How Your Credit Impacts What You Pay For Insurance

Did you know that the cost of the liability insurance that you purchase to protect you in the operation of your auto and in the ownership of your home is determined in significant part by your credit score? That’s right, that credit history that you thought only mattered when you borrowed money for a loan or mortgage, is a big factor used by insurance carriers in determining the premium pricing that they offer to their customers.
Insurance carriers use something called a “credit-based insurance score” to determine the price that they will charge you for coverage, as well as whether or not they will offer coverage to you at all.  Insurance companies believe that the worse your credit history is, the more likely you are to cause a claim to be made against the coverage they offer you.  Obviously, insurance companies look at items in addition to your credit history in pricing your coverage:  If you have a history of claims being made against your coverage or a disregard for traffic laws, your liability insurance is also going to cost you more than it otherwise would.

 

Are Your Insurance Score and Your Credit Score the same thing?

No. A credit score is used by lenders to forecast your ability to repay money that you have borrowed from them. When you apply for a mortgage, for example, the credit score that they use is specifically designed to determine the likelihood that you will repay that loan in a timely fashion.

An insurance score, on the other hand, is used by insurance companies to predict how likely a customer is to have an insurance loss.  Although the two scores are different, your credit score is one of, if not the biggest, factors in the calculation of your insurance score.

 

What type of transactions in my credit history can affect my Insurance Score?

Insurance companies don’t disclose the scoring models that they use in determining an Insurance Score. They consider these formulas to be proprietary, trade secrets.  Nonetheless, since we know that an Insurance Score is based in large part on a credit score, we can reasonably infer the items that are utilized in determining this score:  Late payments, judgments, collections and other items which negatively impact your credit score have the same negative impact on your insurance score.

 

A higher insurance score means higher insurance premiums, what can I do to change that?

The first step is to obtain a current and complete copy of your credit report. There are a number of ways to do this. By law, you are entitled to a free copy of your credit report once a year (like at https://www.annualcreditreport.com/index.action).  Be certain that the report you obtain has information from all three of the credit bureaus (Experian, Transunion and Equifax). There’s a chance that something is being negatively reported on one of those three, but not on the other two.

 

You can attempt to fix damaged credit issues on your own. The process involves researching, drafting and sending verification letters to all three bureaus; following up with those bureaus and perhaps eventually, negotiating with creditors or their representatives. The process will require your time, patience, diligence and some aptitude for understanding what the credit bureaus and collection agencies are required by law to do.

Alternatively, you may want to consider enlisting the help of a reputable, professional credit restoration company. Those experts can help you obtain a copy of your credit report and further, help you to decipher and understand the information contained in that report.

A good credit restoration company will provide you with important guidance as to how to address negative items that appear on your credit report and get you started on the road to a better credit score, a better insurance score and significant savings on your auto and homeowner’s liability insurance premiums. In many instances, the savings realized from those lower premiums might more than offset the cost of professional credit restoration services.

You need to take a serious look at how your credit is impacting your life. Restoring it can make a significant difference to your household’s wealth.

 

The Shamrock and your Credit Score

 

The “wearing of the green” is a customary part of the celebration of St Patrick’s Day. A look around your workplace today will likely reveal many of your co-workers sporting green clothing and accessories. Both the clothing and accessories are likely to include shamrocks, one of the national symbols of Ireland.

St Patrick is said to have used the shamrock, a three-leaved young sprig of clover, to explain the concept of the Christian “Holy Trinity” to the (then) pagan Irish.

The shamrock is also useful in understanding how your credit score works. Your credit score is actually a “trinity” of credit scores, reported by a trinity of credit bureaus; Transunion, Equifax and Experian. (It’s a little-known fact that one of those bureaus, Experian, is actually an Irish Company, headquartered in Dublin, Ireland.)

Each of the three “leaves” of your credit score is different. This is because not all creditors report to all three of the bureaus, along with the fact that each of the three bureaus uses their own unique formula, or algorithm, to calculate your credit score. When it comes to applying for a loan, the leaf of your credit score which is most important is the middle one. Lending institutions throw out your high score and your low score and focus on the one in the middle. This mid-score is a major factor in determining whether you obtain financing or not.

Why do lenders single out the middle score? You would think that all three credit scores, even if different, would be very close to each other. Guess what? They’re not! It is not uncommon for us to see credit reports with huge differences in the scores that are reported by the three credit bureaus; sometimes the differences are as high as 75 to 80 points! It is also not uncommon for us to see derogatory items on a credit report like a tax lien or an unpaid  court judgment being reported by one of the credit bureaus, but not the other two.

Lenders know that the information that is being reported by the bureaus contains inaccuracies and deficiencies. By using the middle score, they get rid of the report (the high score) that has likely missed something which could be negatively impacting your credit, and they get rid of the report (the low score) which has likely included a negative item that is inaccurate or doesn’t belong to you.

Sad, but true. They don’t use an average or a mean to determine your true credit score because throwing out the high score and the low score provides a method for weeding out inaccurate information – inaccurate information on the one hand that may boost your score, and inaccurate information on the other hand that may depress your score.  Seems like a lot of “blarney” doesn’t it?!

As they say in Ireland’s native Gaelic language, “Beannachtai na Feile Padraig oraibh!” (“Saint Patrick’s Day blessing upon you!”)

Saint Patrick’s Day Blessing upon you, and your credit score! Enjoy the green beer later today!

 

Does a loan officer have a duty to disclose receipt of a “referral fee” from a credit repair company?

Some credit repair companies obtain their customers by paying “referral fees” to loan officers who have turned those customers down for a loan.
By necessity, a credit repair company passes those fees on to their credit repair clients. That’s how business works.
That creates a potential pitfall for a referring loan officer. They, and by extension, the company that they work for are receiving “income” for that referral. That is why the credit repair company that paid them a referral fee last year probably sent them an IRS Form 1099 for that payment this past January.
Does the Real Estate Settlement Procedures Act, (Title 24 CFR section 3500 et seq.) require that you disclose that income to your mortgage loan customer, should the credit repair company properly return them to you ready for a mortgage?

Think about it…

If a loan officer is sending someone to a specific credit repair firm, and:

1. Telling them that they “need” to have a higher credit score in order to qualify for a mortgage loan, and
2. The cost of that credit repair service is higher for them because of the fact that the loan officer and or his company were paid a “referral” fee
-Is that cost fully and accurately disclosed to the customer in the loan settlement documents?

In effect, isn’t the customer paying more to obtain a loan than they would have had the loan officer not received a referral fee?

In the interest of “full disclosure”, should that referral fee  be reflected on the Settlement Statement ( HUD-1)?

 

 

What a week!

This week ended on such a high note!

Beyond the daily successes, we have two really great stories to share!

1. We successfully raised a client’s credit score by 89 POINTS in under FIVE WEEKS!

2. One of our clients obtained mortgage approval after just 35 days in our program!

We’re so proud of the work we’re doing and nothing makes us happier than results like these. Phoenix Credit Consultants is a GOAL-ORIENTED credit repair company. We want our clients to reach their financial goals in the least amount of time possible. Our staff of credit experts is fully committed to helping each and every client meet achieve their success at their own pace and their own comfort level.

 

 

Why Would a Mortgage Loan Officer Do Credit Repair?

The latest blog post from the president of Phoenix Credit Consultants:

This weekend, I read a “LinkedIn” article written by an old friend who is in the investment capital business. In it, she talked about a client of hers who ran a carpet cleaning business. In this carpet cleaning business, the owner “did it all”, it was him and his carpet cleaning truck, hustling from job to job, pausing where necessary to answer his cellphone, to book appointments for existing customers or to sell his business to new customers.

Anyway, the carpet cleaning businessman had an accident and broke his leg. He was forced to hire someone else to cover the appointments that he had booked while he recovered. During his convalescence, he was able to devote his time to marketing his company properly and his business grew. He found that he had been spending his precious time working “IN” his business, instead of “ON” his business. Oh yeah, by the way, the carpet cleaning guy was calling the investment capital firm to talk about financing for additional carpet cleaning trucks and equipment – his business was growing.

After reading this article, I started to think about the mortgage loan officers that the credit restoration company I work for deals with every day. I often encounter loan officers that say, “Credit Repair? Oh, I do that myself.”

I have often wondered, why would a loan officer choose to do this additional work? This additional work, mind you, for which they don’t receive any additional compensation.

I have been able to formulate 3 reasons, in my mind, why they do this:

1. They don’t trust Credit Repair Firms:

Many loan officers have been ‘burned’ by credit repair firms. They have referred their customer to a credit repair company which represented that they knew what they were doing. The credit repair company took the customer’s money and never did the work. Or, worse yet, the credit repair company did the work, but steered the client towards another mortgage brokerage. (Here’s a tip: Always do your due diligence. There is, at least, one local credit repair company that a local mortgage company has an ownership interest in. No, it’s not Phoenix Credit Consultants.)

2. They think that the work is easy, that it speeds the process up if they do the work themselves:

Loan officers have access to software like “Credit Expert” that analyzes a client’s credit report and makes suggestions as to a score increase that might be achieved if a client takes certain steps, like paying down existing accounts.

Sometimes, the work that needs to be done is “easy.” Oftentimes, a client who is referred to us who simply needs to pay down the balances on existing accounts. In those instances, we often explain to the client what they need to do, without charging them a cent.

But why would a loan officer spend their precious time doing this work, especially when there is a trusted alternative that will do the work for them?

Reputable, trusted credit repair companies do exist. (Again, do your due diligence.) These companies do the work that the loan officer is doing for them, at absolutely no cost to the loan officer or his company.

3.  They are concerned that the “cost” of credit repair will keep their customer from being able to close on a loan:

Many customers who shop for mortgages have saved ‘just enough’ for a down payment and the costs associated with a loan. Many loan officers surmise that if the borrower takes on the additional burden of paying for credit repair, they aren’t going to be able to have the funds to proceed with the loan when they complete the process of repairing their credit. They conclude that if they themselves help the client with the credit repair, they will save the client the money they need to close on the loan.

Here’s what they miss: Professional credit repair, properly done, doesn’t cost…It pays.

When a mortgage client’s credit is repaired properly, they will not only qualify for a mortgage (perhaps even for a better, cheaper mortgage), but they will also save on their homeowner’s and auto liability insurance premiums. More importantly, those customers who have ‘just enough’ for a down payment and the costs of a loan, are the customers who are the most likely to be required to have PMI – the savings on that insurance alone will most likely more than offset the cost of credit repair.

So, think about it. Are you spending time working “IN” your business that you could more effectively spend working “ON” your business? Does it really make sense for you to contribute your free sweat equity towards the cost of your client’s new home?

Tune In This Sunday!

We’re back!

Tune in at 3:00 pm CST this Sunday, February 21st to hear PCC on The Gerald Realty Show on 550 KTRS!

We love being a part of this group of experts!

Topics this week include why we don’t recommend “do it yourself” credit repair!

Your Rights Regarding the Reporting of Your Credit

The Fair Credit Reporting Act was enacted by Congress in October 1970. It was designed to provide protection for consumers against abuses from the credit reporting companies. (There are three big national companies: Equifax, Transunion and Experian.)

One of the purposes of the law was to level the playing field between consumers and the credit reporting companies.

Under the law, credit reporting companies, or “Bureaus” as they are called in the lending industry, are required to follow certain rules and fix mistakes contained in the credit reports that they create.
The law also creates certain remedies, including the right to sue for damages, if the bureaus don’t do what they are supposed to.
Here are four things that everyone should know about the Fair Credit Reporting Act (FCRA):

 

1. You have the right to know the information contained in your credit report.

 

The act requires credit reporting agencies to give you FREE access to the information they have collected about you once every 12 months.
You can obtain these reports either by writing to each of the individual credit bureaus or on the internet at AnnualCreditReport.com.
2. If there is an error on a report, there are steps you can take to fix it.

 

You have the right to dispute information contained in your credit report if that information is not accurate.

The FCRA requires that credit reporting agencies have reasonable procedures in place that that ensure the accuracy of the information that they report.

That being said, errors can, and do, show up on people’s credit reports.
When a credit bureau is made aware of a potential error, the law requires that they conduct an investigation.

The law says that a credit bureau has 30 days to look into your dispute, based on the information you provide to it.

If the dispute is not verified within 30 days, then that individual bureau is required to delete that item from the credit report.

If you have properly disputed an inaccurate item on your credit report and the bureau refuses to take action, you should consult a lawyer. The FCRA gives you the right, under proper circumstances, to seek appropriate remedies in a court of law, including damages and attorney’s fees.
3. Negative information on your credit report is subject to a time limit.

 

You don’t have a right to dispute negative information on your credit report that is accurate, and is being accurately reported.
That information cannot, however, be reported forever. The FCRA provides that even accurately reported negative information may only be reported by the bureaus for seven years.

This rule does not apply to bankruptcies, they can be reported for up to 10 years.
4. You have the right to know if you have been denied credit or charged a higher
interest rate as a result of information that is contained in your credit report.

 

Creditors and employers are also required by the FCRA to tell you if these things happen. This part of the law is there so that you are alerted to potential problems in your report. It is up to you to investigate this information and dispute it if it is inaccurate.

How To Start The Home Buying Process As A First Time Homebuyer

FIRST TIME HOMEBUYER? WHERE DO YOU START THE PROCESS?

SQUARE ONE-CLEAN UP YOUR CREDIT- Unless you are holding a winning Powerball ticket, are sitting on a substantial nest egg or are being financed by a wealthy relative, you will need a loan to afford your first house. Mortgage Companies and Banks use credit scores, also known as FICO scores, to evaluate the potential risk of lending to individuals. The higher the number, which runs from 300 points to 850 points, the better your credit score.

Knowing your score well in advance will give you time to clean up any mistakes, like tax liens that were paid off many years ago or parking tickets that you paid but that are still showing up on your credit report.

Sometimes it takes months to clear your credit up, and by then the seller has sold your dream home to another buyer and you are back to square one.

Knowing your score will also give you time to boost your number if need be. The three major credit-reporting bureaus generate their own FICO scores based on the data they collect.

To find out where you stand, contact a reputable credit firm like Phoenix Credit Consultants, (314) 429-2040 or www.123PCC.com. Even if your credit score is high enough to qualify for an entry level loan (like an FHA loan) you may have time and the opportunity to strengthen your score to a point where more favorable loan products might become available to you. A company like Phoenix can help you raise your score as quickly and as effectively as possible.

SQUARE TWO-GET PREAPPROVED- Not to be confused with a prequalification, which is essentially a “rough” calculation of how much of a loan you might qualify for, a preapproval is a written estimate from the lender stating how much you will likely be able to borrow based on an initial review of your credit and financial information. The application often requires submitting pay stubs, bank statements, tax returns and other financial documents. Most lenders charge nothing for the application, since they are hoping to win your business, but some charge you (usually less than $100.00) to cover the cost of a credit check.

Why not wait until you’ve actually found a place to get a preapproval letter for a mortgage? 

  1.  Because it will help you determine how much you can afford.
  2. It will provide you with significant leverage when you are ready to make an offer on a home. It provides assurance to the seller that you will be able to secure financing and makes your offer significantly more attractive to an offer that is contingent upon financing being obtained.

Preapproval letters typically expire between 90 and 120 days, but can be quickly updated with a phone call to the lender.

SQUARE THREE-ASSEMBLE YOUR TEAM- In addition to a credit consultant and loan officer, you will need to add a real estate agent to your team.

Look for a real estate agent that has an established track record working with buyers in your situation, and who will get back to you promptly.

Look for an agent that is experienced, one who frequently works with entry-level buyers. You want to feel like you’re working with someone who has done this time and time again, not someone who is learning the process as you do.

You want an agent who can help you come up with a sound offer based on market analysis and who will put together a well-rounded application package on your behalf. 

Your agent’s commission, typically 5 or 6 percent split with the seller’s agent, will ultimately come out of the sale proceeds. 

SQUARE FOUR-HIT THE STREETS!- With your credit restored, your preapproval letter in hand and your realtor by your side, it’s time to hit the streets!

Looking to hop in your car and drive from prospective dream home to prospective dream home this spring or summer?

Then now is the time to get started at square one. Contact the credit experts at Phoenix Credit Consultants today (314) 954-7429 or www.123PCC.com. We can help you obtain your credit report and a reliable mortgage (FICO) credit score.

Ask the experts at Phoenix about their unique, “Goal Oriented” credit restoration process. (GOPHOENIX!) That process is designed to get your credit score where you want it to be as quickly as possible and gives you control over how long that process takes.