What they didn't teach us about credit in high school

So here's the deal...I own an A+ BBB accredited Credit Repair Business in Louisville, KY.  Over the past 3 years we have legally removed millions of dollars worth of inaccurate collections and other negative accounts from our clients' credit reports.  We are now launching a new website , diycrediteducation.com, aimed at helping folks learn the ins and outs of credit, what the banks are really looking for when applying for loans, and the best practices for removing negative items from their credit reports.  We have been featured in many different news agency's publications and have had outstanding reviews but we still want to do everything we can to put our knowledge in the hands of everyone struggling with poor credit.   Here's how you can help, if you feel that you have a strong presence on social media or have friends/family that could benefit from our program please consider joining our affiliate program completely FREE by clicking this link.  We sell our program for $97 and that includes lifetime access to our video on-demand Credit 101 course.  By posting your affiliate link after signing up with us you will receive $20 from each sale initiated from your link that we provide.  Additionally, over the next week we will be adding marketing materials to the affiliate dashboard so that all you will have to do is click one button and the posts that we have uploaded will be added to your personal or business Facebook page instantly.  Super easy and quite frankly, a service we really think everyone can get behind.  Take a look below to read just a little more about what we do and why.

WHAT IS CREDIT AND WHY IS PROPER EDUCATION ABOUT CREDIT SO IMPORTANT TO EVERYDAY LIFE?

   Credit instills a different feeling in everyone that hears it. You either conjure up images of plopping down a card at a register knowing you can get what you need now and pay later or you picture a big stack of bills in the corner that you don’t want to open. Depending on your past or current standing Credit is either a saving grace, something you are proud of, or a dirty word that makes you feel uncomfortable and uneasy. Credit itself doesn’t have feelings or thoughts. It doesn’t care about anything. Credit is just an ability to obtain goods and services before payment with the faith that payment will be made in the future. However, the people that lend and extend that credit to a consumer do have thoughts and feelings and concerns about whether you will make that future payment. Being in good credit standing affects many things in a person’s day to day life and how much that person is going to pay in the long run. Any credit extended to a person will be accompanied with an interest rate. Interest rates are the costs of borrowing. The lender charges a percentage of the daily balance and applies this cost to the monthly bill. Depending on their faith in you to pay back the money borrowed, this rate can be low to extremely high. 

This is why having better credit is so important!

Owning your own home is one of the most important investments a person can make for their financial future. However getting a loan for a mortgage can be extremely difficult and extremely costly if you don’t have great credit. Based on recent mortgage rates a person with poor or even fair credit with a 30 year fixed rate loan will be quoted an interest rate of 5.481%. With excellent credit that same person would be given an interest rate of 4.025%. That seems like a small difference but the savings do add up. On a house mortgage of $200,000, the person with poor or fair credit will end up paying $175 more a month and $63,173 more over the course of the loan. Poor or even fair credit will mean you will need to put more money as a down payment and pay a much higher interest rate. Over the course of a mortgage this costs you thousands of dollars that you could be saving if your credit was better. Even if you aren’t trying to own your own home, bad credit can lead to being turned down by renters or cost you a heftier deposit. The same is true for buying a new car. If your credit isn’t great you may be turned down for the loan or end up needing to come up with a higher down payment. In 2017 a person with excellent credit averaged an interest rate of 5.48% whereas someone with fair to poor credit averaged an interest rate of 16.27%. With a purchase of a $21,000 vehicle over the course of a 72 month loan the individual with less than excellent credit ends up paying $116 more a month and $8,355 more over the length of the loan than the person with good credit. Over the course of your loan you will pay thousands more than the vehicle is worth due to higher interest rates.

Your insurance company will also take into factor your credit score which in turn will affect your premium rates. In some states, an individual with poor credit pays anywhere from $200 more a month up to double that of an individual with excellent credit but the same driving record.

The difference in good credit or bad credit can mean saving hundreds or even thousands of dollars when applying and having a credit card as well. When you have poor credit you end up paying higher interest rates and annual fees than a person with excellent credit. That’s all money that you could be putting to better use elsewhere.

Having good credit means you have borrowed and paid back money regularly and on time in part or in full. Bad credit means you have borrowed but failed to pay back the minimum required on time or not at all. These negative marks can affect your credit score for up to 7-10 years.

HOW IS A CREDIT SCORE DETERMINED?

 

Your credit score is a cumulative measure of success and failures assigned to a person based on their past credit worthiness. The most common score used by lenders is calculated by the Fair Isaac Corporation, also known as FICO. Your FICO score can range anywhere from 300-850. On the FICO scale the higher the number the better.

On that same scale a score of 300-599 is very bad.

    600-649 is poor.

    650-699 is fair.

    700-749 is good.

    750-799 is very good.

    800-850 is excellent.

Another scoring model used by some lenders and credit monitoring companies is the Vantage Score. In the past Vantage Score had a different numerical value ranking poor to excellent credit. However, Vantagescore 3.0 was implemented in 2013 to help lenders better utilize the Vantagescore model and to help lower confusion for consumers checking both scores. Now Vantagescore uses the same range as FICO in determining poor to excellent credit. They do differ slightly in how they collect your score and how you are penalized for late payments and collections. FICO is slightly more forgiving in late payments. Vantage Score will penalize you more harshly for late mortgage payments as opposed to other types of credit. FICO also tends to not penalize you for collections less than 100 dollars whereas Vantage Score penalizes you for any and all collections. FICO and Vantagescore aren’t the only scoring models on the market. Lenders use many different scoring methods to determine your creditworthiness. Despite the multitude of options, FICO and Vantagescore are likely the only scores you’ll ever personally see.

There are several different criteria for how these scores are determined based on your credit history. Your payment history, the amount of debt used, the length of your credit history, your new credit and inquiries and finally your different types of credit. Each of these criteria are awarded certain percentages when determining your score.

Although having overall credit worthiness is important the biggest percentage is awarded to your payment history. Credit bureaus factor 35% of your score on whether or not you pay your bills on time. Having on time and regular payments are incredibly important in maintaining excellent credit.

Almost equally important is not using all the credit awarded to you. They factor 30% of the amount of credit you owe. This is also called your “utilization ratio.” Lenders like to see a consumer have 70% of their available credit open. The lenders theory is that people that have used most of their credit tend to miss payments. So if you have a credit card with a 500 dollar limit you should only be utilizing 150 dollars or less at any given time.

The length of time your accounts have been open or the last time they were used is also a factor. The average age of your accounts accounts for 15% of your credit score. Having a closed account isn’t necessarily a bad thing if it is older and was in good standing.

New credit and inquiries as well as the different types of credit you have account for 10% each of your overall score. This is why opening several new lines of credit or applying for credit several times in a short amount of time is a bad thing. Also showing that you can manage several types of credit like installments loans and revolving credit give lenders faith that you will fulfill your obligations to them and be a great candidate for borrowing.

Knowing how a score is determined can help you put into practice the best credit habits to help you improve your bad score or help maintain a good score you may already have. Another great way to practice good credit habits is to monitor your reports and know what is changing with your score.

 

WHAT IS THE FCRA?

   

The FCRA or Fair Credit Reporting Act is federal law passed to protect the consumer from inaccurate, unfair, or otherwise dubious information being reported on the individual’s credit report by either a creditor or reporting bureau. Why the FCRA is so important to your success in effectively increasing your credit score and thereby obtaining more favorable results when applying for an extension of credit, security clearance, or a position with a new company lies within your ability to leverage the burden of proof on those companies to prove every detail on your credit report is 100% accurate. 

If a tradeline cannot be verified it must be removed. If a late payment cannot be verified it must be removed. If a bankruptcy cannot be verified it must be removed. ANY negative mark on your credit report that cannot be verified MUST be removed. I suppose you’re asking yourself, “sure, but how do I or a credit repair company show that an item on my credit report is unverified?”

By sending letters via certified mail to the reporting agencies requesting that the information be investigated AND the proof of how that particular account on your credit report was verified if the reporting agency deems the information is accurate. If the reporting agency or creditor cannot meet the burden of proof necessary to keep the negative information on your credit report it must be removed.

There are pitfalls and plenty of frustrations when navigating this process. Keep in mind these are bureaucracies you are dealing with. This is not a quick “fix” and you very well may deal with scare tactics and stall responses from the credit reporting agencies. Prepare yourself for these instances and understand that the law is on your side. It is not uncommon for individuals and credit repair companies to send upwards of four rounds of letters to the bureaus before you see the results you want and that can take several months. Patience, perseverance, and diligence are key to your success.

   

WHY IS ACCESS TO A FCRA ATTORNEY SO IMPORTANT?

 

There may be times when you find yourself in a situation where a debt collecting company is violating your rights in a myriad of ways or even potentially taking you to court for a debt that you do not legitimately owe. Perhaps you have found inaccurate information on your credit reports, have provided proof of such to the credit bureaus with all of the techniques we have taught you, and yet the credit bureaus still refuse to remove the inaccurate information. That is why we offer access to some of the best FCRA attorneys in the nation with absolutely no out of pocket costs to our clients to fight for you when violations have been committed.. We want all of our clients to have the best success possible when working to achieve better credit. 

   

WHY DIY?

 

With the proper education the in’s and out’s of credit can easily be grasped. Unfortunately credit and personal finances are rarely a large focus of education for many schools in our nation. It is our duty to educate as many people as possible to ensure consumers have the lifelong skills necessary to confidently make buying decisions, save as much money as possible, understand their rights when it comes to credit reporting and debt collection, and how to protect their identity.