Arty Bujan

Going from Bad to Great

Posted by Credit_Boost on October 22, 2008

Do you have a client with bad credit? Not quite sure just how bad it really is? Frustrated and confused when it comes to deciphering the mess and trying to figure out what to do about it?

Well, you're not alone.

In this article I'm going to help you figure out exactly how bad their credit is and what you need to do to help them raise their scores and retake control of your sale.

The first step to figuring out where they stand is to find out what their lenders are reporting to the credit reporting agencies. To do this you'll need to order their credit reports from all three of the major credit reporting agencies. Although there are numerous websites to order reports and scores from, they don't need to spend a dime.

Thanks to the Fair Credit Reporting Act, everyone in the U.S. is entitled to one free copy of their credit reports once a year from each of the credit reporting agencies. To claim their reports they can go to www.annualcreditreport.com or call 1-877-322-8228. If they'd rather do it the old fashioned way, they can even mail in this request form - https://www.annualcreditreport.com/cra/requestformfinal.pdf - and they'll mail their reports to them.

After you've obtained their credit reports, you'll need to assess the information and determine the following, primarily:

• Are there any negative/derogatory items in the report; and
• How much debt do they have?

Let's focus on the first question. It's safe to assume that if they have negative information in their credit reports, it's hurting (not helping) their credit rating. It's also safe to assume that if they have a lot of this information; it's likely causing their situation to be even worse.

To interpret the derogatory information in their credit reports, you can follow these general rules:

• Any information in the public records section of their credit report is considered a major delinquency, no exceptions.
• Any information that is equal to or worse than a 90-day late payment is also considered a major delinquency. This includes foreclosures, collections, short sales, collections, repossessions, settlements and severe late payments (90+ past due or more).
• If any of the above information is less than 12-24 months old then it's going to have even more of a negative impact on their credit rating.
• If you see numerous of the above items, they're being penalized for the volume as well.

Now that you have a good idea of what negative information is affecting their credit rating, the next step is to determine if their debt is exacerbating the problem. Surprisingly, most people overlook this category in this evaluation process and focus only on the negative information (or lack thereof).

What they don't realize is that the level of debt is almost as important as paying bills on time. If their debt is excessive, it can hinder their scores and drastically slow their recovery to improvement. Here are some general rules that can help you interpret if the amount of debt they're carrying is hurting them:

• Add up the total number of accounts that have a balance. The more they have, the lower their scores could be.
• Add up the total number of credit card accounts with a balance. Again, the more they have, the lower their scores could be.
• Determine the utilization percentage of the credit card accounts that are currently open and on their credit reports. Divide the credit card balances by their individual credit limits. The higher these percentages, the lower their scores will be.
• Now add together all of their credit card balances, and the associated credit limits for each of those cards. Only use open cards for this step. Now divide the total balance by the total limit. The higher this percentage, the lower their scores will be.

Now I know you're saying to yourself, "that's just great, but now what?"

You basically have two choices:

• Refer your clients to a professional credit repair expert
• Do it yourself

If there is even the slightest chance of raising their credit scores enough to close your sale, a good credit repair company should be able to do it within 30 to 60 days. In some cases much faster.

But if you decide to do it yourself, now it's time to put a plan in place to raise their scores.

If you follow the advice that I give you, their scores will have no choice but to improve. Remember, their poor credit scores are only indicative of the information being reported in their credit reports. If you can remove inaccurate items, how they manage their credit and change their credit patterns, you can positively impact their scores by changing what's being reported in their credit reports.

Here are the steps to follow:

• If there are inaccurate items on their credit report, your clients will have to dispute them. Have your clients contact the Three Major Credit Bureaus and dispute the accuracy of said items in order to force the credit bureaus and creditors to either admit or deny their accuracy.
• If their credit is beyond bad, it's going to take an epiphany on their part. You have to understand and accept that how they've managed their credit up to this point is exactly the opposite of how they should be managing it. You can't fake your way through this. It will require a significant change in their lifestyle and habits. If they're willing to take on these changes then read on...
• The only way to improve their credit standing is to address the things that they are doing wrong. There is no blanket advice that anyone can give you that will work 100% of the time. Their recovery actions will be different than those of another person in the exact same situation.
• Their recovery plan will involve an initial purging of their current credit accounts. It's highly likely that they are using creditors who are more concerned about whether or not their next payment will ever arrive and less worried about helping them recover. The goal at the end of the day is for your clients to be able to pick and choose the lenders they like and have them fall over themselves trying to get their business.
• Unlike advice given by other so-called "experts", their recovery journey should be taken head on - not by avoiding the issue. In fact, if your clients are discouraged and are planning on exiting the credit environment for more than 12-18 months, you might as well stop here. The only way to improve their standing is for them to jump right back into the credit environment. Half your battle will be to convince not only their lenders and insurance companies but also the credit scoring models that they are a new person. You can't do this if your clients try to live a credit-free life.
• Re-establish credit using any means necessary. They're not going to get the best rates for years to come, but that's okay. They should have known this was coming. They should already be used to paying very high interest rates, so this shouldn't be too hard for them to swallow. Keep in mind that it's only temporary. You have to build up their credit report with properly managed credit card and loan accounts, and this is going to be costly.
• Once they're re-established, it's time to convert. This will be the most rewarding phase of their credit journey. It's when you'll be able to look their current lenders in the eyes and tell them to take a hike because they've just been replaced with better lenders. Better, in this case, means unsecured credit cards with low interest rates and high credit limits and maybe even benefits like airline miles or cash back. It also means competitive rates and terms on car loans, mortgages, and insurance.

This recovery process should take less than 5 years. In fact, if they do it right, your clients should start enjoying credit products reserved for the elite even while they still have some nasty delinquencies on their credit reports. They don't have to be gone...but they do have to be a clear reflection of their PAST credit management skills.

Of course, if you and your clients don't have 5 years, you might want to refer them to a professional credit repair expert.

By: Edward Jamison, Esq

http://boostyourcredit.wordpress.com/

Understanding Your Credit Score

Posted by Credit_Boost on November 6, 2008

You've just applied for a mortgage or auto loan and your lender comes back with a three-digit number that summarizes your credit worthiness and you have no clue what that number really means. What is the difference between a 540, a 670 and a 780? If you're not familiar with credit scores then these seemingly random numbers can make it difficult to determine where you stand. And in today's difficult economic environment, you need every point you can get. In this article we're going to find out exactly what these numbers mean to lenders - and to you.

*Range above based on the FICO credit score, which is used by most lenders.

Outstanding: 800+
If your credit score is over 800 then you're pretty much the best of the best as far as the lending and insurance worlds are concerned. With scores this high, you represent an outstanding credit risk, almost non-existent, and you'll qualify for the best deals. Consumers that score in the 800+ range typically have a long credit history with multiple credit accounts that have been paid on time for years. There are no derogatory records such as collections, bankruptcies or charge-off accounts and very little credit card debt. These people are almost immune to the credit crisis.

Very Good: 750 - 799
If your credit score is between the 750 - 799 range, lenders will view you as a very low credit risk and you'll qualify for some of the lowest lending rates available. You manage your credit responsibly by paying your bills on time and keeping your credit balances very low in relation to the credit limits.

Good: 700 - 749
Credit scores in the 700 - 749 range are categorized as a low credit risk. There may be a history of late payments in the past but all of your accounts are currently paid on time and have been for the last several years. You also manage your credit card debt reasonably well and are not close to maxing out on your credit cards. Scores in this range won't always qualify for the best deals but they will definitely qualify you for very competitive rates and terms.

Not Bad: 650 - 699
Now we're starting to get into the riskier credit score ranges. If your credit score is in the 650 - 699 range, lenders and insurers will view you as a moderate credit risk. You probably have older derogatory items on your credit report that aren't hurting your score as much as they used to. A score in this range could also be the result of high credit card balances or too many applications for new credit in the last few months. With scores in this range you should still be able to obtain credit and insurance, but your rates will be considerably higher and the terms would be much less attractive than they would be if you were in the 700+ categories.

Poor: 600 - 649
If your credit score is in the 600 - 649 range, then lenders and insurance companies will view you as a high credit risk. Scores in this range are typically considered "subprime" by most lenders. Your credit score could be lower than average because of derogatory items on your credit report, such as late payments, collections or even bankruptcy and/or you may have high amounts of credit card debt. Scores in this range are less likely to get approved for standard credit products and usually pay very high interest rates and even less appealing terms. It's also important to note that scores in this range have a high possibility of being denied for credit or insurance.

Very Bad: Below 600
Consumers with scores below 600 are considered very poor credit risks and will have a very hard time finding a lender willing to take the risk to approve your applications. If you are approved, you'll be charged extremely high interest rates and/or insurance premiums. Credit scores below 600 are usually caused by chronic late payments, collection accounts, or public records appearing on your credit reports. Combining excessive applications for new credit with large amounts of credit card debt can also lower your scores to this level. It will be difficult for you to obtain new credit without the help of a co-signer, a large down payment or collateral.

No Credit Score
There is one other category that we haven't talked about and that is the ‘no credit' category. In order for lenders and insurers to accurately predict your risk they need to evaluate your credit score. If you don't have a credit score, they can't predict your risk and will typically bet on the safe side and decline your application or price it very poorly. There are a few reasons why you may not have a score:

You don't have any credit accounts in your credit files. In this case, having no credit score is better than having very bad credit for the simple fact that there are some lenders that will take the risk and give you a shot at establishing credit with them for the first time. These lenders are typically retail store accounts with smaller credit limits and higher interest rates. Another option could be a secured credit card. With either option, you can establish your credit by opening an account and managing it responsibly. This means making your payments on time and keeping the balances as low as possible. After 3 - 6 months of use, your credit report will be able to be scored.
You have credit accounts in your credit reports but you have not been using the credit cards or loan accounts regularly enough for there to be recent information or activity in your credit reports. In order for there to be a credit score, at least one of your accounts need to have been updated within the last 3 - 6 months to show activity. If you haven't used any of the accounts in the last year or so, it might be a good idea to charge something small and pay it off just to show some type of activity on the account in your credit reports.
You have a deceased indicator on your credit reports. If you have a joint account with someone who passed away, it is possible that the lender will report the account as belonging to a deceased person. And if you're a joint holder on the account, that notation can show up in your credit files too. If it does, you won't be able to be scored until the deceased indicator is removed from your credit reports.

by Edward Jamison, Esq.

http://boostyourcredit.wordpress.com/