Your Biggest Credit Report Complaint May Be Getting Fixed

Today the three major credit reporting agencies — Equifax, Experian and TransUnion —agreed to a settlement with the New York Attorney General’s office to overhaul the national credit reporting process to better serve Americans. The agreement includes changes to the credit report dispute process, how some negative information can appear on credit reports and oversight of the creditors that provide the information included on credit reports.

There’s a lot going on here, and the changes announced today will take time to implement (the agencies have three years to do so). A lot of details remain to be seen, but here’s what we know so far.

What to Expect

Changing the credit report dispute process would address one of the biggest consumer gripes with the credit reporting agencies — that it’s challenging to remove inaccurate, damaging information from credit reports.

Or, as New York Attorney General Eric Schneiderman said in his remarks to the press about the changes, “The credit reporting system in America that we’re addressing today suffers from inaccuracy and, oftentimes, outright injustice.”

The credit reporting agencies have agreed to employ specially trained personnel to review disputes and supporting documentation, in effect giving consumers the ability to challenge what is now an automated dispute process.

It’s perhaps the most noteworthy effort outlined in this agreement with the credit reporting agencies: About 10 million consumers have reported paying more for or not being able to access products like loans or insurance because of credit report inaccuracies, according to a 2013 report from the Federal Trade Commission. That’s about 5% of consumers with credit reports claiming adverse action because of report inaccuracies.

The agreement tackles another huge consumer credit issue: medical debt. It’s similar to credit report inaccuracies in that it can seriously damage a consumer’s credit and often appears on a credit report unexpectedly. Medical debt will no longer be reported until 180 days after it was incurred, allowing consumers more time to resolve the bill with their healthcare providers and insurance companies.

Another thing consumers might like to hear: Small fines may no longer have the ability to wreck your credit. Things like traffic tickets or government fines — “consumer debts that did not arise from a contract or other agreement by the consumer to pay,” according to the Consumer Data Industry Association, which represents the three major credit bureaus — will no longer appear on credit reports.

The Unanswered Questions

This agreement does not signify overnight change. The bureaus have three years to implement the new policies outlined in the agreement — it’s called the National Consumer Assistance Plan, by the way — and it’s important to keep in mind that Equifax, Experian and TransUnion are three separate companies. Changes may roll out at different times, and consumers should look to each bureau for information on how they’re taking action.

From a consumer credit standpoint, it’s unclear when the benefits of these changes will take shape. Though the promise of a better dispute process may be welcome news to anyone who has suffered from data reporting errors, mixed files or identity theft, it might be a while before they can benefit from the coming improvements.

“The timeframe is generally is 6 to 36 months. … A lot of it is front-loaded in 6 to 18 months,” said Norm Magnuson, of the Consumer Data Industry Association. “A lot of it, I think, is still being put together.”

There are a lot of unknowns about when and how these changes will take place, but if they’re carried out as planned, millions of consumers stand to benefit from them. Before and after this agreement takes effect, it’s important to carefully review the information in your credit reports and immediately address any errors you find in them, because as millions of Americans know all too well, those errors can be quite costly. Consumers can check their credit reports for free once a year from each of the three major credit reporting agencies.

How to Tell If a Credit Card Has a Good Interest Rate

Finding a credit card can be just as personal a process as shopping for any other consumer good, whether it be clothing, a car, a home, or anything else: It must suit your needs but also fit in your budget. When it comes to credit cards, cost is most often determined by interest rates.

Like many consumer products, whether the price is “good” is subjective. What makes a credit card’s interest rate good or bad for you depends on several personal factors.

Decide What Kind of Card You Need

One of the first things to consider when credit card shopping is how you’ll use that card. If you plan to pay every statement balance in full, the annual percentage rate doesn’t matter much, because you won’t be accruing interest on your purchases anyways. You still need to know what your APR is — you should be familiar with the terms of any credit product you have — because even though you never intend to carry a balance on your card, you need to know what it would cost if you did.

If you plan to use the card as a financing tool, prioritize finding a card with a very low interest rate. It’s pretty simple: The longer you carry a balance on that card, the more the purchases will cost you, and that directly relates to your APR. (Here are a few of the best low-interest credit cards to help you shop.)

Your Credit Score Is the Key to Your Best Rate

When you shop around for a credit card, you need to have a general idea of your credit standing, because that will affect the interest rates for which you qualify. Once you know where you stand you can see what sort of cards and interest rates that gives you access to.

If you have excellent credit, you may be able to qualify for cards with a 0% promotional financing period. Single-digit ongoing APRs are also available if you have great credit. That doesn’t mean you’ll only have access to double-digit APRs if your credit isn’t great, but you may have to pay an annual fee to offset the lower rate.

The Internet is a great resource for finding cards, based on your credit standing, and the best way to find your most affordable option is to do some legwork: Get your credit score, and use that information to see what sort of interest rates are offered to people with similar scores. How do you tell if a card’s APR is good? It’s good if you think you can qualify for the card, and the rate is lower than ones offered by other cards you might be able to get. Issuers’ websites often say what credit tier the card is designed for, but you can also use online credit card comparison tools like this one to explore many options in one place.

The research is important, because there is no “best interest rate” out there. Every consumer has different options, based on his or her individual credit history. With that history in mind, it’s important you apply only for credit you can reasonably expect to be approved for, because applying for credit results in a small, temporary drop in your credit score. The less often you do it, the better.

5 Bad Money Habits You Can Break Today

When it comes to bad financial habits, there are some serious ones that can cost you thousands of dollars. Which of these habits are you guilty of committing?

1. Spending With Credit Cards When You Can’t Afford It

Credit card interest rates are regularly well above 10%. That translates into a lot of interest charges if you don’t pay off your credit card every month. Worse yet, many people get stuck in a cycle of credit card debt – a habit that seems to just not go away.

Many people make what they consider to be “educated” guesses as to whether they can afford to put new clothes or high-tech gadgets on their credit cards. The problem is that those who do often don’t really know their future expenses.

If you’re living paycheck to paycheck, even small emergency expenses can be enough to make you late on your credit card payments. And if you’re late once, it’s so easy to push off paying your credit card debt until you’re really hurting. Furthermore, late payments can hurt your credit, and if your credit score drops low enough it can mean higher interest rates for you in the future. 

Unless you’re entirely sure you can pay off your credit cards every month, you may want to seriously consider not using them.

You may be asking, “Hey Jeff, I’m not sure how to stop using credit cards – I can’t afford to live without them!”

That’s a difficult situation, no doubt. In that case, you’re going to have to look at both your income and expenses to determine where you can make improvements so you don’t have to depend on credit to make ends meet.

2. Not Tracking Your Transactions With a Budget

One of the best advantages of tracking your transactions is that you can see very clearly where you spent your money over time.

Try tracking your spending for a month (there are free budgeting software programs that can help with that, too). If you haven’t ever given a second thought to spending, this exercise will certainly help you do that.

When the month is over, categorize and add up your expenses. Many people overspend on the following categories:

• Groceries
• Clothing
• Entertainment
• Eating Out

These are categories you should monitor carefully.

Once you know how much you’re spending in your categories, make a few goals. Try lowering how much you’re allowed to spend in your problem categories incrementally, month by month.

Over time, because you’ve been tracking your categories and paying attention to your spending habits, you’ll find you can lower your budget category allocations – saving you thousands of dollars.

3. Waking Up Late

I’m convinced that waking up late affects your finances. Allow me to explain.

All of us are pressed for time. If you’re like many out there, you dread the alarm clock and reach for the snooze button too many times (that is, more than zero times).

But I bet there’s something you’d love to do if only you had more hours in the day. Maybe you’d exercise, start a side business, or take some online classes. These are all activities that can either directly or indirectly result in more income.

For example, if you take some online classes, you can learn a useful and marketable skill that can earn you a raise, promotion or a better job.

Personally, I found that by waking up early I can have a few morning routines that get me pumped for my day ahead. The later I wake up, the less productive I feel, and the less productive I am.

You can also fill those early morning hours with some of those activities you always wanted to get to but never could. You just might find that even if you don’t consider yourself to be a morning person, you could become one.

Instead of focusing on ways to improve your finances through just financial means, look at your entire life – it’s not as compartmentalized as it may seem and can have profound consequences on your money.

4. Consuming to Hopefully Find Contentment

Something deep down in me cringes when I hear businesses call people “consumers.” Sure, people consume, but that’s not all they do. But maybe businesses sometimes refer to people as consumers because that’s what so many do too often: they consume.

Ask yourself if you consume more than you produce. Is your goal in the morning to wake up and say, “I wonder how I can please myself today?” Or, is your goal to serve others?

Albert Einstein was quoted in the June 20, 1932 New York Times as saying: “Only a life lived for others is the life worth while.” There’s so much wisdom to that.

But there are other benefits to serving others above ourselves, as well. Have you noticed that when you’re busy serving others and making money, you spend less? Perhaps you’ve noticed the reverse.

Don’t consume to seek contentment. Contentment isn’t found in consumption, it’s found in servanthood. Follow this advice, and you’ll likely keep more cash in your wallet, too.

5. Using Investment Accounts as Emergency Funds

It happens from time to time. I’ve seen a few of my clients raid their investment accounts to pay for emergencies. Sometimes, it even becomes habitual. I understand why they do it, but the tax penalties can be high.

Also, if you use your investment accounts as emergency funds, you’ll lose all that potential earning power when you have to dip into it for emergencies.

A better plan is to have a high-yield savings account nicknamed “emergency fund” and not touch it unless there’s a true emergency. And don’t fool yourself, you really do need an emergency fund.

There are a whole host of emergencies that can crop up when you least expect it: lawsuits,medical bills, job loss, the list goes on and on.

Here’s one habit you should get into: taking extra money you’ve earned every month and pouring it into your emergency fund. You may even put monetary gifts you’ve received into your emergency fund until you’ve filled it up (I recommend three to eight months’ worth of expenses).

Say Hello to More Money

Bad financial habits aren’t always easy to correct. I’ll be honest with you, it’s often very difficult. It requires a shift in the way you think about money.

You might have some bad financial habits right now you don’t know about. Brainstorm! Find every last one if you can. You can break a bad habit in less than a month if you stay focused.

Do it. It’s worth it.

The Credit Approval Process & What to Expect

Here is a closer look at the approval process for credit cards, loans and mortgages.

Credit Cards

The fastest way to get approved for a credit card is to apply online. Many issuers offer instant approval to online applications. So you may know whether you have been approved for a credit card within minutes of applying. You can also apply by mail or phone. Once approved, it is likely a credit card will be sent to the mailing address that you listed on your card application within 10 business days. And if you need the card in a hurry, you can pay a fee for the expedited delivery of your credit card. If you are turned down for a credit card, an issuer will send you a letter explaining why you did not qualify for the credit card.

Loans

Applying for a car loan or personal loan is an easy process, with many lenders offering online applications. And you can find out if you are likely to be approved before you apply by asking about minimum credit standards required for the loan. Some lenders list credit qualifications, such as minimum credit scores, right on their websites.How quickly you are approved for a loan depends on the lender. But you may receive your approval within 24 hours or even within the hour. If you are turned down for a loan, a lender will send you a letter explaining why you did not qualify.

Mortgages

Getting pre-approved for a mortgage will speed along the homebuying process. After you complete the pre-approval process, you may be asked to supply some additional supporting documents. Once all the necessary documents are submitted and reviewed you will receive one of four possible decisions on your home loan — approved, approved with conditions, denied or suspended.

If your loan application is suspended it means more documentation is required before a lending decision can be made. If your loan application is approved with conditions, there are specific criteria that you must meet before you will receive the full approval of your loan. And if your mortgage application is denied, you will receive a notice in writing explaining the reasons why.

The best way to take the surprise out of a credit application is to check your credit score before applying. 

What is the Average Credit Score?

If you’re wondering what the average credit score is, you’re probably really wondering how your credit score compares to others. You may also be wondering if it’s good enough to get approved for a loan or a credit account.

While the average credit score sounds like a simple enough figure to pin down, it’s a little more complicated than you may realize.

What’s My Score?

First things first. If you want to know how strong your credit is, you’ll need to know your credit score. You can find out by using www.creditchecktotal.com.

Which Score?

Another thing you’ll need to know when comparing your number to others is which credit score model is being used to calculate the score, and what credit score range is being used.

There are many different credit score models, including versions of VantageScore, FICO scores and even educational credit scores. Some of these have different credit score ranges, so while VantageScore 3.0 and FICO scores run from 300 – 850, there are others that run from 501-990 or 360 – 840, for example.

What’s A Good Score?

Again, different models have different ranges, and lenders make their own decisions about what they consider acceptable. But here’s an example using the ranges from Credit.com’s credit card comparison tool:

• Excellent Credit: 781 – 850
• Good Credit: 661-780
• Fair Credit: 601-660
• Poor Credit: 501-600
• Bad Credit: below 500

Again, what’s considered a good or fair credit score will depend on how the lender views it, but you can get an idea of how lenders are likely to view your applications by checking your score and seeing how it compares to others.

Average Credit Score

Still hoping to find some numbers?

As of the 2nd quarter of 2013, the average VantageScore for consumers with an existing auto loan and lease was 761; for those with a bankcard it was 796 and for those with a mortgage it was 819. (This is using the classic version of the VantageScore which runs on a scale from 501-990. Data from Experian’s IntelliView tool.)

As of October 2012, the average FICO score is 689 according to MyFICO.com.

Does Closing a Credit Card Affect Your Credit Score? Find Out Before it’s Too Late

Thinking about cleaning up your credit report by closing a credit card account that you haven’t used for years?

Think again.

Closing a credit card account lowers your credit score by slashing some of the length of your credit history and reducing your available credit.

Credit utilization is an important component of your credit score. So in terms of your credit score, closing credit card accounts that you don’t use is one of the biggest mistakes you can make.

Why Closing a Credit Card Account Hurts Your Credit History

Positive credit information, such as a long-established credit card account with a positive payment history, may stay on your credit report indefinitely. But when you close an account, it is usually removed from your credit report within 10 years.

Once that account is wiped from your credit report, you lose the credit history associated with the account and because the length of your credit history accounts for about 15 percent of a FICO score, your credit score takes a hit.

So do your credit score a favor and keep old credit card accounts open.

Why Closing an Account Hurts ‘Credit Utilization’

The amount of revolving credit card limits that you are currently using is called your “revolving utilization.” Let’s say you have a credit card with a $10,000 limit and a $2,000 balance. You are utilizing 20 percent of your credit line.

This measurement, also known as “debt-to-limit ratio” or “credit utilization,” makes up about 30 percent of your credit score. It measures each of your individual revolving credit card accounts plus the total credit limits and balances of all your revolving accounts on your credit report.

To maximize your credit scores, you’ll want your revolving utilization to be as low as possible, with 10 percent, or lower, being ideal for most people.

An open credit line with a roomy credit limit and zero balance will help to lower your revolving utilization, when you carry balances on other accounts.

So keep your revolving utilization low by keeping old accounts open and balances low.

3 Things Bankruptcy Does to Your Credit Score

Filing bankruptcy hurts your credit score in some big ways. Here are a few you should keep in mind before deciding to file for bankruptcy.

Bankruptcy Causes Your Credit Score to Plummet

There is no way to underestimate the impact a bankruptcy has on your credit scores. It is one of the worst things you can do to your scores. A bankruptcy can make your credit scores plummet by 200 points or more.

A Bankruptcy on your Credit Report Causes Long-Term Damage

Having bankruptcy information listed on your credit report will impact your credit for years.

The public record of a Chapter 7 bankruptcy stays on your credit report for 10 years.

Any other bankruptcy references remain in your credit file for seven years including:

• Chapter 13 public record items
• Any accounts included in a bankruptcy
• Third-party collection debts, judgements and tax liens discharged through a bankruptcy

The Negative Impact on your Credit Diminishes Over Time

When rebuilding your credit after a bankruptcy, remember that time is on your side. Bankruptcy information will be considered in your credit scores for as long as it appears on your credit report, but its impact on your score lessens over time.

The newer the bankruptcy information the more powerful the impact it has on your credit scores. A year (or two or three) after the date a bankruptcy first appears on your credit report, its impact will shrink until eventually, the bankruptcy information is removed from your credit report altogether and is no longer a factor in your credit scores.

You can monitor your progress in rebuilding your credit after bankruptcy with www.creditchecktotal.com It updates your credit scores every month so you can track your improvement and see how your credit score inches up afterwards.

To rehabilitate your credit after a bankruptcy, build a positive credit history with BANCO Financial credit restoration and by using secured credit cards and installment loans and make on-time payments on all credit and loan accounts.