Tips on How to Boost Your Credit Score

credit score

Your credit score is like a report card on how you manage your finances, and just as it is important to have A’s and B’s on your report card, it’s important to have a good credit score. Not only can your score play a role in whether you can get a loan, it also may affect what you pay for insurance and the amount of deposit you have to put down on an apartment. If your credit score is lower than it should be, you can follow these tips to give it a boost.

Bring past-due accounts current

One of the best and easiest ways to boost your credit score is to get current on any past-due accounts. If you are applying for a mortgage to check with the mortgage company first before paying any collections or charge offs. These accounts may not need to be paid before the loan is done and paying off old collections or charge offs will bring your scores down temporarily, or until they show some history of being paid and could cause a problem with getting the loan.

Accounts that haven’t been paid on time can greatly reduce your credit score, because your payment history accounts for more than one-third of your total score. If you have any accounts that are in collections, pay those off first and make sure the collections agency notifies that credit bureaus that you are now current. Then concentrate on bringing other accounts up to current status. One key thing to focus on, however, is that you want to make sure you don’t let any new accounts become past due while you are catching up on accounts that are already behind.

Pay down debt

Once you have worked to get all your credit accounts current, your next focus should be on paying down debt. The amount you owe makes up 30 percent of your credit score, and if you owe a lot relative to how much credit you have available, then it will affect your score. A general rule of thumb is your debt should be less than 30 percent of the amount of credit you have available. So if you have $10,000 worth of available credit, you should owe less than $3,000. This rule applies only to revolving credit accounts like credit cards, not to installment loans such as a car loan.

Don’t close accounts

If you pay off an account, you may be tempted to close it, but that can hurt your score, especially if the account has been open for a long time. The length of your credit history accounts for 15 percent of your credit score, so if you cancel accounts you have had for a long time, it can shorten your history and hurt your score. Keeping accounts open, even after they are paid off, will help boost your score.

Don’t open new accounts

The more credit cards you have, the more it can lower your score, especially if you have opened a lot of accounts recently. Opening a lot of accounts in a short time looks risky to lenders and can hurt your score. Doing so also can shorten your credit history, which can reduce your score as well.

Dispute Investigation 101

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In any industry where financial transactions take place, there is a chance that a consumer will want to dispute a charge. When dealing with financial institutions (lenders), there are specific protocols that need to be followed and compliance deliverables that need to be met. The type of follow up that is required will depend on the type of financial dispute that is taking place. If there is a dispute in the realm of open-end credit accounts, it will fall under Regulation Z (which has its own required steps for resolution). Other disputes are handled a bit differently.

With any dispute there are few universal steps that financial institutions have to take to remain compliant.

  • The nature of the dispute needs to be assessed
  • Once the nature of the dispute is assessed, the financial institution must decide whether investigation is required (if it falls under Regulation Z, an investigation is mandatory)
  • If it is determined that an investigation is required, then the institution must then make sure that all procedures are followed (timing, notices, etc.)

When a dispute DOES fall under Regulation Z…

Transactions (and subsequently their related disputes) that revolve around home equity lines of credit, overdrafts related to credit, credit cards, and other transactions of that nature carry specific rules about their investigations and resolutions.

According to Regulation Z, a billing error is,

“a reflection on or with a periodic statement for an extension of credit that exhibits some type of error, ”

which can come in many forms.  An error can be anything from an unauthorized transaction to an improperly credited payment. If a consumer files a complaint about an error within the allotted 60 day time frame, there are three steps that will take places.

  1. Written acknowledgement of the receipt of the billing error dispute must be sent back the consumer within 30 days. The creditor must then follow all Regulation Z procedures.
  2. The consumer is not required to pay the disputed amount while the investigation takes place. The creditor is not allowed to make any negative actions against the consumer, and no delinquency is allowed to be reported.
  3. At the conclusion of the investigation, if there was no billing error, then the creditor must inform the consumer, in writing, that the disputed issue was in fact compliant. If it is determined that an error did occur, then the creditor in question must correct the error and send written notice of the correction to the consumer.

If the dispute DOES NOT fall under Regulation Z…

There are several potential billing disputes that do not involve open-credit accounts. In those situations, the creditor/lender is still responsible to carry out the “consumer complaint process” as part of the Compliance Management System.

All complaints must be documented, investigated, and resolved in accordance to the Compliance Management System (CMS).

 

Getting Approved For a Mortgage: Here’s What You Need

calculator

The desire to own a home is relatively universal, and once you decide it’s time to start looking at homes, a whole plethora of tasks begin to unfold in front of you. The average individual does not have hundreds of thousands of dollars of cash on hand, so the greatest task to tackle is getting approved for a mortgage. While lending companies may be willing to extend credit under certain circumstances, the reality of the situation is that the standards for being approved (quickly) for a mortgage are very high. There are a few things that you will need (and need to be aware of) when applying for a mortgage:

 

Strong & Lengthy Employment History

Lenders feel safer with lending when your recent employment history touts at least a 2 year stint at your most recent place of employment. The longer you’ve been working (and the smaller number of job hops that you have on your resume), the more trustworthy you become to banks.

 

Excellent Credit & Your Credit Reports

This is a bit of a no brainer; your credit score is one of the most important factor when it comes to being approved for a mortgage.  Your FICO score can be in the 620-640 range to be approved for some loan programs, however a  credit score of 720 or higher will lend itself to getting much better interest rates, which can equate to thousands of dollars saved over your lifetime.

 

Make sure to review all three of your credit reports before diving into the mortgage application process. An estimated 40% of credit reports contain errors that could be directly affecting your credit score. Make sure to get all discrepancies fixed as soon as possible.

Money Down & Cash on Hand

It is virtually impossible to get a loan without putting money down. The general rule is to be prepared to put down a minimum of 20% of the mortgage up front. It’s also important to remember that banks and lenders will also be checking your cash on hand. Lenders are weary of mortgage applicants that don’t have a significant enough savings; if a single emergency could clean out your savings, it is unlikely that you will get a mortgage.

 

Misc Important Documents:

  • Records of your employment history for at least 2 years
  • Records of your residence for at least 2 years
  • Proof of Homeowner’s Insurance
  • Pay Stubs from the last 2 months of employment

 

For references and additional resources, please see the following articles: 123

 

Tips to Prevent Bankruptcy – Part 1

credit squeeze

Some individuals’ personal finances become so overwhelming that they look to bankruptcy as a quick fix. But the reality is that bankruptcy should be an absolute last resort. Filing for bankruptcy leaves the filer with an abysmal credit rating, which will make borrowing money virtually impossible for at least a decade. Those who file for bankruptcy are also subject to mandatory credit counseling, and are likely to be forced to make continuous and ongoing payments to various creditors.

There are a few situations where bankruptcy is virtually unavoidable. A long period of unexpected unemployment or a severe medical emergency can quickly clean out a savings account and leave few viable options for financial survival. However, most cases of bankruptcy are caused by unsustainable spending habits and a lack of savings. The majority of those cases can be avoided with just a few lifestyle adjustments.

 

Reduction of Spending

The easiest way to start cutting what you spend is to first determine where your money actually goes. Create a budget using an online service like Mint.com to really get a handle on exactly what your spending is each month.  Once you see exactly how you are spending your money, you can find areas where spending can be reduced.

 

Start by destroying credit cards, and using cash to make purchases. This will make your spending feel more “real”. If cash only is impossible, then your next step may be to downsize your current living expenses.  The goal of all of the reduction is to live within your means. If that means moving into a less expensive home or buying used cars instead of new cars, then those are measures that should be taken.

 

Contact Creditors/Lenders/Service Providers Before Payments Are Late

If you are already making the minimum payments on your bills, but are still struggling to keep up with the payments, contact the lenders. It’s important to determine if a late payment  could be made without penalty or if the bill’s deadline could be extended.

 

If you are working with a large amount of credit card debt, and seriously considering filing for bankruptcy because of it, speak to the creditors about your options. A lower interest rate or repayment plan may be available. Creditors do not want to lose all of the money that was loaned out, so they will be more inclined to work out a scenario where your payments are more manageable.

There is still much more to learn. Be sure to check back next month for more tips to Prevent Bankruptcy.

For resources and more information, see these two sites: here & here

 

What Are The Three Credit Bureaus?

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Most people are familiar with the phrases “credit”, “credit score”, and “credit report”, but few people understand the intricacies of the credit system. The one thing that consumers have trouble understanding is the differences between the three credit reports and the three credit bureaus that produce them. It’s a confusing system for many; each credit report contains information that the other two bureaus do not report on. This is a breakdown of the three reporting bureaus, and the differences between the them:

 

Experian

There are a few things that Experian does differently. They are the only report that specifically reports on-time rent payments (if your rent management company works & reports to Experian RentBureau). The other reports only highlight the times when rent was not paid on time.  Experian also provides “status details” on the items on your report. The status details explains the month and year that an item is scheduled to be removed from your credit report. (Positive payment history stays on for 10 years. Negative items may vary, and Experian takes the guess work out for you.)

 

TransUnion

TransUnion provides the most detailed employment section of the three credit bureaus. Experian and Equifax only provide the employers’ names (and even then, that’s not guaranteed). In stark contrast, TransUnion lists out the employers’ names, the position held at the company, the date that employment commenced. They also provide the opportunity to change and correct any information that is reported incorrectly. The employment information does not factor into the credit score, but it does provide potential lenders information on how long you’ve been with your current employer, and how long you’ve stayed in past positions.

 

Equifax

Both Experian and Equifax list all of the accounts on a credit report together in alphabetical order. Equifax however, separates and lists accounts based on whether they are open or closed. This allows individuals who are not sure about the status of various accounts to easily determine which accounts they need to focus on (in terms of amount of debt, etc.) Equifax also provides information on why particular accounts are closed.

 

For sources, see here and here.

Smartphones: The New Determinant of Creditworthiness

smart phone

In developing countries, where banks and banking infrastructures are practically nonexistent, financial institutions are figuring out a way to determine the creditworthiness of individuals in those areas.They are looking at how people use their smartphones.

 

Several startups are working within Kenya, the Philippines, and Indonesia to make the process of lending and borrowing less risky for everyone involved. These are countries where physical banks are few and far between, so the startups are working with potential lenders to develop new ways to assess the risk of potential “lendees”. It’s common that many consumers in these areas have smartphones, even if they do not have bank accounts, so there is a great deal to learn about people through their smartphone usage.

 

Studies have shown that individuals who send more text messages than they receive are perceived to be a risk, because they are not frugal with their time or money. People who make more phone calls in the evening are considered to be a “good risk” because these people are seemingly more aware of their spending (off-peak hour phone calls cost less money).  However, the biggest factor in this smartphone use vs creditworthiness argument is the study of a person’s smartphone payment history. The timeliness of their bill payment is factored in, but there is a heavier observation of other transactions made via smartphone — many people make payments for groceries and personal expenses through their smartphone.

 

This new determination of credit is transformational in a few ways. For one, it’s creating a space for the masses within these countries, to have access to credit where there has never been “credit” before.  This new process is also calling attention to how different the credit systems are around the world. Credit in one country is in most cases useless in other countries because of how different the metrics are. In more established countries, like the United States and The UK, South Africa, and India credit is determined by both positive and negative factors, which aren’t even available or relevant in developing countries. These developing changes in the field of credit are opening up the eyes of international financial institutions; consumer credit may be forced to evolve everywhere to keep up.

 

To see the article that inspired this blog, click here.