Your Credit Report and FICO Score
According to the Federal Trade Commission, 1 in 5 consumers had an error recorded on their credit report. 1 out of 10 saw their score increase as a result of removing derogatory information. Why am I bringing this up? So that you don’t beat yourself up too much…yes derogatory information is bad, but you can always start over. Even if the information listed is not yours, you will feel so much better when you know the report is clean and have a better understanding of how the information listed is affecting your credit report and FICO score.
A FICO credit score shows trustworthiness to financial institutions and can determine how little or how much interest you will pay for the money borrowed.
The average credit score for an American is 652, while someone aged 31-40 are still only at 671. No matter what age you begin to recognize your score, there is time to correct any issue.
What is a FICO score?
Your FICO score is a calculation based on your habits; on time payments, oldest credit line, credit used, recent inquiries, new accounts and available credit. A FICO score of your credit report can range from 300 (very poor) to 850 (Big Time)
Why is a FICO score important?
Your FICO score determines how much you will pay for credit. Let’s say you go to buy a car, you may only be looking at the payment but what you don’t know is how your score is affecting that payment. A higher credit score will pay less interest and have more bargaining power.
The difference may mean 6 months less of payments with good credit on a car payment. It could means paying thousands of dollars on a house loan. Some employers, for higher paying jobs or for a financial institution, will check your score to see if you are responsible. I know it sucks but you are always being checked.
The Clean Up – You and Your Reports
Congratulations on getting this far! This is a big step, you are now facing the difficult step of getting your financial house in order. Let’s begin!
Using Your Spreadsheet from Part 1
Hopefully your spreadsheet is not that long, but if it is, I guarantee once you go through this process you will keep up in the habit of checking and correcting every year. Keep good notes, and be thorough and detailed. Keep 3 separate columns on the sheet, 1 for each of the credit reporting companies. You will need to check each company’s crdit report because they do not communicate with each other and they could each have different information.
Collections, Bankruptcy and Foreclosures
These are the biggest derogatory marks you may have listed. Collection, bankruptcy and foreclosure, unfortunately are on your credit report for 7 years.
Bankruptcies & Foreclosures
Unfortunately, unless this is an error, this will stay on your report. If you are burdened with these, don’t give up. The progress you make to clean up everything else will be so much sweeter when the 7 years are up.
Collections
Clean up the collection accounts quickly, if you can. Call the company listed on your report. If you don’t have the money to pay off all at once, make an agreement to make payments. Get it cleaned off, asap. Also, see if they will agree to remove the item from credit report if you pay the amount in full. I have heard this has worked and I’ve heard it has not. It’s worth a try. Always be nice.
There is a bright side here, you may still qualify for a home loan if you have a decent score and have paid off a collections account.
30/60/90 Day Late Payments
First of all, Stop making late payments, do your best to make the payments before you 30 days are up. If you make a late payment, you will pay a late fee, but you won’ have a late payment. If you have just 1 late payment or a few call the company to see if they can forgive the most recent. Why the most recent, those will take the longest to come off, and if you have multiples this could take some time
Errors – Incorrect Personal and Debt Information
Check everything, from name misspellings, someone else’s information on your report, to incorrect balances. Check for old information that should have fallen off your report, 2 years for an inquiry, 7 years or a derogatory item.
Hard Inquiries
Hard inquiries stay on your record for 2 years. Always apply for credit in short spurts so that chunks of inquiries fall off all at once. If you apply for credit every 3-4 months, it will look like you are not able to pay your bills the anyone looking to grant you credit.
Increasing Your Credit Score
How to Move Your Score Higher?
Moving your score can take as little as 45 days or it can take 7 years, depending on your situation. You can still create a new financial habit while the time passes. You are in the process, don’t beat yourself up too much.
How Long Will it Take to Raise My Score if I Have an Error?
If you find an error or you have asked for forgiveness for a late payment, it can take 30-45 days to come off your report. You may need to recheck after 45 days, I have seen where someone has agreed to remove an item, no action is taken and when call again they don’t have notes for the change.
What Else Can I Do?
Make your payments on time, pay off your debt as quickly as possible, and ask for credit increases on credit cards, as long as they do a soft pull, not a hard inquiries. It is never too late to work on raising your score. You have to be positive here, this may take years to clear up you credit, but hopefully you will be making the right decisions and your score will raise with time.
Soft Inquiry vs. Hard Inquiry
When a company is wanting to sell you a credit product, a credit card, a mortgage, or insurance, they check your score by doing a soft inquiry. That means it does not show on your credit report thereby knocking down your score, usually it’s something you did not request. A hard inquiry is when you ask for someone to check your credit for a loan, thus affecting your score.
Dispute Late Payments
You can dispute a late payment, whether or not you have proof to back it up. The company in question has a certain amount of time to respond to the dispute. If the company does not respond, the item may come off. Each credit reporting company has their own dispute process, so fill out the paperwork and see if you get a response.
Have a Professional Remove Late Payments
I have not personally used a professional credit repair company, but I have heard from some that this has worked as they rebuilt their credit. Here I would say buyer beware, do your homework on the company, because I would hate for someone to promise something they cannot do, while costing you more money.
Keep Your Spreadsheet Handy
Use your spreadsheet as a record of where you are in your process. Keep notes, and keep disputing, there is bound to be some light at the end of the tunnel. Above all else, be nice to the other people on the other side. Don’t get emotional when talking to the agents on the other side, sometimes when you are honest and nice, people want to help.
I would set aside 3-6 months to work on increasing your score, always checking in with the companies who are supposed to be responding to your disputes.
What this all leads up to…What impacts your score?
I’ll be honest, I am not at even 825. I have some balances on my cards from baby expenses and I mistakenly closed my oldest card, before I knew any better. I am proud of my score, but I did not have anyone in my family to teach me about money and credit. I’ll tell you, I get the red carpet when ever I apply for credit and it feel really good. I think it is odd when they are surprised about my score, I think they believe that my score belongs to someone much older. I’ll take it!
I was once in your shoes, so anything is possible, it can be done!
What Affects My Credit Score?
This list is highest to lowest in importance, How to get to an 850 score;
No Derogatory Information (Highest importance)
Credit Used (Very High) (0-10% considered excellent)
On Time Payments (High) (100% is excellent)
Oldest Credit Line (Medium) (25+years of history, excellent)
Recent Inquiries, hard (Low) (0 inquiries in 2 years, excellent)
New Accounts (Low) (0-2 new accounts in 2 years, excellent)
Available Credit (Low) (50K + in credit available, excellent)
Now, here is how the average person lines up
Of the American population;
62% Have on Time Payments
25% Have 25+ Years of credit history
20% Have 0-10% of Credit used
33% Have 0 Hard inquiries in the last 2 years
21% Have 0-2 New accounts in 2 years
13% Have 50k+ in available credit
It’s my belief that these numbers are so low due to a lack of a proper education about financial matters. We cannot rely on the financial system to teach us, they earn money by charging more interest on a loan when you have a low score. So what is someone to do? Educate yourself, and understand everything you do with your credit is affecting how you pay for something.
My hope is that this information will help as many of you as possible. Once you have a grasp on your financial house, you can then teach this to your kids, friends, or other family members.
A BIG Leap Of Trust
So I have left a big trick or secret to the very end, because this is very sensitive. In order for this trick to work you will need to convince a spouse, family member of friend with a high credit score in the high 700’s or 800’s, with an American Express Card, (this is the only card I have tried this with) to add you to their account. I would never advocate for the person to actually give you the card, but this move could raise your score 75-100 points. I am hesitant to give this advice to someone who is trying to clean up their credit, but it is worth a shot if you are trustworthy.
This move will take some convincing, but it will help you raise your score while you are working on cleaning things up. So good Luck!
Next, we will work on your net worth