Why did my credit score drop even though nothing changed?

Your Credit Minute Show Notes:

 

  • 00:00                                   Hey what’s up guys, Nik Tsoukales from Key Credit Repair. We are gonna go through the credit question of the day, which is, why did my credit score drop even though nothing changed? Well, I have to tell you, something did change. Uh, just things you might not realize. So the credit report, keep in mind, is constantly changing. The credit score when you’re pulling it up online, or whether a lender is pulling it up, um, is going to pull data or it’s going to be a snapshot of the data in that moment. Now keep in mind from one moment to another things can change. Okay? And let me elaborate a little bit on that, ’cause some of the things you might think of haven’t changed, but I’ll actually break down some of the things that could have.
  • 00:43                                   So, you’re going to notice here, I included a little chart here of what makes up your FICO score. Okay? So at 35 percent which is payment history, we 30 percent is amount owed or debt, 15 percent length of history, 10 percent new credit, and 10 percent credit mixed. So let me give you an example of some things that may have changed that you haven’t realized. Um, first thing is payment history. Okay? You might not have a new lay payment so you’re wondering, Nik why should my credit score change if I don’t have a new lay payment. Well maybe you’ve had a few more positive payments. That could actually cause your credit score to go up. Okay? Um, if you’ve had a recent lay payment obviously the credit score is going to go down. Okay?

 

  • 01:27                                   Amounts owed. This is the big one. I would say this is the biggest culprit. Um, we get people that call us all the time and they will say my credit score has dropped five thousand points, five million points, I don’t know why. I haven’t been late, I haven’t done anything wrong. And in fact they really haven’t done anything wrong, but typically what we’re seeing is this part of the credit score is being affected because of something called, uh, credit card utilization rate. The proportion of your credit card balances compared to your credit limits affect this 30 percent of your credit score.
  • 02:02                                   So let’s say, um, two months ago you pulled up your credit report and it was almost identical with the exception to the fact of, oh, with the exception to the fact that your credit card balance was 100 dollars. Okay? And when we pulled it up this time, the credit card balance was 300 dollars, and that credit limit is, is 500 dollars. Okay? Um, that utilization rate, okay, your proportion of balance compared to credit limit, um, is, has gone up considerably higher. Okay? And that will affect the 30 percent of what makes up your credit score. And obviously if, if that credit card utilization rate has dropped, this part of your credit score will benefit. Okay? So if you’ve pulled up your credit report recently or you’ve pulled up your credit score and there hasn’t been really any adverse change or new negative, uh, uh information, this is the first thing I would check out. Okay? It’s, it’s really the quickest opportunity to grab some points too. Okay?
  • 03:03                                   Um, the next thing is, length of history. Okay, the length of history for your active accounts really affects your credit score in a pretty big way. It’s 15 percent of your credit score. So let’s say you have had a couple accounts that have just dropped off, some older accounts that were closed out a decade ago and they just fell off your credit report because of the statutes of limitations. Well that could adversely affect this part of your credit score as well. Okay?
  • 03:28                                   The other thing is new credit. Let’s say if you’ve got a bunch of new, uh, credit cards recently, um, typically that will, you’ll see a small drop on your credit score. Okay? Um, probably if it just happened, you might see a quick 10 point drop in your credit score, but really over the course of 90, 120 days it should actually help your credit score pretty substantially because you’re gonna start getting on time payments on those cards. Which will positively affect the 35 percent of you credit score that’s payment history. Okay? If they’re credit cards, um, and you keep the balances at zero, it should help your credit score which is amounts owed. Um, because your credit card utilization rate, theoretically, should drop because your proportion of balance to limit has now dropped. Okay?
  • 04:16                                   Um, and then we have credit mix. This is one no one is really talking about. Okay? Let’s actually circle this. The ideal mix is real estate number one. Uh, you have installment credit number two and revolving credit number three. Revolving being things like credit cards, lines of credit, overdraft protection. Installment credit is things like student loans, care loans, car leases, um, personal loans. Okay? And real estate credit being home equity lines of credit and mortgages. Okay? So let’s say your entire credit picture has stayed the same, um, but maybe you don’t have a car loan anymore. Maybe that balance was already down to like your last payment. The last time you checked your credit report recently was closed out. Um, this 10 percent of your credit score could be affected, ’cause you no longer have that perfect mix. You no longer have any installment credit. Um, maybe you have, uh, you know length of history maybe is gonna be a little more adversely affected if that auto loan was 10 years old and it just dropped off. Okay?
  • 05:21                                   Um, so that could have an affect. Amounts owed really shouldn’t have an affect. Um, you could see an adverse affect from payment history, because now you have one less account reporting an on time payment. Okay? So there’s a little bit more than what’s, than what meets the eye with your credit score. There’s a lot that goes into it, but keep in mind the culprits typically are right here. Okay? The culprit is typically right here in amounts owed. So if you’ve seen your credit score drop or there’s been an adverse change, um, obviously if you’ve had a new late it would show up inside of payment history. If you haven’t and all of your accounts are intact, I want you to check your credit card utilization rate. Again, proportion of credit card balances to the available credit limits.
  • 06:04                                   Guys this is Nik Tsoukales with your credit minute. Check us out at keycreditrepair.com for anything credit related. If you have any credit questions you’d like me to answer, uh, I’d be happy to, uh, drum out here on my fancy new little white board. And um, thanks for checking us out guys. Have a great day. Peace.

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Experian Fined by CFPB Months After TransUnion

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Experian Fined by CFPB Months After TransUnion

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Experian Fined by CFPB Months After TransUnion and False advertising is defined as misleading consumers or potential consumers with incorrect or unproven information. You might say that Experian, one of the major credit scoring agencies, was found guilty of this recently. Specifically, Experian was fined $3 million by the Consumer Financial Protection Bureau (CFPB) for incorrectly telling consumers that the credit scores it offered were used by lenders to make decisions.

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In addition to the fine, the CFPB informed Experian that it must be honest and accurate when relaying messages about the credit scores it offers moving forward.

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Experian Isn’t the First

In a not-so-surprising reaction, Experian released a statement that respectfully disagreed with the CFPB’s ruling (though it should be noted that it complied with it). Regardless of Experian’s thoughts on the matter, the argument can be made that the credit scoring giant should have known better. After all, it’s not the first time that the CFPB has punished an entity this year.

Yes, back in January Equifax and TransUnion were dinged for similar acts of deceit. Specifically, this punishment came in the form of a combined $5.5 million fine and $17.6 payout in restitution.

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So What Credit Scores Do Lenders Use?

With this news coming about Experian – not to mention similar penalties levied against TransUnion and Equifax just months ago – you might be wondering just what credit scores lenders do use when weighing whether a consumer’s financial behavior is worthy of approval. If it’s not a score from one of the major bureaus, then where does the score come from?

In a nutshell, there’s no real good universal answer to this question. For starters, every lender is different. Mortgage lenders may look at one score or series of scores, where an auto loan lender may look at a different one. You’ve likely heard of the FICO score as one of the most important scores that lenders use. It’s true that the FICO score is still king, but what many consumers may not realize about it is that there are many different types of FICO scores that use different formulas to provide lenders with that valuable three-digit number that’s so crucial to the approval decision-making process.

Experian Fined by CFPB Months After TransUnion That’s why Experian – as well as Equifax and TransUnion – were punished by the CFPB, because while it’s entirely possible that lenders do use their respective scores to weigh their decisions, it’s also entirely possible that they do not. It’s also not to say that there’s no value in checking your credit score or purchasing it from one of the major bureaus – just be sure that you think of it as a general estimate and not something that’s set in stone.

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Getting preapproved for a mortgage loan

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Spring has sprung, and beyond just the greening of grass, warming temperatures and longer days, it’s also a period of the year that sees a significant uptick in real estate activity. Yes, with an increase in overall inventory come spring, the season is an ideal one for buyers on the hunt for their next home. But before you can buy, you need to get preapproved mortgage. Unfortunately, getting preapproved is easier for some consumers than it is for others. Some consumers may need to enact some credit repair tactics to get their credit score where it needs to be for home buying

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Improving Credit Scores for Preapproval

If your credit score isn’t up to snuff and you don’t want to wait months to repair it, there are some things that you can do now that may improve your score faster, assuming that your score was dinged because of something minor, like a late payment. More sever credit mishaps like defaulted payments, bankruptcies and foreclosures will obviously require much more time for consumers to repair, but there is hope to eliminate something minor like a late payment that could be preventing you from getting preapproved for that mortgage loan. Here’s what to do:

  • Act quick: Start by contacting the company that reported the late payment and explain the situation. Perhaps you thought you made the payment, but there was an online bill error. Or maybe it was an honest mistake on your part and you didn’t pay the bill in full. Regardless of who – or what – is at fault, come clean and explain the situation. You may even choose to enact a one-time goodwill intervention, where a company will review the case, analyze your credit and make the call on whether or not to reverse the decision. Remember, lenders want to keep your business, so if you work together with them, your chances are good.
  • Contact the credit reporting agencies: If you don’t get anywhere with the lender, consider writing the credit reporting agencies. Explain the scenario to them, and they’ll conduct a 30-day investigation to determine whether or not the lender’s decision should be reversed. This method may take a little longer than working with the lender, but if the agency rules in your favor, it can help improve your FICO score to the point where you can get preapproved.

Unfortunately, some mortgage consumers don’t have great credit and won’t be able to fix their issues by contacting either their lender or the credit reporting agencies to have the issue resolved. If this is the case, the consumer’s best bet is to start establishing good financial behavior. This includes making on time payments and keeping low balances on credit cards, just to name a few.

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Building Credit – New to the USA?

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Building Credit:

We’re a far more global and connected world than we ever were before. Many people choose to move overseas to seek out new opportunities and experiences. But, when you move to the U.S., you will find that you arrive without a credit score.

This can sometimes be surprising. Both the UK and Canada have credit scoring systems that are very similar to ours. But, the data doesn’t transfer when you move to a new country. And, in cases of people who move from countries like India, they are moving from a place with almost no credit system to a place where it is a vital part of everyday life. Outside of arriving with a suitcase full of money, what can you do to get this important piece of the puzzle of life in America? How do I build my credit if I’m new to the United States?

The Magic Three

Building Credit – New to the USA?

There are three steps that anyone who needs to build credit can take. By methodically going through the necessary actions, you can create a credit history. This gives you access to everything from credit cards to lower insurance rates to cell phone plans to the dream of home ownership.

Start with a secured credit card. This is a credit card where the credit extended to you is based on a deposit that is held in an account. So, if you deposit $1,000, you will be extended a line of credit that is equal to that. You will probably have to pay a small annual fee and any interest if you allow a balance to stay on the account.

Use it to build credit. Channel some of your regular spending through this card. Don’t overdo it; the proportion of your available credit to your credit balances is part of how your credit score is determined. At any given time, aim to use no more than 30% of the available credit. Pay off the balance every month to avoid interest charges. One of the easiest ways to handle the card is to use it for a recurring cost, such as a gym membership. Then, have the bill paid automatically each month from a connected account.

Consider a personal loan. Lenders like to see different kinds of credit used. An installment loan can show that you can be responsible when it comes to bigger debts that are paid off over time. You may need to seek a secured loan if you do not have much credit history.

It will take time to build up credit history. Pull your credit report and check your scores on a service like CreditKarma to see your progress. With careful use of your credit cards and a little patience, you will soon build up a respectable score that can give you access to many different opportunities.

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Credit Tips That Aren't As Useful As You ThoughtIt seems like everyone has advice for how to improve your credit score. But it should go without saying that not all of this advice is good advice. In fact, some of the suggestions that people have are more likely to hurt than help your credit score. Needless to say, there’s a lot of misconception out there about the best ways to up your score. Here’s a look at some of those tips that you should stay away from:

Credit Tips that Aren’t as Useful as you Thought

Lower credit limits: Some people think that simply asking for a lower credit limit can help reduce debt. While that’s true, you must also keep in mind that part of your FICO score is based on how much you owe compared to your credit allotment. For a good credit score, you need to keep debt at or below 30 percent of your total allotment. But if you lower your credit limit to $3,000 and max it out, it won’t do your score any good.

  • Pay off installment loans: Don’t focus too much on paying off installment loans early – it can actually drop your debt load – and possibly your available credit. Instead, focus on paying off credit cards.
  • Open lots of credit cards: To get more of a credit allotment and increase utilization ratio, many people think that opening up several new credit cards at once is the answer. It’s not – it can actually hurt your credit score due to the multitude of inquiries for new cards.
  • Settling debt: It’s always a good move to settle any outstanding debt with lenders, preferably for less than you owe. However, many people make the mistake of doing so and not ensuring that a written report is filed that states the debt was “paid in full.” Make sure all debts – even if they’re paid – aren’t listed as “settled.” It can hurt your score.
  • Pre-paid debit cards can help build credit: They can’t – they have nothing to do with helping you build your credit score. A secured credit card, however, can. This works similar to a debit card.
  • Never use your credit cards: Never using your credit cards can’t hurt your credit score, right? Wrong – part of your credit score is dependent upon credit history and knowing you’re making on-time payments, so you’ve got to use them. It’s better to charge small amounts and pay it off each month than to never use your credit cards.
  • Credit repair firms are helpful: While this is true for some firms, it’s not true for others. That’s because while there are a lot of qualified and credible credit repair firms out there, there are arguably just as many unethical ones that may attempt to repair your credit via identity theft or some other illegal manner. Beware!

If you hit a bad shot in the game of golf, you have one of two options moving forward: you can either deal with the poor shot and strive to make a better shot on your next stroke or you can drop a new ball and essentially hit a do-over, or a mulligan. In many cases, the mulligan trumps the former option. 

But unlike golf, there are no mulligans when it comes many things in life – like your credit history. Yes, those with poor credit history – and thereby a poor credit score – often wonder if there’s a way for them to hit the reset switch and essentially start over. Essentially, the closest thing to accomplishing this is bankruptcy, but this method of “starting over” can actually do more harm than good over the short term, as bankruptcy can stay on your credit report for up to 10 years. Can I Start A New Credit Report?

Here’s a look at some common misconceptions that people have when it comes to their credit history and starting over:

Name Changes

One common misconception is that you’ll get a new credit report if you were to change your name. That’s false – in this case, one’s existing credit history is simply transferred and carried over to the person’s new name. A person’s credit report is matched to a specific individual, so any data would simply be carried over in the case of a name change.

Social Security Number Change

It’s very rare that someone is issued a new social security number, legally at least. But just like as in the case with a name change, your credit history would simply be carried over to that new number, should you qualify to receive a new social security number. Unlike what many people may hypothesize, a new SSN doesn’t mean a fresh start on your credit.

Can I Start A New Credit Report?

The best option to improving your credit score, and the closest thing to hitting the reset button on your credit report, is simply to take it more seriously. Come up with a credit repair plan that will pay down high-interest debt, aim to reduce your credit card and debt to under 30 percent of your total credit allotment and always be sure to pay your bills on time. Credit repair takes patience and commitment, but it’s certainly not impossible.

On a side note, be wary of quick fix credit repair scams, which create a new credit report by altering your identity. This is illegal – an example of fraud – and can result in much more bad than good.

As you can see, there are no mulligans when it comes to your credit report. The best way to start fresh is to commit to taking the matter more seriously and work to increase your score to make you a more attractive consumer. There’s no such thing as a credit report do-over, so aim to correct your financial mistakes with smart decisions moving forward.

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

Who Has Access to Your Credit Report And Why? – Advice

Who Has Access to Your Credit Report And Why? There are a wide variety of different misconceptions about your credit report that should be cleared up moving forward. Many people are under the mistaken assumption that any business can get your credit report with little to no hassle. In reality, there are only a few specific types of entities that can get this all important document thanks to the Fair Credit Reporting Act and various laws in the state where you live.

 

Creditors: Both Current and Future

As a general rule of thumb, any time you’re borrowing money from a business or other type of financial institution, it’s safe to assume that this entity can access your credit history under the law. Whenever you apply for a new credit card, go to your bank to take out a loan, apply for a mortgage on a house, try to buy a new car and engage in any other similar type of activity, the business that you’re working with will be able to get and view your credit report. This is something you can locate on your credit report under “inquiries”. All inquiries made by businesses or financial institutions are referred to as hard inquiries and in most cases will lower your credit score by a few point and stay on your credit report for a minimum of two years.

 

Utility Providers

While utility providers like your electricity or gas company can view your credit report, the law is very specific with regards to what they’re able to do with that information. Many states deny a utility provider the ability to turn down providing a person with these types of essential services, even if they have a worse than average credit history or if you’re someone in need of credit repair.

 

Insurance Companies

Insurance companies are another example of a type of company that can view your credit report and credit history with ease. There are a few specific rules that must be followed, however. An insurance company cannot receive a credit report that has information about your medical history unless you specifically give them permission to. Also, if you’re applying for a life insurance policy that has a value of over $150,000, the credit report that the insurance provider will get will have more information on it that other types of businesses wouldn’t necessarily have access to. The more negative information, such as late payments, maxed out credit cards, derogatory accounts or excessive inquiries, and as a result the lower your credit score, the more you will have to pay for insurance, whether it’s homeowners, life or auto insurance. Each state however, has different laws when it comes to insurance companies using your credit as a mean to figure out the premium you’d pay. Check your state’s laws in order to find out whether your insurance company has access to your credit, or is allowed to use it against you.

 

Your Employer

Finally, any type of employer that you have a relationship with can order and view your credit report at just about any time they’d like. Employers often look at a person’s credit report to learn more about them that they wouldn’t be able to find out in an interview – like how they are with money or if they’re behind on their bills. Many employers also look at a credit report as a statement of integrity to a certain extent. An existing employer can also use your credit report as a guide to help them determine if you’re the type of person who deserves a raise or a promotion, for example. Recently though, New York City council banned credit checks for most jobs, not in the financial industry, as did the following states: Nevada, California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington. The idea behind this is that the information contained in a credit report doesn’t necessarily say much about the persons ability to perform at work and in many cases can lead to discrimination among low-income or financially-challenged individuals.

 

Debt Collectors

Debt collectors are another group of individuals who can easily access your credit report and view it in detail should the need arise. Under the Fair Credit Reporting Act, debt collectors can use credit reports to do everything from locate a customer’s current whereabouts to look at the way these people handle their finances over time. They can use your credit report in order to locate you and try to collect money or to find out whether you are behind on your other debts as well. Either way this does not work in your favor, because most of the times, the methods that collection agencies use to collect from you are not the most consumer friendly.

For additional information on who has access to your credit report and why, as well as credit advice or a comprehensive review of your credit report, feel free to contact our office at 617-265-7900 or schedule a free consultation below.

Alternative Fico score


Presently, it’s estimated that there are approximately 53 million Americans who do not have credit scores or credit reports. Noting this, they also don’t qualify for credit access, making it difficult for these tens of millions of people to secure housing, utilities, a car – even something as seemingly simple as a cellular phone.

No credit history – or a lack of favorable credit history – and most are out of luck.

But according to a recent report in the Wall Street Journal, this could all be changing. The report states that FICO is close to releasing a new scoring formula that’s specifically designed to help high-risk consumers, as well as consumers without credit history or a credit report, access credit. The score has yet to be officially named, but the WSJ states that it’s already being tested by 12 credit card companies and expected to be rolled out on a widespread scale by the end of 2015. While it likely won’t open the door to new credit lines for all 53 million consumers that don’t have credit scores or credit history, it’s believed it will benefit about 15 million.

New FICO Score: The Basics

Much of this new FICO score is still a mystery, but there’s a lot that we already know about it. Here’s a look:

  • The big thing that this new FICO score will include are payment history of cable bills, phone bills, electric bills and gas bills. It should go without saying that these aren’t normally things that are included in a credit score. It will also factor in things like address changes, the thinking being that the more frequently a consumer changes residencies, the less trustworthy they are.
  • There are believed to be other factors that will be included in the new FICO score which can be learned from the LexisNexis database.
  • Standard FICO factors such as payment history, debt, credit history and types of credit would also still be used in this new model.
  • The scoring scale will still range from 300 to 800, but it’s estimated that about one-third of all newly scored consumers, under the new scoring model, would have a score over 620, which is generally considered the line where lenders either approve or deny.

However, while we know that a handful of credit card issuers are currently using the score, the verdict is still out on whether or not more of them – or all of them – will eventually adopt this new scoring model. Also, questions remain about how thorough and consistent the cable companies, gas companies and electric companies will be about reporting this data (or if they’ll report it at all). The bottom line is that the score appears to be a good idea in concept, and lenders will likely approve as it could mean more business – and more money. But there’s still a lot of details to work out before it can become as widespread as the current FICO score. Stay tuned…