Managing Your Credit
Nearly every consumer will have at least one inaccurate item included on their credit report, and it is up to you, the consumer, to make sure your credit file is accurate, verifiable and complete. According to the Wall Street Journal, from 2004 to 2006, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans, and the Mortgage Bankers Association reported that every three months, approximately 167,000 new families enter into foreclosure in the United States.
To ensure an accurate credit report, we recommend that you check your report from at least one of the three Credit Bureaus – TransUnion, Experian, and Equifax – every six months. The tricky part about managing your credit is that the information provided to the three Credit Bureaus comes directly from your creditors, and you will rarely if ever be notified of the information provided. This requires you to check your report often to identify erroneous information early. Credit Bureaus take into account the date that inaccurate items were reported and usually respond more positively if they know that you manage your credit carefully and check your reports often.
With the recent rollout of a new federal law, you are now entitled to one free credit report from each of the three Credit Bureaus per year. You can receive your free credit report in one of three ways. To request your free report online, visit www.annualcreditreport.com, or to request by phone call (877) 322-8228, or you can complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281.
If you've been denied credit, insurance or employment because of your credit report, then you are entitled to a free copy of your report from the reporting agency. The company to which you applied must supply the Credit Bureau's name, address and telephone number, but you must act quickly as you have a total of 60 days after receiving the denial notice to request your free report.
After obtaining a copy of your credit report, review each account carefully checking for even the smallest details including spelling errors, outdated or incomplete information and inaccurate account histories. Every credit report is laid out slightly different, so find a company that provides a report that is easy for you to read and file. Next, you need to start a detailed log of all the potential problems in the report, and be sure to include creditor contact information and the nature of the item in dispute. Make a thorough list of the items in dispute and gather ALL supporting information to help build a case for your position. Be meticulous in your documentation. Proper documentation is the key to winning any successful credit dispute.
Credit Repair Basics
With soaring US public debt, falling home values and record gas prices, many of us feel like our credit scores have been on a roller coaster with no end in sight. There is hope! The Federal Trades Commission has established hundreds of laws and rulings geared to help protect consumers. Federal law also requires that your credit report be accurate, complete and verifiable, and it’s your right to challenge and remove any information that is not exact and precise.
To begin, obtain a copy of your credit report and review each account carefully checking for even the smallest details including spelling errors, outdated or incomplete information and inaccurate account histories. Every credit report is laid out slightly different, so find a company that provides a report that is easy for you to read and file. Next, you need to start a detailed log of all the potential problems with the report, and be sure to include creditor contact information and the nature of the item in question. Make a thorough list of the items in dispute and gather ALL supporting information to help build your case. Be meticulous in your documentation. Proper documentation is the key to winning any successful credit dispute.
Be prepared with the following supporting documentation: a photocopy of your credit report with the mistakes circled, records of all forms sent and received, call logs, letters, certified mail receipts and any other supporting information relating to your dispute. Prepare your documentation as though you will be presenting the information to a judge and jury, making sure to include dates and names of the people you spoke with and their positions in the company. The credit bureaus must investigate any relevant dispute within 30 days of receiving your certified letter, so be sure to also track the date your package was received by the bureaus. Any item that is not verified as accurate by a creditor must legally be removed from your credit report.
The final step, and probably the easiest to forget, is to confirm everything in writing. When speaking to a representative, request a letter confirming the items discussed. When an item has been updated, you will want to request a copy of the UDF, or universal data form. The UDF is a document that your creditor transmits to the Credit Bureaus to update your credit report. It informs the Credit Bureau of any balance updates, payment history changes, current status updates or other changes to the file. If the creditor won't send a UDF, request a letter confirming that the creditor notified the Credit Bureau of the inaccuracy and requested a correction. We also recommend that you have your creditors send a copy of your UDF to all of your other creditors in case any of your rates have been negatively affected by the inaccurate information.
You and Your Credit
What is a credit score and how is it determined? Let's start from the beginning. There are three credit repositories that track and report all credit related information: Equifax, Trans Union and Experian. Creditors report credit related information to credit bureaus. Credit bureaus then pass the information on to the credit repositories that document and transfer the information to your credit report. Within these reports is a history of all of your creditors, your payment history, current and past addresses, current and past employment and any public information like judgments, tax liens, etc. The credit repositories then apply a proprietary formula that generates a credit score, which they provide in the form of a credit report to both creditors and individuals. Creditors will use the credit report to determine whether or not to lend you money and at what interest rate.
Credit Report Inaccuracies
There have been several surveys conducted over the years in an effort to quantify the number of errors contained in credit reports, with findings ranging from 5% to 80%. Congress conducted an investigation concerning the accuracy of the information provided by the three credit repositories. The report to congress concluded that as much as 80% of the information provided by the repositories is incomplete, inaccurate, misleading, obsolete and/or erroneous. What does this mean to you? It means that when you go in to get that new car loan, you are being evaluated based on a credit report that could be as much as 80% inaccurate. Remember, your credit report will determine whether or not a creditor will lend you money and, more importantly, at what interest rate.
Consumer Rights
Federal law requires that your credit report be accurate, complete and verifiable. If you find that the information on your credit report is not exact and precise, then you have the right to challenge the report and ultimately remove the inaccurate items. Time is also important. Most negative information, by law, will remain on your credit report for seven years. Bankruptcies can remain on a credit report for ten years and federal tax liens for up to 15 years. Old or expired information can also be challenged and removed.
After removing all inaccurate information, the most effective way to improve your score is by paying down your revolving consumer debt. In fact, owing the same amount of money but having fewer open accounts may actually lower your credit score. In addition, the Federal Trades commission has established hundreds of laws and rulings geared to help protect consumers. Become familiar with your credit report and check it often. We recommended that you check your credit report from at least one credit repository every six months. Also, become familiar with the tools that are available to help build credit, establish new credit and remove inaccurate, negative information from your credit report.
Credit Solutions for Real Estate Foreclosures
Over the past few weeks, we have received a growing number of inquiries into a blog written about credit solutions for people who have recently experienced foreclosure on Real Estate or may be considering the possibility of foreclosure, and so I want to share a few of the principles covered in the blog.
In my research, I found very little new information about removing foreclosures from your credit report; however, I did find a variety of the normal credit repair options available, with many boasting several hundreds of foreclosure removals over just a few months time. Very impressive numbers, although the statistics are a little confusing because they don't tell you if these items have been removed from 1 out of 10 credit reports or 8 in 10. They also don’t tell you if the item was removed permanently or reappeared after an automatic quarterly update of the file, which is very common with traditional credit repair.
In my findings, it became evident that traditional credit repair strategies are still working to remove foreclosures, and therefore each of us already have the tools necessary to accomplish the same results for very little cost. Removing a foreclosure from your credit report will instantly boost your credit scores, increase your access to cheaper credit and build a foundation for turning your credit into wealth.
I also found some great information for those who sold their home but still have a foreclosure showing on their credit report. There is a difference between foreclosure suits and an actual foreclosed home. If you managed to sell your home before the foreclosure judgment was made final in court, then your foreclosure is not valid and can be removed from your credit file with the proper documentation. The first step is to get a copy of your case dismissal from your county courthouse. If you find that a dismissal was not filed by your old mortgage company, contact your mortgage company and request an immediate dismissal of the mortgage. It is their obligation to file the dismissal after receiving payment, so send the request as soon as possible.
After obtaining a copy of the dismissal, contact all three major credit reporting agencies and dispute your credit profile by reporting the negative entries on your credit report as inaccurate. The credit repositories will check the information with your old lender and inform you of the outcome within 30 days. If the old lean holder does not respond or modify the information, then the negative items must be permanently removed from your credit report. Be sure to send copies of the dismissal to the credit reporting agencies with return receipt, so that changes can be made directly to your report.
Credit: The magic formula
The single most important item on your credit report is a little three-digit number that ranges from 200 to 850 and is called a credit score. When you borrow money to buy real estate or sign up for certain long-term services, such as taking on consumer debt (credit cards, lines of credit) or public utilities, your lender sends all the contract information to a credit bureau. The credit bureaus determine how well you have handled your debts, or contracts, in the past and provide a summary of this information in the form of a credit report. From the information in the credit report, the bureau determines a credit score based on five major factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit has been in use, 4) types of credit available, and 5) pursuit of new credit.
In the pie chart you will notice that there are five distinct factors included in credit report calculations, although each category carries a different importance, or weighting, to the overall calculation of the credit score. Here is how the weighting breaks down:
As you can see on the pie chart above, the two areas that affect your credit score the most, and almost equally, are your historical credit performance and your current level of indebtedness. Although you may not be able to make a significant impact on your debt elimination or current level of debt, the factor that can boost your credit rating the most is having a past that shows you pay off your debts according to the contract, if not sooner. Plan ahead when evaluating additional debt to ensure that you can pay it off quickly and boost your credit score. Additionally, maintaining low levels of indebtedness (or not keeping huge balances on your consumer debt, credit cards or other lines of credit), having a long credit history, and refraining from constantly applying for additional credit will help your credit score.
The percentages in the chart above are based on the importance of the five major credit report categories for the general population and may vary when it comes to your actual credit score. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different. Although we would love to explain the exact formula for calculating the credit score, the Federal Trade Commission has a secretive approach to this formula and keeps this information very confidential.
1 cash flow management (26 - .000053)
1 real estate (12719 - .0991)
1 debt elimination (49 - .00117)
2 consumer debt (3973 – 3.164)
5 credit report (3547 – 0.167)
8 credit score (1325 - .0516)
free credit reports (1188 - .174)
1 credit repair (819 - .028)
1 wealth creation (153 - .00649)
