The Return of Student Debt: A Looming Credit Crisis for Americans

The Return of Student Debt: A Looming Credit Crisis for Americans

As the calendar turns to October 2024, millions of Americans are facing a harsh financial reality. The long-awaited resumption of student loan payments has arrived, and with it comes a potential credit crisis that could impact borrowers for years to come.

The End of the Pandemic Pause

For over three years, federal student loan borrowers enjoyed a reprieve from their monthly payments, thanks to the pandemic-era pause. This break allowed many to redirect funds towards essential needs and even build up savings. However, as of October 1st, that grace period has come to an end.

A Shocking Return to Reality

The numbers are staggering. Approximately 28 million borrowers are now required to resume payments on their federal student loans. For many, this sudden financial obligation is proving to be overwhelming.

The Delinquency Dilemma

Perhaps most concerning is the rapid rise in delinquencies. Within just the first month of repayment, a significant portion of borrowers have already fallen behind. This surge in missed payments is not only straining personal finances but also threatening the credit scores of millions.

Credit Scores Under Siege

The impact on credit scores cannot be overstated. As delinquencies mount, many Americans are seeing their hard-earned credit ratings take a hit. This decline in creditworthiness could have far-reaching consequences, affecting everything from future loan approvals to employment opportunities.

A Call for Solutions

While the situation appears dire, it's crucial for borrowers to explore their options. Income-driven repayment plans, deferment, and forbearance may offer some relief. Additionally, communication with loan servicers is key to navigating this challenging landscape.As we move forward, it's clear that the student debt crisis requires ongoing attention and innovative solutions. The coming months will be critical in determining how millions of Americans weather this financial storm and what long-term impact it will have on the nation's economic health.

What Does Your Credit Score Mean?

If you know your credit score but don't know what the number means, there are several resources available to help you understand your credit score and how it impacts your financial health. Here are some steps you can take:

1. Understand what a credit score is: A credit score is a three-digit number that represents your creditworthiness, or the likelihood that you will pay your bills on time. It is calculated based on the information in your credit report.

2. Learn about credit score ranges: Credit scores typically range from 300 to 850, with higher scores indicating better creditworthiness. Different lenders may have different criteria for what they consider a "good" credit score, but generally, a score above 700 is considered good.

3. Understand how your credit score is calculated: Credit scores are calculated based on several factors, including payment history, amounts owed, length of credit history, new credit, and credit mix.Understanding these factors can help you identify areas where you can improve your credit score.

4. Check your credit report: Your credit report contains the information that is used to calculate your credit score. You can request a free copy of your credit report from https://www.annualcreditreport.com Reviewing your credit report can help you identify errors or inaccuracies that may be impacting your credit score.

5. Take steps to improve your credit score: If your credit score is lower than you would like, there are several steps you can take to improve it. These include paying your bills on time, paying down debt, and avoiding opening too many new credit accounts at once.

Credit Score Range

Credit scores typically range from 300 to 850, and different credit score ranges can indicate different levels of creditworthiness. Here are the most common credit score ranges and what they mean:

1. Poor: A credit score below 580 is generally considered poor and may make it difficult to qualify for credit or loans.

2. Fair: A credit score between 580 and 669 is considered fair and may qualify you for some credit or loans, but at higher interest rates.

3. Good: A credit score between 670 and 739 is considered good and may qualify you for credit or loans at competitive interest rates.

4. Very Good: A credit score between 740 and 799 is considered very good and may qualify you for credit or loans at even more competitive interest rates.

5. Exceptional: A credit score above 800 is considered exceptional and may qualify you for the best interest rates and terms on credit or loans.

It's important to note that different lenders may have different criteria for what they consider a "good" credit score, and credit score ranges can vary based on the scoring model used to evaluate them. However, understanding these credit score ranges can help you gauge your credit health and take steps to improve your credit score over time.

How Often Do Credit Scores Update?

Credit scores typically update at least once a month, but the frequency could vary depending on your lenders and unique financial situation. Lenders usually report updated information every 30-45 days, so it's possible you might receive an updated credit score each month.

However, every lender has its own reporting schedule and policies, so there is no set date each month when you can expect your credit scores to be updated. The information in your credit reports must update first before your credit scores can update.

The frequency of credit score updates depends on how many active credit accounts you have and when each of those lenders reports new information

It's important to note that each credit monitoring service may update at different times, and not all lenders report to all three credit reporting agencies, which is one reason why you may see some variations in your credit scores.

Several factors can affect credit scores, including:

1. Payment history: Payment history is the most significant factor that affects credit scores, accounting for 35% of the total score. It considers whether you have paid your bills on time for each account on your credit report, including credit cards, loans, and other debts.

2. Amounts owed: The total amount you owe on your credit accounts and the percentage of your available credit that you are using also affect your credit score. This factor makes up 30% of your credit score.

3. Length of credit history: The length of time you have had credit accounts is another factor that affects your credit score, accounting for 15% of the total score. The longer your credit history, the better your score.

4. New credit: Opening new credit accounts can also affect your credit score, making up 10% of the total score.

5. Applying for multiple credit accounts in a short period can negatively impact your score.

6. Credit mix: The types of credit accounts you have, such as credit cards, loans, and mortgages, also affect your credit score. This factor makes up 10% of the total score. Having a mix of credit accounts can positively impact your score.

It's important to note that different credit-scoring models may weigh these factors differently, and lenders may also consider other factors when evaluating your creditworthiness. However, understanding these factors can help you manage your credit accounts and improve your credit score over time.

Ultimately, it's a good idea to check your credit reports regularly for accuracy and monitor your credit score to ensure that you are aware of any changes.

You can check your credit report for free once a week at: https://www.annualcreditreport.com

This site provides your full report from Experian, Equifax, and TransUnion.

Missed Payments on Credit Reports

The most important detail in the calculation of your credit score is your payment history. This factor alone accounts for 35% of your FICO credit scores. When you miss or make a late payment it can cause significant damage to your credit score, especially if the late payment is recent or severe.

A late payment may remain on your credit report for up to seven years as allowed by the Fair Credit Reporting Act (FCRA). Getting the late payment removed depends on its accuracy.

The FCRA is a federal law that gives you the right to dispute inaccurate information that appears on your credit report. If you check your credit reports and you find that a late or missed payment shouldn’t be there, you can make a dispute to the three credit bureaus: Experian, Equifax, and TransUnion. The best form of contact is by certified mail and you should provide a form of proof that the missed or late payment is inaccurate. When the credit bureaus receive your dispute they have 30 (sometimes 45) days to perform an investigation and they will either delete, update, or verify that your disputed late payment is accurate and inform you of the results of their investigation.

Another situation to look out for is fraud or identity theft. When a late payment appears on your credit reports, it can damage your credit score even if the late payment is attached to an account that isn’t yours.

If you find that there is a fraudulent account (with or without late payment activity) on your credit report, you should visit IdentityTheft.gov to file an identity theft report. When submitting the dispute to the credit bureaus, you will need to include a copy of your ID theft report. Some consumers and even credit repair companies will file fake fraud disputes claiming that the consumer is a victim of identity theft to avoid their liabilities. Filing a false police report or false identity theft affidavit with the FTC is illegal and can cause you serious trouble.

Legitimate late payments are not likely to be removed. Your best shot to have it removed is at the mercy of your creditor to determine whether it will ask the credit bureau to remove the derogatory information. You can take the chance and call or write your creditor to request a goodwill removal. The best chance of getting a removal is if your account has been in good standing. For example, if you’ve had a loan with a lender for several years, you’re current on your loan, and the late payment in question was your first and only delinquency.

Ways to Improve your Credit Reports and Scores

• Pay down credit card debt and keep your payments consistent. When you reduce your credit card balances, your credit utilization rate may decrease as well. Keeping your payments consistent shows that you are consistent with payments. Making large or below minimum payments puts you at risk.

• Ask for a Credit Limit Increase. A higher credit limit reduces your credit utilization rate/ratio and improves your score.

• Become an authorized User. If you have a friend or family member add you to a well-managed credit card as an authorized user, this can help you build positive credit. You should consider asking someone close to you who has a credit card with no missed payments and a low credit utilization ratio.

Avoid future missed payments. Keeping up with your payments helps improve your credit score over time.

Negative Credit Information

Your credit score is likely to be hurt when negative information shows up on your credit report. There is a varying degree of impact from late payments, collection accounts, charge-offs and bankruptcies.

Negative information on your credit report tends to stick around for awhile, and could make it harder to qualify for new financing (such as loans and credit cards). The good news is: they don’t stay on your report forever.

It can be difficult to understand how credit scores work. One puzzling factor is that specific items on your credit report (credit score factors) are not worth a preset number of points.

For example, you won’t automatically lose 20 points, or any set number of points for a 30-day late payment that is newly showing up on your report. You could just be earning fewer points, which would result in a lower score the next time your credit score is calculated.

The credit scoring models like FICO and VantageScore consider all of your credit report information at once. Someone with a clean credit report who receives a new collection account might have a larger decrease in their score than someone who already has blemishes on their credit. However, the person with the cleaner credit report would still have a higher score overall.

Two other factors have a role in how negative information impacts your credit score: age and severity. As for age, a more recent late payment is likely going to damage your score more than a late payment that is several years old.  As for severity, a 90-day late payment tends to be more damaging than one that is 30 days late.

Negative information does the most damage to your credit score when it first appears on your credit report. The derogatory information will hurt your score as long as it is reporting, but becomes less pronounced over time, especially if you have avoided adding more derogatory items.

Any item that is reporting on your credit report is likely to affect your credit score for good or bad. The Fair Credit Reporting Act (FCRA) is a federal law that regulates the three major credit bureaus, as well as others. The maximum shelf life of derogatory information is seven to ten years. There are some exceptions to this rule.

Examples:

7 Years

• Late Payments

• Collection Accounts

• Medical Collections

• Charge- Offs

• Chapter 13 Bankruptcy

10 Years

• Chapter 7 Bankruptcy

• Accounts closed in good standing

2 Years

• Credit inquiries

Indefinite

• Defaulted federal student loans

Incorrect & Outdated Information

There isn’t much you can do about an accurate but negative item on your credit report. You can however, talk to the creditor about a goodwill removal (which is not always granted). Most negative items will keep showing on your credit report as long as the law allows.

If you have an item on your credit report that is inaccurate or it has been reporting for longer than the FCRA permits, there are a few actions you can take.

• Dispute: You have the right to dispute any incorrect or outdated information on your credit report. You can send disputes online or by mail, but the Federal Trade Commission (FTC) recommends using certified mail for dispute letters. This method allows you to verify that your letter was received and that a real person is reviewing your dispute. Online disputes are computerized.

• Complain: Along with disputing the incorrect information on your credit report, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

• Legal Action: If disputes and complaints aren’t fixing your issues, you might consider talking to an attorney specialized in the FCRA. An attorney can help you discover if your rights have been violated. They will advise you on steps you may not have taken and will initiate legal action when necessary.

Negative information on your credit report has the potential to damage your credit score and make it harder to qualify for financing and applying for any type of credit. It is best to avoid issues like late payments charge-offs, and collection accounts. If you do happen to make a mistake or have an error in your credit report, all hope isn’t lost. You can still bounce back and improve your credit for the future.

Credit Scores are Not Controlled by the Government

There is a misconception that credit scores are controlled by the government and a meme portraying Spiderman that reads: “The people who are $30 trillion in debt are giving you a credit score” is making its rounds on the internet.

Credit scores come from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Consumers have a belief that they are somehow owned, managed and controlled by the federal government but they are not, in fact.

At a fundamental level, the credit bureaus all operate as private, for-profit companies. They are highly regulated by the government by the creation of the Consumer Financial Protection Bureau or the Fair Credit Reporting Act.  But in reality, none of the businesses are mandated by the government.

Credit bureaus work to collect consumer credit information and they sell that information to businesses such as banks and credit card companies. These companies want to know the financial risk of their consumers and are willing to pay for screenings. This determines the likelihood that the consumer will successfully manage a large expense and pay back a loan.

Credit bureaus also work directly with consumers. They are tasked with responding directly to consumer disputes due to mistakes and missing information on credit reports and allow consumers access to their credit scores. If there is fraudulent activity, they allow the consumer to freeze their account or place fraud alerts.

Each company works independently from each other. That is why each report may slightly differ. You may also find that you can access different reports from different places.

Even though the credit bureaus are not apart of the government they are still subjected to laws and regulation. The FCRA has been in existence since the 1970’s. It has been implemented to protect consumer rights when it comes to accuracy, fairness, and privacy of credit information. According to the FCRA you have the right to:

• Be told if information in your credit report has been used against you

• Know what’s in your credit report

• Access your credit score

• Dispute incorrect or incomplete information

• Have incorrect or incomplete information resolved by the credit bureaus

• Have outdated, negative information withheld from your report

• Limit who can access your file

• Give consent to your report being given to employers

• Limit pre-screened credit and insurance offers sent to you

• Seek damages from violators

• Be given additional protections if you’re the victim of identity theft or are on active military duty.

Buy Now, Pay Later & Credit Score

Buy now pay later options do not generally affect peoples credit and do not yet routinely appear on most credit reports. The credit bureaus; TransUnion, Equifax, and Experian are each working through this relatively new system and how to report on these services in the context of credit worthiness and a borrowers financial obligations. 

This means that a good record of payment on your buy now, pay later accounts will not help build your credit. It also won’t hurt your credit unless your account is sent to collections. This payment option is popular with younger generations, as they are least likely to have built their credit. For now, it is a good way to practice building your credit. 

How Buy Now, Pay Later Works

When you purchase something online, some stores may offer to divide your purchase into smaller installment payments. Most often into four payments, every two weeks. The most used options are Affirm, Afterpay, Klarna, Paypal, and Zip. They partner with retailers who pay them commission. 

Approval is partially based on data that includes address stability, public records and previous history you may have with the lender and banking information. 

Opportunities for Credit Building

The credit bureaus are working hard to incorporate this method into their formulas. Consumers are using these accounts online more frequently than traditional credit cards and loans, especially young consumers. This could prove to be most beneficial to build up credit. 

There are Risks

Since buy now, pay later loans are new and unregulated they are often paid late, most often by consumers of the age group 18-30. BNPY lack the typical protections you would have under a credit card such as dispute resolutions. The easy access to the application causes the consumer to impulsively purchase and buildup debt faster than they normally would. The consumer may also rack up multiple BNPL accounts on multiple sites that could potentially lead to collection accounts. Once sent to collections, it will end up on credit reports. 

The Credit Bureaus

It has been decades since a new type of credit has been in the market. The BNPY system does not fit perfectly within the two categories they have in place now: Installment loans that span months or years and revolving credit like credit cards. 

The bureaus are working together to find a format that fits and are figuring out a common ground.

Current Plans:

• Experian has announced it plans a specialty bureau to hold buy now, pay later data. Information from the specialty bureau will be “promoted” periodically into the consumer’s core credit file.
  

• Equifax plans to add the information to regular credit reports.
  

• TransUnion has said it will partition off the data on core credit reports.

What Caused Your Credit Score to Drop?

When you notice that your credit score had dropped, you start to question many things. We try to pay our bills on time, at the right amount, and keep our credit usage at a minimum but sometimes we fail. We aren’t perfect, but one small mistake can reflect on your overall credit score. 

If you notice a drop, it is most likely due to something specific. Here is a list of the most common reason this happens: 

1. You Were Late or Missed a Payment

Your payment history is one of the most influential factors to your overall credit score. Missing just one payment can negatively impact your credit. It is important to stay up to date on things such as due dates and minimum payment amounts. 

2. You Applied for a Loan or a New Credit Card

Maybe you found a new credit card that appeals to you or you just took our a loan for school, a vehicle, or home renovation. Unfortunately, as exciting as these can be, it can be less exciting for your credit score. Any time you authorize someone, such as a credit card company or lender to check your credit report, you may notice your score took a hit. This is known as an inquiry. It is important be sure the credit you applied for is worth the hit and will be valuable in the long run. It doesn’t have to be a scary process if you are prepared! 

3. Your Credit Utilization Has Gone Up

It is easy to make a charged payment and think that you will pay it off later. It is such an easy and convenient process that we don’t realize how charges can add up quickly. You may end up lowering your credit score depending on the card’s credit limit, maxing out the card, making larges purchases, or continuing to make small payments. You should monitor your charges and keep them below 30% of the credit limit. 

4. You Closed a Credit Card Account

Closing out a credit card, especially if it one of your oldest will reduce the age of your credit history. Your credit history is another factor that impacts your credit score. The longer you have a card or account open shows that you are able to maintain a credit card over time. You should consider keeping the card unless it has a high annual fee. Keeping it open will help maintain your overall credit limit and credit history. 

Build Credit From Every Day Expenses

There is a new app that can help users build credit from everyday expenses. 22-year-old Michael Brougthon is a CEO and co-founder of Perch Credit, a free mobile app that allows users to utilize common expenses like rent and Hulu payments to build credit. 

When Broughton was a college student, he realized how tricky the United States credit system could be. His experience with credit inspired him to create the Perch Credit app, hoping to make the experience of others less frustrating. Before starting his first semester at USC, he was informed that he was $10,000 short on his tuition. His family had no way to cover the costs and they had never had more than $3-4k in their family bank account at one time. His only option was to take out a loan, but he was getting denied due to lack of existing credit history. 

Broughton began doing some research on how to make building credit easier by utilizing common expenses that everyone uses instead of requiring people to go into further debt. 

In January 2021, Brougton launched Perch Credit. The app is completely free and allows users to utilize rent payments or subscriptions such as Netflix, Hulu, and Spotify to build credit. The company holds a mission to help 100,000 people build their credit in 2021. He hopes that users will feel a sense of financial empowerment by utilizing the Perch app. In addition to credit building, the app also provides financial literacy for users. 

Signing up is completely free and does not affect your current credit score. Visit https://getperch.app for more information! 

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What is a Charge-Off?

Put simply, a charge-off is put in place when you miss too many payments and your account goes unpaid, a creditor may prevent you from making additional charges. Even if a creditor stops trying to collect on your account, you could still be responsible for the debt. 

A charge-off is the last resort that creditors take and decide that the debt is a loss for the company. You could potentially end up with an unpaid charge if your account becomes delinquent. This can happen with credit card debts and installment loans like an auto loan, personal loan or student loan.

This does not mean you’re off the hook. Even if your account is listed as a charge-off and the creditor is taking the loss, you’re still responsible for paying back the debt. A charge-off can remain on your credit history and show up on your credit reports for up to seven years from the date your missed payment was reported. 

How does a charge-off end up on your credit reports?

Once a creditor writes off your account, it may be reported as a charge-off to the credit bureaus, which translates to a derogatory mark on your reports. The derogatory mark can stay on your reports up to seven years. The creditor may sell your account to a third-party collections agency if the debt was unsecured. If this is the case, your account could appear as an “account in collections” on your reports. When this happens, your credit score may lower and it will become more difficult to qualify for credit or get competitive interest rates. 

The Difference Between a Charge-Off, a Write-Off, and a Transfer

A charge-off and a write-off are the same thing: A creditor decides that you are not likely to pay back the debt and prevents you from making additional charges on the account after the account becomes severely delinquent. This may have a negative effect on your credit. However, a transfer can be neutral. This means the original creditor has sold your account or moved it to a different creditor. The account may be transferred in good standing or listed as a charge-off. 

How does a charge-off affect your credit? 

Before your account was officially a charge-off — you probably missed a number of payments. These missed payments can significantly damage your credit because payment history is a major determining factor on your credit scores. Your scores will most likely suffer further if the account is listed as a charge-off because of the derogatory mark. 

If your account is in collections, it may also lower your credit scores. Not paying the collections agency can further damage your credit, because the agency can report missed payments to the credit bureaus. 

In positive news: if you show that you use credit responsibly from here forward — such as making on-time payments and being proactive about your debt — then the effects of the derogatory marks on your credit reports can begin to diminish after about 2 years. And, thanks to the Fair Credit Reporting Act, you have the right to have negative information like a charge-off removed from your credit reports after seven years. 

Should you pay a charged-off account?

You should first verify that the charge-off account is accurate. If there is a charge-off account on your credit reports, you should verify all of the information. 

Make sure to look at these things:

• Your account may be sold a few times through third-party collections agencies. Make sure each sold account is marked “closed” and has a zero balance. Only the most current collections account should be listed as open.

• Check the outstanding balance. If it’s more than you think it should be, ask the creditor to explain any additional costs or make the correction.

• Verify the charge-off date on the original account as well as any offspring accounts in collections. The charge-off date should be the date of your first delinquent payment on the original account.

Is the charge-off is legitimate

If you find that the charge-off is legitimate, it is important that you take action to pay it off. It may be tempting to to not pay the charge-off, since the lender has likely stopped trying to collect on the account. But as long as the debt is yours, you’re legally responsible for it until it is paid, settled, or discharged in a bankruptcy filing. Plus, the charge-off can ruin your chances of getting a loan. Some lenders require that you pay all outstanding debt before you take out a mortgage or other types of loans. 

If the charge-off is an error

Don’t pay the charge-off if you find that it was made in an error. If it was an error or if it isn’t removed from your reports after 7 years, you can file a dispute. TransUnion, Equifax, and Experian have a dispute option and are required to review them within 30 days. However, it is best to write a letter and send the dispute by certified mail. This method removes the computer generated checking and lets you know that a real person has investigated your information. 

How to pay charged-off accounts

• Communicate with the original lender.

If the debt hasn’t been sold to a collection agency, you can work with the original lender to make payment arrangements. Once it is paid off, the lender will change the status of the account to “paid charge-off” and update the balance to 0. Lenders usually see a paid charge-off as more favorable than an unpaid debt. 

• Settle the Debt 

If you decide to negotiate a settlement and either the original lender or collection agency accepts less money than originally agreed, keep this in mind: It should appear on your credit reports as a “settled” charge-off. This could negatively impact your credit scores, but the account won’t be sent to collections. 

• Pay the collections agency

If the creditor sold the account to a collections agency, the you would pay the agency. Before you do, write to the agency and ask for proof that it owns the account. After you have paid off the debt, the account will appear on your reports as “paid collection”, which is more favorably viewed by lenders than an unpaid account.  

Once you have paid off the debt, through the original creditor or the collections agency, or via a settlement, make sure you ask for a final payment letter. You should also keep tabs on your credit reports. If the account isn’t shown as paid, you will have the letter as proof that you can use to help get your credit reports corrected. 

Removing a Charge-Off 

If the charge-off listed on your credit reports is legitimate, there is not much you can do to remove it. You can try negotiating with the original lender. If the account hasn’t been sold, you can offer to pay the debt in full exchange for the charge-off note to be removed from your reports .

Some debt collectors may offer to remove the charge-off note from your credit reports — this is sometimes knows as a “pay for delete” offer. It is important to note that lenders are required to report accurate and complete information, so any “pay for delete” service is unlikely to be successful. Otherwise, a charge-off should be removed automatically from your credit report after 7 years. 

Final Steps

Once you have taken care of the charge-off, you should take healthy credit steps to improve your credit. There are credit counseling services that help you make a budget and avoid delinquent payments in the future. 

If you have found an error on your credit report and investigations have failed. Contact us for help. 

What is a Credit Score?

Credit scores indicate your level of risk as a borrower. There are different credit scores that use unique formulas but they each will typically include factors such as: payment history and amounts owed. 

What Is a Credit Score?

A credit score is a number that measures how risky you are as a borrower aka your credit worthiness. Financial institutions use this score to measure how much they can trust you. Credit scores are calculated by your past behavior with loans, credit cards, and other financial products. The higher your credit score, the lower risk you pose to lenders. Higher scores usually mean that you can expect better terms and lower rates when you borrow money. 

You might not realize that you have hundreds of of credit scores, not just one. The FICO brand of credit scores used to be the only scoring system3. Established by Fair Isaac Corporation, FICO, remains the main type of credit score used by lenders to evaluate the credit ratings of applicants. When you hear about credit scores, it usually means the FICO Score. However, under the FICO brand there are different types of FICO Scores for different purposes. For example, when applying for a student loan or buying a house, the bank may use a different type of score than if you are applying for a credit card. 

Most recently, the three major credit bureaus (TransUnion, Equifax, and Experian) have banded together to create another scoring system called VantageScore. This score relies on a slightly different set of weighted criteria than FICO Scores. If you receive a free credit score on your credit card statement, you may read the fine print to find out what scoring model and credit bureau data they are using. 

Range of Credit Score

VantageScore 3.0, 4.0, and most FICO Scores range from 300-850. Older versions of VantageScore and some other types of FICO Scores have different numerical values. 

What isn’t In Your Credit Score

Your FICO and VantageScore credit scores only consider your account information on your credit reports. They do not consider things like:

• Your income (credit card companies will ask for this when you apply for new credit, though)

• Your specific place of residence

• Your age, race, gender, religion, marital status, or national origin

• Child support/family support obligations

• Whether or not you’re using credit counseling services

Criteria Used by FICO and VantageScore

FICO and VantageScore determine credit scores by evaluating similar factors that essentially boil down to the following:

• Your payment history

• Amounts owed, particularly versus your overall available credit

• The age of your credit history

• The types of credit accounts opened in your name (loans, credit cards, etc.)

• New/recent applications for credit

It is generally safe to assume that the biggest factor that impacts your credit score is your payment history followed by amounts owed and utilization of credit. 

Exactly how these factors impact a given score can vary, but it’s generally safe to assume that your payment history is the biggest consideration, and that’s nearly always followed by your amounts owed/utilization.

Here is an outline of a few of the more commonly used scoring formulas:

FICO Scoring Criteria

(Scores range from 300 to 850)

• 35% Payment history

• 30% Amounts owed

• 15% Length of credit history

• 10% New credit

• 10% Types of credit

VantageScore 3.0 Scoring Criteria

(Scores range from 300 to 850)

• 40% Payment history

• 20% Credit Utilization

• 11% Balances (total amount owed)

• 21% Depth of credit (length of credit history, types of credit)

• 5% Recent credit

• 3% Available credit

VantageScore 4.0 Scoring Criteria

(Scores range from 300 to 850)

• 41% Payment history

• 20% Credit Utilization

• 20% Age/Mix of Credit

• 11% New Credit

• 6% Balances

• 2% Available credit

Look for our next blog for the break down of these elements included in FICO Scores. 

Twitter Shredded by Credit Karma's Comically Inaccurate Scoring

Last week, Twitter was bombarded with consumers expressing their (hilarious) frustrations concerning their credit scores provided by Credit Karma, the personal finance company owned by Intuit. 

The frustration comes from users realizing that Credit Karma is providing them with lower credit scores than what is found on their credit reports. 

Consumers were tweeting about applying for credit cards, loans, and attempting to purchase vehicles thinking that they had good or excellent credit, only to find out that the credit score that the issuer pulled was lower than what they had found on Credit Karma. The tweet that started the meme trend can be found here.  

Twitter users were quick to share and create memes about how their credit score was inflated on Credit Karma. @RiotGrlErin had even tweeted “checking your credit score on credit karma is like checking your symptoms on WebMd.”

But, users were on to something important when it comes to checking your credit score. There are many reasons why your credit scores differ between what a personal finance website tells you and what lenders or credit card companies find. There are mainly two reasons: For one, a lender may pull your credit from different credit bureaus, either Equifax, Experian, or TransUnion. Your score can differ depending on which bureau your report is pulled from, since they do not all receive the same information about your credit accounts. Secondly, there are different credit score models and versions that exist across the board. 

Credit Karma’s website states that they use the VantageScore® 3.0 model. VantageScore may look at the same facts that the other popular FICO scoring models does, such as your payment history, amounts owed, length of credit history, new credit and your credit mix but each scoring model weighs these factors differently. Because of this, VantageScore and FICO Scores tend to vary from one another. The VantageScore® 3.0 on Credit Karma will likely be different from your FICO Score that lenders use most often. If you are planning on applying for credit, make sure to check your FICO score since there is a good chance that lenders will use this to determine your creditworthiness. FICO Scores are used in over 90% of U.S. lending decisions. It is important to note that there are also industry-specific FICO Scores to look at when you are planning a specific purchase. For example FICO® Auto Scores are ideal if you are wanting to finance a car with an auto loan. If you are planning to buy a house you should look at FICO® Scores 2, 5 and 4. 

The best way to look at your scores is to visit www.annualcreditreport.com where you can access and download your reports from Equifax, Experian, and Trans Union. Due to Covid, your report is free to access once a week until April 2021. 

Feel free to shoot us a message for any questions!

Drastically Dropping Credit Score

Many people are are wondering why their credit scores are dropping at a drastic rate. You may be doing things such as paying off auto loans, credit cards, and even making credit card payments well above the minimum due. So, this drop seems really unfair, doesn’t it?

You first want to retrieve your credit reports from the three main bureaus: Equifax, TransUnion, and Experian. You can obtain and download these reports from: AnnualCreditReport.com  These reports are now available weekly, for free until April 2021! Every month millions of data are retrieved by credit bureaus to be posted. The items in your report should be accurate but sometimes errors can be found. You should check for things such as: a misspelled name, a mixed-up account in the lenders’ records, a suffix such as “junior” that should be “senior” and other items that could be a mix up with someone else’s data on your report. By getting all three reports you will be able to see the discrepancies faster.

The bureaus do not have all the same information. They compete for business both into and out of their files. Some lenders may only be reporting to one of the lenders and you may find that you have very different credit scores from each reporting agency. Make sure to dispute anything that you do not recognize as yours, that is more than seven years old, or if something is missing. The best way to dispute is by sending them a letter through certified mail, so that you know an actual person is reading your dispute and you can verify that they received your letter. Since they are in competition with each other, if that data is incorrect, that is not a good competitive business for you. 

High Balances

If you are making the above minimum payment on a number of cards which you are carrying balances, the interest being charged is making your balance go up which is causing you to lose points.  You should be keeping your credit card balances below 30% of your credit limit. If you have multiple cards, don’t focus on just paying off one. The card with a high balance will still effect your credit score regardless if they other(s) are paid off. 

Accounts not appearing on report

Some lenders don’t report to every bureau every month. It costs the lender money to report to the bureaus that you have paid a bill. Auto lenders are quick to repossess a vehicle if you miss a payment but might find little advantage in reporting the paid-off loan instantly. It may take a three-month period for that good news to get published! It’s unfair! 

Closed Credit Card Accounts 

If you have paid off credit cards and then closed the accounts, the utilization points in your score will have gone down because you have lost the available credit from those cards. This is a reason why it is important to not close accounts if you can prevent from doing so. Your credit limits are tied directly to your credit utilization ratio, which counts for 30% of your overall FICO score. You should try to keep credit cards open, whether you are using them or not, unless you are being charged a large fee for their use. One tip I can suggest: If you have two cards from the same bank issuer, you should ask to have the closed account credit limit added to your remaining opening account. This will keep the utilization factor low while saving you an annual fee. 

Your credit history has gotten shorter

If you have recently closed any other accounts, it could have impacted your credit history. Your credit history is how long you have had credit being reported in your name. In credit reporting, the older the better. This makes it more difficult for young people to build up their scores. It is useful to know that some scoring models only count your open accounts in this calculation. 

What affects your credit score?

Here is a brief FICO score primer:

The five basic components in order of importance:

• Payment history (35 percent)

• Credit utilization (30 percent)

• Length of credit history (15 percent)

• Credit mix (10 percent)

• New credit (10 percent)

Credit mix

While the car payments aren’t a factor in utilization, they have a direct impact on the credit mix portion of your score. Lenders like to see that borrowers can handle both revolving credit (credit cards, etc.) and installment debt (car notes, mortgages, etc.) on a monthly basis. Once your car notes were paid off, you lost those points. You still have your good payment history on those notes and that history will stay on your credit reports for 10 years. But credit cards alone will not do much for you in the credit mix department.

New credit

Having hard inquiries over the past couple of years could negatively impact your credit score but only in short term. If you have applied for credit that you did not receive that will hurt you since you would not have the new available credit credit to balance out the impact of that inquiry. It is important to have a fairly good idea that you will be accepted for credit before you apply. 

If you have questions or concerns about your credit report use our online form to contact us. We can answer your questions and see if you might have a case. 

Tips for Boosting your Credit Score before Applying for a New Apartment

When getting a new apartment, you are required to do a lot of paper work. Luckily, most apartment applications occur online, especially since the onset of the coronavirus pandemic. Landlords and property management companies will still ask that you provide personal information so that they can conduct a thorough credit and background check. 

Different states, cities, and apartment complexes will have different requirement, but most rental applications will request similar information for each applicant, so that they can verify your identity and your ability to pay rent. This typically includes information such as: personal contact information, social security number, current and previous addresses, employer information with proof of income, emergency contacts, and vehicle information. 

Even though it is all basic information, rental applications can still be extensive. Once everything checks out - meaning you have a clean criminal record, a good rental history with no evictions, and have proof that you can afford your new place - a new home will await for you on the other side. 

To help you obtain a new home here are a few wats you can manage and maintain your credit score to amaze your potential landlord:

Know what is on your credit report ahead of time

It is reassuring to know what your prospective landlord will be seeing when they run a credit check. Before your apartment hunt visit AnnualCreditReport.com and download your free credit report from each of the three main credit bureaus: Experian, Equifax, and TransUnion. You can download your credit report weekly for free through April 2021. (This is typically annually)

Once you download your reports, it is vital that you review them carefully. If you have student loans, or any other credit balances, it should come as a surprise to find them on your report. You will also be able to see your credit score. 

You want to look out for negative marks that you may not have known about. If you see something that is inaccurate or an error, make sure you dispute the errors right away. It is better to send a letter by certified mail rather than using their system so that you have the comfort of knowing a real person is looking into the issue and you can verify that they received the dispute.

Improve Your Credit Score

The best way to prime your credit score, is to first know how it is calculated. The most popular is the FICO score model that looks at five key factors:

• Payment History (35%): Whether you have paid past credit accounts on time. 

• Amounts Owed (30%): The total amount of credit and loans you are using compared to your total credit limit, aka your utilization rate.

• Length of Credit History (15%): The length of time you have had credit. 

• New Credit (10%): How often you apply for an open new accounts. 

• Credit Mix (10%): The variety of credit products you have, including credit cards, installment loans, finance company accounts, mortgage loans, etc. 

To boost your credit score quicker, pay off as much credit card debt as soon as possible without completely draining your cash reserves. Do this more than 30 days before you apply so that your credit score can refresh. 

Finances

You will be asked to provide proof of income when you apply for your new apartment, which is typically your pay stubs and/or tax returns. In addition you should also be prepared to provide statements for both your checking and savings accounts. It is always good to make sure you have proof that you have savings set aside for your security deposit and incidentals like facility fees, parking fees, and maintenance fees. 

 Be Weary of New Credit Inquires

If you can avoid it, don’t apply for any new credit cars, auto loans, or any other kinds of credit products right before you apply. When a lender performs a credit check, it leads to a “hard inquiry” into your credit history. Hard inquiries appear on your credit reports that are pulled by the lender and may results in a temporary decrease in your credit score. While the decrease is usually insignificant, around five points, it can send red flags to the potential landlord. 

Build Up Your Savings

Before moving into your new place, prepare for your increased cost of living. If you have the ability to live rent-free with a family member, take advantage! Every month, or even better, every week, set aside what money you would be spending on rent. After a few months you will build up a nice emergency fund. 

These are just a few helpful tips to get you ready for your move! If you are denied, check over your report for inaccuracies. If you need help, contact us for a free consultation

Covid and Credit Score

Covid-19 has been such a unprecedented event and there is still a lot of work being done to configure how different situations should be treated and reported. 

The Fair Credit Reporting Act (FCRA) is a law enacted in 1970 that gives consumers certain rights when it comes to their credit reports that include the ability for consumers to dispute credit reporting errors. It also requires that furnishers (those that produce credit reports) are reporting accurate and up-to-date information. 

Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020. Part of this act ensures that consumers impacted by Covid-19 are still able to receive loan accommodations without having their credit score impacted. This means that when banks and other lenders provide a loan, payment deferrals, and other forms of relief to consumers due to the pandemic, it should not impact their credit score.

Many Americans have been heavily impacted by Covid-19 and have received these types of relief from banks and lenders. While these should not impact credit scores, there are different credit reporting agencies and different credit scoring models. The current challenge is to make sure that loan payment deferrals are being treated consistently. As a consumer, you have the right to view your credit score. Currently, you are able to obtain a free credit report weekly as opposed to yearly. It is important that you check your credit report and score regularly and to make sure to contact the credit reporting agencies if you notice any inaccuracies in your report, especially now if you have received a loan during the pandemic. 

If you feel that your credit report has inaccuracies contact us to take a look and to see if you have a claim. Consultation is free and you may be entitled to a settlement! 

Keeping Good Financial Health

The most important financial document you can have is your credit report.  It is used by lenders to determine if you qualify for a loan, insurance, renting a property, and it may even be checked when you apply for a new job. 

Information contained in your credit report is used to calculate your credit score. To maintain and/or increase your credit score, you have to check that the information that the credit bureaus are collecting are is accurate and the activity is remaining positive. 

Keeping your credit score up comes from :

• Paying bills on time

• Not opening too many credit accounts

• Keeping your credit card balance below 30% 

Even government-regulated agencies such as Transunion, Equifax, and Experian can make mistakes. The Federal Trade Commission reported that 1 in 5 people had an error in their credit report in 2012.

How does this happen?

It could be that a lender had sent the credit bureaus the inaccurate information. This includes information about your transaction history, or you could have a mixed file with someone who shares a similar name and social security number. An error could also be a sign of identity theft. 

The only person who is keeping tabs on your credit report for accuracy is you. We recommend that you check your credit report at least once a year. You are allowed to request an annual free credit report at annualcreditreport.com. Since the Covid pandemic consumers are able to view their credit report once a week for free. Everyone should take advantage of this service, especially at this time where finances are are difficult. 

Lenders are not required to report to every company, so the information you find on a Transunion may report differently than on Experian and Equifax.  

The specific details in each credit report may be different, but they all follow a similar structure. It is important to check the personal information of your credit report carefully:

• Current and former names

• Current and former addresses

• Birthdate

• Social security number

• Phone numbers

• Spouse or co-applicants

• Current and former employers

Errors in this section could indicate a mixed file or a stolen identity. If you find an error it is important to dispute the wrong information immediately.

Your credit report contains a section for “Soft” and “Hard” inquiries. Soft inquires are requests made by outside parties, such as lenders who want to offer you unsolicited credit. They request your information to see your credit worthiness. These do not affect your score. Hard inquiries will affect your score. These are made by lenders when you apply for credit, employment, insurance, etc. You have to authorize the hard inquiry when you apply.

If you have debt related mistakes, it is important to contact the lender first and clearly explain the error that was made. They will likely fix the error without protest, especially if you have been a good customer. They are required to alert the bureaus of the mistake, but you should also file a dispute to the bureaus to make sure the communication was successful. 

When communicating with the credit bureaus about an error in your report, it is important to collect any and all documentation that supports your claim. This could be bank statements, bills, contracts, legal documents, and emails. An effective way to dispute is to write a letter to the bureau as opposed to disputing online, so that a real person must look over your information. In the letter you should clearly outline the error(s) and explain the steps you have already taken to fix it. When finished, send the letter along with copies of your documents to the bureaus using certified mail. It is important to keep track of all communication. 

If you need help with anything related to your credit report, use our contact form to send us an inquiry. We will get back to you within 24 hours! 

Credit Report vs. Credit Score

Credit Report Vs. Credit Score

One common misunderstanding is differentiating your credit report and your credit score. Lenders use the numbers from both to determine the likelihood that you will make payments as agreed in your contract. Lenders that use your credit report and your credit score include credit card companies, apartments, car loans, and mortgage. Your credit report holds information on all your past credit history. The data that gets collected is used to determine your credit score.

Your credit score is a three-digit number that lenders, such as those mentioned above, use to determine how safe or how much of a risk you may be as a customer. The range is typically between 300 and 850. Credit scores are determined based on how much debt you owe, history of repayment, if you have any marks for being late, and how long you have had your credit accounts. It is common for your scores to fluctuate based on your account activity.  There are different scoring models used to determine your score. Some even use your income to calculate your credit score.

Here is a general look at credit score ranges:

• 300-579: Poor

• 580-669: Fair

• 670-739: Good

• 740-799: Very good

• 800-850: Excellent

It is important to strive for a higher score because you will receive more favorable credit terms such as lower interest and lower payments. Credit scores will vary depending on what model was used. Not all creditors report to all three bureaus (Experian, TransUnion, and Equifax). Some creditors may only report to two or none at all. They may also calculate your medium score from all three major credit bureaus.

  Your credit report is a statement that provides information about your lines of credit and your payment history but does not contain your credit score. Your credit report is compiled by the three major credit reporting companies (Experian, TransUnion, and Equifax). These are also known as bureaus or consumer reporting agencies. Lenders will use these reports to determine if they want to loan you money and it helps them determine the interest rate you will receive. Other businesses that use credit reports are renters, insurance agencies, and utility services. Your employer may also run a credit report to make employment decisions about you.

Credit reports will contain:

 Personal Information:

• ·         Name

• ·         Address

• ·         Social Security Number

• ·         Date of Birth

• ·         Phone Numbers.

Credit Accounts:

• Current Accounts and Accounts History

• Credit Limit/ Amount

•  Account Balance

Collections

Public Records

•    Foreclosure

•   Civil Suits

• ·Bankruptcies

Reports can sometimes have errors. It is important to check your credit report. If you find any mistakes, it is imperative that you report these errors right away. Everyone is entitled to a free credit report once a year. Find your free credit report at

https://www.nerdwallet.com/blog/finance/credit-score-vs-credit-report-whats-difference/