Most people do not understand how their credit is established.  Although it can be a simple topic people “in the field” of finances seem to make it much more complicated than what it really is.

I started my finance career as a mortgage lender with a major lender.  They were well known throughout the community and on the internet.   When I started this position I was terrified.  I knew nothing about how someone would qualify for a mortgage.  I had purchased a condo in the past however I used my own money to pay for my investment.  That is a story for another time. 

My branch manager, a soft spoken man named Shawn told me “don’t worry, we’ll sit together and I will teach you everything I know.”  Shawn was true to his word, he taught me everything he knew.  He also had a special passion for credit and he imparted his knowledge to me.  Thus, began my career in credit repair.

So, what is credit and how is it determined?  We’ll discuss the most common credit score:  FICO.  FICO stands for Fair Issac and Company.  A company which as I understand it created a program which calculates certain criteria to determine a score.  Once they created this program they sold it to the three major credit reporting bureaus:  Experian, Trans Union and Equifax.  Each of these bureaus then tweaked the program just a bit so that it was aligned to their criteria – criteria which are highly confidential. 

This software program takes the following five factors from your credit profile, breaks it down to a percentage and provides a score.  These are the five factors:

·         Payment History = 35% of your score

·         Amounts Owed = 30% of your score

·         Length of Credit History = 15% of your score

·         New Credit Inquiries = 10% of your score

·         Types of Credit Used = 10% of your score

Based on the percentages above on any given day, your credit can be either good or bad.  Sounds simple and it is.  So, let me give you an example let’s say it’s the holidays and you are out and about shopping at all of your favorite stores buying presents for everyone.  One by one you are maxing out your credit cards.  If you were to look at your credit during this time your score would probably be lower than expected because the “Amounts Owed” portion of your credit is indicating that you are maxed out.

Let’s move this scene to January or February and you just received your income tax return.  You are now rolling in dough and you decide to pay off all of your credit cards since they are maxed out.  Again, if you were to look at your credit during this time your score would probably be higher because the “Amounts Owed” portion of your credit is breathing a sigh of relief because you are no longer maxed out.

The ideal situation when it comes to credit cards is to keep your balances in the range of 10%-50% of your available line of credit.  Ten percent being the optimum number and trying to make sure you do not exceed 50% of your line of credit.

I’ve helped many, many clients by suggesting this small change when it comes to their credit cards.

I hope I have helped you.   If so, let me know.  I can be reached at:

creditrepair@wagnercreditrepair.com

I look forward to hearing from you. 

Jeanette Acevedo, Certified Credit Repair Consultant

Your payment history is very important in determining your credit score.  According to FICO, your payment history is the largest percentage of your score (35%).  So, it just seems obvious that paying your bills on time is a huge factor in determining your score.

According to my sources, if you have a good score (and by good I mean 700+) and you have one isolated late payment, this will not affect your score terribly.  However, if you have a score in the 600’s or below and you have a late payment, your score can drop 75 points.  I have actually seen this drop in score on one of our client’s reports!

Now, let’s say you have no credit at all but you want to buy a home.  As I understand it from some of my lending sources, you may still be able to qualify for a mortgage.  In order to do this you want to make sure that you are paying your bills on time.  By “bills” I mean your electric bill, your water bill, your cell phone bill, your rent, etc.  If you can prove to these lenders that you have been making your payments on time and you have 12 – 24 months of this proof there are some lenders who specialize in generating a score by using this documentation.  You can accumulate this proof by making sure that you pay your debts with your personal checking account.

Keep in mind that paying your bills on time is not the only factor that they are looking for.  I am sure there are additional requirements.  You will have to speak to them directly to find out what the criteria is for this and qualify on all of those factors.  However, this may be an option for you.

My point here is this:  pay those bills on time.  I cannot emphasize this enough.  Besides being 35% of your FICO score this may give you a borrowing opportunity that you were not aware of.  Hey, you never know.

Obviously, if you need credit repair contact us.  Please note however, that we are not a match for everyone because we cannot and will not make accurate and verifiable information disappear.  We will educate you and assist you on what are your options.  Then you can make an educated decision and work towards your goal of credit health for life.

I hope you have found this useful information, if so, let me know.  I can be reached at:

creditrepair@wagnercreditrepair.com

I look forward to hearing from you.

What does "Length of Credit History" Mean?

Your credit score takes into account how long a credit history you have.  FICO has determined that 15% of your score is used for this purpose.  So what does that mean?  The only way I can describe this is as follows:

Let’s say you are 40 years old now and you applied for a store credit card when you were 18 and in college.  You still have that card open and you use it on occasion.  This card has a 22 year credit history on your credit report.  That is awesome!

It this card also has a perfect payment history (35% of your score) and you have never gone over the limit or even charged up more than 50% of the available balance (30% of your score) this is a perfect piece of information to have on your credit.

If you decide to close this card for whatever reason you will sever this long standing history and single handedly lower your score.  This is not a power move especially if you are planning to make a large purchase in the future.

The FICO system is looking for credit cards on your credit report that are open and that have been active for a long time.  Two plus years is good, five plus years is better.  Therefore, it is important that when you are ready to have credit cards that they are with stores that you are going to have a long, healthy relationship with.

Some people have come to me because they did not understand why their score tanked recently.  They state that they have always had good credit, they paid their bills on time, they never max out their credit cards and everything has been perfect.  During our review of their credit reports I discover that they have paid off and closed old credit cards in order to help increase their credit scores.  Wrong move!  They just severed that history and that can never be returned to its original state.

On other occasions my clients will call me because they are now being billed an annual fee for a card that previously had no annual fee.  I advise them to pay the annual fee especially if it is with a credit card that has a long history, the interest rate is very low and they are planning to make a large purchase in the near future.  I want to make sure that my client will qualify for the lowest interest rate on a loan.

Everything is based on a situation.  Whatever your situation is I will try to direct you in the best possible manner.  The final decision will always be your own but at least you will have been educated.

Again, it is my pleasure to serve you.  I hope you have found this useful.  I can be reached at:

creditrepair@wagnercreditrepair.com

I look forward to hearing from you.

I was reading an article recently about the new credit score disclosure rules issued by the Federal Reserve Board. 

The rules require lenders to supply potential borrowers with their credit scores if they are denied credit or offered lending terms that are not exactly what the borrower was hoping for.

Personally, I think it is important for lenders to disclose everything to their potential borrowers.  By everything, I mean the credit report and the credit score. 

Our recommendation to consumers is........

Many people realize that they have a credit score and credit report that does not qualify them for what they want after they have applied for credit.  I always recommend that consumers check their credit reports and scores prior to applying for any type of loan.

It embarrassing to find out that you don’t qualify after the fact.   Clients come to me with this information every day.  I then do my best to educate them and help them improve their numbers.

For you my on-line friend, I would suggest the following:

·         If you are making a major purchase within 3-6 months from now check out your credit report individually with all three credit bureaus as soon as possible.  You may qualify for a free copy if you have not received one this year or if you were denied credit recently.  Otherwise, the cost is about $10.50.

·         Get your score from each one.  The cost for your credit score is $7.95.  Yes, the report can be free but the score is at a fee. 

·         Once you have your credit score subtract (yes, I said subtract) 30-40 points from the score the credit bureau provided.  Now you will have a close estimation of what your score will be when a banker or mortgage broker pulls your credit.

Why will this number be different?  It’s because the criteria that a mortgage broker or a banker is looking for to qualify you is different than the criteria you are looking at when examining your credit.  The banker is looking for credit risk, you are looking at how well (or not) you are doing.

When it comes to lending guidelines you want to know what your banker’s criteria is.  Ask them these questions:

·         What credit bureau are they looking at?

·         What score do they need?

·         What is the maximum debt to income percentage you can be at in order to qualify? 

Once you have this information from several bankers and you have your numbers, you have a pretty good idea if you will qualify for the lending product you are looking at.  If you do not qualify, do the work so that you can qualify in the near future.

With the Dodd-Frank financial reform legislation, federal regulators are studying how well credit scores relate to each other as well as how well they reflect real risk.  We shall see that sometime in the future.   In the meantime take appropriate action and be proactive.  Make sure the information that is being reported about you and your credit history is accurate.  Follow the slices of credit percentages and work towards improving your credit. 

Do not forget that your credit score is fluid so you can make the right moves in order to improve your score.  

As always, I hope I have helped you understand a little bit more about your credit.

All the best!