Your Credit

Keep a Tax Debt From Ruining Your Credit

By | Credit Reports, Credit Scores, Personal Finance, Your Credit

Keep Tax Debt from Ruining Credit

The IRS has more power than any other creditor. Unlike private creditors, the IRS can directly garnish your wages and levy your bank accounts. Tax liens are also one of the biggest negative items for credit scoring purposes. If you owe taxes that you can’t pay, here are your options and how they affect your credit.

Not Filing a Tax Return

Not filing a tax return to try to keep the IRS from finding out you owe taxes is one of the worst things you can do. It doesn’t even work because the IRS will receive copies of your W2s and 1099s from your employers and banks.

When the IRS realizes that you owed taxes and failed to file returns, the penalties are typically ten times greater than if you filed but paid late. The IRS will also be less willing to work with you after you’ve attempted to evade taxes. For large debts or multiple un-filed returns, you may also face criminal prosecution.

As far as your credit score is concerned, the IRS will begin the collections process and issue a tax lien as quickly as possible.

Not Paying When Filing

If you don’t pay your taxes in full by the time your return is due, you will be charged late fees and interest starting from the due date. However, if you still filed a return on time, the IRS takes a slightly friendlier approach to collections.

You will receive a bill and at least a second notice before the IRS files a tax lien. As long as you meet the deadline to avoid the lien, your credit report will never be affected.

Typically, your options will either be to arrange full payment within 120 days of the due date or to enter into an installment agreement.

Personal Loan/Credit Card

The IRS recommends that you take out a personal loan or charge your taxes to a credit card instead of using IRS repayment options. They gain the advantage of receiving immediate payment in full.

Your advantage is less clear. You avoid IRS penalties and interest, but your loan or credit card interest charges might be higher. You’ll also avoid the IRS collections process, but IRS collections don’t impact your credit if you follow the steps to avoid the lien.

When you apply for a loan or credit card, the credit inquiry will lower your credit score, and your average age of accounts credit score factor will be reduced. The increase in your credit balance will also lower your credit score. However, once you pay off the debt, you’ll have additional positive payment history on your credit report.

Installment Agreement

An installment agreement is a payment plan directly with the IRS. It may be advantageous if you can’t get a good rate on a loan or credit card.

Installment agreements never show up on your credit report, so it won’t affect your credit score. If you sign up for automatic payments, you’ll also avoid a tax lien.

However, if you default on an installment agreement, the IRS may cancel the agreement and issue a tax lien. There are several ways to default, including the following.

•     Late payments

•     Bounced payments

•     Failure to have adequate withholding or estimated tax payments  for the current tax year

•     Any other late taxes

Offer in Compromise

An offer in compromise is an agreement to settle a tax debt for less than it’s worth. The offer can be either a lump sum payment or a payment plan.

Unlike settlements or charge offs on credit card accounts, offers in compromise are not reflected on your credit report. Because the tax is considered to be settled in full, the IRS will withdraw any liens once you’ve completed the offer.

The downside is that it’s incredibly difficult to be approved for an offer in compromise. The IRS must believe that you have almost no chance of ever paying in full. This is typically only when you are disabled or well past retirement age.

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Tax Lien

If you can’t pay your taxes in full, make payment arrangements or complete your payment plan, the IRS will issue a tax lien. Tax liens will destroy even a nearly perfect credit score. They’re also automatically disqualifying for many loans, jobs and rentals.

The good news is that the IRS almost never issues liens for tax debts under $10,000. They believe the negative effect on your credit report will make it harder for you to pay back a tax debt at that level.

If you have a tax lien, there are three ways to get it off of your credit report:

  • Paying in full: Once your tax debt is paid in full, whether in a single payment or through installments, the lien will be released within 30 days. At that time, you can request the lien be withdrawn.
  • Discharge of property: If you need to sell your home or a vehicle, you can apply to have the lien discharged on that specific piece of property. Typically, the IRS will expect a portion of the sale proceeds to approve your application.
  • Withdrawal: You may also be eligible to have a tax lien withdrawn and removed from your credit report before you pay in full. Requirements include being current on all tax returns and estimated taxes as well as having a direct debit installment agreement to satisfy your past-due taxes.

Unlike other negative credit report items that stay on for seven years, once liens are withdrawn, they are completely erased from your credit report as if they never happened.



How Credit Scores Impact Mortgage Loans

By | Credit Repair, Credit Scores, Home Buying, Loan, Mortgage, Your Credit

Credit Scores Impact Mortgage Loans

Are you working towards financing a home? You probably know how your credit rating will impact your loan qualification. You pretty much need the minimum credit rating for FHA home loans, which is a 580 FICO score. If you cannot qualify for FHA insurance, you will be hard-pressed to find any lender until you fix your credit.

There are many implications that your credit rating can have on your prospective home loan, such as whether you actually qualify for the mortgage, how low of an interest rate you will get and what type of lender will work with you.
Now, there’s also an unspoken factor: how much your mortgage will cost in total.

How Your Mortgage Could Cost More

When you apply for home financing with a bad credit score, it is unlikely that a major bank will approve you. Since it is the major banks that get the best borrowing rates in the first place, your alternatives will be more costly. In the worst case scenario, only a private lender would consider you.

You might be somewhere in the middle and can get a home loan through a financial institution that accommodates bad credit borrowers. There are many reputable lenders in this area, but you still face the issue of a higher interest rate. This is because the banks know you are a higher risk.

Tip: Get your mortgage through a highly legitimate financial institute that works with bad credit borrowers while also offering traditional home loans. That way, you can repair your credit while holding the costlier loan and refinance under the same lender after your credit score improves.

Your credit score does not have to hold you back from a mortgage. You just need to make sure it’s not unexpectedly costing you extra.

What Will Your Credit Score Cost You?

When applying for a home loan, your decided interest rate is mainly calculated based on your credit score. So if you were to apply for a mortgage right now, what would this mean to you?

It all depends on where you live …

Let’s use Manhattan, New York as an example, seeing as how even a one-bedroom will easily set you back $400,000 or more.

Say you are buying an apartment for $400,000 and you give the minimum of 10 percent down. This leaves you with a $360,000 principal to finance through a mortgage provider. Let’s say the mortgage will run for 30 years and it’s a fixed-rate loan.

Below shows your total interest cost for the lifetime of the mortgage. These calculations come from’s Loan Savings Calculator, which estimates your interest rate based on your FICO score range.

  • 620 to 639 FICO score: $319,418 total interest (4.793% APR)
  • 640 to 659 FICO score: $277,706 total interest (4.252% APR)
  • 660 to 679 FICO score: $245,727 total interest (3.825% APR)
  • 680 to 699 FICO score: $230,167 total interest (3.613% APR)
  • 700 to 759 FICO score: $217,414 total interest (3.437% APR)
  • 760 to 850 FICO score: $201,683 total interest (3.217% APR)

To put it into context, you are looking at saving $117,735 over 30 years by financing with perfect credit instead of below-average credit. From another perspective: your monthly payment will be about $327 less!

How to Make Your Mortgage Cost Less

There are some tricks that can help you qualify for a more affordable mortgage. Four simple ways to do this include:

1. Refinance Your Mortgage After You Buy

Your mortgage payments go through on time for half a decade, and suddenly the huge debt does not keep your credit score suppressed. The result could be seeing your credit rating go up by a considerable amount since when you first qualified for the mortgage. If this is the case, you could refinance the mortgage to lower your interest rate and ultimately make the rest of the mortgage term cheaper for you.

2. Rent-to-Own the Place First

If you are repairing your credit, but you want your new home now, you could try to buy through a rent-to-own agreement. You will be able to guarantee the seller gets the asking price as long as you follow through with financing at the end of the term. While the rent-to-own contract will set you back a little in equity, the much lower interest rate will create much more savings.

3. Wait a Little Before Buying

While this is not the most exciting solution, sometimes it makes a lot of sense. Say you have a bad debt in collections from six years ago. If that’s the case, waiting roughly a year will cause the negative item to leave your credit report and thus it will not hold back your FICO score. The end result could be a huge boost in your credit rating, or at least enough to score you a better interest rate.

4. Purchase Under Owner Financing

If you want your new home now, but rent-to-own will not work, you might be able to purchase via owner financing. This means the seller holds the mortgage for you for so long (usually 1 to 3 years), and then you can get your mortgage and make a balloon payment to buy it out. You can use the in-between time to repair your credit and this will help you secure a good interest rate. In the meantime, you will be paying on the home under the current mortgage conditions and your bad credit status will not cost you more.

Owner financing is really the only cost-effective and sound way to approach buying a home with bad credit. Otherwise, you could be throwing well over $100,000 out the window. That’s a lot of extra money to pay, especially if you are actually eyeing a one-bedroom apartment.

To conclude, get your credit repaired before applying for a mortgage because the cost of doing so is minuscule in comparison to what you will save on interest payments.



Choosing the Right Credit Card for You

By | Ask a Credit Expert, Credit Cards, Credit Repair, Credit Reports, Credit Scores, Personal Finance, Your Credit

Choose credit cards

There are dozens of credit cards on the market, so choosing the right one may be difficult. Do you want a card that gives you airline miles, or would you prefer cash back when you shop for groceries or buy gas? The options are almost limitless, so be sure to get a card that suits your needs. Credit comparison sites such as CardRatings can help you choose a card that’s right for you.

Cards and Your Credit Score

One of the most important things to keep in mind before you get a credit card is how it will affect your credit score. Also, depending on your credit score, you may not qualify for every card out there. Always keep in mind that credit cards report to the credit bureaus, so if you don’t pay your bills on time, it will negatively impact your credit score.

Types of Credit Cards

According to the American Bankers Association, 83 percent of people with a credit card have at least one rewards card. Why are they so popular? People like getting rewards for purchases they’re making anyway. You can earn free hotel stays and airline miles just for using the right card.

Here are a few types of credit cards that you may want to consider:

  • Cash-Back Rewards – As the name suggests, you earn cash back each time you make a purchase. These are growing in popularity, and there are a lot of options out there. Some flat-rate cards will give you 1.5 percent cash back on all purchases, while others offer accelerated cash back earnings in certain categories. If you like cash back, look for a card that offers generous rewards and bonuses in categories that you spend more on, such as gas or restaurant purchases.
  • Co-Branded Cards – These are often called partner cards and give you extra rewards at a retailer that you frequent while giving you rewards on all other purchases. These are great if you frequent a particular retailer.
  • Secured Cards – Secured cards are a bit different and are generally used to help people establish or fix their credit score. The idea is simple: You deposit money in a savings account at a bank, and the bank gives you a credit line up to that amount. Secured cards offer a couple of advantages. First, the money that you put in your savings account stays there. Secured cards aren’t debit cards. Second, secured cards report to the credit bureaus, which can help improve your credit score if you pay your bills on time. A credit repair service may recommend that you get a secured credit card to reestablish your credit.

Words to the Wise

A few years ago, a survey found that as much as $16 billion in rewards go unredeemed every year. Make sure that you take advantage of the rewards you earn. You should also review your monthly statements and take advantage of bonuses that card issuers sometimes offer. Also remember that miles and points may expire. Don’t let your hard-earned miles go to waste.

Read the fine print. Some credit cards require that you register for revolving rewards every quarter, while other cards place restrictions on the miles that you can use. Before applying for a credit card, make sure that you’ve read the fine print and get a card that matches your spending habits and lifestyle.

Lastly, watch out for fees. Check the benefits and rewards that a card offers and determine whether they’re worth the amount of the annual fee. Also look out for other fees, such as foreign transaction fees if you travel overseas.

Credit cards can be a great way to improve your credit score while being rewarded for purchases. The best advice is to read the fine print on the card that you’re looking at and use the card wisely to maintain a good credit score.

How Long Does It Take to Fix My Credit?

By | Bankruptcy, Credit Repair, Credit Reports, Credit Scores, Your Credit

time to fix credit

Your credit score shows both your short- and long-term credit history, so building a perfect credit report can take years. However, there are many steps along the way, and you can see some improvements to your credit score in a matter of weeks. Here’s how long changes should take to be reflected in your credit score.

Paying Down Credit Balances

Paying down a credit card or other balance is one of the fastest improvements you can make to your credit. Your credit utilization score is a real-time factor that only looks at your current balances and has no memory of the past.

Any payments you make to reduce your balance by your due date will be reflected on your next statement. As soon as the credit bureau receives your new statement (usually within a few days), your credit score should go up. Some credit card companies will even update your balance with the credit bureaus early if you call and ask.

Stopping New Credit Applications

Another nearly instant change is when you stop making new credit card or loan applications to try to dig out of debt. Each application lowers your credit score, so stopping is the first step to improving.

Once you stop applying for new credit, your previous applications stop affecting your credit relatively quickly. They’re only reflected on your credit report for two years, and don’t even affect your credit score after the first year. Better still, the effect of a credit card application is lessened after a few months. You should see credit score improvements even before the year is up.

Successful Credit Report Disputes

If you believe information on your credit report is incorrect and file a dispute, the credit bureau has between 30 and 45 days to investigate the dispute depending on its type. If your dispute is successful, the credit bureau must immediately update your credit report.

If the information you disputed was completely erroneous or unsubstantiated, it will be removed as if it never happened. Your credit score will be recalculated without the negative information.

If the information was correct but the date was wrong, the date will be adjusted. Because negative items have less effect on your credit over time, if the date is adjusted into the past, you should see a bump in your score.

The total time to complete a dispute and have your credit reported updated should be about two months.

Closing Accounts

You may hear that closing an old credit card will drop your credit score — that’s a myth. If you’re trying to fix your credit, you might wrongly think you need to keep paying an annual fee to keep your credit score up. If you don’t like a credit card, go ahead and close it today.

Positive account history stays on your credit report for 10 years after you close the account. By then, you’ll have replaced the positive history with more positive history.

The only thing to worry about is if you have a credit card with a high limit that accounts for a large portion of your available credit. In that case, closing the account could increase your credit utilization and lower your score. But, as explained above, your credit score will bounce right back up once you’ve paid down those other balances.

Late and Unpaid Accounts

If you have late payments, charge-offs or collections on your credit report, these items are generally reported for seven years plus 180 days from the date they occurred. After that time, they will fall off your credit report.

Luckily, their effect also lessens over time. You will see credit score improvements long before seven years as long as you don’t incur new negative items. In addition, isolated late payments lose weight much faster than longer patterns.

There are also a couple of tricks to removing these items even sooner. One is simply catching up on your payments, then calling or writing a letter to the lender apologizing for your mistake and asking the lender to remove the negative report. If that doesn’t work or you’re still behind on payments, some lenders will agree to remove the negative report in exchange for immediate full payment.

Tax Liens

Tax liens are another reason to avoid owing money to the IRS. An unpaid tax lien can stay on your credit report for up to 15 years, and paid liens remain for up to seven years.

However, the IRS is forgiving if you pay your debt or make arrangements to pay. Depending on the amount you owe and how delinquent your account is, you may be eligible to have the lien erased as if it never happened.


Bankruptcies stop collections and wipe out past due balances, but they don’t wipe your credit report clean. All negative information from before the bankruptcy will stay on until its usual expiration date. The bankruptcy itself remains on your credit report for 10 years.

Like with other negative information, the impact of a bankruptcy lessens over time. People who make a focused effort to rebuild their credit after a bankruptcy can often reestablish a good credit rating within a year or two after their bankruptcy.



Why You Need to Dispute Errors on Your Credit Report

By | Credit Repair, Credit Reports, Credit Scores, Fair Credit Reporting Act, Your Credit

chasing bad credit

There’s a plague in the United States, but it has nothing to do with the flu. Instead, it’s a plague of errors on the credit reports of millions of Americans.

According to the Federal Trade Commission, more than 20 percent of Americans had errors on their credit report as of 2013, and more than 5 percent of those errors were serious enough to negatively impact a credit or interest-rate decision. That means that more than 60 million Americans have errors on their credit report, and more than 15 million of those people could receive a denial for credit or pay exorbitant rates because of incorrect credit reports.

While you may find those numbers shocking, the most shocking fact is that they’ve stayed roughly the same for decades. While the three major credit bureaus and their regulating authorities often talk about the necessity to minimize errors, the simple fact is that the burden of ensuring your credit report is accurate falls entirely on your shoulders.

Why Credit Report Errors Are Dangerous

Which would you prefer, a 25-percent interest rate on a loan or a 5-percent interest rate? Do you want to get a denial for your next credit-card application? A low, erroneous credit report could even lead to failing your background and credit check for a new job.

In today’s world, others use your credit report in numerous ways that can seriously impact your life even beyond interest rates and credit approvals. Just consider the legal ramifications if someone steals your identity. What if the thief were to start a company in your name or try to get a tax refund in your name? Before you know it, simple credit-card bills are the least of your worries.

It’s vital that you closely monitor your credit reports from all three bureaus, then move decisively to dispute any error as soon as you spot it, no matter how small or inconsequential it may seem.

How to Monitor Your Credit Report for Errors

It’s important to remember that “your credit report” isn’t a single entity. Instead, each of the three major credit reporting agencies in the United States holds its own version of your credit history, and each has its own relationship with your creditors and other information-reporting parties.

That means if you find an error on your credit report from any one of the three agencies, you then need to verify that information on your report from the other two agencies as well.

You can do this in two primary ways:

Use your free, annual credit reports

The Fair Credit Reporting Act, or “FRCA,” requires each of the three primary reporting agencies to provide you with a free copy of your credit report every 12 months. The only official online Web page to start that process is at, a website run jointly by the three bureaus.

You can request your report from all three bureaus at the same time or spread your requests throughout the year. Each bureau runs its own 12-month timeline, based on the last time you requested your report from that bureau.

Use a credit-monitoring service

The downside to relying on your free, annual reports is that you’re only viewing your information from each bureau once per year. If an error occurs just after you’ve requested your report, you might have to wait 11 months to find out about it. As an alternative, credit-monitoring services can provide you with updated reports each month. A variety of paid memberships are available, but many credit-card providers also offer their customers free monitoring services.

How to Dispute Credit Report Errors with Credit-Reporting Agencies

If you find any type of error, even just a mismatch in your personal information like address history, you need to initiate a dispute immediately. You’ll need to contact each credit-reporting agency separately because they’re not required to communicate with each other until someone confirms or removes a dispute. Even then, a corrected error within one agency can still linger in another’s records.

Remember that you should always use certified mail when sending information to a credit agency through the post office.

Dispute Credit Report Errors with Equifax

Equifax allows you to dispute errors online or through the mail. To get started online, visit the Equifax Online Dispute portal that will walk you through the process of initiating the dispute and monitoring its progress.

To begin a dispute by mail, send a letter explaining the full circumstances of your dispute and all supporting documentation to the following address:

Equifax Information Services, LLC

P.O. Box 740256

Atlanta, GA 30374

Dispute Credit-Report Errors with TransUnion

TransUnion allows you to dispute errors online, through the mail or over the telephone.

To dispute an error online, visit the Transunion Online Dispute portal.

To dispute an error over the phone, call 1-800-916-8800. Make sure you have all supporting information at hand before you begin the call.

To dispute an error by certified mail, send a letter explaining your dispute with all supporting documentation to:

TransUnion LLC Consumer Dispute Center

P.O. Box 2000

Chester, PA 19016

Dispute Credit Report Errors with Experian

Experian allows you to dispute errors online, through the mail or over the telephone.

To dispute errors online, visit the Experian Online Dispute portal.

To dispute an error over the phone, call 1-866-200-6020.

To dispute an error by certified mail, send your letter and documentation to:

Experian National Consumer Assistance Center

P.O. Box 4500

Allen, TX 75013


How Does Credit Work?

By | Credit Repair, Credit Reports, Credit Scores, Personal Finance, Your Credit

how does credit work

You hear a lot about building credit, using it, protecting it and repairing it. At some point, you may have paused to wonder exactly what credit is, and how it works. Here’s your basic introduction to this vital engine that drives today’s consumer marketplace.

The word “credit” usually refers to a person’s ability to borrow money. When we talk about good or bad credit, it’s a shortcut for referring to someone’s track record on handling finances. Your credit score is a number attached to this track record. When you request a loan or a credit card, the lending institution considers the likelihood that you’ll pay back what you owe.

Your credit score tells the lender how big a risk it’s taking if it lends you the money. Like any investment, the bigger the risk, the better the payoff for the investor. For this reason, some lenders are happy to lend to people with poor credit, but they charge very high interest on the loan.

Years ago, the risk of conducting business deals was understood on a personal basis. Whether it was a neighborhood or a village, everyone knew who was good at following through on promises and who was irresponsible or unstable. People new in town might need to present a letter of reference to secure a job or a place to live.

Even now, if a friend or acquaintance asks to borrow something — your car, for example — you would probably think about their driving habits before you answer. Has he had accidents? Is he generally careful with his possessions? Does he keep his word? In today’s complex marketplace, we no longer know the people we deal with personally. Instead, we rely on credit bureaus to track people’s history and turn it into a single number that represents how much they can be trusted in the financial realm.

There are three main credit reporting agencies, or credit bureaus: Transunion, Equifax and Experian. These agencies gather information each month about your financial behavior. Anyone to whom you pay bills (credit card, utility bills, mortgage payments, auto loan installments, medical bills) reports to one or two of the credit reporting agencies. In addition to information on whether you pay your bills on time, the agencies also check on how much of your available credit you have used and the age of each account. Finally, they add in information about whether you apply for credit frequently and whether those applications are approved.

Each credit bureau usually has a slightly different version of your credit report, since each may receive information from different creditors. Your credit score is created by FICO or another credit-scoring company, using information from the credit bureaus. A high credit score tells lenders that you’re a good risk, so they charge you less to borrow money.

The fee for borrowing money is interest. With good credit, you can save thousands of dollars on a home or auto loan and pay less interest on your credit card. Conversely, a person with poor credit may end up paying 25 percent more on an auto loan, making that $20,000 automobile cost $25,000 over five years.

Taking out loans isn’t the only use for credit, however. In many states, your auto and home insurance costs are tied directly to a credit score that’s generated especially for each industry sector. A person with excellent credit may be charged only half as much as someone with poor credit for the exact same auto insurance coverage. It’s also standard practice for landlords to run credit checks on prospective tenants, and having poor credit can make it difficult to find a place to live. Prospective employers even check your credit score sometimes to see how responsible you are.

Credit reports are highly important, but unfortunately they often include errors. Your report may include information from someone with a similar name or someone who lived at your address before you moved in. A paid-in-full account may still show as owing due to the creditor neglecting to report the fact that you paid. There are numerous causes for errors, and each one needs to be individually disputed with each credit reporting agency.

Because errors are common in credit reports, it’s important to stay aware of what your report contains. You are entitled to one free credit report per year from each credit bureau from this federal government site. Many financial advisers suggest ordering a credit report from one bureau every four months so you have a higher chance of catching errors soon after they occur.

If your credit is poor, the good news is that it’s repairable. There are two approaches to repairing credit. You may only need one of these steps, but many people need both. The first step to repairing credit is to examine your credit report, find any errors and engage in a dispute process with the credit bureaus until they remove the incorrect content. The second step is to budget your money so you can pay all your bills on time.

Learning as much as you can about how credit works is a great foundation for building excellent credit. Your power to move through the financial world is dependent on your ability to handle the all-important tool of credit.

Can I Repair My Credit After Bankruptcy?

By | Ask a Credit Expert, Bankruptcy, Consumer Rights, Credit Laws, Credit Repair, Personal Finance, Your Credit

Credit Repair After Bankruptcy

Bankruptcy sounds like a dirty word, but for many people, it is a lifeline to starting over. Whether you lost your job, were overwhelmed with an unavoidable expense or found yourself dealing with a costly illness, bankruptcy was designed to give people a chance to begin again. However, bankruptcy does take a serious toll on your credit score.

Understanding the Impact of Bankruptcy

Luckily, that’s not to say that your credit score is going to be ruined forever. According to the Federal Trade Commission, your bankruptcy can stay on your credit report for as long as 10 years after your debts are discharged, and that can make accessing new credit, buying a home or even getting a job difficult. While the impact can be severe, it is possible to repair your credit after bankruptcy. It just takes some proactive efforts on your part.

Look at it like this: Your credit score is meant to be indicative of how risky it is to let you owe money. High balances, late payments and anything else that could show you may be living outside your means is suspect. Filing for bankruptcy is largely the culmination of those issues. Now, you may have had extenuating circumstances that were completely outside of your control, or you may have merely gotten underwater and couldn’t find your way out. Whatever the case, the bankruptcy on your credit report is objective; it doesn’t matter why it happened. To repair your credit, you have to demonstrate that you are no longer a credit risk.

Starting Over After Bankruptcy

The first advice most people hear after filing for bankruptcy or facing some similar credit crushing issue is to establish new credit as soon as possible. That is good advice, but it is incomplete. Repairing your credit after bankruptcy will require that you have accounts on which you make regular payments. Getting a loan and then paying it off will not do nearly as much good for your credit report as making consistent payments.

“The key is to establish at least three positive trades actively reporting on each of your reports with Equifax, Transunion and Experian,” explains Marco Carbajo for the Small Business Administration. “For example, if you’re currently making timely payments on a car note but have no other positive credit that’s active, then you should obtain two secured credit cards and use them regularly.”

Understanding Your Credit Score

Aside from exercising your credit, you also want to practice good spending habits. According to the Federal Reserve Board, your credit score is influenced by whether you make your payments on time, the amount of debt you have, the number of accounts you have, the length of your credit history and how much you owe.

For instance, once you get your first credit cards after bankruptcy, you will want to make sure that you keep the amount of debt on those cards at less than 30 percent of the credit limit, and increase your credit limit whenever you can – the higher your credit limit, the more your creditors trust you and the better it looks on your credit reports. Also, make sure you are making your payments on or before the due date and paying any billable amounts in full.

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Being Selective About Your Credit

After bankruptcy, you want to be selective about where you find your credit as well. Many people with bad credit are sold solutions that promise to provide them access to new credit far more quickly than through any other source, but beware of those offerings. Even if the lender is legit, if the company is known as a “high-risk lender,” using them for your credit or banking needs could actually hurt your credit score. Instead, focus on well-known lenders and credit companies. Choosing a big bank over a high-risk lender, even if it means you have to start with a lower credit limit or a secured credit card over a traditional credit card, looks better and may even give you more options for growing your credit as you repair the damage from your bankruptcy.

Righting the Wrongs in Your Credit Report

You should also take a look at your credit reports to make sure that the debts from your bankruptcy were discharged properly and that all information is accurate. An error on your credit report can really work against you. To do correct inaccuracies, the Federal Trade Commission says that you will need to obtain a copy of your credit report from each of the credit reporting agencies and inform them in writing of any inaccuracies. You may need to provide proof of the inaccuracy if possible, and it may be necessary to tell your creditor that you are disputing the entry. Hiring a credit repair company can make the process easier. They handle the paperwork for you and handle the dispute on your behalf.

Once you begin to take steps to improve your credit score after bankruptcy, you can start to see modest improvements pretty quickly. As long as you are careful with your credit, choose the right lenders and maintain accurate credit reports, you can repair your credit after bankruptcy.


  • Federal Reserve Board, “5 Tips for Improving Your Credit Score”
  • Federal Trade Commission, “Coping with Debt”, November 2012.
  • Federal Trade Commission, “Free Credit Reports”, March 2013.
  • Small Business Association, “How to Restore Your Credit After Hard Times”, Marco Carbajo, May 2013.

How Is FICO Different From VantageScore?

By | Ask a Credit Expert, Credit Reports, Credit Scores, Your Credit

If you make use of any credit monitoring tools, you may have noticed that FICO isn’t the only scoring model in the game anymore. Worse, you may even have experienced a shock if your credit score appeared to change after your monitoring tool switched models.

Yes, it’s true. FICO has a competitor in the (relatively) new scoring model from VantageScore. Because VantageScore usually sells its credit reports to businesses more cheaply than FICO does, chances are your credit monitoring tool has already switched to it, or will soon.

But what is VantageScore, how is it different from a FICO score, and what impact does it have on your credit options?

The History of FICO and VantageScore

While many Americans use “FICO” to mean “credit rating” the way we use “Kleenex” to mean facial tissue, that’s a mistake for the same reason. FICO is simply the brand name for the credit scoring model first developed by the Fair Isaac Corporation (FICO) in 1958.

FICO was a niche business for nearly 30 years, but after releasing its first scoring model intended for general use in 1989, it quickly established a near-monopoly over modeling personal credit scores. Indeed, to this day, it remains the only scoring model approved by the Federal government for evaluating mortgage applicants.

FICO charges each of the three major credit bureaus to make use of its scoring algorithms, and in response, Experian, TransUnion and Equifax struck a deal in the mid-2000s to collaborate on the development of their own, cheaper scoring model. The result: The first official release of the new VantageScore credit scoring model in 2006.

Both primary scoring models undergo changes every few years, and as of 2016, we’re on version 3.0 of VantageScore, and version 8 (soon to be 9) of FICO.

It’s estimated that FICO remains the credit scoring model of choice for more than 90 percent of all credit approvals, including loans, credit cards and mortgages. But VantageScore’s market share increases a bit every year, and in the meantime, it’s made major inroads with businesses that want to pull your credit score without actually making a credit decision, like credit monitoring services.

So, for the first time in the modern history of U.S. credit scoring, you’re very likely to deal with two entirely separate credit scoring systems when viewing your own credit score versus applying for credit or a loan.

Understanding the Differences Between FICO and VantageScore

As of 2013, VantageScore uses the same 300 to 850 scoring range that FICO uses, but the way your score is calculated between the two models has a few key differences.

Establishing Credit History

While FICO requires you to have qualifying credit activity in the last six months to calculate your credit score, VantageScore considers the past 24 months. This means if you’re a new entrant to the credit market and don’t have an established credit history, VantageScore is more likely to provide you with a credit score than FICO.

Factors Influencing Your Credit Score

While neither company releases detailed information about how it calculates its primary scoring models, FICO has long made rough guidelines publicly available.

Your FICO score is broken down according to these approximate guidelines:

  • 35 percent is determined by your history of on-time or late payments.
  • 30 percent is determined by the total amount of debt you owe.
  • 15 percent is determined by the length of your credit history, that is, the age of your oldest on-record account.
  • 10 percent is determined by the number of recent credit lines or loans you’ve established.
  • 10 percent is determined by the type of credit you use, for example, credit cards, mortgages and so on.

VantageScore has yet to provide the public with a similar percentage breakdown, but it has issued general guidelines on what impact different types of information have on your credit score:

  • Highest impact: Your history of on-time or late payments.
  • High impact: The length of your credit history (oldest account age), the type of credit (cards, mortgages and so on) and the percentage of your credit that’s used (your credit utilization).
  • Moderate impact: The total amount of your current debt.
  • Least impact: Your total available credit and recent credit inquiries or activity.

Frequently Asked Questions About FICO and VantageScore

Can you choose which score is used for a credit decision?

No. Any business you authorize to check your credit score or pull your full report decides on its own which agency and scoring model to use.

How can you view your FICO and VantageScore credit scores?

An increasing number of credit monitoring services now use VantageScore, but there’s usually no way to specifically order one type of score over another. You need to contact or review the business you plan to work with to find out if it offers both scores or only one of the two.

How do you know which score is being used at any given time?

Most businesses should make it clear on your paperwork (credit report, application decision and so on) which scoring model is used, but if you’re ever in doubt, don’t hesitate to contact the business directly for clarification.


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Freelancers – Follow These Tips & Better Your Finances in 2016

By | Budgeting, Personal Finance, Save Money, Your Credit

Get on Track this Year & On Top of Your Finances

Freelancing is both a blessing and a curse. As a freelancer you’re probably repeatedly told how lucky you are, how great it must be to be your own boss, and then there’s all that freedom. While freelancing does mean all those things it also means having to pay for your healthcare out of pocket, and often an uncertainty about where or when your next check will come from.

When it comes to personal finance, freelancers have to take extra care to stay on track. Still, more people are freelancing than ever before according to a recent survey from the Freelancers Union. They claim that 53 million Americans freelance, which is 34% of the population.

Whether you freelance full time or on the side, freelancing can be rewarding on a personal and financial level. Make the most of your freelancing efforts by staying on top of the following:

Report Your Income to the IRS

Paying your taxes is easy when you’re working for someone else. Taxes are automatically deducted from your pay, and you report your income at the end of the year when you file your taxes. When you freelance your expected to make estimated tax payments on a quarterly basis, which can get confusing especially if you have to pay both state and federal taxes.

Making estimated tax payments on time can be difficult when you freelance and paychecks don’t come in consistently. You might prioritize other expenses over these payments, but that may cause you to fall behind. Late payments can lead to back tax payments, penalties or an audit.

Making your payments on time is easier if you sign up for an online account. The IRS allows you to make federal tax payments on the EFTPS website.

Get Health Insurance

While health insurance may seem like an unnecessary expense when freelancing, especially if your young and healthy, out-of-pocket medical expenses can lead to significant debt. With the addition of Obamacare the federal government can now fine you $695 or 2.5% of your income for going without coverage.

Planning for Retirement

Many long-time freelancers have little if anything saved away for retirement. While corporations offer robust 401(k)s you might be finding it difficult to grow a retirement account. There are plenty of financial institutions and financial advisors who offer retirement advice and 401(k) management. It’s never too late to start saving for retirement.

Saving for Emergencies

While contract work is great it may not be consistent. Having an emergency fun or savings account is always a great idea, but it’s even more vital for freelancers. Short term loans and credit cards come with high interest rates and fees. By putting a small percentage of each paycheck away in a savings account can help you get through lean times.

It’s never too late to start managing your money better. Make the most out of your freelancing this year and master your personal finances.

How do you manage your freelance wages? Did you find this article helpful? Let us know in the comment section below.

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