08.11.08
Loren McCray Explains How Collection Accounts Affect on Credit Score
Most individuals with bad credit have something in common—collection accounts.
In most cases, people with bad credit want to pay off the collection account. However, if money is tight, it may take some time to get them paid. But, if you do step up and pay off the account, you expect the collection agency to step up also—don’t you?
Well, unfortunately, that’s not always the case.
Paying off a Collection Account Won’t Increase Your Credit Scores
Even after a collection account is paid in full, and your credit reports show that the collection was paid in full, your FICO credit scores will reap no rewards. They will not increase one point.
This is the reason…
Any instance of a collection account on your credit reports decreases your credit scores. When the collection account appears on your personal credit report, it is an element of your credit history. It is of no significance if the account is paid off or not.
Total Value of Collection Account is of No Importance
It doesn’t matter if the collection account is for $50 for an unpaid cable bill or $5,000 for a plasma television—the outcome is identical—your credit scores will drop by the same amount.
This is an essential topic you must understand. It stands to reason that since the amount is lower, it won’t lower credit scores as much. Incorrect.
Every person knows that late payments on a home loan or automobile, which can be hundreds or even thousands of dollars, will hurt your credit. But what everyone does not know is that even if a small $50 balance goes to a collection agency, and it finds it way to your credit reports, it will hurt your credit just as much.
Bottom line: anything from a collection agency that appears on your credit reports is going to decrease your credit scores. So, become extremely vigilant in protecting your credit reports from this type of information appearing in the first place.
08.08.08
Loren McCray Explains Why Two Different Lenders Can Check Your Credit Scores on the Same Day and See Different Scores
You can go to two…three…even four different lenders on the same day, only minutes apart, and each lender can see totally different scores for you.
The most likely reason is that each lender may be using different versions of the FICO credit scoring software.
From time to time Fair Isaac updates the software they use to determine credit scores at each of the three credit bureaus. However, when the three credit bureaus get updated software from Fair Isaac, they still make the old versions available. They don’t automatically switch everyone to the new version. So new clients get the new software, but old clients remain on the old software (unless the client specifically asks for an update).
For instance, let’s assume you go to a bank that’s been a client of TransUnion for five years. Chances are that they will still be using the software they were offered five years ago.
But, let’s say a new bank opens up and is just starting to use TransUnion. The new bank will most likely be on the latest release.
This is one possibility as to why you have different scores from two banks, even though both banks use the exact same credit bureau.
Unless a bank specifically asks for an update to the new version, they will stay on the old one.
Think about it like this…you probably own a computer with Microsoft® Windows®? If so, what version of Windows software do you use? Is it…
- Windows 95
- Windows 98
- Windows NT
- Windows NT 3.1
- Windows NT 3.5
- Windows NT 3.51
- Windows 2000
- Windows 2000 Professional
- Windows ME
- Windows XP Home Edition
- Windows XP Professional
- Windows XP Media Center
- Windows Vista Home Basic
- Windows Vista Home Premium
- Windows Vista Business
- Windows Vista Ultimate
There are many different versions of Windows, but they’re all still Windows. The only differences are that some are older than others and the newer ones seem to be better.
Just like Windows, there are many different versions of the software that produces the FICO credit score, even though they’re all called FICO scores.
Here are some examples..
- BEACON
- BEACON 96
- BEACON 5.0
- Enhanced BEACON
- Experian/Fair Isaac Score
- Experian/Fair Isaac score V2
- EMPIRICA
- FICO Risk Score Classic ‘04
- EMPIRICA 98
What’s the most up-to-date version? Each credit bureau has its own version of the correct answer. Do you know which one is the most current? Does your bank know? Doubtful.
This is the reason that some of the banks you use don’t have access to your most current FICO credit scores.
This is a much larger issue than anyone will confess. Look at it this way, if your bank is using a score based on an older version of the software, it could cause you to be:
1. Declined for credit or a loan
2. Approved, but at a higher rate
3. Declined for auto, renter’s or homeowner’s insurance
The fact is, the newer software does a much better job of scoring individuals.
Some Banks Use the Older Software to Charge Higher Interest Rates
Since each version will calculate your credit scores differently—some banks will intentionally choose not to update their software in hopes of scoring you lower.
Now let’s be very clear…about 85% of the businesses that loan money are good, ethical companies and would never try this. However, it’s the 15% that you have to watch out for.
But, even if you’re using an honest lender, they may still be sticking you with high interest rates if they’re using older FICO software.
Your mortgage broker will have no idea if the place they got your credit scores from is using the most recent version of the software. It’s just not something they know. And, as you’ll find out in a moment, the more up-to-date the software is, the more likely your FICO scores are going to be higher.
There’s no rule that says, “All lenders who use Experian have to get the most updated version of the FICO score.” They can get any FICO credit score from Experian that they choose.
Updating Fair Isaac’s Credit Scoring Software
Fair Isaac creates the software that determines FICO credit scores. No different than any other type of software, it has to be updated regularly. Whenever it’s updated, or “re-developed,” the latest version gets installed at all of the credit bureaus. However, the previous versions don’t get deleted. Lenders may still utilize the older versions.
After a few updates it can get messy…some banks still use versions that were built in the 80’s. These are not just mom-and-pop shops…these are huge, main stream banks.
So, I bet you’re wondering, “Why doesn’t every bank just request to be put on the latest release?”
Why Do Banks Use Old FICO Score Software?
Easy, it’s expensive to switch.
This is the problem, using an updated version of the software isn’t as easy as simple as turning an old version off and turning the new version on. It’s quite complicated, time consuming, and very expensive.
Think about what it takes to change a small part deep inside your car’s engine. The part may only be $20, but it could cost you $2,000 in labor just to get it replaced.
That’s similar to how it works with the updated scoring software. What if the $20 part isn’t even broken…then is it really worth shelling out $2,000 to replace it? Most banks would say, “No!”
Since they aren’t broken, they don’t want to take the time, and spend the money to swap them out for a newer version, banks will continue to use older software version…even though it’s in their customers’ best interest for them to update it.
Why Doesn’t Fair Isaac Make Lenders Use the Newest Version
The question that some of you are going to ask is, “Why won’t Fair Isaac or the credit bureaus make the banks to update it?”
Fair Isaac has no influence on the scoring software version banks use. They can request that they update it, and can demonstrate the latest release is better than the older version—but that’s about all they can do.
It’s similar to Microsoft when they update their operating system. Sure, they’d love for everyone to switch over to the latest Windows operating system, but they can’t pass a law to force everyone to do it.
The credit bureaus could force banks to switch to the newest version. But that will never happen. They would basically be telling their largest customers what to do.
It just won’t happen.
Older Versions Calculate Scores Differently
This is the issue though; the older software versions calculate everything differently. Here are just two significant changes:
1. Your credit inquiries are going to be treated more favorably in newer versions than in older versions.
2. The penalty you pay for using finance companies is less in newer versions than in older versions.
Use Banks with the Most Current Software
It’s in your best interest if banks use the latest FICO software. There’s a big difference in what a mortgage company can do for you if you have a middle score of 570 versus having a middle score of 602.
One score means, “I’m sorry I cannot help you.” The other score means, “Congratulations! You qualify for a mortgage with no money down at a normal interest rate.”
08.07.08
Loren McCray Tells The Truth about Consumer Statements
There is probably at least one thing on everyone´s credit reports that they wish conveyed their version of the incident.
The Fair Credit Reporting Act (FCRA) allows everyone to submit up to one-hundred words explaining their version of the incident. People that reside in Maine can write as many as two-hundred words.
The problem with consumer statements is that they are a complete waste of time.
Submitting a consumer statement on your credit report is about as useful as a swimming pool at the North Pole.
Consumer statements are total waste of time because most banks do not even look at credit reports anymore. Most banks do not even pull the entire credit report.
Banks only pull specific portions of credit reports. The “consumer statement” segment is almost NEVER pulled.
The reason is that Fair Isaac streamlined the entire loan process so banks won’t have to invest time reviewing credit reports.
For example, think about a large bank like Bank One, Washington Mutual or Wachovia. These banks receive scores of applications every single day. You’d need an army of people to review each credit report by hand.
Now imagine how uneconomical it would be for the bank to review thousands of consumer statements and also have to figure out how to interpret them as part of the overall credit application.
Banks simply look our FICO credit scores, to make a credit decision. FICO scoring is the reason we can be approved for credit on your favorite website, over the telephone, or even at a department store in mere seconds.
It takes five seconds for them to get your FICO credit scores and another five seconds to offer you store credit. Now that’s fast!
Remember that every bank is different when it comes to credit scoring. Many banks use only your FICO credit scores to make a credit decision. Some banks use your FICO credit scores as one piece of their credit decision.
Consumer Statements May Even Hurt You
Consumer statement can even corroborate negative information on a person’s credit reports.
Here are some actual real-life examples…
“…The reason I was late paying the bill was due to the fact that I…”
“…I normally pay my bills on time. But last month I didn´t have the money, so I…”
“…the phone company raised my monthly fees and I shouldn´t have to pay it…”
“…I went to Hawaii and I forgot to pay Citibank so…”
These statements have essentially done the credit reporting agencies’ jobs for them. They’ve just confirmed that the negative information is true.
How to Remove an Existing Consumer Statement
It is as easy as asking for it to be removed. You submitted it, you have the right to remove it.
You can write each credit reporting agency a simple letter. Here are their mailing addresses:
Equifax Information Services LLC
PO Box 740241
Atlanta, GA 30374
TransUnion
PO Box 2000
Chester, PA 19022
Experian
PO Box 2104
Allen, TX 75013
Remember the Following if You Have a Dispute with a Bank
1. No matter who is right, if there is a possibility that the negative information will be end up on your credit reports—you need to suck it up and pay up before it gets reported. This is critical because if it gets on your credit reports, it will stay there for the next seven years. Pay whatever they say you owe. Then hire an attorney to sue them, or take it to small claims court.
2. Using a consumer statement to tell the credit world your side of the story is a bad move. You don’t want to verify negative information and do the credit reporting agencies’ jobs for them.
3. Consumer statements don’t help your scores. You can be as right as it gets and it won’t matter. A consumer statement has no positive impact on your FICO credit scores. It simply doesn’t. Focus on what helps your scores. Everything else is just a waste of your time.
08.06.08
Loren McCray’s Advice on Selecting a Law Firm to Assist with Credit Repair
The credit reporting agencies are required by federal law to remove inaccurate information from your credit reports free of charge.
However, nowhere in the law does it say they have to make it easy for you.
Because the credit reporting agencies can’t charge you to remove inaccurate information from your credit reports, they make you jump through hoops…climb over walls…and inconvenience you in any way possible to accomplish this.
They will try to make it too frustrating and time consuming for you to do something that is supposed to be your right under the Fair Credit Reporting Act.
They want you to give up…surrender…waive the white flag…cry, “Uncle.”
Life is too short to waste your free time jumping through hoops to appease the credit reporting agencies.
You need a lawyer. But not just any lawyer. You need to choose a law firm that specializes in credit repair.
Don’t use a bankruptcy attorney to help you with errors on your personal credit reports. Lots of people assume that since the bankruptcy attorney helped with the bankruptcy, the attorney would know all about the credit reporting agencies. This is rarely the case.
Bankruptcy attorneys are good at helping you file bankruptcy, but pretty much useless in helping you remove inaccurate negative information from your credit reports.
Here are the expectations you should have for a law firm:
1. They have to live and breathe the Fair Credit Reporting Act. The FCRA basically tells us our rights regarding our credit reports. If you have a few hours to spare, you can go here to read it.
2. Former employees of the credit reporting agencies should be on their board of directors, within their company rank and file, or at least as consultants. Having an insider’s perspective on how the credit reporting agencies work was essential for success and is what separates the real thing from the scumbag credit repair clinics that advertise on telephone poles.
3. They had to abide by the legal guidelines Congress created for this type of service. These guidelines are known as the Credit Repair Organizations Act (CROA).
4. Make sure they have many years in business with a clean record with the Federal Trade Commission.
A pretty tall order, but considering the FTC makes a regular sweep of credit repair clinics and shuts down the crappy ones…finding the right law firm is easier than you think.
Is the Term “Credit Repair” Naughty or Nice?
Law firms that specialize in helping you remove inaccuracies from your personal credit reports are often grouped in with other credit repair services that are not law firms. But there are major differences between the two.
The companies that give this service a bad name are the credit repair clinics with no real experience in the credit reporting industry. Maybe the people who started these clinics got lucky getting inaccurate information removed from their own credit reports and decided to make a business out of it?
One of the biggest myths surrounding credit repair is that people think it’s illegal. Nope, it’s not illegal. If done properly…and if they follow the federal guidelines…then it’s as legal as voting at 18 or driving a car at 16.
They just have to follow the rules. And the rules are clearly spelled out in CROA.
Surprised that credit repair is 100% legal?
The credit reporting agencies work very hard to convince you that ALL of these companies are scams and
they can’t do anything more than you can do on your own. That’s so untrue.
There are legitimate companies that provide this service.
It’s no different than hiring a tax pro to prepare your taxes for you…or a lawyer to represent you in court if you are sued…or anything else that you can afford to pay someone else to do for you so you can keep yourself focused on your unique ability.
Sure, you can do those things yourself for free. But is it really free if you get audited or lose the lawsuit?
Bottom line: As long as the company follows the rules set forth in CROA…the credit restoration service they provide to you is ethical, legal, responsible, valuable, and time saving.
So again, credit restoration is not illegal. It’s only illegal if the company that is offering the service is not following the guidelines that Congress has set up.
The credit reporting agencies will try to make you think differently. They do a good job convincing the public, lenders, their business partners, and many others that all credit repair organizations are illegal.
Law firms vs. Credit Repair Clinics
While the credit repair clinics are all about scamming you with no regard to what’s right or wrong…a legitimate law firm abides by CROA.
You can fiddle around and try to remove inaccurate information from your personal credit reports yourself…or you can hire someone to do this for you so you can do more enjoyable things with your free time.
The only reason the legitimate companies exist is because most of the credit reporting agencies make it impossible to easily talk to someone over the telephone to dispute incorrect information on your credit reports.
If the credit reporting agencies made it easy to correct errors on your reports, then law firms wouldn’t have to deal with representing people who have been run through the credit reporting agency ringer.
