Month: July 2017

Why the Average American’s Credit Score Increases with Age

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Some of life’s most sought-after items are those that can only be perfected by time. The best bottles of wine or whiskey require decades of aging, the most exquisite cheddars rest for years to achieve their flavors, and dry-aged beef simply melts in your mouth.

What’s more, the concept of “it gets better with age” is hardly limited to the pantry — it also extends to your finances. For instance, a well-aged savings bond can provide solid profits, and you can amass a very healthy portfolio with just a little compound interest — if you give it enough time.

Even your consumer credit score tends to improve with age. According to recent studies of the average credit score by age, the average American’s credit scores get better over time, with each generation having higher credit scores than the generations after it at any given point.

In fact, the studies found that those aged 60 or older are twice as likely to have a FICO credit score above 720 than those under the age of 40. And seniors are almost four times as likely to have a 720-plus score than those consumers who are 30 years or younger — the majority of whom have FICO scores of 620 or lower.

The Age of Your Accounts Impacts Your Score

When looking at the data, your first assumption might simply be that your age is one of the many pieces of information that FICO uses when calculating your credit score, and leave it at that. But you’d be wrong. Your age doesn’t actually have any direct impact on your credit score (which means your score won’t automatically improve just because you have a birthday).

That said, while your age doesn’t directly impact your credit score, the age of your credit accounts will have an important role in your credit score calculations. A long history of healthy credit behaviors can say a lot when it comes to proving to potential lenders that you are a creditworthy borrower, so FICO’s credit scoring models are going to factor it in.

In fact, when calculating your credit score, the length of your credit history will count for a full 15% of your total score. Furthermore, FICO isn’t just looking at how long ago you got your first credit card; the scoring model will look at both the age of your oldest credit account, as well as the average ages of all of your accounts.

And as far as FICO is concerned, the older your accounts, the better. But you won’t need to be eligible for AARP to score high marks for your average account age; the key is to start establishing good credit early in life. An average account age of six years is respectable, and an average age of nine years (or more) will net you the best results. So, an 18-year-old college freshman with a basic student credit card can be halfway to a solid credit history length by the time he or she reaches graduation.

Your Age Can Also Influence Other Factors

Some other aspects of your age may also influence your overall credit score, albeit in more nebulous ways — like the improved financial wisdom we all (hopefully) accrue with time and experience. Learning how to manage your finances will lead to a better payment history (35% of your FICO score) and, thus, higher credit scores.

Along the same lines, simply traversing the various stages of life will bring opportunities to improve your credit score that may not yet be possible for younger generations. There are five separate factors that go into a FICO score calculation, most of which are easier to influence as you, well, grow up.

For example, you’ll likely never make less money than when you first enter the workforce — and, nowadays, you’ll likely have a boatload of student loans to keep afloat. The career advancements that come from doing your time in the workforce — or, more specifically, the salary raises that typically accompany them — can help you pay down debt and improve the amounts you owe (30% of your FICO score).

Moreover, some credit score influences are not yet financial priorities for younger consumers. Some of life’s milestones can come with installment loans that can improve your overall credit mix (10% of your FICO score), like using an auto loan to purchase a pre-owned minivan that fits the whole family or getting a mortgage for a long-awaited retirement condo on the beach.

Establish Credit & Maintain a Clean Report Over Time for the Best Credit Scores

Regardless of what’s behind the correlation between age and the average credit score, the important thing to note when considering the studies’ findings is that averages are just that — averages. They are not all-encompassing, and should not define your financial efforts. Anyone can earn an excellent credit score, regardless of his or her age.

Of course, it’s not only the young who worry about their age impacting their ability to achieve excellent credit. Those who have weathered a few financial storms may actually be worried about being too old to improve their credit. But, just as you’re never too young to start building good credit, you’re never too old to find ways to improve your credit score.

For some consumers, working with an experienced credit repair company can help smooth the bumps in a rocky credit report, removing mistakes and unsubstantiated accounts. Be sure to choose a reputable company and research applicable fees before getting started. The best credit repair company for you will depend on your needs and your budget.

You’ll likely also need to pay down your current debt, as well as work on improving your payment history. The newest information on your credit report often carries the most weight and most negative marks will come off your credit report in seven years. For those who have experienced a bankruptcy or other major financial issue, credit cards for bad credit can help establish credit after a discharge so you can begin rebuilding your credit score.

In the end, the key to a good credit score is establishing credit, then maintaining that credit in good standing. With a little determination, a few smart financial decisions, and the power of time, anyone can achieve excellent credit.

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How will you be affected by new reporting standards of public records on your credit reports?

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In March, 2015, the three main credit bureaus launched an initiative called the National Consumer Assistance Plan in order to make consumers’ credit reports more accurate and easier for consumers to correct errors on their reports. Starting July 1, 2017, these bureaus (Experian, TransUnion, and Equifax) will change the way they collect and report civil judgments and tax lien information on credit reports. These changes may not only affect what items are appearing on consumers’ credit reports, but may also help give a boost to their credit scores.

Reporting of public records on credit reports

The new initiative from the credit bureaus will affect public records having to do with tax liens and civil judgments.

  • A tax lien is a lien that is imposed against one’s property to secure the payment of tax, and may be a result of failing to pay income tax or other taxes. Although unpaid tax liens may remain on a report indefinitely, in practice credit bureaus may remove them after 10 years, and must remove a paid tax lien after 7 years.
  • A civil judgment is a formal decision made by a court following a lawsuit. For many consumers, the most common civil judgment on a credit report results from a lawsuit by a creditor for failing to pay a debt. Civil judgments may stay on a credit report for up to seven years from the date of entry.

There will be two primary ways this new standard will affect how the credit bureaus obtain and report this data on consumers’ credit reports. First, in order for a tax lien or a civil judgment to appear on a credit report, the public record must contain the following three items of information: (1) name, (2) address, and (3) Social Security Number and/or date of birth. This standard not only applies to new records that may become available, but also existing data that may already be reported on a credit report. Second, public records that are reported on credit reports must be checked for updates by the bureaus every 90 days to ensure their accuracy. If the records are not checked then they should be removed from the credit report.

The higher standards for public records are estimated to improve the credit reports of roughly 12 million U.S. consumers. Because this change will affect such a great number of people, it is important to review your personal credit reports regularly for possible errors.

Effect on consumers’ credit scores

With the possible removal of negative information on consumers’ credit reports, the effect on an individual’s credit score will vary. According to a FICO study, of the 12 million consumers that would have a public record removed because of these new standards, approximately 11 Million would see some kind of increase in their overall FICO score. The amount of the increase, however, may not be as substantial as one would think. FICO estimates that for the majority of these people the increase in their FICO score would be less than 20 points. Although the bump in credit score may not seem substantial, it may help many people increase their score enough to secure a new loan or mortgage.

It is important to remember that although one or more public records may be removed based on these new standards, there are still many other factors impacting your credit score. There may be additional negative items affecting your payment history besides the lien or judgment that was removed. Other factors that will influence your score include your credit utilization, length of credit history, new credit accounts, and credit mix.

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Americans Might be Paying Their Debt Backwards

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It would seem logical that consumers would choose to pay off secured debt before unsecured debt. The risk of losing a home or car far outweighs the potential consequences of not paying off a personal loan.

However, the most recent data doesn’t back that theory up. A recent study by TransUnion found that consumers struggling to pay off multiple credit products pay off their unsecured debt first. After paying off unsecured loans, consumers then turn to their secured debt, paying off auto loans first, followed by mortgages and credit cards.

Does that strategy make sense? Let’s take a closer look.

Why Americans are Paying Off Unsecured Debt First

Unsecured debt like personal loans generally carries a shorter duration, which might allow consumers to get a quick victory in their credit management process.

“The prioritization of personal loan payments above all others is counterintuitive, but our study results are clear. We believe the relatively short duration of these loans — usually less than 30 months — is a key factor in the decision process of consumers,” said Ezra Becker, senior vice president and head of research for TransUnion’s financial services business unit.

Car loans and mortgages, on the other hand, carry much longer loan durations and higher values. Unsecured loans carry an average term of 28 months, while auto loans and mortgages average 60 months and 230 months, respectively, according to TransUnion. Many consumers might view these longer-duration loans as difficult — or even impossible — to pay off in the short term.

Should You Pay Off Secured or Unsecured Debt First?

While paying off an unsecured debt might feel good in the short term, it’s not necessarily the best credit-management strategy. Prioritize your secured debt if you’re struggling to make payments on multiple accounts and can only afford to pay down one or two balances.

Failing to pay off a car or home loan, means you could lose the asset tied to it. If you live in an area without reliable public transportation, losing your car could restrict your ability to get to work and put your income at risk.

Take the opposite route if you can comfortably make your debt payments and simply want to pay down your accounts. Unsecured debt typically carries much higher interest rates than secured debt, so pay down accounts starting with the highest interest rate.

Failure to Pay Off Unsecured Debt has Consequences, too

In an ideal world, we’d all make timely payments on all of our credit accounts. Unfortunately, that’s not the reality. While the best strategy is to prioritize your secured debt, that doesn’t mean failing to pay off your unsecured loan doesn’t have consequences. Unsecured debt comes in many forms, including:

  • Credit cards
  • Student loans
  • Utility bills
  • Medical bills
  • Payday loans

Missing payments on this unsecured debt or defaulting on an unsecured loan will wreak havoc on your credit. Creditors report every missed payment to the credit bureaus and each missed payment impacts your credit score and report. A 30-day delinquency could result in a 90- to 110-point drop in your credit score.

While one missed payment seems minor to some, default can lead to significant long-term consequences, including difficulty securing the best interest rates or obtaining a loan at all. For anyone planning on buying a home or a car, the impact of missed payments can be severe.

What to Do in the Event of Default

If you’ve recently defaulted on a credit account, taking steps to immediately rectify the situation and repair your credit can pay dividends. Ignoring the situation will only make it worse.

You could take the DIY approach to credit repair by paying down your debt and avoiding missed payments and new accounts, which does have its benefits. But effective credit repair can take a lot of time and persistence to make any real progress. If you’re short on time, you might need professional support.

Working with lawyers to repair your credit is one effective strategy. When you work with a law firm to repair your credit, attorneys and paralegals closely review your credit reports and prioritize items with the most effective credit repair strategies. These legal professionals understand the consumer protection laws applicable to your case and leverage those legal rights so that your credit reports remain fair and accurate.

The lawyers and paralegals at Lexington Law understand your rights and can help you repair your credit. Contact us for a free credit repair consultation, including a complete review of your credit report summary and score.

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Is Debt Settlement Worth It?

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Many Americans struggle with an increasing amount of debt and a desire to be in a more stable financial situation. In contemplating how to overcome large amounts of debt, some consumers may pursue the route of debt settlement in order to decrease the amount of money they must pay back to their creditors. Although debt settlement can be an effective way to pay off your financial obligations, you must consider the benefits with any potential setbacks that may occur.

Debt settlement is when you negotiate with creditors to pay less than the full amount for a debt you owe. Negotiations occur and you make an offer to the creditor, for example, to make a lump sum payment of $2,000 instead of the $4,000 you owe. If the creditor accepts your offer, you then would make your payment and the account will be settled, meaning you will have no additional obligation to pay the creditor for the full amount.

The benefit of not having to pay your full obligation to the creditor seems very attractive on its face, but must be reconciled with the potential downsides of the settlement. Many people do not want to undertake the task of negotiating the debt themselves and will hire a debt settlement company to work on their behalf. The following are a few of the main things you should look out for and consider when deciding if debt settlement if the right path for you:

  • Making payments towards your debt during the settlement process

    Some companies will advise you not to make payments during the process as it will make your financial situation seem more dismal, and possibly more likely the creditor will want to settle the account for less than the full amount. By not paying your bills, however, you may rack up more fees and interest during this period, and there is no guarantee the creditor will agree to a settlement.

  • Amount of Fees charged

    Make sure to pay attention to and fully understand the fees associated with using a debt settlement company. Often times, the company will charge you a fee equal to the amount of money paid to settle the debt, which could be as high as 25% – 30%. Alternatively, companies may charge you a lower percentage equal to the total amount of debt owed. You should also ensure whether money paid to the company is going directly towards your debt or if it is being applied to the company’s fees.

  • Tax consequences

    Because the amount you ultimately settle for is less than your total obligation, the creditor will report a loss on the amount of money not paid. If this amount exceeds $600 then the creditor will report this to the IRS, who will in turn consider it income and require you to list it with your taxes. Depending on the amount of debt forgiven in the settlement, this may cause your refund to be significantly lower or cause you to owe more money in taxes to the IRS.

  • Impact on your credit score

    If you choose to settle an account instead of paying the full amount owed, the account will show as “settled” on your credit reports and will reflect negatively on your credit history. The account will reflect this way regardless of whether you previously paid the account on time or not. If the account was never late and then settled, it can remain on your credit reports for up to 7 seven years from the date of the settlement. If the account was already late or delinquent before being settled then it can stay on your report for up to seven years from the date the account first went late or delinquent. Furthermore, failure to pay a debt in full will almost always be a sign of risk to potential lenders.

The decision to attempt to settle your debts either yourself or through a company should be carefully thought out and based upon your own personal circumstances, with both the advantages and disadvantages kept in mind. It is also important to consider other means to begin paying down your debts, such as debt consolidation or a debt management plan in connection with credit counseling. If you have questions about what method would be best for you then strongly consider speaking with someone who can assist you along the way or point you in the right direction.

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Debt and Marriage – Should we merge our debt?

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Many statistics show that financial issues are some of the biggest triggers for marital problems. Couples who are considering marriage or have already taken the plunge need to have serious, open discussions about their financial situation before deciding to combine their personal debt and making plans to pay off outstanding bills.

The best approach is to have the financial discussion before saying “I do.” Discovering that your new spouse has serious financial problems or is deeply in debt can be a very unpleasant surprise, especially if you plan to purchase a house or automobile together. You may be impacted by your spouse’s low credit scores or get calls from collection agencies. However, it is never too late to get all the cards on the table. The key is to have the conversations and keep the lines of communication open when it comes to the financial aspect of your relationship.

Consider the following question to start the dialogue: Exactly how much money do each of you owe in student loans, credit cards, car payments and other financial obligations? Providing exact numbers when possible and being completely honest is important to give a realistic view of the current financial situation, which aids in the next step: Establish a budget to address your outstanding obligations. A budget will also help you save for the inevitable financial emergencies that can hit any couple, married or not – a roof destroyed in a hail storm, unexpected medical expenses, or unforeseen accidents that cause one or both partners to be out of work. Open communication and a good budget are imperative for a financially healthy relationship.


Some couples opt to keep their own separate bank accounts and handle things in a more complex fashion – and as Dr. Phil likes to say, “good luck with that,” especially when it comes to filing jointly or separately at tax time. But if you and your significant other are at a point in your relationship where you can combine your finances in a peaceful manner, working as a team definitely has its benefits in achieving your budget goals. The first thing you may want to consider are the different ways to merge your bank accounts that will best suit your relationship.

Teamwork is also an effective way to pay off outstanding debts. If one spouse is the sole bread winner or makes a significantly higher income than the other, then that spouse may have to consider paying off the other’s outstanding debts, including student loans. Another option is to split the financial resources so that the larger income-earner is responsible for the rent or mortgage, while the other tackles some of the smaller financial obligations such as utilities, groceries, etc. A crucial step to paying off outstanding debt is to establish priority: which debts need to be paid off first? Couples who communicate and work together as a team can conquer the goal to eliminate debt in a smooth and efficient manner.

Proactive couples can also consider the options for debt consolidation. Depending on your financial circumstances, you may be able to negotiate with a lender to blend all of your outstanding credit card or other personal debts into one lump sum – allowing you to pay off overburdened accounts and make one central payment. Debt consolidation can simplify a life full of too many credit card due dates and possibly stop collection calls, but it is not necessarily a one-step, overnight solution to repair your credit.

Many couples are confused on how marriage affects credit. As most of us have experienced, credit impacts almost every aspect of our lives in one way or another and can be an important factor when considering the best options to tackle debt in your relationship. Couples may need assistance with credit repair and can benefit from the help of experts in the field. You can consult with us on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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