How Many Points Will An Inquiry Lower My Credit Scores?

buckets.jpg

The fact that inquiries have the potential to lower consumer credit scores is not breaking news. Credit savvy consumers know that letting too many lenders pull their credit reports in a short period of time is a bad idea (with the exception of rate shopping for a mortgage, auto loan, or student loan within a 45 day period). However, the idea that inquiries lower your credit scores a particular number of points is a complete myth.

There is nothing on your credit report which raises or lowers your scores a fixed number of points. For example, an inquiry does not always lower your score 4 points (or 3, 5, or 6 points for that matter). An on-time payment does not raise your credit score 5 points. A late payment does not lower your scores 30 points. That is simply not the way credit scoring works.

How Inquiries Actually Impact Your Credit Scores

Remember, not all inquiries will have a negative impact upon your credit scores. Soft inquiries, such as those which occur whenever you check your own credit, will never harm your credit scores. Additionally, not every hard inquiry will automatically cause a credit score decrease either.

As mentioned above, your credit scores will not be docked a specific number of points per hard inquiry which occurs. Instead, credit scoring models will look at the total number of eligible hard inquiries listed on your credit report during the past 12 months to determine the credit score impact which those inquiries may have.

Imagine a set of 5 buckets lined up side by side. Each bucket bears a sign which represents the number of hard inquiries which appear on a consumer's credit report over a period of the past 12 months.

  • Bucket #1 = 0 Inquiries

  • Bucket #2 = 1-2 Inquiries

  • Bucket #3 = 3-4 Inquiries

  • Bucket #4 = 5-6 Inquiries

  • Bucket #5 = More than 6 Inquiries
    *NOTE: These are hypothetical categories for demonstration purposes only.

Since inquiries largely account for 10% of your FICO credit scores and the range of FICO scores is 300 - 850 (550 total available points) then there could be the potential for a consumer to earn up to 55 points for her credit scores in the inquiry category. Here's a hypothetical look at how credit score points might be awarded within the inquiry category of a consumer's credit report.

  • Bucket #1 = 0 Inquiries = 55 points

  • Bucket #2 = 1-2 Inquiries = 45 points

  • Bucket #3 = 3-4 Inquiries = 15 points

  • Bucket #4 = 5-6 Inquiries = 5 points

  • Bucket #5 = More than 6 Inquiries = 0 points
    *NOTE: These are hypothetical categories for demonstration purposes only.

While the points listed above are not an exact representation of how many points a consumer's credit score would receive based upon her number of inquiries, the concept is an accurate representation of how credit scores are calculated within the inquiry category. In the example above if Jane Doe had a credit report with 3 inquiries then she would receive 15 points (of the 55 available points within the category) to be added to her overall credit score. However, if Jane Doe stopped allowing any new credit inquiries, when those 3 inquiries became over 12 months old then she would move to the "0 inquiry" bucket and would receive 55 points instead of the mere 15 points she had received previously. In the case of this example Jane's credit score would increase by a whopping 40 points once the 3 previous inquiries aged out of credit score calculation range and she moved to the "0 inquiry" bucket.

When it comes to inquiries, just remember that the fewer hard inquiries the better for your credit scores. (Soft inquiries which typically occur when you check your own credit are fine. They never lower your scores.) Now that you understand that individual credit inquiries are not worth a particular number of points, congratulations! You understand more about your credit scores than probably 99% of the population.


michelle-black-credit-content-expert-writer

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter here.

Michelle Black

Michelle Black is a leading credit expert with over a decade of experience. She has written numerous publications regarding credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Facebook here.

5 Steps To Prepare Your Credit for a Mortgage

So you are ready to take the plunge and apply for a new mortgage loan? Great! Congratulations on making the decision to become a homeowner. With low interest rates, tax advantages, and a host of other benefits that come along with purchasing a home, you have about a million reasons to break free from the shackles of renting.

You can set yourself up for success during the home buying experience by knowing what to expect ahead of time. Most importantly, you should be sure that your credit is in tip top shape so that you can qualify for the most attractive rates and terms available on your new loan. Check out these 5 steps to help you get started.

1. Check Your Credit
There’s nothing worse than filing out a mortgage application only to find some unwanted “surprises” have shown up on your credit reports. Unfortunately, this is a very common problem. However it doesn’t have to be since you can access your own credit scores and reports online 24/7. Plus, contrary to a popular credit myth, checking your own credit does NOT harm your credit scores in any way whatsoever.

You are entitled to a free copy of each of your 3 credit reports once every 12 months from AnnualCreditReport.com. However, if you want your scores from this website then you will have to pay for them from each credit bureaus individually.

An easier solution to accessing your credit scores is also available through a 3-score, 3-bureau credit monitoring service, but you should know that there are generally fees involved for these services as well. (Note: many credit monitoring services only give you data from 1 of the 3 credit bureaus so you want to be careful when choosing the right credit monitoring service to access your credit scores and reports.)

CLICK HERE for a list of great resources where you can access your 3-bureau credit reports and scores. Finding out what is on your credit prior to your loan application should definitely be the first item on your “to do” list during the home buying process.

2. Dealing with Surprises

If your credit reports were all three squeaky clean when you checked them in step 1, then skip down to step 3. However, if you found errors or blemishes on your credit reports, you may have some work to do before applying for a mortgage. 

Thanks to the Fair Credit Reporting Act (FCRA) you have the right to dispute inaccurate and unverifiable accounts with the credit bureaus. You can dispute accounts on your own or you can hire someone to help you with the process. Either way, credit reporting errors should not be ignore as they can be quite hazardous to the health of your credit scores.

3. Optimize Your Credit Scores

Even if you have no errors or derogatory items on your credit reports (e.g. collection accounts, charge-offs, foreclosures, etc.), it may still be possible to improve your credit scores. You can start by taking a long, hard look at your credit card balances.

Paying your credit cards down to $0 can potentially have a very BIG impact upon your credit scores. Can’t afford to pay off all of your credit cards? You still have options. Paying down some of your cards to zero can still be beneficial to your credit scores. Plus, you can always consider using a personal loan to transform that score-lowering credit card debt into much more credit score friendly debt – an installment loan.

4. Avoid Mistakes!

When preparing to apply for a mortgage, you need to be a credit boy or girl scout. You don’t want to make any credit mistakes which could result in lower credit scores and a loan denial.

Some of the most common mistakes you should avoid include making late payments on existing accounts, charging up your credit card balances, opening new accounts (that new car loan needs to wait!), and having your credit report pulled excessively by too many lenders (unless those inquiries occur within a short window of time for rate shopping purposes).

5. Monitor Your Credit

There is no better time to keep a close eye on your credit than while you are preparing to apply for a mortgage. However, with so many credit monitoring options available, it can be difficult to choose.

Keep in mind that a credit monitoring service which allows you to keep an eye on just one credit bureau and one credit score may not be sufficient. After all, when you apply for your mortgage the lender is going to take a look at all three of your credit reports and scores – Equifax, Trans Union, and Experian.

Buying a new home is an incredible and exciting experience. However, credit problems during the mortgage application process can often turn what could be a wonderful experience into a nightmare. Follow these five steps above and set yourself up for mortgage success. It can be tempting to take shortcuts, but putting in the work on your credit ahead of time will pay off every time.


michelle-l-black-credit-expert-freelance-writer

Michelle Black, Founder of CreditWriter.com and HerCreditMatters.com, is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert on credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

How to Say No-No-No to Holiday Overspending

There are many holiday traditions which are beautiful, meaningful, and worth repeating every year. The tradition of holiday overspending has become all too common among American consumers. It’s a tradition worth breaking. . .but that can be easier said than done.

The temptation to overspend during the holidays is understandable. You’ve probably heard (or told yourself) every excuse in the book given to try to justify this bad habit.

"I want to do something really special for my loved one this year because he/she has been going through a difficult time.”

“I'm not worried about charging gifts on my credit cards because I will pay the balances off in a few months with my tax refund.”

“Money is tight during the rest of year. My family and I deserve to have a little fun during the holidays."

It is much easier for consumers to talk themselves into overspending during the holidays than at any other time of the year. Social pressure, pressure to please loved ones (whether the pressure is real or perceived), and incessant retail marketing can all make it difficult to stick to a spending budget which you can actually afford.

Yet you don’t have to fall into the debt trap in order to have a happy and meaningful holiday season with the people you love.

The Plan

The single most effective way to swear off holiday overspending once and for all—and to actually achieve this goal—is to start with a plan. You probably already understand that having a written budget to follow for your monthly expenses is essential to financial and credit success. With all of the extra expenses present during the holiday season, it is also important to have a separate, written budget specifically for your holiday spending as well.

How It Works

When starting your holiday budget, begin by listing the amount of money which is actually available for spending, not the expenses. Starting with the amount of money you can afford to spend (without going into debt or dipping into non-holiday savings) will help you to build the most effective holiday budget possible.

Let's say that you determine your total available spending limit for the holidays should be $1,000 or less. The next step should be to divide those funds into spending categories such as charitable giving, Christmas presents, holiday treats and meals, decorations, and unplanned expenses. The funds can be allocated within the spending categories however you see fit. Here is one possible example:

  • Charitable Giving - $100 (10% of available funds)

  • Christmas Presents - $550 (55% of available funds)

  • Holiday Treats and Meals - $200 (20% of available funds)

  • Decorations - $50 (5% of available funds)

  • Unplanned Expenses - $100 (10% of available funds)

Once you have separated your available funds into separate spending categories, you can move on to determine how much you will spend for each person on your Christmas gift list.

One of my favorite strategies for budgeting your Christmas gift list is to write down each person for whom you wish to buy a gift. Next you can determine which percentage of funds you wish to spend on each person and calculate those percentages against your preset budget to find out your gift "allowance" for everyone on the list. Here is an example.

  • Spouse - 20% ($110 in the example budget)

  • Child #1 - 15% ($82.50 in the example budget)

  • Child #2 - 15% ($82.50 in the example budget)

  • Grandchild #1 - 10% ($55 in the example budget)

  • Grandchild #2 - 10% ($55 in the example budget)

  • 4 Close Family Members/Friends - 5% each ($27.50 each—$110 total— in the example budget)

  • 10 Misc. Friends, Teachers, etc. - 1% each ($5.50 each—$55 total—in the example budget)

CLICK HERE for some great tips on how to stretch your Christmas budget to the max.

Make the commitment to set a budget and stick to it and you will make the holiday immensely more enjoyable for yourself and your family this year. As a bonus you can give yourself and your family the gift of starting the New Year off on the right foot financially, without a Christmas overspending hangover.


Michelle-Black-2018.JPG

Michelle Black, Founder of CreditWriter.com and HerCreditMatters.com, is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert on credit reporting, credit scoring, identity theft, financing, budgeting, and debt eradication. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).


Michelle Black

Michelle Black is a leading credit expert with over a decade of experience. She has written numerous publications regarding credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Facebook here.

Will Asking for a Credit Limit Increase Help Your Credit Scores?

When it comes to improving your credit, a lot of different strategies can help you to reach your goal. Paying your bills on time, every time is the first place you should start. Checking your three credit reports for accuracy is also important. You may be able to pay down credit card debt to bring about a positive credit score increase as well.

There are also some lesser known credit improvement strategies which might surprise you.  For example, did you know that asking your credit card issuer for a credit limit increase could have the potential to give your scores a boost?

Does a Credit Limit Increase Raise Your Credit Scores?

Sometimes, yes, a simple limit increase on your credit card account can be good for your credit scores. It's true, even if it sounds to go to be so. The catch, however, is that a credit score increase is not guaranteed.

The impact which a credit limit increase has is going to depend upon other information found on your credit reports. There are some instances where a credit limit increase will not have any impact upon your scores. Other times, asking for a credit limit increase could damage your scores (albeit only slightly, if at all).

Let's walk through a few different scenarios.  

1. Will a credit limit increase lower your revolving utilization ratio?

Credit scoring models like FICO and VantageScore are built so that they pay a lot of attention to the relationship between your reported credit card balances and your account limits. This relationship is known as your revolving utilization ratio.

Here is a quick example to show how revolving utilization is calculated:

  • Original Credit Limit: $5,000

  • Account Balance on Credit Report: $1,000

  • Revolving Utilization Ratio: $1,000 (Balance) ÷ $5,000 (Limit) = 0.20 X 100 = 20%

The lower your revolving utilization falls, the better for your credit scores. Naturally, paying off your credit card balances is probably the best way to achieve a lower revolving utilization ratio. However, if you cannot afford to pay down your credit card debt sufficiently, a credit limit increase might lower your revolving utilization some in the meantime.

Here's how it works:

  • Increased Credit Limit: $10,000

  • Account Balance on Credit Report (Same as Above): $1,000

  • Revolving Utilization Ratio: $1,000 (Balance) ÷ $10,000 (Limit) = 0.10 X 100 = 10%

As you can see in the example, the revolving utilization ratio was cut in half simply by increasing the credit limit on the account. This action would be likely to have a positive credit score impact.

2. Can a credit limit increase hurt your credit scores?

Generally a credit limit increase will not harm your credit scores. However, if your credit card issuer wants to check your credit report in order to review your request for a limit increase (a common requirement), a hard inquiry would be added to your credit file. If your request for a limit increase is denied (typically due to credit problems), you will have undergone a hard inquiry with no upside.

Hard inquiries have the potential to damage your credit scores. Of course, keep in mind that not every hard inquiry automatically has a damaging effect upon your scores and, even when they do, the impact is typically minor. If your request for a credit limit increase is approved and the result is a lower aggregate revolving utilization ratio, the overall result for your credit scores will still probably be positive, despite the new inquiry which will show up on one of your credit reports.

Managing Your New Credit Limit Increase

It is important to remember that while a well-managed credit card account can potentially be great for your credit scores, credit card debt is another story. Credit card debt can be both expensive and can damage your credit scores, even if you make all of your monthly payments on time.

If you request a limit increase as a strategy to help boost your scores, you will have to be extra vigilant and commit to not charge up additional credit card debt. Otherwise, or you will lose any potential for a credit score increase and you will probably throw away a lot of cold hard cash on wasteful interest fees at the same time.


Michelle Black, Founder of CreditWriter.com and HerCreditMatters.com, is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert on credit reporting, credit scoring, identity theft, financing, budgeting, and debt eradication. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).


Is It a Smart Idea to Consolidate Credit Card Debt?

Do you feel like your credit card debt is suffocating you? Are high interest fees taking a huge bite out of your hard-earned money every month? Are you tired of your credit scores being hurt by high credit card utilization rates? If so, the time for action is now.

Once you acknowledge that your credit card debt has gotten out of control, it is time to step back, assess the damage, and come up with a plan of action to fix the problem before it gets any worse.

Step One: Face the Facts

Now that you are ready to begin tackling your credit card debt problem, the first step is to figure out how much debt you actually have. Make a list of your credit card debt, from the card with the highest balance at the top of the list down to the card with the lowest balance at the bottom. Here is an example:

1. Capital One - $5,000
2. Chase - $3,500
3. Citibank - $2,800
4. Discover - $1,200

Step Two: Figure out How Much You Can Afford to Pay

You will still need to maintain at least the monthly minimum payment on each of your credit cards in order to do the bare minimum to protect your credit scores. However, paying the minimum payment isn’t nearly enough. If the minimum payment is all that you pay, you can count on being stuck underneath a pile of credit card debt for a long time – potentially decades!

A good place to start your debt-slashing strategy is to give your budget a good ol’ honest check up. The goal of this checkup is to find out where you may be overspending each month.

Once you have updated your monthly budget (and hopefully decided to weed out some unnecessary spending), you will be able to determine how much “extra” income you can afford to pay toward your credit card debt each month.

Oh yeah, don't forget to shelve your credit card usage so that your balances don't continue to climb during this time. Just don't close the accounts, whatever you do. That can be a big no-no for your credit scores.

Step Three: The Snowball

One option for paying off your credit card debt is the “snowball effect.” Here is how it works.

Begin by paying the minimum payment on all of the credit cards on your list, with the exception of the card with the lowest balance (#4 – Discover in the example above). For the card with the lowest balance you will want to use all of your additional funds and pay the largest payment possible.

Your goal should be to completely pay off the card with the lowest balance first. Next, move up the list to the next card with the lowest remaining balance. Rinse and repeat until every account on your list has been paid in full.

Step Four: Determine If a Consolidation Loan Is Right for You

If you find yourself in a situation where it is going to take a while to pay off your credit card debt, even using the snowball method, it may be time to consider a debt consolidation loan. Here are two great reasons why you might want to use a debt consolidation loan to help tackle credit card debt.

1. First, when you consolidate your revolving credit card accounts into an installment loan, your credit scores will likely increase.
The reason a score increase is likely is because credit scoring models, like FICO and VantageScore, do not treat installment debt the same way they treat revolving debt. A credit card with an outstanding balance has a great potential to harm your credit scores. An installment loan (like a personal loan or a vehicle loan) does not have the same negative effect.

2. The second benefit that comes along with a consolidation loan is that it has the potential to save you money.
Credit card debt is among the most expensive debt most people will ever pay. Interest rates are notoriously high compared with other loans, especially for subprime credit cards. Most debt consolidation loans have a much lower interest rate than your credit card accounts.

Step Five: Do’s and Don’t of Using Consolidation Loans

If you’ve decided that a consolidation loan is right for you, it’s also a good idea to follow these rules of thumb once you’ve decided to pull the trigger and apply for a loan of your own.

1. Don’t charge your credit cards back up once they have been paid off.

You have to determine ahead of time that you will not even allow it to be an option for you to charge up new balances on your credit cards again. This has to be non-negotiable. In fact, it would probably be a good idea for you to lock your credit cards up in a safe place and only use them about once a quarter (in order to maintain some activity on the accounts) until you have thoroughly broken the overspending habit.

2. You should still try to pay off your consolidation loan early.
Just because you consolidate your credit card payments into an installment account does not mean that you should not try to pay the loan off early. Paying extra money onto the principle balance of your consolidation loan each month is still a wise financial strategy to follow.


michelle-black-credit-expert

Michelle Black, Founder of CreditWriter.com and HerCreditMatters.com, is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert on credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

5 Ways You Could Accidentally Mess Up Your Mortgage Approval

Home buying can be both an exciting and simultaneously stressful process. Receiving a pre-approval letter from your mortgage loan officer can often be a huge relief. After all, a pre-approval is an important step toward purchasing the home you have been dreaming about. Yet it is important to understand that your pre-approval is not a golden ticket.

Once you are pre-approved for a mortgage, the next step is generally verification (aka underwriting). In this stage of the mortgage approval process you may be required to supply a number of documents to your lender in order to verify your income, employment history, and other information relevant to your loan. Assuming that you are able to pass successfully through the verification process your loan status should move from "pre-approved" to "approved." 

Yet just because a lender has issued you a pre-approval or even an approval does not mean you are guaranteed financing. There are still a number of ways to mess up your loan before your closing date rolls around. Keep reading for a list of 5 ways to mess up your mortgage approval. Hopefully you will be able to learn from the mistakes of others so that you never have to find yourself in the same unfortunate situation.

1. Apply for or Open New Accounts

Even though your credit was checked as part of the pre-approval process, your lender will likely check your three credit reports and scores again prior to closing. Lenders do this in order to be sure you have not experienced a change in "borrower circumstances." If credit or financial changes occur between pre-approval and closing (such as a drop in your credit scores), you could lose your loan.

Applying for or especially opening new accounts is one potential way to kill your mortgage before you ever make it to the closing table. Having your credit pulled by other lenders during this time has the potential to impact your credit scores negatively. Opening new accounts has the same credit damaging potential. Furthermore, when you open a new credit obligation while your mortgage loan is in underwriting, especially a large obligation like an auto loan, you could raise your debt-to-income (DTI) ratio as well. An increase in DTI could financially disqualify you from closing on your loan, even if your credit scores are not an issue.

 

2. Run Up Your Credit Card Balances

Another potential way to mess up your mortgage closing is to run up your credit card balances. As is the case with opening new accounts, when you run up higher balances on your credit cards you have the potential to both raise your DTI and to lower your credit scores simultaneously. You may not realize it, but your credit card balances have a big influence over your credit scores. As the credit card balances on your reports climb, your credit scores will generally begin to fall - sometimes significantly. In fact, the credit card balances on your reports can have a negative impact upon your credit scores even if you keep your accounts paid on time each and every month.

3. Close a Credit Card Account

When you close a current, positive credit card account that action has the potential to drive your credit scores downward as well. Closing a credit card does not cause you to lose credit for the age of the account (that is a myth), but a freshly closed account could potentially increase the revolving utilization ratios on your credit reports. When your revolving utilization ratio (the connection between your credit card limits and balances) increases, your credit scores are often impacted negatively. If your credit scores fall because of a credit card closure, there is a chance you may no longer qualify for the mortgage you had been approved for previously.

4. Pay Off a Collection

You would think that paying off old collection accounts is always a positive move when it comes to your credit scores. However, due to a deficiency in some of the older FICO credit scoring models which are still used by mortgage lenders, paying off an old collection can sometimes be interpreted as new derogatory activity. As a result, there are instances when paying off an old collection account could actually have a negative impact upon your FICO credit scores. Even if that impact is only temporary, those newly lowered credit scores could be enough to cheat you out of your home loan.

Of course you should not assume that paying legitimate old collections is necessarily a bad idea. However, if you were already approved for a mortgage with those old collections present on your credit reports then you might want to consider waiting until after your home closing before paying or settling any old accounts. (Tip: When the timing is right, it is generally best to settle collection accounts in a single, lump sum payment in order to protect yourself from being sued and to potentially save more money as well.)

5. Make Late Payments

Making late payments on any of your credit obligations while your mortgage is in the underwriting process is a huge mistake, a mistake which could easily put the brakes on your home loan. Over 15 years ago while working in the mortgage industry, I had a client who was moving from out of state to purchase a new home. During the busyness of the move he forgot to make a tiny, $15 credit card minimum payment. That late payment caused his credit scores to drop over 50 points per credit bureau on average and disqualified him from his home loan.

Thankfully, this story has a happy ending. We were able to assist the client in calling his credit card issuer to request a "goodwill removal" of the late payment. Because he had never made any previous late payments on the account his credit card issuer agreed to remove the new 30 day late from his reports as a one-time courtesy.

Once the late was removed and his credit scores rebounded the client's loan officer was able to reschedule his closing date (albeit at a slightly higher rate due to market fluctuations). Yet many people are not so fortunate when it comes to the goodwill removal of a late payment. This credit mistake has caused many people to lose their home loan altogether.

The Takeaway

Just because your three credit reports and scores were checked by your lender prior to receiving your initial pre-approval does not guarantee you the money in hand to purchase your home. Yet if you can avoid the five mistakes above you should have little to worry about, at least from a credit perspective.


credit-expert-michelle-black

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter here.

Building a Credit Score from Scratch

Perform a quick Google search and you will discover that there is no shortage of articles and ideas online clamoring to offer you tips and pointers about how to best manage your credit. You can find videos, podcasts, and even television shows from many self-proclaimed "gurus" who are quick to share their credit secrets with you. Add in the well meaning credit advice you may have received from your family, friends, and acquaintances and before long your head will be spinning with dozens of contradictory credit improvement strategies.

Unfortunately, the truth is that many self-proclaimed "professionals" and even your loved ones can give really bad advice when it comes to your credit. Most credit advice is likely given with a very well-meaning spirit; however, bad credit advice can hurt you even if the damage is unintentional. It is important to be careful whose advice you follow when it comes to your credit, especially when you are building credit for the very first time. Here are 4 tips to help you build great credit from scratch.

Tip #1: Do Not Assume Anything

If you are preparing to build credit for the first time you may genuinely believe that your credit reports are completely blank. However, assuming that this is the case without verification is a mistake. You should begin by checking all 3 of your credit reports from Equifax, TransUnion, and Experian.

You are entitled to a free copy of these reports every 12 months from AnnualCreditReport.com. You can also access your 3 credit reports and 3 scores (if they exist) via a variety of credit monitoring services, such as those featured on GreatCredit101.com. You should develop the habit now of checking your credit reports often. Although the Fair Credit Reporting Act does give you the right to expect accurate information to appear on your credit reports, it is up to you to monitor your those reports in order to ensure that they remain error-free.

Credit Expert Advice: If you discover errors on your credit reports then you have the right to dispute those errors on your own or you can hire a reputable credit expert to assist you.

Tip #2: Establish Revolving Accounts

After you have checked your credit reports, if they are indeed completely blank, then you might consider opening a few credit card accounts - aka revolving accounts. Secured credit cards can potentially be a good place to start when you have zero established credit. These types of credit cards typically offer less strict qualification standards when compared with the requirements for unsecured credit card accounts. In other words, qualifying for a secured credit card is generally an easier process even if you have no credit history or damaged credit history in the past.

Credit Expert Advice: Just remember, if you open a credit card account it is absolutely essential that you keep all of your payments on time every single month. It is also a good idea to never revolve a credit card balance from month to month either. If you manage your new account well it has a great potential to help you build positive credit and stronger credit scores.

Tip #3: Establish an Installment Account

Credit scoring models such as FICO and VantageScore like to see that you know how to manage a variety of account types. Consumers with a good mix of accounts showing up in their credit histories will potentially be rewarded with higher credit scores. However, a problem which consumers with no established credit often face is the fact that it can be difficult to qualify for certain types of loans with little to no credit. Your solution? Enter the credit builder loan.

Many local credit unions and some online lenders will offer credit builder loans as a means for their customers to rebuild or build credit for the first time. Credit builder loans are generally issued for a low dollar amount ($500 - $1,000) and the funds are held in a savings account while you make the monthly payments to satisfy the loan. Once the loan has been paid in full the funds are released to you, plus any interest earned. If you managed your account properly then you should have around 6-12 months of on-time payment history showing up on your credit reports.

Credit Expert Advice: If you are thinking about applying for a credit builder loan product, be sure to ask the credit union or lender if they will report the account to all 3 credit bureaus. On-time payments are also essential, otherwise your new credit builder loan could hurt your credit instead of helping it.

Tip #4: Ask a Loved One for a Favor

Asking a loved one or a family member to add you as an authorized user to an existing credit card account is another potential strategy which may help you to build credit from nothing. Though it is true that authorized user accounts will not show up on your credit reports 100% of the time, in most cases when you are added as an authorized user to a credit card the account will show up on your 3 credit reports within a few months. Plus, if you are a parent then authorized user accounts represent a great way for you to help your children establish credit without dipping your toes into the very dangerous waters of co-signing.  

Credit Expert Advice: Before being added to any account as an authorized user you should be sure that the account has a flawless payment history and a low or $0 balance. Otherwise, being added as an authorized user could backfire and hurt your credit instead of having a positive impact.


michelle-black-credit-expert

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter here.

Equifax Data Breach: How to Find Out If You're Affected and What to Do About It If You Are

Last month the credit reporting giant Equifax announced some very unsettling news. The credit reporting agency experienced a massive data breach which unfortunately compromised the personal identifying information of approximately 143 million people.

Why This Breach Is a Big Deal

Data breaches have occurred with alarming regularity over the past several years. Insurance providers, hospitals, retail chains, online gaming services, and many other businesses have experienced cyber theft which compromised the personal information of millions. In fact, it almost feels as if you cannot turn on the news without hearing about a new breach of security.

The regularity of these data breaches can unfortunately be desensitizing. It can cause you to drop your guard. That, however, could be a dangerous mistake especially if your information has indeed been compromised in the Equifax breach.  

Equifax's breach does not simply involve credit card information which can be easily changed to prevent fraud. Instead, the breach could expose personal information you are not going to be able to change: names, social security numbers, dates of birth, etc. The hacked information could be sat on for years, allowing you to forget about the danger, before any actual fraud or identity theft is even attempted. If you were among the 143 million consumers compromised, your exposure to identity theft is now a long term risk.

Action May Be Needed. Panic Is Unnecessary. 

Now that you have digested the bad news, let's talk about what you can do to protect yourself. Panic is not going to solve anything, but a solid plan can go a long way.

1. Find Out If You Are a Victim

Equifax maintains credit files on over 200 million consumers. That means that approximately 29% of you were fortunate enough not to have your personal information compromised. You can find out if you were exposed to the data breach here:

https://www.equifaxsecurity2017.com.

(NOTE: Equifax initially came under fire on social media and from several lawmakers, including New York Attorney General Eric Schneiderman (D), for including fine print in the terms of service on the above webpage which reportedly may have attempted to dupe consumers into waiving their rights to enter a class action lawsuit or to sue Equifax over the breach. Equifax has since changed their terms of service to remove the offending clause.)

2. One-Call Fraud Alerts

If you visit the website above and discover that your "personal information may have been impacted by this incident" then placing a fraud alert on your credit reports may be a good next step. You can easily place a 90 day fraud alert on all 3 of your credit reports by requesting an alert with Equifax, TransUnion, or Experian. Per the Fair Credit Reporting Act (FCRA), once any of the credit bureaus receives a request for a fraud alert they must communicate that request to the other 2 remaining bureaus on your behalf.

The FCRA also gives you the right to place an extended, 7 year fraud alert on your reports as well. However, you will first need to prove that you have actually been a victim of identity theft (aka someone has opened or tried to open a fraudulent account in your name). Both types of alerts are free under the FCRA.

3. Credit Monitoring

Equifax is offering free credit monitoring (TrustedID) for 1 year to anyone who wants to take advantage of the offer. It is not a bad idea to take advantage of this offer, but it is probably not going to be enough. You need to keep in mind that this is a single-bureau credit monitoring service (Equifax only) and it will do nothing to help you monitor your credit reports with Experian or TransUnion (where you could also experience identity theft as a result of the breach). If you want to truly keep an eye for fraud on your credit reports then you will need to monitor all 3 credit bureaus and you will probably have to pay a fee to do so.

It has always been important to routinely check, monitor, and review your credit reports for fraud and errors. If your information has been exposed in the Equifax data breach, that importance has simply become magnified for you more than ever before.

4. Credit Freeze

Fraud alerts can potentially help to prevent identity theft and credit monitoring can help you to quickly discover fraud when it occurs. However, if you want a tool which can help to prevent fraudulent accounts from being opened in the first place then a credit freeze is the biggest gun in your arsenal with which to defend yourself.

When you place a credit freeze your credit report is taken out of circulation. This means that no future lender will be able to access your reports. If a scammer tries to use your information to open a fraudulent account then the freeze will stop a lender from pulling your credit and any future loan applications will most likely be denied as a result. Almost no lender is going to approve a new application if they cannot pull your credit.

It is worth pointing out that it is not free to place a credit freeze unless you have actually already been a victim of fraud. However, credit freezes are relatively inexpensive (under $10 per credit bureau at the time of publication). Unlike fraud alerts, you must place an individual freeze at Equifax, TransUnion, and Experian.

Additionally, the credit bureaus also offer a service known as a "credit lock." Equifax has even announced that it will be giving away credit locks for free to victims of the breach. While credit locks are advertised by the credit bureaus as more convenient than freezes,  it is unclear whether or not they offer the same protections. Credit freezes are generally covered by state law, potentially giving you more protection in the event that there is a problem.

5. Keep It In Perspective

The truth is that identity theft is a growing crime. Over $16 billion dollars was stolen by fraudsters and approximately 15.4 US consumers were affected by identity theft in 2016 alone. Even before this Equifax data breach, your personal information may have already been vulnerable to thieves in one way or another.

It has always been and will continue to be your personal responsibility to check your credit reports regularly in order to verify that they contain only accurate information about accounts you really applied for and opened yourself. (Remember, you can check your 3 credit reports once every 12 months for free at AnnualCreditReport.com.) If you ever discover fraudulent accounts on your credit reports the Fair Credit Reporting Act (FCRA) gives you a long list of rights with a lot of teeth to help you recover from the identity theft.


credit-expert-michelle-black

About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter here.


Michelle Black

Michelle Black is a leading credit expert with over a decade of experience. She has written numerous publications regarding credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Facebook here.

Who Is Allowed to Check Your Credit Reports?

question.jpeg

Accessing your credit information is easier now than it has been at any other point in history. Thanks to the Fair and Accurate Credit Transactions Act, an amendment to the Fair Credit Reporting Act (FCRA), you even have the right to view a free copy of all 3 of your credit reports every 12 months. To claim your free reports from Equifax, TransUnion, and Experian simply visit AnnualCreditReport.com. Depending upon your state of residence you may have access to additional free copies of your 3 credit reports each year as well.

Even after you have exhausted your free annual credit reports, there is no shortage of websites online which will grant you access to your credit reports and possibly your scores either for free or for a fee. This easy access to your credit information is certainly a good thing for consumers. However, the ease of access might also have you concerned about who else can put their hands on a copy of your credit reports.

The good news is that the credit reporting agencies (CRAs) are not simply allowed to release your credit information to anyone who asks for it. Instead, the FCRA lays out some very specific rules regarding to whom the CRAs may disclose your credit information. In order to access your credit report a company must have what is legally referred to as Permissible Purpose. Read below for a list of some of the most common reasons your credit reports may be accessed legally. 

Court Order

Per the FCRA if a judge orders the CRAs to disclose your credit reports, legally they are bound to hand them over.  

Request from You, the Consumer

You also have the right to access you own credit reports as often as you like. As already mentioned, you even have the right to a free copy of your 3 reports annually. Beyond that you can still request unlimited additional copies of your credit reports, though you might be charged for the privilege of doing so.

Credit Transactions

You probably already know that when you apply for a loan or credit card the bank or card issuer is going to check your credit as part of the application process. In general this is 100% legal under the FCRA.

Employment Screening

Current and prospective employers also have permissible purpose to pull your credit reports. However, your written permission is required first. There is also a common myth that employers may access your credit scores as well, but the truth is that employers may access your credit reports only.

Insurance Underwriting

Insurance companies often rely upon your credit information in order to determine the risk of doing business with you and, if they choose to take you on as a customer, how much to charge. According to the FCRA this is typically permitted.

Account Review

Under the FCRA your existing creditors are permitted to obtain your credit reports as well. Current creditors may pull your reports and scores to determine whether your risk level has changed and if they wish to continue doing business with you.

Child Support

Per the FCRA your credit reports can legally be used to determine how much you can afford to pay in child support.

Collection Purposes

Like it or not, collection agencies are often able to pull your credit reports according to the FCRA and, unfortunately for the consumer, they do not need your permission to do so. As long as the collection agency follows the rules, these reports may be used for skip tracing purposes (aka finding you) and for determining your capacity to pay your debts.

Prescreened Credit Card Offers

Have you ever received a "preapproved" offer in the mail? If so, the CRAs likely sold your information as part of a large mailing list to a credit card issuer. Your full credit report was not given to the card issuer, but due to a specific set of search criteria the card issuer probably has a very good idea of the information contained in your report. Although you did not specifically authorize the access or even apply for a loan, this disclosure of your credit information is still allowed under the FCRA. If you want to stop the CRAs from selling your credit information for prospecting purposes then you will have to visit OptOutPrescreen.com to officially make the request.


About the Author: Michelle Black is an author and leading credit expert with over a decade and a half of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter here.

michelle-black-credit-expert.jpg