Category: Credit Report

What VantageScore 4.0 Means to You and Your Credit Report

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In early April, VantageScore Solutions, developer of VantageScore credit scores, announced that its new VantageScore 4.0 tri-bureau credit scoring model will be available to lenders in fall 2017. But this announcement doesn’t only impact lenders.

You can think of VantageScore as a competitor to the widely used FICO score used by the majority of lenders. Although FICO, created by Fair Isaac Corp., is the credit industry standard, the VantageScore model, which was created in 2006 by Equifax, Experian, and TransUnion, has grown significantly in the past several years. The number of VantageScores used increased 40 percent between July 2015 and June 2016, with more than 2,400 lenders and other credit industry participants using it — including 20 of the top 25 financial institutions.

So, what does VantageScore 4.0 mean to you?

VantageScore 4.0 is an update to version 3.0, and includes three important changes:

  1. Perhaps most notably, VantageScore 4.0 is the first tri-bureau credit scoring model designed to accommodate the National Consumer Assistance Plan initiative. The NCAP takes effect July 1 and, among other provisions, it will mark the end of the three reporting agencies collecting and reporting a significant amount of information pertaining to tax liens and civil judgments.

Furthermore, VantageScore 4.0 also distinguishes medical accounts that have been sent to collections from other types of collection accounts and ignores medical collections that are less than six months old in order to allow adequate time for insurance payment processing, according to VantageScore Solutions.

The new model “relies less on derogatory collections and public-records data to ensure that the model will not lose substantial predictive strength in the likely event that these records fail to meet enhanced data quality standards and are removed from consumer credit files under provisions of the NCAP program,” VantageScore Solutions said.

  1. VantageScore 4.0 will be the first credit scoring model used by Experian, Equifax, and TransUnion to include “trended credit data.” This essentially means the new model takes into consideration a consumer’s credit behavior over time vs. looking only at a current snapshot.
  2. The new version will accommodate consumers with limited credit histories through the use of data mining to create consumer scorecards. Through extensive data, VantageScore 4.0 identified thousands of consumer behavior combinations common to those who pay their bills on time.

Consumers and lenders stand to benefit from this new model, which promises more consistent credit scores from all three national credit reporting agencies.

If you’d like to learn more about how the new VantageScore 4.0 can impact you, or more about credit scoring and credit repair, contact Lexington Law today.

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Is Credit Repair a Scam?

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If you automatically think, “Scam!” every time you hear or see a commercial for a credit repair company, you’re not alone. Credit repair has certainly gotten a bad rap among many consumers — and it’s not difficult to understand why.

For many people, credit repair is synonymous with companies taking advantage of consumers who don’t know where to begin to clean up their credit report and improve their credit score. Unfortunately, it’s when consumers are at their most vulnerable that scam artists can swoop in.

But ultimately, whether or not credit repair is a scam comes down to the firm you select to help you.

With so many companies claiming to offer the best credit repair services, it’s important to understand how to determine which are legitimate and how to weed out potential scams.

Let’s take a look at three ways to help you differentiate legitimate credit repair from credit repair scams.

  1. Legitimate credit repair companies will only charge for credit repair services after they’ve been performed. Beware of any company that asks for money upfront.
  2. You should be able to speak to a person when you call your credit repair agency and you should steer clear of any company with a Web-only presence or one that doesn’t provide a phone number where you can reach a real, live person. The bottom line is your credit repair agency should want to talk with you directly so that they can fully understand your needs and situation in order to effectively assist.
  3. You’ll also want to beware of services that offer you nothing more than a credit report. By law you are already entitled to one free credit report each year, without paying anyone a dime. You can also request your scores from each of the three bureaus individually, for a fee. Whether or not you choose to pay for your credit score, it is still a good idea to check your report at least annually so that you can be diligent in disputing credit items that are erroneous or fraudulent.

Consider a Legal Approach to Credit Repair

Despite the negative perceptions, there are reputable, trustworthy credit repair services you can rely on.

When it comes to credit repair, a legal approach is the safest and most effective. Partnering with a consumer advocacy law firm means you’re always working with real, live, legal experts. It also empowers you with tools and education to maintain good credit for life and exposes you to other financial and legal services from which you can potentially benefit.

Many consumers are unaware that credit protection laws exist when it comes to ensuring your credit report is fair and accurate. Laws also exist pertaining to credit problems that have arisen as a result of life circumstances, such as divorce or military deployment. Partnering with a law firm that specializes in credit allows you to understand and leverage these laws.

Don’t Go it Alone

While do-it-yourself credit repair is possible in theory, it requires a significant amount of time and legal knowledge. Effective credit repair is complex, and is better left to a trustworthy firm that understands all of those complexities and legalities. The best advice when it comes to credit repair is to partner with a firm that can help you repair your credit and offer you the knowledge and services to maintain good credit going forward.

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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What Does The Lack in Savings of 3 in 10 Americans Say About Debt and Credit

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Recently I was out on the town with a few of my friends enjoying some food and good conversation. A topic came up about a friend of a friend who suffered an unexpected financial emergency and could not come with the funds to cover the cost. This got me to thinking – How many people really have enough extra money saved to weather an unexpected emergency? I’m taking about available cash – not just using available credit on a credit card.

According to a study released by the Federal Reserve Bank of New York in February 2017, just over 30 percent of responders felt they might need $2,000 to cover an unexpected expense in the coming month, but said they could not come up with the money to pay for it. To put that into perspective, 3 out of every 10 people would not be able to come up with $2,000 in 30 days to deal with an emergency such as a home repair, visit to the veterinarian, root canal, or a trip to the emergency room.

One of the most common financial emergencies is an unexpected medical expense. In a study by Amino, 37 percent of people said they could not afford an unexpected medical bill greater than $100 without going into debt. Only 23 percent of Americans said they were able to cover an unexpected medical bill of more than $2,000. That is a very sobering statistic – not only on the state of our health care (a topic for another day), but also on the state of our ability to save money.

So, what does this all say about our finances? Does this only affect the middle to lower class workers or does this also pertain to the upper class as well? With so many Americans living so close to the edge, financially, how does this affect other aspects of everyday life?

Lack of Savings Can Increase Your Debt

When someone does not have enough available cash in a savings or checking account, paying for an unexpected expense may have to be dealt with by using a credit card. Using credit cards has become a type of “safety net” for those unable to save money for a rainy day. The problem with using credit cards for these types of expenses is that it may negatively affect your FICO Score. According to myFICO, the amount you owe on all accounts (your credit utilization) makes up 30 percent of your credit score. Therefore, if you have a lot of debt on a lot of different credit card accounts, your credit score is going to take a hit. Taking credit utilization to the extreme, maxing out your credit cards to pay for these expenses can drop your score by up to 100 points.

Same holds true for paying for emergencies by taking out a home equity loan, for example. This is just another way of getting further into debt and possibly lowering your credit score. As stated by Bruce McClary of National Foundation for Credit Counseling, “When you combine high debt with low savings, what you get is a large swath of the population that can’t afford a financial emergency.”

Lack of Savings Can Cause Late Payments

When faced with a large unexpected expense and no savings to pay for it, one is forced to do a juggling act with available money and bills due. Living paycheck to paycheck, as many working Americans are doing these days, leaves very little wiggle room when it comes to fitting in another bill to pay. Next comes the decision on whether or not to pay a bill on time or maybe leave it go until next month. But choosing to make a late payment is probably one of the worst things you can do for your credit. Payment history is the biggest factor of your credit score (35%) so having just one 30-day late payment may cause your score to decrease. Once you break the rule of always paying your bills on time, you might fall into the habit of making other payments late or not at all. As you can see, there is a downward spiraling effect going on and it will only go further down from there.

Could You Raise $2,000 in 30 Days?

The National Bureau of Economic Research published a paper based on this simple question, “If you were to face a $2,000 unexpected expense in the next month, would you be able to get the funds you need?” Here is what they found:

  • 9% of respondents reported they would be able
  • 1% probably able
  • 2% probably unable
  • 9% certainly unable

It makes you stop and think – what would you need to do to raise $2,000 in 30 days? Sell some jewelry, your vintage guitar, or liquidate some other personal possessions? Or would you be able to dip into your savings account and come up with the cash? If you can relate to the first scenario, then it may be time to re-evaluate your financial goals.

If you had started an emergency fund three years ago by saving $50 per month, you would have almost $2,000 saved for unexpected emergencies. Having this emergency fund would keep you from adding new debt while trying to pay down the old debt. It would mean no more borrowing, no damage to your credit because you can pay your bills on time.

Even those of you making a six-figure salary are not immune to this lack of better judgment. David Johnson, an economist at the University of Michigan who studies income and wealth inequality, sees that when people get money – a bonus, inheritance, high salary – they are more likely to spend it than to save it. So, no matter if you earn $20,000 year or $200,000, the struggle to save money is the same. If you don’t have an emergency fund, it’s not too late to start one. Make a plan to start saving and stick to it – before you know it you will have a nice little nest egg all ready for the next unexpected emergency that may come up in your life.

If you’ve had trouble saving money in order to cushion yourself from emergencies and your credit is suffering as a result of missed payments or high credit utilization, it may be time for professional credit repair services. 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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What You Need to Know About Credit Utilization

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Credit scoring is a mystery to many people, and for good reason. The average consumer has more than 50 scores to their name, and it’s not easy to understand the grading process or which factors matter most.

While every lender has their own method of deciding which customers are worthy of financial trust, and more than 90% of businesses rely on the FICO score when reviewing credit and loan applications. Of course, you have more than one FICO score, so you might be feeling confused all over again, but there’s good news: When it comes to credit health, it’s best to narrow your focus to five main factors:

  • Credit length
  • Payment history
  • Account diversity
  • Inquiries
  • Credit utilization

Why Is Credit Utilization So Important?

Every factor of credit scoring is crucial, but credit utilization is responsible for 30% of your overall score, second only to your payment history’s weight of 35%. Credit utilization measures your revolving balances against your total credit limit. Lenders and credit card issuers rely on credit utilization to predict risk and future behavior. In general, the higher your utilization ratio, the greater your risk of defaulting on your balances. Risky behavior isn’t rewarded in the world of credit scoring, and you may see a decrease in your scores as your utilization ratio goes up.

To understand credit utilization, you first need to understand your line item and aggregate calculations.

Line Item Utilization

Line item utilization measures your individual credit card balances against your individual limits. For example, suppose you have three credit cards, each with a $10,000 limit. Based on your current balances, your line item utilizations break down like this:

  • Card A:
    • Balance: $4,500/$10,000=0.45×100=45% utilization
  • Card B:
    • Balance: $2,000/$10,000=0.20×100=20% utilization
  • Card C:
    • Balance: $3,300/$10,000=0.33×100=33% utilization

Aggregate Utilization

The average of your credit card utilizations is called aggregate utilization. Calculate yours by combining your current balances and dividing them by your total credit limit. In the example above, your total balance is $9,800 and your total limit is $30,000; therefore, your aggregate credit utilization is $9,800/$30,000=0.32×100=32.6%

Which One Matters? 

Line item and aggregate utilization are both important factors in overall credit health, and FICO recommends keeping yours as low as possible.

How to Benefit from Credit Utilization

Credit utilization has an undeniable effect on your credit score, and there are ways to harness its influence in your favor:

  • Keep Your Balances Low: If you struggle to curb spending or rely on credit cards to make ends meet, overhauling your budget is the first step. A few monthly changes could help you avoid overwhelming debt and related credit damage. Download our free template to help you get started.
  • Check Your Credit Reports for Accuracy: Your credit reports tell the larger story of financial history and responsibility, and accuracy is key. For example, suppose Card A’s $10,000 credit limit is mistakenly listed as $6,500 on your credit reports. While it may seem like a small issue, an incorrect credit limit can drastically alter your utilization ratio and damage your credit score in the process. In this case, your line item utilization would increase from 45% to 69.2%, and your aggregate utilization would increase from 32.6% to 39.6%. You can’t afford to ignore the details. Order free copies of your credit reports to ensure that they accurately reflect your credit card balances and limits.
  • Request a Limit Increase: If you’re working on debt reduction but need a quick fix, consider asking your lenders for limit increases on each of your cards. For example, increasing Card B’s limit to $15,000 would automatically lower your line item utilization from 20% to 13.3%, and your aggregate ratio from 32.6% to 28%. Requesting a limit increase could place a hard inquiry in your credit file, costing you a few score points, but the benefits of lower credit utilization are usually worth the temporary ding.
  • Change Your Bills’ Due Dates: It’s difficult to benefit from credit utilization if you are constantly battling with the clock. If your credit card issuers report customer balances to the credit bureaus before you pay your bill, it may seem like your utilization ratio is constantly high. The fix? Contact your issuers and ask them when they typically report to the credit bureaus, and then move your bill’s due date to the week before. This strategy allows you to take full advantage of low credit utilization by giving you time to pay your balances before the reporting date.

If you’re interested in learning about credit repair, click 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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Would a New Credit Card Help Your Credit?

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If you are like thousands of other Americans, every day you open your mailbox you find at least one credit card offer among all the other junk mail and bills. In the past, you probably just pitched it into the garbage (after you shredded it) and did not think too much about it. But lately you have been working on improving your credit and you start to think maybe your FICO Score is higher than you thought, hence all the new credit card offers. So, after the next visit to the mailbox you pause and give some thought– maybe it’s about time I get a new credit card. Well, before you do you need to give serious consideration to this very important question – how will a new card affect my FICO Score? Let’s find out!

The first thing to do would be to make sure you know exactly what your FICO score is before you apply for a new credit card. This way you have a benchmark to compare to. The best place to get a 3-bureau credit report and score, in my opinion, is from You can sign up for a monthly program for around $29/month, which is worth it if you want to keep track of your scores. There are a lot of free offers out there, but they only give you a VantageScore – which is not the same as a FICO Score. Lenders typically use FICO scores when evaluating new credit card applications.

Signing up for this service will also get you copies of your credit reports – which is a great place to view and monitor your credit history. All the information found on your credit reports is what goes into figuring out your FICO Score. The following categories are used to calculate your credit score:

  • Payment History – this makes up 35% of your score
  • Amounts Owed – this makes up 30% of your score
  • Length of Credit History – this makes up 15% of your score
  • Credit Mix in Use – this makes up 10% of your score
  • New Credit – this makes up 10% of your score

Applying for and obtaining a new credit card will affect the following categories, Amounts Owed, Credit Mix, and New Credit, which in turn will affect your credit. So, let’s break these down to see if getting a new card will be a positive or a negative to your overall credit history.

Amounts Owed 

Your credit utilization plays a big part in your credit score. Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low FICO Score. To put it simply, this is where the term “credit utilization” comes in to play. Figuring out your credit utilization percentage on your revolving accounts is easy – add up how much you owe and divide it by your total available credit. For example:

You have a VISA and a Macy’s credit card. Your VISA credit limit is $1,000 and your Macy’s account has a limit of $500. Your total available credit is $1,500. You have a balance on your VISA of $800, and $300 on your Macy’s card. Next, you divide $1,100 by $1,500 which is 73 percent. That means, you are utilizing 73 percent of your available credit – which is very high.

How will a new credit card help your credit in this type of situation? Let’s say you get a new credit card and the limit is $2,000. That just bumped your available credit up to $2,500, which in turn LOWERED your utilization percentage to 40 percent. That will look much better to FICO and chances are it will improve your credit score. But don’t let more credit mean you can spend more. Your next step, after getting your new card, will be to pay down the balances on your current accounts and lower your credit utilization percentage even further.

Credit Mix

Another way getting a new credit card may help your credit is in the area of credit mix. FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. After you review your credit report you need to ask yourself, “What types of credit accounts do I have?” If you only have an installment loan (a car loan) and no credit card accounts, FICO may view you as a higher credit risk than those with credit cards who manage them responsibly. So, if you do not have any type of revolving credit in your credit history, getting a credit card would be very beneficial to your FICO Score.

If you are just starting to establish your credit, you might not be approved for an unsecured credit card, but fear not! You can apply for a secured credit card, but make sure you get one that reports to all 3 credit bureaus. This will show a good credit mix, which will in turn help to increase your FICO Score.

New Credit

Shopping for and obtaining new credit cards can sometimes be a bad thing when it comes to your credit. Opening several new credit accounts in a short period of time represents a greater credit risk – especially for those who don’t have a very long credit history established. If you are trying to build up your credit, don’t apply for a bunch of credit all at once. New accounts will lower your average account “age”, which will have a negative effect on your FICO Score.

Along with opening new accounts comes the credit inquiries made by these lenders to approve you for this credit. Credit inquiries will stay on your credit reports for two years and FICO does consider those inquires which impact your score and which ones do not. So be careful when you have lenders pulling your credit for review.

Taking all of that into account, getting a new credit card will be beneficial if you have not opened a new credit account very recently. If you have, wait a while before you apply for that new credit card.

In summary, if you are thinking about whether it is time to get a new credit card or not, you need to stop and think about what this new credit card will do to your credit. If you have been working hard to repair your credit, stop and think if getting this card will increase or decrease your credit score. If you are trying to build up your credit, will getting this card help you in that endeavor? Bottom line is don’t just sign on the dotted line without giving this new card some serious thought. Review your credit situation first, then review the possible effects this new credit card may have on your FICO Score. That will answer the question as to whether or not it is time to get a new credit card.

If you find yourself having credit issues preventing you from getting a new credit card, 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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