Intro to series
What does your credit say about you? In this continuing series I will cover some common mistakes and little known facts that impact your credit. I?ve been around credit scores all my life. When I was growing up, my parents would use credit information to screen potential tenants. In near 20 years of professional experience, I have worked with the credit scores of literally thousands of clients. I have come to appreciate the true significance and mystery of the FICO credit scoring system.
What is FICO? Simply stated, it is your personal credit rating. After working with clients for all these years, I am still surprised to see that many fail to understand the impact FICO has on their borrowing cost. FICO can be the single largest factor used by lenders in approving your loan or providing the best interest rate. Do you understand the factors that impact FICO and its automated scoring system? Are there ways to beat the numbers?
These series of articles will explore the myths, realities and reasons consumers need an experienced financial consultant that can read the signs missed by the average person and provide real solutions that will improve your FICO score and add tens of thousands of dollars in saved financing cost to your wallet!
Topic 1: I pay all my bills on Time but why do I have a low FICO score?
It is true that even if you pay all of your bills and major debts when due and have no delinquencies and/or late payments you may still only have ?average? FICO credit score. The reason may not be simple; but let?s examine one factor that may be impacting your score.
Available credit balance.
Did you know that your available credit balance, may comprises 30% of your FICO score. As an example, let?s look at two individuals: Borrower A has two (2) credit cards each with a $25,000 in available credit, at present Borrower A has a $20,000 balance on one of the two cards and $5,000 of the second card. Borrower B also has two (2) credit cards each with a $25,000 in available credit, at present Borrower B has a $12,500 balance on one of the two cards and $12,500 of the second card. Based on the scoring system used by FICO who has a higher score possibility?
Know based on simple example Borrower A will be severely penalized by FICO and have a score that could increase the interest cost to Borrower A even though Borrower A and Borrower B each have the same number of credit cards and the same amount debt outstanding. The reason relates to the view by FICO of Borrower A?s available credit balance. In this exampleBorrower B has far more available credit under each card than Borrower A and therefore will have a higher FICO credit score.
If that same Borrower A opened up one new credit card with credit a new limit of $10,000 then spread the $25,000 balances proportionally over the 3 cards they now have, with a total available credit high of $60,000, Borrower A would have a significantly higher FICO credit score.
Understand that as each person develops a FICO credit score over many years of credit activity that may require several changes to improve a FICO credit score over many months. Should you be looking for a home in the next 12 months I would encourage you to call and obtain a free credit Physical that may add tens of thousands of dollars in saved financing cost to your wallet. Should you wish to receive additional information on the articles within this series please e-mail me directly.
Topic 2: Is a free credit report really free, and what can you learn?
You may have learned that with the ever increasing incidence of identity theft that US consumers are now eligible to retrieve one free credit report every 12 months.
In December 2003, Congress enacted and the President signed comprehensive legislation, the Fair and Accurate Credit Transactions Act (FACTA) updating the 1970 Fair Credit Reporting Act. There were many new laws signed last year in an attempt to better protect consumers but the most important one may be the right to obtain a free credit report every twelve months on request from any national credit bureau (Experian, Equifax and Trans Union). Do not contact them directly (unless you are accessing a free report under different rights).
Though many companies will provide a ?free? credit report to you it is their intention to obtain access by your permission to your most important hidden asset and seek to sell you additional services that may not be necessary. This truly free credit report provided by federal law can be obtained only by the following places: online at, Annualcreditreport.com or by calling 877-322-8228, or you can mail a request to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. When you order, you need to provide your name, address, Social Security number, and date of birth. To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.
This law allows consumers the ability to review and manage their most important hidden asset their FICO credit score. By checking your credit report annually with the three major national credit bureaus, you can make sure your accounts are not being misused and that no unauthorized accounts have been opened in your name. In addition you may be able to better prepare for that ?big purchase? by correcting mistakes that may damage your credit rating and cost you in increased financing costs. Once you receive the free report most consumers will need additional assistance in looking for errors that may have occurred or in understanding the steps to properly disputing items that may be in error.
I would encourage you to call and obtain a free credit Physical that may add tens of thousands of dollars in saved financing cost to your wallet. Should you wish to receive additional information on the articles within this series please e-mail me directly.