Frequently Asked Questions
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A credit score is a number generated by a mathematical formula that is meant to predict creditworthiness. Credit scores range from 300-850. The higher your score is, the more likely you are to get a loan. The lower your score is, the less likely you are to get a loan. If you have a low credit score and get approved for credit then your interest rate will be much higher than someone who had a good credit score and borrowed money. Having a higher credit score can save thousands of dollars over the span of your mortgage, auto loan, or credit card.
By law, agencies must provide you with a free annual report. However, these free reports do not contain scores. For credit repair scores we recommend an inexpensive credit-monitoring service.
800+ (Excellent) With a credit score in this range, no lender will disapprove your loan application. Additionally, the APR (Annual Percentage Rate) on your credit cards will be the lowest possible. Achieving an excellent credit rating not only requires financial knowledge and discipline, but also a good credit history. To obtain this score you must consistently use a substantial amount of credit on a monthly basis, pay the minimum amount required on or before the due date, and refrain from having too many credit inquiries on your behalf in a short period of time.
700 – 799 (Very Good) 27% of the United States population is currently in this credit score range. In this range you will enjoy good rates and approval for nearly any type of credit loan or personal loan, whether unsecured or secured.
680 – 699 (Good) This range is the average credit score. In this range an approval is likely but the interest rates may be marginally higher. If you’re considering a long-term loan such as a mortgage, increasing your credit score to a rating of at least 720 will be optimal to maximize monetary savings.
620 -679 (OK or Fair) At this range, interest rates will be higher by a noticeable amount and loan terms may be stringent. This signifies that the likelihood of loan approval is fairly likely and certain restrictions will apply.
580 – 619 (Poor) With a poor credit rating, approval for an unsecured personal loan is unlikely and approval for a mortgage is highly unlikely. If approved for the personal loan or mortgage, the terms and interest rates will be more stringent than a loan at a credit score of 620+. You’ll be required to pay more over a longer period of time due to the high interest.
500 – 579 (Bad) With a score in this range obtaining a loan is possible but the terms will be very stringent and restrictive. Individuals with bad credit apply for loans to consolidate debt and start fresh. However, caution must be exercised if this path is chosen. With a credit score in this range an individual is at a high risk of defaulting on payments and declaring bankruptcy.
499 and Lower (Very Bad) With a score in this range, professional assistance is highly recommended to improve the current method of credit discipline. If a loan is being considered and the difficult process of locating a sub-prime lender is successful, the rates offered will be the highest and the terms most restrictive. It is recommended that credit be improved by a large margin before attempting to obtain a loan.
35% – Payment History
30% – Debt Ratio
15% – Length of Credit History
10% – Types of Credit
10% – Number of Credit Inquiries
The percentages in this chart show how important each of the categories is in determining your credit score. Financial Geniuses will help you remove negative factors from your payment history and show you how to maximize your debt ratio score regardless of your ability to pay off your credit cards.
Credit bureaus collect and sell four basic types of information:
- Identification and employment information
Your name, birth date, Social Security number, employer, and spouse’s name are routinely recorded in your credit report. They may also provide information about your employment history, home ownership, income, and previous address if a creditor requests this type of information.
- Public record information
Events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may appear in your report.
CRAs must maintain a record of all creditors who have asked for your credit history within the past year. It is generally beneficial to keep the number of inquires as low as possible.
- Payment history
Your accounts with different creditors are listed, along with the balances, high balances, and outstanding balances. Related events, such as referral of an overdue account to a collection agency, charge off accounts or other delinquencies may also be noted.
Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change — but improvement generally depends on how that factor relates to other factors considered by the model.
Scoring models generally evaluate the following types of information in your credit report:
- Do you pay your bills on time? Payment history is a major factor in credit scoring. If you have paid bills late, have collections, or declared bankruptcy, these events will not reflect well in your credit score.
- Do you have a long credit history? Generally speaking, the longer your history of holding accounts is, the more trusted you will be as a borrower.
- Have you applied for credit recently? If you have many recent inquires this can be construed as being negative by the credit reporting agencies. It is recommended that applying for a line of credit only be done when necessary.
- What is your outstanding debt? It is important that you are not using all of your available credit. If all of your credit cards are maxed out, your scores will reflect that you are not managing your debt wisely.
1. Always pay your bills on time.
2. Don’t close old accounts.
3. Don’t apply for any new credit.
4. Don’t use more than 30% of your available credit on each credit card.
If you are denied credit, the Equal Credit Opportunity Act requires that the creditor give you a notice that tells you the specific reasons your application was rejected or that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so we recommend asking the creditor to be specific. Acceptable reasons include: “Your income was low” or “You haven’t been employed long enough.” Unacceptable reasons include: “You didn’t meet our minimum standards” or “You didn’t receive enough points on our credit scoring system.”
If a creditor says you were denied credit because you are too near your credit limits on your credit cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.
If you’ve been denied credit, or didn’t get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you are approved for a line of credit, ask the creditor whether you are receiving the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report.
Following these 7 steps will increase your score:
- Order new copies of your credit reports from all 3 bureaus: Equifax, Experian and TransUnion. *We will assist you with this step.
Credit reports are constantly changing. Therefore, it is important to have updated copies. A good rule of thumb to know is: If an entity runs a hard inquiry into your score or reports, this will hurt your score. However, if you order your own credit reports your score will not be affected. You also may want to sign up for credit monitoring to see your reports, score, and track changes as they happen.
- Correct all inaccuracies on your credit reports. *We will assist you with this step.
Thoroughly read the credit reports. The terms you should be searching for are: late payments, charge-offs, collections or other negative items that aren’t yours, accounts listed as “settled,” “paid derogatory,” “paid charge-off” or anything other than “current” or “paid as agreed”. If you paid on time and in full, you should be searching for: accounts that are still listed as unpaid and were included in a bankruptcy filing, and negative items older than seven years (10 in the case of bankruptcy) that should’ve been automatically removed from your report. However, your score may be lowered when a negative factor is automatically removed. The FICO credit-scoring system interprets the removal of negative information as a degree of instability that cannot be immediately accounted for as a positive change. As well as this, assure that there are no duplicate collection notices listed. For example; if you have an account that has gone to collections, the original creditor may list the debt, as well as the collection agency. If a duplicate is located, it must be removed. It is also important to be sure that your proper credit lines are posted on your credit reports. Often, in an effort to make you less desirable to their competitors, some creditors will not post your proper credit line. Showing less available credit can negatively impact your credit score. If you see this happening on your credit report, you have a right to request that it is corrected. If you have bankruptcies that should be showing a zero balance, assure that they show a zero balance. Often, the creditor will not report a “bankruptcy charge-off” as a zero balance until it’s been disputed.
- If you have any negative marks on your credit report, negotiate with the creditor or lender to remove it. *We will assist you with this step.
If you are a loyal customer and the issue is or is similar to a one-time late payment, a creditor will often remove it to retain your business at your request. However, if you have a serious negative mark (such as a long overdue bill that has gone to collections), always negotiate a payment in exchange for removal of the negative item. Always make sure you have this agreement with the creditor in writing. Do not pay off a bill that has gone to collections unless the creditor agrees in writing that they will remove the derogatory item from your credit report. Furthermore, when speaking with the creditor or collection agency about a debt that has gone to collections, do not admit that the debt is yours. Admission of debt can restart the statute of limitations, and may enable the creditor to sue you. You are also less likely to be able to negotiate a letter of deletion if you admit that this debt is yours. Simply say “I’m calling about account number ________” instead of “I’m calling about my past due debt.” Again, as your credit specialist, we will help you with this step.
- Pay all credit cards and any revolving credit down to below 30% the available credit line.
The credit-scoring system uses your credit utilization ratio (CUR) to measure the balance between financial overextension and healthy credit utilization. The CUR percentage recommended by most creditors is 30% of your available credit. For example; if you have a credit card with a $10,000 credit limit, assure that your balance does not increase to an amount above $3000 (even if you pay your account off in full each month). If your balances are higher than 30% of the available credit line, pay them down. Another option you have is to ask your long-time creditors if they will raise your credit line without checking your FICO score or your credit report. We recommend that you state to them that you’re shopping for a house and you can’t afford to have any hits on your credit report. Most creditors may grant this request but this is not a guarantee.
- Do not close your old credit card accounts.
Established credit accounts display credit history, stability, and paying habits. If you have old credit card accounts that you want to stop using, cut up the cards or keep them in a drawer, and keep the accounts open.
- Avoid applying for new credit.
Do not apply for any new credit. When you apply for new credit, your credit report gets checked. New credit cards will not help your credit score and a credit account less than one year old may hurt your credit score. Use your cards and credit as little as possible until the next credit scoring.
- Have at least three revolving credit lines and one active (or paid) installment loan listed on your credit report.
The scoring system will check to see that you maintain a variety of credit accounts and 3 revolving credit lines. If you do not have three active credit cards, consider opening some (but keep in mind that if you do, you will need to wait some time before rescoring). If you have poor credit and are not approved for a typical credit card, you may consider opening a “secured credit card” account. A secured credit card account requires you to make a deposit that is equal to or more than your limit and assures the bank that you will repay the loan. It’s an excellent way to establish credit. Examples of an installment loan would be a car loan, furniture, or a major appliance. In addition to the above, having a mortgage listed will bring your score even higher.
THROUGHOUT THIS PROCESS, ALWAYS REMEMBER:
It takes up to 30 days for any of these items to get reported and often longer to reflect on your credit history reports. Often, writing a series of letters challenging the credit bureaus is necessary. Upon delivery of these written letters, a response time of 30 days must be given. Although this can feel like a slow process, patience is key as it does work and the end result will save you a tremendous amount of money.