Credit Tips – That Aren’t As Useful As You Thought

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!

Should You Ever Close an Old Credit Card? – Key Tips

Better rates and more rewards entice us to apply for better credit cards. But what should you do with an old card? Debt management can be tricky if you’re tempted by all your cards.

It seems like the obvious solution is to just cancel the old card. But before you do that, it’s important to understand how canceling a card can impact your credit.

How Credit Reports Work

cancel old credit card?

Credit reports look at five important areas:

  • Payment history
  • Credit utilization
  • Credit history
  • New credit
  • Types of credit

Some of these will be directly impacted whenever you close a card.

Payment history will stay on record for up to 10 years, so you don’t need to worry about that.

Credit utilization, however, will be directly affected. This looks at your debt-to-credit ratio. If the card you’re canceling had a $10,000 maximum, your total credit maximum will also drop by that amount, which can make any used-up credit seem worse.

Credit history will also be impacted, especially if the card was an old one. If this was your first source of credit opened 10 years ago, that means your history spans 10 years. If the next card you got was only five years ago, closing the older one will shorten that credit history by five years.

Peace of Mind

Despite the potential blow to your credit report, your unique situation may warrant canceling a credit card.

If you’re no longer using the account, you might not log in regularly to view activity. If you’re not paying attention to what’s happening to that card, you’re at greater risk for identity theft. If the card doesn’t have a lengthy credit history or high limits, it might be safer to close it.

Whether or not you close a card should also be dependent on your behavior. If you know you’ll have a hard time resisting using that card, you’ll probably be better off removing that temptation entirely.

Important Things to Consider

  • It’s fine to have several credit card accounts open, as long as you’re not tempted to use them all
  • If you do close your card, be sure to pay off the balance and redeem rewards prior to canceling
  • Don’t forget to change any automatic payments on your old card
  • Don’t close a card before a major purchase

Do You Need Help with Your Credit?

If you need to repair or improve your credit, or simply have questions, we offer free consultations. We’d be happy to walk you through the credit repair process and get you back on track. Feel free to give us a call at 617-265-7900  or schedule a free consultation below. 

One of Every 10 American Consumers Doesn't Have A Credit Score

No Credit Scores – 45 Millions Americans

No Credit Scores
No Credit Scores- America is a country made up of about 319 million people. However, according to a new report recently released by the Consumer Financial Protection Bureau (CFPB), up to 45 million Americans either have no history with the major credit reporting bureaus or No Credit Scores that’s so outdated or limited that they’re classified as unable to be scored.

Think about that: that’s 45 million Americans, or roughly one out of every 10 individuals in the country.

Report Details of No Credit Scores

According to the report, 26 million Americans don’t have history with the major credit reporting bureaus and another 19 million have outdated or limited credit history. The African American and Hispanic demographics were found most likely to be classified in one of the two aforementioned groups, with a 15 percent rate of credit invisibility compared to 9 percent for Caucasians. Furthermore, low income consumers are 30 percent more likely to have credit invisibility, compared to just low single digit percentages in upper income areas. No Credit Scores for 45 Million Americans.

Young adults ages 18-19 make up the majority of this “no credit score” stat at about 80 percent, as the study indicated that many had little time to build credit history or use debit cards instead of credit cards, among other reasons. Credit invisibility or lack of adequate history is also high among those 60 years old and greater.

Importance of a Credit Score

Those 45 million who don’t have an adequate credit score are obviously at a major disadvantage when it comes to getting a loan – whether it be a home, auto or student loan. But thankfully, there are a number of ways one can either build – or rebuild – credit history:

  • Get a secure credit card: These cards draw on money that is deposited in a bank and don’t require a credit score to obtain. Just be sure the card you choose reports to the three main agencies, as not all of them do.
  • Credit builder loans: These are loans where the lender makes payments over a loan’s life and then receives the money, along with any accrued interest, after this time period is over. If you belong to a credit union, you should qualify for a credit builder loan.
  • First credit cards: Remember, about 80 percent of those without a credit score are 18-19-year-olds. Make sure you get your kids an entry-level, low limit credit card before they go off to college or after they graduate high school so that they can begin to build credit and learn about managing it responsibly.

 

So if you’re among the 45 million Americans with No Credit Scores, now is the time to do something about it. And once you do, don’t forget that in order to attain the low interest loan – and loan approval altogether – benefits that a good credit score permits, it’s essential to keep it in tip top shape so that a lengthy credit repair process isn’t necessary.

hard inquiries truth

Credit Inquiries – How do they affect my scores?

How Do Inquiries Affect My Credit Score?
Each time someone views a copy of your credit report, an inquiry is added to your record to indicate that it has been viewed. While some of these inquiries are completely harmless, others will lower your credit score.

Types of Inquiries

  • Hard inquiry: A hard inquiry occurs when a potential lender pulls your credit report with your express permission. Because this type of inquiry indicates that you are trying to borrow money, it can count against your credit score.
  • Soft inquiry: A soft inquiry occurs when someone who is not a potential lender pulls your credit report. For example, a soft inquiry may appear when an employer pulls your report or when you check your own credit. Soft inquiries appear on your report, but they won’t affect your score in any way.

Understanding the Effects of Inquiries

According to FICO, the effect a hard inquiry has on your score depends on a variety of factors, including the amount of time that has passed since the inquiry, the number of inquiries and other such information. For some people, a single inquiry will have no effect at all. For others, the credit score may decrease slightly. Hard inquiries will have a more dramatic effect on your score if you have other negative indicators on your credit report, such as a short credit history. Likewise, a large number of inquiries may be viewed as a sign of poor debt management.

TransUnion reports that most credit inquiries remain on your report for one year. However, some inquiries may remain for up to two years.

Rate Shopping

One of the most important credit tips you will hear involves finding the best interest rate for long-term loans, such as mortgages, student loans or car loans. If you are shopping for financing in one of these categories, it’s possible to apply for a loan from multiple lenders without incurring extra inquiries on your credit report. FICO reports that all hard inquiries made to finance an automobile, obtain a mortgage or take out a student loan within a 30-day period are typically counted as a single inquiry when your credit score is calculated.

Inaccurate Inquiries

In some cases, inquiries you did not solicit may appear on your credit report. Even though you did not approve these inquiries, they will still harm your score if they are not removed. For this reason, it is important to check your credit score regularly and use credit repair strategies to eliminate any inaccuracies. If you need help to repair credit problems, contact our office at 617-265-7900.

medical bills

Medical Collections – The Credit Score Killer

Medical Bills: The Credit Score Killer
Making on-time payments, enacting a debt management strategy so that you don’t owe more than 30 percent of your total credit limit, and having a variety of different types of credit are all things that you can do to ensure a good, healthy credit score. But one common credit score killer is medical bills – and many times, your score could suffer due to a misunderstanding with your insurance or your doctor, potentially docking you big points for something that isn’t necessarily your fault. Other times, your score could suffer because you simply just can’t afford the cost.

In fact, medical bills that go to collections are treated the same way as any other type of bill that goes to collections in the FICO score formula. Analysts say that just one medical bill that has gone to collections could drop your credit score by 100 points, thereby forcing you to enact a lengthy credit repair strategy to bring the score back up over time.

So what can you do to ensure that a bill doesn’t go to collections? Here’s a look at some credit tips:

  • Understand your insurance: Many medical bills go to collections because people can’t afford to pay them. One way to better plan and prepare for potential medical costs is to know and understand your insurance plan. For instance, does it cover wellness visits? What’s the deductible? Will you have to pay money out-of-pocket after you meet the deductible? Knowing all these things can better help you prepare in the event of a surgical procedure or emergency rather than take a “wait and see” approach for when the bill arrives.
  • Go on a payment plan: Surgeries, procedures and hospital stays can all add up. And many people can’t afford to pay the total bill in full right away. Check with the hospital to see if you can go on a payment plan to make regular installments toward the bill. Many hospitals won’t charge any interest as long as the balance is paid within a year or two. Others may allow you to finance bills.
  • Keep records: Be sure to retain all your medical bills and check your credit report regularly to watch for inaccuracies. It’s estimated that four out of every five credit reports have errors in them, so if your report doesn’t line up with your personal records, take action to have any discrepancies removed from your report. Otherwise, you could have to repair credit for nothing.

For more great information you can click here to request a free consultation.

Why a Collection Agency Won't Remove a Record After It Has Been Paid

Paid Collections – Why Are They Still on My Report?

Are you one of many Americans who have collection accounts on your credit report? If so, you unquestionably want it to just go away. This is a pivotal part of credit repair but raising your credit score back up to a favorable status is much easier said than done. That’s because according to U.S. law, collection accounts can be reported in your credit history for seven-and-a-half years from the original date you fall behind on payments.

Yikes!

Seven-and-a-half years. That’s a long time a bad record can weigh down your FICO score. Even worse, it’s possible that you can settle your debt with a collection agency and the record will still weigh down your credit score. Why? Because collection agencies are required to report information that is both accurate and complete and that includes this negative aspect of your credit history.

So now that you know why collection agencies won’t wipe a record clean, even after you’ve settled your debt, you might be wondering if there’s anything you can do? I mean, 7.5 years is a long time to wait out a bad record.

The good news is that there are some things you can do to wipe bad records from your report early, thereby allowing you to advance and repair credit. The bad news is these things are not sure-fire. Here’s a look at a few credit tips for working with collection agencies on this matter:

  • First, pull your credit history so you know what’s being reported. There’s a chance you might find an inaccuracy within the report, which can lead to a favorable outcome, as collection agencies aren’t legally allowed to report inaccurate or incomplete information.
  • Negotiate a “pay for removal” debt management deal: If you haven’t settled any debt yet, contact the collection agency and see if they will remove your record should you settle the debt. Many will likely respond and say that they’re unable to remove the record, as credit reporting agencies frown upon this policy. But it’s worth a shot.
  • Build new, positive credit: Part of your credit score is based on any new credit you’re building. So if you’re striking out with getting records removed from your credit report, it may just be best to cut your losses and focus on building new credit. As time goes on, these negative records will have less of an impact on your overall score, as long as your finances and credit history are headed in the right direction.

For more information on how to repair your credit after a collection you can request a free consultation by filling in the form below.

maximize your fico with different tradelines

Different Types of Credit – How to Maximize Your Score?

There are five main factors that make up a FICO credit score – payment history, amounts owed, credit history length, new credit and types of credit used.

While the “types of credit” category only factors for about 10 percent of your overall FICO score, it can mean the difference between a good score and a great score, so it’s a category not to overlook if you’re on a mission of credit repair.

First, it’s important to note that there are two main types of finance loans: revolving and installment. Installment loans consist of things like auto loans and student loans — money that is loaned with the expectation that it will be paid back in a relatively short period of time. Revolving loans, which are things like credit cards and bank cards, involve debt that is accrued and, ideally, paid off on a monthly basis (i.e. debt management).

For the best possible credit score, it’s recommended that consumers try to establish a good balance between installment and revolving loans. But here’s a credit tip — there’s one other type of loan that can greatly aid your credit score for the better in the long-term: a mortgage.

When you’re first approved for your mortgage, it’s likely that your credit will take a hit in the near-term. But a mortgage is good for your credit score in the long run for two big reasons. One, it qualifies as a type of credit used. And two, if you make on-time mortgage payments, it will reflect well in the payment history portion of your credit score, which makes up 35 percent of your FICO score.

With all this being said, it’s also worth mentioning that just because you have a variety of installment, revolving and real estate loans to your name doesn’t mean you’ll have a pristine credit score. Like we mentioned above, on-time payments are key. And it’s also key that you don’t have any unpaid loans that are taken on by collection agencies, as it’s hard to repair credit when you have something that could stay on your record — and influence it in a negative way — for up to 7.5 years.

So while diversifying your credit is important, it’s important not to overlook other factors that go into the makeup of your overall score as well.

Different Types of Credit Scores – Credit Tips

When it comes to your credit score, you’re likely already familiar with your FICO score. It is, after all, the most common type of score that creditors check before approving you for a home loan, car loan, etc. But there’s more than just the FICO score that creditors may check when it comes to looking up your finance history. Vantage and PLUS scores are two in particular that come to mind.

So what are the key differentiators between FICO, Vantage, and PLUS? Here’s a closer look at the different types of credit scores:

FICO

The FICO credit score, which ranges from 300 to 850, is made up of five main categories:

  • Payment history, 35 percent
  • Amounts owed, 30 percent
  • Length of credit history, 15 percent
  • New credit, 10 percent
  • Types of credit, 10 percent

As you can see from the FICO score makeup, the single most important thing is credit history – so here’s a credit tip – pay your bills on time. It’s why making on-time payments is such a crucial piece of credit repair. Debt and debt management is the next most important thing and the score is, rounded out by how diverse your credit is, new lines of credit you’ve opened, and how long your credit history is.

Vantage

Unlike the FICO score, the Vantage score essentially judges you on your last 2 years of credit and delivers your score in a range from 501 to 990. Unlike the FICO score, which takes into account 5 components of your credit history, Vantage measures you on 6 categories. Here’s a look at what they are and how significantly they weigh into your overall score:

  • Payment history, 32 percent
  • Utilization, 23 percent
  • Balances, 15 percent
  • Depth of credit, 13 percent
  • Recent credit, 10 percent
  • Available credit, 7 percent

Many of the categories of the different types of credit scores are similar to FICO, and there’s the “payment history” category, which takes tops in importance on its own. But the Vantage score includes a separate “Utilization” category, which measures debt-to-credit ratio, and “Balances.” In FICO, those two categories are somewhat grouped together. So while on-time payments are also important to repair credit with the Vantage score, there’s almost a greater emphasis on debt-to-credit ratio and debt.

PLUS Score

The score is measured between 330 and 830. It’s considered more of an “educational” score rather than one that’s used by lenders, but it’s nevertheless still a score. It’s a scoring system developed by Experian. Here’s a look at the breakdown:

  • Payment history, 31 percent
  • Credit usage, 30 percent
  • Age of accounts, 15 percent
  • Account types, 14 percent
  • Inquiries, 10 percent
Cash or Credit

Cash or Credit – Key Credit Repair Tips and Advice

In order to avoid debt and overspending, many Americans have moved away from credit cards and loans and instead save up cash for purchases. The thinking behind this practice is that they’ll never have to embark on any credit repair or debt management mission, as paying with cash only ensures that they’re never spending beyond their means.

Paying only with cash also ensures that consumers are paying the lowest possible price for items, as they can avoid interest rates that can make large purchases even larger in the long run.

But is paying cash for everything all the time really the right way to go about your finances? While it certainly carries some benefits, one area where this practice can hurt you is how it pertains to your credit score.

Yes, your FICO score, that three digit number that’s essential for getting approved for loans and credit cards and also for cell phone plans, employment opportunities and more. Building credit is important for a variety of reasons, and while many people may be scared off by falling into debt and having to repair credit, a favorable credit score can help you with more than just home and auto loans and credit cards.

Here’s a look at some other reasons why paying cash for everything may not be the best financial strategy:

  • Your FICO score is composed of five factors: payment history, amounts owed, length of credit history, new credit and types of credit used. If you pay cash for everything, you won’t have a credit report. And while many people are OK with this, there’s the chance of being denied for a credit line in the event of an emergency or being turned away for a job or cell phone plan. Like we mentioned earlier, your credit score is important these days for more than just loan approval and favorable interest rates.
  • You can have a credit card and be responsible. One argument for paying cash over credit is that you’ll never have to worry about spending getting out of control. But there’s another way to use a credit card and keep spending within means — by being responsible. Here’s a great credit tip to build your score and keep debt down: Make payments on time. Not only does this save on interest, but it’s also the most heavily weighed aspect of your credit score.

So while many are spurning credit cards altogether and opting for a cash-only approach, it’s possible to have the best of both worlds, so your credit score as well as your finances don’t suffer.

Serious Credit Tips

Credit Mistakes to Avoid at Any Cost – Credit Tips

Credit Mistakes to Avoid- If you’re in need of credit repair, it’s something that you have to devote time and energy toward working on. Repairing credit takes commitment and a proper understanding of how credit is configured. And while improving your credit score isn’t something that’s easy or fast to do, harming it is something that is.
With that being said, here’s a look at the five most common blunders people make that harm their credit score. Knowing these could be the credit tips you need to keep your score favorable and not poor:

  1. Not paying bills on time: Payment history accounts for 35 percent of your FICO score, specifically if you’ve made on-time payments. A late payment won’t just incur late fees and possibly higher interest rates, but it can immediately dock your credit score of anywhere from 80 to 110 points.
  2. High debt-to-credit ratio: Ideally, it’s recommended that you keep debt-to-credit ratios at about 30 percent for the best possible score. So if you have one credit card and a credit limit of $10,000, keeping it no higher than $3,000 is ideal. Anything more will drop your credit score, so take debt management seriously.
  3. Bad debt: Simply put, don’t let any bills go to collections. Not only will they stay on your credit report for up to 7.5 years, they’re not good for your overall finance picture.
  4. Hard credit pulls: Hard credit pulls are done any time someone is officially approving you for some sort of credit line. They also impact your score by about 5-10 points for every pull and stay on your report for up to two years. Simply put, know the difference between a hard pull, which docks your score, and a soft one, which doesn’t. Many consumers don’t and are surprised to see their score so low.
  5. Check your credit report: You should regularly check your credit report – ideally, once a month. Why? Because it’s estimated that up to 40 million Americans have some sort of mistake on their report. By staying on top of your report, you can monitor and dispute incorrect information, which could be bringing down your credit score.