Credit 101
Answering your top questions about credit score.
WHAT IS CONSIDERED A GOOD CREDIT SCORE?The scoring system used by FICO (the Fair Isaac Corporation) is most popular. FICO scores range from 300-850 and a 680 is considered good and above 720 an excellent credit score. WILL PAYING OFF DEBT AND CLOSING CREDIT CARDS HELP MY SCORE?Most of the time it will help. But while it’s always prudent to pay down debt, if you close a card that has a high available balance but low debt or a long, good history of on-time payments, yours core might actually decrease. I’ve had my credit pulled several times while shopping for a loan. Will that hurt my score? The credit bureaus understand they you’ll want to “shop around” for the best mortgage or auto loan or credit card. So if you have inquiries for the same type of loan for a 30-day period, they usually only count it as one, and your score won’t be affected. WHAT IS THE IDEAL DEBT RATIO TO GET THE BEST CREDIT SCORE?As a general rule, you’re advised to keep all of your account balances and revolving debts below 30% of your available credit. But studies show that you’ll want a credit utilization ratio of 10% or less to achieve a credit score in the high 700’s or over 800. YOUR SCORE IS CALCULATED BASED ON THESE FACTORS:30% Credit utilization. 35% Payment history. 10% Mix of credit. 10% New credit. 15% Length of credit history. HOW WILL A 30-DAY LATE PAYMENT HURT MY CREDIT SCORE?If you pay late, your score will typically drop anywhere from 80-100 points. But you definitely want to stay away from a 90-day late, which will cause major, lasting damage to your score. WHAT HAPPENS IF I COSIGNER FOR A LOAN AND THE OTHER PERSON DEFAULTS?If you co-signer for a loan for someone, you assume the responsibility to pay the debt. If the other person fails to pay or even misses a payment, your credit score will go down and the creditor will pursue you to repay the debt. 2 IF I HAD A BANKRUPTCY, FORECLOSURE, OR SHORT SALE, IS MY CREDIT RUINED FOR LIFE?Not at all, since most delinquent items will report on your credit report only for 7 years before falling off, though bankruptcies do stay on your report for 10 years. But even with a foreclosure or short sale on your credit, it’s now possible to qualify for another home for a couple years or less if you rebuild your credit. DO I HAVE TO PAY TO CHECK MY CREDIT SCORE?No you don’t, because you’re eligible to receive a free copy of your credit report once a year from each of the three major bureaus. But be careful of all the offers for free credit reports and scores, which usually are just tricks and will cost you or be incomplete.
Secrets to increase your credit score that FICO doesn't want you to know about.
FICO is the main credit scoring company for most Americans, serving almost every bank, lender, and financial organization. Although they may be the giant in the industry, they’re extremely secretive when it comes to how they actually calculate your credit scores. Until now. There have been several nuggets of information leaked from former FICO employees and credit industry insiders about the best ways to increase your scores. BECOME AN AUTHORIZED USER ON SOMEONE ELSE’S CREDIT CARD.Once you’re authorized, the new positive trade line will show up on your credit as if you’ve had it for the duration. DISPUTE ITWhen it comes to small accounts that damage your credit score, it makes sense to dispute them with the credit bureaus, which gives you the chance of getting incorrect, outdated, or just negative information off your credit report. ADD MIA ACCOUNTS.A surefire way to build your credit is to add positive accounts that aren’t currently being reported, like cell phones, Internet, cable, utility, and medical bills. CRACK THE SECRET REPORT DATE CODE.Of course it’s easy for consumers to know when their credit card or loan’s Due Date is and pay on time, but few people are aware of the Report Date, the day every month when they send their information into the credit bureaus and FICO. So call your creditor, ask them what day they report, and make sure to pay your accounts off or down before that date – not the due date. LOWER YOUR CREDIT UTILIZATION RATIO.FICO calculates a significant portion of your score by your credit utilization ratio – how much debt you keep to how much your total available balances are. Common advice is that you should keep that ratio at or below 30% but FICO insiders now confess that 10% or less is actually a better ratio to maintain, and will boost your score. REQUEST AN INCREASE.If you aren’t in a position to pay down your debt, you still might be able to improve your credit utilization ratio. You can call your credit card companies and request a credit line increase. If granted, it will improve your ratios and raise your credit score – as long as you don’t use it. If you have any questions about the credit score or to schedule a Risk Free Consultation, please contact Blue Water Credit at 916-315-9190 or contact@bluewatercredit.com
Confessions of an Identity Thief
Hey, you! Yeah, I’m talking to you! The guy sitting there in Starbucks checking his bank balance on his iPad. Or the nice old lady waiting for her social security check to be delivered to her mailbox. Or even the family who doesn’t shred their junk mail before tossing it out. I’m going to let you in on a little secret – I’m going to steal your identity and then steal a lot of your money, and there are so many ways I can do it you’d be amazed. In fact, I and my fellow identity theft friends steal about a gazillion dollars each year, and it’s getting easier – not harder – thanks to technology. I’m feeling generous today so I’m going to share my secrets with you (and chances are you still won’t protect yourself.) Game on! SIMPLE THEFTI can steal your identity the old fashioned way by simply burglarizing your documents. I see opportunities everywhere - I can slip an arm through a car window when you leave it down on a hot day, check to see if your doors are unlocked, sneak into your house, or even grab your computer when you go to the bathroom at Starbucks. Don’t get next to me on a crowded bus or street corner, because I’ll pickpocket your wallet without you feeling a thing! EMPLOYER INFORMATIONYour employer has so much of your data and is SO careless with it. I can easily steal files, flash drives, and other records to get your social security number, address, work history, medical information, other valuable data. I don’t have to break in to do this – I can hack into your employer’s electronic files or even bribe the disgruntled janitor to let me in. CHANGE OF ADDRESSOne of my favorite tactics is to submit a change of address form with the post office. I can do this easily and anonymously by filling out a simple card. After that, all of your mail will be sent to MY new address, usually a P.O. Box under a false name so I won’t get busted if you call the police. PHISHINGFor my technically savvy identity theft friends, phishing scams are popular. They send you spam emails or set up pop up messages to appear as you browse the web, all asking for your personal information or logins and passwords. SOCIAL MEDIAYou may not realize it, but social media sites like Facebook, Instagram, etc. are goldmines for us identity thieves. By taking bits and pieces of your personal information we can assemble a data profile that includes just about everything but your social security number. You also aren’t aware that your photos tell so much about your life (car license plate numbers, address on your home, 7 when you’re out of town and where, etc.) When all else fails, you’d be shocked what public records reveal online! CLONED CARDSDo you realize how easy it is for me to make my own credit card? I can press a duplicate in minutes with special foils and laminators, burning your name and card number onto blank cards that I buy online. SKIMMINGNo matter how smart you think your bank is, we’re smarter – always one step ahead. We install plastic devices to regular ATM machines that allow us to register all of your bank information once you insert your card, called skimmers. Sometimes we even put up a completely fake ATM machine for a few days before moving it to the next location before the heat is on. PUBLIC WI-FI CONNECTIONSI have to thank you from the bottom of my heart for login in to your bank or credit card’s site to check your balance, or even checking your email with a public Wi-Fi connection. It’s so easy to hack in and see exactly what you’re doing! Did you know? More than 8 million people fall victim to identity theft in the U.S. each year. Consumers spend hundreds of millions of hours trying to resolve the problem, stop the fraud, and clear up their credit reports.
Do inquires hurt your credit score?
The fact is that every time a vendor, bank, or merchant requests to see your credit report, it registers as an inquiry, an event visible on that report. But will these inquiries actually lower your FICO score?The short answer is: it could, but that’s largely based on two factors: 1) What kind of credit trade line you’re applying for, and 2) The timing of those inquiries. Remember that the whole basis of credit reporting and credit reports is to give lenders an accurate metric to measure the risk of granting you a loan. So when a consumer registers multiple inquiries (and the wrong kind) it sets off a red flag to risk for lenders. Why? They’re worried about the consumer applying for credit or loans out of financial desperation and becoming overwhelmed with debt. So the larger the number of credit applications and inquiries the greater the risk, and therefore their score could drop. In fact, people with six inquiries or more on their credit reports are statistically 800% more likely to file for bankruptcy! Now here is the fine print – not all credit inquiries are treated equally. Some are a logical function of consumers shopping for the best rates or terms, especially with big-ticket items like auto loans, mortgages, and student loans. The credit bureaus expect consumers to submit several applications (and have their credit report pulled) in order to get quotes from multiple sources when it comes to those loans, so those inquiries are less likely to adversely affect a credit score, if at all. However other types of loans are seen as clear indicators of risky consumer behavior: credit card applications, store credit cards, payday loans and other inquiries that mark irresponsible financial behaviors. Typically, your FICO score can go down only about 5 points per inquiry if you have your score pulled too often by the wrong vendors. But here’s the good news: the second component to this equation is the timing of credit inquiries. The bureaus usually just count this group or batch of inquiries as one if they’re within a 30-day period. So the lesson here is that you absolutely should shop around for the best rates on big, important loans without worrying about multiple inquiries on your credit report, but try to contain them to within a 30-day period, but avoid multiple credit pulls on other kinds of debt that signal risk.
Climbing your way to the top of the credit score mountain.
Do you have a top-notch credit score? If you have a 720 or higher FICO score, you may be patting yourself on the back, but most people don’t realize there is another whole level to climb on the credit score mountain and reaching the peak will get you even better savings on interest rates, mortgages and loans. FICO scores go all the way to 850. In fact, 32.8 million people have FICO scores between 700 and 749 but approximately 70 million consumers with FICO scores above 760. But that’s just base camp on the credit score mountain because roughly 36.4 million people have scores between 750 and 799 and 38.6 million are in the 800-to-850 range. Only about 1% of people with FICO scores, around 2 million individuals, ever reach the summit with a score of 800-850. So here are a few strategies to help you reach that superior credit score: ALWAYS PAY ON TIMEAccording to FICO, 96% of people with a FICO score of 785 or greater have no late payments on their credit reports, so be one of those people who have a spotless payment history if you want the perfect FICO. Since payment history is 35% of FICO’s scoring model, paying on time is crucial. CHECK YOUR CREDIT REPORT PERIODICALLYIt's important to make sure that there are no errors on your credit file and everything is in order. These days, you also need to make sure that your identity hasn't been stolen or compromised, which effects up to 1 in 8 Americans every year. SPEND LESS AND PAY DOWN YOUR BALANCESFICO calculates a significant portion of your score by your credit utilization ratio – how much debt you keep to how much your total available balances are. A survey of those who had the top scores revealed their average credit card balances relative to their limits was just 7%. FICO calculates 30% of their scoring model by the overall money you owe and how close you are to the limits on your credit cards and revolving debt, so low balances and healthy ratios are the key to a top score. KEEP A GOOD MIX OF CREDITConsumers with FICO scores above 760 have, on average, six accounts that are currently “paid as agreed” and an average of 3 accounts with a balance. KEEP WELL-SEASONED ACCOUNTSMost super scorers also have, on average, an oldest account that’s 19 years old. The average age of their accounts is between 6 and 12 years old and they opened their most recent account 27 months ago or more. 15% of FICO’s scoring is calculated by the credit history.
Things you can't get with a bad credit score.
We all know that managing your credit is vital to financial success, but did you know that a bad credit score can hold you back from getting the things you need and use in everyday life? Here are some things that are difficult or even impossible to get with bad credit: A mortgage to buy a house. When you’re applying for a mortgage, the difference between a mediocre and a great credit score could cost you tens of thousands of dollars in interest over the life of the loan – or even get you flat out denied! An apartment to rent.Maybe you don’t qualify to buy a house because of your credit score, but you can still easily rent an apartment or house, right? In fact, many private landlords and property management companies check your credit score these days, and their credit requirements are becoming more stringent. A cell phone contract. Cell phone carriers gauge risk just like any lender because they don’t want a customer running up a big bill and then disappearing on them. So carriers like Sprint, Verizon, and AT&T will run your credit to make sure you’re not a gamble. Some jobs. Increasingly, employers are checking the credit reports of perspective employees, especially for government jobs or jobs in the financial sector where handling money is involved. It’s estimated that now about 47% of employers do credit checks as part of their background investigations before hiring. Auto financing. You’ll probably want to take out a loan when you buy a car, but without good credit, you’re likely to be charged exorbitant interest rates and have to put down a huge deposit, or you might get denied outright. Credit from a jeweler. Most jewelers want to see a 700 score before they issue a loan, and even installment loans for smaller items require at least a 640. 11 A credit card. You’ll only get approved for the best credit cards with the best interest rates if you have good credit. If not, you’ll be charged higher interest, higher fees, or might even get shut out of credit cards completely, and need to start with a secured card. Financing for medical care. The majority of health insurance plans don’t cover major dental work or elective procedures. But if you have bad credit, you’ll be denied and won’t be able to get that procedure or surgery you need. A business franchise. If you wanted to become the owner of an established franchise, like a Subway or a Baskin Robbins or any other, a bad credit score will block you from the franchise financing, result in a higher down payment, and also stop you from getting a commercial lease. A business loan. If you want to take out a line of credit or business loan from the bank, they’ll want to see good credit. With a score lower than 640, the bank will almost always automatically deny your application. A student loan. There are some federal student loans that don’t factor in credit scores, but most of them require a solid credit history. Car insurance. Insurance companies now check credit, and you’ll pay a higher premium with a lower score. A personal or bank loan. Just about any other time a bank or financial institution is set to lend you money, they’ll require a credit check to make sure you are a good financial risk.