​What is a Credit Score?

Client Information and Recommendations:

As your Credit Specialist, our most important job is to review your credit history reports with you and begin the process of disputing negative inaccurate items on your reports.

Our next most important job is to give you recommendations to follow, which will help you to speed up the process, achieve a higher score and move forward on your path to Wealth!

While we do our part, please read the following information, follow our steps and watch your credit score improve!

• How does credit repair work?

• Credit Report Basics

• Do I have a right to know what’s in my report?

• What is a Credit Score?

• Credit Score Ranges and Their Meaning

• How do Credit Bureaus determine my credit score?

• What type of information do credit bureaus collect and sell?

• How does a credit bureau determine my score?

• What is the secret to a high credit score?

• What happens if you are denied credit or don’t get the terms you want?

• The Fair Credit Reporting Act

• How can I speed up the process?

• 7 steps to increase your credit score fast

 

How Does Credit Repair Work?

Credit repair is 100% legal. Credit repair works because of a law called “The Fair Credit Reporting Act” or "FCRA". The FCRA gives you the right to dispute any item on your credit report. If that item cannot be verified within a reasonable time (usually 30 days) it must be removed. Even accurate negative items can often be removed or negotiated away. This law is the basis of all credit repair and the foundation of our business.

Credit Repair Basics:

Your credit payment history and profile is the makeup of a credit report. These files or reports are maintained and sold by “consumer reporting agencies.” One type of consumer reporting agency is commonly known as a credit bureau. The largest three credit bureaus are Transunion, Equifax, and Experian. You have a credit record with these agencies if you have ever applied for a credit or charge account, a personal loan, or a job. Your credit record contains information about your income, debts, and credit payment history. It also indicates whether you have defaulted on any debts, have any outstanding judgments or child support, and whether or not you have any bankruptcies.

Do I have a right to know what's in my report?

Absolutely! By law, the agencies must give you a free report annually. However, those free reports do not contain your actual credit scores. To view your credit scores we recommend maintaining an inexpensive credit monitoring service.

What is a Credit Score?

A credit score is a number generated by a mathematical formula that is meant to predict credit worthiness. Credit scores range from 300-850. The higher your score is, the more likely you are to get a loan. The lower your score is, the less likely you are to get a loan. If you have a low credit score and you do manage to get approved for credit then your interest rate will be much higher than someone who had a better credit score and borrowed the same money. Having a high credit score can save many thousands of dollars over the life of your mortgage, auto loan and credit cards.

Credit Score ranges and their meaning:

800 and Higher (Excellent) With a credit score in this range, you hold the very best chances of having your loan applications approved. Additionally, the APR (Annual Percentage Rate) on your credit cards, auto loans, mortgages and other types of credit will be the lowest possible. You’ll be treated as financial-industry royalty! Achieving this excellent credit rating requires extensive financial knowledge and dilligence as well as a sparkling clean credit report.

720 – 799 (Very Good) 27% of the United States population belongs to this credit score range. With this credit score range you will enjoy better rates than people with lower credit scores, and you're likely to be approved for most types of credit including rewards credit cards, mortgages, home equity lines of credit, auto loans and other loans, whether secured or unsecured. 

 

 

680 – 719 (Good) This range encompasses the national average credit score. In this range, credit approvals are more common than in lower ranges, although not all of the best credit opportunities are within your reach *yet*. When approved, your interest rates might be marginally higher than they would be once you have a higher score. If you’re thinking about a long term loan such as a mortgage or auto loan, try working to increase your credit score higher than 720 and you will be rewarded for your efforts – your long term savings will be noticeable.

620 – 679 (OK or Fair) Depending on what kind of loan or credit you are applying for and your credit history, you might find that the rates you are quoted aren’t the best. This doesn’t mean that you won’t be approved by some lenders, but certain restrictions will likely apply to the terms you're offered and it will be more common for you to be required to put money down in order to secure a loan approval.

580 – 619 (Poor) With a credit rating between 580 and 619, you may still find some unsecured personal loans and credit cards that are willing to approve you, but watch out for the terms and interest rates - they won’t be very appealing. You’ll be required to pay more over a longer period of time due to astronomically high interest rates, and many types of fees that would be unthinkable with a higher credit score are commonplace in this range.

500 – 579 (Bad) With a score in this range you have very limited credit options. Some people with bad credit apply for loans to consolidate debt in search of a fresh start. However, proceed cautiously if you consider that path. There are many scams and misleading advertising around companies that seek to serve people within this range of scores, even in the credit repair industry! Most promise things that simply can't be done, or hide the fact that their services hurt your credit report in ways that you don't see until later. If it seems too good to be true, it almost always is. With a credit score under 580 you need to make sure that you don’t risk making your situation worse by defaulting on payments, which is not what you want. In this range, some people begin considering bankruptcy as well, which is almost always a poor choice. If any of this sounds like your situation, speak with your Credit Specialist in order to develop a plan!

499 and Lower (Very Bad) If this is your score range then you need serious and professional assistance with how you handle your credit. It takes many credit blunders to reach this range and they will only get worse if you don’t take positive action. If you are thinking of applying for a loan, then keep in mind that your only options in this range are sub-prime lenders (difficult to work with and expensive) or private lending (extremely difficult to find and typically even MORE expensive than sub-prime lenders). If you do find either one of these borrowing options (which wouldn’t be easy), the rates will be very high and the terms will be very strict. We recommend that you fix your credit and only then move on to applying for loans that help you to build wealth. The good news? We can help!

How do Credit Bureaus determine my credit score?

35%  =  Payment History / Collections / Public Records

30%  =  Revolving Credit Utilization Ratio

15%  =  Length & Average Age of Credit History

10%  =  Types of Credit + Number of Credit Accounts

10%  =  Number of Credit Inquiries

The percentages in this chart show how important each of the categories is in determining your credit score. We will help you to remove negative items from your payment history. We will also show you how to maximize your Credit Utilization Ratio, even if paying off credit cards entirely is not an option for you yet.

What type of information do credit bureaus collect and sell?

Credit bureaus collect and sell four basic types of information:

1. Identification and employment information
   Your name, date of birth, Social Security number, employer, current address and spouse’s name are routinely recorded in your credit report. They may also provide information about your employment history, home ownership status, income and previous address(es), if a creditor requests this type of information.

2. Public record information
   Events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may appear in your report.

3. Inquiries
   CRAs must maintain a record of all creditors who have asked for your credit history within the past two years. It is generally beneficial to keep the number of inquires as low as possible in most cases, although people are often unaware of how little inquiries actually affect their scores.

4. Payment history
   Your accounts with different creditors are listed, along with the balances, high balances, and outstanding balances. Related events, such as referral of an overdue account to a collection agency, charge off accounts or other delinquencies may also be noted.

How does a credit bureau determine my score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change — but improvement generally depends on how that factor relates to other factors considered by the model.

Scoring models generally evaluate the following types of information in your credit report:

• Do you pay your bills on time? Payment history is a major factor in credit scoring. If you have paid bills late, have collections, or declared bankruptcy, these events will not reflect well in your credit score.

• Do you have a long credit history? Generally speaking, the longer your history of holding accounts is, the more trusted you will be as a borrower.

• Have you applied for credit recently? If you have many recent inquires this can be construed as being negative by the credit reporting agencies. Only apply for credit when you it really benefits you and the application is worth the inquiry.

• What is your outstanding debt? It is important that you are not using all of your available credit. If all of your credit cards are maxed out, your scores will reflect that you are not managing your debt wisely.

What is the secret to a high credit score?

1. Always pay your bills on time!

2. Don’t close old accounts!

3. Don't apply for any new credit unless it's part of your Credit Growth Plan!

4. Don’t ever use more than 30% of your available credit on each credit card!  (Keep it under 10% if you can!)

What happens if you are denied credit or don’t get the terms you want?

If you are denied credit, the Equal Credit Opportunity Act requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: “Your income was low” or “You haven’t been employed long enough.” Unacceptable reasons include: “You didn’t meet our minimum standards” or “You didn’t receive enough points on our credit scoring system.”

If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.

If you’ve been denied credit, or didn’t get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get approved for credit, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report.

How can I speed up the process?

Following these 7 steps will increase your score quickly.

1. Order fresh new copies of your credit reports from all 3 bureaus: Equifax, Experian and TransUnion.**We will assist you with this step.
   Credit reports are constantly changing. Therefore it is important to have access to up-to-date copies. A good rule of thumb to know is: if someone else runs your score or reports in order to decide if they will lend to you (even for a cell phone!), this will almost always hurt your score. However, if you order your own credit reports (which we will help you with) your score will not be affected. You may also want to sign up for credit monitoring to see your reports and score and track changes as they happen.

1. Correct all inaccuracies on your Credit Reports.**We will assist you with this step.
   Go through your credit reports very carefully. Especially look for; Late payments, charge-offs, collections or other negative items that aren't yours; Accounts listed as "settled," "paid derogatory," "paid charge-off" or anything other than "current" or "paid as agreed" if you paid on time and in full; Accounts that are still listed as unpaid that were included in a bankruptcy; Negative items older than seven years (or ten years in the case of some bankruptcies) that should have automatically fallen off your report (you must be careful with this last one, because sometimes scores actually go down when bad items fall off your report. It's a quirk in the FICO credit-scoring software, and the potential effect of eliminating old negative items is difficult to predict in advance). Also make sure you don't have duplicate collection notices listed. For example; if you have an account that has gone to collections, the original creditor may list the debt, as well as the collection agency. Any duplicates must be removed! Make sure that your proper credit lines are posted on your Credit Reports. Often, in an effort to make you less desirable to their competitors, some creditors will not post your proper credit line. Showing less available credit can negatively impact your credit score. If you see this happening on your credit report, you have a right to complain and bring this to their attention. If you have bankruptcies that should be showing a zero balance…make sure they show a zero balance! Very often the creditor will not report a "bankruptcy charge-off" as a zero balance until it's been disputed.

2. If you have any negative marks on your credit report, negotiate with the creditor or lender to remove it.**We Will Assist You With This Step.
   If you are a long time customer and it's something simple like a one-time late payment, a creditor will often wipe it away to keep you as a loyal customer. Sometimes they will do this if you call and ask. However, if you have a serious negative mark (such as a long overdue bill that has gone to collections), always negotiate a payment in exchange for removal of the negative item. Always make sure you have this agreement with them in writing. Do not pay off a bill that has gone to collections unless the creditor agrees in writing that they will remove the derogatory item from your credit report. This is important; when speaking with the creditor or collection agency about a debt that has gone to collections, do not admit that the debt is yours. Admission of debt can restart the statute of limitations, and may enable the creditor to sue you. You are also less likely to be able to negotiate a letter of deletion if you admit that this debt is yours. Simply say "I'm calling about account number ________" instead of "I'm calling about my past due debt." Again, your Credit Specialist will help you with this step.

3. Pay all credit cards and any revolving credit down to below 10% of the available credit line, but make sure you use at least ONE account each month.
   This step alone can make a HUGE impact on your score. The credit scoring system wants to make sure you aren't overextended, but at the same time, they want to see that you do indeed use your credit, so even $0.01 reporting as owed on one credit card is enough. Staying under 10% of the available credit line on each account is the magic "Credit Utilization Ratio" to hold yourself to. For example, if you have a credit card with a $10,000 credit line, make sure that the statement never shows more than $1,000.00 owed. This matters even if you pay your accounts off in full each month, because the only number reported to the credit bureaus is the Balance Owed on your monthly statement. In theory, you can max out a card and pay it down to $0.00 multiple times throughout one monthly billing cycle without any impact to your credit report! The only number that matters is what shows up on your monthly bill. If any of your balances are higher than 30% of the available credit line, pay them down as aggressively as possible. Another thing you can try is asking your creditors if they will raise your Credit Line without checking your FICO score or your Credit Report. Tell them that you don't want to have any hits on your credit report and see if they're willing to help.

4. Do not close your old credit card accounts.
   Long-time established accounts show your history, and tell about your stability and paying habits. If you have older credit card accounts that you want to stop using, just cut up the cards or keep them in a drawer, but still use them once every year to keep the accounts open. One of our favorite tricks to avoid the temptation of using credit cards that are best left untouched? Place your cards in a plastic cup, fill it with water, and put it in your freezer. That way, if an emergency comes up, they're still available... but if the urge to spend strikes, you've got a nice long wait to think about it!

5. Avoid applying for new credit.
   Do not apply for any new credit unless it's an intentional part of your Credit Growth Plan! Each time you apply for new credit, your credit report gets checked. New credit accounts may hurt your credit score.

6. Have at least three revolving credit lines and one active (or paid) installment loan listed on your Credit Report.**Speak to Your Credit Specialist If You Would Like Assistance With This Step
   The scoring system wants to see that you maintain a variety of credit accounts. It also wants to see that you have multiple revolving credit lines. If you do not have at least 3 active credit cards, you might want to open some (but keep in mind that if you do, you will need to wait some time before rescoring shows the benefits). Examples of an installment loan would be a car loan, a furniture loan, or a major appliance loan. If you have a lower credit score or are new to credit and are not approved for a typical credit card or loan, you might want to set up a "Secured" credit card account. Secured credit cards require a deposit that is typically equal to or more than your limit, which guarantees the bank in case you don't repay the loan. It's an excellent way to establish credit in the right situations. In addition to the above, having a mortgage, student loan or personal loan listed will bring your score even higher.

Throughout this process, always remember:

It takes up to 30 days for any of these items to get reported and oftentimes longer to reflect on your Credit History Reports. Very often we must write a series of letters challenging the credit bureaus. Each time we must allow them 30 days to respond. It can feel like a slow process, but hang in there, because IT WORKS and the end result will save you a tremendous amount of money!