Category: CREDIT BLOG

There’s a lot of talk about the new scoring model called VantageScore. Proponents say that it will boost your score and help people with no credit history build a strong credit score.
Here’s the bottom line: don’t even clutter your mind.
Now… the back-story for those that want it:
Until the majority of lenders are using a new scoring model, the FICO score will remain the main credit scoring system out there.
As of right now, major lenders like Fannie Mae and Freddie Mac are not using VantageScore. In fact, I have never met a single lender who does use VantageScore.
When deciding whether to extend a loan to you, your potential creditors want to know how risky you are. Currently, the model they use to determine your creditworthiness is FICO, and almost exclusively FICO.
So if you want to qualify for a loan, or if you want to qualify for better terms on your existing loans/credit cards, you must follow the FICO model and demonstrate the behaviors that will boost your FICO score.
Ignore everything else because it will not make an ounce of difference if you lender is not looking at it.  All it will do is paint an unrealistic picture of what loan terms you can expect.
I want you to focus on reality. And the reality is this: Almost every lender out there relies on FICO and only FICO when determining a credit score.
If you have any questions about how the credit-scoring models work, be sure to leave a comment on my blog.

Perhaps the most difficult part of trying to build your credit score to 720 is tackling collection accounts.
But tax season offers a great opportunity for you to eliminate your collection accounts, once and for all.
First, though, a little background on collection accounts …
When you pay off your collection account, your credit score could be damaged.
You see, the payment renews the seven-year timeframe that the collection account will stay on your credit report, and it causes your score to drop.
Isn’t that crazy? If you do not pay the debt at all, the item will fall off your credit report sooner than if you make a payment!
Of course, paying off your debt is the moral thing to do. You could also be sued if you do not pay the debt.
So what’s the solution?
If you want to build a 720 credit score, your goal is to negotiate with the creditor/collection agency so that you can pay the collection account but not have it impact your credit score.
You can accomplish this through something called a letter of deletion.
As I mention in my program, this is not something that works every time, however, you have to ask!
And this is where tax season offers a great opportunity to remove the collections accounts from your credit report. Let me show you how…
Let’s say you are expecting a tax refund, and you have a $1,500 outstanding collection account.
You can call the collection company/creditor and say something like this:
“I have a tax refund coming my way, and I’m trying to figure out how to spend it. I’d like to use it to pay off some of my outstanding debt, but I want to be wise about it. My account with you is outstanding in the amount of $1,500. If I pay, would you consider the account settled in full, and would you give me a letter of deletion in exchange for sending 100 percent of my tax refund to you?”
Given the terrible economy, the creditor/collection account will be thrilled to get a payment, but the creditor or collection agency might not be so thrilled to give you a letter of deletion.
The key here is to keep asking… ask, and ask again.
Be polite—after all, paying the debt is your responsibility.
If one collection company says “no,” if you have another collection, call the other one up and offer the same to them.
Let the collection company know that you will send the money to a different creditor if it does not agree to your terms.
This is a golden strategy for paying off collections and helping to build a 720 credit score. When it works (and it will!), be sure to leave a comment on my blog!
Make it a great day.
Philip Tirone
P.S. Because collection accounts are complicated, I suggest that you review our credit lessons on dealing with collection offices before you do anything.

For those of you who missed the Q&A call yesterday, here was a common theme that I want everyone to understand:
Rebuilding Your Credit – The easiest way to rebuild your credit is by applying for new credit.  However, if you have more than five credit cards, this does not apply to you.
Please read this entire email…
Keep one thing in mind: I do not want you to apply for just any credit. Apply for credit that is going to help build your credit score.  As I teach in my program, according to a Federal Reserve Board Study, 46% of credit cards hurt your credit score.
Reminder #1: If you are married, do NOT apply for joint credit.
Reminder #2: You need three new credit cards after a major financial meltdown (Bankruptcy or Foreclosure), so apply for all three credit cards right away.
Reminder #3: Don’t put this off… this is the #1 reason people do not have the big jump on their credit report.
I’ve done all the research for you and there are different credit cards you should apply for, depending on where your credit score is:
For those with a credit score of 660+: Click Here

For those with a credit score below 659: Click Here

Please Note: For those of you with a credit score of 660+: if you don’t get approved for any of those credit cards listed, then go to the other site for credit scores below 659.
Remember, these are not going to be your credit cards forever. You will have them for just enough time to rebuild your credit, and then I’ll show you how to get the great credit cards!
Promise yourself right now to take the time and apply for new credit this week. Put it in your calendar… And when you accomplish it, give yourself a gift or a bonus.
In six months you will be THRILLED with the results.
Philip Tirone
P.S. This one step is the biggest mistake people make, don’t let it be yours.

One of the most frequently asked questions about credit is this:
Can I raise my credit score by paying off my debt?
The short answer is yes, but there’s a big caveat: You must keep your credit cards active.
Two of the factors that the credit-scoring bureaus consider when assigning credit scores are:

1. Your balance-to-limit ratio.
2. Whether your accounts are active.

Let me start with your balance-to-limit ratio. Credit-scoring bureaus award higher scores to people who have credit card balances that are no more than 30 percent of their overall limit. If your limit is $10,000, for instance, your balance should never exceed $3,000.
One of my first strategies for helping a person build a 720 credit score is to lower each credit card balance to no more than 30 percent of the credit card’s limit.
That 30 percent target is the minimum you should aim for. If you can pay your credit cards entirely, great! Your score will be higher.
Important: Many people think that if they pay their credit card balances in full each month, they don’t have to worry about having a high balance the rest of the month. This is a common misconception.
From a credit-scoring perspective, bureaus look at your credit-card balances as a snap shot in time, which means that if you have a credit card with a $2,500 limit and a $2,000 balance on the day your credit report is pulled, your score will be lower … even if you just sent in a check for $2,000 that simply has not cleared the bank.
That is why in my Webinar, I teach people to never charge more than 30 percent of their credit card balance. And the closer they can keep their balance to $0, the better!
This brings me to my second point.
You must keep your credit cards active. When I give my webinar, I explain to people learning how to build credit that they must use their credit cards. Otherwise, the credit-scoring bureaus have no way of telling whether you are a responsible borrower.
Consider it like this: Let’s say you own an airplane. Owning an airplane isn’t enough to be granted a pilot’s license. You must first demonstrate your ability to take off and land, you must have hours of flight practice under your belt, and you must hold the proper certification.
Likewise, owning credit cards is not enough to demonstrate that you know how to use them. And because credit-scoring bureaus consider the most recent activity to be the most important, you must use them regularly.
So how do you keep a low balance on your credit cards while still keeping them active?
Simple. Let’s say you have four major credit cards that you want to pay off but keep active. (Ideally, you should have between three and five major revolving credit cards.) Here is a plan that shows you how to raise your credit score by paying off your debt.
1. Identify four bills that have a set monthly payment. For instance, your gym membership, magazine subscription dues, car insurance, and health insurance bills are probably the same amount each month.
2. For each of your four credit cards, schedule an auto pay of one of these bills.
3. Then, create an auto payment from your checking account to each credit card company. This auto payment should occur two days after your credit cards are charged for the bills. Let’s say, for instance, that you create auto payments for your Visa, MasterCard, American Express, and Discover cards to pay your gym membership, magazine dues, car insurance, and health insurance bills (respectively), on the 5^th of the month. You would then create another level of auto payments so that your checking account pays your credit card balances two days later.
This way, you will never pay interest, keep your credit cards active, and keep your credit cards paid off.
So what about other debt, like loans? Here’s a tip on how to build credit by getting small loans:
Let’s pretend you are going to buy some new furniture. Assume that you have enough money to buy the furniture outright; however, you would like to build your credit.
If the bank will report the loan as an “Installment Loan” to all three credit bureaus, it’s a great idea to finance part of the purchase. Then, pay the bills for three months before paying the remaining balance in full.
Let’s assume you finance $5,000 and pay 10 percent as an interest rate. Your monthly payments are $41.66, and you pay these for three months before paying the balance in full. During these three months, you pay only a little bit in interest, but you have a new item on your credit report that appears as “Paid in Full” and “In Good Standing.”
If you have any other questions about credit, be sure to post them below.
Make it a great day,
Philip Tirone

If you want to learn how to build credit and raise your credit score, you simply must pull it.
I’m talking about your credit report.
I tell my clients that they must review their credit report at least once every six months, and, depending on how low their credit score is, perhaps even quarterly.
In Step Five of my book, 7 Steps to a 720 Credit Score, I explain that almost 80 percent of people have errors on their credit report, and 25 percent of these are severe enough to cause a person to lose a loan or a job opportunity.
So what do you do if you spot an error?
First and foremost, if you think you are a victim of identity theft, call the three credit bureaus right away to put a freeze on your credit account. This way, no one else can open credit in your name.
If the mistake doesn’t seem to indicate that you are a victim of identity theft, you can start by filing an online dispute at each of the three credit bureaus. Following are links:

• TransUnion
• Equifax
• Experian

As well, contact the credit card company or the bank in question. If they are reporting incorrect information, you can get the ball rolling by asking them to investigate the mistake.
One of the most common (and dangerous) mistakes you will find is an inaccurate credit limit.
So why does an inaccurate credit limit hurt your credit score?
The credit-scoring agencies give higher credit scores to people with lower utilization rates (your credit card balance as a percentage of your limit.) If your limit is, for instance, $2,000, and your balance is $600, you have a utilization rate of 30 percent.
This is a good utilization rate, and it should help your credit score.
But if your credit card company is reporting your limit as $1,000 instead of $2,000, your utilization rate will appear to be 60 percent (a $600 balance on a $1,000 limit). This is a bad utilization rate, and it will cause your score to drop.
So if you want to build your credit score, start by filing a dispute with all three credit bureaus. At the same time, place a call or send a letter to your credit card company demanding that they report your correct limit.
Then, be sure to pull your credit report again to make sure that the mistake has been corrected.
Oh, and one more credit repair tip: Your credit score will never be damaged if you pull your own credit report. Though inquiries into your credit score by lenders will cause a dent in your score, pulling your own credit report is considered responsible behavior. So do it freely!
Have any questions? Need a credit repair tip that will help you build a 720 credit score? Be sure to leave a comment below.

As part of my commitment to providing free credit education, I regularly answer frequently asked questions and offer credit repair tips.
Here’s a question that recently came across my desk:
I have an open, old credit card account.  Don’t want to close it because it helps my credit score but I have no balance on it.  I have a limit of 6,000 on it.  Should I close it or at least lower the credit limit on it.?  I have another credit card I like better with a large balance 6,000 that I’m paying down this year.  I’d like to keep that one to use and should I lower that limit too once I get it paid off.
If you want to know how to raise your credit score, know that you should never close an account, nor should you ask for the limit to be lowered.
Here are a few credit repair tips that I can offer as explanation:
1) A big part of your score is the age of your accounts. Closing an old account can lower the average age of your accounts and, in turn, lower your credit score.
2) It sounds like you have only two credit cards. The credit-scoring formula will respond best to people with at least three and no more than five credit cards. Why at least three? They need enough information to judge you, and one or two credit cards simply is not enough information.
Ultimately, you should have a 720 credit score if you want the best interest rates. I’ve rarely seen people with 720 credit scores who have fewer than three active credit cards on their credit reports. But I have seen my fair share of people with more than five credit cards who still have a 720 credit score (or higher).
The moral?
If you already have more than five credit cards, you best course of action is to pay off your extra cards and let them go inactive. Do not close them. Do not reduce the limit.
3) Your three-to-five credit cards should be kept active. If you do not use them, the credit-scoring bureaus will not know whether you can juggle multiple debt obligations, and they will assign you a low score. Better safe than sorry, they will think.
You can keep the cards active by setting up an auto-pay on a small monthly bill, like your gym membership or a magazine subscription. This way, you keep the card active while still maintaining the low balance.
4) Part of your score is based on your balance-to-limit ratio. The credit-scoring bureaus look at both your individual accounts and your collective debt as a percentage of your collective limit. This is called a “utilization rate,” and in both cases, the closer you are to a 30 percent utilization rate, the better.
Let’s say you have two credit cards. One of them has a $6,000 limit and a $6,000 balance. In other words, you are maxed out. On that credit card, your utilization rate would be 100 percent, which would not earn you any points with the credit-scoring bureaus.
Assume now that you have a second credit card. This one has a $6,000 limit and no balance. On that credit card, you have a 0 percent utilization rate, which is great for your credit score.
And your overall utilization rate (assuming those are the only credit cards you carry) would be 50 percent, which isn’t great.
5) Since I don’t know the limit on your card with a $6,000 balance, it’s hard for me to tell whether that card is hurting or helping your credit score. If the limit is not at least $20,000, it is likely hurting your score.
You see, the credit-scoring bureaus will respond best to people with no more than a 30 percent utilization rate. So in your case, if the card with a $6,000 balance does not have a limit of at least $20,000, you have exceeded the 30 percent rule.
If this is the case, you should transfer $1,800 to the card with a $6,000 limit. This way, you maintain a low utilization rate on the card with a $6,000 limit, and you lower the utilization rate on the card with the $6,000 balance.
Keep in mind that my answers are always based on a credit-scoring perspective. You might have valid reasons for wanting to close your credit cards. For instance, if you have a long-term habit of abusing credit, your finances will probably be much better off if you live a credit-free life while adjusting your spending behaviors. But from a credit-scoring perspective, the answer to “Should I close my credit card accounts?” is “No!”

Going through bankruptcy is a difficult thing for anyone. While it might be important when creditors are becoming a serious problem, it is still something no person wants to face.
If you find yourself going through bankruptcy, you should know at least some ways to remain protected. One is to ensure that not everything is taken from you during this, and that includes your savings. Possibly the most important thing you must protect is life insurance because if you do not, creditors may leave your family with nothing after your death.
While you need to pay off creditors, you also need to keep a few things to yourself. During bankruptcy, creditors will want to take whatever they can without any regards to you or your family. This means you may end up in a hole that is near impossible to escape, a situation that may worsen if they took your safety net.

What is Protected?

Life insurance is too important to give up. If you were to pass, this is what helps to pay expenses so that your family does not end up in a bad financial situation. To prevent creditors from taking this, you need to understand what you can do. Under federal exemptions, you can protect up $10,775 of a life insurance policy’s cash value. Also, married couples may double all exemptions under the federal bankruptcy code.
If you fear that bankruptcy might take your life insurance, you can make it exempt. This will give you the chance to keep your money, or at least some of it, so that your family is not left with nothing after your passing.
You do have to look into what your specific state allows. All states are going to be different, some only protecting up to a certain amount and others requiring that you have had this insurance for a certain amount of time, so you should know more about the facts. One way you may be protected is if you have cheap life insurance. This will put you under the maximums for several states, making it possible to keep your money.
This exemption can give you at least some peace of mind in your life, something you need during such a stressful time. No matter what is allowed for it, as long as you qualify for the exemption, you can benefit from it. You have that extra security so that your family will always have something, regardless of the situation they find themselves.

Buying Life Insurance After Bankruptcy

Waiting for your bankruptcy to be completely off your records is not a good excuse to put off applying for life insurance. If cost is an issue, at least consider taking out a 10 year year term policy to make sure your family is protected. Going with a shorter term policy will be cheaper for now until you can get back on your feet. The only risk is that if something happens to your health that makes getting life insurance 10 years that much more expensive or, at worse, unattainable.
Before you apply for affordable life insurance, you’ll want to make sure that your bankruptcy is completely discharged. Most insurance companies won’t underwrite you in you’re in the middle of the bankruptcy process. Luckily, if the bankruptcy is discharged you shouldn’t have issue finding an insurance company willing to underwrite you.
The Internet is filled with free online term life quotes that allow you to get a quote in a minutes. Be sure to make them aware that you have filed bankruptcy recently. One of the biggest mistakes that people make when applying for life insurance is not being up front with the carriers. I promise you they will find out and if you try to hide it it will only hurt your chances on getting approved.

Understand Your Options

If you are facing bankruptcy, it is important to know everything you can do. Letting creditors have their way with everything you have to your name might result in you having nothing left. This is not only added stress, but it could hurt you in the long run. By taking advantage of what is out there, you can keep yourself in the green and make it easier to get back on your feet after this has finished.
This is a guest post from Jeff Rose, a certified financial planner and founder of LifeInsurancebyJeff.com. A site dedicated to helping families find affordable life insurance.

If you have any concerns about your finances at all, sit back and listen to this 3-minute audio. After you do… read the rest of the post below.

—————————–
What did you think?
I remember speaking to Travis when he was considering filing bankruptcy; he was so stressed!
You probably know what I told him, but I’m going to say it again. I said, “Travis, you need to make a decision about your bankruptcy based on what is best for your family; however, don’t worry about your credit. Your credit is the easy thing to fix.”
Well, he took my advice, followed about ¾ of it…
Two years and two days later, he bought a home for 5% down, with an interest rate of 3.5%.
Think about that…
So many people worry about late payments, or a foreclosure, or a short sale… why?
If you know how to rebuild your credit, you don’t have to worry about past mistakes on your credit report.
The first step is simple: Sign up for my FREE webinar right here. Don’t delay. After all, if you attend the webinar right now, by summer or fall, your credit will be all taken care of!
If you want to change your life, click this link and sign up for this webinar right now.
Here’s to the best year of your life!
Px
P.S. Don’t put this off!  Click here to sign up for the FREE webinar.

If you want to know how to raise your credit score by paying off debt, you should know two things:

1. The lower your balance-to-limit ratio, the better your score.
2. You must keep credit cards active.

Let me start with your balance-to-limit ratio. Credit-scoring bureaus award higher scores to people who have credit card balances that are no more than 30 percent of their overall limit. If your limit is $10,000, for instance, your balance should never exceed $3,000.
One of my first strategies for helping a person build a 720 credit score is to lower each credit card balance to no more than 30 percent of the credit card’s limit.
That 30 percent target is the minimum you should aim for. If you can pay your credit cards entirely, great! Your score will be higher.
Important: Many people think that if they pay their credit card balances in full each month, they don’t have to worry about having a high balance the rest of the month. This is a common misconception.

From a credit-scoring perspective, bureaus look at your credit-card balances as a snap shot in time, which means that if you have a credit card with a $2,500 limit and a $2,000 balance on the day your credit report is pulled, your score will be lower… even if you just sent in a check for $2,000 that simply has not cleared the bank.
That is why in my Free Credit Score Webinar, I teach people to never charge more than 30 percent of their credit card balance. And the closer they can keep their balance to $0, the better!
This brings me to my second point.
You must keep your credit cards active. When I give my Free Credit Score Webinar,  I explain to people learning how to build credit that they must use their credit cards. Otherwise, the credit-scoring bureaus have no way of telling whether you are a responsible borrower.
Consider it like this: Let’s say you own an airplane. Owning an airplane isn’t enough to be granted a pilot’s license. You must first demonstrate your ability to take off and land, you must have hours of flight practice under your belt, and you must hold the proper certification.
Likewise, owning credit cards is not enough to demonstrate that you know how to use them. And because credit-scoring bureaus consider the most recent activity to be the most important, you must use them regularly.
So how do you keep a low balance on your credit cards while still keeping them active?
Simple. Let’s say you have four major credit cards that you want to pay off but keep active. (Ideally, you should have between three and five major revolving credit cards.) Here is a plan that shows you how to raise your credit score by paying off your debt.
1. Identify four bills that have a set monthly payment. For instance, your gym membership, magazine subscription dues, car insurance, and health insurance bills are probably the same amount each month.
2. For each of your four credit cards, schedule an auto pay of one of these bills.
3. Then, create an auto payment from your checking account to each credit card company. This auto payment should occur two days after your credit cards are charged for the bills. Let’s say, for instance, that you create auto payments for your Visa, MasterCard, American Express, and Discover cards to pay your gym membership, magazine dues, car insurance, and health insurance bills (respectively), on the 5^th of the month. You would then create another level of auto payments so that your checking account pays your credit card balances two days later.
This way, you will never pay interest, keep your credit cards active, and keep your credit cards paid off.
So what about other debt? Here’s a tip on how to build credit by getting small loans:
Let’s pretend you are going to buy some new furniture. Assume that you have enough money to buy the furniture outright; however, you would like to build your credit.
If the bank will report the loan as an “Installment Loan” to all three credit bureaus, it’s a great idea to finance part of the purchase. Then, pay the bills for three months before paying the remaining balance in full.
Let’s assume you finance $5,000 and pay 10 percent as an interest rate. Your monthly payments are $41.66, and you pay these for three months before paying the balance in full. During these three months, you pay only a little bit in interest, but you have a new item on your credit report that appears as “Paid in Full” and “In Good Standing.”
In summary, if you want to know how to raise your credit score by paying off debt, remember two things: keep your balance low and keep your debt active.

Philip X. Tirone is the creator of The Free Credit Score Webinar and the 14-Day Credit Challenge, both of which teach consumers how to raise your credit score and achieve a 720 credit score. You can visit his blog on how to raise your credit score at 720CreditScore.com

Why make it more complicated than it needs to be?
If your financial or credit situation is chaotic, you probably think turning over a new leaf will be too hard. But there are three easy ways you can improve your financial situation in 2013.
Tip #1: Write Your Goals Down!
What would you like to see change on your credit report within the next four to six months?
For instance, perhaps you want to:

• Pay off a credit card
• Lower your utilization rate
• Try to negotiate for a letter of deletion
• Create a plan so that you pay your bills on time every time
• Eliminate or reduce expenses
• Increase your income

Whatever your goal, write it down every single day this year.
Too often, life gets in the way of our long-term goals.
Jobs, personal lives, and hobbies seem to take precedence over organizing bills, establishing financial goals, and getting a grasp on the credit-scoring rules.
As a result, we forget about where we want to go. So there’s an easy fix …
If you start each day (or end each day) by re-writing your financial / credit goal, you will be much more likely to make decisions that support that goal.
Tip #2: Sit Down to Organize Your Bills
This might seem silly, but there are a host of byproducts that can come from simply making a list of your bills, the date the bills are due, and the approximate amount.
1. You will be less likely to pay them on time.
Forgetting to pay bills is an ever-increasing problem. Some bills are sent via e-mail. Others come in the postal mail.
Some bills are paid using auto-payment features, others are paid by credit card, still others require a check.
Without a centralized method of paying these bills, today’s modern conveniences actually make it less convenient to pay bills on time. It’s just too confusing!
2. You will see opportunities to cut your finances. When was the last time you reviewed your phone bill? And HOLY SMOKES! Do you really pay that much for your cable?
3. You will see how much money you are spending on discretionary items. If your bills add up to $2,500 a month, and you bring home $5,000 a month, but you only save $500 a month, you are spending $2,000 in discretionary spending. By listing your bills, you might be more inclined to set a budget.
Tip #3: Read a Book
Do you think that if you read one financial self-improvement book that you would be better off at the end of the year? Of course you would!
Remember: A person who does not read learns the same amount as the person who cannot read.
Each year, a bevy of books about taking control of your financial life hit the bookstores. Though some are better than others, each and every one of them will expand your knowledge simply by forcing you to focus on your financial situation.
Simply by making the choice to read a book, you will dramatically increase your likelihood of reaching your financial goals because you will spend more time thinking about and planning your future.
Pick a book you want to read.
Now, order the book today! Even if you read just one page a day, the power you gain by focusing on your finances will change your life forever!
That’s it: Pick and write down a goal, list your bills, and read a book.
It’s that simple.
What book will you read? And what is your goal for 2013? Let me know by leaving a comment below.
Here’s to a great 2013!
Philip Tirone
P.S. If you have already read great books about financial management, share your recommendation below!