The Better Credit Blog

Why It’s So Difficult to Find Honest Credit Help

Finding credit help, particularly online, has become systematically (and disgustingly) difficult. As you may recall I expressed my frustration with the lack of honest, responsible resources available for people who want to repair their credit score in my first blog entry, “Why I Am Starting This Blog“. While I did rant about the lack of credit resources in that entry, I cut short of actually evaluating the purpose or mechanism behind this shortcoming. After a couple of nights, deep in thought, and given my experience, I have composed a rather solid argument of why it’s so difficult to find honest credit help.

As a premise for my argument, I am going to assume that there are indeed a substantial number of resources available –they are, however, decentralized and flooded out by a competitive market. This market, of course, includes credit reporting agencies (which have no official status by the way –more on this in another article), debt consolidators, and so-called “organizations” designed to help folks fix their bad credit, etc, etc. These organizations and companies have been extremely successful in capturing the attention of their intended audience, and thus, furthering their ability to skew the playing field.

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Utilization: Maintaining The Right Credit Balance to Limit Ratio

One of the first steps I recommend when repairing credit is to pay down any credit accounts where the balance is more than 25% of the account’s credit limit. When your credit score is calculated, substantial consideration is taken on a simple calculation. This calculation is called your “utilization”. It simply means, “How much of your total available credit are you currently using?” In other words, “Is this person spending money without keeping in mind it must be paid back?” Utilization is a huge factor when a credit score is calculated.

Two things are taken into consideration in regards to utilization when your credit score is calculated. First, your overall utilization. This is calculated by adding together the balances of all of your revolving accounts, and then adding together all of the credit limits. Then divide the balance by the limit. Use my credit card balance to limit ratio calculator if you are shy in trusting your own arithmetic (like myself).

Overall Utilization Example

• Credit Card #1 — Balance: $300 Limit: $500
• Credit Card #2 — Balance: $100 Limit: $300
• Credit Card #3 — Balance: $500 Limit: $1000
• Total balance: $900 Total credit limit: $1800
• Utilization = $900 / $1800 = 50% Total revolving utilization

Therefore, as you can see, a credit card with a $0 balance has 100% utilization.

In addition to your overall credit utilization, individual credit account utilization is also taken into account. This basically means that if you have ANY individual account where the balance is over 25% of the credit limit, it is likely hurting your credit. Therefore, even if your overall credit utilization is under 25%, if any one of those accounts have a balance over 25%, your credit score is affected.

It’s about ratio, not actual numbers

I have been asked if the credit limit dollar amount matters. Specifically, if one has a credit card with a credit limit of $200, and every month it’s reported that this person uses 75% of the available credit, does the same (as previously stated) apply. Logic may tells us that it shouldn’t apply because it’s likely that this person can easily pay off a $200 balance every month. However, utilization does apply –the limit does not matter. If you have a credit card with a $200 credit limit, spending over $50 will hurt your credit score.

When you are repairing or building credit, it’s good to have a credit card even if the credit limit is low. However, as you begin to build credit, it is in your best interest to request credit limit increases when the time is appropriate. Remember: keep your utilization as low as possible –preferably at or around 25%.

(10 votes, average: 4.3 out of 5)

My Fifth Mistake: I started applying for credit too quickly

Many people are under the impression that once they fix (or remove) all of the bad records from their credit report (such as charge offs and late payments), they will have good credit. While ridding oneself of negative credit report records may relieve a great burden, the truth is, until you have gained sincere, long-lasting positive accounts on your credit report, your credit will never be “good” –it will simply be static and hover around 620 - 650. Therefore, an important step in credit repair is building NEW credit.

My mistake, of course, was that I went a little mad and applied for too much credit, too quickly. In my previous article regarding inquiries, I illustrated how this can damage not only your current credit score, but also your ability to obtain new credit. I also mentioned that it’s a good idea to apply for new credit in “bursts”. While this is absolutely true in order to minimize lowering your credit score due to too many inquires (inquires within a 2-week period are counted as one), it does little good if you already have a sour credit. This is true because you have to slowly build the creditor’s confidence.

Applying for multiple credit accounts right after you have cleaned up your credit report will do little good because creditors want to see previous positive accounts. Therefore, you must begin with one credit account (such as a credit card for people with bad credit), keep it for 6 months to get some positive history, and then apply for more credit. This is how to successfully build positive credit history and ultimately increase your credit score.

This may seem ridiculously obvious to you, but trust me, once your credit score begins to improve, you will be presented with an unfathomable urge to apply for more credit. This will hurt you in the end. Get a secured credit card, keep it for 6 months, and then start applying for a “real” credit card.

(1 votes, average: 5 out of 5)

How to Remove a Chapter 7 Bankruptcy From Your Credit Report

Even if you have never filed for bankruptcy, I suggest you bookmark this. You never know when tragedy may besiege your innocence.

Removing a chapter 7 bankruptcy from your credit report can be a very painful process (as you would imagine), but it is possible to do if you follow these steps. First, keep in mind that this may or may not work. As I have stated in previous articles, your individual situation will ultimately be the main determinate. Nonetheless, if you didn’t just file, this has a much better chance of working.

The first thing you need to do is dispute the bankruptcy with ALL 3 of the credit reporting agencies. See my article on the best way to do this here. If you’re lucky (extremely lucky), they will be unable to verify it and the bankruptcy will be removed. This is the best case scenario, but unlikely to happen.

If the bankruptcy is verified by the credit reporting agencies, you will need to send a procedural request letter asking them who they verified the bankruptcy with. See my example letters here. They will then respond, claiming that it was verified by the courts. No it wasn’t –the courts do not verify.

Next, as you might have guessed, you will need to contact the courts that were specified by the credit agencies. Ask them how they went about verifying the bankruptcy. They will say they didn’t verify anything. Ask for that statement in writing. After you receive the letter, mail it to the credit reporting agencies, and demand that they immediately remove the bankruptcy as they knowingly provided false information and therefore are in violation of the Fair Credit Reporting Act.

Hopefully this should do the trick and the bankruptcy will be removed promptly.

(19 votes, average: 4.16 out of 5)

How Credit Inquiries Can Affect Your Credit Score

In the following article I will explain how credit report inquiries can modestly lower your credit score. Depending on the type of inquiry, your score can lower 3 - 10 points -even more with multiple inquiries. While this should not be the pinnacle of your credit worries, it is helpful information to keep in mind.

What is an inquiry?

As the name suggests, a credit inquiry is the nomenclature used when anyone pulls your credit report for review. There are two main types of inquiries: inquiries that are only seen by you, and inquiries that are seen by everyone who reviews your credit report. Only the latter affects your credit score.

While multiple inquiries make a bigger impact on your credit score, multiple inquiries within the same 2-week period are usually only counted as one inquiry. The credit bureaus started doing this after customers started to complain that their scores were dropping 20 - 30 points in one weekend of car shopping (often when you are seeking financing for a new car, dealerships will make 20+ inquiries).

This brings forth an important tip: when you are seeking credit (filling out credit card applications, for example), do it in “bursts”. If you are going to apply for 5 credit cards, minimize the credit score impact by doing it all on the same day and then waiting a couple of months (if you have no success the first time) to do it again. Multiple credit inquiries indicates to credit bureaus that you are desperately in need of credit because you cannot honor your current obligations. This is why they lower your score.

Types of inquiries that do not affect your score

1. Pulling your own credit report is not seen by anyone but you.
2. Inquiries for pre-approval offers such as those “You’ve been pre-approved!” letters you get in the mail.
3. SOME credit inquiries made by debt collectors.

Types of inquiries that do affect your score

1. Inquiries made by creditors when you apply for credit.
2. Inquiries made by cell phone companies when you apply for a cellphone.
3. Car dealerships inquiries.
4. Other misc. credit applications (such as a home loan).

Hopefully this gives you a better idea of how inquires work. I know I did not list every type of inquiry that can affect your credit score. My attempt is to simply give you a list in which will provide a general rule of thumb to go from.

(16 votes, average: 4.19 out of 5)

Reader Question: credit report not updated after negotiation

Hello Ryan,
I mailed your negotiation letter a couple of weeks ago through certified mail. I got the green slip on Monday, but my credit report hasn’t been updated yet. Should I be worried? I haven’t sent them any money.
Thanks
Kenny

Kenny -
You sent them a negotiation letter and you expect them to update your credit report, yet you haven’t paid them anything? Here is how it works, once again Kenny: You send negotiation letter. They send you a letter back saying they are willing (or not) to negotiate. You pay them what you offered. They update your credit report AFTER you pay. This process takes months. Chill.

(7 votes, average: 4 out of 5)

Negotiation Letters Will NOT work on Student Loans

Student loan creditors such as Nelnet are required by law to report accurate information to credit agencies. This makes dealing with late or defaulted student loans much different than other accounts. Basically, regardless of if you have consolidated, or even undergone a rehab program, the record will remain on your credit report for 7 years.

Please see: http://www.ed.gov/policy/highered/leg/hea98/HR6.pdf for the specific legal mumbo jumbo.

Most other accounts CAN be negotiated

…if you go about it the correct way. I wrote a whole article about the best way to do this. Go here to read about negotiating charge offs, derogatory, late, and a bunch more.

Independent Thought

During difficult times a loan spent in the right way can make things a lot better. A loan spent unwisely will become a curse later. These days banking loans see your credit worthiness before issuing any loans. Bad credit rated people can get secured loans though they require some kind of collateral. If you have accumulated numerous student loans, you should think about getting a consolidated loan. That will make life a little bit easier.

(6 votes, average: 4.67 out of 5)

Secured Credit Cards and Credit Repair

Often I am asked whether I recommend a secured credit card over a high interest rate credit card for people in the process of fixing their bad credit. The short answer is that I recommend a secured credit card. However, it should be stated that I will only recommend a secured credit card if the provider will do one thing: withhold that the card is secured from the credit agencies. A secured credit card recorded as such will not improve your credit very much –in some cases it can even hurt it.

Luckily, through the wonders of competition, there are very few card providers still out there that will record a secured credit card as secured. As a matter of fact, you will likely find that most secured credit card providers will openly advertise that they do not report the card as secured. This is a big selling point.

How much can I expect my credit to improve?

You can expect your credit to improve substantially if you haven’t had any credit card activity on your account for awhile (ex., if your credit card accounts have been closed or noted as charge offs.). Remember: having positive, recent credit activity is a very important factor in determining your credit score. Simply cleaning up your credit history and removing bad accounts will alone only help your credit score so much.

Secured credit cards require an initial deposit before they will open the account, (i.e., before they will “secure” that deposit). Every provider has their own minimum deposits, but you’ll be looking at around $200 - $300 to start out with. Orchard Bank’s secured card, which I recommend, have a minimum deposit of $200. It’s important not to simply deposit $200 and start using the card. Why? Because a credit card with a $200 balance will do little to improve your credit score.

This will, in fact, hurt your credit if you have other cards with higher balances. Therefore, it’s best to increase the limit whenever you can –deposit another $100, for example, when you have the extra money. This will increase the credit limit recorded on your credit report. After you have had the secured credit card for a year, call them and ask if they are willing to switch it over to unsecured. Most of the time, (if your payments have been good), they are more than happy to make the switch and give you an increased credit limit.

Secured credit card tips

1. Make sure the provider reports to all 3 credit bureaus and they don’t annotate that the card is secured.
2. Be ready to make an initial deposit and keep depositing to increase your credit limit. This is what will increase your credit score.
3. Keep the card for at least a year before requesting that it be switched to unsecured and your credit limit be increased.

(4 votes, average: 4.75 out of 5)

How to Pay Off Bills and Debt

If you have read my previous articles, you might be saying to yourself, “Ok Ryan, you are giving me all this advice on how to fix my credit score and negotiate with the credit bureaus –are you assuming that I have the money to negotiate with? How do I pay off my bills?” This question is broad and, of course, specific to your individual life situation. Nonetheless, I can tell you with close to absolute certainty that in most cases individuals tend to label ‘paying off bills’ wretchedly more difficult than it can actually be.

Have you ever asked a friend that question? “Bob, how do you suppose I ought to go about paying off all of these suffocating bills?” Likely he would give you a little demeaning grin and respond with something like, “Self-discipline, my friend, you need to get your priorities straight. Hell, get another job!” Perhaps Bob is right, but Bob is too general in his evaluation. In a more specific tone I will tell you the same thing. The key to paying off bills (without having to get another job) is, of course, to change the method in which you spend money during an average day. Average day spending is where most of your money goes. It’s likely that you don’t realize how much this “little stuff” adds up. I didn’t until I started tracking it. If you want to pay off your bills, here is what you gotta do:

1. Use personal finance software, such as Quicken, to track your purchases. I started by using Quicken to enter everything I bought. If I went to 7-11 and bought a bag of chips and a drink, I’d keep the receipt and at the end of the day enter it in. The power of software such as Quicken is that they allow you to ‘categorize’your purchases. Therefore, at any given time, I can see how much money I am spending on any particular item; food, gas, magazine subscriptions, etc. After a short amount of time, you will begin to see your spending trends.
2. Create a rough budget in order to have some sort of spending ceiling. You don’t have to change your spending too much yet. Personal finance software make this really easy. I created a budget by noting all of my reoccurring bills (phone, internet, electric) and then estimating how much I spend on “variables” such as food, gas, and entertainment.
3. Stick with this budget for a couple of months and you will naturally begin to better monitor your spending.
4. Look over the spending categories in your personal finance software and find ways to reduce your overall spending in that particular category. The key is reducing your spending for a particular category. For example, if upon evaluating your spending, you see that you spend $500 per month on food –begin researching ways to reduce this. More than likely you can easily reduce that to $350 - $400 (this is an example of course.)
5. Implement a new budget based on what measures you have taken to reduce a particular category’s expense.

Hopefully you are beginning to see how well this can work. It works well because humans are exceptional experts at grouping things. If you were to simply go about reducing your spending by, for example, telling yourself, “Ok, I will no longer drink a cup of Starbucks coffee every morning”, you would soon feel as though you are missing out of something you once had. When you begin to feel this way, you become discouraged and give up. In contrast, when you categorize everyday items that you purchase, you look for ways to rearrange and revaluate their importance.

The above methods are extremely powerful –it will blow your mind. Tracking your spending through the use of categories can save you hundreds a month and you’ll likely find yourself wanting to live frugally.

‘Frugal Living’ Resources

Once you have identified categories that you can potentially save money on, the next step is to get online and find ways to reduce that category’s budget. We will use the food example I explored earlier because everyone buys food (and everyone can save a ton of cash on it too). There are a bunch of blogs that offer advice on how to save money on food (and everything else for that matter). My favorite frugal living blog is Get Rich Slowly. Surf through their forums and see how other people save money on food. It is particularly interesting (and helpful) to see how much other people with similar family sizes spend on food as well.

Now you can pay off debt and bills

If you follow the steps I outlined above, most likely you’ll find yourself with a couple extra hundred bucks a month. Use this money to pay down debts, negotiate with creditors, or pay off bills. If you are committed and willing to allocate a few moments a day to recording your purchases, you will acquire a newfound appreciation for money and you will also develop positive financial habits that will bring you wealth and happiness for years to come.

Take home points:

1. Purchase personal finance software and track your purchases.
2. Create a budget and group purchases into categories
3. Evaluate your overall spending in particular categories
4. Go online and look for ways to rearrange and revaluate purchases within a category to save money.
5. Use the extra money each month to pay whatever it is that needs to be paid so you can improve your credit.

(4 votes, average: 5 out of 5)

10 Surefire Tips for Fixing Bad Credit

During the past week I have written an array of articles that outline the mistakes I made when I first began the process of fixing my bad credit. Scattered throughout these articles, readers will find some of the most valuable information that can be obtained when taking on the task of fixing bad credit. However, I have yet condensed this information into a simple list. Countless emails have found their way into my inbox this week from readers expressing their disappointment that they didn’t come across this information earlier.

If you have paid any attention at all to the recent economic problems being absorbed by Wall Street due to this country’s credit problem, you understand how many people sincerely have credit problems that are crippling their lives in almost every way.

My goal, of course, is to reach as many people as I can. Therefore, I have compiled the following list of tips to fix bad credit for people that may not have time to read all of my in-depth articles. Some of this information is extended in more depth in previous articles, and some of this information I will write about in future articles. I encourage you to scan over each tip, and when you have time, read the full article pertaining to that particular tip.

The 10 Surefire Tips for Fixing Bad Credit

1. Get a copy for your credit report before contacting a debt collector. You need to know exactly how much you owe –don’t rely on a collection letter.

2. Never negotiate a debt over the phone. Always negotiate via certified mail. A paper trail provides you legal protections.

3. Negotiate for negative records to be completely removed from your credit report.

4. When you are ready to pay off a debt, attempt to contact the original creditor before dealing with a collection agency.

5. Dispute inaccurate information on your credit report. This includes inaccurate personal information such as address and employment information.

6. Have at least three lines of credit in good standing for a minimum of two years. Preferable this would be two credit cards and one installment loan. Get a credit card for people with bad credit here

7. Pay down any student loans 70% if possible. A large amount of student loan debt can weigh heavily on your credit.

8. Pay down credit cards and maintain a 20/80 debt-to-credit ratio.

9. Do not close credit card accounts that are in good standing. Keep them open even if you don’t use them. Read my article on this.

10. Be patient and remember it takes much less time to screw up your credit than to fix it. The process of fixing bad credit may take you a few years, but if you are persistent, you will find it’s much easier and rewarding than you may think.

Independent Thought

Before giving a yes to a loan calculate the payments using a loan calculator that will make you aware exactly how much you have to pay for how long. Google lender loans for vast results of lenders. The bank loan market will grow as interest rates have been cut in December, 2007. If your business is in dire need of a business loan and you have bad credit history you may want to check out financial institutions that offer a bad credit loan. Consider a credit union loan, which is on easier terms than most bank loans.