Credit Card Offers – Pre-Qualified Vs. Pre-Approved

Everyone is familiar with those letters in the mail from credit card companies offering “pre-qualified” or “pre-approved” cards. Sometimes the cards even appear to have favorable terms. For those who have a less than stellar credit score, or for those looking to improve their personal finance through credit repair, these cards can have some initial appeal. However, it is important to understand what these bulk-mailed offers actually are, and what “pre-qualified” and “pre-approved” actually means.

What Pre-Qualified Offers Really Are

Believe it or not, there actually is a difference between pre-qualified and pre-approved offers. A pre-qualified offer that you receive in the mail is little more than an acknowledgement that your credit score falls within a particular range. These offers are typically sent out to millions of people who fall into a particular category, such as “FICO score between 600 and 650” or “no delinquent payments in the past 3 years”. While these offers might technically be possible, there is basically zero guarantee that you will get anywhere near the terms of the offer in the piece of mail you opened.

What Pre-Approved Offers Really Are

Pre-approved offers are technically different than pre-qualified offers. A pre-approved offer that you receive in the mail is typically a bit more targeted than a pre-qualified offer would be. Usually when you receive a pre-approved offer, it means that the bank or lending institution that sent the offer looked at your particular credit score and determined that you qualified for the offer they have mailed you. However, the big caveat to this is that these offers are pre-approved based on your credit score at the time they approved the offer, which often is weeks or months before you actually receive the letter in the mail. If your credit situation has changed at all, you might not qualify, or they might significant change the terms they ultimately offer you.

What are the Downsides of Pre-Qualified and Pre-Approved Credit Card Offers?

One important thing to remember when discussed pre-qualified and pre-approved credit cards is that they are, first and foremost, a marketing tool being used by a bank or financial institution. This means that the company offering the card expects to make a profit from their interaction with you. Often times, the deals you are offered (or, more importantly, the deal you are ultimately offered if you express interest) is far from the best deal you could find if you sought out a credit card yourself. On top of that, by replying to the mailer, your credit will receive a “hard hit”, which can damage your score.

If you are trying to repair credit, remember that responding to any of these credit card offers will result in a “hard hit” on your credit report, so be very wary about which offers you reply to, if any at all.

For additional information on how to repair your credit and get approved, you can contact us at 617-265-7900, or schedule a free consultation below.

Mortgage Underwriter – What You Need to Know

One of the most important debt management credit tips that anyone in finance will tell you is the importance of protecting your credit score. This is particularly true for anyone looking to make a big purchase involving credit, such as a mortgage for a home. If you want to apply for a mortgage and are not sure whether or not you need to repair your credit in order to do so, it is important to understand the types of items that can cause red flags on your credit report and take care of them as soon as possible.

Some of the Most Important ECOA Credit Report Codes

ECOA codes, or Equal Credit Opportunity Act codes, are used by mortgage underwriters to analyze a credit report and make a decision on whether or not a particular application should be approved. If you are currently working on credit repair so you can qualify for a mortgage, it is very useful to know and understand exactly which codes a mortgage underwriter is going to look at. Here are some of the most important ones:

Types of accounts

These codes refer to the type of an account, or to the relationship of the user on the account:

A – authorized user on a shared account
C – account with at least two liable parties (joint contractual liability)
I – individual account with no other parties involved
M – account with liable party, with a backup liable party if the original party defaults
P – member of a shared account that cannot be classified as an authorized user or sole account holder
S – account in which the secondary signer (also known as a co-signer) is liable if the maker defaults
T – user no longer linked to the account in question
U – blanket term for undesignated status on an account
X – deceased

The Mortgage Underwriting Process

All of the codes listed above are used to categorize a mortgage applicant during the underwriting process. It is worth noting that this process is significantly stricter than it was during the early 2000s. In fact, the Consumer Financial Protection Bureau recently enacted even stricter underwriting requirements for certain types or mortgages. In effect, this means that mortgage underwriters must do a more extensive background check, including an in-depth look at a criminal background check, deeper checks into bank account and other assets, and a spending and employment history. Ultimately, a mortgage underwriter assigns you a credit risk, then combines that risk with the percentage of your pretax monthly income that would be accounted for with the projected mortgage payment you are applying for.

For additional information on what specific ECOA codes mean, and how you can remove the negative ones from your credit report, feel free to contact us at 617-265-7900, or schedule a free consultation below.

Credit Around the World

You’re likely already familiar with how your credit score is factored and what debt management tactics you can deploy to repair credit here in the United States. But it’s worth examining credit elsewhere around the world, including how credit scores are calculated, what countries have advanced credit reporting systems as well as some of the consequences one might face abroad when a bill goes to collections.

FICO (or Something Like it)

The FICO concept isn’t just exclusive to the United States. In fact, it’s estimated that up to 20 countries use either the FICO score, or some variation of the FICO score as we know it, to judge whether or not a customer would make a worthy borrower. Using the FICO method is one of the most reliable ways to judge a good borrower, and formulas similar are used in countries such as the U.K., Thailand and Germany (where the credit reporting agency is known as SCHUFA).

Accentuating the Negative

Abroad, credit scores are calculated based on both the good and the bad when it comes to lending history. But if you live in Australia, Hong Kong or Sweden, only your negative credit history is included in your report. However, this is a bit of an unreliable credit system, because a lender is unable to accurately judge whether or not someone would make a good borrower based on the fact that they are unable to see any positive history. Questionable credit reporting methods are particularly highlighted by Sweden, which has no three digit score, just either “good” or “bad” as values.

Consumer Friendly Scoring

In the U.S. it’s usually a good idea to check your credit score and pull your credit history from time to time. After all, it’s truly the only way to institute any credit repair strategies over bad debts or poor past finance habits. But elsewhere in the world, credit reporting is made quite consumer friendly. Take Austria, for instance, where residents must opt-in before any of their personal info can be used for any purpose. In Canada, as long as it’s in writing, you can get as many free credit reports as you desire. And in Norway, every time your credit is checked, you’ll receive an e-mail that details who it was requested by and why.

Discrimination Scoring

If you really want to get an example of a poor – and racist – credit scoring system, look no further than the system that South Africa used in the 90s. It actually considered things like race – and gave black consumers a lower score than other races. That consideration has since stopped, however.

For additional information, feel free to contact us at 617-265-7900, or schedule a free consultation below.

Debt Collectors Can’t Pay Their Own Debt

What happens if you miss a payment? Default on a loan? Can no longer afford to make the payments required?

Simple – you’re taken to task. The bill can go to collections, debt collectors can come after you and the mishap will be reflected in a negative credit score, forcing you to put debt management and credit repair plans into place to save face. In more dire situations, you might have to declare bankruptcy or seize some of your assets.

Yes, not being able to pay off debt according to the policy you originally agreed on can have dire consequences for your credit score and overall finances. But what happens when debt collectors can’t pay off their own debt? We ask that in lieu of two recent incidents where debt collection agencies have been handed hefty fines that they can’t pay, yet are allowed to remain in business. Here’s a closer look:

RBT Enterprises was handed a $4 million fine from the Federal Trade Commission for a series of deceptive collection practices that are believed to have cost consumers over $1.3 in unethical fees. RBT Enterprises can’t pony up the $4 million, but the FTC is allowing it to stay in business, pending it pays a $100,000 fee to suspend the judgment and the owner turns over his assets. The FTC is also allowing RBT to stay in business pending suspension of its unethical collection practices.
The second example involves ACE Cash Express, a payday advance loan company. The Consumer Financial Protection Bureau (CFPB) alleges that ACE used illegal tactics to force overdue borrowers into taking out more loans. As a result, the CFPB is ordering ACE to pony up $10 million – $5 million in customer refunds and another $5 million in penalties – to make amends, as well as discontinue their illegal tactics.

It seems a little odd and unfair that unethical debt collectors are allowed to stay in business after breaking so many rules and are given leeway when they can’t pay up as a result of their actions, especially when individuals faced with similar financial issues are judged so harshly and may have to spend years following a series of credit tips to repair credit in order to become a “good” borrower again.

But the aforementioned examples should highlight how careful you should be if collectors are coming after you. Remember, debt collectors can’t lie to you – that’s illegal. But apparently if they do lie and deceive consumers, they can still stay in business after a smack on the wrist…

For additional information on how to deal with debt collectors, please contact our office at 617-265-7900, or request a free consultation below.

Experian Sued by the State of Mississippi

Credit reports are a necessary evil. Creditors pull a copy any time you borrow money, landlords use them to determine whether you are a safe bet, and employers in some states still use them to determine your ability to manage financial affairs.

No Built-In Protections

The problem is, credit reports are routinely riddled with errors. Debt management companies work with clients every day who are hounded by inaccurate information and in need of credit repair. Like being accused of robbing a convenience store when you are actually home in bed, it is up to you – the consumer – to disprove inaccurate information included on your report and repair credit. The three major credit bureaus have thus far made it a practice to do little more than collect data and sell that information to those who want to see it. Whether or not that data is correct is of little concern as long as they continue to make a profit.

States Become Involved

Now comes news that the state of Mississippi has sued the world’s largest credit bureau, Experian. The lawsuit contends that paperwork errors and sloppy consumer protection are rampant. Experian has gone so far as to report that some consumers are on a terrorists watch list. While it is Mississippi leading the fight against the massive agency, 32 other states are currently investigating the industry as a whole.

They ask how fair it is for a person to be denied a job or loan due to errors included on a credit report. According to Mississippi Attorney General Jim Hood, the company knows that the credit files of millions of Americans contain grievous errors, and yet refuse to do anything to correct the situation. Credit bureau are not the consumer’s friend and do not exist to give credit tips or help the consumer build their credit score. Even as states come after them, it seems that as a whole the industry refuses to back down.

Three Major Bureaus, Three Sources of Trouble

All three of the major credit bureaus – Experian, TransUnion and Equifax – gather information from banks, landlords, debt collectors, and any other source that might provide a snapshot of personal finance habits. Although it is an open secret that these credit reports are often laughably inaccurate banks and some prospective employers still look to them to help determine a person’s financial stability.

The Mississippi law suit with experian also alleges that Experian provides no easy way for consumers to correct those glaring mistakes, regardless of how an individual may be impacted by the errors to their report. When Experian does respond to a customer complaint, more often than not they find in favor of the debt collector or banking institution that reported the black mark. After all, it is essential to keep their paying customers happy.

Neither the credit bureau or its trade group, the Consumer Data Industry Association, are willing to discuss the law suit or answer any questions about their lingering practices.

For additional information on the Mississippi law suite with Experian contact our office at 617-265-7900 or request a free consultation below.

Credit Score Boost for Renters

It’s a conundrum that a lot of renters face: you pay your bills on time every month. But, the monthly payments don’t count toward your credit score, meaning that you are less likely to qualify for a home loan.

A new company called RentTrack is partnering with Experian and TransUnion to change that. Users of the service can pay their rent online through the RentTrack site. The credit bureaus will, at the renter’s request, add the payment history to the renter’s credit report. This should create a large credit score boost for renters.

Why Credit Bureaus Are Getting Involved

First-time homebuyers make up a smaller portion of home purchasers than ever before. The reason is that many don’t have high enough credit scores to get approved for a mortgage. But, adding a consistent payment history to a renter’s application can make all the difference when it comes to approval of funds to finance a house. TransUnion performed a study showing the effects of rental data on a credit report. One-fifth of renters saw their scores increase by 10 points or more in the first month. Another two-thirds saw either no effect or at least a small increase.

How It Works

Renters can visit RentTrack’s site to see whether their landlords are already enrolled in the program. If a property owner is not signed up yet, an invitation will be sent. Then, the renter makes payments through the site using an e-check or a credit or debit card. You can even sign up for automated payments if you have trouble remembering when to pay the bill.

The site can be a boon to those undergoing credit repair, since it rewards you for doing what you will be doing anyway. Talk to us about the things that you can do to take control of your finances and improve your credit score.

For additional information on how to repair your credit, please contact our office at 617-265-7900 or request a free consultation below.

Tag: credit bureau