Tag Archives: fico

Limited to limitless

In my realm of expertise, I have been exposed to credit ranges across the spectrum. Some are great, some are good, some are ok and some need work and that’s alright with me. Credit is something that some treat like a sprint, but it truly is more of a marathon. Some treat some items on their credit (collections, current payment history, credit card limits, etc.) as an individual guitar solo rather than looking at all the items on their credit report as a symphony. One common thing I come across is a combination of income and credit. You could make excellent money, but your credit could be excellent, fair, poor, or nonexistent. I have also seen the inverse with those that make less money as well in addition to those in the middle of the income ranges, I have seen. A concept that eludes some of us is the concept of having limited credit.

The terms “limited credit” and “no credit” are typically used synonymously to describe anyone who has not been the primary account holder on a credit card or loan for three years. This is something commonly seen with those that have bought everything with cash only or just never had a need to get anything on credit. Additionally, some lenders might not even report to the credit bureau which is what sometimes is referred to as “invisible credit”. If you suspect your credit history is insufficient because of a data problem, contact your lenders and check whether your personal information on file with them is correct (i.e. name, date of birth, social security number, etc.).

Lending companies/financial institutions give inexperienced consumers the benefit of the doubt to a certain extent in that the terms they offer them are better than those given to people with bad credit. However, you must demonstrate the ability to consistently make on-time payments to your monthly financial obligations as well as maintain balances below your credit limits in order to build the requisite credit history to be trusted with higher credit lines as well as competitive rates and rewards.  An example of this would be if someone with limited credit requests a loan for a new auto. With zero history (keeping in mind your credit report is like your report card for your credit) it isn’t normal to see high balance loans for an auto with such limited history (unless there is a very good strong cosigner or a significant down payment). Without a down payment or cosigner, there’s a good chance that you could end up with a smaller car loan to start out (even if you make excellent money) due to the lack of history to prove creditworthiness based on the risk to the lender or receive a denial for credit. Once the loan has been successfully paid off (and provided a great pay history) that loan could be used as the basis for another perhaps larger loan in the future.

No matter what age you are or where you are in your credit-building journey, a lender typically relies on a credit score to help decide whether to approve you for a credit card or loan. There are numerous ways today to build your credit. From online banks to even your own bank or credit union there are programs designed to start off your credit journey before your next big purchase. From share-secured loans to secured credit cards, there are ample opportunities to build credit in today’s times. Consult your local bank/credit union for different credit building products to help you in your financial journey. Until the next time dear readers. Excelsior!

Collect call

What Happens If You Don't Pay a Debt Collection

Dealing with credit can be tricky, there are different types of factors that build your credit and factors that hurt it. One such factor that hurts your score is having collections out against you. Collections are oftentimes neglected and can come back around in the future.Did you know that 71 million Americans have collection debt of some sort or another? (courtesy of urban.org)

Collections come from when a loan or bill has gone unpaid or was charged off/ listed as a loss on a company’s profit and loss statement and is given over to a collection agency. The collection agency then goes to contact you to collect the debt to be paid off. Once the collection is paid then it is cleared from the book of the collection agency and is reflected on your credit report if it is paid off. The same applies if a bill is listed as a collection on your credit report.

In my field of expertise, I have come to know that letting collections sit is not conducive to a healthy credit rating and can serve as an annoying anchor weight stopping your credit from reaching new heights. It is imperative to get rid of collections as soon as they are discovered or If something is going towards collections. Even if a bill disappears somehow and it was not paid there could be a chance it was sent to a collection agency to pester you to get their payment. These are not to be taken lightly. Even if a collection is paid it remains on a credit report for seven years but despite this, it could show that it was paid and prevent a collection agency from bothering you about the same debt. This is because a collection agency has seven years to collect this debt before they lose their chance to get paid. If it is coming down to the wire the collection agency can sell this debt to another agency and the “doctor’s bill from 10 years ago” could be lurking around for the next 20 years! Like dirt under a rug, it is waiting to be disturbed and make a mess again.

Collections can hurt your FICO credit score, contrary to a commonly held belief I have come across in my time in the field and research. The claim is that when updated from “unpaid” to “paid,” the collection can appear to the scoring formula as having originated more recently than it did, which, if true, could lower the score. However, the “assigned” date on the credit report does not change when the collection status is updated, nor do the credit scoring formulas give fewer points for a paid than an unpaid collection. Due to the length of time since the debt was assigned to a collection agency weighs so heavily on a credit score, the removal of the most recent collections can often be expected to raise a score. On the other hand, if there are multiple collections and it’s the older ones that you’re able to get removed, such as via a “pay for delete,” you may not see any improvement in your score following the removal of these older collections. So there is no evidence to support the myth that paying a collection can lower a score.

Collections can happen to anyone, whether you are already managing your credit responsibly or have hit hard times financially. Separating the facts from the fallacies about collections and credit scores can help you make more of the right moves and avoid some of the bad ones that can have an undesirable result. One way to check on the impact a collection might be having on your credit is to obtain your credit report from your bank, credit union, or from even the bureaus themselves. You can also go to sites like annualcreditreport.com to get your report for free as well. Do not let collections sneak up on you, something that might seem insignificant can still have an impact in the long run. Until the next time friends, excelsior!