Understanding Your Credit Score

What does your score mean?

This rating system is meant to develop a snapshot of the risk you currently represent to a lender. Several parameters in your credit file, including length of credit history, number of open accounts, loans, mortgages, public records, and others are formulated to produce a three-digit score between about 300 and 950.

There are other scores used by lenders and insurance companies (some of which are developed by FICO) such as Application and Behavior scores. These other scores take other information into account. Usually, a lender will use a combination of your credit score with other factors when determining your risk. They all have the same objective, to determine the borrower's potential risk. Regardless of whether the score was generated by FICO or a system based on FICO parameters, they all yield an industry standard three-digit score. This score places the borrower in one of three main categories (we named the third one ourselves.)


"Prime", "Sub-Prime" and "SHAFTED"!

Prime:
If your credit score is above 680, you are considered a "prime borrower" and will have no problem getting a good interest rate on your home loan, car loan, or credit card.

Sub-Prime:
If your credit score is below 680, you are "sub prime", and will likely pay a much higher interest rate on your loan.

"Shafted":
Below 560 is the shafted score. At least that is how most lenders and credit issuers perceive it. You can still get a credit card ,but you will likely be hit with a security deposit or high acquisition fee. In addition to that, your interest rate will likely be 22 to 23%. You can forget about most home loans and the majority of new car loans at this score. Below 560 is no place to be. You will pay much, much more in higher interest and unnecessary fees. You may even pay more for your insurance rates. A very low score can even prevent you from getting a job with many companies. If you're in this catagory Click Here.


How are credit scores calculated?

The methods of calculating your FICO may differ slightly depending on the credit bureau. When obtaining your score from one of the Credit Bureaus it is important to understand that your score does not come directly from FICO. It is adapted to each bureau and is given its own name: Equifax uses "Beacon", Trans Union uses "Empirica", and Experian uses "Experian/Fair Isaac." These scores are also referred to as your "Bureau Scores."

Since your score is derived from your bureau data, it will change every time your reports change. However your score is calculated, it will always take into consideration many categories of information. No one piece of information or factor determines your score. As the information in your credit report changes, the importance of one or several factors may change in your FICO score. Lenders look at many things when making a credit decision, including your income and the kind of credit you are applying for. However, your FICO score does not reflect these facts as it only evaluates the information retained by the credit reporting agency.

To Learn More Click here.

What factors affect your credit score?

There are five factors which are used in credit scoring calculations that determine your overall credit score.

1) Previous Credit Performance (Payment History) -- 35%

.....A lender wants to know what your payment history is like. Have you paid everything on time, are you late on anything now, and so on. Your payment history is just one piece of information used in calculating your score, although it can be the very important one.

2) Current Level of Indebtedness (Amount Owed) -- 30%

.....How much is too much? Can the borrower pay me and still afford to pay his other bills? Not necessarily. Having available credit can actually help your ratio of debt to available credit. These are the types of questions that most borrowers want to know and the answers are almost as important as your previous credit history.

3) Amount of Time Credit Has Been In Use (Length of Credit) -- 15%

.....Generally speaking, the longer the credit history, the better your score. However, this factor only makes up 15% of your total score, so even young people, students or others with short histories can still score high overall as long as the other factors show good. If you are new to credit, then there is little you can do to improve this part of your score. Open an account and be patient.

4) Pursuit of New Credit -- (10%)

.....Credit is much more popular today. Just look at the number of credit card offers you get via the Internet and in the mail. Consumers can now shop for credit and find the best terms to meet their needs. Each time someone runs a credit check on you, it creates an inquiry.

.....Fair Isaac has changed some of its calculations to account for these new trends. Specifically, they treat a group of inquiries - which probably represents a search for the best rate on a single loan - as though it was a single inquiry (Note: This only applies to Auto or Mortgage loan inquiries.) For example, Auto Loan inquires that are within 14 days of each other only count as one inquiry.

5) Types of Credit Experience -- (10%)

.....A healthy mix of different types of credit: installment loans; retail accounts; credit cards; mortgage. This score is not normally a key factor in determining your score, but it can help a close score. Its not a good idea to try and open different types of accounts just to try and make this factor better. It will likely reduce your score in other areas. You should never open accounts you don't intend to use anyway.

.....What type of accounts you have, and how many, can make a big difference. The optimal ratio of installment versus revolving accounts depends on your profile and differs from person to person. One factor that seems to have significant influence is your percent of open installment loans. Too many can lower this portion of your score.

For more information Click here.

Improving Your Credit Score

How do I improve my credit score?

When you know how your score is calculated, you can begin making changes to your current financial planning. The best things you can do are simple.

-- Pay your bills on time. Sounds simple, but this is the biggest thing you can do to keep your score high. Delinquent payments and collections have a major negative impact on a score.


-- Keep your balances low on unsecured revolving debt like credit cards. High outstanding balances can affect a score.


-- The amount of your unused credit is an important factor in calculating your score. You should only apply for credit that you need.


-- Make sure the information in your credit report is correct. If it's not, dispute it with the credit agencies and/or with the creditor directly.


-- Removing negative items on your credit reports has the biggest impact on your FICO score. Generally, negative items stay on your reports for seven years, but you can hire a professional credit report repair service, such as Lexington Law Firm, to do it for you.


-- You can try to understand the laws yourself, but we have found it's so much easier to have someone do it for you. We strongly recommend using Lexington Law Firm. They are the industry leaders.

Repairing Credit Yourself

The Fair Credit Reporting Act gives you the right to dispute any and all items on your credit reports that you feel classify as inaccurate, unverifiable, or misleading. If the bureaus can not verify that the information on your reports is indeed correct, then those items must be deleted.

Disputing items on your credit report is easy. Getting results from the credit bureaus is amazingly difficult, complex, and infuriating. It is not a coincidence that the Federal Trade Commission receives more complaints against credit bureaus than any other type of business. Remember, the credit bureaus are primarily interested in protecting their profits. Investigating your challenge consumes these profits. Short of sparking a mass number of lawsuits, the credit bureaus seem to do everything in their power to discourage consumers from making progress in their restoration efforts.

Restoring your own credit is like repairing your own transmission or representing yourself a court of law; it is possible, but you must decide if you are willing to take the time and assume the risks of doing it yourself. Most people choose to allow an attorney to represent them because an attorney better understands the complexities of the legal system. If you decide your time is better spent and you would like a respectable company to help, I HIGHLY recommend using Lexington Law.

5 Reasons to Check Your Credit Report Regularly

In much the same way that a resume displays your work experience to a prospective employer, a credit report provides prospective creditors (and in some cases employers and insurers too) with a detailed picture of your credit history. And, like a resume, your credit report can influence whether you will receive what you are applying for.

Ideally, your credit report is an accurate, up-to-date reflection of your credit history. However, since we don't live in an ideal world, there are many reasons that your credit report could contain inaccuracies that might prevent you from receiving the credit you deserve. The good news is you can take action to keep your report accurate. Here are the top five reasons why you should make a practice of regularly reviewing your credit report:


1) Inaccuracies & Mixed Credit Files

.....Many inaccuracies on a credit report can be the result of simple human error, and are therefore are not difficult to dispute. Of course, if you don't order your credit report, you might never know about it. Whether the inaccuracies relate to payments not credited, late payments, or data mixed in from the credit file of someone else with a name similar to yours, you will want to contact the credit bureau to dispute inaccurate information promptly.


2) Tracking Payments

.....One of the most important elements of credit is a demonstrated history of on time payments. Once you send the check, though, anything can happen--a delay in the payment being received can kick you over to a 30-day delinquency. If you call your creditor and explain the situation, they might adjust the information. Of course, if you don't read your credit report, you won't necessarily know which payments are being received and reported properly.


3) Identity Theft

.....This issue alone is reason to order your credit report immediately. Identity theft is an insidious crime, involving a thief who assumes your name to open new accounts, diverts your card statements to another address, and runs up all sorts of bad debt without you ever knowing about it until collectors come calling. Over time, identity theft could jeopardize your ability to obtain further credit. The best way to catch a thief who is using your name is by getting a copy of your credit report, which will show you if there are accounts listed you know you haven't opened. For example, if a thief has intercepted a pre-approved credit card offer in your name and sent it in with a change of address, your credit report will include the account.


4) Inquiries

.....If you're shopping around for a loan or more credit, you should know that when creditors check your credit, it places an inquiry on your credit report. Inquiries can add up, which is often interpreted as a negative by creditors. For this reason, too many inquiries can actually make getting credit more difficult. Moreover, if you didn't authorize someone to look at your credit report and they did, they may have broken the law.


5) Credit Fraud--Unauthorized Charges

.....Credit fraud involves the theft of your credit card or account number to make unauthorized charges to your account. Though consumers are protected financially from this abuse, other creditors may take note of all this activity and decide to raise your interest rates or refuse to grant you a loan. Ordering your credit report will help you catch new activity on accounts that you haven't been using, or may have closed.

When it comes to managing your credit worthiness, your credit report is your best resource. Ordering your credit report gives you the opportunity to manage your credit wisely today, while planning your credit strategy for achieving future goals--a credit-savvy move every consumer should make!

Click Here to Learn More About Credit Repair

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Identity Theft Can Destroy Your Credit!

My spouse had a girlfriend before he met me.

We got a phone call from a Collection Agency about a month ago. It seems we had a delinquent Department Store account..... in New Hampshire. Neither my spouse nor I have ever been to New Hampshire - and we haven't been in a branch of that store in years (anywhere), nor did we ever have that store's credit card.

Apparently, the ex-girlfriend had opened an account using my spouse's credit information (social security number?), and never bothered to pay the bills.

We wondered why our Credit Score had deteriorated. Now we KNOW!

Guarding your indentity is something EVERYONE should consider a NECESSITY! You never know when someone might decide it was more expedient, easier ... and less expensive ;-( for THEM ... to use your credit than their own.

Can Bad Credit Be Deleted From Credit Reports?

Yes, it can. Despite the fervent proclamations of bureaucrats and credit bureaus everywhere, a simple fact remains: negative credit listings are deleted from peoples' credit reports by the thousands each and every day.


A few years ago, an attorney from Lexington Law. visited with a regulatory agency for a casual conversation with two agents. The Agency's office, as a matter of course, believed the credit bureaus' claim that bad credit couldn't be deleted. The visiting Lexington attorney asked, "How many negative listings would you have to see deleted from consumer credit reports before you would believe that bad credit can be deleted: ten? fifty? a hundred? one thousand?" The agents responded with only blank stares.

"How about 50,000 deleted listings, would that convince you?" continued the Lexington attorney. From his briefcase he pulled a stack of papers six inches high.

"In these pages, we have listed the permanent deletion of over 50,000. listings from our clients' files in the last two years alone," he explained. The agents pulled the stack across the conference table and began to pick through the pages, taking in the massive list.

"But have you deleted any bankruptcies?" shot back one of the agents, "we know that bankruptcies can't be deleted." The Lexington attorney leaned across the table and ran his finger down the first page.

"There's one deleted bankruptcy... and, there's another,... and another,... and another. Should I go on?" asked the Lexington attorney.

The agents sat back in their chairs. "You know," began the junior agent, "I have this one listing on my credit report that simply must belong to somebody else..."

How is credit repair possible?

The Fair Credit Reporting Act (FCRA) allows a consumer to challenge the information on his credit report on the basis of "completeness and accuracy." When a consumer files a dispute, the credit bureaus must contact the source of the credit information (the creditor) and confirm that the information is accurate, verifiable, and not obsolete. In some circumstances, the credit bureau is required to go beyond a simple verification of the creditor's own computer record. If, within 30 days, the credit bureau has not received verification from the creditor, then the credit bureau must promptly delete the credit listing. Learn More.

Summary: Fair Credit Reporting Act (FCRA)

Below is a summary of the FCRA. The full Act can be obtained directly from the Federal Trade Commission's web site here: www.ftc.gov/os/statutes/031224fcra.pdf

Fair Credit Reporting Act (Summary)
Public Law 91-508

The Fair Credit Reporting Act (FCRA) allows a consumer to challenge the information on his credit report on the basis of "completeness and accuracy." If, after a reinvestigation by the credit bureau, the disputed information "is found to be inaccurate or can no longer be verified, the [credit bureau] shall promptly delete such information."

The credit bureaus are required to complete the investigation within a "reasonable period of time." This period has been set at thirty days.

The credit bureaus can ignore the consumer dispute if they have reason to believe that the dispute is "frivolous or irrelevant." The FTC commentary on the FCRA cites, as an example of a frivolous dispute, a dispute wherein the consumer challenges all negative items on his credit report without providing any allegations regarding specific items in the credit file. However, "A [credit bureau] must assume a consumer's dispute is bona fide, unless there is clear and convincing evidence to the contrary."

When a consumer challenges a negative credit listing on the basis of extenuating circumstances, such as health problems, divorce, job loss, etc., the credit bureaus are entitled to ignore that dispute.

When a consumer submits a dispute which is neither frivolous nor irrelevant by credit bureau standards, the credit bureau must "at a minimum... check with the original sources or other reliable sources of the disputed information and inform them of the nature of the consumer's dispute." In some cases of consumer dispute, "Reinvestigation and verification may require more than asking the original source of the disputed information the same question and receiving the same answer."

In other words, when a consumer files or re-files a valid dispute, the credit bureaus must contact the source of the credit information (the creditor) and confirm that the information is accurate, verifiable, and not obsolete. In some circumstances, the credit bureau is required to go beyond a simple verification of the creditor's own computer record. If, within 30 days, the credit bureau has not received verification from the creditor, then the credit bureau must promptly delete the credit listing.

In theory and law, the process is deceptively simple, thus leading many people to think that they can easily handle this themselves "for the price of a few postage stamps." Most quickly discover that the credit bureaus have made it much more difficult than one would imagine. For help in this, we recommend using Lexington Law a professional credit report repair company.

How Bad Credit Affects You

Very few things in life can have a more devastating effect on your lifestyle than a poor credit score. A low credit score can cost you hundreds or even thousands of dollars per month.

Credit Cards

Most prime credit cards are entirely out of reach to consumers with bad credit. And the few credit cards that are available to them (known as "sub-prime" cards) typically require exorbitant setup fees or recurring monthly fees, offer very low credit lines, often require cash deposits, and in most cases do not even report your positive credit activity to the credit bureaus.

Learn More.

Automobile Financing

If you are making payments on a car, you are probably paying between $5,000 and $9,000 more just for having bad credit. This added interest shows up every month in a higher payment. Take a look.

$20,000 car paid over 5 years:
CREDIT STATUS	RATE	PAYMENT	COST OF BAD CREDIT
Perfect Mildly Damaged Damaged	10% 14% 20%	$424.94 $465.37 $529.88	$0.00 $4,722.54 $8,593.30

Learn More.


Home Mortgage

Bad credit in auto financing can really hurt, but it is nothing compared to the cost of bad credit when a home is involved. A typical home can cost between $50,000 and $130,000 more in interest if you are buying the home with bad credit.

$100,000 home paid over 30 years:
CREDIT STATUS	RATE	PAYMENT	COST OF BAD CREDIT
Perfect Mildly Damaged Damaged	7% 9% 12%	$655.30 $804.62 $1,028.61	$0.00 $50,155.24 $130,791.63

Learn More.

Legal Credit Repair Methods

To better understand what legal credit repair is, it would be helpful to understand a few types of illegal credit repair:


Illegal: Changing your social security number to obtain a clean bill of credit.

If any company should suggest this type of credit repair, report them to the authorities.

Illegal: Disputing every item on your credit report, regardless of nature.

The Fair Credit Reporting Act specifically states that only items that are unverifiable, inaccurate or misleading should be disputed. Items that are clearly yours, and reflect your credit history should not be disputed.


Illegal: Charging for services that have not yet been completed.

This is to protect the consumer from fraudulent companies that charge for services that never get completed (charging to "repair your credit", then hitting the road...)

So, what exactly is Legal Credit Repair?

Legal Credit Repair consists of removing the negative items on a credit report. There are a few different methods of going about this, the most common and effective are:

"Goodwill" Negotiation: Negotiating directly with creditors and asking them to "please" remove negative items from your credit reports is a viable method of credit repair for mild late-pay accounts. There are no laws that require that negative items stay on your reports for any amount of time, and creditors have the ability to simply remove these items if they see that it could somehow work to their benefit, even if that simply means a pleased customer.

Credit Disputation: The Fair Credit Reporting Act gives you the right to contact credit bureaus directly and dispute items on your credit reports. Just as in a court of law, you have the right to plead "not guilty" to negative information on your credit reports, and leave the burden of proof to the credit bureaus. You can dispute any and all items on your credit reports that you feel classify as inaccurate, unverifiable, or misleading. If the bureaus can not verify that the information on your reports is indeed correct, then those items must be deleted.

Learn More.

The Law is On Your Side - Learn How to Repair Your Credit

Many consumers have the mistaken idea that credit bureaus are federally supported organizations backed by a vast array of laws meant to protect creditors. Nothing could be further from the truth. Aside from the government simply recognizing the need for credit reporting, credit bureaus have absolutely nothing to do with the government. Credit bureaus are simply huge bureaucratic companies which exist for the soul purpose of making money by selling information about you-information they never bothered to verify.


Because of the vast potential for error in the credit reporting system, the United States Congress has enacted laws to protect the consumer from being victimized by the credit bureaus. It is your right and responsibility to make use of these laws.

The Law versus Practical Reality

As the credit bureaus computerized their processes and greatly expanded their reach and influence in the late 1960s and early 1970s, consumer complaints began to mount at the FTC and state attorney general offices. The credit reporting agencies quickly became huge bureaucracies second only in size to the federal government. The credit bureaus expressly served only the needs of their clients, the credit grantors. Many consumers were negatively affected by the credit bureaus, but they had no way to correct or change their credit information.


The American consumer lay completely at the mercy of the credit bureaus. The United States Congress enacted the Fair Credit Reporting Act (FCRA) in 1971 to insure that the credit bureaus investigate the credit items disputed by consumers. This federal law set procedural guidelines, which gave the consumer the right to challenge the accuracy, validity, and verifiability of the credit listings appearing in their consumer credit report. It also required that the credit bureau delete any credit listing if it was inaccurate or could not be verified. Learn More.


In theory, the FCRA charges the credit bureaus with responsibility to the consumer as well as the credit grantor. In reality, the credit bureaus resist, resent, and reject consumer disputes. The credit bureaus would rather be left alone to make a profit. And, each time a consumer challenges his credit, profit is lost.


The credit bureaus first defend their profits by erecting walls of stall tactics, including requests for more information, further clarification, and additional identification. The vast majority of consumers give up before they even receive copies of their credit reports. If a consumer manages to get a credit report, decipher the codified information, write a coherent dispute, and mail it, the bureaus may still find some reason to disregard the challenge. The entire dispute system is designed to frustrate and discourage the consumer.


Many consumers have the idea that the credit bureaus must complete their investigation within thirty days or be forced to remove all disputed information. They threaten to sue the credit bureaus if they don't conclude their investigation in time. In practice, such thinking is delusional. Nobody forces the credit bureaus to do anything.

However, if you manage to submit a valid dispute letter, and the credit bureau investigates your dispute, the chances of success are good.

If a credit bureau cannot verify an item before completing its investigation, that item will be removed. Many creditor grantors are simply reluctant to take the time to verify the data. While the credit bureaus are in the business of reporting credit histories, creditor grantors are not. Click Here.