Polishing The Apple
1. Who Cares? Cost of Credit:
So the difference over 30 years can be $145,000 in your favor, which if invested at 5 percent over the same 30 years would have grown to $337,000.
If you never intend to use credit again, read no more. But if you want a $200,000 house mortgage, a 3 percent premium on rates caused by bad credit will cost you an extra $500 per month. A car loan or lease on a $20,000 item, with interest rates at 10 percent not 5 percent, will cost you an extra $100 per month. The difference in interest rates on credit cards can be devastating - there are cards at 9 percent interest rates, and others which will be charging you 29 percent because of a minor delinquency on another card.
Some families who are ignoring action on their credit report, with a house, two cars and some credit card debt, were paying $1000 per month extra.
Over a ten-year period that's $120,000 that should have gone into your bank account. Lenders love using your credit report to raise the interest rate.
Look at the following examples of how your credit score effects your monthly payments. These numbers represent a $100,000 mortgage for 30 years:
Credit Score
Interest Rate
Monthly Payment
Total Cost of loan
A+ 750
5.20%
$549
$197,679
B+ 675
6.00%
$599
$215,838
C+600
8.00%
$733
$264,155
C- 550
11.00%
$952
$342,836
Even if you don't need credit:
Even non-lenders will penalize you: landlords, insurance companies, employers all are using your credit report as an excuse to increase their prices or even to completely refuse to do business with you.
On the other hand the bankruptcy code does have an anti-discrimination provision so that denial of a student loan or a firing on grounds of bankruptcy, for example, are prohibited.
2. What Should I Do?
Every single person, including those with perfect credit, should be vigilant about their credit report. There is a high level of credit report error, identity theft, even malicious reporting by an angry collector's employee. You simply have to review your credit report on an ongoing basis and take appropriate action. These are crucial principles for improving even the best credit report.
Let Time Pass
Provided you don't go delinquent, very few things last more than 7 years on your credit report. Judgments, delinquencies, paid tax liens, ...all these will simply disappear, no matter how egregious, simply by the passage of time. In New York, a paid judgement is off in five years.
The main exception is a chapter 7 bankruptcy. It will remain on your credit report for ten years. However, there is a very rapid improvement in score within the first two years, you can buy a house at significantly higher interest rates and some creditors like car companies will grant you credit immediately after your chapter 7 bankruptcy is over.
Polish The Apple
You simply must review and correct errors on your credit report on a regular basis. Order a report from all three credit reporting bureaus: Experian, Equifax, and Trans Union. Review it carefully - with an expert ideally. There are companies that promise to do this for you for a fee, but be very careful who you deal with - over promising in this field is actually a violation of the law.
Be Perfect
If you know how the credit scores are calculated, you can try to match the perfect profile: the right number of credit lines (if you have no credit lines you will have no credit score and if you have too many credit lines that will be a black mark), the right level of credit usage (not the maximum credit given to you), overall consistency (that is a string of bills indicating you have been current which means no more than 30 days late) is the most important factor in the score. Sixty on-time payments is infinitely better than two late payments in a year followed by a full payoff of the balance. In essence, the rule here is borrow but look like you don't need it.
3. How Do I Get a Copy of My Credit Report?
1. You must order it. You can do this by phone, e-mail (you'll probably need a credit/debit card) or by ordinary mail. We have forms for you in this office. If you've had an adverse comment (been turned down) in the last two months you may order you credit report free of charge, otherwise the charge varies around $12. You can get all three in one report for about $35.95 which includes your credit score and is available on each of the websites listed.
Experian
Consumer Relations
PO Box 2104
Allen, TX 75013-2104
888-EXPERIAN (397-3742)
www.experian.com
www.creditexpert.com
Equifax Information Center
PO Box 740241
Atlanta, GA 30374
800-685-1111
www.equifax.com
www.myfico.com
Trans Union LLC
PO Box 1000
Chester, PA 19022
800-888-4213
www.transunion.com
2. Order all three full reports - this is important. The information on each report may be different. All three bureaus need to be corrected.
3. Get a reputable expert to review it and comment on it - we use On Track at (845) 340-4440.
4. What is the Point If My Credit Report is Really, Really Bad?
Say you have a score in the low 400's after a bankruptcy. You've simply not been able to make payments for at least a year. Should you even try to improve you credit score?
The answer is yes, particularly in your case because of the high chance of improper items on your report. Some examples: in the case of a bankruptcy very often various items remain on your report as being neither discharged in the bankruptcy nor paid-off. This is regarded by credit grantors as an absolute no-no - an indication that you have included additional unpaid debt even after the bankruptcy. These items therefore must be corrected. Take care to get good mention for continuing payments on your mortgage, car loans and any other items you maintain payments on. These frequently drop off the credit report and deprive you of important additional score points.
5. What If Someone Else's Items Appear On My Report?
This is very serious - often a criminal offense. Take immediate action to report incorrect items to the credit reporting agencies, and the police, if someone you know is using your credit identity.
6. How Does The Scoring System Work?
The most common system used in recent times is known as the Fair-Isaacs Score which ranges from 350 to 850 (a truly superb score). A score after a bankruptcy for example would be in the low 400's. After some correction as described above, it might climb to the high 500's. Within one year, if you have made perfect payments in a chapter 13 for example, you would be eligible for a housing loan with a good loan to value ratio. By two years your score would have increased to some 620-740, and Fannie Mae/Freddie Mac would consider you for a standard main street mortgage. High 700's low 800's is a very good score.
7. Is There Anyone Who Will Assist Me In Improving My Credit Score, And At The Same Time Help Me With Lending Sources?
We can help. We contract with credit experts who are also experts on loans for houses and cars, including loans for sub-prime (also know as "B/C/D") credit.
Having such a person wear both a credit hat and a lending hat can be very useful because, particularly with difficult credit, it is vital that you speak to the appropriate lender. A main street lender will regard someone with C/D credit as a complete waste of time. Someone who is familiar with your credit will be able to steer you to the appropriate lender with much greater efficiency. She will also be able to advise you on what your credit report needs to look like for the particular lender you may be thinking of. For example, the requirements of a home mortgage lender are often different from the requirements of a car loan lender.
8. How Can I Learn More?
The Internet is a useful source of information. We have in our office legal texts you can read.
You may also want to talk to our credit expert who will charge a consulting fee. Before speaking to such an expert you must first send for your 3 credit reports. We have forms and addresses. Call us at (845)-294-3596 and we will be happy to send you the requisite information in kit form for a small charge.
9. What Is The Single Most Important Thing In Borrowing Effectively?
Knowledge is the single most important factor in protecting you from an appalling loan which you may have difficulty surviving. Knowledge of the different competing rates available, knowledge of the kind of fine print that matters, knowing car loan tricks, the bad credit card contracts, the pressure tactics used to close on a refinanced mortgage. These are all important. An important principle if you are at all unsure, is never to sign a contract without having at least a day to review and discuss the terms. Get legal or other advice for which the cost is trivial in comparison with a bad loan signed under pressure. Recognize negotiating pressure - we negotiate with creditors every day and "this deal is open for 24 hours only" is standard practice.
10. What If I Protest And The Credit Reporting Bureaus Refuse To Act? Can I Sue?
Yes, the Fair Credit Reporting Act and other state laws enable you to sue parties who improperly report inaccuracies provided you have gone through the proper dispute procedures. You can get legal fees and even punitive damages.
Want to take steps to polish your credit apple? Ask about our program with annual follow-ups to help you manage your credit report.
Contact Simon Haysom LLC at (845)-294-3596
Copyright (c) Simon D. Haysom Esq.
Simon Haysom has represented clients in managing financial crisis, for over 15 years.
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