Category: Bad Credit

Making a Six-Figure Income Doesn’t Mean You Won’t Have Credit Issues

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During the 1980’s, when I was growing up, knowing someone who made a six-figure salary was like knowing royalty. It was that number that made you think of owning fancy cars, living in a huge house, and going on lavish vacations. Fast forward to the 21st century and making $100,000 plus does not really seem like all that much money anymore. Still, according to recent Census Bureau data, only a little over 20 percent of American households even break into that six-figure number.

But doesn’t making a six-figure salary pretty much guarantee you will have a good credit rating? Not necessarily. Your salary is not factored into your FICO score, but lenders will consider it when approving you for a loan. Loan and/or credit approval is based on your income and your FICO score. But how can someone who makes over $100,000 a year possibly have credit issues? There are some interesting factors which play into why someone who makes a decent income has bad credit. Let’s see what they are and how these factors affect their credit scores.

Feeling the Pressure to Keep up with the Joneses

This is cliché but true. Let’s say you have graduated from college and landed your first real job. Gone are your grungy pals from college only to be replaced with well dressed, sophisticated work colleagues and/or neighbors. They all drive BMW’s and have a garage full of “toys” and you feel the need to join in the fun. These extravagant purchases require applying for auto loans and/or credit cards and opening new lines of credit all at once. This could be lowering your FICO score. Why?

Two categories used by FICO when calculating your credit score is “New Credit” and “Credit Mix.” In fact, 10% of your FICO score is based opening new credit lines and another 10% is based on the mix of credit you use. According to myfico.com, FICO’s official website, “Research shows that opening several credit accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history.” Not only does FICO look at how many new accounts you open, but also what types of credit you apply for. So, trying to keep up with your neighbors by applying for a lot of credit in a short period of time may negatively affect your credit score. In addition, each time you apply for a loan or credit card, an inquiry shows up on your credit score. Each inquiry can ding your score up to 5 points apiece.

Large Student Loans

When you were in high school, I am sure you thought a lot about what you wanted to be when you grew up. Achieving that goal probably meant going to college, which in turn meant taking out student loans to pay for college. After graduating from college, you landed a good paying job but your six-figure salary doesn’t go very far when paying a large monthly student loan payment. Add that payment to your rent/mortgage payment, car payment, food, and utilities and you have the problem of possibly not being able to make your payments on time.

Why is this important? Making on-time payments makes up the largest portion of your credit score, 35 percent to be exact. To quote FICO, “This is one of the most important factors in a FICO® Score.” So, even though you are making a six-figure salary, paying one or more of your bills late may cause your credit score to decrease.

How to Avoid Credit Issues Making a Six-Figure Salary

Touching on a few reasons why someone making over $100,000 is capable of having credit issues is great – but how can one avoid damaging their credit rating? Get yourself on a monthly budget plan and you will see the following improvements:

  • You will pay your bills on time (35% of FICO is based on payment history)
  • You will lower the amounts owed on your outstanding debts (30% of FICO is based on amounts owed)
  • You will lengthen your current credit history by paying these timely (15% of FICO is based on length of credit history)
  • You will curb the need to apply for new credit (20% of FICO is based on new credit and a mix of credit)

Knowing some of the reasons why a person making a six-figure salary can have credit issues can be helpful to the person who is making half of that salary. Living beyond your means and getting into debt can happen to us all, not just the wealthy. We all need to be mindful of what we spend our money on and making a budget is the best way to keep you and your family on track. Teaching your children about money management will help them avoid credit issues when they become a wage earner. Hopefully, they will look back and realize that no matter how much money they make, they can live within their means, have excellent credit, and be able to save money for their future.

If you find yourself having credit issues despite your salary, you can start your credit repair journey here. You can also 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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The Dos and Don’ts of Dealing With a Collection Agency

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No one is immune from credit-related woes—I speak from experience. This week I received a call from a collection agency in Chicago. They claimed I owed $863 in unpaid medical bills, and the representative was eager to get his hands on payment. The call itself was a mistake—I paid the bill months ago—and yet, I was being asked to provide my credit card number over the phone to avoid a vague threat of “further action.”

It’s difficult to know how to move forward in a stressful situation that involves credit. Whether you receive a collection call in response to overwhelming debt, a forgotten bill, or by clerical error, it’s important to take it seriously. An account in collection status can severely damage your credit score and remain on your credit reports for up to seven years. Thankfully, the Fair Debt Collection Practices Act (FDCPA) provides federal guidelines for debt collectors to follow—a law that protects consumers from unfair, deceptive, and abusive actions. Exercise your rights by practicing these do’s and don’ts. They will help you navigate the debt collection process.

Do Ask for a Validation Notice

Debt collectors are required to provide a validation notice within five days of making contact with you. The notice must include several important pieces of information:

  • The name of the creditor you owe
  • The remaining balance owed
  • How to respond to pay the debt
  • How to respond if you plan to contest the debt

Debt collectors that cannot provide this information don’t have the power to collect unpaid funds from you. Learn more about debt validation here.

Don’t Provide Payment Over the Phone

Identity theft is a common occurrence in today’s world, and it’s easy to fall victim to a scammer posing as a debt collector. While you may feel pressured to pay the mysterious balance immediately, don’t provide your credit card number or other sensitive information over the phone. Instead, tell the representative that you’d rather communicate by mail. A legitimate collection agency is required to provide written correspondence when asked, and verifying their legitimacy is your first priority.

Do Assert Your Contact Preferences

The FDCPA provides provisions for consumers dealing with collection agencies, including your preference for how they should contact you. While most people believe harassing phone calls are unavoidable, you actually have the right to communicate by mail only, and a debt collector cannot contact you by phone again if you notify them in writing to stop. They also cannot contact you before 8 a.m. and after 9 p.m. local time or harass you at your place of work. If you receive an unwanted call, make it clear that you would rather communicate via mail or email only.

Don’t Be Intimidated by Threats 

Collection agencies aren’t allowed to threaten you in order to recoup debt, but that doesn’t mean some won’t skirt the law with intimidation. Don’t be fooled. Regardless of your financial situation, debt collectors cannot have you arrested, publish your name in the newspaper as an unpaid debtor, use profane language, threaten violence, seize your property without a court judgment, etc. Restate your contact preference and write down any threats you receive before ending the call.

Do Consider Working with a Lawyer 

Every consumer has the right to represent themselves in credit-related matters, but if you’re feeling overwhelmed, it might be beneficial to seek legal advice. In addition to working with the collection agency on your behalf, a trained credit repair lawyer can assess the merits of the debt collector’s claims, draft responses, and help you minimize credit damage in the process. You have rights and you have options. When it comes to financial health, choosing the best course could make a huge difference.

If you have questions about collections, or are worried about your credit, learn how you can start repairing your credit here.  You can also 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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Great Credit, One Day at a Time

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In 12-step fellowships, participants share their experience, strength and hope with one another by relating what life was like (when things got bad), what happened (the changes they made), and what it’s like now. As part of her recovery, Denise L. of San Diego chose to repair her credit. She shared with us the story of how she did t.

Bad Credit was an Obstacle

Denise L., at age 40, needed to rent an apartment. For past rentals, she was able to do so with a security deposit, first month’s rent and proof of employment. But landlords in California had begun to require credit checks for all applicants, and Denise had bad credit. She had a great job and enough money to move in, but with a score of 590, she still needed a co-signer to secure the lease. “It was embarrassing. Here I was, 40 years old, having to ask a friend to co-sign for my apartment. At that point, I realized that I needed to fix my credit,” Denise says.

“Credit reports and score are much more influential today than they were decades ago,” says Credit Expert John Ulzheimer, formerly of FICO® and Equifax. “Bad credit can be so damaging. You simply never know what important doors will close because of it, until they’ve already been closed.”

Denise’s credit score was low due to a bankruptcy and collection accounts. She also had extreme anxiety on the subject. “Every time I looked at my credit, I was overwhelmed. So I ignored it,” she recalls. “I didn’t understand the whole credit thing and didn’t know how to learn.”

Before Denise and her husband divorced, she relied on him to manage household finances. “While I was married, I didn’t think I needed to worry about it,” she says. They obtained their housing and cars in her husband’s name only.

“Denise made a common mistake when she relied on her husband’s credit without actually rebuilding her own. But how many marriages end up in divorce? Every consumer needs to have and protect their own good credit,” says Ulzheimer.

A Credit Epiphany

Denise got clean and sober right around the time of the fateful apartment hunt. She joined a 12-step program and began working with a sponsor, Mary. A few years in, they decided to tackle the issues of credit and financial responsibility. “It’s part of being a productive member of society,” Denise explains. “I need to be self-sufficient. I want to show my daughters how to handle their money. I have a good job and I pay my bills. I’ve cleaned up the financial wreckage of my past and I deserve to be recognized for that in the form of a good credit score. A score that truly reflects who I am now in recovery.”

Financial amends

Part of a 12-step program is to make amends to those who were hurt by the addict in the past. That includes oneself. “I needed to make amends to myself, and to make right the financial harm I had done to myself in the past,” she says.

Denise confided in her sponsor that she had considered using a paid credit repair service, but was afraid of getting scammed or of wasting money letting someone else do something she could do for herself for free. Mary’s response was simple and straightforward: “You could cut your own hair for free, but a professional can do a better job, right? If you don’t know how to do something, why wouldn’t you hire a professional?”

Paid credit repair

Mary’s answer gave Denise the confidence and resolve she needed to move forward. She researched legitimate paid credit repair services and chose Lexington Law. The cost was affordable, and they promised improvement within three months.

Once Denise signed up, Lexington immediately started working on her behalf. “I got my credit reports for them. Other than that, they did all the work. They made the calls, wrote the letters. Within a month they were knocking negative stuff off my reports.”

Credit education was not lost on Denise. She knew she needed a primer on good credit habits if she wanted to protect her score in the future. “Lexington explained what was going on every step of the way. I understood that I could do this myself. But every time I had tried in the past, I gave up. It was too much. I didn’t have all the answers. They taught me a lot about my credit and helped me fix it at the same time,” she says.

Denise’s credit score went up dramatically. She cancelled the service after three months even though a serious negative item remained on her credit report, because the improvement she had gained was satisfactory. “I still had an old judgment, but it was paid and I knew it was going to come off my report in another year or so. Plus they taught me what to do if the judgment wasn’t removed from my credit report when it was supposed to be removed.”

Building credit

Denise wanted even better credit, and again turned to her sponsor for suggestions. It was springtime and Denise expected a tax refund of several hundred dollars. “Mary told me to go to the bank and put that money down on a secured credit card,” says Denise. She did, and at the age of 47 received her first credit card. She used the card sparingly and paid the balance off in full every month. After about a year, the bank converted the account to unsecured and returned the money (plus a small amount of interest) that Denise had deposited as collateral. “My new card had a $1,000 limit and no annual fee. I put the $500 in savings, and started to add a little every month. That helped me avoid charging up the card.”

“Denise was lucky to get solid advice from her sponsor. The way to earn great credit is to have and use credit products responsibly. There is no silver bullet,” says Ulzheimer.

Credit Opens Doors

After cleaning up her credit reports, Denise continued to pay her bills on time and avoid debt. Denise’s credit score went up to 732.

In 2012, Denise’s car was rear-ended and was a total loss. She received an insurance settlement, but not enough to replace the car. Apprehensively, she went to a dealership and applied for a car loan. “I couldn’t believe it. They approved me on the spot for a 5.5% loan. I was floored,” she recalls.

Denise protects her credit carefully now. Her score has seen a few ups and downs. In late 2014, her dog needed $800 in veterinary services. She didn’t have enough cash reserves to cover the bill. When she charged it, she nearly maxed out her credit card and saw her score drop immediately. “I wasn’t worried, though. I knew I’d be able to pay it off with my tax refund, and when I did my score went right back up.”

Now, Denise makes plans. She takes vacations with her daughters. She buys things for her home that she could never afford before, like a new washer and dryer. She wants to eventually lease a large house and take in foster children, and now she’s not afraid of submitting her application for the rental. All of these things are possible because of her great credit score and the watchful eye she keeps on her budget.

Denise’s greatest pride is in her ability to teach her daughters how to build, monitor and protect their own credit. “Being able to show them how to have great credit is one of my greatest parenting achievements,” she says. “I’m really preparing them to be on their own financially, and that makes me feel so proud.”

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How to Improve Credit in a Single-Income Household

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Millions of U.S. households live on a single income. Whether your family consists of a working spouse and stay-at-home spouse or you are a single parent, living on one paycheck can be a challenge. Limited funds may leave you feeling discouraged about credit repair, but there is good news: everyone can afford to improve their lives with the right strategy. Consider the initiatives below. They will help you focus on credit score improvement, regardless of your income.

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Five Credit Tips You Can Use This Week

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Ever feel like you just can’t get out from under your credit problems? Whether you’re just starting out in your credit journey, have started getting your credit act together, or are even working with a professional credit repair company, there are some things you can do this week to help improve your credit report and score.

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