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credit history Archives | Ovation Credit Repair Services

5 Reasons Why Paying Your Bills on Time Is Not Enough

By | Credit Scores, Uncategorized

Accounting for 35 percent of your credit score, payment history is the number one factor affecting your credit standing. A single missed payment could lower your credit score by 60, 80 or 100 points, depending on the date of the late payment and your current credit score. Generally speaking, higher scores are hit harder by late payments than lower scores and older late payments have less impact than recent ones.

If you want great credit, you must pay all of your bills on time — that’s a given. However, excellent payment history alone will not give you the credit score you desire. You must also pay attention to the factors that make up the remaining 65 percent of your credit score.

5 Factors That Influence Your Credit Score

Credit scoring models look at a variety of factors when calculating your score, including payment history, credit card utilization, length of credit history, mix of credit and inquiries.

1. Credit Card Usage

With the exception of payment history, credit card utilization impacts your credit score more than any other factor. A whopping 30 percent of your credit score depends on it. Your utilization score represents the percentage of revolving debt you have in comparison to the total amount of revolving credit available to you. Most revolving credit comes in the form of credit cards, but it can also include any other type of revolving credit, such as a revolving loan.

Ideally, your credit card utilization should be 30 percent or less. For example, if you have $5,000 in revolving credit, your total balances should add up to no more than $1,500. To find out your utilization percentage, divide your total balance by your total credit then multiply the answer by 100.

2. Length of Credit History

The length of your credit history accounts for 15 percent of your credit score. To calculate your length of history, credit scoring models determine the average age of all credit accounts listed on your credit report. Closed accounts that have fallen off of your credit report are not considered.

When it comes to credit history, there is no magical number you should strive for. However, the longer history you have, the better.

3. Mix of Credit

Accounting for 10 percent of your credit score, your mix of credit depends on the types of credit accounts listed on your credit report. A diverse mix that includes installment loans, revolving credit and secured credit is best. The following is a brief explanation of each type of credit.

  • Installment loans: Personal loans, student loans, furniture loans
  • Revolving credit: Credit cards, retail credit cards, gas cards
  • Secured credit: Auto loans, home loans, equipment loans

For the best possible score, maintain a mix of credit accounts but don’t go overboard. A single installment loan combined with two credit card accounts and an auto loan is sufficient to show how you manage different types of credit.

4. Hard Credit Inquiries

There are two main types of credit inquiries: soft and hard. Soft inquiries are initiated without your knowledge by companies screening you for pre-approved offers. They do not affect your credit score.

Hard inquiries, however, account for the remaining 10 percent of your credit score. Hard inquiries include any and all credit applications initiated by you or by a lender on your behalf. Scoring models look at two factors when considering hard inquiries: the number of inquiries present and the date they were initiated. Older inquiries carry less weight than newer ones.

5. Multiple New Accounts

Too many new accounts can lower your score by decreasing your length of credit history and increasing the number of hard inquiries appearing on your credit report. For this reason, you should avoid opening multiple accounts within a short amount of time. Strive to wait at least six months between credit applications.

How to Improve Your Credit Score

To improve your credit score, take steps to address and optimize all of the factors affecting your credit score. The following tips will help you.

Improve Payment History

Do this by making all payments on time. If you have late payments listed on your credit report, contact the lender to see if there is a remedy. You may be able to restructure your loan or set up a payment arrangement in exchange for the removal of the delinquency from your report. This only works if your account is not currently in collections.

Lower Credit Card Utilization

Do this by paying down your credit card balances or asking for a credit limit increase on one or more of your revolving accounts. Remember, balances should account for no more than 30 percent of your available credit.

Increase Length of Credit History

This can be accomplished by being patient and letting your credit profile age. Avoid obtaining new credit, as this will shorten the average length of your credit history. Also, consider leaving older accounts open even if you’re not using them.

Diversify Mix of Credit

You can do this by obtaining new types of credit. If you have two or more credit cards, do not apply for more revolving credit. Instead, consider taking out a personal loan.

Decrease Hard Credit Inquiries

Do this by spacing out your credit applications. Only apply for credit if it’s absolutely necessary. Note: multiple inquiries for a car loan or mortgage are often grouped together and only considered as one inquiry, provided they occur within a reasonable time frame.

Credit scoring models are complicated and mysterious on purpose. Credit agencies do not want you to know or understand the exact formula they use to calculate your credit score. However, they offer enough transparency for you to optimize your credit profile in an effort to earn the best possible score. If you learn all you can and take steps to improve your credit profile, you will see your score improve over time.

Sources:

www.blog.equifax.com/credit/can-one-late-payment-affect-my-credit-score/

www.thebalance.com/understanding-credit-utilization-960451

www.creditcards.com/credit-card-news/length-credit-history-fico-score.php

www.myfico.com/credit-education/questions/how-do-inquiries-impact-credit-scores/

Understanding Your Credit – Score, Reports and Bureaus

By | Credit Reports

Understanding Your Credit

Most Americans do not realize how credit scores, reports and bureaus actually work. In fact, 42 percent believe the myth that lenders must report to all three major credit bureaus. This is wrong and causes a huge headache at times. The truth is that your score could vary by as many as hundreds of points between your files at each of the bureaus.

This is just one of many examples of credit misinformation. When you research how credit works, there is a web of knowledge to uncover. It all helps you become a better borrower, as you can pay your debts and manage new credit more efficiently.

Credit Scores & FICO Explained

Your credit score, or “FICO score,” is something you need to mentally master. It is a single output that significantly impacts your borrowing abilities and creditworthiness. All credit score factors matter to you – therefore, it is essential to have a solid understanding of how they work.

The Types of Credit Scores

While there are many types of credit-scoring algorithms, the majority are a type of FICO score. This is why the term “FICO” goes hand-in-hand with “credit score” so often. If you hear the term “FAKO score,” it just means anything but a FICO score.

Here are some different credit-scoring models that exist:

  • BEACON
  • CE
  • Empirica
  • FICO
  • VantageScore 3.0

At least nine of 10 lenders use a FICO score to screen applicants.

 

(Source wwww.myfico.com)

How Does FICO Calculate Your Credit Score?

  • Payment History = 35%
  • Amounts Owed = 30%
  • Length of Credit History = 15%
  • New Credit = 10%
  • Credit Mix = 10%

Of course, each type of credit rating will have a slightly different algorithm. But, you should hold these rating factors as the most important variables. Focus on avoiding delinquencies or worse, and start bringing your total debt down.

Hint: pay revolving debt first. Your installment debts (such as student loans) do not count toward your utilization ratio.

Which Credit or FICO Scores Do Lenders Use?

FICO offers 28 main score versions to each of the three major credit bureaus. It provides a scoring algorithm for these bureaus to determine a FICO score to assign to each file. With the help of FICO, every credit bureau also has an in-house scoring model. They are as follows: BEACON (Equifax), FICO Risk Score (Experian) and Empirica (TransUnion).

A lender will decide on which credit bureau to pull your file from. That bureau will dictate the score that is provided – based on the type of account you wish to open. This means your score could vary for a car loan, home mortgage and so on.

Auto Score vs. Bankcard Score vs. FICO Score

There is an appropriate time for a lender to use each type of score. FICO Score 8 is the most generally accepted model between borrowers and lenders. Older FICO score versions are regularly used and more common in the mortgage market. FICO Auto Score is the go-to score when qualifying an applicant for an auto loan, and Bankcard Score is used to measure the worthiness of credit card applicants.

FICO Scores Used by Auto Lenders

FICO Auto Score is most common, but the version each bureau uses will differ. Equifax typically supplies FICO Auto Score 5 or 8. Experian uses Auto Score 2 or 8. Meanwhile, TransUnion falls to Auto Score 4 and 8. Since the FICO Auto Score 9 recently came into being, it might start gaining traction with any or all of the credit bureaus soon.

FICO Scores Used by Credit Card Issuers

FICO Bankcard Score 2 and 8, and FICO Score 3, are all sometimes pulled for the purpose of making credit card lending decisions. FICO Bankcard Score 9 also now exists but is not yet commonplace. The Bankcard Score focuses more on your credit card history and less on your medical debts, utility bills and any one-off missed payments.

FICO Scores Used by Home Loan Providers

A mortgage broker or private lender will typically use a dated FICO Score. This is because the underwriting rules for the U.S. mortgage industry require the use of older versions. As such, Equifax uses FICO Score 2, Experian uses FICO Score 5, and TransUnion uses FICO Score 4 to qualify mortgage applicants.

Even after reading about scores here, you no doubt have some questions. A good way to gain more knowledge is by reading the informative content on myFICO.com’s website. This will give you a better idea on how the credit rankers run things, too.

Credit Report Mystery

Reading and Understanding Your Credit Report

Confusion forms when you first look at your credit report. It is hard to know what is there, what is not and how things got there in the first place. But, this foggy way of thinking clears up once you get a good grasp of basic credit report terms. Below are some things you might find in your file:

Default

After you fail to pay, it will say you are in default on your debt. This happens after you fail to repay as scheduled. With credit cards, a default is usually reported after you go 90 days without making any payments. The default status will stay on your credit report for six years before it drops off.

Derogatory

A derogatory mark means only that the item is a negative one. It usually implies a late payment, charge-off or court judgment against you. It serves as a warning from a scorned lender and symbolizes a lack of creditworthiness. The derogatory status can stay on your report for up to seven years.

Satisfied

A satisfied item is anything that went into dispute with a creditor but is now fully resolved. As with all public record documents, a court judgment will stay in your file for seven years from the date you satisfy the debt.

Settled

A settled item is a debt that was in arrears but no longer exists because a settlement agreement was made between you and the creditor. This is a payoff that allows you to settle for less than what you actually owe – it is common when dealing with debt collectors since they pay pennies on the dollar to own the debt and will typically negotiate. Not paying the total amount back can harm your score, and the damage will stay on your file for seven years.

If you are a responsible borrower, the positive terms you might see include “Pays As Agreed” or “Paid/Closed Never Late.” Additionally, when you start running late on your payments, you might see 60 Days Past Due or 120 Days Past Due on your report.

What Else Your Credit Report Tells You

Your credit report contains many other pieces of information aside from the current account status for each debt. Take a look below to better understand what all is on your credit report and how to read it.

Personal Information

Your credit report will provide personal information, including your full name, where you live, your place of employment and your Social Security number. This data is gathered from the various accounts you hold that are being reported to the credit bureaus. A credit report will get an update to its information any time an account is updated. It can mix up information at times if your accounts are not up-to-date, so keep that in mind.

Soft / Hard Inquiries

Any time a lender pulls your file, it will result in an inquiry. This inquiry can be either soft or hard, with the latter having a short-term negative impact on your score. Soft inquiries mostly occur when employers run a background check for employment purposes. Many lenders will also perform a soft pull of your credit report to see if you pre-qualify for one of their offers before sending it to you.

Hard inquiries occur when lenders determine your creditworthiness at your request. A hard pull can drop your score a few points but will drop off of your report two years after it posts.

Public Record and Collections

Your credit report will include any public records in your name, such as bankruptcies, court judgments, foreclosures, lawsuits, wage garnishments and tax liens. The length of time these entries stay on your reports is variable. A civil judgment will last for seven years. Meanwhile, tax liens are very dangerous – they drop off seven years after the paid date, but leaving them unpaid can plague your file for 15 long years.

Credit Errors

 

Tackling Your Credit Report – and the Errors!

You have a credit report on file at Equifax, Experian and TransUnion. Each bureau accepts information from credit reporting companies. The creditors submit details to one, two or all of the major bureaus. Thus, it is possible for your reports to contain inconsistent information.

Some lenders will pull from one credit bureau only. This means your chance to qualify for credit comes down to which bureau they choose. So, it is important to make sure your information is accurate. You also need to make sure that all your accounts show up on each of your reports.

Boost Your Score by Fixing Credit Report Errors

Did you know that the FTC’s 2015 follow-up study on credit report accuracy found that roughly 20 percent of subjects saw a credit score increase after fixing errors found on their reports? This news came after discovering that 20 percent of credit reports contain at least one inaccuracy.

These errors are often little details that get mixed up. This typically happens when lenders only report to one of the credit bureaus. The missing pieces of your payment history can make or break your credit score. Furthermore, having only part of your debt in each file will result in an inaccurate calculation of your credit utilization rate – for better or worse.

Credit Report Errors Worth Disputing

The hardest thing to decide is whether you should report an error or not. It is not wise to ignore anything that is incorrect, but many issues will not impact your score. Little discrepancies in your personal information, for example, will not lead to a points boost.

The best time to report an error is when you see a major issue. If something is literally holding your score down, then you should report it. Even as little as 25 points can influence how you are able to build your credit. Imagine a few unjust rejections as you apply for loans and credit cards – these further drop your score. Ultimately, you look like a less reliable borrower than you really are.

Here are the errors that can impact your FICO score the most:

  • Letting an account enter Collections status = up to 100 points
  • 30 days delinquent on a bank card debt = up to 100 points lost
  • Missing a single credit account = up to 100 points difference by file

Understand that if you have an error causing a 100-point difference, it is severely holding you back. Going from a 780 to 680 score alone can result in more than $450 annually spent on extra interest. Take advantage of the chance to improve your score whenever you can. However, make sure not to fabricate errors or exaggerate issues to get bad debts removed.

How to Find Errors on Your Credit Report

First, simultaneously obtain current copies of your credit reports from the big three credit agencies. Then, you can compare the data and determine where any inconsistencies lie. This will be effective for picking up on most or all errors, but further review may still be still necessary.

One thing to watch for is debt that gets sold and resold. The information can change with time, and even the amount owing might be different. Any discrepancies may be grounds for removal of the entry.

This can bring your score up, but, how much will it increase? Four in every 1,000 reports with errors will see a change of as many as 100 points. This is a staggering statistic, but you should look at the stats affecting the majority. Five percent of erroneous credit reports contain inaccuracies of 25 points or more.

It is free to dispute credit reporting errors. Do this if you find anything in your file to be unfair or unjustified. Your credit score will improve after the errors are removed. However, make sure to only report true inaccuracies; if the debt reappears, your score boost will reverse itself fast.

Step-by-Step Credit Report Error Guide

So, have you come to the decision that reporting your errors is the right thing to do? It can make a major difference and aid you in your journey to rebuild your FICO score. With that said, you will only get good results if you follow the proper protocols.

Here’s how you can go about reporting errors in your credit file:

Contact the Credit Bureau

Reach out to the credit bureau to report your claim with a dispute letter. Be respectful, and provide all evidence you have to back up the fact that an item should be removed. If the information is inaccurate with all three bureaus, make sure to report the problem to each.

Wait to Hear Back

The company that reported the debt will have a short period to dispute your claim. This is when any information against you can come into play. After that, the dispute can go into mediation for a final judgment. Typically, you will hear back from the creditor within 30 days.

Usually, the judgment will be completed within this short time frame. In difficult situations, though, it can run on for a few months or longer. Once all is over, your score will recalculate. However, it is important to note that the entries might drop off temporarily and return after evidence against you is found. So, if you report factually accurate entries, it could end up leaving you in a worse position later.

What if You’re the Victim of Identity Theft?

This is an entirely different situation, but the process for handling identity theft is somewhat similar to reporting other issues. You must contact the credit bureau(s) with your claim. However, to be better prepared, a copy of your FTC Affidavit should be supplied. You can also use this to obtain a police report at your local police station.

Supplying all this information, along with your proof, will be adequate. From there, you will wait for a reply and see if any further documents are needed. Identity theft entries can damage your score drastically, and they should be reported as soon as you notice them.

Furthermore, it is important to watch out for identity theft all the time. This issue hurts many Americans every year, and there are endless ways for fraudsters to target you. There are many free identity theft protection services that work wonders.

If you believe you are the victim of identity theft and have contacted the credit bureau, you will also receive a fraud alert on your credit report. This lets lenders know to be careful when dealing with someone who connects to your file.

Read the FTC’s Disputing Errors on Credit Reports to learn the entire process.

Credit-Related FAQs

You should have a clearer view now of how credit works, but here’s extra info (and reminders) to help you out!

1. Do Lenders Report to ALL Credit Bureaus?

A lender can post information to one or all of the major credit bureaus, which are Equifax, Experian and TransUnion. This data will calculate into your FICO score. Eventually, a lender will use your credit rating to determine your loan eligibility. Your reports can get mixed up and have varying scores, which can result in unjust denials of credit.

2. How Do Credit Bureaus Collect Personal Data?

Information like your current employer and physical address can come from your credit card issuer, your loan provider or your utility provider. These data points are put in your file on a somewhat regular basis – monthly, quarterly, etc. This gives the bureaus what they need to try and keep your personal information up-to-date.

3. How Do You Get a Copy of Your Credit Report?

Go to www.AnnualCreditReport.com to make a request online. This is a service that allows U.S. citizens to request a free credit report from Equifax, Experian and TransUnion. You can pull your reports once a year, and per the FACT Act, it is your legal entitlement. You may view the reports online or request that printed copies be mailed to you. However, keep in mind that this will only get you copies of your reports – and not the associated credit scores.

4. How Often Should You Check Your Credit Report?

You should always stay up-to-date with what posts to your credit report at each of the major credit bureaus. Spread things out, and check one of your files every four months. Alternatively, a free or affordable credit monitoring service can help you keep tabs on things.

5. Can You Find Out Which Score a Lender Will Use?

Thanks to the FCRA Act, a lender must include “the range of possible credit scores under the model used to generate the credit score.” This means you will know whichever credit ratings a prospective lender receives. Not only that, but you will also be told the type (version) of FICO score that was pulled for your application.

6. How Long Does Stuff Last on Your Credit Report?

  • Unpaid tax liens: Up to 15 years from the filing date
  • Bankruptcies: 10 years – possibly seven years if you get a Chapter 13 discharge
  • Tax liens: Seven years from the filing date
  • Collection accounts: Seven years + 180 days from the first month’s missed payment
  • Foreclosure: Seven years after the date of your foreclosure
  • Late payments: Seven years after the date of the payment delinquency
  • Charge-offs: Seven years after the date your debt is written off as a loss
  • Soft inquiries: Two years from the date of the inquiry
  • Hard inquiries: One year from the date of the inquiry

Sources:

https://blog.creditkarma.com/personal-finance/how-much-do-americans-really-know-about-credit/

http://www.myfico.com/crediteducation/credit-score.aspx

http://www.myfico.com/

https://www.ftc.gov/news-events/press-releases/2015/01/ftc-issues-follow-study-credit-report-accuracy

https://www.ftc.gov/news-events/press-releases/2013/02/ftc-study-five-percent-consumers-had-errors-their-credit-reports

https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports

Credit Cards: What You Need to Know Before Applying

By | Consumer Rights, Credit Cards, Credit Reports, Credit Scores

Think you know everything there is to know about your credit history and how it will impact your access to credit? In 2013 it was reported that 5% of consumers in the U.S. had an error on a credit report that led to them paying a higher interest rate on a loan.

Out of all the disputes credit card companies faced 16.5% of them were about billing. That’s more than double the amount of disputes regarding interest rates or fees.

That tells us that consumers don’t fully understand and utilize credit reporting. By habitually checking your credit report you can prevent errors and fraud and save money on fees and interest.

If you’re in the market for a new credit card, there are a few steps you should take first. By following these steps you can secure a good interest rate and possibly be approved for a higher line of credit.

Prioritize

Determine what your goals are before shopping for a credit card. If you need to pay down debt on a credit card with high interest, look for credit card promotions that offer 0% balance transfer fees. If you need to make a big purchase look for cards that offer 0% interest for 12 or more months to provide ample time to pay down your debt before interest kicks in.

Shop Around

According to a consumer satisfaction survey first reported in US News Money, consumers are most satisfied with American Express. Credit Card companies that fall short include Wells Fargo and Capital One. Shop various credit card offers before applying.

Compare Rewards

Credit card point programs can be rewarding if you choose the right card. If you travel often and are looking to earn additional travel points go with a card that offers additional rewards on purchases made at hotels and on flights. If you tend to make a lot of small purchases, look for a card that rewards every day purchases like trips to the gas station or market.

Check Your Credit Score

Use a site like CreditKarma.com to get your credit score and review your credit history. If your credit card utilization is high, you may want to pay down some of your debt before applying for a new credit card. If you’ve already paid down your debt, but your score hasn’t refreshed wait for this to process before applying for an additional line of credit. By waiting you could save yourself money paid in interest later.

Access to credit can be a great thing when used responsibly. Always make sure to practice financial responsibility before applying for additional credit. Review the terms of a credit card agreement before signing up. Be aware of interest rates and due dates to stay on top of your bills and avoid late fees.

Uncovering the Mystery that is Your Credit Report

By | Consumer Rights, Credit Reports, Credit Scores

A credit report can either be the key to or road block to getting access to credit. Whether you’re looking to take a trip or purchase a home, your credit history plays a big role in how much you can borrow at what rate.

While most of us are aware of how important good credit is, many of us don’t know what our scores are or how to improve them.

Luckily popular credit card companies like Discover Card and American Express have started to provide free credit reporting to customers. In addition there’s CreditKarma.com which is a completely free credit reporting service.

Credit Karma provides users with their credit score overview and detailed description of credit factors. If you’ve never dug into your credit score before you may be confused as to how the number is generated. The following are factors that impact your credit score:

  • Credit card utilization
  • Payment history
  • Derogatory marks
  • Age of credit history
  • Total accounts
  • Credit inquiries

Each of these factors has either a high, medium or low impact on your credit score. While they all impact whether you have poor, good or excellent credit some are more important than others. When attempting to improve your score it’s important to pay the most attention to those factors which have a high impact on your overall score.

High Impact

Having a high impact means that these factors can significantly increase or decrease your credit score. Factors that have a high impact on your score are: credit card utilization, payment history and derogatory marks. Credit card utilization is calculated by comparing the amount of credit you have access to and how much you are currently utilizing. In order to have excellent credit you must only utilize 0% to 9% of your available credit. Someone with a good credit score utilizes between 10% and 29% of their available credit. To have a poor credit rating means that you are utilizing 50% to 74% of your available credit. Payment history and derogatory marks also heavily impact your credit score. As long as you make your bill payments on time you should have an excellent rating.

Medium Impact

Age of credit history has a medium impact on your credit score. Creditors are interested in the age of your credit history, because it helps provide a better picture of your ability to repay debt. If you have no derogatory marks on your credit history, and you’ve never missed a payment but you’ve only had a credit card for 6 months a creditor can’t determine with absolute certainty that you’re capable of repaying debt. Here’s how age of credit history is ranked:

  • Excellent – 9+ years
  • Good – 7 to 8 years
  • Fair – 5 to 6 years
  • Poor – 2 to 4 years
  • Very poor – less than 2 years

Unfortunately there’s not too much you can do to improve the age of your credit history. It is important to keep old cards alive, especially if you are in the fair to poor range. Your first credit card may have been a store card or may not have the best interest rate, but the age of the card can help with your credit history. Keep these accounts from closing by spending a small amount from time to time, and paying debt off right away. This will help maintain your current age and keep it from decreasing.

Low Impact

There are two additional factors that impact your credit score. The total number of accounts you have open, and amount of credit inquiries performed have a low impact on your credit score. The total amount of accounts you have open include student loans, mortgages, credit cards and other loans. In order to have an excellent score you need to have 21 or more accounts active. To fall within the poor score you’d need to have less than 10 accounts open. Any time a creditor runs a credit inquiry your credit score is impacted. Applying for a credit card, car loan or any other type of funding can impact your credit score. Even just one hard inquiry can move your score down from Excellent to Good.

Staying on top of your credit report is important. Not only can it help you improve your credit and odds of getting approved for loans, but it can also help you prevent fraudulent activity. By monitoring credit inquiries you can find out if someone is attempting to take out a loan or credit card in your name before it’s too late.

Was this article helpful? How will you improve your credit score? Let us know in the comment section below.

How a Power of Attorney Impacts your Credit History

By | Credit Reports, Credit Scores, Your Credit

power-of-attorneyA power of attorney (also referred to as POA) is in effect when the grantor authorizes a grantee to handle any combination of legal, financial and/or health decisions on behalf of the grantor. The particulars are written into a power of attorney document.

For example, a clause in a power of attorney document might read: My agent may take all actions that I could including transacting all forms of business on my MasterCard number—–.

You might grant a power of attorney for several reasons including:

  • You don’t want to deal with the administrative tasks of paying bills
  • You want to make sure that your financial wishes are carried out if you become ill or incapacitated
  • You may be out of the country for a period of time and unable to handle your financial affairs

Essentially, the concept is that you can authorize as much or as little activity as you want when granting a power of attorney. The POA may only be good for estate planning or if the grantor becomes ill. It may be valid for only certain transactions like disposing of property, handling an estate or managing credit lines. It is also only in effect during the timeframe specified in the power of attorney document.

 

Impact on Your Credit History

At first, you might be flattered to be granted power of attorney. After all, it is a show of absolute trust by the grantor who may be your father, mother, a sibling or other close family member or friend. However, having power of attorney means you have significant responsibilities. It’s natural to wonder how it could impact your credit history.

The good news is that signing to pay bills or other financial obligations for someone else, does not make you liable for any debts. The grantor is still liable for those and it may impact his/her credit history. But, it will not impact your credit history at all. You do however, need to be cautious.

 

Protect Yourself

For example, if you are an adult child spending part of your father’s money to take care of him in his time of need, you should take care not to authorize expenses on credit that you know cannot be repaid. In fact, make sure you do the following to protect yourself:

  • Keep your personal finances separate from your father’s (in this case). That means do not even charge a Snickers bar on his card when you’re purchasing medical supplies at the local drug store.
  • Be faithful to your fiduciary duty of always acting in his best interests.
  • Tell everyone who needs to know that you are acting as your father’s power of attorney for all of his business dealings.
  • When signing your name, write the words “Attorney in Fact” on the document after your signature.

 

If your sister somehow runs up $5,000 on your father’s credit card before you stop her, your father will be liable for those debts, not you. And by taking the prudent steps above you can protect yourself from being accused of any misconduct.

The three things to remember about having power of attorney (especially regarding credit cards) are, that as a grantee:

  • You are not liable for any debts incurred by the grantor even if you are charging on the credit cards of the grantor.
  • You must exercise fiduciary responsibility while administering the credit cards.
  • It’s a good idea to take some basic steps to protect yourself from being accused of irresponsibility such as always acting in the best interests of the grantor and letting everyone know about your role.

 

Why Building Credit History is Important

By | Credit Repair, Credit Reports, Credit Scores

A strong credit history is crucial to your overall credit score and can be the key to unlocking other financial doors, such as low interest rates on car and house loans. Although you don’t necessarily need credit cards to survive, it can be tough to get by without the ability to obtain credit for major purchases. Your credit history can make a difference in your ability to get the loan you need.

Whenever you are evaluated for any type of loan, your credit score is one of the key factors used to determine whether you are approved. While other factors are also considered, such as your income and (sometimes) your debt-to-income ratio, your credit score is one of the primary factors creditors use to make a decision about extending credit to you.

Your credit score is composed of several different factors, but your credit history accounts for 35 percent of your score, the largest of all categories considered. Other factors, such as type of credit and amounts owed, are also taken into account, but they only account for 10 to 30 percent of your score.

Why is credit history so important?

Your credit history is a summary of how you’ve handled your finances. It gives the clearest picture of your long-term ability to manage credit.  Because credit history is so important, closing a credit card you’ve had for a long time can be a bad idea.

If you have a history of late or missed payments, it will impact your credit score and make it more difficult to obtain credit when you need it. Your credit rating can impact more than just your ability to get a loan; many landlords will require a credit report before they will rent to you, and employees will investigate your credit history as an indication of reliability.

If you do have poor credit history, there are legitimate ways to rebuild it, so avoid scams, such as file segregation, that offer a quick fix to your credit score. Negative items will eventually expire. With wise use of your credit cards and consistent payments to all of your debts, you can easily build credit history and improve your credit score.

If you’re confused about what you need to do to improve your credit score, Ovation can help. If you would like more information about our services, call us for a free consultation at 866-639-3426.

The Recipe to a Great Credit Score

By | Credit Repair, Credit Scores, Personal Finance

A little of this and a little of that are the key ingredients to grandma’s famous tomato sauce. Too much oregano and the dog will have an extra serving of food from everyone at the table. Not enough garlic, and disappointment will be all you taste. Your credit score, like grandma’s sauce, is made of many different ingredients. At first, credit rules may appear a lot like watching grandma cook, full of a bunch of secret ingredients.

Unlike grandma’s cooking, the recipe that makes up a credit score is readily available, and it’s a recipe you should follow closely. Unfortunately, there is no dog to eat your mistakes in the world of credit, and your mistakes can translate to dire consequences as far as employment, insurance rates, and future interest rates on loans.

Any ingredient can cause indigestion if it is misused or too liberally applied. The ingredients of your credit score, called credit factors, include your payment history (35%) outstanding debt (30%), length of credit history (15%), types of credit currently in use (10%), and new credit (10%).

Even though length of credit history is only 15% of your overall score, that one factor can mean the difference between great credit and ok credit. No matter how much you like or dislike your experience with credit cards, mortgages, car loans, or any other creditor, never burn your bridges. Even if you feel like one credit card issuer has charged excessive fees, increased your rate astronomically, or decreased your credit limit overnight, don’t run right out and close the account. If you do, it can make it look like you have little to no credit limit.

Length of credit history is three-pronged, evaluating how long your account has been open in general; how long it has been open by the type of account; and the time since you have had activity. If you are wondering, the variety of accounts includes retail and credit cards, car or personal loans, and even your mortgage. If you are looking at your credit report wondering what you were thinking by opening all of those retail accounts the last time you were at the mall, realize what is done is done.

Going forward be sure to take the time to read the fine print in any credit application or loan agreement. This provides information on how your creditors, even including your bank, will be reporting (or forgo reporting) your credit history to the big three credit reporting agencies. Enjoy your credit responsibly so that it serves you well in the future.

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