Managing Your CreditBoth Personal & Business Total Solutions Alliance LLC
Credit Related Facts• 79% of all credit reports contain mistakes• 54% of all credit reports contain personal information that is long outdated, belongs to a stranger, or is otherwise incorrect – Most people don’t know that this incorrect information can have an effect on credit scores. • Common types of incorrect information are: Spelling of names, date of birth and even social security numbers• 30% of all credit reports contain accounts that are closed by the consumer but continue to be reported as open
Credit Related Facts – Some creditors will look at this open credit and take that into consideration when making credit decisions• 25% of all credit reports contain errors serious enough to result in the outright denial of credit – This can be due to Identity Theft or just outright incorrect reporting• Bankruptcy only has approximately a 1%- 2% impact on a credit score.
Credit Related FactsWhat causes the credit scores to drop dramatically after a bankruptcy is that the creditors included in the bankruptcy will continue to report the account as negative when in fact the account included in the bankruptcy has been wiped as if it never existed and should be removed from the credit report.
Credit Management Versus Credit Repair• With credit repair, the focus is on negative credit. If using a credit repair company, you usually will make monthly payments and they work on a 90-120 day cycle. – Dispute letters are sent out on the negative items to the credit reporting bureau in the hopes that the credit repair bureau is so over worked that they will not have the time to get to your dispute and eventually just remove the item from the file.
Credit Management Versus Credit Repair– Some companies will mail you the letters so that you can mail them yourself. Some will even invest in the postage stamps for you to mail the letters. • The letters focus mainly on the negative items • The problem with that is that this will tag you as a credit repair client and they work over time to validate the debt
Credit Management Versus Credit Repair• With credit management the focus is on both the positive and negative credit. – Sometimes by reducing the balances on credit cards that are in good standing can help in raising scores and improving credit. • Try to always carry a balance that is 30% or below of your approved credit line
Credit Management Versus Credit repair(continued) • Working directly with the creditor who is reporting negative credit and coming to an agreement in writing can also help in increasing scores by making payment arrangements and asking the credit to either remove the negative item or start reporting it in a positive status. • Do not make the payment until you have received a letter outlining the terms of the agreement from the creditor.
Credit Management Versus Credit repair(continued) • This letter can be sent to the credit bureau if the creditor fails to keep their end of the agreement. • If a person has no credit, limited credit, no or limited credit in good standing, they can increase their scores by applying for secured credit cards, use only 30% of the credit line and pay on time. Some secured credit card issuers will review the account every 6-12 months and if there is a satisfactory payment history will convert the account from secured to unsecured.
Credit Management Versus Credit repair(continued) Business Credit & Personal Credit • Keep Personal credit separate from business credit. – If you use your personal credit for business purposes, this can have an impact on your personal credit. • Stay away from Business credit that requires a personal guarantee, this credit will also show up in your personal credit profile and can cause your debt to income ratio to be affected.
Credit Management Versus Credit repair(continued) • There are many companies that will give credit with no personal guarantee • If you have no business credit established, start with companies that will give you credit and do not require you to use your SS#. Get a Tax Id number for your business, if you don’t already have one. Use your Tax Id number to apply for your business credit. • Get a D & B number if you don’t already have one. When applying for a D & B number, they will try to sell you their credit building service.
Credit Management Versus Credit repair(continued) • Don ‘t purchase this. This is something you can do yourself and there are companies who will do this for free for you. • Experian also has a business credit division, if you have established credit for your business make sure to also check with Experian for accuracy on your report. You can do all of the above yourself or there are companies that will do this service for you.
Credit Management Versus Credit repair(continued) I highly recommend that if you decide to hire someone to do this for you that you do your due diligence. Do not use credit repair companies, if you choose to go this direction, use a credit management company.
FICO Scoring Factors• Payment History (35%):• - Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)• - Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)• - Severity of delinquency (how long past due)• - Amount past due on delinquent accounts or collection items
FICO Scoring Factors• - Time since past due items (delinquency), adverse public records (if any), or collection items (if any)• - Number of past due items on file• - Number of accounts paid as agreedAmounts Owed (30%):• - Amount owing on accounts• - Amount owing on specific types of accounts• - Lack of a specific type of balance, in some cases
FICO Scoring Factors • - Number of accounts with balances • - Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts) • - Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
FICO Scoring Factors Length of Credit History (15%): • - Time since accounts opened • - Time since accounts opened, by specific type of account • - Time since account activity Types Of Credit Used (10%): • - Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
FICO Scoring Factors New Credit (10%): • - Number of recent credit inquiries • - Time since recent account opening(s), by type of account • - Time since credit inquiry(s) • - Re-establishment of positive credit history following past payment problems
Increasing Your Score • Pay your bills on time. • Proving that you can pay your bills on time is the best thing you can do to improve your score. And it’s never too late to start. Even if you’ve had serious delinquencies in the past, these will count less over time. • Keep credit cards balances low. • High outstanding debt can pull down your score.
Increasing Your Score (continued) • Check your credit report for accuracy. • There may be inaccurate information on your credit report that can be easily cleared up. Always contact the original creditor and all three credit bureaus whenever you clear up an error, so that the inaccurate information won’t reappear later. Requesting a copy of your credit report won’t affect your score if you order it directly from the credit reporting agency or an authorized organization.
Increasing Your Score (continued) • Pay off debt rather than moving it around. • Consolidating your credit card debt on one card or spreading it over multiple cards will not improve your score in the long run. The most effective way to improve your score is by simply paying down the amount you owe. • Have credit cards-but manage them responsibly. • In general, having credit cards and installment loans which you pay on time will raise your score. Someone who has no credit cards tends to have a lower score than someone who has managed credit cards responsibly.
Increasing Your Score (continued) • Don’t open multiple accounts too quickly especially if you have a short credit history. • This can look risky because you are taking on a lot of possible debt. New accounts will also lower the average age of your existing accounts, something that your FICO score also considers. • Don’t close an account to remove it from your record. • A closed account will still show up on your credit report, and may be considered by the score. In fact, closing accounts can sometimes hurt your score unless you also pay down your debt at the same time.
Increasing Your Score (continued) • Shop for a loan within a focused period of time. • FICO scores distinguish between a search for a single loan and a search for many new credit lines, based in part on the length of time over which recent requests for credit occur. • Don’t open new credit card accounts you don’t need. • This approach could backfire and actually lower your score. Make sure to check your credit report at least every 6-12 months to make sure that there are no mistakes.
Increasing Your Score (continued) • Disclosure: Keep in mind that individual results will vary depending on the individual’s credit profile. • Be patient, building a strong credit profile, both personal and business takes time but is well worth it. • Do your due diligence and with a little patience and effort you are well on your way to creating a strong credit profile, both for personal and business use.
Total Solutions Alliance LLC For Free Consultation on we can help you go from Financial Crisis to Financial Prosperity contact: Pilar Tobias 408-372-4797 PTobias@TotalSolutionsAlliance.com www.TotalSolutionsAlliance.com