The 7-Year Reporting Period is the time allowed for derogatory items to remain on your credit reports.

Why It Matters

Knowing what is in your credit report, and how long it can be there, is important because it helps you manage your credit, evaluate your credit obligations and improve your credit rating.

What You Need to Know

•  The 7-year clock starts ticking 180 days from the date (month and year) of the first missed payment that led to charge off, collection, foreclosure or repossession. So, when you do the math, it is really 7 1/2 years (from the last missed payment) that you can expect the derogatory item to come off of your credit report.
• On a one-time billing type account (i.e. a medical bill, utility bill, etc.) the 7-year clock begins running 7 years from the date the account became past due, even if the creditor does not send the account to collection in a timely manner, this rule still applies.
• In the case of late pays on accounts that do not result in a collection or charge-off, the 7-year clock begins running on the date that you were late.
• Regardless of how long a creditor waits to charge off, sell or transfer a debt, they must report the true and correct “delinquent or last missed payment” date (month and year) that preceded the creditor’s action. If they do not, they can be held liable, and they know it.
• The 7-year reporting period cannot be renewed.
• Exceptions to the 7-year rule are: Bankruptcies which can remain on your record for up to 10 years from the date of discharge; Federal Tax Liens can remain for 7 years from the date paid; however, if not paid, they will remain for up to 10 years; State Tax Liens can remain for 7 years from the date paid. However, if they are unpaid, they can remain indefinitely; Information about a lawsuit or an unpaid judgment against you can be reported for 7 years from the date paid or until the statute of limitations runs out, whichever is longer. Can I have an old debt removed?

Steps to Take

1. Order a copy of your credit report from each of the three bureaus, Equifax, Experian and TransUnion and check it old debts that you believe have passed the 7-year reporting period.
2. Send certified letters to the credit bureau that is reporting the expired item and let them know that the 7-year reporting period has expired. Keep detailed records of all communication.
3. Learn more about your rights concerning credit at www.ftc.gov/credit.

 “Is it better to file for bankruptcy or to be foreclosed?”
 ”What is a short sale and how can it affect my credit?”
 ”What about a Deed In Lieu of Foreclosure?
 ”What should I do?”

The recent economic crisis has paralyzed the hopes and futures of millions of homeowners who are now wondering how they will recover and rebuild in one of the most stringent lending environments on record. How will they manage their credit through the turbulent economic and financial strangleholds in which they find themselves trapped? Is there relief? Is there any salvaging of the housing market? What is the best path for consumers to get there?

There’s no question that many families will still have to leave their homes. Their biggest question now is how to most effectively do so (without devastating their credit scores) so that they will someday be able to buy a home again. 

Now is the time for tough questions to be asked and answered. 

Note: The guidelines which are referred to in this report are the selling guidelines of Fannie Mae & Freddie Mac, the two companies (recently taken over by the U.S. government) that own or guarantee about half of the U.S.’s mortgages. These companies base their decisions to purchase mortgage loans on guidelines that are national policy. These guidelines mandate specific credit requirements and policies with respect to problematic situations such as foreclosures, deed in lieu of foreclosures, short sale, or bankruptcy. Specifically, a demonstration of an impeccable credit history must be shown for a designated period of time after the negative event has occurred.

There Are No Requirements On Lenders To Report Negative Information

When it comes to how a lender will report to the credit bureaus, I bring this to your attention as moral support in consumer efforts to NEGOTIATE, NEGOTIATE, NEGOTIATE. 

The Fair Credit Reporting Act clearly states that creditors are NOT required to report negative information to the credit bureaus.

There’s more to this story, however. An August 13, 2008 Announcement from Fannie Mae & Freddie Mac clearly states that they place NO requirement on how lenders report mortgage default accounts to the credit bureaus. In response to the frequently asked question about how these items should appear on the credit report, the announcement stated:

“For reporting these actions on Fannie Mae loans, we require that servicers report to one of the major credit reporting agencies, but it is our policy NOT to direct specifically how to report various actions.” 

This is powerful and significant information. If the Fair Credit Reporting Act doesn’t require lenders to report negative information at all, or in a specific manner, and the nation’s largest buyer of mortgage loans does not require lenders to report negative information at all, or in a specific manner, this leaves the door wide open for negotiating deletions or non-reporting of these items. So I reiterate: NEGOTIATE, NEGOTIATE, NEGOTIATE.

You May Have Extenuating Circumstances & Not Know It!

In most cases, homeowners who are facing mortgage default will at some point want to purchase a new home, however, there are specific waiting periods put into place to make sure that consumers have enough time to rebuild and re-established good credit.  The good news is that for consumers who are being forced into mortgage default due to extenuating circumstances, those waiting periods are reduced. 

Here is the definition of Extenuating Circumstances as it appears in the 2010 Fannie Mae & Freddie Mac Guidelines:

Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).  

The lender must obtain a letter from the borrower explaining the relevance of the documentation.  The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

Homeowner Options & How They Affect Credit Scores

Foreclosure, Deed in Lieu of Foreclosure, Short Sale, and Bankruptcy can all have long-lasting impact on an individual’s taxes and ability to obtain credit. Homeowners need to get the facts before making critical decisions that will impact their lives for many years to come.

The following is a breakdown of homeowner options, and how each affects the credit scores. There are several loan products available, but, as previously mentioned, Fannie Mae & Freddie Mac own or guarantee about half of the U.S.’s mortgage market, so it is best to use their most recent Selling Guidelines as laid out in their June 25, 2008 Announcement.

Foreclosure

Foreclosure is the legal process by which a bank or other secured creditor either sells or repossesses a parcel of real property, home or land after the owner has failed to comply with the mortgage or deed of trust agreement with the lender. Most frequently, the violation of the mortgage agreement is the default of payment. The completion of the foreclosure process allows the lender to sell the property and keep the proceeds to pay off the mortgage as well as any legal costs. The length of the foreclosure process varies from state to state.

If the foreclosed property is sold for less than the remaining primary mortgage balance, and there is no insurance to cover the loss, the court overseeing the foreclosure process may enter a deficiency judgment against the borrower. Deficiency judgments can be used to place a lien on the borrower’s other personal property, obligating the borrower to repay the difference or suffer the loss of one’s property. It gives the lender a legal right to collect the remainder of debt out of the borrower’s other existing assets. 

However, there are exceptions to this rule. If the mortgage is classified as “non-recourse debt,” then in the event of foreclosure the borrower has no personal liability. This is often the case with residential mortgages. If so, the lender may not go after the borrower’s personal assets to recoup additional loss. The lender’s ability to pursue a deficiency judgment can be restricted by state laws. In California and some other states, original mortgages (the ones taken out at the time of purchase) are typically non-recourse loans; however, refinanced loans and home equity lines of credit are not. If the lender chooses not to pursue deficiency judgment—or can’t, because the mortgage is non-recourse—and writes off the loss, the borrower may have to pay income taxes on the un-repaid amount even if it can be considered “forgiven debt.”

Any other loans taken out against the property being foreclosed (second mortgages, home equity lines of credit) are “wiped out” by foreclosure (in the sense that they are no longer attached to the property), but the borrower is still obligated to pay them off if they are not paid out of the foreclosure auction’s proceeds.

How Does a Foreclosure Affect Credit?  

A foreclosure can be reported as a Foreclosure or Repossession and carries the most negative penalty on a credit score just under a public record (i.e. bankruptcy, tax lien, or judgment.) There is a misconception that foreclosures are considered public records to the scoring system. However, they are not. Although there is a Public Notice Record on file once a foreclosure is started, this record is completely different than a credit report public record.

Unless a foreclosure becomes a public record, such as a judgment, it can only be reported on a credit report for 7½ years from the date of the first late pay that led to foreclosure. Many consumers and lenders believe that it is 7 years from the completion date of the foreclosure process, but that is inaccurate. A foreclosure falls under the same rules as a collection, charge-off, or other similar action.

A foreclosure can drop credit scores from 50-250 points (this includes points already lost due to delinquent payments). The difference in point loss depends on how many points someone has to lose in the payment history factor of his or her credit report. Thus if someone has a 750 credit score and they opt to foreclose, their score could drop up to 250 points. However, if someone has a 500 credit score, they may only lose 50 points for the same derogatory. 

If a deficiency judgment or tax lien is filed in connection with a foreclosure, credit scores can drop an additional 100 points.

How Long Before You Can Buy Another Home After Foreclosure?

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a foreclosure is 5 years from the date the foreclosure proceeding is completed.

However, if extenuating circumstances caused the borrower to enter into a foreclosure proceeding, such as the sub prime mortgage crisis fallout, loss of employment or a severe medical crisis, the waiting period, if approved, is 3 years from the date the foreclosure proceeding is completed.

In General: When it comes to foreclosure and how it affects the ability to obtain credit in the future, there are multiple points of extremely negative impact. Deficiency judgments for the amount not collected by the lender in the foreclosure sale can end up on a borrower’s credit report as a derogatory mark. Additionally, there is a high risk that the borrower will be hit with a substantial tax penalty which can result in a tax lien which also appears on the credit report. As a general rule, other than a bankruptcy, foreclosure is the least desirable of all of the options available when a borrower is upside down in a home mortgage.

Deed In Lieu Of Foreclosure

One option to foreclosure is a “deed in lieu of foreclosure.” In this scenario the borrower turns the house over to the lender and walks away without owing anything. A deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The main advantage to the borrower is that it immediately releases him or her from most or all of the personal debt associated with the defaulted loan. The borrower also avoids a foreclosure proceeding and may receive more generous terms than he or she would obtain in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of repossessing the property.

In most instances, in order to be considered for a deed in lieu of foreclosure the total debt on the property should be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement offer must at least be equal to the fair market value of the property being turned over. Generally, the lender will not proceed with a deed in lieu of foreclosure if the outstanding debt on the property exceeds the current fair market value of the property.

Because the agreement must be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer from the borrower that specifically states that the offer to enter into negotiations is  being made voluntarily. This will enact the parole evidence rule and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.  

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

How Does a Deed in Lieu Of Foreclosure Affect the Borrower’s Credit?

Most lenders report a deed in lieu of foreclosure as a foreclosure, so the credit scores will carry the same serious effect as if it were an actual foreclosure. However, borrowers can negotiate with the lender to report it differently in return for turning over the deed and avoiding foreclosure costs.

Many lenders will say that they cannot change the reporting status, but as you now realize, they can. Here are the credit reporting options in preferred order:

• Paid As Agreed – Credit scores will have already dropped over 100 points due to default in payments; however, if reported as Paid As Agreed, the borrower will be able to purchase another home in a shorter time period. 
• Paid Settlement – Credit scores could drop up to 100 points in addition to the points already lost for delinquent payments.
• Foreclosure – See above.

How Long Before You Can Buy Another Home After Deed In Lieu Of Foreclosure

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a Deed in Lieu of Foreclosure is 4 years from the date the proceeding is completed.

If there are extenuating circumstances that caused the borrower to have to enter into a Deed In Lieu of Foreclosure proceeding, the waiting period is 2 years from the date the proceeding is completed.

Short Sale (aka: Pre-Foreclosure Sale)

In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the homeowner. The homeowner sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.

A short sale is typically executed to prevent a home foreclosure. Lenders often choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the homeowner, the advantages include avoidance of having a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure.

How Does Short Sale Affect the Borrower’s Credit?

The short sales that I have seen on credit reports have appeared as “Paid Settlements” on a mortgage account. In the wake of the current mortgage crisis, short sales are becoming extremely common, but legislation has not caught up with the tidal wave and there is no law on the books relating to them to date. As a result, there is an opportunity for the borrower to negotiate credit reporting with the lender. I’ve seen several successful negotiations, so be sure to let your borrower know that it is possible.

A short sale proves that the borrower is exhausting every effort to pay the loan. The borrower has willingly committed to taking on months of emotional and physical stress in a good-faith effort to sell the property to maintain a good relationship with that lender. Most likely, the reason they can’t afford their current mortgage is because they were in an adjustable product and their mortgage payment has doubled. That doesn’t mean that they can’t afford a different loan program with a lower payment. There is no incentive for lenders to NOT negotiate with the borrower on how the item is reported to the bureaus. All they would be doing is cutting off a pretty substantial future income stream if they put these types of borrowers out of the market for two years. In that light, negotiation for a non-report on short sales is well worth it.

Here are the credit reporting options in preferred order:

• Paid As Agreed or Paid - Won’t hurt the score at all as long as the borrower has kept payments current.
• Unrated – May drop a few points.
• Paid Settlement – Credit scores will drop 50-150 points. 

If reported as a paid settlement, the item will remain on the credit report for 7½ years from the date of the first late pay that led to the paid settlement.

How Long Before You Can Buy Another Home After A Short Sale?

The current guidelines from Fannie Mae & Freddie Mac state that the waiting period for a Short Sale is 2 years from the date the Short Sale proceeding is completed There is no exception for extenuating circumstances.

The Mortgage Forgiveness Debt Relief Act Of 2007

When the lender decides to forgive all or a portion of the debt and accept less, the forgiven amount is considered as income for the borrower; leaving it open to be taxed. However, The Mortgage Forgiveness Debt Relief Act of 2007 contains amendments to remove such tax liability, allowing the borrower and lender to work together to find a solution beneficial to both parties.

Loan Modification

A loan modification is when the lender agrees to modify a part or all of the terms of the original mortgage loan agreement.  This existing note is modified and remains in place.  Changes to the agreement can include: extending the term of the loan, changing the monthly payments, and changing the interest rate to make the loan more affordable and to help the homeowner avoid foreclosure or bankruptcy.

Loan modifications have become extremely common. So much so that a backlog of cases has forced lenders to prioritize their caseloads. This largely means that many homeowners are being forced into default to get their attention. This is unfortunate, because one 30-day late pay can cause a 50-80 point drop in credit scores.  The good news is that borrowers who choose this option vs. foreclosure or bankruptcy, show that they are exhausting every effort to pay the loan, and the effort will show in your credit scores and history.

How Does A Loan Modification Affect the Borrower’s Credit?

Lenders use special codes to report consumer account information to the credit bureaus. When the loan modification program was announced, lenders used an existing code, called AC, to signal that their clients were participating in a loan modification program. The problem for those borrowers, was the fact that the AC code indicates that the consumer has only made a partial payment, or has entered into a settlement agreement, paying less than the amount due.  Why would lenders use this code? Because there is no code for a loan modification, and the AC code is the closest fit.

Here’s the good news, a new code was developed in November 2009.  It is called a CN code, and it will indicate a loan modified under a federal government plan — which should eventually have no impact on credit scores.

Here’s the temporary bad news — for the time being, the FICO scoring model does not consider the new CN code.  Before a change of this magnitude can be made to the FICO model, FICO must concludes that the code in a credit file is accurately predictive of the consumer’s behavior.  That means testing, case studies and research, which will hopefully be completed by year end.

Note:  The new CN code will not eliminate late pays that were made during the loan modification process.  So Borrowers who pay late will still see a significant drop to their credit scores.  And, regarding consumers who have already been reported under the AC code, at the moment, there is no retroactive guidelines, however, most experts believe that there will be soon. 

Bottom line, if you are a homeowner who is in the process of a loan modification now, or a homeowner who has already gone through the loan modification process, you should ask your lender to report the account under the CN code now, that way the new code takes affect, your scores should go up immediately.

Bankruptcy Mortgage Relief

Currently, bankruptcy offers very limited protection to a homeowner who is upside down with his or her payments. The borrower can file a Chapter 7 which, depending on the state bankruptcy law, will most likely require him or her to surrender the property to the bankruptcy court, or file a Chapter 13 debt repayment plan to spread out prior delinquent payments over a number of months or years in the future. However, as of now, no bankruptcy proceeding can modify the terms of an existing home loan on a principal residence.

How Long Before You Can Buy Another Home After Bankruptcy? 

The current guidelines from Fannie Mae & Freddie Mac state the waiting period for a Chapter 7 Bankruptcy is 4 years from either the dismissal or discharge date. The exception for extenuating circumstances is 2 years.

A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period for a Chapter 13 bankruptcy is:

• 2 years from the discharge date, or
• 4 years from the dismissal date.

There are no exceptions for extenuating circumstances.

In the case of multiple bankruptcies, the current guidelines state that the waiting period is 5 years from the most recent discharge or dismissal date. The exception for extenuating circumstances is 3 years from the most recent discharge or dismissal date.

WORD OF CAUTION:  If you are facing a foreclosure, short sale or bankruptcy due to circumstances of losing a job, a medical crisis, the sub prime mortgage crisis fallout, it is suggested that you fully document your experience – starting now. It’s not recommended to wait until later, because, if you decide to apply for a loan in two years based on an extenuating circumstance claim, the details and emotional energy of what you are going through will be more difficult to document and prove down the road. 

There Is Good News!

• Aging Out: In all instances above where I reference how many points will be lost in each scenario, it is important to understand that over time all derogatory accounts age out. This means that the older the account, the less it will hurt your credit scores.
• 7-Year Reporting Period: The law states that derogatory items “can be” reported for 7-10 years. It doesn’t state that they “MUST BE.” There is no need to wait out the 7 years. You don’t have to. You can start seeking early removal of the item by asking the credit bureaus that are reporting the information to send you a copy of the information they have on file to verify their reporting.  Law states that they MUST have absolute verification, or remove it from your report.
• You can start recovering and rebuilding immediately. You do not have to wait to start recovering and rebuilding.  Contact me for some great tips on how to get started now.

Which is The Best Choice to Protect Credit Scores?

Each of the scenarios presented in this report has a specific impact on credit scores, but it’s important that each individual understands that this is a very personal decision. A borrower must weigh the impact such a critical decision will have on family, employment, and future financial stability.

But above all, consumers should not be afraid to ask questions and find out what options are available. Many consumers mistakenly assume that there are specific laws and policies set in place that govern the actions of lenders, creditors, and credit bureaus. However, in many instances they are in the grey as much as the consumer. So homeowners in trouble should not feel intimated by them.

In Conclusion

My advice to any homeowner on the verge of foreclosure is, first and foremost, find out what options are available. Do the research. Consult the experts. Gather as much information as possible, and weigh the pros and cons. What may seem to be the best answer right now may also have a serious impact for many years to come, so make an educated decision.

The great news is that whatever fate falls upon your credit scores right now, you can start improving your situation immediately.

Source:  Linda Ferrari’s Book:  The Big Score – Getting It & Keeping It

Question

Is it a good idea to hire a credit repair company?

Answer

If you are ready to purchase a home, or refi your existing loan, and you feel that the credit challenges you are facing are too much, and that you do not have the time to do the work or the necessary follow-up, then it is a good idea to seek professional help. Yes, there are companies out there who have given the repair industry a bad name, but just like attorneys, doctors, and many other professional industries, there are legitimate credit improvement firms that can help you. If you would like to get in touch with someone about your credit, please give me a call and I will refer you to a reputable company that I trust.

For more information about credit repair agencies, ask for our Fact Sheet: Avoid Credit Repair Scams.

Question

What are my rights when it comes to debt collectors?

Answer

A debt collector may not use threats of violence or harm, use obscene or profane language; or repeatedly use the telephone to annoy someone, falsely imply that they are attorneys or government representatives; falsely imply that you have committed a crime; falsely represent that they operate or work for a credit bureau; misrepresent the amount of your debt; indicate that papers being sent to you are legal forms when they are not; falsely imply that you will be arrested if you do not pay your debt; falsely imply that they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; give false credit information about you to anyone, including a credit bureau; send you anything that looks like an official document from a court or government agency when it is not; or use a false name, and they may not call you before 8:00 AM or after 9:00 PM.

This is only a handful of your rights when it comes to debt collectors. For more information about your rights, ask for our Fact Sheet: Your Rights Regarding Debt Collectors.

While the roots of the modern credit report can be traced all the way back to 1898, the numerical credit score wasn’t devised until the 1950s and didn’t become a major part of the American financial system until the last twenty years. In 1956, Bill Fair and Earl Isaac devised analytical tools that attempted to quantify the risk of loaning an individual money and launched a company based on this scoring system. Their company was called Fair Isaac & Co., better known by the acronym FICO. After several decades of success in Europe, FICO’s system caught on in the United States beginning with Equifax in 1989 and continuing with the other two major credit bureaus, Experian and TransUnion, in 1991. Since then, the now-familiar three digit score from 300 to 850 has become an integral part of the American credit system.

The many factors that go into determining a credit score can seem complicated and daunting, and it’s taken a while for most consumers to get up to speed about how their use of credit affects this score. But just when you thought the credit score reporting process couldn’t get more confusing for consumers, some major changes have taken place in the last year with the rollout of the new FICO score model known as FICO 08.

It’s always good advice to be proactive in addressing and fixing any credit challenges. However, it’s more important than ever before to take a hands-on approach to your credit, and understanding how recent changes may affect your credit scores is a key part of being proactive.

FICO 08 – The Algorithm Has Changed

Beginning last year, Fair Isaac & Co. implemented changes in how your FICO score is computed, calling the new system FICO 08. The model replaces the existing FICO model, which has remained relatively unchanged since the 1980s.

Per Fair Isaac, here are the key changes in the new model:

• Do Authorized User Accounts Still Work? One of the credit-repair tricks that became popular in recent years was paying thousands of dollars to be listed as an “authorized user” on the account of someone with good credit (usually a stranger), thereby improving your FICO scores enough to get into that home or auto loan immediately. That stops with FICO 08, and rightfully so – because this practice was an obvious form of fraud.

  Here’s the good news-the new model will still allow legitimate authorized users such as a spouse and/or family member.  And I can tell you confidently that this credit building technique still works for spouses and children who have the same last name as the credit card owner.  There have been two cases in the last 60 days where I have seen my clients’ credit scores jump 50-60 points after being added to their spouse’s credit card account.

  It’s always a good idea to build your own credit, when possible, because that gives you power and control, but as a last resort this option will help. To maximize the benefit of this option, you should make sure that the account you are being added to belongs to someone you trust, has NO negative history reporting at all, has and keeps a balance under 30% of the limit and is at least 2-3 years old. 

• Having just one big black mark on your credit, like a repossession, will matter less than it used to if your report demonstrates responsibility overall.
• Collection accounts with balances less than $100 will not impact the credit score any longer.
• Maxing out those credit cards will drag your score down even more than it used to! FICO 08 increases the emphasis on having available credit.
• Having a mix of credit is also more important in FICO 08. This means you MUST have at least 1-2 active major credit card accounts.

FICO said that the new model would have less impact on credit scores under certain circumstances, however, in my experience, the new model appears to be producing lower scores under almost every circumstance.  Especially when it comes to credit card balances and late pays.   So if you are one of those people who are out there wondering why your credit scores have dropped in the past few months-even though nothing has changed, this could be why.

So what can you do?

1. Maximize What You Have.  The most effective way to improve your credit score is by ensuring the information used to generate the score is accurate.  Ask me to send you a copy a 5-step action plan that will help you Improve, Protect and Maintain Strong Credit Reports & Scores.  You may also want to consider purchasing a copy of Linda Ferrari’s book, The Big Score – Getting It & Keeping, which is a comprehensive How-To Guide on getting and maintaining strong credit reports and credit scores.
2. Keep Credit Card Balances As Low As Possible.  Carrying balances over 50% of your credit card limits (PER CARD) was always something to avoid, but it can hurt you even more under the new FICO 08 model. Anything over 50% will cost you points on your credit score, and anything between 30% and 49% means you’re just treading water. To improve your credit, you need to carry a balance under 30%, on your credit card statement. If-in an emergency-you must charge something that puts you over the 30% or 50% mark, if possible, rush home and pay the balance down immediately!
3. Other basic strategies still apply - don’t ever go over your credit card limit, stay clear of the two extremes of closing accounts on the one hand-and opening accounts you don’t need on the other. And make sure that all positive accounts and credit card limits are being reported to the three major credit bureaus, Equifax, Experian and TransUnion.
4. Pay Your Bills On Time.  There are TWO important DON’Ts when it comes to late pays:
   • DON’T underestimate the affect that late pays have on your credit.
   • DON’T overestimate the kindness of creditors to remove late pays just because you have a good payment history with them.

One 30-day late can cost you 50-80 points immediately.  Late pays are the most difficult derogatories to have removed from your credit reports and they take at least 2 years to start significantly aging out. The easiest way to make sure you’re on time is to sign up for automatic withdrawal, if it’s available. If that’s not possible, then try to pay your bills as soon as you receive them. If you don’t have the cash flow to do this, at the very least be sure to mail your payments 7-10 days before the due date (or pay online 3-5 days before the due date) to ensure your payments are received and processed by the time they’re due. You can also consider working with your creditors to change your monthly due dates to better fit within your budget.

In Conclusion

I want to once again stress the importance of always being proactive. Regardless of these changes and any others that may come along in the future, the primary responsibility for your credit rests with the same person it always has: you! If you continue to follow the basics of money management that have been applicable for years, and continue to do everything you can to maintain strong credit scores, then you will be in a strong place financially no matter how the credit scoring system changes.

Source:  Linda Ferrari, National Credit Expert –  http://lindaferrari.com

Question

What are my rights when it comes to debt collectors?

Answer

A debt collector may not use threats of violence or harm, use obscene or profane language; or repeatedly use the telephone to annoy someone, falsely imply that they are attorneys or government representatives; falsely imply that you have committed a crime; falsely represent that they operate or work for a credit bureau; misrepresent the amount of your debt; indicate that papers being sent to you are legal forms when they are not; falsely imply that you will be arrested if you do not pay your debt; falsely imply that they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; give false credit information about you to anyone, including a credit bureau; send you anything that looks like an official document from a court or government agency when it is not; or use a false name, and they may not call you before 8:00 AM or after 9:00 PM.

This is only a handful of your rights when it comes to debt collectors. For more information about your rights, ask for our Fact Sheet: Your Rights Regarding Debt Collectors.

Good credit is imperative because it is your golden ticket to financial freedom for right NOW and it prepares the foundation for financial security LATER. Isn’t that what we all seek?

In planning for tomorrow by improving your situation today, you can eliminate the risk of limited financial security for your retirement years. You don’t want to work forever, and you shouldn’t have to. You can take immediate action that will enable you to set yourself up for a more secure future by simply being wiser about how you manage your credit, your debts and your finances.

So what is the single first step we can take toward planning for a more secure future and retirement? It begins with ensuring that we put ourselves in a position in which we derive the very best value from every financial commitment we make. The best value means NOT spending hundreds or thousands of dollars on high interest rates for credit cards, auto loans and mortgages.

So how we can position ourselves to get the best value from our financial commitments? Simple. We make sure that our Credit Scores are above 740 at all times.

A Quick Education On The Credit Score

Here’s a little primer on how credit scores evolved. Developed in the 1950’s by Fair Isaac & Co., credit scores hit mainstream use in the 1980’s when three major credit bureaus, Experian, Equifax and TransUnion negotiated an agreement to create an objective and fair scoring system that would analyze all of your data, compare it with the way thousands of people pay their bills, and come up with a three digit number between 350 and 850 that indicates whether or not you are a good credit risk. As you probably guessed, the higher the number, the better your chances are of getting the loan at the best interest rate.

Today, credit scores are the No. 1 piece of data on which people are judged to determine whether or not they get approved for loans and how much interest they will pay for those loans. The good news is loan approval now only takes a few minutes. The bad news is that the credit score is now becoming widely used by not only the lending industry, but also by employers, utility companies, insurance companies and cell phone companies, and the list is growing every day.

A good score opens doors that will lead to abundant opportunities both for now and for a more secure future, and by having a complete understanding of what makes up a good score, you can start right now on the path to a higher credit score and a better financial life.

Some Facts You Should Know

What Is a “Good” Credit Score?

Scores generally range between 350 and 850. A score of 740 or better is considered “Excellent” credit.

Why do the scores from the three credit bureaus vary?

The three major credit bureaus, Experian, Equifax and TransUnion are for profit businesses, not government agencies. Their main business is collecting data about YOU from creditors and then reselling that data to lenders, employers, insurance companies, utility companies, and most recently to YOU, the consumer. Since these three companies are competitors, and DO NOT share data with one another, it is very common that the data they house in your file will differ because not all creditors report to all three bureaus. That explains the variance in the scores as each line item affects the score either up or down.

How many scores do I really have?

When you go to apply for a loan, the scores the lender will pull will not be the same scores that you would receive from the bureaus. The reason for this is that lenders DO NOT buy their scores directly from the bureaus, but instead take the DATA ONLY from each bureau, enter it into their own scoring software and calculate their own scores based on the criteria they feel better evaluates whether or not you will be a good credit risk for their program. So all lenders calculate your scores using the same data from the three bureaus, but all lenders DO NOT use the same software to evaluate that data.

The potential for varying scores is great. You want to properly manage your credit to ensure that your scores are favorable under all scoring software models.

Do lenders use all three scores?

Mortgage lenders use the middle of the three scores. All other creditors can use any one of the three. That is why it is important to keep all three scores maintained.

How fast can your credit score change?

Your credit score can change whenever your credit report changes. And the good news is that once it changes, there is no memory of yesterday’s score in the system. You don’t have to worry about looking back as you move forward with improving your credit. Just remember, negative items will lower your score fast, but improving your score takes time. That is why it is important to check your scores all the time so that you will be prepared for the next opportunity.

What Goes Into Your Score?

There are five factors that make up your credit score, and each factor weighs differently on your score. Here’s the breakdown:

• 35% of your score is based on Payment History: The biggest chunk of your credit score, payment history tells lenders how you have been paying your bills. Late payments, collections, past due accounts, and public records such as bankruptcies can seriously hurt your score. It is very important to not incur late payments on Mortgage Accounts. One 30-day late can cost you 50-75 points.
• 30% of the score is based on Amounts Owed: The second biggest factor affecting your credit score, this factor takes into account how much is owed on all your accounts, how many accounts you have that carry a balance, and what percentage of your available credit are you using. Keep credit card balances under 50% of the available limit at all times, and when preparing to make a large purchase, bring those balances down to under 30% at least 3 months before applying for the loan.
• 10% of the score is based on New Credit: This factor includes the number of recently opened accounts, the number of credit inquiries, and the time since each account was opened. This portion of the score also looks at how often you apply for credit. It is best when applying for a mortgage that you do not open or apply for new credit accounts. When shopping for a new mortgage or auto loan, it pays to plan ahead so that you do all of your shopping within a focused period of time. You can have your credit report pulled as many times as you want within a 14-day period when shopping for a mortgage or auto loan and it will only count as ONE hard inquiry.
• 15% of the score is based on Length of Credit History: This factor scores you on how long you have had credit, the time since you opened an account and the time since recent account activity. While applying for a mortgage, consumers will want to leave open accounts they have had for a long time as it will help boost this portion of the score.
• 10% of the score is based on Types of Credit Used: A mix of credit is the best way to develop a good score. The most important consideration is to be picky about the type of credit you apply for because that will really help your score. For instance, to the scoring system, third party financed credit cards (i.e. department store credit cards) are considered to be particularly low quality credit as the holder of such cards can appear desperate for credit. However, there is one exception to this rule, and that is that the scoring system considers Sears credit cards as a positive.

What Is Not In Your Score?

Your race, color, religion, national origin, sex and marital status, age, salary, occupation, title, employment history, where you live, interest rates, child/family support obligations, rental agreements, soft inquiries, whether or not you are involved in a credit counseling program.

Can I Improve My Score?

Yes, there are specific and strategic steps you can take right now to start repairing your credit problems.

1. Start with the basics. Order all three of your credit reports and all three of your credit scores. You are entitled under the law to a free copy of your credit report-from all three credit bureaus-each year when you order it from Annual Credit Report Request Service. To order, visit www.annualcreditreport.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281. You will have to pay an additional fee for the credit score from each bureau. Scan your report for any errors. Is there an account on there that you didn’t apply for? Is there a company reporting a debt that is inaccurate? Are all of your credit card limits reporting? Are your balances up-to-date? Are your name, birth date and Social Security Number correct? If there are any errors on your report, no matter how small, they can lead to big problems and inhibit you from obtaining credit and even keep you from getting the interest rate you deserve on your mortgage or refinance.
2. Start improving what you can immediately. Late payments and delinquent accounts will affect your score negatively, so take care of them-the sooner, the better. If you have a good relationship with your creditor, call them to see if they’ll work with you on removing a late payment. They do it all the time. If you have past due accounts, call your creditors to see if you can negotiate a better interest rate, lower payments or make other arrangements to pay off your debt sooner. Also, don’t carry high balances on your credit cards. If you carry more than 30% of your limit every month, this reflects negatively in your score. Don’t charge what you can’t pay off within 90 days, and don’t max out your cards.  
   • Rule 1: Make sure that you only send the letter to the bureau(s) that is reporting the derogatory information. Not all creditors report to all bureaus. If you send a dispute letter to one of the three bureaus that is NOT reporting the information, you take the risk of having the derogatory information added to that bureau, and your score will go down.
   • Rule 2: Make sure that you send everything certified so that you can prove delivery.
   • Rule 3: Include copies of any supporting documentation you may have to support your claim.
   • Rule 4: Keeping a log of activities is very important for successful credit repair. Click Here for an example of a log you can use.
   • Rule 5: Mail disputes to bureaus at their different addresses. Each bureau has several addresses. If your first dispute comes back without change, send it to another address for that bureau. Click Here to print a list of credit bureau addresses.
3. Disputing errors on your report. Errors can appear on your credit report. These can be human error in reporting information from a creditor or one of the credit bureaus. They could even be unauthorized accounts set up in your name by an identity thief. Before you apply for a loan, you should verify the information in your credit report. If you find errors, you should correct them immediately. Here are the rules in sending dispute letters to the credit bureaus:
4. If the credit challenges are too much. If you feel that the credit challenges you are facing are too much, or if you don’t have the time or stamina to do the homework necessary to get the ball rolling, then it’s time to consider using a professional service to help you reach your goals. If you decide this is the path you would like to take, give me a call and I will set up a free credit consultation for you with a company that has orchestrated higher credit scores and better financial opportunities and futures for of individuals from all walks of life.

In Conclusion

Your credit score is so important to your current financial well-being and the stability of your financial future. In fact, your credit score is really the key that can either open doors for you or lock them shut for several years. I am very committed to my effort to help you learn more about both the importance of the score as well as repairing, improving and maintaining strong credit reports and scores for life.

It seems everywhere you look, some program or Web site offers credit fixes, offers and deals that make it seem so easy to consolidate debt or, worse, get “easy credit” to buy the things you need. They offer “free credit analysis”-many of which will most likely lead you down a path of credit destruction. Most of what is out there is just plain misinformation and contradicts the steps you are taking to improve and maintain your credit scores. The best defense against making a credit blunder is to better educate yourself about credit and ways to manage it.

Consumers and credit professionals wage the battle for credit education and improvement on several fronts. Initially, I want to help you become aware of the fact that credit scores and reports hold the key to all hopes of obtaining financial freedom, the best rates on home and auto loans, and of course, the American dream. I understand the system and I know how you can benefit from taking the smartest steps. If I do my job well for you, I will help educate you on the factors that make up your score, ways to navigate the system, and how to get good credit and keep it.

One of the ways I can help you avoid the traps of dangerous credit mistakes is to challenge 10 common credit card myths. Once you learn the truth behind these myths, you’ll be in a more knowledgeable position to distinguish between positive credit options and negative credit advice that can destroy your credit scores.

10 Credit Card Myths That Put Your Score At Risk

Myth #1: You Should Avoid Using Credit Cards – FALSE!

There are many finance experts out there that advise consumers to stop using their credit cards, pay off everything, and go to an all-cash plan. That may be a good way to get rid of debt, but it’s utter destruction to your credit score. Why? Because per Fair Isaac, the creator of the credit scoring system, there are 5 factors that make up your credit score, one of which is how you use and manage your credit card debt-a factor that makes up 30% of your score. That’s 255 points!

In order to prove to the scoring system that you know how to manage revolving debt, you MUST have active credit card accounts. Use your cards every month, for groceries, gas, etc. and pay them off every month. If you do not have a credit card at this time and your scores are under 650, you should consider immediately applying for a secured credit card. If your scores are high enough (ask your bank what the score requirements are), you may want to consider going to your bank to apply for a card. Exception: Do not apply for credit of any type when you are about to enter into or have already entered into a loan transaction. New Credit temporarily brings down your score due to the debt and the new account.

Myth #2: Consolidating Debt Onto 1, Low-Interest Credit Card Will Increase Your Scores – FALSE!

Everyone gets the offers: “Dig yourself out of your financial hole with a balance transfer.” They tempt you with big checks, one with your name printed on it. “Take a vacation. Improve your home. Or, just consolidate your debt. These checks are yours to do whatever you want.” Sounds great, doesn’t it? And it would be great except for the fact that if you consolidate all of your debt onto one credit card, you will max out that card and your credit score will drop 80-100 points overnight! Oops, they forgot to tell you that, right! Per Fair Isaac, if you have a maxed-out balance reported on your credit card statement, you can lose 75+ points instantly, regardless of how good your credit history is. Do not consolidate your credit card debt onto one low interest card UNLESS if after transferring the debt the balance on the credit card you are transferring to is under 30% of the available limit.

Myth #3: It’s Okay If You Go Over Your Credit Card Limit Because The Credit Card Company Authorized the Purchase – FALSE!

Nothing is further from the truth. Don’t go over your credit card limits, even if it’s just by one dollar. Doing so deals you a double penalty and you could lose 80-120 points from your scores. Why? Going over your limit makes it appear that you cannot hold to a creditor’s agreement and that you are overextended. Something to note: even if you call your credit card company and they approve an additional $ 200 over the telephone, you still get penalized.

Myth #4: Closing Credit Card Accounts Will Help Your Score – FALSE!

Don’t close credit card accounts at all, with the exception of closing a joint account after a divorce. You will lose points in two factors when you close a credit card account, both in the Amounts Owed factor which is worth 30% of your credit score, and in the Length of Credit History Factor which is worth 15% of your credit score. (These 2 factors combine to make up nearly half of your credit score, so pay attention here.) The more available money you have that you are not using, the better your score, and once you close the account, you lose the available limit on that card. Also, a common misconception by consumers is they believe when you close a credit card account, any bad history on that account goes away. This is not the case. That history stays with you.

Myth #5: Becoming an Authorized User on Someone’s Credit Card Makes You Legally Responsible for the Account – FALSE!

It is true that any activity on these accounts, good or bad will show up on your credit report if you are an authorized user, but unless you are a JOINT owner or Co-Signer of the account, you are NOT legally responsible for terms of the agreement with the creditor, and you can have your name removed from the account at anytime. Keep in mind that if any negative history reported during the time your name was on the account, that history will remain, but no further negative history will be reported.

Myth #6: The Type of Credit Card Doesn’t Matter – FALSE!

The credit scoring system does not like third-party finance cards (i.e. department store cards, furniture store cards, etc.) Always try to stick with major credit cards (i.e. Visa, MasterCard, etc.)

Myth #7: Your Divorce Decree Protects Your Credit Score – FALSE!

Even if your divorce decree stipulates that your ex-spouse is financially responsible for debt that is held in both your names, you remain financially liable for that debt until it is paid in full. Both of you entered into a binding contract with the creditor. If your ex-spouse is named as the responsible party for a jointly held debt, and you cannot afford to pay off the account and close it immediately, then you should monitor the account closely to make sure it is being paid on time. Otherwise, negative payment history information will appear on your credit report, and could drop your score by up to 75+ points overnight. Keep in mind that it is against the law for a creditor to remove a late pay without documented proof that it was their error. One late pay can affect your score for many years.

Myth #8: Marrying Someone Who Has Poor Credit Will Hurt Your Credit Score – FALSE!

Although getting married generally means that you’ll be combining finances, your credit reports won’t be combined. If you open a joint account, the credit information will show up on both reports, but your (or your spouse’s) past negative credit history won’t be reflected on the other person’s credit report unless you add your spouse as an authorized user to an account that has a negative history.

Myth #9: Making Arrangements to Pay a Charged-Off Credit Card Account Will Help Improve Your Score – FALSE!

If you have an old charged off credit card debt and you make payment on it, or make a written or oral promise to pay it, you will renew the 7 year credit reporting statute from that date. The best path to take in this instance is to debt negotiate. Offer the creditor .30 – .40 cents on the dollar as payment in full in exchange for a deletion letter from the creditor.

Myth #10: Those Pre-Approved Credit Card Offers Do Not Hurt Your Score – FALSE!

Just because credit is offered to you, does not mean that you should accept it. When you receive one of those pre-approved credit card letters in the mail, your credit report has not been pulled yet, so you are NOT approved for the account. Once you pick up the phone to call the creditor, they will pull your report and you will be penalized immediately for the hard inquiry (10% of your score.) It is best to avoid these types of special offer credit cards (including Department Store offers of “Open an account today to save 15% off of your purchase.” The scoring system frowns upon 3rd party finance cards.

In Conclusion

The bottom line about misinformation? It’s always going to be out there, and many empty promises presented are tempting-but if something seems too good to be true, it probably is.