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What your mother (or father) didn’t tell you about credit.

Every day I speak with clients that truly don’t understand why they can’t get their credit scores above a certain number.  Yes, that pesky little 3 digit number that has become all important to everyone of late. The truth is, they were never taught how to get above a “poor” or “fair” score.  These are [...]

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Should I use a “Credit Repair” company?

We love to read all of the differing opinions that flood the internet from the so-called professionals in investing, money management, debt management, etc.  We sift through articles and websites trying to find the best, most accurate information for you, our clients. We do however, have one very significant pet peeve and that is all [...]

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Ouch! You just shot yourself in your credit foot.

I can’t tell you how often a client tells me that they can’t “understand” why their scores are so low.  At first I thought it was an excuse.  It took me a while to figure it out (I think I was blond at the time) but the fact is is that most people DON’T understand. [...]

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Ouch! You just shot yourself in your credit foot.

I can’t tell you how often a client tells me that they can’t “understand” why their scores are so low.  At first I thought it was an excuse.  It took me a while to figure it out (I think I was blond at the time) but the fact is is that most people DON’T understand.

So what are some of the things that people do with good intentions that net bad results?

1. You do what everyone is doing these days and you order a copy of your credit report…YIKES!!!  There’s a $36 bill from ABC Collection Co from 6 years ago that you don’t even remember.

So being the responsible person that you are, you pay it because who wants a collection account on their credit report???  Hmmm?  Now it would seem logical that that would be the end of the story, you breathe a sigh of relief, you just know your scores have gone up and you couldn’t feel better.

2.  You have a couple of credit cards… one is a MonkeyMan Clothing with a limit of $200.  You have only gone over the limit a couple of times, but you always pay before the due date (well except that one time but the amount was only $13) and usually for more than the minimum amount because that is what you have been told to do.  The other is a $500 secured credit card from XYZ bank with an outrageous interest rate but in 2 years it will go to an unsecured status if you show a good usage history.  You have never gone over the limit on this one and are always careful to make at least a payment and a half.

3.  You spent some time out of work because it is seasonal, and decided to see if you could make some settlements on some of your old debts.  You have been paying them, but you have been told that if you threaten to stop or do stop they will take a settlement (after all this is what most “debt settlement” or “debt consolidation” companies do so it must work).  It does (or does it?).  You settle 3 installment accounts for pennies on the dollar, Yippee!

So you spend countless hours on the phone combing through your credit report trying to get your finances under control.  You have done everything that the “so-called” financial experts have said to do and now it is time to pull your credit report again.

Oh, my… I can hardly stand the excitement!  Drum roll please ….WHAT THE HECK!!!! Your score has dropped by nearly 100 points.  That can’t be right!!!

I would love to know what you, the reader, might think went right or wrong.  I will be back with the answers in a follow up.

However, if this story describes you, don’t wait! We are here to help!

Who do you have to kill to get a Loan Modification around here?

You listen to all of the advertisements hawking the ease and benefits of a loan modification, in this the aftermath of what has to be the most stupid of all home-buying generations…and not to give away my age but I was in CA in the 80′s.  Okay, in high school, but still did everyone forget the S&L scandals? (I don’t remember them, but I remember the devastation they wrought.)

So, we learned a lesson then right? WRONG!  We made an even bigger mess this time with our “American Dream”.  Now, I know that this is news to no-one but there is one question that I truly would love to have anyone answer for me…and that is who do you have to kill or anything else to get a Loan Modification these days? Seriously?

I have clients who have come to me with a common story that I believed what just simply miscommunication between them and their banker…UNTIL

That’s right.  It happened to a member of my own family.  Now, I know that many people look at the declining values of their homes and decide “hey, I don’t want to pay this amount anymore so I am going to ask for a loan modification”.  That is not what loan modifications were intended for and understandably I can see where the banks would be vigilant when granting this.  However, this was not the case with my Daddy.

My daddy is one of the all-time great guys.  I know little girls always think that, but he really is.  And he and his wife have always been very responsible and they were living the “American Dream”. Then about 4 years ago, right in the middle of the storm, my little brother (almost 40 now, but still my baby bro) got cancer.  He is fine now, but he went through all of the awful stuff you go through.  My parents helped emotionally, financially and every other way that a parent would.  He got back on his feet, back to his good job and is doing well again, but remember what I spoke of in an earlier post about medical bills.

So, we are thinking “whew” close but everyone still on their feet.  My daddy had a good but very physical job and about a year after my brother I get a call from my sister that my daddy has had a stroke on the job.  Now, before you think the worst, he got medical help immediately and he is doing great, but he can no longer do that very physical job he did.  His company is wonderful, he has been there approximately 25 years, but now he is behind a desk.  With that came a severe reduction in wages not to mention the time off from the stroke itself.

Okay, so they are still making their payments.  They have lived in their house for almost 15 years, made dozens of improvements, love the area, but because of both my brother’s and my daddy’s illnesses, they are just barely making ends meet.

So they listen to the advertisements about how easy it is to get a loan modification and they go to their bank C#^$E and meet with their banker to discuss a loan modification.  They are immediately told that they can’t have one until they are at least 2 payments behind (seriously someone told them that).  This is so against my daddy’s nature that it is almost physically painful, but this is what they are told to do, by the bank no less.  Then after those 2 months they are given paperwork for which they have to hire a u-haul to take it home and start supplying to the bank, papers going back to and including grade school report cards and the family tree for at least 6 generations (he’s from AR, that part didn’t take long).  All of the other crap paperwork takes approximately 6 months during which they are given a “temporary payment amount” (have you seen this little piece of b.s.?) which they pay, then at the end of that 6 months they are denied because they were making the payments up until the time they were told to stop.  I feel like Alice down the rabbit hole.  Anybody else think this is insanity?

I am seriously about to have a stroke writing this.  Of all of the stupid, moronic, boneheaded, etc, etc people the banking institutions are by far right at the top.

Now, their credit is crap (dropped nearly 100 pts).  Why you ask?  Well, 2 missed payments will be harsh, but it was the 6 months of the temporary payments that the bank told them to make!!!! Because it wasn’t the full payment from the original amount they just simply counted it as late.

Now the bank now has an empty house that can’t be bought for what the loan could have been modified for.  You had a buyer with 15 years in the home without missing a payment until you told them to you boneheads, and you have ruined their credit so that they can’t get a loan through you again.  The home was eventually sold through a short-sale, but had it sat any longer I don’t know what the outcome would have been.

 

Courtesy of DeAnne West

How do you establish credit without credit?

While the entire world is talking about going “debt-free” which I admire, the fact of the matter is unless you never intend on purchasing a home or any other high dollar item, and you are not independently wealthy (in which case creditors will offer you all the credit you wish) you will need to establish credit at some point in your lifetime…  duh!

Sorry, that last just slipped out.  I have as many referrals come from broker’s whose clients are denied because of lack of credit or payment history as I am for “credit restoration”.

Many people are also looking to re-establish credit after a bankruptcy, short-sale or divorce or short-sale.

Yikes, so where do you start when nobody is willing to take a chance on you?  As anyone that hasn’t been living under a rock for the last 5 years can attest everything we used to think we knew about credit no longer exists.  We will pause here while this sinks in…continue when ready.

It’s a good thing that I have been doing this for long enough to have learned a thing or two.  Yes, even getting the “starter” store credit card is crap shoot and one that has very little chance of succeeding. I never recommend that clients have store credit cards anyway unless they have them when they enter my program.  They usually have higher interest rates, they can be used at only one place and little known fact, but they don’t appear to garner as many points as “bank issued” credit cards.

There are several different types of credit but for our purposes and for most people we are looking for installment loans and revolving credit trade lines.

Examples of installment loans would be a car, mortgage, furniture purchase (unless on a store credit card), payday loans (eek!) and a personal loan.  These are loans which have a fixed interest rate and have a set monthly payment.

Examples of revolving credit are credit cards or perhaps a HELOC or line of credit where the interest rate is set but your payment amount depends upon the amount that is outstanding at the time of the statement date.

Every person should have both.  I am not advocating for going out and applying for every loan possible…in fact the exact opposite is true.  However, it is important to know that many people that have lived “off the grid” and not thought much about their credit or established credit… these same people are usually surprised to see that when they receive their credit report it is nearly made up of entirely negative accounts.  This is because early on creditors realized that in order to collect monies from you, they could use the whole “pay or we’ll ruin your credit” gambit and people usually paid (whether their account or whether accurate or not).  The other problem for those that have been very lucky and never owed a debt is that there is simply not enough information to provide the FICO scoring models enough data to generate a score for you, so a lender simply cannot make a sound judgement for a high ticket item.  (Yes, your utility provider will place your account on your credit report if you move and forget to pay your last bill, but they don’t put the 15 years of on-time payments on your credit report!)  Definitely wrong, (on so many levels) but there it is.  The system is broken so we have to work within it.

Generally, I have discovered that it takes at least 4 current trade-lines (preferably positive) to generate a FICO score.

Now, you may be asking what are your options?

Well, there are a few.  It used to be quite simple.  Walk into the GAP or JC Penney’s and they would fall over themselves to give you a credit card.  Another option, visit a college campus.  No job, no problem.  As you have probably realized the world and credit have changed a bit.  No longer are credit card companies allowed to solicit on college campuses and apply for credit for that extra 10% off on your initial purchase at your own risk.  These are no longer considered “starter cards”.

Instead the reality, as hard as it is to swallow may be…(gulp) the secured card, the authorized user, the secured line of credit or the dreaded, absolutely last option “sub-prime” credit card lender.

How do they stack up against each other, you ask?  And a darn good question indeed.

Well let’s start with the obvious a credit card – without a co-signer the chances of someone with no credit getting an unsecured card from a bank are credit union are somewhere around the chances of me being picked for “America’s Next Top Model”.  Although it could happen (in an alternate universe where everyone drinks copious amounts of alcohol and fashion is designed for 5’4″ women) it is highly unlikely. So your options for a credit card come down to these: secured, authorized user, or sub-prime.

Although secured credit cards do not garner as many points in your FICO scoring model, consider this “training wheels” for how to responsibly use credit.  After all, it is your money.  Once it is your money and not some faceless bank (or the millions of taxpayers that bail it out) it becomes a little more real.  We will talk about the best use of credit cards to garner points in another post.  This is my recommendation for all clients starting out.  If you keep in mind that credit was never meant to be used for “I want” purchases you can start to use credit wisely.

Second is the “Authorized User”.  Although in 2009 FICO was to role out a new scoring system FICO 08 (in ’09) but alas, I have yet to see any of the lenders that I work with using it.  This would have severely limited the use of the “authorized user” ability for persons trying to establish credit.  My thoughts are these with regards to “authorized user” accounts… for a child it is a great way for them to begin using and understanding credit.  For a spouse that may not have their own credit again, a good way to begin using and understanding credit.  The thing that people need to keep in mind is that if you are an authorized user on an account, your payment history will be exactly that of the primary card holder.  Therefore, if they go skiing and run into a tree and miss a payment it is going to show on your report, too.  Guess what?  The bureaus don’t care that you are only and authorized user.  So use this option wisely.

A third option may be a secured line of credit or a secured CD offered by many banks and credit unions.  These report as installment loans on your credit report and as we said earlier you should have a mix of both installment and revolving credit lines. My understanding is that it works much like a secured credit card except that you place the money into a CD or line of credit and borrow against the money.  You pay the money back monthly, therefore establishing a positive payment history (right?…on time payments required).

And last and certainly least is the “sub-prime” credit card.  Now I know that they serve a purpose…opening doors for b&e crews, drinking games at parties (or so I’ve been told) etc.  However, I find little use for them for people that are serious about establishing credit.  Many have avoided restrictions imposed by the Credit Card Consumer Bill of Rights and the C.A.R.D. Act by raising their interest rates (some as high as 79.9%), doing away with grace periods, etc..  I find that although they may many times be easier to acquire the penalties are severe so I don’t recommend these unless you have a full understanding of how credit cards work.

Okay, so those are several options to start to establish trade lines (just the minimum) so that you can at least generate a score, just in case you decide one day to purchase a home, car or any other high dollar item.

For this and other strategies for building positive credit, visit www.CreditAgenda.com or call (800) 811-3078

How come paying off “old debt” makes my score go down?

I hear this statement at least once a month.  Usually, right after a client has attempted to purchase a “big ticket” item such as a home and realized that they had a pesky bill from 5 years ago that in all likelihood (let’s face it the big 3 don’t have great track records) is not even their debt.  Their immediate reaction, and the reaction of most people is to just pay the debt and it’s gone, right?  WRONG!!!!!

Wrong?  You read me right, wrong!  Now it would make sense that if the client so chose they could pay the debt, theirs or not, the creditor (by this time I am certain it’s a collection company) has their funds and everybody’s happy.  But that would make sense, and this is of course credit we are speaking of.

I tell all of my clients and apparently don’t make it clear enough but the 3 big personal reporting agencies Experian, Equifax, and TransUnion are NOT “credit reporting agencies.  They are “information reporting” agencies.

Once people have a firm understanding of that, it becomes much easier to understand that things we do may seem “smart” or the “common sense” or the “right” thing to do, but may actually, according to the bureaus mathematical formulas, just be stupid.

So here is the likely outcome- you pay a $100, 5 year old debt that you knew nothing about.  Again, probably because it is not even your debt.  Now the scoring models used, which are all different versions of Fair Isaac Corporation, do not differentiate between payment on an old debt or a new report of a bad account.  And here’s a wake up call.  I know this is confusing, which is why I have a job… :) That 5 year old debt probably was having very little impact on your credit score.  Now it is being reported as a new “Paid” collection account, but a new collection account just the same.  You very likely dropped between 20-30 points.  Yikes! The horror.

Okay, so what could you have done differently?  First, find out if the debt is actually yours…you ding-dong.  Collection companies buy debt in bulk and one transposition of a number and you could end up with someone else’s debt.  Second, the collection company must by law provide you with a verification of debt, which means that they must provide the documentation showing that the account does in fact belong to you.  Yes, your credit report is in most cases nothing more than a list of allegations against you (you have probably noticed more negative than positive) and it is up to the creditor to show proof.  Ask for this proof.  If it does not exist, by law the creditor or collection company must legally and permanently remove it from your “information” file.

Second, okay so you find out it is yours.  It’s one of those deals where you moved and didn’t leave a forwarding address for the garbage company or in some cases an unpaid parking or moving violation ticket will show up on your “information” file.  Either way you forgot and now you want to make things right.  How to pay it without it becoming a newly reporting PAID collection?

Call and negotiate, but this is where it is sometimes best left to the professionals.

Ultimately the creditors want their money.  They have bought the debt for an average of approximately 10¢ on the $ and hope to get all but in all likelihood will settle for 30-50% of the debt.  They are still making a killing.

Ask for a deletion letter…in exchange for payment they will remove the entire trade line from your credit report. Do NOT let them tell you that they must keep it on for 7 years. This is not true.  An adverse account MAY stay for no longer than 7 years but can be removed at any time.  Get it in writing that they will remove the account from you “information report” upon receipt of payment.  DO NOT TAKE THEIR WORD FOR IT.  Again this is where a professional is of great assistance as we are not emotionally involved and we are aware of the traps that the collectors will use to tangle you in their web.

We can assist you with this.  Before making any payments let our team of experts give you a FREE credit analysis and a plan of action. www.CreditAgenda.com

How to spot a “credit repair” scam

 

As sad and in my opinion sick as it is, when people are at their most desperate that’s when the vultures attack.  Why is is that people, and I use the term loosely, decide that when someone is at their lowest, let’s just kick’em when they’re down.  For shame and poorly done.  This is not to say that anyone or everyone in the “credit restoration” or (shiver) “credit repair” industry is pulling a scam.  In fact just the opposite.

Most people are not aware that credit restoration companies are regulated by the Credit Repair Organization Act of 2005 and were we not lumped in with the payday loan companies and a few other iffy type industries we would not even make the top 500 worst industries with which to do business.  I believe we rank 542 with the FTC falling behind video game makers if you can believe that.

The truth of the matter is that we have a stigma, and not undeserved.  However, since 2005 and moving forward the ones that take this industry seriously want to remove that stigma and create an industry that can be helpful, but also one that doesn’t immediately scare the hoohaa out of a client just by considering speaking to us.

Okay, so now that we have discovered that basically EVERY industry has good and bad guys, let’s talk about how to tell the white hats from the black hats in credit restoration.

1.  Do they ask for a lot of money up front?- This is a no-no.  Although most CRC’s (credit restoration companies) will take a small set up fee, this covers actual work being done.  This should encompass your first letters, postage, etc.  All of which is money out of the pocket of the CRC.  The reason that I charge a small fee is that like CRC’s there are clients that are out for a free ride as well.  I cannot tell you how many clients get what they want out of the program and then suddenly decide that I don’t need to get paid for my work.  The laws are scewed in favor of the client wherefore we must perform a task prior to payment.  This is why letters are sent before your first check is cashed.

2.  Do you have contact with the company?- You should then have contact with your case manager on at least a monthly basis.   Again, services must be provided prior to payment being made.

3.  Does your CRC understand your goals, i.e. home purchase, car, clean up credit, etc?- Do they have a plan and timeline?

4. Do they guarantee results?- CRC’s may NEVER guarantee an outcome.  If someone promises you such and such will happen…run far and run fast!!!!

5.  Do they “require” you obtain one of their credit cards?- Chances are they are getting a kick-back and while it may be fine, ultimately this entire process is meant to be looking out for your best interest not theirs.

6.  Are their fees reasonable?- I am about to lay the truth out to you.  Unless you are a victim of identity theft, almost any fee is reasonable, within reason (follow that?).  Working on your credit is not going to be free.  Even the so called non-profits can become quite expensive.  Unreasonable is anything that makes you think twice.

Okay, so you weren’t real smart about the whole credit thing, but you probably have a sixth sense when it comes to someone trying to fleece you.  Especially combined with any of the above scenarios.

There are other ways to tell, but sometimes it will just be in the way that the rep speaks with you or the feeling that you get from them.

The best programs are the ones that offer not only work on the adverse accounts, but assist you about education in obtaining new and good positive accounts.  If all you wanted to do was get rid of “bad” credit you would file for bankruptcy, but if you want to learn to have and use credit to your advantage, find a CRC that offers both.

Courtesy of DeAnne West