Saturday, October 8, 2011

Money: Will You Be a Fico Score for Halloween

I had to chuckle when I turned to the Woman's Day article about credit scores, mostly because while I was reading the article, I was waiting for calls about credit scores.

Helping people with their credit is what I do all day. And every day, I get a lot of the same questions, some of which were covered in the article, some of which were not. I have learned a few important points about credit scores, some of which I pull from my own experiences:

1. Your credit report and scores are probably not as bad as you think so don't be scared of them.

I was always afraid that my scores would be so low and my debt so profound, I wouldn't want to see them. I discovered that things weren't nearly as bad as I thought and their was quite a bit of hope. I had erroneous and outdated information on my credit reports because your creditors don't have to report to all three bureas (Equifax, Experian, and Transunion) so while two of your scores many reflect correct information, one may not. Transunion had documented substantial debt was still owed on my car and all three bureaus had a medical bill that I didn't even owe. I also learned that some of my collections would fall off within a few years. With help and guidance, you can achieve better scores.

2. Just because you pay a collection, doesn't mean it comes off of your report.

Paying a collection is positive for one reason: the creditors will get off your back. Once a debt falls 180 days late from the original creditor, it can be sold off to a collection agency. Then, once it's sold it can be sold again. The positive fact is that it cannot renew the time it stays on your credit report. The negative is that after that 180 day date it will stay on your report for seven years.

3. You should know your rights concerning debt collection agencies.

Debt collection agencies can do several things to get their money. They may write off the money you owe as bad debt and leave it at that but if worse comes to worse they can sue you for the money, garnish your wages, or claim rights to any assets you may have, such as a vehicle. If the court files a judgement, that judgement will be on your credit report for seven years from the date filed in court.

I would advise anyone to know their rights concerning creditors. They lie and they threaten. I have heard nightmarish stories about creditors even threatening to blow up someone's house and hurt their family members. Do a little research about your responsibility concerning secured and unsecured debt. Don't ever allow anyone to bully you and don't give out any personal information to anyone. You don't have to.

However, many creditors will work with you. I recommend searching your collection agency on the Better Business Bureau first and foremost. Many creditors are happy to get any money and will take low payments. Many creditors will cut some of the balance in order to get any money at all. Once you are ready to confront a creditor, offer them what you would like to pay (don't tell them who your employer is--never do that) to determine how willing they are to meet you in the middle. Would they rather receive some money or no money at all? Remember they have employees who may earn incentive by getting any payment. They may start at a higher number but will settle for what you can offer.

4. It's not a good idea to ever allow your percentage of use to go over 35%--EVER.

I had a customer who owned an American Express card with a $15,000 limit. He maxed it out every month, because he had a small business, and paid it all off--in full--and way before the amount was due.

He was furious because his credit scores had plummeted. Why was this man, making responsible choices, seeing such a substantial decrease?

If your creditor reports to the bureaus when your percentage rate is high (use of available credit to credit limit) that is all the bureaus see--that at that moment in time, it's high. Even if you're paying it off in full, if it's not reported at that moment then it doesn't matter, as far as your scores are concerned. Keeping some debt and keeping it low can be an easy way to see your score increase over a short amount of time.

5. Closing out cards can increase your score and increasing your debt can increase your score.

The last thing that I thought would be a positive for me was increasing my debt. However, with a good reporting company I found out that getting more credit cards (given I could control their use) would cause a substantial increase to my score. People hear generic information and assume it is correct across the board. It's not. Depending on your own financial history, closing out unused credit cards, for instance, could help you. I see an increase in scores to customers who have a long credit history and over 10 accounts.

Seeking a credit reporting agency that provides tools to make customer scenarios based on you as a person is a great way to help increase your score in the future.

6. FICO scores are not the three credit scores.

You're going to Google FICO scores and you're going to see it as a plural. You're going to be under the impression that FICO scores are the three credit scores. They are not. FICO scores are used by mortgage agencies and are an entire different ball game than the three credit scores you see advertised by clever little jingles on television.

The scores that mortgage companies and often car dealerships use are calculated differently because they are being used for secured debt. With secured debt if you can't pay they can repossess something. Unsecured debt is credit card debt. There is nothing to show for what you owe, which is why the creditors get ugly and sell it to collection agencies.

Your FICO score is ONE SCORE and it is probably going to be lower than what you're getting from your credit reporting agency. That's pretty typical. So why go to these web sites that advertise all three scores? Credit card companies can use these scores and often these web sites do offer a pretty accurate picture of where you're at financially. Plus, the features they offer can help you dispute for free (going to the bureaus directly will cost) and establish better credit in the long run.

Knowing and improving your scores can help you in several ways:

1. Good scores can secure a job.

Great companies like Nationwide and Alpine require a certain amount of debt or high credit scores to even be considered for employment.

2. Good scores affect lower interest rates.

Saving money going forward is dependent on a higher credit rating. This is particularly important for secured debt like houses and cars.

3. Knowing your report can clue you in to identity theft.

There can be mistakes on your report that stem from a sibling or a child stealing your information and opening credit in your name. Unless you know what your reports look like, you will never determine fraud or even criminal records that may appear if someone has stolen your Social Security number.

By using sites like you can determine whether you have become a victim of identity theft, dispute erroneous information, and make specific financial simulations.

And if you have questions, there's a credit specialist not too far away...

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