Holiday Credit Tip Sheet
Credit Cards and Credit Card Utilization
One of the primary factors that go into computing your credit score is “Credit Card Utilization.”
In its simplest terms, credit utilization is a fraction. The amount of credit that you have available to you on credit cards is the bottom half (or denominator) of that fraction. The amount of credit that you have used is the top half (or the numerator) of that same fraction.
For example, if you have $1,000.00 dollars worth of credit available to you and you charge $500.00 on the credit card or cards that you own, your resulting credit utilization rate is 500/1,000, or 50%.
If you don’t pay any portion of that 50% off when your bill comes after the holidays, your credit utilization rate will be computed by the credit bureaus at that 50% rate. That level of utilization will damage your potential score. Not as bad as 75% utilization or 100% utilization, but it will leave significant credit scoring “points” on the table.
We want to help you build your score. If you’re hoping to get your score to a place where you can pre-qualify for a mortgage in the spring or summer-it is best that you spend only at a level that will allow you to pay your credit card bill down to 30% (or less) of its applicable limit BEFORE it is due next month.
In-Store Credit Card Offers
If you make a purchase at a national retail store like Target or Macy’s during the holiday season, it is likely that you will be offered a discount on your purchase if you apply for and use that store’s credit card when you checkout. The offer is typically something like a 10% or 20% discount on all purchases made on the day that you make the credit card application.
Offers like this can be very tempting. (That’s why the stores make them!)
But, think about the following:
- Research has shown that people tend to spend more money when they use credit cards in lieu of cash. The spending likely increases even more if you are given a “one day only”, limited time discount. If the 10% discount only applies to purchases made that day, you are very likely going to spend more money on that trip to the store than you had initially planned to.
- When you apply for a store card, it will show up as a “hard” inquiry on your credit report. Although the hit to your credit score will not be massive, you could potentially lose five or ten points. If you are planning on applying for a mortgage or auto loan in the next few months, those points could cost you a significant amount of money.
If you find yourself unable to resist the urge to apply for and use the store card, it bears repeating: be sure to pay the statement balance in full and on time BEFORE it is due. At the very least, pay the balance down to no more than 30% of the available balance.
- Interest rates on store cards are high, often in the range of 20 to 25 percent. Surprisingly with these cards no matter what your credit score is whether it is 620 or 850, you will receive that same high-interest rate.
If you use the credit card to finance a big purchase, the cost associated with that high-interest rate would quickly eliminate any savings you received if you don’t pay the bill off in full upon its arrival. Finally, if you don’t pay all or most of that big purchase off before the interest becomes due, that high-interest rate can result in your credit utilization moving upwards very quickly, even if you don’t spend anymore using the card.
“0% Interest” Offers Oftentimes Aren’t Really 0%
When you are ready to buy something in a store, or online, you might be tempted with an offer of 0% financing. Pay close attention to exactly what you are being offered. Not all 0% offers are the same.
Sometimes the offer will “waive” the interest during a certain, set promotional period (for example, “90 days”).
Other times the offer does not waive the interest, but defers it, instead. If you fail to pay the balance in full during the defined time, the retailer may retroactively charge you interest for that full period. In that instance, you never received the benefit of 0% interest at all. You should only consider utilizing this type of offer if you can pay the balance in full BEFORE the expiration of the defined period.
Before signing up for any of these sorts of offers, “READ THE AGREEMENT”, make sure you understand whether the interest is being “waived” or “deferred.”
If At All Possible, Avoid Going Into Debt to Buy Gifts
It feels great to give gifts to the ones who you love during the holiday season. But, if your goal in the next several months is to grow your credit score to a point where you can qualify for financing for a new home, going into debt to buy those gifts can expose your credit score to damage and jeopardize the fulfillment of that dream.
Rather than going into debt, consider gifting alternatives. Everyone loves the gift of home-baked Christmas cookies. Think about giving the gift of your labor or of a special talent that you might be able to offer to others.
Feel free to share with your loved ones that your special gift to them is helping you to realize your dream of owning a home next year.
Consider Giving Your Friends or Loved Ones the Gift of a Credit Restoration Expert in 2018
You may want to consider giving the gift of the services of a professional, reputable credit restoration company to help your friends or family along the path to better credit.
They may attempt to fix damaged credit issues on their own, but the process can be hard work. It will require their time, patience, diligence and perhaps some aptitude for understanding what the credit bureaus and collection agencies are required by law to do.
Should you choose to give this gift, we would like to chip in. Anyone who contacts Phoenix this month or in January of 2018 (314-429-2040) and tells us that they found out about us through this Holiday Credit Tip Sheet will receive a $25.00 dollar discount on their initial first work fee, should they choose to engage our services. Feel free to tell folks that this discount it is your gift to them!
Our competition aggressively competes with us for your credit restoration business. Those competitors spend incredible sums of money on advertising and/or trying to “buy” leads from loan officers and realtors. We just spend our money on performing.
So, how is it that Phoenix has eclipsed these companies as lenders’ and realtors’ preferred source for client credit restoration services?
Our ability to overshadow our competition can be summed up in two words:
1. Competence, and
Our company’s core competence paired with our willingness and ability to communicate with our customers regarding the status of their credit recovery puts us at the forefront of the credit restoration business.
Simply put, we offer a superior product. We strive to improve that product every single day. Every time that we talk to our customers and our referral affiliates, we ask them to tell us if there is anything that we can do to make our process better.
We understand and appreciate that your sole reason for working with our company is to have your credit restored and be “Mortgage Ready” from a credit perspective, as quickly as possible.
We look forward to working with you. Feel free to give us a call today (before, after or during the eclipse!). (314) 429-2040.
What a deal! Between now and December 31st, 2016, if you sign up for our services, you can save 16%!
Call us today at 877-235-6150 to get started!
Start 2017 on the right foot with an improved credit score.
This post was recently featured in The Huffington Post.
The ending of a marriage is a difficult process for everyone involved. Even if you are the one who “wants’ the divorce, it can be difficult to watch the impact it has on all those that it touches. If your spouse doesn’t want to be divorced, it can be difficult to watch that person struggle with the change. Needless to say, if the divorcing couple has children, the impact it has on the kids can have long lasting effects.
Many people who go through the divorce process also suffer long-lasting effects to their consumer credit. Indeed, a large majority of people that we help at my credit restoration business had “great” credit until the “Big D” happened. But somehow, during or after the process of dissolving the marriage their credit was severely damaged.
Sometimes this process is unavoidable. Maintaining two households on an income that used to pay for only one can lead to missed payments.
More egregiously, if the spouse who is the primary breadwinner chooses to use their earning power for leverage, they can simply stop paying the bills. Although this process more than likely damages both their credit, as well as their spouse’s, it can give them enormous negotiating power in the divorce. If the mortgage isn’t getting paid and creditors are calling the house for payment, a spouse who may not be in a hurry to get divorced may become motivated to get things over with and “settle” for less than they otherwise would.
A spurned spouse may also start to refuse to pay bills simply to “get back” at their soon to be former partner. Once again, both members of the couple’s credit will be damaged, but the spurned spouse “doesn’t care” they just want to get back at the husband or wife that no longer wants them.
That same rejected or angry spouse can also damage their ex’s credit after the divorce has been finalized. We frequently see instances where the order granting a divorce directs one party to pay certain outstanding debt that was incurred by the married couple. What happens if that party refuses to do what the court ordered them to do?
Our clients are frequently surprised when a creditor comes after them for debt that their ex was ordered to pay in the divorce decree. Guess what? The creditor was not likely a party to the divorce case. They don’t care if your ex-husband agreed to pay for a debt in the divorce. If you jointly acquired that debt while you were married, you remain responsible for it and they will come after both of you for payment. If your spouse doesn’t pay what they agreed to in the divorce or even if they fail to pay on time, it will likely be reported against BOTH of your credit history.
Pretty incredible, eh? You can take your ex back to court and have the court find them in contempt or request that the court order them once again to pay the debt that they previously agreed to pay, right? Going to court costs a significant amount of money. Attorneys fees can add up quickly and it is likely that your attorney is going to want to be paid before they head back to court on your behalf.
It may cost you as much to go back to court as the bill that you are going to court over. What if your spouse still refuses to pay or claims an economic inability to pay? More attorneys’ fees are a strong possibility.
Incredibly, many people end up paying the debts their ex promised to pay themselves. The damage the unpaid bill causes to their credit score costs them serious money. Additionally, they may not be able to obtain certain financing, like a mortgage while that unpaid debt is showing up on their credit report. Those credit cards in both of your names and that co-signed mortgage don’t seem so romantic anymore, do they?
Has your credit been damaged or destroyed by a divorce? Don’t give up. Credit is forward looking. A good credit restoration company can help you deal with problems like an unpaid debt that was supposed to be paid by your ex as part of a divorce decree. They can also help to educate you about how credit scores really work and give you the tools to get your score where you really would like it to be.
We’re excited to be participating in this great event hosted by Gerard Realty Group!
August 23rd at 6:00 pm at the Lodge Des Peres.
This blog is also featured in The Huffington Post.
Dreaming of purchasing a new home in the next several months? Whether you are a first time home buyer, upgrading to a newer or bigger home, or downsizing into a smaller residence, the first thing that you should do is have your credit appraised.
Today’s real estate market is one that should only be entered into as an educated and fully prepared buyer. Demand is high in today’s market, and available home inventory is low. If you are not educated and well-prepared to make a firm offer, your offer will get less consideration from a seller than an offer from a customer who is ready to proceed to closing.
Can you imagine the anguish of finding the perfect home for you and your family, at the perfect price, only to discover that there is a credit problem that will keep you from securing a mortgage on that home? Credit issues often take time to resolve – weeks, if not months – could pass before you can successfully resolve your credit problems. Chances are, the perfect house with the perfect price is going to be sold to another buyer in today’s market.
How do you avoid that sort of disappointment? It’s simple, start with a credit appraisal! A credit appraisal is a thorough, detailed review of your credit history by an individual with expertise in reviewing credit reports, as well as detailed knowledge of mortgage underwriting standards.
An appraisal is just not about your credit score. You can have a high credit score (even in the 700s), but still have items on your credit report that will block you from being approved for a mortgage. We see these type of challenges at our credit restoration company regularly.
It is vitally important that your appraisal include credit history and a credit score from each of the three prominent credit reporting agencies (Transunion, Equifax and Experian). Mortgage providers look closely at the reports from all three of these agencies, and frequently accounts that are reported by one bureau aren’t being reported by the other two. If a derogatory item shows up on even just one of the reports, it is likely going to be an obstacle in your mortgage pursuit.
Credit history, alone, like the one you are able to obtain for free once a year is not enough. It is also essential that you have scores from all three bureaus reviewed.
It is imperative that these three scores are FICO mortgage scores. Believe it or not, there are all sorts of different credit scores out there today, and not all of them are the type of scores that are used to determine your eligibility for a mortgage. FICO (an acronym for Fair Isaac and Company, who now simply call themselves “Fair Isaac”) is a scoring model, or mathematical algorithm, that is purchased by credit bureaus and used to compute your mortgage credit score.
That score that you get for free, on your credit card statement or from online credit monitoring services? More than likely, it is not a FICO mortgage score. Other credit score models used by those companies can be as much as sixty points different from your real FICO score (we see it all the time).
Why does an accurate credit appraisal require all three scores? Mortgage companies use something called your middle score. I wrote about it in detail, here: The Shamrock and Your Credit Score, a few months ago. In short, your middle score is not an average of your three scores, and it’s not even the median of those scores. Mortgage companies and banks “throw out” your high score and your low score – sort of like how Olympic diving and ice skating are scored. They look solely at the middle of your three scores to determine whether you meet the credit score portion of their underwriting standards.
Even if your appraisal indicates that your credit score is high enough to qualify for an entry level loan (like an FHA loan) you may have the time and the opportunity to strengthen your score to a point where more favorable loan products might become available to you. Your time will be well spent building your credit score while you shop for your new home.
Once you have had your credit appraised and certified as credit qualified, you are “Real Estate Ready.” It’s time to take the next step and proceed to your bank or mortgage company for pre-approval.
Not to be confused with a pre-qualification, which is essentially a “rough” calculation of how much of a loan you might qualify for, a pre-approval is a written estimate from a lender stating how much you will likely be able to borrow based on your (now certified) credit and other financial information (like your earnings history.)
The application for a loan pre-approval 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.
A credit appraisal will not only spare you from disappointment, it will also save you time. Why spend your valuable time with a realtor or lender, only to be told that your credit doesn’t qualify you to buy a home. With a certified credit appraisal the question, more often than not, changes from “Will I qualify for a loan?” to “How big of a loan will I qualify for?”
Get your credit appraised today. Knowing that you are “Real Estate Ready” and being certified accordingly, 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 than an offer that is contingent upon financing being secured.
We’ll be back on the air THIS SUNDAY at 3:00 PM CST on 550 KTRS with the Gerard Realty Show!
Tune in to hear some expert advice from our president, Charlie Scanlon!
Ah, spring…..as you watch the trees and flowers begin to blossom, your thoughts turn to warmer weather and the arrival of your income tax refund check. Perhaps you have already made plans to spend those funds on a home improvement project or a luxurious weekend getaway. Why not spend that money getting your credit in shape? A higher credit score can provide you with opportunities like the ability to obtain financing to buy a new home or a new car. It can also save you money throughout the year on your insurance premiums and credit card interest rate.
How can the proceeds from your tax refund help to boost your credit score? Here are five suggestions:
- Get a Copy of Your Credit Report
The very first thing that you should do is to obtain a current and complete copy of your credit report. There are a number of ways to do this, from ordering one apiece from each credit bureau, or from myFICO.com. Here’s a bonus for those of you who didn’t get a refund this year, but for some reason are reading this article anyway: By law, you are entitled to a free copy of your credit report every 12 months; a great site for this is 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.
Why start with your credit report? It’s the best way to tell what, if any, negative items are being reported against you. Read it carefully – you would be amazed at the number of credit reports that contain inaccurate information.
- Pay Down Your Credit Card Balances
Credit utilization is the factor that is given the second most importance in determining your credit score. It accounts for slightly less than a third of that score. Credit Utilization means that you use credit, but you use it responsibly. This part of your score suffers if you don’t use credit at all, it also suffers if you use too much credit and don’t pay it back in a timely and responsible manner.
Ideally, the credit scoring formula looks for credit utilization to be 30% of that card’s limit or less. So, take some or all of your refund money and pay down any credit cards you have where the balance is in excess of 30% of that card’s limit to a point where it is under that level. Do so, and you can expect to see an increase in your credit score in a very short time.
As an extra added benefit, owing less on your credit cards also means that it is less likely that you will have difficulty paying your monthly bills for those cards on time moving forward.
- Get and Fund a Secured Credit Card
Believe it or not, there are people out there who do not have a single credit score reporting, or alternatively, do not have a credit score reporting from one or two of the three credit reporting bureaus. These people don’t necessarily have a single item that is reporting negatively on their credit history, they are simply “credit invisible.”
Why are they invisible to the credit bureaus? Because they have never applied for nor utilized credit.
One of the easiest and best ways to become visible to the credit bureaus is to apply for and fund a “secured” credit card. Secured cards are guaranteed by a deposit that you make with the bank where you acquire the card. Your credit limit, typically, is equal to the amount that you fund the card with.
Secured credit cards can also help to build credit for individuals that aren’t “credit invisible”, but have damaged or low credit scores.
There are a wide variety of secured credit cards available, and the amount of money that you are required to fund those cards with varies widely, from a few hundred dollars to a few thousand dollars. The cost of these cards, in addition to the required deposit, can also vary widely, so shop around and be certain that you understand what you are paying for with this credit card.
If you obtain a secured card, it is crucially important that you use it properly in order to build your credit score. It is also important that the card you elect to obtain reports to the credit bureaus as often as possible.
- Pay Off Accounts that are in Collection
How nice would it be to stop that annoying collection agency from calling you about some old bill that you were unable to pay several years ago? Getting those calls to stop is another great way to use your tax refund, by paying off or settling those obligations. It may also help to boost your credit score.
Be careful when dealing with old debts, as sometimes paying them off can retrigger statutes of limitations that might be about to expire. Statutes of limitations are the time period, set by state law, for which a creditor can sue in court for an unpaid debt. They vary from state to state, so be sure that you know the applicable limitations for your state. By partially paying a debt or entering into a payment plan, it’s possible that you may ‘restart’ the statute of limitations all over, even if the debt has been previously barred by the expiration of said time limitations.
You also need to be aware of the time limits for how long a collection account can legally be reported on your credit history. The Fair Credit Reporting Act, a Federal law, only allows collection accounts to be reported for seven and one half years (technically, it’s seven years plus 180 days, but we’ll round down slightly for our discussion here). This restriction is different than the statute of limitations. Depending upon the state law that applies, it may be longer or shorter than the time within which a creditor can sue you.
If an account is nearly seven and a half years old, paying it off may not be the best use of your tax refund, at least when it comes to boosting your credit score. That money may likely be better spent elsewhere. Be sure to look at how long a collection has been reporting.
Generally, whether you pay an account in full or enter into an agreement with the collection agency to settle the account for less, doesn’t make a difference in your credit score. Accordingly, feel free to try out the negotiating skills you have learned from watching “Shark Tank” when you place a call to the collection agency.
Finally, be aware that paying off an old account doesn’t necessarily mean that it will be removed from your credit report. Some credit scoring models will boost your score for paying off these types of debt, but most of them don’t.
- Hire a Qualified Professional Credit Restoration Company
You can attempt to fix damaged credit issues on your own. You can also attempt to change your own oil in your car and cut your own hair – in other words, because you can, doesn’t necessarily mean that it is something that you will want to undertake on your own. The process can be hard work. It will require your time, patience, diligence and perhaps some aptitude for understanding what the credit bureaus and collection agencies are required by law to do.
Instead, you may want to consider spending your tax refund on a professional, reputable credit restoration company to help you along the path to better credit. A well-qualified credit restoration company will provide you with important guidance as to how to address negative items that appear on your credit report, help you to maximize your credit utilization, teach you how to acquire and properly utilize a secured credit card, and help you with negotiating collection accounts.
Due Diligence is important if you choose to spend your refund on a credit restoration company. Research the company that you are considering and ask them how the work of restoring your credit gets done, and who does it. Look for a company that employs credit experts who are educated about credit and who will provide you with personal service. There are credit repair companies out there who do nothing more than sign you up for their services and then ship you off to a third-party service provider that does little more than repeatedly send out form letters to the credit bureaus.
Good luck getting those companies to pick up the phone and answer your questions about the status of your file after they sign you up. More than likely, they will have “to get back to you” after they send an email to their contractor thousands of miles away.
So, leave the home improvement projects and luxurious weekend getaways for next year. Give yourself the gift of a higher credit score. It’s a gift that keeps giving, throughout the year.