You may have more than one account from a creditor. Many creditors have more than one kind of account, or if you move, they transfer your account to a new location and assign a new number. The entry will also include:
- When you opened the account
- The kind of credit (installment, such as a mortgage or car loan, or revolving, such as a department store credit card)
- Whether the account is in your name alone or with another person
- Total amount of the loan, high credit limit or highest balance on the card
- How much you still owe
- Fixed monthly payments or minimum monthly amount
- Status of the account (open, inactive, closed, paid, etc.)
- How well you’ve paid the account
On Experian’s report, your payment history is written in plain English — never pays late, typically pays 30 days late, etc. Other comments might include internal collection and charged off or default. Charged off means the creditor has given up, thrown in the towel. Basically, the company has made efforts to collect the debt, realized that it’s not going to be paid, and subsequently wrote it off.
Other reports use payment codes ranging from 1 to 9; an R1 or I1 on a report is an indication of a good payment history on a revolving or installment account. Often, the code key will be listed on the report so you can better understand what the codes mean, but they may not.
Credit accounts are divided into five categories: real estate, installment, revolving, collection and other. Here is a better description of each category:
Real Estate: First and second mortgage loans on your home.
Installment: Accounts comprised of fixed terms with regular payments, such as a car loan.
Revolving: Accounts with opened terms with varying payments, such as a credit card account.
Collection: Accounts seriously past due that have been assigned to an attorney or collection agency.
Other: Accounts where the exact category is unknown. This could include 30-day accounts, such as an American Express card.
Your credit report lists a summary of the details and terms for each account. This summary includes information about the account number, condition, balance, type and pay status for each account. The
summary for collection records is slightly different.
The following information is for real estate, installment, revolving and other type records:
- Creditor: The official account name. This name may be different than you expect if your account is managed by a larger financial corporation.
- Account Number: This is an identifying number for your account. Typically, this would be a credit card number for a credit card account or a loan identification number for a mortgage.
A portion of the number is hidden for security reasons. A partial account number is all that is needed to file a dispute about the record.
- Condition: This is the account’s status as open or closed, according to the most recent update from your creditor.
- Balance: The amount you presently owe on the account based on the last reported activity. Very recent activities may not yet have appeared in the bureaus’ computer system so this balance may be a few days out-of-date.
- Type: The account’s specific type. Some common types are real estate, automobile, educational and credit card accounts.
- Pay Status: The account’s payment status, according to the most recent update from your creditor.
For each account, the report also displays an illustrated payment history over the last 24 months. There will be a key at the top of this section describes each payment history symbol and what it indicates for your account. Green boxes marked “OK” show that your payment was made on time.
Most credit reports also give you more in-depth information about specific accounts. This is also an important part of the credit report you’ll want to review for accuracy.
The following information may be reported for your account in this section:
- Past Due: The amount of payment overdue as of the most recent reported activity. Very recent payments may take a few days to appear on your credit report.
- High Balance: The most you have ever owed on this account. In the case of a credit card, this is the highest balance you’ve ever charged. For a mortgage, it is the initial amount
of the mortgage.
- Terms: This is the number of payments you have scheduled with a creditor. Most commonly this applies to loan accounts. For example, an auto loan may have a repayment plan scheduled over 36 months and a home loan may have a repayment plan scheduled over 360 months.
- Limits: For a credit card or other revolving account, this is the maximum amount you are approved to borrow.
- Payment: This is the minimum amount you are required to pay each month toward the account.
- Opened: The date the account was opened.
- Reported: The last date when any activity for this account was shown. Activities include payments, credit card billings and changes in your terms. Very recent activity may not yet show on your account, since it takes time for it to appear in the credit
reporting agency’s system.
- Responsibility: This indicates your responsibility for the account. For example individual, joint or co-signer.
- Late Payments: A summary of your 30, 60 and 90 day late payments over the past 7 years. Please note that the figures in the seven year history include any late payments shown in
the two-year history.
- Remarks: Notes about the status or condition of your account.
Collection accounts are accounts that are seriously past due and have been transferred to an attorney, collection agency or creditor’s internal collection agency. As your debt is transferred between different agencies, you may see several records on your report for the same debt.
Only one record should be marked as open at a time. All the collection records and the original debt record will expire from your credit report at the same time. Collection records use a unique summary format on your credit report:
- Creditor Name: The official name of the company that is currently attempting to collect the debt.
- Account Number: An identifying number for your account with the collection agency. This is not the same as the account number on your original debt.
- Original Creditor: The name of the original creditor where you accumulated your debt. This could be an account that is listed on your credit report (such as a credit card) or an account that is not listed on your report (such as a library, video rental or cell phone company). If this creditor was a medical office, the name may be masked for your privacy.
- Responsibility: This indicates your responsibility for the account. For example individual, joint or co-signer.
- Condition: The current status of your collection record. For example open, closed or paid.
- Original Balance: The amount of debt owed on the original account before it was transferred.
- Date Opened: The date the account was transferred to the collection agency.
- Date Reported: The date of the collection agency’s last update to this account record.
- Remarks: Notes about the account as reported to each credit reporting agency. For example, this section may note that the collector has been unable to locate you or that you have not yet paid the debt.
The next section is the part you want to be absolutely blank. The public records section is never a good story. If you have a public record on there, you’ve had a problem that has required litigation. It doesn’t list arrests and criminal activities; just financial-related data, such as bankruptcies, judgments and tax liens. Those are the monsters that will trash your credit faster than anything else.
Here are definitions of the eight types of public records you could see listed on your credit report:
- Bankruptcy: A legal filing that relieves a person of responsibility for all or some of their debts because they are unable to pay.
- Tax Lien: A claim filed by a local, state or federal tax agency against a person who owes back taxes.
- Legal Item: A general filing. This is most commonly a judgment against you in civil action.
- Marital Item: A legal filing related to a marital or divorce issue.
- Financial Counseling: A public record indicating that a person has participated in financial counseling.
- Financial Statement: A type of lien filed by a creditor against a person’s property. This can be filed when a loan is secured against personal property.
- Foreclosure: A record indicating that a mortgaged property has been taken over by the creditor because the borrower has defaulted on the loan.
- Garnishment: A record indicating a court order to withhold some or all of a person’s wages to repay a debt owed to a creditor.
The summary information listed for each of these types of public records can vary. Here are some definitions of common record categories:
- Type: The type of record. For example a tax lien, bankruptcy, garnishment, or judgment.
- Status: Current status of the record. For example released, filed or dismissed.
- Date Filed/Reported: Date when the record was initially filed or created.
- How Filed: The role that you played in the public record. Usually the record is filed either individually or jointly.
- Reference Number: Identifying number for the record.
- Released/Closing Date: Date when the record was closed, released or judgment was awarded.
- Court: The court or legal agency that has jurisdiction over the record.
- Plaintiff: The plaintiff in the case of a legal judgment.
- Amount: Dollar amount of the lien or judgment.
- Remarks: Notes regarding the public record as reported to the credit bureaus.
If the public record is a bankruptcy, three other fields will be visible.
- Liability: The amount the court found you to be legally responsible to repay.
- Exempt Amount: The dollar amount claimed against you that the court has decided you are not legally responsible for.
- Asset Amount: The dollar amount of total personal assets used in the court’s decision. The Asset Amount can include items of value that can be used to pay debts.
The final section is the inquiries. That’s a list of everyone who asked to see your credit report. Any time anyone gets into the report, it’ll post an inquiry. That means if you try to apply for a credit card, it’s listed as an inquiry. Have you been shopping for a car? Every time a dealership runs a credit report, it shows. If you call the credit bureau and ask for a copy, it will be on there. It’s a very detailed entry record. Generally, this is great for the consumer.
Inquiries are divided into two sections. “Hard” inquiries are ones you initiate by filling out a credit application or taking your child to the orthodontist. “Soft” inquiries are from companies that want to send out promotional information to a pre-qualified group or current creditors who are monitoring your account.
You may have heard that a large number of inquiries can have a negative impact on your credit score, but you’re probably OK. The vast majority of inquiries are ignored by the FICO scoring models. They’re not the steak in the steak dinner, so to speak.
For instance, the model has a buffer period that ignores inquiries within 30 days of getting a mortgage or a car loan. It also counts two or more “hard” inquiries in the same 14-day period as just one inquiry. You could have 30 in two weeks and it only counts as one.
However, on the other hand, having a lot of credit inquiries on your account could also show potential creditors that you are trying to live your life on credit which means you might not have the means to pay back the debt. This is especially true if you’ve been applying for a lot of credit cards. And there are always many opportunities to apply for a credit card.
Of course, you know about all of the offers that come in the mail. They usually read “You’ve Been Approved!” as an enticement for filling out the application. This is not always true with pre-approval offers, so proceed carefully. I usually shred them up and forget them.
Another time that you will be asked to apply for credit occurs in public places and the companies are offering products for free in exchange for a credit application. I was at a baseball game recently and one credit card company was offering free team T-shirts and all I had to do was fill out their credit card application. I didn’t do it, but what an enticement – especially for a fan!
Watch out, too, when you are shopping at your favorite department stores. They also have store credit cards and may offer you a percentage off your purchase in exchange for a credit application. In general, this is not a bad idea – which we will talk about a little later in rebuilding your credit – because store credit cards are great when helping rebuilding your credit.
The bottom line is that if you don’t need another credit card, don’t apply for one. It’s always good to have one on hand for emergencies, but having five or six can just be a temptation to spend beyond your means.
There may also be a section on your credit report that lists creditor information. The creditor contact section lists the name and contact information for each creditor that appears on your credit report. This can also include the contact information for creditors that have made inquiries.
Each creditor’s address is listed to the right of the creditor’s name. When available, a phone number is listed for the creditor. Creditors without listed numbers should be contacted by mail.
So that’s the first step – getting your credit report and going over it with a fine tooth comb. But where’s that magic number – your credit score? Let’s begin with a short section on the credit score itself and where it comes from.
FICO AND YOU
Back in the 1960’s, a company called Fair Isaac devised a unique system to determine the credit worthiness of people who apply for loans. Through a complicated mathematical computation (too complicated for this author!), they were able to study a person’s credit history and assign them a number that would represent how likely it was that they would be able to repay a loan they were applying for.
Fair Isaac sparked a revolution by pioneering credit risk scoring for the financial services industry. This new approach to lending enabled financial institutions to improve their business performance and expand consumers’ access to credit. Today Fair Isaac’s FICO score is widely recognized as the industry standard for lenders.
The FICO score condenses a borrower’s credit history into a single number based on past credit history. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. The real truth is that even if we did know, we probably couldn’t calculate it ourselves anyway. Unless, of course, you happen to be a mathematical genius!
Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit.
Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.
Credit scores analyze a borrower’s credit history considering numerous factors such as:
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount of credit available
- Length of time at present residence
- Negative credit information such as bankruptcies, charge-offs, collections, etc.
There are really three FICO scores computed by data provided by each of the three bureaus––Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may just use the middle score.
Fair Isaac has become so important in the financial industry that their word on your credit has become basically the final word. Why would banks and creditors place so much credibility into one company? The answer is simply because of their proven track record.
The FICO score has proven to be not only an accurate and amazingly consistent way of showing a person’s credit reliability, but it has also saved companies millions of dollars in credit write-offs due to bad lending decisions. A study of loans that were granted and/or denied simply due to the FICO scores shows that Fair Isaac has been right over 80 percent of the time.
Of course, that required some chance taking on the part of many creditors, but they were willing to take the risk. After all, this was a ground-breaking thing determining credit worthiness through a simple three-digit number. Many companies jumped “on the bandwagon” just to show that Fair Isaac had the right idea.
Fast forward to the twenty-first century and you will find that FICO has become the definitive when it comes to financial and credit matters. They have proven their reliability and their worthiness just through trial and error.
Unfortunately, the problem is that finding your FICO score isn’t as easy as you think. The truth is that it’s not even shown on your credit report like you would think. In fact, for years and years, your credit score was a securely kept secret number that was elusive to the average person.
So how can you find out your credit score? This writer wondered the same thing. So I spent about twenty minutes trying to figure out how to find my own credit score. It wasn’t as easy as I thought it would be. But thanks to my tireless research, I can help you find your score.