Posts tagged credit bureau
Woo Hoo! You Qualify… But…
You’ve decided to buy a home, and your lender informs you of collections on your credit report and are told by your loan officer to pay them off. You couldn’t be more excited, you you do qualify, but they want to get a better score so you can get a better rate or maybe you need a better rate to qualify for that wee nicer home you’ve been looking at.
Who’s the expert, your lender of course.. so you run right out and pay off those collections… Sigh. Oh my! Yes this age old advice is still being dispensed by loan officers far and wide. So what does actually happen when you pay them…
After you submit a payment to the collection company, what happens is SO unpredictable. here’s a list of some of the things that COULD happen as a result of you acting on your lender’s ill-dispensed advice.
- The collection agent (CA) verbally says they will remove the item. In my 30 years experience I’ve found those guys will tell a consumer ANYTHING to get the cash. Don’t count on it, if they don’t put it in writing it’s not likely gonna happen.
RESULT: Score will likely drop.
- The CA does give you a letter, but it’s not a deletion letter. Yeah, they TOLD you it was a deletion letter but it says “Paid/Satisfied/Settled/0 Balance or some other non-deletion verbiage.
You’ll send in the letter but the bureau will update the item as PAID and they won’t delete it.
RESULT: Score will likely drop.
- The CA actually deletes the item from the credit. Wow, this is so rare and it happens less and less because of blow-back from the credit reporting agencies (CRA’s) against the CA’s.
- The CA does nothing. You have a receipt for the payment, but no deletion letter and they don’t update to the bureaus.
RESULT: Your score didn’t change at all.
Penalty for good behavior.
In almost every case the credit score drops or stays the same as a result of paying off a collection. Now, instead of getting closer to that dream home, you’ve potentially just screwed yourself out of it. But don’t worry, your idiot lender will now tell you you only need just a few points and do this or that and we’ll get you qualified again… <clunk>
In part two we’ll talk about good deletion letters and why oh WHY does the score go down with a payoff….
Yours in Wealth!
Credit Guru Ruiz
Another common question from our clients:
I received a collection letter in the mail, what should I do now to protect my credit rating?
There are several steps here, so please follow them closely.
Step 1. Identify the letter.
Often what appears to be a letter from a collection company is actually a bill from the provider or original creditor (OC). If it’s a bill then read on, otherwise skip to Step 2.
Your options here are to pay the bill in full, or call the OC and make payment arrangements because the goal here, is to keep the bill out of the debt collector’s hands and off your credit report.
Some techniques for negotiating bills not in collection yet:
- If you have a past due medical bill and make small payments EVERY 25 days (not 30) it will usually keep the bill out of the collection system.
- You can also have a large hospital bill audited which will usually reduce the bill significantly.
- All hospital bills should be detailed and you should be able to identify every charge, if they won’t give you one or help you understand it, ask for an ombudsman from the hospital. It’s been well documented that most hospital bills contain MANY overbilling errors.
- Negotiate for a cash payment, often you can get a significant reduction for cash.
If it’s not a bill and it really is a collection letter follow these rules then continue to Step 2.
- RULE #1 Never contact a collection company, especially by phone (except by mail: Cease and Desist, Validation, Intent to Sue letters and Settlements)
- RULE #2 Never make a payment to a collection company (without professional help)
- RULE #3 Never trust a collection company or their employees
- RULE #4 Document/record everything you do regarding this collection.
- RULE #5 Never volunteer ANY information to them, ever.
Step 2. Identify who the OC is:
If the collection letter doesn’t clearly reference who the OC is, then they probably can’t prove it either. Often a debt is sold many times and that is why you can find several listings on your credit report from the same debt. Figure out who this debt was originally owed to without violating Rule #1.
Step 3. Identify if the debt is past the statue of limitations (SOL)
There is an SOL for reporting to the credit bureaus, and there is another SOL for the time the debt collector (DC) can bring an action against you (sue you in court)
The statute for reporting to the credit bureaus for private debt is 7 years from the first date of continuous delinquency. Any private debts still reporting after 7 years have been re-aged and must be removed from your reports.
The statute for collectibility (through an action in court) varies from state to state from 3-15 years. If the debt has passed the SOL for your state, you have NO LEGAL responsibility to pay it and if you ask them to, the DC’s must cease all collection activity. So do that with a Cease and Desist letter.
Often dirt-bag DC’s will attempt to collect on a debt that you no longer owe (Stale debt). Since many states have different laws regarding their SOL, you should do your due-diligence. This website would be a good start. SOL in all 50 States. It’s important to know that if a DC offers you a payment plan on a debt on the last month before the expiration of the SOL; and you make a payment, (or even in some states “acknowledge the debt on the phone or in writing”) the statue of limitations will be reset and that clock starts over again! Again, DO NOT contact the DC under any circumstances.
Step 4. Use Validation, Failure to Validate and Intent to Sue letters
Send lots of certified mail on each of your debts that have reported to the bureaus, if the collection letter comes from a new company you know isn’t on your credit report, VALIDATE the debt within the first few days you get the dunning letter, most of the collectors that get a validation letter right away, never report it to the consumers credit bureau. If the debt is stale debt, send them a Cease and Desist letter.
Step 5. Sue them if they break the law
If they miss a step and the debt is less then $1,000, sue them. But you only have 12 months to start your lawsuit after they violate the law.
Step 6. If the DC validates and the debt is within the SOL, Settle it.
First off, never settle a debt with a DC without a deletion letter.
If you owe the debt and are financially ready to take care of paying it off make sure you settle the debt and request a deletion letter so that the listing is removed from your credit report otherwise it will still hurt your credit score even if you pay it off. Why? Because the date of activity on the credit report is updated on your credit report thus appearing as “recent collection activity” which will often cause a drop in the credit score.
Remember Rule #3? Don’t trust them to “send an update in the next 30-90 days”, they won’t and don’t, you’ll need the letter. Often they will tell you they will give you a deletion letter, but the wording on the letter will say “paid”, “settled”, or “satisfied”. That verbiage will NOT get you a deletion from the bureaus. Don’t give them money till you have a “good deletion letter”.
Although this process is daunting for many people, you can do it yourself if you have deep discipline and focus. If you don’t’ think you can “stay the course” and finish this process alone, you should hire a professional at the start to help you through the process. Feel free to contact us at any step you find yourself in, we’ll be glad to assist you.
Credit Guru Ruiz
I was recently asked a few questions by another client about paying off credit cards. So today’s post will talk about my payoff guidelines for revolving credit that will help you max that portion of your FICO score. (Paying off installment loans will help your score, but I don’t recommend you do that, keeping the full term on an installment loan will benefit your score far more then paying off a loan before the end of it’s term)
Are there any techniques to paying off credit cards or can I just pay them all off?
Yes, there are several guidelines to paying those nasty cards down.
RULE #1 Never pay 100% of ALL your credit cards off, keep at least $50-150 on one card at all times. You can accomplish this by using a gas card each month or putting a recurring bill on auto-pay from one of your credit cards (but NEVER put utility bills or groceries on a credit card!)
RULE #2 If you are paying off a debt you’ve been carrying on a credit card, there will be additional interest due on the next statement that won’t be apparent by looking at your last online or paper statement, you must call the bank to get a full payoff, or manually calculate the additional unbilled interest due and include that amount in your payoff, I also, always recommend paying an additional amount on top of the balance + additional interest.
So, for example, if the balance is $1,000 and the additional interest is $10, I recommend adding 2x’s the additional interest for a payoff of $1,030. This will create 2 changes for you:
1. It will insure you get a fully paid off account on your bank’s next report to the credit bureau by forcing the bank to make that report. (I’ve seen situations where a bank won’t report the payoff to the credit bureaus for several months and could result in you not getting the desired score bump in time for your financing without doing a rapid re-score, but if there is a credit on the account, they will ALWAYS create one… I suspect it has something to do with accounting regulations)
2. Will generate a refund check from the Bank to you for the over payment. (I use this technique to get a “balance transfer interest rate, albeit delayed, for a cash advance” on credit cards by over paying a credit card using a balance transfer. Sneaky, isn’t it
…what if I find I don’t have enough money to pay them ALL off, are there any rules of thumb to know which ones to pay off to get me a better score bump?
RULE #3 Pay off at least one bank card to zero (Visa, MC, AMEX, Discover, etc.)<br>
RULE #4 Pay off at least one retail card to zero (Any other open-ended credit card not issued by a bank, a Target VISA card is NOT a retail card)
RULE #5 Pay off all cards below 45% of their limit (don’t leave any one over 45%)
RULE #6 Pay off the aggregate debt to limit ratio below 18% (18% of the total credit limits vs total revolving balances)
#5 and 6 can also be achieved by increasing the credit limits of existing cards, or by getting additional credit cards, but there are many, MANY ways attempting this technique without professional help will end up creating a score decrease than the desired increase.
RULE #7 WAIT! for the banks to issue you a new statement before you look for the score increases, pull a free credit report (won’t cause a “hard inquiry” to confirm the balances got updated before you ask your lender to pull credit for the scores.
For your Health, Wealth and Liberty
“I’m not sure if we should close my file or not… I am bringing in more work, but still don’t have a lot of “extra” money. I have been working on paying down my credit cards, but my debt to credit ratio is still about 80%”
- You’re looking for education/coaching to make better credit decisions along the way
- You want support to monitor your file because you don’t understand it yet or just don’t have the time to do it.
- You want better employment opportunities or wish to reduce costs for insurance as both of these are tied to a good credit file.
- You plan on moving, as most landlords and property managers are looking closer at credit files today and if you have better credit you might be more successful at requesting a lower rent payment.
After I get my P2P loan, what then?
What happens next…? Well, once you pay off all your credit cards, your issuers will FREAK OUT, thinking you are going to do what MOST people do once free from the clutches of credit debt … close the credit cards FOREVER. (Never, NEVER close a credit card if you care about your credit score, more on that in my book CreditWise)…then they’ll start sending you all these AMAZING offers of LOW, LOW balance transfer interest rates and credit limit increases. Seriously, your mailbox will be FULL of these offers.
The “Balance Transfer, Cash Advance”
Now pay attention… if you accept those new “balance transfer” offers with those low interest rates they will usually require you to transfer the specified amount to another credit card that they DO NOT own… in other words you can’t balance transfer from one bank’s credit card to ANOTHER credit card issued by the same bank. But, what happens now that you’ve paid off all your balances with your P2P loan… you can’t balance transfer a balance that doesn’t exist right… hahahah, Yes you can with a little creative help from your personal Credit Guru. (Now usually they will not allow you to pay off a P2P type of loan with those offers, and sometimes you can because they just send you a check you deposit in your bank) So, if they don’t provide a check for you to use for the “balance transfer” simply use a dollar amount which is smaller than the limit on the receiving card and transfer (Yes, you can transfer a balance to a credit card that has been paid off!). You’ll end up with a CREDIT on that credit card, a POSITIVE balance. You can now request a check from the receiving bank and that is the “Balance Transfer, Cash Advance”.
I’ve already reduced my interest rate, why go through all this?
If you are a typical client you’ve reduced your rates from 14-29% and are now in the 8-15% range, and for me as your coach it’s just not low enough. So by using the “Balance Transfer, Cash Advance” method you’ll get money to pay down the Peer2Peer loan (Yes we’re going to pay that down as fast as we can) from the same card companies that wouldn’t lower your interest rate from 14% and now they are begging you to borrow at sometimes ZERO percent, yes, it’s still out there. Just move the low interest “Balance Transfer, Cash Advance” money back to the P2P loan (no pre-payment penalty, BTW) and you can usually use that low interest money for 6 months, which coincidentally is how long you’ll have to wait to apply for another P2P loan. Then just “lather, rinse and repeat” till the whole debt is paid off. (You’ll save hundreds or even thousands in interest)
Be very careful, there are several missteps you can make along the way, and unless you are fearless or very experienced, please be sure you read all the fine print on those loan docs and balance transfer agreements as things change and different companies have different policies. I’d be happy to ride along with you if this is your first “Credit Rodeo”. Here are a couple things to be aware of:
- If the credit card companies or YOU close or reduce your credit limits significantly, your score could drop.
- If these new P2P loans do report on your credit report, (remember, positive trade-lines stay on your report for ten years) and they end up being SHORT term items (you pay them off fast), they WILL lower your average number of months which can have a significant negative impact on your score for a very long time. I call these types of “Positive” items “Illusionary Positives” (Much more on that in my upcoming book CreditWise.) So basically we don’t want to create TOO many of these items and you should evaluate how many you can do before it WILL do harm to that part of the score.
- If you charge up the credit cards with new purchases, YOUR SCORE WILL GO DOWN… Duh, but hey, I’ve got to say it.
- Wow, if you are in the middle of purchasing or refinancing an existing mortgage, you could RUIN you chances of closing if you make a misstep, please, please be especially careful under those circumstances.
- 5, 6, 7, 8… Etc. There are lots more potentials to watch out for, just be aware or get REALLY good coaching.
Sounds like work…What do I get for all that work?
In a nutshell, you’re going to save money on interest, and your score is going to SOAR, and once that happens, you’ll save even MORE money on every loan you take out in the future.
So, let’s say you want to buy a home or refinance, will you save money? WOW, YES! By moving your credit card debt to this new P2P loan and increasing your score as above with this example, a median home price of $200,900.00, and a score increase from 660 to 760, you’ll save about $59 a month on a 30yr fixed/80% mortgage, or about 21,000 bucks!! (Those are obviously today’s figures)
What about that hundred GRAND you mentioned?
Yes, Most importantly if you took that $59 a month and put it back into P2P lending for that same 30yr period, you could end up with more then $120,000. Just from Consolidation… MAN I SO LOVE that word! (Also today’s numbers which of course are likely to change in the future)
I hope you got some value from this 3 part series, and can see the “P2P light”. As always if you have questions PLEASE ask, I’ll do my best for you. And if you DON’T have a high enough credit score to use Peer to Peer lending, LET’S get you one, call me today so we can get started on your CreditWise future with credit repair, credit restoration and credit consultation services from Home Solution.
For your Health, Wealth and Liberty
Credit Score Increases
I promised you some reasons why your credit score will FLY through the roof… I’m going to give you the little moves first and hold on to your hat because the last two are going to KNOCK your socks off.
First, your new P2P account (if it does report to the credit bureau, some of these do not) will be a new type of loan on your file that MOST of us don’t have, which could move you to a different “Score Card” from the credit bureaus, this could lead to a small increase.
Second, if you don’t already have this type of loan on your file, adding one will improve the “blend” of credit usage which also should give you a small boost to offset the credit inquiry required to open the loan.
Third, it will potentially ELIMINATE your revolving credit card debt (if you have less then $25,000 in credit card debt), causing your “Utilization” portion of your credit score to increase to the MAX. (ONLY, please read this, ONLY as long as you keep the credit cards OPEN).
Fourth, oh my, this one is HUGE, it’s SO huge, I’m only going to give it to my clients directly and I’ll put it in my upcoming book “CreditWise”. Massive, MASSIVE score movements for this reason.
Let’s use an example as I just LOVE examples…You being Jill Average Consumer have an average amount of credit card debt of $9,000 and have used 50% of your available credit lines.
Basically no matter how well you have paid your debts, your score isn’t really all that great and the banks are rewarding you with 14-29% interest rate… how nice of them (In an upcoming article I’m going to talk about how many of the credit card issuers have deliberately damaged your score to take advantage of you, all in the name of the “New Credit Card Act”).
I digress…back to my example…So, you decide to consolidate (I LOVE that word too) and move ALL your credit card debt to a new P2P loan. POOF, your revolving utilization is now… ZERO! And as soon as those banks update your account balances with the bureaus your credit score will SKYROCKET! (Side note: in my upcoming book “CreditWise” I’ll explain how to get those credit card companies to update your account balances MUCH faster without a dispute to the credit bureaus, because in some cases we’ve seen banks not update balances for 7 MONTHS)
In Part 3, I’m going to share the BONUS way to drop your credit card debt even FURTHER than just with a P2P loan, I call this method the “Balance Transfer, Cash Advance” (also covered in detail in the book CreditWise) and I’m also going to show you that $100,000.00 !!
If you DON’T have a high enough credit score to use Peer to Peer lending, LET’S get you one, call me today so we can get started on your CreditWise future with credit repair, credit restoration and credit consultation services from Home Solution.
For your Health, Wealth and Liberty
What is Peer to Peer Lending?
Peer to Peer lending is basically a loan you can apply for that doesn’t involve a bank. What did I just say? YES, no banks. You’ve got to love that. Don’t get me wrong, I love banks, and yet my love has waned a bit lately. So when I started reading about P2P lending, I have to admit I got a bit excited… (Don’t tell my wife ) Although there is a qualification process the loan is potentially funded by hundreds of investors, so even if you aren’t a perfect borrower you can get your loan funded.
At this time there are just two major players…and my radar says to watch the horizon ’cause I bet there’s going to be a lot more very soon. Those two players are LendingClub.com and Prosper.com. Although Prosper has been around longer and have funded more total loans, they recently relaunched to reduce risk to investors where Lending Club is boasting they have now made 133 million in loans and have 85% of the Peer lending market share with over $10,000,000.00 funded last month.
Here are a few stats:
- Loans are available to qualified borrowers (minimum 640-660 FICO) in most states from one or the other institution, (sorry Iowa, Maine and North Dakota residents, NO SOUP FOR YOU!) and for investors (lenders) from just over half the U.S. states. (if you just CHECKED out because your score isn’t that high, then we need to speak, today!)
- You must qualify BOTH to be an investor (lender) or a borrower separately.
- Both companies are boasting over a 9.5% net return for investors and both have very low (recent) default rates despite our country’s economic climate.
- Over 60% of loans issued to date have been used for debt consolidation, something you almost can’t find these days from banks.
So why should you care and what does this have to do with Debt Consolidation?
Because if you are a typical American, you carry credit card debt and it’s got a HIGH rate of interest, and you probably already know that, but like most of us… you just don’t care to spend the time to fix it. Well here is your incentive.
If you are unable to pay off your credit card debt in full and you can qualify to get one of these loans, DO IT, when you move this debt over from a revolving debt to a fixed payment debt your score is going to FLY through the roof for a couple reasons. (I cover this process and MANY more in my upcoming book “CreditWise”, be sure to watch for it.)
In Part 2, I’m going to talk about how your score will dramatically improve by implementing one of these P2P loans and how you could pocket over $100,000.00 for your retirement by using this technique.
If you DON’T have a high enough credit score to use P2P lending, LET’S get you one, call me today so we can get started on your CreditWise future with credit repair, credit restoration and credit consultation services from Home Solution.
For your Health, Wealth and Liberty