What to Do If You Are Rejected for Credit

I don’t know about you, but whenever I’ve been rejected for something — a job, a credit card, even being left out of an event I had hoped to be invited to — my first reaction has been to fume or pout (or maybe both).

But I know I can do better.

“Rejection offers us an opportunity to evolve through and learn from our experiences,” says clinical psychologist and author Carmen Harra. “It allows us to look within and say, ‘OK, maybe I can change this’.” While she was referring to relationships in her article, her advice is relevant for many different types of situations – including, yes, being rejected for credit.

In fact, getting turned down for credit can give you an opportunity to improve your credit. Here’s what to do if your credit application is rejected:

Find out why you were rejected

By law, the lender must provide you with a notice with the specific reasons why you were turned down (or charged more) for credit. Look for it, and read it — even if you’d rather tear it into shreds.

The rejection letter will list three or four reasons why you didn’t get approved. Those “reason codes” are often generated from the credit score used in the transaction, and they can offer valuable insight into your credit.

More important, think about whether you can do anything about them. Does it say the balances on your credit cards are too high? Maybe it’s time to tackle your debt. Does it point to a negative credit history?

Review your credit score

You’ll also get your credit score, based on the score used by the lender. But keep in mind that there are dozens of different credit scoring models out there and lenders may customize the scoring models they use. For that reason, it’s also helpful to get a credit score that isn’t customized for that particular lender, so you can see where your credit stands overall. Pay particular attention to how your score compares to others, and what factors influence it the most.

Get your free credit reports

The letter you get will list the credit reporting agency that supplied your credit report for this particular application, and explain how to request a free copy. Take advantage of it, as this is an extra free copy that doesn’t count against the free annual credit reports you are entitled to from each of the major credit reporting agencies.

CONTACT BANCO FINANCIAL TO GET STARTED REBUILDING YOUR CREDIT AND ENDING REJECTION TODAY! 

The 6 C’s of Credit

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Wondering if you will qualify for the loan or credit account that you desire?

Think like a potential lender and consider how well you meet the six C’s of credit, key credit criteria that lenders use when assessing loan and credit applicants.

Character

You have good credit character when you live up to your financial and credit agreements. Paying bills on time and meeting financial obligations are signs of good character.

Your credit score and your credit history are good ways for a lender to learn about your character or credit reputation and how well you pay your credit obligations.

That’s why it’s a good idea to check your credit reports and your credit score before you apply for credit. You can get your credit reports for free once each year from all three credit reporting agencies.

Contact BANCO FINANCIAL for expert tips and customized advice to help you build your credit.

Capacity

Capacity is your ability to repay a loan or other financial agreement. A potential lender wants to see that you will have enough cash left over after paying your fixed monthly expenses to repay a new credit or loan account.

Capital

A potential lender also will assess your capital. Wondering if you have any? Subtract all your debts from your assets, including any property that you may own, and this is your capital.  Lenders or creditors like to see that you have enough capital to handle another loan or credit account before approving you for new credit.

Conditions

Lenders look at conditions such as the stability of your employment, your other debts and financial obligations, and how often you’ve moved in the past year when considering whether to approve you for a loan.

Collateral

Do you have collateral?  Collateral is any property or possession that can be used as security for a payment of a debt.  If you are unable to repay a debt, your collateral may be sold or repossessed to repay your financial obligation.

Cash Flow

Do you have adequate cash flow to repay a new loan?  How much income do you have coming in each month?  And how much of that income are you already paying out each month for your other bills and expenses?  A lender or creditor wants to make sure you have enough cash flowing your way each month to pay for a new credit obligation.

Tips for Improving Your Credit: The Types of Accounts in Your Credit Report

In this guide, we are explaining the main factors that make up your credit score, so you can make sure yours is as strong as possible. Payment History and Your Amount of Debt and their level of impact to your credit scores are the first two factors we’ve covered, and they account for about 65% of the points that make up your credit score.

Here, we will look at the types of accounts (or “credit mix”) which accounts for roughly 10% of the points in your credit score. If your goal is to build or keep great credit, you’ll want to understand how this factor works.

This guide will be most helpful to you if you know how this factor currently impacts your credit scores. It will give you a letter grade for each of the factors impacting your scores, including this one, Account Mix.

Revolving Accounts

Revolving accounts are those that have a different payment each month depending on your current balance. These are accounts that you are not required to pay in full each month. You have the option to “revolve” some or all of the balance to the following month. Lenders charge you interest on the amount that you revolve and this is how they make money. Some examples of revolving accounts are:

• Credit Cards Issued by a Bank or a Credit Union – These are commonly referred to as Visa® or MasterCard® accounts because of the logo that appears on the front or back of the card. These are extremely common because almost all banks and credit unions are able to issue them to their customers. Remember, credit reports will keep a history of your accounts even if they have been closed. As such, most consumers have several of these credit card accounts on their credit reports. Other examples include the Discover Card, and American Express.
• Credit Cards Issued by a Retail Store – These are accounts that are issued by the stores where you like to shop. These cards are a little different than the previous two types in that you can only use the card at the store that issued it. Some examples are Macys® Card, Target® Card, Pep Boys Card® and a Dillard’s® Card. There are hundreds of other examples. Most of us have several of these types of cards.
• Credit Cards Issued by an Oil Company – These are accounts that are issued by a petroleum company. As with retail store accounts these cards can only be used at specific locations, almost always a gas station. Some examples are Texaco® Card, Exxon® Card, Shell® Card and BP® Card. These cards are also very common and easy to obtain. Most of us have or have had several of these types of cards.
• Home Equity Lines of Credit – Also known as a HELOC, these are loans that allow you to tap into the equity of your home. These loans are generally easy to obtain from most reputable banks and credit unions. Since these loans allow you to access a portion of your home’s equity, the payment is determined by the amount borrowed or used. These accounts are very common in part because the interest is tax deductible in most cases. Check with your tax advisor to see if your account qualifies for a tax deduction.

Notice – For your information, debit cards (also known as check cards) are not considered true credit cards. They are essentially nothing more than a check in the form of a credit card. As such they do not report on your credit files and will have no impact, good or bad, to your credit scores.

Installment Accounts

Installment accounts are those that have a fixed payment for a fixed period of time. As with revolving accounts you are not required to pay them in full each month. You are allowed to make a payment that is going to be the same every month until the loan is paid in full. Lenders charge you an annual percentage rate (also know as an APR) and this is how they make money. Some examples of installment accounts are:

• Auto Loans – Auto loans are issued by either a bank, a credit union or by a company that specializes in automobile lending. These accounts are generally paid off over 48 to 60 months but shorter and longer terms are available.
• Mortgage Loans - Mortgage loans are issued by either a bank, a credit union or a company that specializes in mortgage lending. These accounts require the most amount of paperwork during the application process and a good credit score can help you secure a lower interest rate. A lower interest rate will save you a lot of money over time.
• Student Loans – These loans, obviously, are used to pay for college related expenses such as tuition, room and board. Most student loans are federal loans issued by the federal government. Private student loans are issued by banks and other financial institutions. Student loans are a unique type of loan because most students are taking classes and not working full time jobs. As such, the repayment of a student loan generally goes through a process called “deferment.” Deferment essentially allows the student to postpone their payments until several months after they have graduated or stopped going to school. This gives them the opportunity to secure employment before the loan requires the first payment.
• Home Equity Loans – These are not the same as home equity lines of credit (aka HELOCs). Although they both allow you access to your home’s equity the structure of the loans are not similar. A home equity loan is a fixed amount of money that you borrow. Once you take that loan out your payment is fixed for the duration of the payback period. Whereas a home equity line of credit gives you the flexibility of taking out some of or the entire approved amount.
• Signature Loans – Signature loans are just what they sound like. You walk into a bank or credit union and tell them you want to borrow some money and sign a guarantee to pay it back. You don’t have to tell the bank what the money is for and you can use it for anything you like including vacations, investments, home improvements or a shopping spree.

Open Accounts

Open accounts are probably the least common of the three we’ll profile. Also referred to as “open credit,” it is a hybrid of installment and revolving credit. The payment is not the same each month and it’s usually due in full at the end of each billing cycle. The consumer satisfies his financial responsibility for the account when he pays the bill in full each month. This cycle can go on as long as the consumer has an account with the service provider.

An account with a utility company is one example of open credit. If Roger has an account with PG&E for electric and gas service to his apartment, he doesn’t know what his payment will be each month. As you can imagine, electric bills can vary a lot from month to month depending upon the seasons and air conditioner/heater usage. Roger is responsible for this varying payment each month.

Most utilities, cellular service, some American Express cards, and some gas station cards are other examples of open credit.

Subscriber	Discover Card	Citibank	American Express
Account Number	30492383XXXX	980039485	102745623098
Account Type	Revolving	Installment	Open
Credit Limit	$20,000	$750,000	N/A
(High Credit)	$6,862	$37,000	$2,000
Minimum Monthly Payment (Terms)	$19	$2,000	N/A
Date Opened	April, 2002	August, 1998	July, 2004
Date of Status	March, 2005	March, 2005	March, 2005
Last Payment Date	February, 2005	February, 2005	February, 2005
Loan Type	Credit Card, Terms REV	Mortgage	Credit Card, Terms OPEN
Current Status	R1	I1	O1

Every single account on your credit files will fall into one of the categories above: Revolving, Installment or Open.

Why Does Your Mix of Accounts Matter?

When these accounts report on your credit records they are coded very specifically so that not only consumers and lenders but also credit scoring models can easily identify them. Statistical analysis has determined that the type of accounts you have is predictive of your future credit risk.

So what does all of this mean to you the consumer? Consumers with the strongest credit scores, including FICO credit scores, tend to have a mix of different types of accounts.

Keep in mind that all of the accounts on your credit reports count, even if they are closed. Most of us have had several credit cards, mortgages, auto loans and student loans in our life so this example is probably very realistic.

There really isn’t one target “sweet spot” that we should all aim for in our account mix. That’s because your mix of accounts might be great for your score but terrible for someone else’s and vice versa.

How Can You Ensure Earning the Maximum Points Available out of the Types of Accounts Category?

Before you try to make any changes, be sure you have checked your free credit score from Credit.com to see whether this category is bringing your scores down. If it’s not, then don’t worry about it. But if it is, then you may want to consider the following strategies:

• If you don’t have an installment loan reported on your credit reports, consider whether it makes sense to get one. If you are going to borrow anyway – or if you want to consolidate higher-rate credit card debt – a personal loan that is reported as an installment loan may be helpful here. Another strategy is to get a low-rate car loan then pay it off as quickly as you can. (It will still count even if you pay it off a few months after you get it.) 
• Avoid finance companies – Finance companies are commonly referred to as “lenders of last resort.” Their rates and terms are not as favorable as those offered by banks and credit unions so higher risk consumers tend to depend on them for their credit needs. As such, having a finance company account on your credit report could cost you points.
• If you don’t have any credit cards that are currently open and active, consider getting one. A credit card that’s paid on time and has a low (or no) balance can be a very valuable credit reference. If your credit scores are poor you may need to consider a secured credit card to get started. 

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CONTACT BANCO FINANCIAL AT 248-286-5100 TODAY FOR ALL OF YOUR CREDIT NEEDS!! 

How to Build Credit the Smart Way

A great way to build credit is by making on-time credit payments every month.

How to Build Credit with a Credit Card

Any credit card, including a secured card, works well for this. Just choose a routine monthly expense, charge it on your credit card and pay the account in full each month.

Payment history makes up 35 percent of your credit score, so making a series of on-time payments can really help your score.

A secured card is a good option for consumers with no or very little credit. After a year or so of on-time payments, you’ll build enough credit to qualify for an unsecured credit card.

How to Build Credit without a Credit Card

Another option for building credit the smart way is through a credit builder loan from a credit union.

A credit builder loan is an installment loan with terms ranging from six months to 18 months. Because credit builder loans are reported to one or more of the three national credit reporting agencies, on-time payments of the loan will build up your credit.

It’s a good idea to choose a credit builder loan that reports to all three credit reporting agencies— Equifax, Experian and TransUnion. That way you’ll get the credit for your on-time payments in credit reports from each of these companies.

With a credit builder loan, a lender places the money being borrowed into a savings account on your behalf and you pay off the loan through a series of monthly payments. You get access to the money in the savings account when the loan is paid in full.

So with a credit builder loan, you build credit and you build up some savings, too. Loan amounts for credit builder loans may be small, just $500, so you won’t need to struggle to make monthly loan payments.

Just be sure to make those payments on time each month. If you don’t, late or defaulted payments will be reported on your credit report. And you’ll wind up hurting the credit you’ve been working so hard to build.

Building good credit takes time. Call BANCO FINANCIAL today at 248-286-5100 to get started on rebuilding your credit today! 

43 Million Americans Have Unpaid Medical Debt on Their Credit Reports

Americans' credit reports contain unpaid medical debts far more than any other kind of unpaid bills, the Consumer Financial Protection Bureau has found in a study. A "staggering" 52% of all unpaid debt entries listed on credit reports is from medical expenses, the bureau says. And some 43 million Americans — or about one in five adults — have an unpaid medical debt on their records, dragging down their credit scores.

Many of those derogatory entries on credit reports are the result of America's confusing medical billing and insurance payment system, the CFPB says. Some 15 million Americans have only unpaid medical debt on the derogatory side of their credit reports, suggesting those consumers don't have trouble paying other bills. Also, most unpaid medical bills are small — the median amount is $200, far lower than the median unpaid bill for credit cards or auto loans.

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"Today's study found that many consumers are affected by medical debt, that medical debt dominates collections trade lines in the credit reporting system, and that the appearance of medical debt information on credit reports can reflect the complexity, confusion, and delays that characterize medical billing and insurance reimbursement rather than the consumer's ability or willingness to pay their debts," said CFPB director Richard Cordray in a statement about the research. "If a credit score is supposed to be a predictor of a consumer's likelihood of paying back a debt, these findings raise serious questions about how medical debt collections items affect a consumer's credit score."

The report highlights efforts already under way in the credit reporting system intended to reduce the impact that unpaid medical bills can have on a consumer's credit score. Earlier this year, the CFPB released a report showing that consumers with unpaid-medical-debt-only credit reports paid their bills at the rate of other consumers with higher credit scores, suggesting current scoring formulas inaccurately reflected those consumers' credit-worthiness.

In August, Fair Isaac, keepers of the FICO credit scoring formula, said it was changing its formula, and the penalty for unpaid medical debt would be reduced. It will take time for lenders to adopt the new formula, however.

This study further found that unpaid-medical-debt-only consumers owe less, have more available credit which they could use to repay their debt, and are more reliable payers than consumers with non-medical collections tradelines. The problem, the report suggests, is that many consumers don't know who to pay, or what they owe, after medical procedures.

"Lack of price transparency and the complex system of insurance coverage and cost sharing means many consumers, including those who have health coverage, receive medical bills that are a source of confusion," it says.

The report also highlights the hundreds of firms that might ultimately report a patient as late on a medical bill. Their "indirect affiliation with the debt introduces potential sources of error in collections reporting," the CFPB said.

Medical debts also draw a larger percentage of disputes than other kinds of debt, the CFPB said.

As part of a larger initiative, the CFPB announced Thursday that it was now requiring large credit reporting agencies to provide regular reports about the accuracy of their data, including new details on creditors who attract the most disputes.

"These reports will specify the number of times consumers dispute information on their credit reports during that period," the CFPB said. "It will also list furnishers with the most disputes, industries with the most disputes, and furnishers with particularly high dispute rates relative to their peers. We will also see how those disputes get resolved."

If you are worried a medical bill could be hurting your credit, you should pull your credit reports, which are available to you for free once a year under federal law. You can also check your credit scores regularly to spot a medical bill that may have gone to collections.

CALL BANCO FINANCIAL TODAY AT 248-286-5100 FOR ALL OF YOUR CREDIT RESTORATION NEEDS! 

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3 Sneaky Things Hurting Your Credit

When it comes to understanding your credit, it can feel as complicated as trying to solve a Rubik's cube. Frustrated by this confusion, many consumers neglect their credit, which can have a devastating impact on their financial futures.

 A Consumer Action study recently revealed that 27 percent of Americans have never checked their credit report. That's alarming, because it's estimated that a large numbers of consumers have errors on their credit reports that could damage their credit.

1. Wrong Information

The wrong personal information on your credit report could hurt your credit. This could be things like your name, your home address, where you've worked in the past or even your Social Security number. How does a wrong address hurt your credit? Your information may be mixed up with someone else's, especially if you have a common name, or are a "Jr." or "Sr." Or it could indicate identity theft -- and that could really wreak havoc with your credit. By reviewing your credit report, you'll be able to quickly see if there's any information that needs to be updated or changed.

2. High Balances Compared to Limits

Another sneaky thing that could hurt you is your credit card balances -- even those you pay in full. How can a credit card that you pay off hurt your credit? Issuers typically report your balances as of the statement closing date. But then those cards aren't due until about a month later. So in the meantime the balance on your reports may look high in comparison to your credit limits.

Generally you want the balance on each card to stay below 20 percent to 25 percent of your available credit. If you have a retail card with a small limit or a reward card that you use to pay for everything to earn lots of points, then this factor could come back to bite you.

So you need to either pay your charges off before the statement closing date or ask for a higher credit limit. Of course, a higher credit limit should not be an invitation to overspend. You won't improve your credit scores if you get in over your head with debt.

3. Outstanding or Delinquent Bills

The third sneaky thing that could hurt your credit score could be outstanding or delinquent bills. I canceled a gym membership when I moved, and it wasn't until I checked my credit report several years later that I found out the gym was marking me as being delinquent, which was hurting my credit. You'll want to check your credit report to make sure that you have no outstanding bills or any delinquent bills that you need to get addressed.

For my delinquent gym membership, I contacted its home office and explained that I had moved and their closest location was more than hours away. After that short and painless phone conversation, it removed the delinquency, and my credit was repaired.

Review your credit report and make sure you're not being marked for anything delinquent that could be damaging your credit. This could be old gym memberships like mine, credit cards or medical bills.

"I've seen numerous situations where consumers were shocked to learn that medical bills they thought their insurance had taken care of were on their credit reports as collection accounts, " warns Gerri Detweiler, director of consumer education with Credit.com. "It doesn't matter if the amount is small. Any collection account can drop your credit score 25, 50, even 75 points or more."