Paul Ferraresi

How much does a low score cost you?

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. Read the rest of this entry »

Since January 2005, more than 100 million people have been affected by identity theft. Even when financial losses from them are low, there is still stress, frustration and hassle in putting your credit and finances back together. Here are some ways to avoid becoming another identity theft statistic:

• 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.

Part 2 of 8

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

Most People have some blemishes on their credit score. They do not understand how the system works. I have created an eight (8) part series to help educate you.

Understanding Credit and Your Credit Score

Fair, Isaac and Co. (FICO) is the San Rafael, California Company founded in 1956 by Bill Fair and Earl Isaac. They pioneered the field of credit scoring for financial companies. They have expanded their enterprise to cover decision systems, analytics and consulting. Every credit agency, and most lenders, calculate your credit score using software from FICO (Beacon) or in house software based on the FICO rating system.

The modern credit reporting system, maintained by major credit bureaus, helps credit grantors approve loans and credit in minutes. The system provides continuously updated information to make fast, accurate decisions dealing with almost all consumer credit transactions. The credit reporting system benefits everyone. Consumers with a credit record reflecting prompt payment find it comparatively easy to open new or expanded credit lines.

The credit reporting system:

• Opens new opportunities to obtain credit
• Speeds credit decisions
• Makes our credit-based economy possible

Credit Bureaus or Credit Reporting Agencies are in the business of gathering, maintaining, and selling information about a person’s credit history. There are many credit bureaus in the United States but only a few main ones. The big three credit bureaus provide nationwide coverage of consumer credit information: Equifax, Experian, and Trans Union.

The three major credit bureaus

“The big three” as they are called, are independent credit reporting companies. Your credit report from one credit bureau is not necessarily exactly the same as your credit report from another, because not every credit grantor reports to all three credit bureaus. For example, your account information from Bank A may not appear on your Equifax credit report while your Trans Union credit report does include that information.

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
800-685-1111

Experian (formerly TRW)
National Consumer Assistance Center
P.O. Box 2002
Allen, TX 75013
888-EXPERIAN (888-397-3742)

Trans Union Corp.
P.O. Box 1000
Chester, PA 19022
800-888-4213

They collect information about consumers’ payment habits from various sources including banks, savings and loans, credit card companies, and other financial institutions. These sources are called Automatic Subscribers, who report information on any individual who does business with them. In return, they receive credit reports of potential applicants at discount rates.

Some creditors do not automatically report to Equifax, Experian, and Trans Union credit bureaus. Companies such as insurance agencies, rental agents, utility companies, and medical facilities, report only when payments are severely overdue, collection agencies are hired, or legal actions are taken.

Credit bureaus also obtain information from public records such as bankruptcies, foreclosures, tax liens, and court judgments.

Equifax, Experian, and Trans Union credit bureaus maintain and update this information in their computer database and sell it to lenders and other credit grantors in the form of credit reports. Although credit bureaus provide your credit report to lenders when you apply for credit, they do not make actual lending decisions. It is up to the lender to evaluate your credit report and any other factors they consider important and then decide whether or not to offer you credit. Credit bureaus charge the credit grantor a fee for every credit report they sell.

While a single bureau report is a file that represents the data from just one credit bureau, a 3-in-1 credit report is a credit report that includes data from all three credit bureaus. When determining your ability to pay back a loan, many lenders examine your 3-in-1 credit report.

End of Part 1 of 8

Continued Next Week

Sometimes a variety of circumstances combine to cause a cash flow crisis and the result is an over-extension of credit. This can lead to emotional and marital problems in addition to the financial turmoil. When a person has reached this situation, there are several steps to be considered:

• Immediate cessation of the use of credit
• Evaluation of the extent of the problem – listing debts
• Consideration of declaring bankruptcy
• Seeking the services of a credit counseling service
• Developing your own workout resolution Read the rest of this entry »