6 Common Credit Terms – Credit Law Center

We recently asked the question on social media, “What is one thing that should be taught in school?”, several came back with the answer “credit.” Unless you are a financial guru at understanding complex financial terms, the world of credit can be slightly confusing. Understanding the most common credit terms and credit score terms could help you save money.

 

6 Common Credit Terms

 

1.Credit Mix

The different types of credit that make up your credit report. Your credit mix makes up 10% of your credit score and can be a mixture of credit cards, a mortgage to student loans and auto loans. Having a good mixture of positive credit can impact your credit score.

2.Credit utilization

This is the amount of available credit you are using. To calculate your credit utilization, you would divide your total credit card balances by your total credit limits. Then multiply that number by 100 for the percentage. Keeping your credit utilization under 30 percentage is best, by keeping it under shows lenders that you are capable of managing debt.

3.Installment loan vs. Revolving credit

An installment loan is a cash loan that requires a fixed number of regular payments that are equal in amount. Payments on an installment loan are calculated over a set duration, home loan and a car loans are examples of installment loans.

Revolving credit is credit that can repeatedly be used and paid off without having to reapply each time. Credit cards and lines of credit are two forms of revolving credit. Revolving credit does not require a set payment plan, and you can borrow up to your limit. Revolving credit is riskier for lenders. Therefore the interest rates are higher.

4.Hard Inquiry

A hard inquiry happens when you have applied for credit, and a business or lender “pulls” your credit report to determine your creditworthiness. This type of inquiry can affect your credit score.

5.Soft Inquiry

A soft inquiry occurs when a consumer checks their credit file or when a lender sends you a pre-approval letter. This type of inquiry does not affect your FICO credit score.

6.Payment History

35 percent of your credit score is made up by your payment history. Therefore it is a crucial element in your credit score. Payment history is calculated on how well you pay your bills and if you pay them on time. With payment history being such a big portion of your credit score being late on a payment or defaulting on a loan could cause you to be denied credit or have high-interest rates.

Are You Getting Calls From Fake Debt Collectors? – Credit Law Center

Have you received a call from a debt collector and you don’t recognize the debt or loan that they are trying to collect? Consumers all over the U.S. are reporting that they are receiving calls like this. Fake debt collectors pretend to be lawyers, debt collectors and do anything to scare you into paying them, and occasionally, the imposters may have some of your personal information, and they are incredibly slick and will do anything to scam you into paying.

The FTC recently stopped imposters who pretended to be lawyers. These imposters threatened people with lawsuits and jail time to collect debts that didn’t exist.

Common Characteristics of Fake Debt Collectors

  • They use names of real small businesses or names that are similar to existing businesses.
  • Trying to collect on a debt you are not familiar with or do not owe.
  • High pressure to try and scare you into to paying, such as threatening jail time or calling and reporting you to the local law enforcement agency.
  • Fake debt collectors may threaten to sue you or tell you that they are suing you
  • Refusing to give you an address or telephone number
  • Asks you personal financial or sensitive information.

What to do if you think you are speaking to a fake debt collector

  • Ask the caller for his name, company, street address and telephone number. Advise the caller that you refuse to discuss the debt, asks them to provide you with a “validation notice.” A validation notice must include the amount of the debt, the name of the creditor, and your rights under the FDCPA. If they refuse to provide this information, DO NOT PAY!
  • Do not provide the caller with any financial or sensitive information. Never give out personal information or confirm personal information like bank account, credit card or social security number unless you are sure you are dealing with a legitimate debt collector. These imposters can use your information to commit identity theft, charging your credit cards, or open new credit.
  • Contact the creditor. It may be possible that they are calling on a legitimate debt that they have somehow accessed information on. If you believe the debt is legitimate, but you do not believe the caller is a real debt collector, contact the original creditor directly, be sure to share the information with them so they can keep track of the behavior.
  • Report the Call to the FTC. Contacting the FTC and your state Attorney General’s Office with the documented information about the suspicious callers, and most States have their own laws in addition to the FDCPA.

My Credit Card Statement Now Has a Credit Score – Credit Law Center

You may have recently noticed that your credit card statement has provided you with a credit score for free. Having this credit score on your credit card statement could potentially help you spot an error on your credit report. For example, if the score is lower than you expected, it may be a perfect time to request your credit reports, dispute any errors that you may find.

Things to consider about the scores provided on the credit card statement

Each credit card company uses a different formula for assessing your credit profile. The credit score you get from one credit card company may be slightly different from the credit score you receive from another credit card company. The score you receive on the credit card statements may also be different than the score you receive from a lender or a finance company. FICO scores are the credit scores used by 90% of the top lenders to determine your credit risk.

FICO Scores

You will have three FICO scores, one for each of the three major credit reporting agencies, Experian, Equifax, and Transunion. As well as the three different scores from each bureau, FICO has a total of 56 versions of FICO scoring. Just think of it like Microsoft word, every year a new version comes out updating the software. Each of the 56 versions old or new are tailored for different types of lending. One version may be used for mortgage lenders, while another may be used for a credit card company. With so many versions being the major reason the score on your credit card statement may differ from one a lender pulls.

 

Top 5 Credit Myths (1)_Page_03

No matter what version of FICO is being used your score is calculated by the information on your credit report. Therefore your credit score could differ from bureau to bureau as well. For example, you may have a loan from a small community bank; this bank may only report your activity to Transunion, and not report to Experian or Equifax, leaving your credit file with the other two bureaus thin.

Things to keep in mind

Each month when you receive your score on your credit card statement use it as a tool to help identify any possible errors. Focus on paying your bills on time, and not overextending your credit. If you notice your score has gone down, review your credit, and look for any errors in your credit report. Each bureau allows one free credit report per year and you can request at www.annualcreditreport.com

What is a Good FICO Score? Credit Law Center

One of the most well-known types of credit score is FICO Scores and used by many lenders. The average FICO score for Americans, as of April 2017 was 700. When you check your credit score, you’ll probably want to find out how you compare. What is a good FICO Score?

 

What is a Good FICO Score?

Think of your credit score like a grade. If you do not have any credit or tradelines, FICO has nothing to grade you on. FICO scores often range from 300 to 850, and a FICO about 700 is considered a good credit score. A FICO of 800 is an exceptional score, and approximately 19.9 % of Americans are in this range. Applicants in the excellent range are at the top of the list for the best rates from lenders. 17% of people range in the very poor range and these individuals may be required to pay a fee or a deposit, before getting approved.

Top 5 Credit Myths (1)

Why Do Credit Scores Matter

Lenders use credit scores to help them determine how likely you are to repay your loan on time. A Credit score allows lenders assess the risk that you won’t be able to pay your loan as agreed.

Establishing and maintaining a good credit score is important because it can determine whether you are approved for a loan or not. It will always determine what interest rates you qualify and potentially save you tons of money over the length of the loan. Every major financial goal you have, like owning a home, or purchasing a new car, your credit will be a part of the financing.

Common Credit Score Facts

Marriage: When you get married your credit score will not merge with your spouse’s

Joint Accounts: Joint accounts will show up on both individuals credit report, and both individuals are responsible for the debt. If a payment is missed both parties will see the delinquency on their credit report and it will affect both individual scores.

Checking your score: Checking your score will not hurt your credit report. Checking your score is considered a soft inquiry, and it allows you to review your score without harming it.

By law, credit reports are required to be timely, accurate and verifiable. Monitoring your credit is a great way to avoid any mishaps when it comes to your score. Depending on what type of reporting error you could have on your report it could significantly drop your score.

Improve Your Credit Score, Don’t Let Your Past Financial Decisions Keep You Down

Your past financial decisions may feel like they are coming back to haunt you, and handling the complications that arise from having a less than perfect credit score can be rather stressful. Dealing with your past credit mistakes can leave you feeling extremely frustrated and hopeless, but the good there is re-establishing a good credit score can be done.

Ways to Improve Your Credit Score After Bad Financial Decisions

A credit score belongs to you and only you, and no matter what caused you to a have a less than stellar credit score it is only yours to improve. It is common for many Americans living with a low credit score to ignore the problem. The first step in improving your credit score is to face it head on and attack the situation with confidence. Here are a few steps to take when what to improve your score.

Look for errors in your credit report

The first step in repairing your credit is to thoroughly carefully review your credit report to determine that all information is yours and it belongs to you. By law, credit reports have to be timely, accurate, and verifiable, and even though the particular item may belong to you finding an error may allow the item to be removed entirely from your report. You will want to pull all three credit reports from each credit reporting agencies, Experian, Transunion, and Equifax. Make sure you review names, addresses, social and look to make sure the dates on the accounts reporting are correct. If you determine there is inaccurate information reporting you will need to dispute the information.

High Balances

Often having a low credit score can be caused by utilizing too much of your available credit. You may wanted to buy that 60″ TV, but did you understand what maxing out your credit card would do to your credit score. 30% of your credit score is based on your available credit, if you have credit cards with balances greater than fifty percent of the maximum, you should pay those down as quickly as possible. Creditors like to you see you using your available credit, but still keeping the balances under 30% of the allotted credit.

Not able to get credit?

If you do not have enough trade lines, the key number is to have two installments and two revolving; you will want to try and obtain credit slowly. So don’t rush out and try to get all four at once! Start out with one. If your credit score is too low and you do not qualify for a loan or credit card you do have options. Obtaining credit with a low score can be done if you are willing to put up a security deposit. Many banks have secured credit cards and or a CD Building loan. Since your credit score is like a report card and you are graded on your payment history, you will need to make certain you can pay the monthly payments and make sure you can pay on time. One late payment will significantly impact your score.

Pay on time

Earlier I mentioned that credit bureaus grade you on how you pay your trade lines. Making sure you pay at least the minimum balance and on time each month will significantly impact your credit score. One late payment could drastically lower your credit score and as much as 100 points.

Increasing your credit score doesn’t happen overnight and each individual score has a different circumstance. There is no cookie cutter way to follow and coming up with the correct action plan designed for you is the key. Once you have determined the correct plan of action, being disciplined will be extremely important. If at anytime you feel like you might backslide, remind yourself ut what motivated you to improve your score, maybe it is to buy a house, finally buy a brand new car, or to get the job you always wanted. Whatever your reason may be, once you have reached the light at the end of the tunnel it will be well worth it.  If you aren’t exactly sure what steps to take reach out to one of our credit analysts and get a free consultation.

One Late Payment May Tank Your Credit Score! – Credit Law Center

You may be one who pays all your bills on time every month, but maybe you had a financial emergency or even an oversight that caused you to pay one late payment.

If you miss a payment on one of your credit cards, mortgage or any other loan, you could see a drastic drop in your credit score. Having a late payment may cause lenders to look at you less favorable, even it is was just one late payment.

Banks use the information on your credit report to determine the risk of the borrower, therefore the payment history has the strongest impact on your credit score. You may have a history of years of on-time payments, but unfortunately, they will look at the most recent history of the missed payment as a greater risk.

How Will One Late Affect Your score

When a lender looks at your FICO credit score, the late payment will be evaluated on how severe the late is, how recent it is. According to FICO data, one 30 days late payment could cause as much as 90 to 110 point drop on a FICO score of 780, for a consumer that has never missed a payment. The higher the credit score you have, the more significant impact it could have on your credit score. While a consumer with a 680 FICO score and two late payments, may experience a 60 to 80 point drop after receiving another 30 days late.

I recently had a friend who had a score of 720, and she made an error in paying her car payment, and it dropped her score by 100 points. She didn’t have any collection items reporting; all her credit cards were paid to a $10 balance. That one late payment tanked her score.

Each credit reporting agency has its algorithm to come up with your credit score, depending on what report you pull and when your scores may vary with each report. Each time a report is your credit score will be refigured so that the recent information will be calculated in the score.

What to do after a late payment

If you have missed a payment, it is important to try not to let things snowball. It is important that you continue to pay all current accounts on time, and not let yourself get behind on them.

Things you may want to consider doing to keep bills current.

1. Make a budget or a calendar with the due dates of all accounts.
2. Continue paying all bills on time.
3. Take a look at setting up payments on automatic bill pay.
4. Contact Creditors to work out a payment plan on any accounts that you may be behind on.
5. Monitor your credit report regularly.