Imperfect Credit?

Low credit scores, late payments showing on your credit report, recently bankrupt, prior foreclosure, or behind on payments?

Do you own your home and need cash to pay bills? Want to buy a home and need 100% financing? It can happen! Low credit scores, recent bankruptcy, foreclosure or late payments don't have to keep you from achieving your dreams!

Afraid to shop around for a loan and further lower your credit score? Now you can be initially pre-qualified free of credit inquiries! We work with lenders that don't obtain your credit report until after you've been initially pre-qualified! That can mean freedom from multiple credit inquiries and you keep your credit score up!

Bankruptcy, foreclosure, judgments, charge-offs, medical bills, no credit, bad credit, turned down, etc.—we can help!

Improving a consumer's credit score takes time, but there are some things a consumer can do to change their score quickly. This article suggests ways to achieve the best possible score in both the long- and short-run.

Each credit reporting agency collects its own information, uses its unique statistical model, and calculates its own credit score. The material and suggestions in this article relate to Experian's FICO model and credit score. These principles also apply to the models for Trans-Union and Equifax.

What does a credit score "say"?
A credit score is primarily designed to predict the likelihood of a consumer receiving a 90-day late in the next twenty-four months. Research conducted by Fair, Isaac & Co. (FICO), identified indicators determining the probability a consumer will receive a 90-day late in the next twenty-four months. The best indicator, and the one given the greatest consideration (weight), is recent late payments (within the previous six months). For example, the "average" consumer with a current 90-day late has a history of recent late payments on other accounts.
When helping a consumer repair bad credit, work on the below-mentioned problem-areas in the order shown. The percentage figures indicate the item's weight (contribution) in the credit score. These are reason codes. When reading a credit report, up to four of these codes will appear directly below the credit score. On a credit report, there may be a code representing the reason code. If necessary, call the appropriate agency to be sure you know which reason codes are contributing to the score.

Reason Codes

Late Payments, Collections, Bankruptcies--35%: The best indicator of getting a 90-day late is recent late payments.
Tip: Some consumers think a mortgage late is "worse" than a credit card late. The FICO model doesn't distinguish between the two. A late payment is a late payment--period. The consumer should make all payments on time. Late payments in the previous six months reduce a credit score the most, followed by late payments in the previous seven to twenty-four months. Late payments over twenty-four months are the least damaging.

Outstanding Debt--30%: Outstanding debt refers to revolving credit--specifically, credit cards. A home equity line is revolving credit, but an equity line is treated more favorably compared to a credit card.
Tip: The key to a good credit score is the ratio of outstanding debt-to-credit limit per card and overall. For example, a credit card with a $4,500 balance and a $5,000 limit is worse than a credit card with a $10,000 balance and a $15,000 limit. If you have several credit cards, it's better to spread debt among them to achieve an overall, low debt-to-credit limit ratio.
Tip: A credit reporting company may not know the current limit on a credit card. They sometimes report a previous, highest outstanding balance as the credit limit. This could lower a credit score in some cases. Be sure they know what the credit card limits are.
Tip: A credit card balance of zero will not contribute to a score. If a consumer has a good payment history for a card, make sure a balance for that card appears on the credit report.

Length of Credit History--15%: The length of time a card is open contributes to a score. Several credit cards open for a short time will lower a score.
Tip: Don't open several new credit card accounts in order to spread debt among them (in order to lower a debt/credit limit ratio). This will lower a credit score.

Types of Credit--10% Inquiries: A credit card issued by a finance company is less favorable compared to a card issued by a major bank.
Tip: Some large, "wholesale-to-the-public," warehouse-style stores issue their own credit cards. These cards are sometimes backed by finance companies. These cards can lower a score.

(Applications for New Credit)--10%: These are credit inquiries. Today, the number of inquiries can be effectively "ignored" under certain circumstance. The inquiries one makes into one's own credit don't count.
If a consumer is shopping for a mortgage and several inquiries have been made in the previous thirty days, only one mortgage inquiry is considered in the score. In the eleven months prior the previous thirty days, only inquiries occurring more than two weeks apart are considered.
For example: A consumer has five mortgage inquiries in the previous thirty days. Only one inquiry is considered in the score. In the period covering the eleven months prior to the previous thirty days, the consumer has a mortgage inquiry every fourteen days. Only one inquiry is counted in the eleven month period. On the other hand, if the consumer has a mortgage inquiry every fifteen days in the previous eleven months, all twenty-two inquiries are counted in the score.

How to quickly increase a credit score:
As previously mentioned, a score will suffer if the total debt-to-credit limit ratio is high (a consumer is "maxed" out on their credit cards). Have the consumer added as an authorized user on their parent's credit cards, and have this verified by the credit reporting agency(ies). The consumer's debt-to-credit limit should improve and so will their credit score.

Miscellaneous tips:
Question: A consumer has a seven-month old, unpaid collection account and they're considering getting a loan. Do they pay the collection account before getting their loan?
Answer: No. By paying this collection account, they're updating activity connected with the collection account, and moving it into the "most recent six month" period. Remember, late payments in the last six months are the worst. The credit model doesn't "care" if the account is paid or unpaid. It only knows if there is recent activity connected with the account. It's best to pay it in escrow.

Phil Greenberg
your NJ Credit Union lender
219 Paterson Avenue
Little Falls, NJ 07424
phone (973) 200-3333
fax (973) 812-4374
phil@njlenders.com
www.njunionlenders.com

Phil Greenberg & Nick DeSimone, Your Credit Union Loan Officers - 219 Paterson Avenue - Little Falls, NJ 07424
Office Phone: (973) 200-3333 Fax: (973) 812-4734 Toll Free Phone: (800) 908-0005 X7125
Email: phil@njlenders.com Email: nick.desimone@njlenders.com

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