Posted on: 30th Sep, 2008 12:51 am
Just wanted to clarify some things I've seen posted about credit repair.
Inquiries at 10% of your score (New credit)
Inquires made by you do not hurt your score and are not shown to those who pull your credit report. You could request a report every day and no one but you would see that inquiry.
Soft inquiries made by companies you are currently doing business with do not hurt your score and are not shown to those who pull your credit report. Also, if your score has dropped during this review period or you have begun to default on a few things, you may see your APR rise and/or your credit limit drop. Some companies check once a year others once a month.
Hard inquiries made by companies where you have actively applied for credit will be shown on your credit report and may or may not hurt your score that badly. 5 inquires within a 2 week period while searching for the best mortgage rate or car loan will count as 1 inquiry, while 5 inquires from different credit card companies during a 2 week period will count as 5 inquires. Your score will drop not only due to those inquires but is also calculated with any information currently in your credit report. How bad that information is determines how many points your score drops.
Hard inquires last 2 years on your credit report and stop affecting your FICO score after the first year. (Unfortunately, its the quantity and age of inquires that will get you declined for a credit card etc. Say you have 12 of them...)
The most important parts of your credit score:
Payment History at 35% of your score.
This is your:
Revolving Credit: Credit Cards
Installment accounts: Car loans, merchant accounts, back child support, mortgage, bank loans, student loans etc.
Collection Accounts: Medical bills etc.
Any account that reports you have (a) posted a late payment (b) missed a payment (c) are 30 - 120 days late, (d) charged-off or (c) in collections account shows bad payment history. A collections account being worse than a charge-off and up there with a bankruptcy, judgement or lein. You will have to get current and stay current on these over time and your score will improve as your payment history improves.
If any account, collections accounts included, reports every month with a negative; those accounts will be top priority for settlement/payment in order to save your payment history from further damage.
Amount of Debt at 30% of your credit score
The most important part of this would be the balances on all your credit card accounts, including those accounts in collections.
For example: You have a credit card in collections that has no credit limit but your balance is $1000. The calculator sees this as a maxed out/over limit card. If you have open cards that you keep at $0 with $5000 available but you have three cards in collections at $6000 owed then the calculator will say that you are over the limit by $1000. This explains why every time you pull your credit report it keeps saying you have to "pay down 90-100% of your credit card debt" for your score to improve. The more you settle and eliminate your overall credit card debt the better.
The best way to keep your credit cards is at or under, 10% utilization. This means when your statement closes you should have a balance at/below 10% of your credit limit. So if you have a credit card with a $700 limit it better show a balance of $70 and under or the calculation will say you are using too much of your available credit.
The trick to credit cards.
There are two important dates for your credit card (a) statement closing date and (b) due date. My credit card due date is on the 10th of the month and my statement closes on the 15th of the month. I know this because I asked. :wink: Anyhoo, when I get my bill with the due date of October 10th, I pay the minimum payment by September 20th and then pay down my balance before October 15th. Why?
Say, you have a credit card with a $500 limit and a balance of $380. You do your a $380 pay-by-phone on the due date and it posts the same day, correct? Ok. Now you believe that the $0 balance left on your due date is the amount that will be reported to your credit report, and the next day you spend $300 so you should be fine, right? Wrong. The amount reported is the amount that shows when your statement closes which would be $300. So pay attention to your Statement Closing Date.
Length of Credit History at 15% of score (age of your accounts)
Someone tells you that you have way too many credit cards and that you should close some of them to get a better score. Some are from 1995, 1999 and its 2008. Okay, what the heck, you close some of those cards since it's not like you are using them. Now you check your credit report and your score has dropped about 100 points. WTF? You have just cut your length of credit history. Sucks, eh?
This works just the same if it was an old account that was charged off, then paid, was close to the credit reporting statute of limitations (7.5 years from your first date of delinquency) and you demanded they update/remove it from your credit report. If that account was one of your oldest accounts..... :roll: just sit back and watch those numbers drop. Did you know that some accounts that you've paid go over to the positive side after the credit reporting SOL expires? No one ever tells you that. I have an account from Midland, a collection agency, that was paid and went over to the positive side. All I did was ask them to put the status as Paid as agrees; never asked for it to be deleted. Other accounts just disappear.
Disputes
Ok. If you charged/borrowed money and did not pay, sorry that's a valid debt and you can't dispute it away and get it deleted just like that. That only works for fraudulent debts or account reporting errors. When you pay a collection account it usually just updates to "Paid collection" or "Settled for less that full balance". You can try to get them to update the status from "120 days late" or "charge-off" to "Current" if it's the Original Creditor. You can also write a Goodwill Letter and beg them to remove it. Sometimes that works and some times it doesn't. Most creditors keep your information about 7 years so, that dispute and hope they've purged their system doesn't work all the time.
When you dispute a negative item it takes 30 days for the dispute to be processed. During this time the item stays on your report but goes into stasis and is not used in the score calculation. This is why your score sometimes looks like it has improved when you dispute. If that item comes back as verified then it is again tossed back into the calculation and your score may either drop or stay the same. Depends on current information in your credit report.
Remember, no one can tell you how many points your score will go up or down. Your score changes every day depending upon the information that is being reported to the Credit Reporting Bureaus. If your information stays the same your credit score will stay the same with improvements in score at about 18 months. If you have new positive information posting and no new negatives then your score should improve. Same goes for new negative information; your score should decline.
To find your true FICO score, you will have to visit Fair Issac's website directly at myfico.com or just go to Equifax. I've learned all this the hard way; experience. I had $25000 in debt when I started in 3/08 with a 497 score. I settled $18k of that debt for $8k and pulled my score up to 606 with more improvement on the horizon.
The best advice I can give is this: If you know you are going to fall behind, call your bloody lender and work something out. A deferrment, a forebearance, temporary reduced payments, something!. Don't wait for your sky to fall down. And ask lots of questions so you understand everything completely. The only idiot is a silent one.
Inquiries at 10% of your score (New credit)
Inquires made by you do not hurt your score and are not shown to those who pull your credit report. You could request a report every day and no one but you would see that inquiry.
Soft inquiries made by companies you are currently doing business with do not hurt your score and are not shown to those who pull your credit report. Also, if your score has dropped during this review period or you have begun to default on a few things, you may see your APR rise and/or your credit limit drop. Some companies check once a year others once a month.
Hard inquiries made by companies where you have actively applied for credit will be shown on your credit report and may or may not hurt your score that badly. 5 inquires within a 2 week period while searching for the best mortgage rate or car loan will count as 1 inquiry, while 5 inquires from different credit card companies during a 2 week period will count as 5 inquires. Your score will drop not only due to those inquires but is also calculated with any information currently in your credit report. How bad that information is determines how many points your score drops.
Hard inquires last 2 years on your credit report and stop affecting your FICO score after the first year. (Unfortunately, its the quantity and age of inquires that will get you declined for a credit card etc. Say you have 12 of them...)
The most important parts of your credit score:
Payment History at 35% of your score.
This is your:
Revolving Credit: Credit Cards
Installment accounts: Car loans, merchant accounts, back child support, mortgage, bank loans, student loans etc.
Collection Accounts: Medical bills etc.
Any account that reports you have (a) posted a late payment (b) missed a payment (c) are 30 - 120 days late, (d) charged-off or (c) in collections account shows bad payment history. A collections account being worse than a charge-off and up there with a bankruptcy, judgement or lein. You will have to get current and stay current on these over time and your score will improve as your payment history improves.
If any account, collections accounts included, reports every month with a negative; those accounts will be top priority for settlement/payment in order to save your payment history from further damage.
Amount of Debt at 30% of your credit score
The most important part of this would be the balances on all your credit card accounts, including those accounts in collections.
For example: You have a credit card in collections that has no credit limit but your balance is $1000. The calculator sees this as a maxed out/over limit card. If you have open cards that you keep at $0 with $5000 available but you have three cards in collections at $6000 owed then the calculator will say that you are over the limit by $1000. This explains why every time you pull your credit report it keeps saying you have to "pay down 90-100% of your credit card debt" for your score to improve. The more you settle and eliminate your overall credit card debt the better.
The best way to keep your credit cards is at or under, 10% utilization. This means when your statement closes you should have a balance at/below 10% of your credit limit. So if you have a credit card with a $700 limit it better show a balance of $70 and under or the calculation will say you are using too much of your available credit.
The trick to credit cards.
There are two important dates for your credit card (a) statement closing date and (b) due date. My credit card due date is on the 10th of the month and my statement closes on the 15th of the month. I know this because I asked. :wink: Anyhoo, when I get my bill with the due date of October 10th, I pay the minimum payment by September 20th and then pay down my balance before October 15th. Why?
Say, you have a credit card with a $500 limit and a balance of $380. You do your a $380 pay-by-phone on the due date and it posts the same day, correct? Ok. Now you believe that the $0 balance left on your due date is the amount that will be reported to your credit report, and the next day you spend $300 so you should be fine, right? Wrong. The amount reported is the amount that shows when your statement closes which would be $300. So pay attention to your Statement Closing Date.
Length of Credit History at 15% of score (age of your accounts)
Someone tells you that you have way too many credit cards and that you should close some of them to get a better score. Some are from 1995, 1999 and its 2008. Okay, what the heck, you close some of those cards since it's not like you are using them. Now you check your credit report and your score has dropped about 100 points. WTF? You have just cut your length of credit history. Sucks, eh?
This works just the same if it was an old account that was charged off, then paid, was close to the credit reporting statute of limitations (7.5 years from your first date of delinquency) and you demanded they update/remove it from your credit report. If that account was one of your oldest accounts..... :roll: just sit back and watch those numbers drop. Did you know that some accounts that you've paid go over to the positive side after the credit reporting SOL expires? No one ever tells you that. I have an account from Midland, a collection agency, that was paid and went over to the positive side. All I did was ask them to put the status as Paid as agrees; never asked for it to be deleted. Other accounts just disappear.
Disputes
Ok. If you charged/borrowed money and did not pay, sorry that's a valid debt and you can't dispute it away and get it deleted just like that. That only works for fraudulent debts or account reporting errors. When you pay a collection account it usually just updates to "Paid collection" or "Settled for less that full balance". You can try to get them to update the status from "120 days late" or "charge-off" to "Current" if it's the Original Creditor. You can also write a Goodwill Letter and beg them to remove it. Sometimes that works and some times it doesn't. Most creditors keep your information about 7 years so, that dispute and hope they've purged their system doesn't work all the time.
When you dispute a negative item it takes 30 days for the dispute to be processed. During this time the item stays on your report but goes into stasis and is not used in the score calculation. This is why your score sometimes looks like it has improved when you dispute. If that item comes back as verified then it is again tossed back into the calculation and your score may either drop or stay the same. Depends on current information in your credit report.
Remember, no one can tell you how many points your score will go up or down. Your score changes every day depending upon the information that is being reported to the Credit Reporting Bureaus. If your information stays the same your credit score will stay the same with improvements in score at about 18 months. If you have new positive information posting and no new negatives then your score should improve. Same goes for new negative information; your score should decline.
To find your true FICO score, you will have to visit Fair Issac's website directly at myfico.com or just go to Equifax. I've learned all this the hard way; experience. I had $25000 in debt when I started in 3/08 with a 497 score. I settled $18k of that debt for $8k and pulled my score up to 606 with more improvement on the horizon.
The best advice I can give is this: If you know you are going to fall behind, call your bloody lender and work something out. A deferrment, a forebearance, temporary reduced payments, something!. Don't wait for your sky to fall down. And ask lots of questions so you understand everything completely. The only idiot is a silent one.
Hi jdlegall !
Thank you for posting such a nice article on FICO credit score. Yes, you are absolutely right that lot of people have wrong idea about this score. All the members will definitely be benefited from this.
Thanks,
Jerry
Thank you for posting such a nice article on FICO credit score. Yes, you are absolutely right that lot of people have wrong idea about this score. All the members will definitely be benefited from this.
Thanks,
Jerry
Hi Jerry,
Thanks. I will be adding information to this post to keep everything in one place.
When to Improve Collections Accounts or begin Paying Down Debt
You should only begin paying down debt, or improving collections accounts when you meet the following criteria:
1. Your rent and utilities are being consistently paid
2. You are employed and on a budget
3. You have enough saved after expenses to cover your rent, utilities and household expenses for 3 - 6 months.
If someone suggests taking out a personal loan to pay down debt think about it this way. Your credit score is already bad and you cannot get a good interest rate for a mortgage, car loan etc. What makes you think the interest rate for a personal loan, if you did get approved, will be stellar?
You will end up with an interest rate somewhere in the realm of 19 - 35% at the worse with terms of about 3+ years to pay it back. By the time your payments are done you would have paid almost three times as much for your original debt with that interest rate.
Hmmmm...... settle my debt at my own pace at half the amount or pay more by getting new debt to pay my debt? :? Decisions....decisions. :shock:
Now, why in the world should you not pay down your debt until you meet the criteria above? If you are applying for a mortgage loan, you will need to show consistent payment of rent & utilities, steady employment, and reserves or cushion in case you become unemployed. If you can do the three things listed above you are well on your way to great documentation of your financial prowess. You are not allowed to touch your 3-6 months of reserves when paying down your debt, comprende!?
Improving Collection Accounts
I want to stress one thing about collection accounts. If you charged/borrowed this debt, then defaulted where said debt was sent to collections, do not expect to dispute and see it disappear off your credit report. Yes, collection accounts are bad for your credit health but can be improved by settling or payment in full.
Improvement by Payment in full
Write, or answer, the collections agency's letter with a Debt Validation request within 30 days of receipt. This is the first step. If the collections agency cannot validate the debt it must be removed from your credit report.
If the debt is validated as being yours, and you feel comfortable paying this debt in full, send your payment by check to the collections agency by Certified Mail with Return Receipt. Keep the green card as proof of mailing, xerox a copy of your bank statement with the cancelled check and hold onto it for the length of time it would have originally taken for it to clear your credit report. 7.5 years after your first date of delinquency.
Why keep these records? After your payment is sent, it may take 7 to 14 business days for your check to clear, 30 days for it to be processed and updated within the collection agencies computer system then transmitted to the Original Creditor then another 30 days for the Original Creditor to update their system and submit the information to the Credit Reporting Agency. That's roughly almost 90 days after you sent your check.
If you wish to speed up this process, then wait 30 days after the initial 14 day period and send your dispute in writing by certified mail with return receipt to the Credit Reporting Agency with your proof. Chances are the collections agency will either update their records or delete the collection account.
Improvement by Settlement in Full
After the initial collection agency letter you should still request a Debt Validation within 30 days of receipt. If the debt is valid and you wish to settle the account in full, send out your Settlement Offer letter and wait for a response.
Try a settlement in full for 40% of the debt balance with payment at a specified date and deletion of the account. Be as specific as you can and stress that this is the amount you are willing to settle for now and write in a deadline for their response. Wait for either an acceptance of your offer or a counter-offer. The counter-offer may be between 50 - 80% of the balance if your counter-offer was not accepted. So, try one more time and send a counter-counter-offer somewhere in the middle close to the maximum you are willing to settle for.
I did this the unconventional way and set aside an entire day next to my fax machine. I think we faxed a total of three offers and counter-offers before we agreed on an amount. I got my Settlement Offer letter faxed to me, I paid by electronic check or credit card and then got a Payment Receipt letter within minutes by fax. I called after the 30 day period, got a Settlement in Full with no further liability letter faxed then called periodically every 2 weeks afterward until my account was updated to paid on my credit report. Some simply deleted the collection account.
Goodwill Letters to remove negative notations and/or accounts
This is where you write the creditor after payment has been made or a late payment has posted to plead your case using a "hardship" defense. This of course, does not always work or work right away and you may be sending quite a few of these before improvements, if any, are made.
You were going through a custody battle and were unable to pay your bills; you were going through a divorce; you were in the hospital in a coma etc. You have been a customer for lots of years and have never been late or were late only twice in all those years. You are looking for employment or trying to get a car/house to improve your life and it is weighing heavily on your credit report. You got current on the account as soon as you could so can they please take of the negative notations and report the account as current/pays as agreed? Pretty please. :cry:
This should have been sent before your account went into default to find the right program for you but hey, hindsight is 20/20.
Keep Your Records
Not only will you need these to show a potential lender, to prove the account was paid; you will need these if an old paid account pops up on your credit report claiming it is still delinquent. This paperwork will aid you in a successful dispute.
Keep:
1. All correspondence sent, and received, from the Collections Agency
2. All bank statements and cancelled checks
3. All correspondence from the IRS for tax lien payments; especially discharge letters
4. All court documents discharging judgments, liens and bankruptcy.
Thanks. I will be adding information to this post to keep everything in one place.
When to Improve Collections Accounts or begin Paying Down Debt
You should only begin paying down debt, or improving collections accounts when you meet the following criteria:
1. Your rent and utilities are being consistently paid
2. You are employed and on a budget
3. You have enough saved after expenses to cover your rent, utilities and household expenses for 3 - 6 months.
If someone suggests taking out a personal loan to pay down debt think about it this way. Your credit score is already bad and you cannot get a good interest rate for a mortgage, car loan etc. What makes you think the interest rate for a personal loan, if you did get approved, will be stellar?
You will end up with an interest rate somewhere in the realm of 19 - 35% at the worse with terms of about 3+ years to pay it back. By the time your payments are done you would have paid almost three times as much for your original debt with that interest rate.
Hmmmm...... settle my debt at my own pace at half the amount or pay more by getting new debt to pay my debt? :? Decisions....decisions. :shock:
Now, why in the world should you not pay down your debt until you meet the criteria above? If you are applying for a mortgage loan, you will need to show consistent payment of rent & utilities, steady employment, and reserves or cushion in case you become unemployed. If you can do the three things listed above you are well on your way to great documentation of your financial prowess. You are not allowed to touch your 3-6 months of reserves when paying down your debt, comprende!?
Improving Collection Accounts
I want to stress one thing about collection accounts. If you charged/borrowed this debt, then defaulted where said debt was sent to collections, do not expect to dispute and see it disappear off your credit report. Yes, collection accounts are bad for your credit health but can be improved by settling or payment in full.
Improvement by Payment in full
Write, or answer, the collections agency's letter with a Debt Validation request within 30 days of receipt. This is the first step. If the collections agency cannot validate the debt it must be removed from your credit report.
If the debt is validated as being yours, and you feel comfortable paying this debt in full, send your payment by check to the collections agency by Certified Mail with Return Receipt. Keep the green card as proof of mailing, xerox a copy of your bank statement with the cancelled check and hold onto it for the length of time it would have originally taken for it to clear your credit report. 7.5 years after your first date of delinquency.
Why keep these records? After your payment is sent, it may take 7 to 14 business days for your check to clear, 30 days for it to be processed and updated within the collection agencies computer system then transmitted to the Original Creditor then another 30 days for the Original Creditor to update their system and submit the information to the Credit Reporting Agency. That's roughly almost 90 days after you sent your check.
If you wish to speed up this process, then wait 30 days after the initial 14 day period and send your dispute in writing by certified mail with return receipt to the Credit Reporting Agency with your proof. Chances are the collections agency will either update their records or delete the collection account.
Improvement by Settlement in Full
After the initial collection agency letter you should still request a Debt Validation within 30 days of receipt. If the debt is valid and you wish to settle the account in full, send out your Settlement Offer letter and wait for a response.
Try a settlement in full for 40% of the debt balance with payment at a specified date and deletion of the account. Be as specific as you can and stress that this is the amount you are willing to settle for now and write in a deadline for their response. Wait for either an acceptance of your offer or a counter-offer. The counter-offer may be between 50 - 80% of the balance if your counter-offer was not accepted. So, try one more time and send a counter-counter-offer somewhere in the middle close to the maximum you are willing to settle for.
I did this the unconventional way and set aside an entire day next to my fax machine. I think we faxed a total of three offers and counter-offers before we agreed on an amount. I got my Settlement Offer letter faxed to me, I paid by electronic check or credit card and then got a Payment Receipt letter within minutes by fax. I called after the 30 day period, got a Settlement in Full with no further liability letter faxed then called periodically every 2 weeks afterward until my account was updated to paid on my credit report. Some simply deleted the collection account.
Goodwill Letters to remove negative notations and/or accounts
This is where you write the creditor after payment has been made or a late payment has posted to plead your case using a "hardship" defense. This of course, does not always work or work right away and you may be sending quite a few of these before improvements, if any, are made.
You were going through a custody battle and were unable to pay your bills; you were going through a divorce; you were in the hospital in a coma etc. You have been a customer for lots of years and have never been late or were late only twice in all those years. You are looking for employment or trying to get a car/house to improve your life and it is weighing heavily on your credit report. You got current on the account as soon as you could so can they please take of the negative notations and report the account as current/pays as agreed? Pretty please. :cry:
This should have been sent before your account went into default to find the right program for you but hey, hindsight is 20/20.
Keep Your Records
Not only will you need these to show a potential lender, to prove the account was paid; you will need these if an old paid account pops up on your credit report claiming it is still delinquent. This paperwork will aid you in a successful dispute.
Keep:
1. All correspondence sent, and received, from the Collections Agency
2. All bank statements and cancelled checks
3. All correspondence from the IRS for tax lien payments; especially discharge letters
4. All court documents discharging judgments, liens and bankruptcy.
Hi jdlegall !
Welcome to Forums!
Thanks a lot for such a nice article on an important topic like FICO Score. Keep on updating the community members if you find further information on FICO score.
Sussane
Welcome to Forums!
Thanks a lot for such a nice article on an important topic like FICO Score. Keep on updating the community members if you find further information on FICO score.
Sussane