How to Improve My FICO Score

This not the picture you want of your door.  If you are in the midst of a seperation or divorce, and money worries are among the top reasons marriages fail - the last thing you want to see on your door is this.

Because this is what foreclosure looks like. 

There are somethings you can do, as you argue your way towards selling the house:

• TALK to your LENDER.  Ask for time to make up the payments, or ask for the payments to be forgiven (which means they will add it to the end of the note).
• Change the terms of your loan - some lenders are willing to do this!
• Some Government loans allow for an additional and seperate loan.

The problem is when folks do NOT talk to the mortgage company… and this could be difficult if you are in a divorce… because you might, or might NOT be on the note!  If you are going through a seperation or divorce, make certain you have the account number and contact information for the mortgage lender.  Contact them and be certain that taxes and insurance are up todate and current.  Don’t let your good credit be destroyed because someone else is not willing to pick up the phone and face the problem.

A foreclosure will drop your credit score by 200 to 300 points.  So if you have a 620 score, and that property goes into foreclosure, you are looking at a 320 score.

Once a Notice of Default is filed - your options are pretty much gone.  Do not sit on an overpriced house and let it go into foreclosure.  It is much better to get no cash in the sale of a property than to face foreclosure and 320 credit score!

Are you thinking about fixing your credit all by yourself?

That’s cool.  If you are considering a mortgage, then we’ll be glad to help - but if you want to do it yourself, you might want to check these free sites out!

 The Federal Trade Commission has an aritlce Credit Repair:  Self Help May Be Best.  It’s a nice form letter - but I don’t think it really “hits” on all of the unique situations I’ve seen.

The first thing I suggest is making a copy of your social security card and your driver’s license - include those copies with your letters to the credit bureaus.  If you want to view some other letters, try these two FREE places:

• http://www.mix6.com/credit the dispute letters are on the left hand sidebar near the bottom…
• http://finance.groups.yahoo.com/group/credit-repair has tons of information too - remember to search the Yahoo! Groups archives for more information and advice about seeking legal issues!

and this is free info… however… it’s not like our blog site.  Our site is free, we are not selling anything, or making money off of ads for other products.  Our goal is to be educational and to encourage you to call us if you are considering a home purchase in the Triangle.  These other guys really want to sell you credit “protection” service.

If you need some help with this DIY project, let us know, we’ll do anything we can!

Medical Collection Boo-Boo’s are usually the hardest things to remove - although the Fair Credit Reporting Act and the have very specific statutes about them.

The final rule of HIPAA (the Health Insurance Protability and Accountability Act) makes sharing personal medical record informations illegal with with public.  Remember all those forms you now sign when you check into the doctor’s office - that’s what it’s about.

The rules of HIPAA specifically includes past, present and future payments of health care.  The way most people get collections is because of co-pay.  They go to the doctor, pay their co-pay - and then leave the rest to the insurance company.  When the insurance company does not pay all of the bill, the balance is sold to a collection company, and added to your credit report.

These collections DO pull your credit score down - however FHA does not require that they be paid prior to closing on a mortgage loan!

First off… let’s discuss what Secured Credit is.

A Secured Card  requires you to make a deposit in order to obtain the credit card.  If you are doing this - you are either a parent with a young child that needs a credit card - or you are re-building.  Because there are other ways to obtain cash for a child- let’s assume you fall into the “other” category.

If you’ve gotten into financial difficulty, and you’ve damaged your credit, a secured credit card can help you build your scores back up because they report your payment history to the credit bureaus… and we all know that payment history makes up the largest portion of your score.

A secured credit card operates just like a regular credit card.  As I said, the major difference is that you, the cardholder, are  making a deposit as security in case you default on the credit card payments.

The secured cards that I checked would allow you to borrow between 50% and 100% of the deposit you make - so a $500 deposit might mean you have a card with a $250 limit.  Does that mean you lost the other $250?  NO!  It’s on deposit, earning a tiny little bit of interest.

If you are going this route - also remember that we really need three or four tradelines in order to pull your score higher - so one account is not going to do it.  It’s a nice start -but it’s not going to pull your scores up all by itself.

We see lots of people who apply for Fingerhut Accounts.  They are generally easy to obtain (I don’t get anything for mentioning any of this BTW).  If your credit is strong enough to get a secured card with your bank, as opposed to the ones that pop up when you Google Secured Credit Cards you will have much lower fees.

The most important thing to remember with WHATEVER kind of secured card you obtain is this:

THEY MUST REPORT TO ALL THREE CREDIT BUREAUS if it’s going to help your score!

 Have you ever gotten a credit card kinda’ out of the “Blue?”  Well, that’s not good if you’re trying to restrain your credit use and pay your bills off!

The Credit Bureaus have a toll-free number (888-5OPT-OUT) that allows you to take your name off of the marketing lists they sell.  That’s right, you can thank the Credit Bureaus for the extra credit cards!

Signing up for the Credit Card Opt out service won’t completely eliminate credit card solicitions, but it will cut down on the volume significantly.  The fewer offers in the mail, the fewer chances you would have to use that extra credit.

You can also contact the Direct Marketing Association and ask to be removed from their lists too.  Write to Mail Preferenec Service, PO Box 643, Carmel, NY 10512.

You should also be registered for the federal do-not-call list at www.donotcall.gov.

There are credit experts who feel that signing up for an Opt Out will increase your score by 30 points or more (alone!).  We have not seen that to be the case - but we still strongly recommend that you do it anyway!

I”ve written a couple dozen times about scores and how to increase your score - but I don’t think I’ve mentioned (here anyway) what the goal is.  If you want to buy a car - your goal is to get your score to AT LEAST a 525 on all three credit bureaus.  If you are purchasing a home… the bar’s a little higher.

• FHA loans require a minimum score of 580.  Effective July 14, 2008 FHA will be moving to a “risk based” mortgage insurance program (UFMIP) that will charge borrowers 2.25% (or more) upfront.  This is tacked onto the loan.  Then there’s a monthly fee.  The higher your score - the better the terms for mortgage insurance.  These loans can currently be 100% loans with a DownPayment Assistance Program.  It’s a little tricky to coordinate - so if you have a score that you think will meet the 580, and you’re going to need that extra help with the downpayment - DEFINATELY call us prior to looking for houses!  (In Wake County the maximum FHA loan is $295k click here to see limits for other counties)
• VA loans require a minimum of 580… although lately I’ve seen some 580’s that wouldn’t work.  We think the “black box” automated underwriting system is getting a little tighter - so you definately want us to have a peek at your credit prior to looking for a home!  In the Triangle - we’ve partnered with a builder and several other service providers to offer SUBSTANTIAL discounts on homes and the closing costs to Veterans and their families.   Please remember to ask us about this!  (the maximum VA loan is well over $400K… however with the number of reservist we’ve talked to lately our stance is that we will need to look at your particular eligibility status to determine your maximum 100% loan).
• USDA loans are for properties in less populated areas.  They had been the “go to” if your score was between 550 and 580.  That loophole is closing and they are really looking for 580 now.  There’s no maximum loan - it depends on what you can qualify for.
• The Conventional loan products and the PMI standards are going up again on July 1st.  To OVER SIMPLIFY… you can get a loan if your score is between 660 and 680 - but it’s not easy and the PMI costs are awful.  You really need a score of 720 and at least 5% to put down to get today’s best offerings.  The GOOD NEWS is that if you have a 660 score - getting to 720 is really not that difficult - it’s just a matter of taking the 30 or 45 days to do it.

So the moral of this story??  You need to PLAN to purchase a home!  PLAN on speaking with Steve and Eleanor Thorne at Meridian Residential 919-459-1313. ( I thought that was kinda’ cute!)

I found it interesting that our local radio station was talking about budgets and credit this week.  In the morning show, one of the host said, “you know how I remember to pay my bills?  I pay them when someone calls me.”  Bad answer, dude… and this guy is 33 years old!

If you’re paying your bills when people are calling - your credit is trashed.  Here are the 4 FIRST things you need to do:

• Get a copy of your credit report.  If you want to buy a house - call us and we’ll pull it for you.  If not, remember that stupid commercial about “F-R-E-E that spells free.  Free Credit Report.com that’s free.” I’ve never used them - they are for sure selling you some kind of identity protection - don’t get the insurance just get your report (there are tons of other places).  You need the report to show all 3 bureaus so you see all three scores.
• If all the credit cards and car payments on there are past due - start getting it current.  Get a second job, only eat PBJ, quit clubbin’ it for a while, carpool - suck it up and get your bills paid on time.
• If you have collections (not judgements) that are over 3 years old (and inaccurate) dispute them.  You will need to include a copy of your drivers license and your social security card with the dispute letter.  Send the letter to all three bureaus.  Ditto on lates that are over 36 months and inaccurate.  If there’s stuff on your report that’s recent and inaccurate - dispute that in a seperate letter.  Make certain you use the exact account numbers shown on your credit report.
• If you have collections that are less than 12 months old and less than $500 - contact the creditor and tell them you’ll pay it - IF and ONLY IF they will remove the collection from your account.  Get a letter from them confirming they will remove the collection prior to paying it - exchange your payment for the letter.
• Go to Fingerhut and apply for credit.  It might only be $150 bucks.  Use exactly ONE HALF of the credit they extend to you and pay it back every month on time like clockwork.  Ditto with Orchard Bank.  If you can afford $300 - then go to your bank and get a secured credit card.  You want to borrow exactly ONE HALF of the credit extended to you and pay it back on time.
• After you have 2 types of credit (that report to the credit bureau) and that you’ve paid on time for 3 months, apply for a gas credit card or a Best Buy or a Jewlery account.  Then pay them on time like clock work.  Jewlery accounts are generally installment loans, get ahead of the payments as soon as you can.  You need at least 4 accounts reporting good things about you to really improve your score!

Getting your credit back is hard work - but if you buckle down - you CAN increase your score.  There’s no quick answer.

If you are interested in buying a home in Raleigh, or purchasing a home in Cary, please contact Steve and Eleanor Thorne, Meridian Residential, 919-459-1313.

Are you pooped - just thinking about all the reasons your credit score is costing you money?

Here’s another one!  Did you know that you don’t just have a credit score - you also have an INSURANCE SCORE?

Insurance is purchsed to protect you against the kind of big expenses that could otherwise wipe out all of your assets… it’s not there to pay for the little stuff, and this is why you have a deductable. 

If you’ve had a car totaled, or a house burn down - or you’ve been sued from an accident - then you understand the role insurance plays.  People who don’t really understand the way insurance works often try to shift as much risk as possible to their insurer - by choosing the low deductbiles.  This is the best way to have very high premiums.

The Insurance Score itself though is what really drives your premiums higher - no matter what your deductable is.  There are very few written reports on EXACTLY what the insurance agencies use in creating this score - but Fair Isaac says these are some of the guidelines:

• 40% of the average insurance score comes from payment history.  That compares with 35% with the “credit” score we are use to using.
• 30% is based on credit utilization.  This is roughly the same percentage your credit score uses.
• 15% of an insurance score has to do with the types of NEW CREDIT you’ve been granted recently.  This also takes into account your inquiries - your “credit” score only weighs this at 10% of the score.
• 10% of the insurance score has to do with the length of time you’ve had credit.  So if you are “new” to the credit game - you are not hit quite as hard - making it a bit easier to get insurance.
• 5% of your insurance score measures types of credit you use.  This is quite different from your “credit” score.

As you can see, according to Fair Isaac anyway, your insurance score (and thus your premiums) are based heavily on your payment history.

There are tons of SCAM companies out there telling you that they can help you fix your credit scores - quickly.  Well - if it walks like a duck… and quacks like a duck… might be that duck is takin’ something out of your pocket!!!  YIKES!

Some folks would have you believe that they can “CREATE” a new credit history for you. They might have you use a dead person’s social security number, or suggest that you apply for a TIN (taxpayer Identification Number) for a fake small business.  Let’s get this straight.  Fake is FAKE.  You are not going to FAKE your credit.

Even if you did manage to pull of this fraud - it’s FRAUD.  Don’t be pulled into a scam!

A friend of mine in Wilmington says that there’s maybe, possibly a slim chance that a bankruptcy can be removed from your report prior to the required time.  I don’t have any personal knowledge of someone doing this - but the assumption is based on solid “theory.”

Bankruptcys are, in a few small counties in NC, kept on microfiche.  Therefore - after 3 or 4 years have passed you could write a letter disputing the DOCKET NUMBER to all three bureaus.  If the county does not have the the personnel or time or ability to validate the claim - then the item is removed. 

This does not appear to be a widespread, slam dunk tactic - but in a few cases, there is a small possibility that this could work… maybe.