What Is Credit Scoring?

If you have tried to get credit, a loan or a mortgage, you may have had your credit information graded for risk potential. This is called “credit scoring” or “risk scoring.” Credit scoring is one factor that lenders or creditors consider to determine if they should give you a loan, a mortgage or extend you credit. According to research, the better a borrower’s score, the more likely he is willing and able to repay a loan.

The “score” is a number grade reflecting your credit history at a particular point in time. Lenders use credit scoring to speed up the loan review process and to reduce the cost of examining your credit information. Credit scoring also gives lenders an unbiased method of evaluating your credit history.

Credit scoring occurs at many levels. Each credit reporting agency has a credit scoring model used to analyze data on the borrower. Although the reporting agencies have different names for the credit scoring products they offer, most use a Fair Isaac Company (FICO) model. The scores are scaled consistently so that numerical scores at all three reporting agencies mean the same thing.

In addition to credit reporting agency scores, there are numerous other company scoring models, such as “application scores,” which lenders calculate themselves. Custom scoring models are developed from a business’s own data on its customers, such as information from credit application forms and credit reports.

How Do I Get My Credit Score?

While credit scores have been kept a secret for many years, the good news is that now consumers can review their own credit scores. You can purchase a credit score when you buy your credit report through certain companies. For example, you can obtain a copy of your credit score when you order your credit report online at GetOutofDebt.org. Don’t forget, though; your credit score may vary somewhat depending on which company compiles the score. And also remember that it can change over time.

How Does Credit Scoring Work?

Credit scoring places a value on the types of accounts you hold as well as your payment history. The formula that determines your score is not disclosed. However, a consumer can determine what information is important in scoring models by knowing what information is put into a FICO score and knowing the four “reason codes” that accompany your score.

Information in a FICO Score

A FICO score is based on the information in your credit report located at that particular credit reporting agency. It is not based on your assets or income, although lenders consider these factors separately. FICO grades your risk by looking at your entire credit picture:

Your Payment History
FICO considers whether you have accounts in collection; whether you have any delinquencies and how frequent and recent they are; and whether you make your payments on time. How much impact each item has on your score depends on what other information is in the report. The FICO model looks at credit patterns, not isolated credit mistakes. For instance, one late payment may not affect your score significantly if the rest of your history is good. In addition, FICO gives you points for maintaining a good payment relationship.

The Amount of Outstanding Debt
FICO considers the number of balances recently reported, the average balance across all trade lines, and the relationship between the total balance and total credit limit. FICO considers your current level of borrowing and whether you are close to or over your limit. Carrying too much available credit can be held against you even if you do not have balances on those cards.

Your Credit History
FICO looks at how long you have had your accounts, the total number of “inquiries” and new accounts opened, the number of inquiries and new accounts opened in the last year, and the amount of time since the most recent inquiry.

Banks, department stores, employers or landlords make “inquiries” on your credit report every time you apply for credit or a loan with them. The FICO scoring model takes inquiries into account because statistics show that people who are anticipating financial troubles try to increase the number of credit lines they have available. The FICO model takes into account certain lender practices that normally would negatively affect your credit report. For instance, if you were interested in buying a car and the dealer agreed to finance you, the dealer may run credit inquiries on various lenders, which would then show up as numerous inquiries on your credit report. Beginning the first quarter of 1998, FICO models treat all inquiries occurring within a 14-day period as one inquiry. In addition, all models will ignore all auto- and mortgage-related inquires that occur within a 30-day period before calculating your score.

The Types of Credit You Use
FICO looks at the diversity of credit you use, whether you use bankcard, travel and entertainment cards, department store cards, personal finance company references and/or installment loans.

Negative Information
Negative information in your credit report that could impact the FICO score includes bankruptcies, delinquencies or late payments on accounts, collections, too many credit lines charged to the max, too little credit history (less than five credit lines in the past two years) and too many credit report inquiries.

Information FICO Does Not Consider
FICO does not consider your race, color, religion, national origin, sex, sexual orientation, marital status or age.

A typical scoring model may also consider your job or profession for stability, and how long you’ve lived at your address.

How much weight each of these factors has on your score is not disclosed to you because lenders say it causes more confusion than insight into the credit scoring process. Everything in credit scoring is relative — one negative item can have a small or large impact on your score depending on your credit history.

If you have a long and seasoned history of credit and many established accounts, one late payment would have a small impact on your score. However, if you have a short credit history, one late payment would impact your credit history much more.

If you have no established credit, you will have no score. Credit scoring requires that you have at least one account that is older than six months and has been reported to the credit reporting agency in the last six months.

Your score should be affected less if you have late payments on minor credit lines versus major ones. For example, if you are delinquent on a gas or department store account, and not on a mortgage or auto loan, your score should not be affected as much as it would if you are delinquent on an auto loan. Your credit score should be stronger with credit cards than mortgages since statistics show that credit cards are more indicative of paying on a loan than a mortgage is (most people will pay on their mortgage no matter what, and let credit card payments slide). Paying on a secured card should affect your score more than payments on department store cards.

The Reason Codes

Lenders are not required to tell you your credit score, but if your score is low and you are turned down for a loan, the lender must give you the reasons for your low score.

Your score is accompanied by “reason codes” that explain why your score wasn’t higher, listed in order of impact on the score. These codes are essential in helping you improve your score later in time.

The following list of all possible reason codes show how many aspects of your credit report are used in a FICO score. Your reason codes would be taken from this list:

• Amount owed on accounts is too high
• Delinquency on accounts
• Too few bank revolving accounts
• Too many bank or national revolving accounts
• Too many accounts with balances
• Consumer finance accounts
• Account payment history is too new to rate
• Too many inquiries in last 12 months
• Too many accounts opened in last 12 months
• Proportion of balances to credit limits is too high
• Amount owed on revolving accounts is too high
• Length of revolving credit history is too short
• Time since delinquent is too recent or unknown
• Length of credit history is too short
• Lack of recent bank revolving account information
• No recent non-mortgage balance information
• Number of accounts with delinquency
• Too few accounts currently paid as agreed
• Time since derogatory public record or collection
• Amount past due on accounts
• Serious delinquency, derogatory public record or collection
• Too many bank or national revolving accounts with balances
• No recent revolving balances
• Proportion of loan balances to loan amounts is too high
• Lack of recent installment loan information
• Date of last inquiry too recent
• Time since last account opening is too short
• Number of revolving accounts
• Number of bank revolving or revolving accounts
• Number of established accounts
• No recent bankcard balances
• Too few accounts with recent payment information.

What Is a Good Credit Score?

What actual number is a good score depends on the scoring model, the type of loan and the lender’s acceptable risk level and credit policies. For most models, the higher the score, the better. If the score on a borrower’s credit report is too low for one product, it may be acceptable for other products . Likewise, if one lender turns down a request for credit, it does not mean that another one will. For instance, an automobile dealer may accept a lower score than a creditor who offers an unsecured line of credit.

FICO scores range from 300 to 850 points. With mortgage lenders, there is a pattern for acceptable FICO scores. Generally a score of 700 to 850 is considered excellent, and very basic underwriting or information beyond the score will be necessary to get a loan with the most favorable terms. If a borrower gets this score, he or she can get a loan for a mortgage in significantly less time.

A score above 500 is still acceptable, but will probably cause lenders to look more closely at the borrower’s file to determine potential risks. Lenders may require supplemental credit documentation and letters of explanation before an underwriting decision is made. If a borrower has a score between these numbers, a mortgage decision will take approximately the same amount of processing time as it took before mortgage companies starting using FICO scoring.

A credit score can be a significant factor in the loan process or just one piece of the puzzle, depending on the lender and the type of loan. For instance, a credit score may play a larger role for consumers seeking home equity loans, as the credit score dictates the pricing for the loan. On the other hand, a traditional first mortgage may not put as much emphasis on the credit score.

What Your Credit Score Tells Lenders

FICO Score: 700 and up
A score of 700 and above is generally considered excellent. Most lenders give you an A rating. You will have access to the best interest rates because you have probably not been late with any of your loan payments. 38.6 percent of the U.S population has a score of 700 or above. Average delinquency rate = 8 percent.
FICO Score: 600 to 699
A score in the range of 600 to 699 typically means you have good credit. Most lenders would say you have a B rating, which means that you may have been a few days late with a payment or have a slim credit history. You may still have access to good interest rates, but might not qualify for the very lowest rates. 13.9 percent of the U.S. population has a score between 600 and 699. Average delinquency rate = 20 percent.
FICO Score: 500 to 599
A score in the range of 500 to 599 tells creditors that you may have paid unsecured debts more than 60 days late or been late with your mortgage payments. One or more of your accounts may be in collections. Most lenders would give you a C rating, which means you will probably have to pay at least two percentage points or more than people with excellent credit. 17.5 percent of the U.S. population has a score between 500 and 599. Average delinquency rate = 60 percent.
FICO Score: 499 & below
A score of 499 and below tells creditors that you may have liens against your property, a lender may have sued you for missed payments and/or your property has been foreclosed. You may still be eligible for a loan, but your interest rate could be three points or more higher than people with excellent credit. 18.5 percent of the U.S. population has a score of 499 or below. Average delinquency rate = 87 percent.

How Can I Improve My Credit Score?

Your credit score is constantly changing as your credit report information is always changing. Every time you try to get a loan or mortgage, the lender computes a new credit score. Taking steps to improve your credit report may not significantly or immediately impact your credit score since the scoring models study patterns of credit behavior over time.

Here are some general tips on how to improve your credit history which, over time, will improve your FICO score. Keep in mind that as negative information ages, it has less importance. It usually takes one full year of good credit behavior to see a significant change in your credit score. This means you should exhibit a full year of responsible payment behavior in your credit report — specifically, conservative use of credit, paying on time and not requesting too much credit during a short period of time.

Correct Errors:
You should get a copy of your credit report and make sure all information in it is complete
and correct. Keep in mind that any corrections you make to your report takes 30 days to take effect. Again, remember that removing or changing one incorrect derogatory item from your credit report will not guarantee an increase in the score. In addition, many lenders will not count errors on your report if you document those errors for the lender. Consumers can obtain a consolidated credit report from the GetOutofDebt.org Web site.

Inquiries:
Keep inquiries to a minimum. Don’t “credit surf,” or move balances from card to card to take advantage of promotional low interest rates. Many inquiries make it appear that you are shopping for credit, which indicates that you anticipate the need for many lines of credit. The more seasoned and longer your credit history, the better.

Close Unneeded Accounts:
The less available credit you have, the less risk you will pose to a potential creditor or lender. Keep around two to four credit cards for the best score. Close all unused or unnecessary accounts. However, keep your oldest accounts open to show the length of your credit history.

Just cutting up your card and tossing it in the trash does not close your credit card account. The safest way to close a credit card account is by sending a certified letter, return receipt requested, to the customer service department of the card issuer. Ask the card issuer to close your account and to report your account to credit reporting agencies as “closed by consumer.” In approximately 10 days, the card issuer should send you a letter confirming that your account is “closed by the consumer.” If you don’t receive the confirmation letter, follow up by calling the card issuer to make sure it closed your card and is reporting it properly to the credit reporting agencies. You may even want to get another copy of your credit report to make sure it is reported correctly.

Pay Off Credit Cards:
This shows that you use credit wisely and aren’t spreading yourself thin. Keep your credit limits and outstanding balances down. Conservative use of credit is important — keep balances at below 50 percent of the available credit for credit cards.

Pay Credit Obligations on Time:
The longer history you have of responsibly using credit and paying on time, the better your
score.

Satisfy Any Public Records, Such as Tax Liens or Judgments.
If you receive a bad score, request a copy of the four reason codes and do what you can to address them all.

Other Related Articles to Read

• Is It Possible to Easily Increase My Credit Score? – Tamara
• My Credit Score is Dropping. Is Yours?
• I Paid Off an Old Debt and My Credit Score Went Down. – Michelle
• How to Get All the Cheap Credit You Want
• Jennifer Says “We Have Accumulated So Much Debt And Bad Credit. What Do We Do?”
• Credit Scoring is a Scam and a Fraud
• What You Need to Know About Your FICO Score
• Bre Wonders Why Her Credit Report Still Shows Negative Items That She Thought Should Have Been Removed By Going Bankrupt
• Mary Lou Writes In And Wants To Know “Why Does My Credit Score Keep Going Down?”
• Credit Reports, Credit History, and Credit Scores in Hiring and Job Performance. Is It Even Fair?

Read the full article at GetOutOfDebt.org, click here: Credit Scoring: How it Works and How You Can Improve Your Score

Michelle

“Dear Steve,

To pay or Not to pay…. that is the question.

Have a old debt (over 2 years old) I have been told not to pay it because if I do it will make a negative mark on my credit. I know this is true because I paid off something else which was in collection, it now says Paid, but brought my score down by 4 points. 4 points is alot when your score is already low. Now I’m afraid to pay off the other debt because it might lower my score more. On the other hand, I would like to pay it off. What’s the best solution that would INCREASE my credit score or at least not lower it more.

Michelle”

The Answer:

Dear Michelle,

I don’t know who told you that but they are wrong.

There are a number of reasons why your score can fluctuate and 4 points is nothing. Each bureau uses their own scoring model, the formulas change and as time passes, and things get weighed differently.

Rather than guess why your score is what it is, you need to order a copy of your consolidated credit report with credit score. It will show you what each of the credit bureaus are calculating for your score and tell you what you can specifically do to improve your credit score.

When I look at my own credit score they range 17 points between credit report bureaus. And my score changes a bit every month.

What I am more worried about is if you have a current good line of credit that is reporting to the credit bureaus. You will be able to confirm this when you get your consolidated 3-1 credit report. If you do not have an active credit card, not store card, that is reporting to the credit bureaus, your score will drift down.

You see your credit report has bad credit on it and if it ends on a bad credit note it is like being in school and getting a D on a test. Unless you get better grades after that it will not pull up your overall grade.

If you don’t currently have a major credit card I suggest that you consider a secured Visa or MasterCard that will report to the credit bureaus. That will do the trick to start bringing you back up. And the other thing that will help, pay off any open collection accounts.

Big Hug!

@GetOutOfDebtGuy

Other Related Articles to Read

• Is It Possible to Easily Increase My Credit Score? – Tamara
• My Credit Score is Dropping. Is Yours?
• Credit Scoring: How it Works and How You Can Improve Your Score
• How to Get All the Cheap Credit You Want
• How to Easily Rebuild and Repair Your Credit After Bankruptcy, Foreclosure, or Reposession
• We Need to Raise Our Credit Scores So We Can Buy a House with a USDA Mortgage. – Amy
• How Can I Increase My Credit Score in the Next Couple of Months? – Kristine
• Jennifer Says “We Have Accumulated So Much Debt And Bad Credit. What Do We Do?”
• How Long Will it Take to Get Good Credit After Bankruptcy? – Amy
• I’m Trying to Figure Out My Credit Report. Help! – Alex

Read the full article at GetOutOfDebt.org, click here: I Paid Off an Old Debt and My Credit Score Went Down. – Michelle

Tamara

“Hi Steve,

I graduated with my Masters Degree this past June 2009 in Speech Pathology. I have over $100,000 in school loans and a car loan of approximately $10,000. My credit score is 716. I am trying to increase my credit score to above 720 to qualify for a conventional housing loan to purchase a home. My income is not the problem, it’s my debt to income ratio. I have consolidated about $80,000 of my school loans but I have a few private ones that I cannot consolidate including the $5,000 and $3,000 and one for $12,000. I have approximately $2,500 a month to put towards my school loans or to put into savings to help with the down payment of a house.

Is there any way to increase my credit score? Is it best to pay off my little school loans (i.e. $3,000, $5,000 and $12,000) , make larger payments to the loans I’ve consolidated (i.e. $80,000+) or try to pay off my car loan? Where should I put my money to increase my credit score? Is it even possible to increase my score in the next few months, or should I look at other housing loan options?

Tamara”

The Answer:

Dear Tamara,

Putting your money in a particular place won’t make any difference on your credit score, but having both a checking and saving account helps. The other places you would typically save, like investment accounts, don’t report to credit bureaus.

In answering your question I went to check on my own credit score. That investigation prompted me to write “My Credit Score is Dropping. Is Yours?”

Rather than guess why your score is what it is, I’d suggest that you get a copy of your consolidated credit report and credit score to see if there isn’t some other activity on there that you might not know about that is bringing your score down.

Big Hug!

@GetOutOfDebtGuy

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

Other Related Articles to Read

• My Credit Score is Dropping. Is Yours?
• I Paid Off an Old Debt and My Credit Score Went Down. – Michelle
• Credit Scoring: How it Works and How You Can Improve Your Score
• How to Get All the Cheap Credit You Want
• How to Easily Rebuild and Repair Your Credit After Bankruptcy, Foreclosure, or Reposession
• We Need to Raise Our Credit Scores So We Can Buy a House with a USDA Mortgage. – Amy
• How Can I Increase My Credit Score in the Next Couple of Months? – Kristine
• Jennifer Says “We Have Accumulated So Much Debt And Bad Credit. What Do We Do?”
• Credit Scoring is a Scam and a Fraud
• How Long Will it Take to Get Good Credit After Bankruptcy? – Amy

Read the full article at GetOutOfDebt.org, click here: Is It Possible to Easily Increase My Credit Score? – Tamara

TLT

“Dear Steve,

Great job make about $60,000/yr. 2 children. Single parent. Between my rent/utilities $1200/month, Car and Insurance $600/month, money I owe to grandmother $700/month and daily living expenses.

My kids are athletic I pay for sports, all equipment needed. I pay for all aspect of our healthcare. I have a ton of bills. Public records, judgements, defaulted student loan, old-closed credit card bills coming to me for settlement offers, old cell phone bills in collections, medical bills, a repossession that I was cosigner to in 2005, creditors calling me everyday about 10 times per day.

I have no extra money once I pay my immediate bills and when I do have some that could go towards one of these problems, I don’t know who to pay first. Seems like it won’t end even if I pay a little to one company when I can so I find myself not paying.

I am so overwhelmed with collections that when people tell me to pay a little to each it make me crazy. The companies don’t want a little, they want large lump sums of $200 or more. I don’t have it to give.

I desperately want to fix my situation, but how. I also have a hectic job that starts at 8am and ends at 5pm. I cannot find time to call these creditors and haggle with them especially when I cannot financially do what they need me to do.

I am 35 years old. I rent a 2bdrmm townhouse, but want a house of my own in the near future. Because of my income I’m afraid that I may have to pay for my child’s college education myself, he’s 13 years old.

Do I apply for bankruptcy? Where do I start because in reality, once my immediate bills are paid I have little left over. No support from children’s father he never pays child support to the court.

What are my steps in getting my credit score from the 400 to 500′s that I’m in to at least a 650. I was at a 650 about 4 years ago and then my life turned upside down. I had another child, no support from children’s father, moved out on my own and aside from being blessed with good health of my children everything else is gong down hill.

TLT”

The Answer:

Dear TLT,

I was hoping that you had some extra money available for debt repayment but once I saw that you didn’t and that part of your debt is for an old repo, well I’m afraid the die has been cast already for you.

You can go and try other options but I honestly think this is a hole you are not going to be able to dig yourself out of without bankruptcy. Contact a local bankruptcy attorney and make an appointment for a free bankruptcy consultation.

You should also pursue the children’s father through the court for child support. Not for yourself, but for the children. It is actually the money legally awarded to care for them and the kids need for you to fight for it for them.

Going bankrupt will help to improve your credit score. I know, that sounds crazy. Your score is horrible right now simply because of all these open collection accounts. Bankruptcy will end all of those. Once you go bankrupt you can start to rebuild your credit again with a secured credit card. A secured card will let you safely start to build new and good credit if you use it responsibly.

Big Hug!

@GetOutOfDebtGuy

Other Related Articles to Read

• April Wants To Know “As A Single Mom, How Do I Get Out Of Debt?”
• I Am Filing Bankruptcy But My Attorney is Waiting For Stuff From Me. – Brent
• Clinton Wants to Know “Am I Doing The Right Thing By Repaying My Debt?”
• Am I Able to Settle My Debts With My Credit Card Companies Even Though I’m Current? – Kaye
• How Do You Value Your Quality of Life? Debt Solutions to Fix The Future
• Credit Scoring: How it Works and How You Can Improve Your Score
• I Paid Off an Old Debt and My Credit Score Went Down. – Michelle
• “How Do I Go About Making My Credit Score Better” – Antoine
• Mary Had Her Motorcycle Repoed And Wants Your Advice
• Is It Possible to Easily Increase My Credit Score? – Tamara

Read the full article at GetOutOfDebt.org, click here: What Should I Do to Get my Credit Score Up From 400? – TLT

I am pissed off. I carefully monitor my credit report and credit score. In fact I just refreshed my consolidated credit report again today and guess what, my score from all three credit bureaus has dropped. But the spread among all three is now 17 points different rather than the 19 points that it was.

Credit scores are not designed to show who is the smartest in managing their finances. If you never had any debt and paid cash for everything, you would have a credit score of 0. There would be nothing to score you on.

So what is the credit score designed for? I have to keep reminding myself, “It’s for lenders dummy.” The sole purpose of the credit score is to give lenders a cheap and automated way to make credit decisions and grant credit based on risk. That’s it. It is for their benefit, not yours.

Here is the description on the breakdown of my current credit score.

• There are too many personal finance accounts on your credit report. [TransUnion, Experian, Equifax] Having too much available credit can sometimes harm your credit score. Lenders may feel that you have the ability to spend more than you could potentially pay back. You might want to consider closing a few accounts or asking to have your credit limits reduced. Avoid closing too many accounts – especially the oldest accounts on your credit report – because it could harm your credit score. Closing the oldest accounts can damage your score by making the length of your credit use appear shorter.

I have five credit accounts, including my mortgage. A few months ago I closed a few that were still open but did not use.

• There are not enough accounts in good standing on your credit report. [TransUnion, Experian] Having credit available to you is a sign that you are able to manage your finances responsibly. Lenders like to see that consumers have a large amount of credit available to them, but not so much that they could spend more than they could afford to pay back. If you currently have multiple accounts open with high balances, try reducing your balances below 35 percent of your limits. If you do not have many open accounts, consider opening a new credit account or asking your creditors to increase your limits.

So because lenders have extended me high credit limits, I’m now being punished for being a risk? I have no history of delinquent or late payments.

• There are too many inquiries on your credit report. [TransUnion] When lenders review your credit report for the purpose of an application, an inquiry is placed on the credit report they checked. A few inquiries a year is normal, but multiple inquiries within a short time frame may cause a temporary drop in your credit score. If you have many recent inquiries, lenders may assume that you are having financial problems. Avoid unnecessary inquiries by only applying for credit cards or loans that you are sure you want.

I’ve had one inquiry in the last seven months from when I purchased my Verizon service for my new MiFi card, which I love. Before that in 2008 I had an inquiry by utility company when we moved, my bank when we got the mortgage, a bank when I closed one of our cards, and Honda when we bought our minivan in April, 2008. Nothing crazy or excessive here.

• There are not enough bank installment accounts on your credit report. [Experian] A healthy balance of credit and loan accounts is key to achieving a high credit score. It is important to build a record of responsible credit use over time with different types of accounts. Consider opening a new account to strengthen your credit report.

So since I don’t have a car payment now it hurts my score?

• There are not enough mortgage accounts on your credit report. [Equifax] A healthy balance of credit and loan accounts is key to achieving a high credit score. It is important to build a record of responsible credit use over time with different types of accounts. Consider opening a new account to strengthen your credit report.

How many mortgages should I have? It’s one for me.

• There are not enough revolving accounts on your credit report. [Equifax] A healthy balance of credit and loan accounts is key to achieving a high credit score. It is important to build a record of responsible credit use over time with different types of accounts. Consider opening a new account to strengthen your credit report.

So Equifax says I have too many and then tell me that I don’t have enough. It’s one or the other, which one is the right answer?

I carefully looked over my reports and here is what I deduced. My score is being negatively impacted because I don’t have enough installment accounts and that my credit limits are so high. Here’s why I came to that conclusion.

It is my belief that my credit score has dropped because as lenders run for cover and attempt to manage their credit exposure and risk, customers with a lot of outstanding and available credit are bigger and bigger risks these days. See the irony here? Because I don’t carry balances I have a lot of available credit. It is very possible that if I did carry some balances below 35% of my limit (the borderline for slapping you for carrying too much) that my credit score would be higher.

I’d go ahead and reduce my credit limits but right now I’m just uncertain what lenders are going to do with the few cards that I have. Will some be reduced on their own? Will some be closed by lenders? I don’t know.

My logical choice is to do nothing right now, wait to see if lenders take action to reduce or close any of my cards, and in a month or so I’ll check my score again and see which way the trend is going and deal with it then.

If you have not checked your credit score lately, maybe it’s time for you to take a look as well. This is the link I use to check mine.

@GetOutOfDebtGuy

Other Related Articles to Read

• Is It Possible to Easily Increase My Credit Score? – Tamara
• I Paid Off an Old Debt and My Credit Score Went Down. – Michelle
• Credit Scoring: How it Works and How You Can Improve Your Score
• How to Get All the Cheap Credit You Want
• How to Easily Rebuild and Repair Your Credit After Bankruptcy, Foreclosure, or Reposession
• We Need to Raise Our Credit Scores So We Can Buy a House with a USDA Mortgage. – Amy
• How Can I Increase My Credit Score in the Next Couple of Months? – Kristine
• Jennifer Says “We Have Accumulated So Much Debt And Bad Credit. What Do We Do?”
• Credit Scoring is a Scam and a Fraud
• How Long Will it Take to Get Good Credit After Bankruptcy? – Amy

Read the full article at GetOutOfDebt.org, click here: My Credit Score is Dropping. Is Yours?

Bre

“Dear Steve,

I filed chapter 13 bankruptcy and little to my knowledge my attorneys who represented me did not clear my credit after the filing or even in the process so in essence I still have all the listings of old creditors on my credit report and it’s a bit tasking to have them removed.

Any suggestions on how to do so? My credit score has not increased even after filing actually the calls has just stopped and I’m still in ChexSystems so what’s the purpose of bankruptcy if there is not a reflection of it to clear your credit and increase your credit score?

Do you know a great attorney that actually will clear your credit in the process?

I did see the physical results in my bankruptcy however, I desire my credit report to represent the “paper effects” of it as well.

Bre”

The Answer:

Dear Bre,

Wow! I’m stunned that you thought that going bankrupt would somehow clean your credit report and improve your credit score. It won’t. In fact bankruptcy adds another big negative item, bankruptcy, to your credit report and lowers your credit score in the short run.

Let me use a school analogy to help you better understand your credit report. A credit report is not like a report card, it is more like a transcript. The transcript lists all the classes you attended and the grades, good or bad, that you got. Dropping out of school does not wipe the records off your transcript. Going bankrupt does not remove negative but accurate items off your credit report.

I am very surprised that throughout your discussions with the bankruptcy attorney and the pre-bankruptcy credit counseling that this was not clarified for you.

Now that you have gone bankrupt there are ways to repair your credit and improve your credit score.

1. Get a copy of your consolidated credit report and look for any negative but inaccurate items that are listed. Use the dispute procedure shown in this credit report and have those items removed.
2. To rebuild your credit score you will need to start having good information reported on your credit report. To do this you will need to get a major credit card that will both give you a card and report to the credit reporting agencies.
3. There are credit cards available for people with bankruptcy on their record.
4. As you continue to pay your new account on time and more time passes from your bankruptcy, your credit score will improve.

Big Hug!

@GetOutOfDebtGuy

The Answer:

Other Related Articles to Read

• Jennifer Says “We Have Accumulated So Much Debt And Bad Credit. What Do We Do?”
• We Are Looking Forward to Buying Our First Home But Our Credit Sucks. – Casey
• How Can I Fix My Bad Credit So I Can Get a Loan? – Andy
• SteveSavers – Group Discounts to Save Big Bucks on Debt and Credit Help
• Teresa Writes In “I Have Too Many Credit Cards”
• Carol Wrote Me And Asked “Would You Advise Debt Consolidation?”
• Credit Scoring: How it Works and How You Can Improve Your Score
• Lauren is Searching For Ways to Get Out Of Debt And Make Her Bad Credit Go Away
• Terri Wants to Know “Is There a Way to Get Out of Debt Without Ruining Our Credit?”
• “How Do I Go About Making My Credit Score Better” – Antoine

Read the full article at GetOutOfDebt.org, click here: Bre Wonders Why Her Credit Report Still Shows Negative Items That She Thought Should Have Been Removed By Going Bankrupt

“Dear Steve,

We have accumulated so much debt our credit score is to low to even buy a house. I’ve been looking into different programs to help, unfortunately the charge money I can’t afford either, we have to do this on our own.

If a creditor is offering to let you pay over 4 payments and only 55% of what you owe is this going to help our credit or hurt it more

Jennifer”

The Answer:

Dear Jennifer,

To get out of this situation it is going to wind up costing you something. You’ll either pay for a professional to manage your debt recovery, like in a debt management program, or, like many, you’ll try it on your own and make costly mistakes. Either way, you wind up paying.

Let’s see if I can’t create an inexpensive way for you to deal with this situation.

My first recommendation is going to cost you a little but I want you, using this link, to get a consolidated credit report and get the credit scores at the same time. This consolidated credit report is the best I know of and when you purchase it with the credit scores it will tell you exactly what you need to do to increase your credit scores. It is a small price to pay for very specific and direct information that will give you the exact guidance you need to increase your credit scores.

Your statement about repaying a debt for less than you owe is actually a form of debt settlement. The amount of debt forgiven is reported to the IRS and you may have to pay income tax on that forgiven debt. Read Beware of the IRS if You Settle or Default on a Debt. However, because it is a creditor that will allow you to pay it over four payments it makes it sound like this is a relatively small debt.

The forgiven debt is also reported on your credit report as a bad debt so while it gets you out of debt, it does not address your number one goal of increasing your credit score. If your number one goal is to increase your credit score then maybe you’ll want to repay the debt in full if you can afford it. That will then show the debt was delinquent but satisfied rather than delinquent and part written-off as a bad debt.

My second recommendation would be that while you are using the specific steps in that consolidated credit report I recommended I would urge you to consider getting a secured credit card that reports to the credit bureaus. You see, addressing your old bad credit is one step but if you are going to improve your credit report, better and faster, we also need to get new good information on there as well. These credit cards for people with poor credit will help you do that.

My final recommendation is for you to download my free book, Eliminate Your Debt Like a Pro and follow the advice and steps in there.

Big Hug!

@GetOutOfDebtGuy

The Answer:

Other Related Articles to Read

• Bre Wonders Why Her Credit Report Still Shows Negative Items That She Thought Should Have Been Removed By Going Bankrupt
• Credit Scoring: How it Works and How You Can Improve Your Score
• We Are Looking Forward to Buying Our First Home But Our Credit Sucks. – Casey
• “How Do I Go About Making My Credit Score Better” – Antoine
• SteveSavers – Group Discounts to Save Big Bucks on Debt and Credit Help
• How Do You Value Your Quality of Life? Debt Solutions to Fix The Future
• Do I Really Have to Default on My Debts to Go Into a Debt Settlement Program? – Mark
• How to Be Financially Successful When You Graduate
• Carol Wrote Me And Asked “Would You Advise Debt Consolidation?”
• Lauren is Searching For Ways to Get Out Of Debt And Make Her Bad Credit Go Away

Read the full article at GetOutOfDebt.org, click here: Jennifer Says “We Have Accumulated So Much Debt And Bad Credit. What Do We Do?”