You’re not STUCK with a low credit score. And you CAN’T afford to ignore it.
Like it or not, your credit score today impacts your entire life. But, just because yours is lower than you’d like, or lower than in the past, does not mean you’re stuck living with it.
A lower credit score not only means that you’ll pay higher interest rates on mortgages, car loans, credit cards and other loans, but it could also prevent you from getting an apartment or being hired for a job you want, or lead to your having to pay more for insurance coverage.
Prospective employers, landlords, lenders and even your insurance company view a higher credit score as a proven ability to manage money and meet financial obligations… they see a higher score as an indication of a persons maturity and stability… as an indication that you will meet your obligations and responsibilities to them as you have to others in the past.
Is any of that true? Can your future life accurately be reduced to a three digit number, calculated according to one of many “proprietary” and clandestine scoring models that entirely disregard factors that include income, length of time on the job or in your home, and net worth?
Without putting too fine a point on it, let’s just say that it would seem unlikely… especially when you consider that there isn’t just one “credit score,” in fact, there are dozens of credit scoring models, some of which are unique to certain industries such as mortgage lenders or credit card issuers. And even within a single industry, different companies may score things differently. For example, Forbes Magazine recently reported that your score pulled by one credit card issuer is likely to differ somewhere between “5 ““ 50 points from another credit card issuer.”
The Wall Street Journal recently reported that nearly a third of consumers have a FICO score between 550 and 699, and nearly half have a FICO score below 700. And according to CreditKarma.com, the average credit score of Americans today is 661, meaning that the average American has a hard time getting approved for credit, and when they do, they’re likely to pay exorbitant interest rates.
So, it should come as no surprise that, according to CardHub, a credit-card comparison website, the average interest rate for someone whose credit score is below 720 is 17 percent. And yes, as scores go down, the rates only go up from there.
Accuracy simply isn’t the goal…
So, based on the above, it’s clear that accuracy simply isn’t the objective… the goal, it would seem, is to justify the charging of higher interest rates, and by that measure, the whole credit scoring game is a resounding success.
But, there are many reasons why someone could have a lower FICO score that clearly wouldn’t be predictive of anything even remotely derogatory as far as that person’s ability to manage money or meet financial obligations… divorce, illness, injury, job loss or a business failing due to a collapsing economy… all are among the most obvious, but there are others as well.
Any of those “life events” can result in someone being unable to pay bills for some period of time, but does that mean that they lack maturity or stability… does that mean that they are riskier credit risks going forward? Why would that be the case?
In 2006, while driving on one of Southern California’s freeways on a bright and sunny May afternoon, a drunk driver traveling at 105 MPH struck me from behind causing my truck to spin out of control and ultimately flipping over another car before rolling up an embankment. I was 45 years old at the time, and had been driving for 31 years… until that day… without incident.
Luckily, I was driving a very large truck that day…a Ford F-350, dual cab, long-bed truck that weighed in at a svelte 9,300 pounds, but it was still somewhat miraculous that I only sustained a broken chest… a “total sternal disruption,” as the doctors would refer to it… my first ever broken bone, and the next three months I would spend in bed.
If that caused me to make a few payments later than normal, would that indicate a change in my ability to manage money or detract from my perceived stability or responsible nature? I’ve known couples that have gone through divorce and seen one or both go through financial turmoil as a result, does that mean that one or both became riskier to a creditor in the future?
And many businesses failed when the economy collapsed this last time around… it was the worst economic collapse in 70 years… did that make their owners irresponsible? I would actually have to guess that in many instances, going through a bankruptcy probably makes some people a better credit risk going forward, because they never want to go through such a thing again.
Yet, in all cases, FICO remains oblivious to what has caused someone to make payments later than required and simply drops its score the same way for all.
In fact, FICO never takes into account someone’s income, length of time on the job or in the same home, or even net worth, which means that someone with a million dollar net worth, who has been in the same job for 20 years making a six-figure income can have the same 600 FICO score as someone with no job and no net worth, who has never made more than $35,000 a year.
The credit bureaus don’t make a nickel by making sure anyone’s credit report is accurate.
A 2004 study by the U.S. Public Interest Research Group showed that nearly 80 percent of credit reports contained inaccuracies, and the mistakes in a quarter of those could result in the individual being denied for credit. But that’s not nearly the end of that story.
Just this past August, 60 Minutes reported that a government study showed that 40 million credit reports contain errors and that 20 million contain significant errors, but even more problematic… 60 Minutes also reported that their own research showed that it can be nearly impossible to get those mistakes removed from your credit report.
But search online for anything related to credit repair and one statement appears again and again: “You can do it yourself.”
The problem is that I couldn’t and neither could my wife, and she’s awfully good at those sorts of things. After 60 days of trying to get something corrected by Experian, she just threw in the towel, and I started contacting Experian last May about a hospital bill that appeared on my report six years after I’d been anywhere near a hospital. It’s now almost November and I’ve yet to hear a single word in response to my inquiries.
So I was relieved that the staff at 60 Minutes agreed as to how difficult it is to fix your own credit report on your own.
But, you can’t afford to ignore your credit score.
Starting in 2009, I started not caring about my credit score. I was angry at what the financial services industry had done in response to the meltdown… they had arbitrarily reduced the credit limits on several of my credit cards without notice or reason… and they had raised interest rates at every opportunity. It was clear that they didn’t care at all about my having been such a good customer for so long… so I wanted to stop caring about them.
I resigned to use only my debit card… to not pay them the unconscionable interest rates they were apparently allowed to charge… I would drive my car until the wheels came off, as I liked to say. Of course, that was easier back then… when my car was still nearly new.
It’s also damn hard to live without using a credit card.
Try renting a car without a credit card. It’s no easy task. You can do it… but your debit card will have to pay a large deposit, like it can be well over $1,000, depending on how long you need the rental. And checking into a hotel without a credit card not only means leaving large cash deposits, but it also means taking a while to check in, while feeling like the only person not using a credit card… and then not being able to watch a movie and having to pay cash for room service.
And there are times when you want your daughter to have a credit card for emergencies, right? Like when she’s 500 miles away from home, for example.
Then, there are life’s little unscheduled emergencies, like your air conditioner breaking down, which only happens in July at my house. Or needing a car’s transmission replaced right after the warranty expires? How about a death in your family that requires you to fly across the country on a Sunday night?
It’s one thing to say that you don’t care about your FICO score… to say that you’ll live off the grid, shunning credit and paying cash for everything… it’s another matter to actually do it.
The cost of a lower score in dollars and sense…
According to MyFICO, someone with a 720 credit score who wants a $20,000, 48-month auto loan, might qualify for roughly a 6.3 percent rate and pay $472 per month, which would mean paying $2,670 in interest over the terms of the loan.
Contrast that with someone with a credit score between 660 and 689. That individual’s interest rate might be 8.9 percent, which would mean paying $3,819 in interest over the course of the loan… almost $1,200 more just because of a credit score 60 points lower.
Now, let’s say the interest rate on that same auto loan went up to 14 percent, which it easily could for someone with a score 60 points lower still. That individual would be paying $6,233 in interest over the same four years… more than double what the person with the 720 credit score paid.
And it’s not just cars, credit cards and mortgages that you pay more for based on a lower FICO score, by the way. Depending on where you live and who your carrier is, it could also be your auto and even your home insurance too, that goes up as your credit score goes down.
Your auto and home insurance can cost you more if you have a lower FICO score, because insurance companies use credit scores to determine what they refer to as your “insurance score.” Robert Hartwig, chief economist for the Insurance Information Institute, explains…
“We’re not looking to see whether you’re worthy for credit; we’re trying to find the elements in the credit profile that correlate with loss behavior for insurance.”
Apparently, there are studies showing that people with lower credit scores file more insurance claims than those with higher scores. Hartwig says this may be because those with credit problems may be more likely to delay important maintenance on their cars and their homes.
“So those bald tires don’t get replaced, the brakes don’t get fixed, the leaky roof doesn’t get repaired and so on and so forth,” Hartwig offers.
How much a lower FICO score will cost you related to your insurance premiums depends on your insurance carrier and the state in which you live, but you should know some carriers not only check credit scores of new customers, but they also check credit scores of existing policyholders at renewal time and if your FICO score is under 650, you could see your rates increase by 15% or more as a result.
I hesitate to mention that almost certainly there are plenty filing bankruptcy that have never filed an insurance claim, but at least the insurance industry does admit that a lower FICO score does not predict automobile accidents. So, I guess we should be thankful for that.
The higher they are, the farther and faster they can fall…
We all know a few people who are quite proud of their 800 FICO scores, but these folks aren’t immune from this sort of education either. For one thing, the higher your credit score, the greater the damage should you slip up.
According to FICO, if your score is 680 and you make a payment 30-days late, you’d lose 60-80 points, but if your score is 780 and you do the same, you’ll lose 90-110 points. So, for the high scorers in the group… just know that the pressure is on.
God forbid a bill slips between the seats of your car and your score could drop from 780 to 670 faster than you can scream, “I am NOT irresponsible,” to the person in India working for Citibank after the interest rates on your credit cards have increased from nine to 19.9 percent.
There is some good news for the rest of us…
The good news for the rest of us is that credit score algorithms are set up in such a way that a consumer with an 800 credit score will have a much harder time increasing his or her score by even a few measly points, but those with a score of 600 will find that they can improve their credit scores relatively quickly by taking the right steps.
The simple fact is that you aren’t STUCK with a low credit score, and you shouldn’t view it that way. I know this because I was viewing it that way, and I was wrong to do so.
Being angry at the circumstances of the last five or six years is fine… we have every right to be angry, it’s been dreadful to watch and endure.
But, there’s just no good reason to ignore your lower FICO score, especially when you realize that almost everyone CAN improve their score by a significant number of points over the course of a few months to a year. I don’t care if you filed bankruptcy, lost a home to foreclosure and had your car repossessed. You can still improve your FICO score from where it is today, and the increase will make a positive difference in your life.
If your score is 500… you can probably make it 600 in six months or less, but certainly within a year… maybe even 640 or 680. And if your score is 640, you may be downright shocked to find out how easy it is to break 700 within so many months, and that could be the difference between a car loan at nine percent and one at 3.9.
And especially if you’ve gotten your loan modified, lost a home to foreclosure, or sold your home through a short sale… the opportunity may soon come that you can refinance or even purchase again if you want to, and you don’t want to wait until then to start getting credit ready.
The point is you CAN do something about your lower FICO score and you’ll be glad you did.
After searching for 18 months for an answer, I found one.
I started searching for companies that offer to help people increase their FICO scores about 18 months ago, and let me tell you… it was much harder than I initially thought it would be to find one that offered what I wanted.
And yes… I knew that “I could do it myself,” without having to be told the same thing everywhere I turned for information. Frankly, I never thought there was a law prohibiting me from trying to improve my own FICO score. Of course, I could do it myself… theoretically anyway. But, I’d already been there and tried that, and that’s precisely why I was looking for a company who offered expertise in the area.
The federal Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information maintained by the nation’s credit reporting companies, and under the FCRA, both the credit reporting agency and the information provider (the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information appearing in your report. That’s what it says almost word for word on the FTC’s Website under the heading, “Disputing Errors on Credit Reports.”
The sentence that follows is where the problems begin… “To take advantage of all your rights under this law, contact the credit reporting company and the information provider.”
One call to any of the credit reporting agencies or an information provider and you’ll know that they don’t consider consumers to be their customers. The credit bureaus make their money selling information to the financial services industry. We, the consumers, are just foam on the runway, to borrow a well-known phrase from the foreclosure crisis. So, they’re not there to help us… it’s more like they’re there to read us the rules that we can read for ourselves.
Just the FTC’s advice on correcting items on your credit report should tell you something about the process. Among other things, the FTC’s Website advises consumers to:
“Include copies (NOT originals) of documents that support your position.” And then, “Send your letter by certified mail, “˜return receipt requested,’ so you can document what the credit reporting company received. Keep copies of your dispute letter and enclosures.”
And that’s the advice offered in “Step One,” of the process. You don’t advise people not to send originals, only use certified mail, and keep copies in order to document what was sent, if you think the process works smoothly.
Next the FTC’s site tells consumers…
“Credit reporting companies must investigate the items in question “” usually within 30 days “” unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information.”
And if that doesn’t happen, what happens then? Here’s the FTC’s answer…
“If an investigation doesn’t resolve your dispute with the credit reporting company, you can ask that a statement of the dispute be included in your file and in future reports.”
Well, that should certainly solve… absolutely nothing.
I think I now understand why so many tell you that you can do it yourself… because they want you to do it badly, or not at all.
My ONLY Answer: Financial Education Services
Last July, after months spent reviewing dozens of others, I was introduced to Financial Education Services, which has been headquartered in Michigan for over a decade. The day I was introduced to the company, I spoke with the co-founder and CEO for a couple of hours. Obviously, I liked what he had to say.
One of the things I explained during that call was that for me to endorse a company on Mandelman Matters, I would have to spend a significant amount of time learning everything about the organization. CLICK HERE to listen to what their customers have to say.)
I’d want to interview the company’s customers, Agents, and operations employees, even those who were not happy with the company’s services. And I’d need to research the company with state and federal regulatory agencies, in addition to searching online to see what anyone had to say, whether good or bad. There could be nothing hidden, I’d need all my questions answered candidly… and without any hesitation the CEO agreed.
I also said that I wouldn’t offer anything to my readers that I wouldn’t recommend to my mother, and that if things were to go badly, I could end up writing about the company and no one would want that. And still… without hesitation the CEO agreed.
I soon learned that the credit restoration company, after more than a decade, was A+ rated by the Better Business Bureau, and that impressed me. I learned that they were CROA compliant and that there were no outstanding complaints anywhere, no FTC or state investigations, and nothing negative online… even GetOutofDebt.org didn’t have anything negative to say about the company and I know that site keeps a database of complaints that is unrivaled.
Not expensive and satisfaction guaranteed…
I really liked that the company’s services weren’t expensive, in fact, they are among the least expensive out there… less than $500 for the entire year and customers could pay just $39 a month. And I learned that the company offered a Satisfaction Guarantee… if anyone was unhappy with the service, they could quit anytime and the company simply refunded their money… and I really liked that attitude towards total customer satisfaction.
I liked the fact that they were very upfront and realistic with their customers, telling them that it could take up to a year to maximize their scores and that nothing of real substance happened overnight. And their system that allows customers to track their progress 24/7, so they know exactly what’s happening and what’s ahead at all times, is just what I would have wanted if I’d designed it myself.
And I really liked the services the company offered… that they assigned each customer a Credit Coach to work with throughout the year, that it wasn’t just about writing letters, because they not only worked to eliminate what shouldn’t be on someone’s credit report, they also coached customers so they’d know what positive things could be added to their reports to increase their scores, and which debts should be paid and which accounts shouldn’t be closed.
I liked that they are truly an education company… that they train their Agents to provide education above all else, not sales pitches. And they taught me things about the whole credit racket that I didn’t know before and that will make a difference in my credit score for the rest of my life.
And I loved what they did for people… getting their credit scores up by more than I would have thought possible.
No matter what your score is… no matter what has caused it to drop… if you work with and listen to your Financial Education Services Credit Coach, your score will be significantly higher than it was when you started, which will make your life significantly better in numerous ways.
I’ve come to believe that this company is “best in class.” I can’t say I’ve tried them all, but I can say that they have outperformed my expectations, and the expectations of thousands of others. With their satisfaction guarantee, what do you have to lose except your low FICO score?
Last year, Financial Education Services doubled in size… and to double in size after more than a decade in business in simply unheard of… it almost never happens. They did it because of the increasing demand for credit restoration, no question about that, but they also did it based on referrals from existing customers, along with bankers, mortgage brokers and realtors… and that says a lot about any company.
I know that many who were seriously harmed by the economic downturn that started in 2007, have given up on their credit scores years ago… but it’s not something any of us can afford to give up on… and it IS something we can ALL do something about… whether on our own, if that’s what we want to do… or with a proven, trusted and inexpensive solution… Financial Education Services.
DON’T JUST DO SOMETHING, SIT THERE?
Mandelman out.
For more information on Financial Education Services click HERE.
OR CALL…
Roy Malone ““ 248-470-7328 , email ““ roy@glscom.com
Tony Camileri ““ 248-229-0235 , email ““ tonycam@att.net
Both are dedicated to helping Mandelman Matters readers.