Credit EZY

The Importance of Your Credit

Your credit score will determine the interest rate that you are charged on everything from your credit cards to your mortgage. No other single bit of data has such a dramatic impact on the quality of your life. Nothing is as important, and yet credit scoring is widely misunderstood. Here are answers to some of the most common questions that we are asked.

When Did Credit Scoring Start?

In the 1950s two Stanford University researchers, engineer Bill Fair, and mathematician Earl Isaac invented the first version of what has become known as the FICO score. Fair, Isaac & Company’s FICO score is now the most widely used credit bureau score in the world. Automated FICO scores were first made available in 1989 and initially used primarily by credit card issuers. In 1995 Fannie Mae and Freddie Mac, the two secondary mortgage market giants, first recommended that lenders pull credit scores for all borrowers. And the rest is history.

Why Are the Three Scores Different?

There are three primary credit bureaus. They are Experian, Equifax, and TransUnion. Each of the three bureaus uses the same FICO scoring model although each of the bureaus has re-branded the score name for their own marketing. There are differences in your scores for three reasons. First, creditors do not all report to all three bureaus - if you look at your three reports you will most likely see that there are content differences. Second, the timing of the inclusion of information by each bureau is different - if you used a credit card recently the new balance is likely to be reported by each bureau at different times. And third, Fair, Isaac & Company modifies the software from time to time, but the bureaus do not all adopt the new release simultaneously.

The Fastest Way to Increase Your Score

There are two things that can produce very rapid results. The first is the reduction of outstanding balances. Should you decide to pursue this option you should be aware that there is a strategy which will produce the optimal result. You should pay down your revolving balances before any other type of account. And in paying down your revolving balances you should try to reduce each balance to 50 percent of your high credit limit. As a credit repair professional I counsel people on this approach daily and can vouch for the dramatic and rapid results that are produced.

A Controversial Method

There is a second way to improve your scores quickly. If you have a friend or relative with great credit ask them if they will add you to one of their accounts as an additional card member. It is important that they have good credit and that the account in question has been opened for a significant period of time. Within a short period of time your credit score will have inherited the value of your benefactor’s credit card.

A Personal Note

On a personal note, I should say that I have mixed feelings on this. Clearly, the inheritance of a benefactor’s credit rating is not an indication of your own credit worthiness. On the other hand I believe that everyone should be given all of the opportunities available to build their own credit. Because I can not find any logic in the way that the FICO model treats additional card member status, I believe that this is a loophole or bug in the system that cannot last.

Do Mortgage and Auto Inquiries Count Against Me?

This question seems to come up a lot in the credit repair business; and for good reason. If you are shopping for a mortgage or a new automobile you should have the freedom to compare different auto dealers, or mortgage lenders. In most cases they will need to run your credit to determine your interest rate. Multiple inquiries should not count against you. The FICO scoring method does take this into consideration.

Comparison Shopping Allowance

To allow for comparison shopping the FICO model simply ignores all mortgage and auto inquiries made in the prior 30 days. In other words, you can have as many inquiries as you wish during any 30 period and all of the inquiries will be entirely ignored, at least until the 30 day period has past. Once the 30 day period has past, FICO counts all the inquiries that fell in the previous 45 days as a single inquiry when determining your score. I can’t explain why FICO switches from ignoring 30 days of shopping to treating the previous 45 days as a reasonable shopping period, but there you are! As an aside, I should mention that this rule is very recent. Instead of a 45 day allowance for a shopping period the prior FICO model used 14 days.

Jim Kemish is the president and founder of Power Mortgage, a Florida mortgage broker based in Delray Beach, Florida. Power Mortgage Corp was established in 1989 and serves the states of Florida, Georgia, Massachusetts, and Virginia. Jim is also the President of Sky Blue Credit, a national credit repair business. For great mortgage and credit tips visit the Florida Mortgage Blog.

If you have ever shopped credit repair, you know it is not cheap. Credit repair companies and attorneys will charge a minimum of $250, and most of them charge fees that are closer to $1000. There are a lot of loan officers that will refer you to a credit repair company because the loan officer receives a “referral fee” for sending you to that company. I know this from experience because I get emails everyday from different credit repair companies asking me to refer my clients with bad credit to them.

Many times when I have gotten these emails I have called the company to ask them what they charge. Typically, the fee is is around $600 for an individual or $900 for a couple. Other services charge a very small initial fee (a two-digit figure!) and then another two-digit figure every month-but they don’t tell you how many months you’ll have to pay it for. Another company I called charges $1500 to dispute the first four items, and if you want to dispute more, they require you to cut off your arm and send it to them with a couple shirts off your back too. (Just kidding on that last one. But the first part is true!) If you want to dispute more than four items, the fee goes up proportionally. It’s not uncommon for a person to need to dispute 10, 20, or even 30 items on their credit report, so you can see how this will add up to an enormous bill when it’s all said and done.

Self Credit Repair = Free Credit Repair

The main reason the average consumer doesn’t do their own credit disputing is because most consumers don’t realize how simple it really is to do on their own. Most people look at their credit report and they see Greek. How can they possibly interpret all that code, and once they do, how will they know what items need to create credit dispute letters for?

Here is the best hint I can give you: get your loan officer to help you and save yourself a lot of time and research.

Most loan officers understand how to repair bad credit, and most of them are well aware that the best credit repair process is doing it yourself. You need to find a loan officer who will help you. They are out there. I have talked with plenty of loan officers that have been helping their clients for years by simply reviewing their clients’ credit reports with them and helping them get an idea of what sorts of things they should dispute. They can walk you through this in just a few minutes.

Loan officers who push their customers to a credit repair company so they can make a referral fee are not looking out for their customers’ best interests. Find one who is willing to invest a few minutes in helping you interpret your credit report. You may be surprised to find out how many of them are willing to help if you just ask.

Once the work of interpreting your credit report is done, the rest is simple. It’s just a matter of finding a good credit sample letter on line to create your own personalized credit repair letters from. Then send them out to appropriate credit reporting bureau(s), and await the results.

Matthew Wierzbinski is the owner of CreditBlossom.com, which offers both written and video instructions on how to repair your own credit. It also offers the public free use of its amazing credit repair letter generating tool, the free and easy Credit Repair Letter Wiz™, which can be found at http://creditblossom.com/Content/LetterGeneratingTool.aspx.