Demystifying Credit Repair Ten Greatest Myths About Your Credit
Let’s go WAY back to… 1998 -How were home insurance premiums calculated? -How were auto insurance premiums calculated? -How were job applicants screened and qualified? -What’s next? Health Care? Utility rates?
A WORLD OF CHANGE Who is FICO? Who are Experian, Equifax and Trans Union? Who are their customers? (what do they say?)
The Big 3 • Equifax – Beacon, EFX, S&P 500 component, Atlanta, Georgia • Trans Union – Empirica, Private company, H Group Holdings, Pritzker (ie. Penny Pritzker – Obama appointee) family of Chicago, IL Global Hyatt, Royal Carib. • Experian – Fair Isaac, EXPN, London Stock Exchange, Dublin, Ireland
FICO, A Brief Chronology • 1956 – Engineer Bill Fair and mathematician Earl Isaac found FICO on the principle that statistical data can improve business decisions • 1963 – Montgomery Ward begins using the credit scoring system • 1970 – Delivery of first credit card scoring system to Connecticut Bank & Trust • 1987 – FICO goes public, moved listing to NYSE as “FIC” in 1996 • 1991 – FICO made available to Equifax, Trans Union and Experian • 1993 – First insurance bureau score introduced • 1995 – Fannie Mae and Freddie Mac recommend use of FICO • 1997 – American Bankers Assoc. honors Bill Fair and Earl Isaac • 2000 – 2003 Multiple mergers and world-wide implementations • 2004 – Launch of Global FICO • 2007 – 100 Billionth FICO score sold • Current headquarters in Minneapolis, MN
Latest Statistics • WSJ reported in July of 2010 that 43 Million Americans have a FICO score of 599 or lower (25.5% of adults) • Feeder population of the unbanked will find it tougher to obtain a FICO • The train wreck is still happening
Why Credit Scoring? • Credit scoring is a “lazy man’s” method to evaluate your risk of defaulting - nondiscriminatory • Credit scoring has become a thermometer of your financial health • FICO scores range from 300 to 850 • Assets and income not considered
Credit score factors Payment History Late Pays Collections Charge-Offs Repossessions Foreclosures Tax Liens Bankruptcies Judgments Short-Sales Length of History New Credit Soft Inquiries Hard Inquiries Types of Credit Used A Mortgage Loan An Auto Loan 2-3 Major Credit Cards Amounts Owed Credit Cards Mortgage Loans Auto Loans HELOC’s Installment Loans
Payment history: 35% Paying a collection that is more than 2 years old can hurt a score. Derogatory accounts do NOT always fall off of a credit report automatically after 7 years. They must be disputed. A divorce decree does NOT take precedence over the creditor agreement.
Amounts owed: 30%Managing debt New debt temporarily decreases a score. Balances should be kept below 20%(?) of the limit at all times to maintain a score. Debt should NOT be consolidated, it should be distributed evenly over all credit card accounts. Going over the limit on a credit card, even by $1 can cost as much as 100 points HELOCs can be considered revolving debt, not mortgages. Credit card accounts should NOT be closed except in special circumstances. Unused credit card accounts will become unrated in 3 months.
Length of history: 15%Mix of credit: 10% Borrowers should hold onto old credit cards, even if the rate is not great. Mixture is the best. The type of credit card DOES matter. 2 to 3 revolving credit cards with established history is optimal.
Inquiries: 10% Hard vs. soft Inquiries. Inquires affect a score for one year. Inquiries can cost between 2 and 30 points, depending on the current score. Pre-approved card offers are NOT really pre-approved.
FICO 8 Mortgage Scoring System Average 1st Mortgage Balance Home Equity Line of Credit Credit Cards With High Balances 2 new “Reason Codes” Could see credit scores drop by as much as 100 points
Demystifying Credit Repair • Myth #1. • Credit Agencies are empowered with some kind of governmental authority. • Credit agencies have no legal authority at all, they are simply billion-dollar corporations who are in the business of gathering and selling YOUR information
Demystifying Credit Repair Myth #2. • The credit agencies are required by law to keep derogatory items on your credit report for 7 to 10 years. • There is no law that the credit agencies report anything. Just the opposite is true! Credit Agencies are required by law to automatically remove all derogatory items older than 7 years, or in the case of a bankruptcy, 10 years.
Demystifying Credit Repair Myth #3. • It is impossible to remove an item of public record. • Bankruptcies, tax liens, etc. come off just like any other item that is incorrectly reported, obsolete, erroneous, misleading, incomplete, or that cannot be verified. Remember, the nature of the item has nothing to do with its removal under the Fair Credit Reporting Act.
Demystifying Credit Repair Myth # 4. • The burden of proof rests with the consumer to validate information contained on your credit report. • The opposite is true under the Fair Credit Reporting Act; both federal and various state laws REQUIRE that the credit agencies bear the burden.
Privacy vs. Piracy Myth #5. • It is illegal or immoral to have the information on your credit report altered or removed. • Not only is it not illegal or immoral, but it is what the Fair Credit Reporting Act is all about. It was enacted by congress for the very purpose of protecting consumers from the intrusion of the credit agencies into our lives.
Demystifying Credit Repair Myth #6. • Paying a past due debt removes it from your credit report. • Just because you pay an old debt does not change or erase the fact that at one time you were not paying on it as you agreed. Can this record be changed? Absolutely!
Demystifying Credit Repair Myth #7. • Credit reporting and credit scoring were developed to educate and inform consumers. (visit their websites) • False. The big 3 and FICO serve the banking and insurance industries who need a 3rd party to “rate” their services. • Evidence: Blockbuster and Hollywood video article
Demystifying Credit Repair Myth #8. • If you get a derogatory item removed, it will just come back. • Not if it is removed legally. When it is removed with cause under the Fair Credit reporting Act it cannot legally be placed back on your credit report. Consumer must receive a reinsertion letter 5 days prior.
Demystifying Credit Repair Myth #9. • The past equals the future. • This is the biggest myth of all. The concept that once bad, always bad, or at least for 7 years is totally false. The scoring model, like Google’s search engine parameters, has been in constant change. The simple truth is, no credit report or scoring model can predict the future
First the Facts The Fair Credit Reporting Act: 1971 • Congress passed the Fair Credit Reporting Act (FCRA). The FCRA was passed by congress with the intention to regulate credit-reporting agencies. The Act spelled out all the rules and regulations that the credit-reporting agencies had to follow before they put anything on someone’s credit report. All information reported must be 1) Verifiable, 2) Complete and 3) Accurate. For the past three decades, those agencies have ignored most of the law. If “reasonable procedures” have not been correctly followed, then any verified inaccuracies, etc. must be removed from your credit reports as defined in the FCRA. The three credit reporting agencies (CRA) ARE Experian (formerly TRW), Equifax and Transunion. There are various agencies that purchase information from these three major agencies, but they get their information from the “Big-3”, so if you can repair your credit with the Big-3, you basically repair it with everyone.www.yale.edu report
Fair Credit Reporting Act How to read your results Deleted - This item was removed from your credit report Remains - This item has been verified as accurate Updated – A change was made to this item; review this report to view the change. If ownership of the item was disputed, then it was verified as belonging to you. Reviewed - This item was either updated or deleted; review this report to learn its outcome Items We investigated We completed investigating the items you disputed with the sources of the information. Here are the results: Credit itemsoutcome CAP ONE Remains ZALES/CBSD Updated STATE OF ALABAMA HR Deleted CBSI Deleted CBSI Deleted SECURITY CHECK LLC Deleted HSBC BANK Deleted CAVALRY PORTFOLIO SERV Deleted LISTER-HILL CREDIT UN Remains Visit experian.com/status to check the status of your pending disputes at any time
Additional related Acts Google Search; consumer rights + • FCRA • FCBA • FDCPA • FACTA • CROA
Fair & Accurate Credit Transactions Act ALERT ADDRESS DISCREPANCY: THERE IS A SUBSTANTIAL DIFFERENCE BETWEEN THE ADDRESS SUBMITTED IN THE INQUIRY AND THE ADDRESS(ES) ON FILE TRANSUNION ID MISMATCH ALERT: PREVIOUS ADDRESS MISMATCH. INPUT DOES NOT MATCH FILE. ADDRESS DISCREPANCY: THERE IS A SUBSTANTIAL DIFFERENCE BETWEEN THE ADDRESS SUBMITTED IN THE INQUIRY AND THE ADDRESS(ES) ON FILE SCORE MODELS EQUIFAX/BEACON 5.0 - SOME PPERSON – XXX-XX-XXXX SCORE: 588 00038 - SERIOUS DELINQUENCY, AND DEROGATORY PUBLIC RECORD OR COLLECTION FILED 00018 - NUMBER OF ACCOUNTS WITH DELINQUENCY 00020 - LENGTH OF TIME SINCE DEROGATORY PUBLIC RECORD OR COLLECTION IS TOO SHORT 00014 - LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED _________________________________________________________________________________________ TRANSUNION/FICO CLASSIC (04) – SOME PERSON – XXX-XX-XXXX SCORE: N!A SC3 - FILE NOT SCORED BECAUSE SUBJECT DOES NOT HAVE SUFFICIENT CREDIT _________________________________________________________________________________________ EXPERIAN/FAIR, ISAAC (VER- 2) – SOME PERSON – XXX-XX-XXXX SCORE: 524 38 - SERIOUS DELINQUENCY AND PUBLIC RECORD OR COLLECTION FILED 13 - TIME SINCE DELINQUENCY IS TOO RECENT OR UNKNOWN 02 - LEVEL OF DELINQUENCY ON ACCOUNTS 18 - NUMBER OF ACCOUNTS WITH DELINQUENCY 08 - TOO MANY INQUIRIES LAST 12 MONTHS
F.A.C.T.A. S C O R E M O D E L S 5 MAIN BORROWER EQUIFAX/BEACON 5.0 810 00011 - AMOUNT OWED ON REVOLVING ACCOUNTS IS TOO HIGH 00032 - LACK OF RECENT INSTALLMENT LOAN INFORMATION _________________________________________________________________________________ 3 MAIN BORROWER TRANSUNION/FICO CLASSIC (04) 808 004 - LACK OF RECENT INSTALLMENT LOAN INFORMATION 014 - LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED 012 - LENGTH OF TIME REVOLVING ACCOUNTS HAVE BEEN ESTABLISHED _________________________________________________________________________________ 1 MAIN BORROWER EXPERIAN/FAIR, ISAAC (VER. 2) 822 12 - LENGTH OF TIME REVOLVING ACCOUNTS HAVE BEEN ESTABLISHED 01 - AMOUNT OWED ON ACCOUNTS IS TOO HIGH
Trade lines Inquiries Collections Public Records Age Address Employment Income Sex Credit Considered in Credit Scores NOT Considered in Credit Scores
Research and Repercussions • In June of 2004, the Public Interest Research Group found (79% or more) have significant errors in their credit profiles. These errors affected credit scores by 50+ points. • lyonslawfirm.com/pdfs/creditlawsuits.pdf • bankruptcydischargesettlement.com • 10th Circuit Appeals Court ruled that E-Oscar is not a reasonable validation method (2010)
Demystifying Credit Repair Myth # 10. • I cannot restore my credit on my own. • Yes, you can! You can try to do it yourself (just like you can represent yourself as an attorney in a court of law). But you can also allow experienced professionals to educate you and assist you in restoring your credit profile.
CROA & who can charge Credit Repair Organizations Act 2007 Amended to FCRA Prohibited practices Disclosures Certain Federal Exemptions
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