Now the credit card companies have until February 2010 to implement the new Government changes, but, each company can begin to change their programs starting immediately.

You must read every monthly statement and the T & C (terms and conditions). Many people are finding their credit lines are being cut, interest rates increased and payment cycles reduced. It is what it is, so, check your statements each month.

Other people are doing “plasectomies” with chainsaws on their cards. Keep in mind if you eliminate your cards, it will eventually negatively affect your credit scores with no activity. Also, the old adage holds true … it is better to have credit and not need it, than, need the credit and not be able to get it.

If you want to get back at the card company … charge things and pay them off in full immediately. They hate that!!!

There are 3 credit rating agencies … Equifax, Experian and TransUnion. They all produce their own FICO Scores (developed from the Fair Issac Company) with various permutations and combinations of formulas. When you get all three company scores and if they are, say, 630, 721, and 752, then, the credit issuing company will use the middle score, in this case 721.

There are five components that go into your credit score and each makes up a percentage of your final score: Payment History (35%); amounts owed (30%); length of credit history (15%); new credit (10%) and types of credit (10%).

Some important thoughts to consider:
• The fastest way to ruin your credit score is with late payments
• Six months of on-time payments helps to build your score
• If you make a late payment, send a letter to the creditor and explain why it is late. Many times they will make an adjustment for you.
• Your payment history and amount owed is the most important items comprising 65% of your score
• Consistently pay more than the minimum due
• Keep the ratio of amount owed on the card to the credit line at no more than 40%. So with a $5,000 credit line never have the balance higher than $2,000. Yet, if you have a very low balance and you pay it off in full … it does you no good. Go figure!
• If you have a late payment history and pay off the entire balance, it does NOT clean up the late payments dings
• Credit history on a FICO score goes back 99 months (8¼ years for those with weak division skills)
• You can obtain 1 Free credit report per year per rating agency
• It takes 10 years for a bankruptcy to drop off and 7 years for adverse credit reports. Car loans and mortgages drop off in 4 years
• To rebuild credit get a gas card and/ or store charge, use it, but pay it off on time each month.

I have investigated hundreds of credit repair companies and have found only 1 that does it the right way. (Do not get trapped by those that want huge upfront fees and monthly charges). This company will take on your project and does not charge you until after the blemish is REMOVED from your account. They are VERY reasonable.

To learn more about it go to our company website:

www.founders-group.net

• Across the top, hit the “Tools” Tab
• Read all the information
• If you are interested then follow the instructions
• Complete the forms

(Now the credit repair company does NOT work with the public directly. Our company, Founders Group, Inc is certified by them as a representative. So if you choose to proceed all paperwork must be sent via Founders Group office. The forms and instructions will guide you.

THE END

Maybe you’re young and haven’t used any credit yet…

Maybe you’ve recently come out of a bankruptcy or a tough financial situation. You may be tempted to pay for everything in cash, not wishing to repeat your past mistakes.

Maybe you think that debt is bad and have always paid for everything with cash.

Many people think that being debt-free is a positive trait valued by lenders. Nothing could be further from the truth. A borrower with no credit is almost as bad as one with bad credit. A creditor wants to see a history of how you handle debts. A person just out of a bankruptcy needs to show potential lenders that they have learned their lesson and are now committed to improving their credit habits.

Now that you know how your score is calculated, you can begin making changes to your current financial planning. Building or re-building a credit report is not a quick-fix situation. It takes a year or two to complete.

The best things you can do are simple.

1. Clean up your credit report as much as possible

First, you must make sure that your credit report is as clean as you can get it. Begin by obtaining a copy of your credit reports and examining them thoroughly for errors. Having your report in tip-top shape will help you immensely when you begin to apply for new credit.

Removing negative items on your credit reports has the biggest impact on your FICO score. Generally, negative items stay on your reports for seven years, but you can hire a professional credit report repair service to do it for you. Most people do not know the ins and outs of the dispute process, so they often hurt their credit further when they try to repair their own credit.

2. Get new credit

Once you’ve cleaned up your credit, you are ready to start building a positive credit profile. Follow any or all of these techniques to stack your report with A+ listings. But be prudent. If you stack too many open accounts, you may be denied new credit based on your debt-to-income ratio; If you show excessive credit inquiries, you may be denied for that.

Piggy-back on a Friend

If you know someone (a good friend or parent) who has good credit, you can “borrow” their good credit listings. This friend must have credit cards and must trust you enough to allow you to become an “authorized user” on his card. Have your friend call his credit card company and request that you be placed on his card as an authorized user. A copy of the card will be sent to you but you never have to use it (you can simply return it to your friend). Your credit file should soon show an open account with all of the positive history that your friend has created over the years from the credit card. A small footnote will show that you are an authorized user of that card. Remember, though, when a new credit grantor reviews your file, he may insist that the balance on the card appear on your debt-to-income ratio balance sheet. That shouldn’t disqualify you for credit if your income is sufficient and you don’t have an excess of debt on your file.

Get a Secured Credit Card

Ask your local bank if they offer secured cards. Many national banks are starting to offer this service. Your past credit is less important with these guys as you will be opening a savings account to secure the credit line on the card. You can get this card even if you still have some bad credit on your credit file. By putting $500.00 into a savings account, you will be allowed to charge up to $500.00 on the card.

Seek Easy Credit

There are companies we work with that assist in finding new credit cards for your credit situation.

3. Keep the accounts active

Once you’ve successfully received new lines of credit, it is important to have some activity going on each month. We don’t suggest you pile up large debt—maybe $50 dollars or so in a balance. Pay the minimum when the bill arrives even though it will cost you a little in interest charges. And pay it on time. This is what future loan officers and other creditors want to see. (Inactive accounts with a zero balance aren’t displaying a tendency to handle existing debts.)

Keep your balances low on unsecured revolving debt like credit cards. High outstanding balances can affect a score. The general rule to follow is to keep your balances below 30% of the available credit limit. If your balances go above %50 of the available credit limit, this will begin to hurt your credit score.

The amount of your unused credit is an important factor in calculating your score. You should only apply for credit that you need.

Traps to avoid in secured credit cards

Make sure the secured card you choose to help you rebuild your credit:

• Reports the credit card limit you have (even if it’s only $200)
• DOESN’T report that the card is a secured card.

If you get a card which reports to the credit bureaus that it is a secured card, your credit score will also take a hit, even if you are paying on time.

Reporting the balance

Credit scores take into account the total amount of credit available to you and the current balance you have on your cards. They use this to calculate your debt ratios which is:

Current Total Balances/Current Total Credit Limits = Debt Ratio.

If they are not able to do this calculation, they will just guess what the limit is and this is going to be your current credit card balance or 100% of your credit limit used. Remember, the scoring model likes to see 30% or less of your credit limit used.

Look forward next week to our Managing Your Credit Score (Part 8 of 8).

If you are denied credit, you will receive four reason codes which indicate why you were denied. These codes appear in order of importance, below. The first code has the strongest impact, followed in declining impact by the second, third and forth reason.

A typical readout your lender might view follows. This particular readout presents information from all three credit agencies. In the example below, the individual failed to qualify for each credit agency and the reasons are listed in descending order.

*****BORROWER: SMITH, JOE M.*****

TU Score: [00623]

• Reason1=[022]
• Reason2=[016]
• Reason3=[028]
• Reason4=[004]

Experian Score: [00629]

• Reason1=[022]
• Reason2=[016]
• Reason3=[028]
• Reason4=[004]

EQUIFAX: [00617]

• Reason1=[022]
• Reason2=[016]
• Reason3=[028]
• Reason4=[004]

All three credit agencies do not always have the exact same information therefore your three scores will differ slightly. As a general rule though, if you fail to qualify at one agency you are likely to still be denied if one of the other bureaus is checked. Most mortgage loans companies will run all three credit agencies and take the lowest score.

Note that these codes change often, and may not represent the current codes as of this writing.

Look forward next week to part 7 of 8 on our Managing Your Credit series.

Generally speaking, the longer the credit history the better your score. However, this factor only makes up 15% of your total score so even young people, students or others with short histories can still score high overall as long as the other factors show good. If you are new to credit then there is little you can do to improve this part of your score. Open an account and be patient:

• How long your credit accounts have been open or the number of months you have been in the credit bureau’s file.
• The age of your oldest account and the average age of all of your accounts are taken into consideration.
• How long it has been since you used certain accounts as well as the mix of older and new trade lines.

Pursuit of New Credit (10%)

Credit is much more popular today. Just look at the number of credit card offers you get via the Internet and in the mail. Consumers can now shop for credit and find the best terms to meet their needs. Each time someone runs a credit check on you, it creates an inquiry.

Fair Isaac has changed some of its calculations to account for these new trends. Specifically, they treat a group of inquiries – which probably represents a search for the best rate on a single loan – as though it was a single inquiry (note: this only applies to auto or mortgage loan inquiries.) For example, auto loan inquiries that are within 14 days of each other only count as one inquiry.

Your score takes into account how many new credit obligations have recently been assumed? Opening several credit card accounts at the same time can look bad. What FICO looks for is “To what extent is this consumer trying to open new credit accounts?”

How recent were these efforts? How long it has been since you opened a new account. Primary consideration is given to the following:

• Number of inquiries in last six months
• Number of trade lines opened in last year
• Number of months since most recent inquiry

There are no good inquiries. Inquiries are typically seen as a request for credit and thus are factored as if you are searching for credit. Every time you fill out one of those credit card applications to get a free hat, you are also getting a free inquiry. Every time you fill out an online application for a credit card, or other type of loan, you are getting an inquiry. Too many inquiries look bad. While there are no good inquiries there are neutral inquiries. These inquiries are most often known as:

• Consumer initiated. A request for your credit report shows as a consumer inquiry. When you run a credit check on yourself. (provided that you don’t call your mortgage broker buddy to pull your report)
• Pre-Approval. If a potential lender has viewed your credit reports to determine whether they want to offer you a loan, these are not factored into your score. However, once you fill out a credit application, your full report will be reviewed and a “bad” inquiry will appear on your reports.
• Periodic Review. Many lenders will periodically review the credit reports of their current customers to see if there have been any major changes to their credit reports. If the lender discovers that your credit score is now too low for their standards, they may close your account. These inquiries created as a result of the periodic reviews are not supposed to be factored into your credit score.

How inquiries are computed is somewhat complex. The above table is meant as a basic guide but does not cover all the different calculations. As a reasonable measure you should avoid unnecessary inquiries. The system is designed to take into account rate shopping but things like applying to credit card offers will add inquiries to your file.

Types of Credit Experience (10%)

A healthy mix of different types of credit, installment loans, retail accounts, credit cards, and mortgage. This score is not normally a key factor in determining your score but it can help a close score. Its not a good idea to try and open different types of accounts just to try and make this factor better. It will likely reduce your score in other areas. You should never open accounts you don’t intend to use anyway.

What type of accounts you have, and how many, can make a big difference. The optimal ratio of installment versus revolving accounts depends on your profile and differs from person to person. One factor that seems to have significant influence is your percent of open installment loans. Too many can lower this portion of your score.

Look forward to next week for our part 6 of 8 on Managing Your Credit Score series.

There are five factors which are used in credit scoring calculations that determine your overall credit score.

Previous Credit Performance (Payment History) 35%

A lender wants to know what your payment history is like. Have you paid everything on time, are you late on anything now, and so on. Your payment history is just one piece of information used in calculating your score, although it can be the very important.

Payment history on your accounts.

These include credit cards, retail accounts (department store credit cards), installment loans, finance company accounts and mortgage loans.

Collection items and Public records.

This includes judgments, bankruptcies, suits, liens, collection items and wage attachments. Most of these are considered quite serious, although older items count less than recent ones.

It’s all in the details.

This includes specific details on late and missed payments. Negative information/late pays are determined using three factors.

1. Recency – How long ago was the last delinquency? How old is the late pay? A 30-day late payment made just a month ago will affect your score much more than a 90-day late payment from five years ago.
2. Severity – What level of delinquency was reached? How late was the payment made? 30 days, 60 days, 90 days or worst of all, is the payment still outstanding.
3. Prevalence – How many credit obligations have been delinquent? The amount of negative items as compared to your total amount of available credit. For instance, 5 accounts showing 3 late payments is much worse than 10 accounts showing 4 late payments. One of the biggest sub factors is how many accounts show no late payments. A good track record on most of your credit accounts will increase your over all FICO score substantially.

Current Level of Indebtedness (Amount Owed) 30%

How much is too much? Can the borrower pay me and still afford to pay his other bills? Not necessarily. Having available credit can actually help your ratio of debt to available credit. These are the types of questions that most borrowers want to know and the answers are almost as important as your previous credit history.

Total amount owed on all open accounts. Paying off your credit cards in full every month, does not mean that they won’t show a balance on your report. Your total balance on your last statement is generally the amount that will show in your credit report.

Specific types of accounts, such as credit cards and installment loans are scored differently and in conjunction with the overall amount owed on all open accounts. This also factors into your balance on each specific type of account. For instance; you have a credit card with a very small balance and no late pays. Even though the balance is low, this still looks very good as it shows that you are able to manage your credit responsibly.

How many accounts do you have open and how many have balances? A large number of open accounts, even with small balances, can indicate higher risk of over-extension. This is weighted in your FICO score but most lenders leave it to their discretion as they have access to your income amount. For the most part though, it is good not to have too many credit card accounts, three maximum.

How much of the total credit that is available to you are you using? In other words, are you close to maxing out? For example, if you have a credit card with an available credit line of $1000 dollars and you have a current balance of $850.00 or more, then you are nearly “maxed out.” Several credit cards or other debts with balances approaching the credit limit will affect your score negatively, even if you have made your payments responsibly. Your FICO score will factor your overall ratio of debt to your overall limits.

Look forward to part 5 of our “Managing Your Credit Score” series next week!

Credit Cards

Most if not all prime credit cards are entirely out of reach to consumers with bad credit. And the few credit cards that are available to them (known as “sub-prime” cards) typically require exorbitant setup fees or recurring monthly fees, offer very low credit lines, often require cash deposits, and in most cases do not even report your positive credit activity to the credit bureaus.

Automobile Financing

If you are making payments on a car, you are probably paying between $5,000 and $9,000 more just for having bad credit. This added interest shows up every month in a higher payment. Take a look.

Home Mortgage

Bad credit in auto financing can really hurt, but it is nothing compared to the cost of bad credit when a home is involved. A typical home can cost between $50,000 and $130,000 more in interest if you are buying the home with bad credit.

As you can see, a low score can cost you hundreds of dollars extra per month, which is why it is so important to obtain and maintain as high a score as possible.

How are credit scores calculated?

The methods of calculating your FICO may differ slightly depending on the credit bureau. When obtaining your score from one of the Credit Bureau it is important to understand that your score does not come directly from FICO. It is adapted to each bureau and is given its own name: Equifax uses “Beacon”, Trans Union uses “Empirica”, and Experian uses “Experian/Fair Isaac.” These scores are also referred to as your “Bureau Scores.”

Since your score is derived from your bureau data, it will change every time your reports change. However your score is calculated, it will always take into consideration many categories of information. No one piece of information or factor determines your score. As the information in your credit report changes, the importance of one or several factors may change in your FICO score. Lenders look at many things when making a credit decision, including your income and the kind of credit you are applying for. However, your FICO score does not reflect these facts as it only evaluates the information retained by the credit reporting agency.

Look forward next week with our part 4 of 8 about managing your credit score.

• Place fraud alerts on your credit report. These alerts, available through credit bureaus, require your verbal approval before a new credit line can be opened under your name.
• Order all three free credit reports—not just one. Take advantage of your free annual credit reports, now a right under federal law. Get one from each bureau, since many companies will only report to one or two bureaus.
• Review your credit report carefully. Look for accounts you do not recognize and look at the “inquiries” section for names of creditors from whom you haven’t requested credit.
• Opt out of unsolicited credit card offers. Opt out of pre-approved offers of credit at www.optoutprescreen.com. You can choose between a five-year opt-out period and permanent opt-out status.
• Remove your name from direct-mail marketing lists. You can do this at www.dmaconsumers.org.
• Become acquainted with a shredder. Merely tearing up your mail just won’t do anymore. All your discarded mail (including the envelopes) should go through a shredder before it goes to the trash.
• Encrypt your wireless internet connection. At least 80% of Americans who access the Internet through a wireless connection use an unsecured network, which makes a hacker’s job really easy.
• Consider an identity theft protection service. There are a number of options, take your time. Make sure the service you choose can prevent identity theft—credit monitoring services will only notify you after something happens.

What does your credit score mean?

This rating system is meant to develop a snapshot of the risk you currently represent to a lender. Several parameters in your credit file, including length of credit history, number of open accounts, loans, mortgages, public records, and others are formulated to produce a three-digit score between about 300 and 950. There are other scores used by lenders and insurance companies (some of which are developed by FICO) such as Application and Behavior scores. These other scores take other information into account. Usually a lender will use a combination of your credit score with other factors when determining your risk. They all have the same objective, to determine the borrower’s potential risk. Regardless of whether the score was generated by FICO or a system based on FICO parameters, they all yield an industry standard three-digit score. This score places the borrower in one of three main categories (we named the third one ourselves).Keep in mind… of the three reporting agencies the middle score, of the three, is used for evaluation.

Prime, sub-prime, and shafted

Prime – If your credit score is above 680, you are considered a “prime borrower” and will have no problem getting a good interest rate on your home loan, car loan, or credit card.

Sub-prime – If your credit score is below 680, you are sub-prime, and will likely pay a much higher interest rate on your loan.

Shafted – Below 560 is the shafted score. At least that is how most lenders and credit issuers perceive it. You can still get a credit card but you will likely be hit with a security deposit or high acquisition fee. In addition to that your interest rate will likely be 28 to 29%. You can forget about most home loans and the majority of new car loans at this score. Below 560 is no place to be. You will pay much, much more in higher interest and unnecessary fees. You may even pay more for your insurance rates. A very low score can even prevent you from getting a job with many companies.

End of Part 2 of 8

Continued Next Week