As many of my readers know, Fair Isaac Corporation or FICO keeps the credit scoring algorithm Top Secret!

Under pressure from both the governmental watchdogs and consumers, FICO has been releasing limited information about how credit scores are impacted by common events in one’s personal finances.

Well today they disclosed for the first time ever the extent of damage done to a credit score with some of the most common credit boo boo’s that happen to most Americans.

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Thinking of “maxing out” your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it. (at least that what some people think )

The “damage points” data, unveiled recently by FICO, are part of the most revealing glimpse into the firm’s once-secret — and still mysterious — credit scoring model. The new information discloses how many points borrowers’ scores will drop when they make the most-common mistakes.

Here is a sample of that chart from Fair Isaac -

The greater transparency about FICO scores is important because American consumers’ ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit.

FICO’s credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they’re figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed.

FICO’s information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit — so-called prime borrowers — put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score — 780 — that same delinquency can send a FICO score tumbling by 90 to 100 points.

The Real Cost Of Bad Credit in Dollars –

In order to show just how badly a drop in your FICO score can hurt your wallet, below are some examples from the home mortgage, auto, and credit card lending institutions.

The examples represent hypothetical scenarios of a consumer who decided to apply for a $200,000, 30-year mortgage; a $20,000, five-year auto loan and a credit card. While all the industry insiders stressed that a FICO score isn’t the only factor in determining who gets credit and at what cost (other factors they cited include the borrower’s debt-to-income ratio and whether they have already established a relationship with the lender), they were able to provide an idea of what a borrower who had the following credit scores could expect.

For a Consumer Who Started With a FICO Score of 780:

• Following a 30-day late payment, the consumer’s car loan rate would jump nearly 3 percent, costing the borrower $26 more each month.
• Following a debt settlement, the consumer would pay as much as $109 more each month on a home mortgage.

For a Consumer Who Started With a FICO Score of 680:

• Following a 30-day late payment, the consumer would pay $41 more each month for a car loan.
• Following a 30-day late payment, the consumer would pay as much as $95 more each month on a home mortgage.
• Following a debt settlement, the consumer would no longer qualify for a credit card.

So as you can see, learning how to improve credit scores puts REAL dollars in your pocket and can save you thousands of dollars over the life of any loan or credit card you may have.

Until next time,

Mark

]]> http://www.crushingthecreditbureaus.com/blog/2009/11/fico-gives-us-a-peek-into-how-negative-items-affect-credit-scores/feed/ 0 http://www.crushingthecreditbureaus.com/blog/2009/11/13-battle-tested-credit-repair-techniques/ http://www.crushingthecreditbureaus.com/blog/2009/11/13-battle-tested-credit-repair-techniques/#comments Fri, 20 Nov 2009 00:25:18 +0000 admin http://www.crushingthecreditbureaus.com/blog/uncategorized/13-battle-tested-credit-repair-techniques/

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   Hello Everyone and welcome to 2009! I have been pouring over the many  e-mails that my students and followers of this blog have been sending to me. I will address some of the more common questions and topics each week here at the blog. One that keeps coming up is; what to do if you have been caught up in this financial crisis that most Americans have found themselves in.

   First off, Don’t Panic! I know that losing a home, losing a job, being WAY behind on credit card payments, or having a car repossessed  may seem like the end of the world. Trust me…is isn’t. This too shall come to pass as they say.

   Today, many Americans are falling on economic hard times.  Through no fault of their own, companies have downsized and passed out pink slips to countless good employees.  Even if new positions are found the next day, they generally come with a significant pay cut. Thus, it is impossible to meet mortgages, pay student loans, or keep up with minimum credit card payments. Even when the economic crisis is over, many individuals will need to know how to repair credit following financial hardship.

   Generally, credit report repair can take up to seven years to accomplish.  Credit history, good or bad, stays on the books for a significant amount of time. Potential lenders need to know how money issues have been handled in the past, how finances are today, and whether individuals are a good credit risk for tomorrow.

   However, knowing how to repair credit is the first step in rediscovering financial freedom and getting out from under the burden of debt for good!

Begin by:

·      Living within your means

·      Getting rid of temptation

·      Making payment arrangements with creditors

·      Combining debt

·      Seeking advice

   Learning how to repair credit may sound simple in planning, but the execution may be one of the most difficult tasks you have ever undertaken.

Live within your means

   In today’s society, it is so easy to get into the mode of buy now, pay later.  Department stores sometimes offer significant discounts if customers apply for the store credit card.  Even the federal government wants to give incentives for lenders to provide more credit for potential borrowers. Of course, any savvy individual knows how this philosophy can spell financial disaster. 

Instead of falling into the financial trap, live within your means and discover how to repair credit by simply saying “no” once in awhile.  For example, if a daily latte does not fit into the family budget, start putting coffee in a thermos before going to work.  If going out to eat, followed by a movie on Friday night means gambling on whether the utility bill can be paid this month, make a simple dinner at home and rent a movie.

Getting rid of temptation

   Learning how to repair credit means getting rid of temptation to keep digging in that pit of financial woes.  Make sure you cannot spend it, if you do not have it. Yes, it is time to put ALL of the credit cards through the shredder.  If the pain is too great, a good friend will be glad to do the deed for you. Then, you can escape the trap the majority of Americans have fallen into over the last few years.  Pay cash, or walk away.

Making payment arrangements with creditors

   The next step in learning how to repair credit is contacting all the companies to whom you owe money.  Set up a feasible plan to eradicate the debt.  Most people are willing to work with customers who are genuinely making an effort to escape the debt trap. They simple need to have a plan you can both live with, until the debt is resolved.

Combining debt

   One of the biggest obstacles to learning how to repair credit and reach financial freedom is the massive interest rates on credit cards.  Most people would faint if they truly understood the interest being charged each month, and how many years it will take to achieve a zero balance with only the minimum payment.  Multiply the problem by six or seven credit cards and it is now a financial disaster!

   One of the first lessons in learning how to repair credit is combining debt.  Many card companies offer cheap interest rates on balance transfers. Naturally, they would rather be making a profit than leaving the charge to a competitor. By transferring debt from a credit card with higher interest, you might save hundreds, if not thousands, of dollars over time.

Seek advice

   Last, but definitely not least, seek the advice of a credit repair expert.  For example, if you live in Texas, you may want to look up credit repair San Antonio in the yellow pages or online.  The key is to find someone who has the knowledge to help you get out of debt ASAP.  Then, credit repair can begin in earnest, as the wounds of debt begin to heal.

   Look, there are many credit repair books, tapes, seminars, and services out on the Net. Of course I am bias to my credit repair advice, but there are also some very reputable sources of info. Just realize that you can do better than most so called credit repair companies. 

Stay tuned!

Your Credit Score Insider 

Mark

www.CrushingTheCreditBureaus.com

Underlying the credit crunch gripping the U.S. Economy is a severe crisis of confidence. Blame has been laid at the feet of the U.S. Federal Reserve, and an investment bankers’ brew of toxic financial products. Ultimately, however, it was the supposedly trustworthy rating agencies that got everyone to drink the poisoned Kool-Aid.

The sheer fraud and greed of rating agency analysts and executives is staggering. That no one has gone to jail, and none of the agencies have been shut down is a travesty of justice on an infinitely larger scale than Bernie Madoff’s Ponzi scheme. Until depositors, bankers and investors regain confidence in the quality of ratings we rely upon to measure financial stability and creditworthiness, the tremors that underlie the credit crisis will drag on indefinitely.

Letter and number ratings – such as AAA, Aa1, BBB and Caa1 – are financial shorthand for the due diligence supposedly done by rating agencies after they’ve examined an issuer or a security’s financial structure, and evaluated the likelihood of its being able to pay interest and principal at maturity. Investors rely on the objectivity and fiduciary responsibility of the rating agencies to publish fair, accurate and uncompromised assessments.

By law, certain investors must rely on the ratings of a handful of Securities and Exchange Commission designated “Nationally Recognized Statistical Rating Organizations” (NRSROs). For example, most state insurance regulators require that only assets rated in the top four ratings categories by NRSROs are eligible investments. Similarly, money market funds can only invest in securities with the highest NRSRO ratings. In fact, innumerable institutions – public and private, and domestic and international – mandate asset quality levels predicated on the major rating agencies’ due diligence.

Standard & Poor’s Ratings Services, Moody’s Investors Service (MCO) and Fitch Ratings Inc. are all SEC-designated NRSROs. They are the largest, best-known and most-profitable ratings firms in the tiny, $5 billion-a-year universe of ratings firms. S&P is a part of The McGraw-Hill Cos. Inc. (MHP), while Fitch is a subsidiary of France’s Fimalac SA.

Moody’s was spun out of financial publisher Dun & Bradstreet Corp. (DNB) as a public company in 2000. Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B), apparently having spotted a diamond in the rough, bought into D&B before the divestiture, and ended up with a hefty 19% stake in Moody’s after the spin-off was completed.

The problem with the business of rating the issuers of securities, and rating the securities they issue – such as mortgage-backed securities and collateralized mortgage-backed obligations – is that the rating agencies are paid by the issuers to rate them. Objectivity aside, ratings firms are in business not to rate but to make money for themselves by rating issuers and their securities. It’s like all the contestants in the Miss World pageant paying the judges with country funds … who’s not going to be judged beautiful?

What was even more problematic in the scheme of the ratings business model was that analysts didn’t understand how to analyze and rate the very complex cash flow structures of these new collateralized mortgage-backed securities. Not wanting to lose business to their competitors, who were all in the same boat, they used the same rating model structures that they used to rate corporate bonds, though the two different securities had nothing in common.

It was like asking your local car mechanic to certify your Citation V jet – just before you take off for a transatlantic flight to London. God help you if there’s a problem.

Does Anyone Else See A Problem Here? All the more reason for my readers and subscribers to learn to think for themselves when it comes to financial matters.

Speak Soon,

Mark

   At last there is some good news coming from the Fed. The Federal Reserve is expected to finalize rules—as early as next week—that would prohibit banks from jacking up interest rates on existing credit card balances, except under limited circumstances.

   If the rule goes through, credit card issuing banks can no longer use the universal default clause and raise your interest rate. Just think – no more late payments that lead to interest rate penalties. If the proposed rules are finalized, issuers will have to give customers more time to pay their bills and eliminate other practices seen as unfair or deceptive. Issuers will also have to make big changes to the way they disclose your account terms.

   The fine print that’s often easy to miss—such as changes to your APR or late payment—will have to be highlighted in boxes in your statements. And if a bank does change your interest rate, you will be able to opt out of the changes and pay off your balances under the old rate.

   The banking industry has argued that the proposed rules will restrict their ability to manage risk and will ultimately force issuers to be stingier with credit and cut back on promotional offers. Consumers will likely see higher rates on new credit cards and potentially more cards with annual fees, as well as fewer perks, according to experts. All the more reason to improve your bad credit because the banks will only be extending high credit limits to those with the best credit scores!.

   One thing to watch out for in the final rules: the scope of the exceptions. Currently, the proposed rules say that issuers can’t raise your rate unless you’re more than 30 days late. (The other exceptions: when you have a variable-rate card or a promotional rate that’s set to expire.) The banking industry argues that those exceptions should be broadened to include other trigger events, such as being late twice in a year.

   The Fed is going to act in a way that will fundamentally rewrite a consumer’s relationship with his or her card company and dramatically increase the protections afforded consumers and how their card product works.

Score one for the consumer!

All I can say is “It’s About Time!

   About a week ago I mentioned to my readers about the $2 Trillion in credit lines that were going to be pulled in the next 18 months by the major credit card issuers. Some of my students and coaching clients began asking me how the could combat this loss as they continue to perform credit repair for themselves.

   There are several ways to fight back – just remember that you are performing this tactic to increase your credit scores and fix bad credit – not going on a spending spree!

   First, pick up your phone. Reach out to your credit card issuers and just have a conversation with them. Ask them the reasons “why” they reduced your credit limits. Sometimes just calling and asking the question will get your credit limits restored. You don’t have to blindly accept their action.

   Share with them details about your salary and job status. Did you recently get promoted? It helps if you have been a customer for awhile and also haven’t been recently late on any payments If you’ve been a good customer, paying on time for a long time, say so. But don’t feel too tied to the card company.

   Chances are you’re still getting some credit card offers in the mail, and now may be the time to use them as leverage. Threaten to leave your current provider, pointing out the better rates their competitors are offering. If you haven’t gotten solicitations, check out Credit.com, CardRatings.com or Bankrate.com to see what you’re missing. If your issuer is playing those games with you, through no fault of your own, it’s time to shop around for a new provider. Now may also be a good time to pick up another card on top of the one you have.

   Because card companies don’t want to carry as much potential for default, they’re slashing card limits. That means someone who used to have a $5,000 credit limit and spent $3,000 every month was well within the limit. But now they may be hitting their heads on the ceiling of a $3,500-a-month limit, which leaves them with an ugly “credit utilization ratio” (the amount owed relative to the credit limit). C

   Restoring a high credit limit is a great goal, but not if you’re doing it just to take on added debt. Tell your card company you want to maintain your pristine (or improve your lackluster) credit score and you’d threaten that number by having a lower limit. They’ll respond better to that than to whines about wanting a new TV.

   Finally, if your interest rates have spiked and you can’t switch to a better card, try to “opt-out” of the new rate. That means you’ll pay off your current balance at the existing rate, but you may not be able to make new purchases anymore. Ask your credit card issuer for details.

   I hope everyone’s Holiday Season is going well and not frustrating you too much! I have been attending several holiday parties and various functions the past few weeks and one question that I keep getting over and over when people find out what I do is…”Hey Mark, I have things in my credit that I want to get removed, do I really need to hire a credit repair expert, or can I do it myself?”

   I always answer the question with “It Depends.” You see, every credit report is different. And every person’s situation is different. Some need credit repair RIGHT NOW due to a probable real estate transaction and others can wait a bit. I also ask the question of how organized and disciplined a person is with mundane tasks such as repetitive phone calls and letters. While there is no easy answer, allow me to shed some light on the subject:

   If you have been having credit problems and your score has been lowered due to these struggles, you may want to check with a credit repair expert to get the help you need.  Credit problems can affect all areas of your life.  Unfortunately, for most americans, more and more companies are now wanting to pull people’s credit reports for every reason imaginable. 

   With the economy in the shape that it is, more and more lenders, credit card companies, and banks do not want to lend to people any longer or give out good loans, unless you have perfect credit.  Not only that, but many companies that you may not even think about want to pull credit reports now as well.  Companies like car insurance agents, health insurance companies, and even jobs as well. 

   The idea that if you have a negative credit score that will mean you will not pay your premiums or be reliable at your job.  Many times you can lose job opportunities or receive poor health and car insurance costs.  These are not the only companies that want to do this, more and more companies are looking for reasons to pull consumer credit reports.  With this happening, repairing your credit report becomes even more vital than ever.  Consulting with a credit repair expert means you will have a better chance of fixing your credit and eliminating these problems from your life forever.  There are few things that a credit repair expert can do for you, they are:

• Help you get your credit reports from all three credit bureaus.
• Go over your reports and make sure that all information is correct and accurately reflect your credit score.
• Help you to remove negative marks and incorrect information.
• Help with the letters and phone calls that will need to be made to make these corrections happen.
• They know all the credit rules and procedures to make sure that the information is corrected in a timely manner.
• Help with negotiations between you and the credit card companies and banks and lenders.
• Help you to lower your payment, remove the interest, remove late fees and over limit fees as well.
• If the credit repair expert you went to is a lawyer, they can also help to reduce the balances that you to pennies on the dollar.  Meaning you will end up only about half of what the original balances were.
• Many times all payments can be made to the credit repair expert for them to disperse out on your behalf.  They will make the payments to the credit card companies and banks for you, further eliminating some of the hassles for you.

   Going to a credit repair expert means you will be getting the advice and help you need.  You will be on your way to eliminating credit problems and on track for financial success and security again.  These experts specifically deal in these situations and problems, they know how to make sure the job gets done correctly and the way it is supposed to.  Achieving the raised credit score that you are looking for.

  Remember, there is nothing a credit repair company or credit repair expert can do for your credit that you can’t do for yourself. Usually, as with most things in life it comes down to two choices…money or time.

   Which one do you want to spend in getting your bad credit repaired and increase your FICO Credit Scores?

Talk Soon,

Mark

Hello All,

  I am attending a 3 day real estate training here in San Antonio. I will post more info and some very relevant informational nuggets that have been shared about credit repair for real estate investors. It’s comforting to know that his philosophies fit almost exactly with what I have been teaching to my students and clients all along. 

Stay Tuned!

Mark

   In this short video I share with you why just performing credit repair is not enough to achieve high credit scores.

Enjoy