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Fico Reveals how many points your credit score is reduced because of bad credit

Have you ever wondered how late payments or other bad credit affects your credit score. We all know that bad credit does not help our credit score but do you know exactly how many points get shaved off your credit score because of different infractions such as a bankruptcy or a payment which is 30 days late?

 

Well now FICO the company that invented the FICO score has revealed how the process works.  For years people have been trying to figure out this ancient scientific formula. No one could seem to get a handle on how this works.  They have now laid out some groundwork that will help you determine how much your score goes down once because of adverse action on your credit file. 

 

It also turns out that the higher your credit score is the more points you lose. For example if someone has a credit score of 650 and someone else has a score of 750, and a payment is 30 days late the credit score of 750 will lose substantially more points.

 

As a review a credit score is what lenders use to determine your credit worthiness. They use this score which is an algorithm to determine the likelihood that you will default on a loan. A FICO score determines your level of risk.  You always want to keep your score as high as possible. Credit scores or FICO scores range from 300 to 850. 

 

So let’s get some specifics.  If you have credit cards and you max them out, taking them right up to the limit your scores can be damaged as a result because your credit usage is increasing. A credit score of 680 can drop anywhere from 10 to 30 points. A credit score of 780 will drop anywhere from 25 to 45 points which is substantial.

 

How about a payment that’s received 30 days late? Your credit score of 680 will drop anywhere from 60 to 80 points because of one payment which is 30 days late. That is very significant. A credit score of 780 will drop 90 to 110 payments because of the same late payment. The higher they are the harder they fall.

When you settle a debt your score can take even a bigger hit. Many credit card companies allow you to settle your debts anywhere from 20 to 75 percent of the balance. There are many other problems with debt settlements. First of all if your forgiven debt is $600 or more you may have to report the debt as taxable income. Let’s say you have a credit card balance of $8,000 and you settle with a credit card company for $5,000 that means $3,000 is forgiven.  As long as the forgiven amount, which in this case is $3,000, is greater than $600 you may have to report that debt as taxable income.  Two exclusions to this is if you are insolvent or bankrupt.  A credit score of 680 will drop approximately 45 to 65 points because of a debt settlement and a credit score of 780 will drop 105 to 125 points.

 

Let’s look at a foreclosure.  Your score of 680 will drop 85 to 105 points a score of 780 drops 140 to 160 points.  When you take hits like this on your credit score you may have to rebuild your credit using high cost credit cards which carry a number of fees, high interest rates, and annual fees.  Some may have to be secured using your bank account as the security.

 

Last but not least, in fact it’s the most, are bankruptcies.  When you file a petition for bankruptcy your 680 credit score can drop anywhere from 130 to 150 points and a score of 780 drops anywhere from 220 to 240 points and that’s a lot. Just imagine a score of 780 is reduced to 540.

 

Drops in your credit score can cause you to pay higher interest rates for mortgages, auto loans and credit cards.  Your monthly payments for mortgages and auto loans will also increase significantly.

 

To Your Great Success

Mel

 

 

 

 

 

 

How To Get a Free Credit Report

A lot of people don’t know what’s on their credit report.  Sometimes things are placed on a credit report by mistake. If something bad is placed on your file it can drop your credit score.  Lenders and other financial institutions use credit scores to see what the probability of you defaulting on a loan.

 

A credit score can range from 300 to 850.  The higher your score the better chance you have of receiving credit products such as mortgages and credit cards with a lower rate of interest. There are a number of things you can do to increase your credit score. Actually there are five things that contribute to your credit score. The first one is your payment history. When you pay your creditors on time you help increase your score. This category actually makes up 35 percent of your credit score.

 

The other factor is the amount of debt you have. If you have too much debt your credit score can be lowered especially if you are using a large portion of your available credit. The other contributors are the type of accounts, such as a mortgage, automobile loan, and credit cards. The more different types of credit you have the higher your score. 

 

The amount of time your credit file has been outstanding will also contribute to your credit score. That’s why it is not a good idea to close out your old accounts. Actually closing any account can lower your credit score.

 

The number of new accounts opened can also affect your credit score. Opening too many accounts can lower your score especially if it is done in a short period of time.

 

You can receive a free copy of your credit report, once a year,  by going to www.annualcreditreport.com. The copy is available every 365 days from the day you last received a copy. So you don’t have to wait for the first of the year.  

 

When you go online to get your report you will be able to receive a copy for all three credit reporting agencies, which include, TransUnion, Equifax, and Experian.

 

To Your Great  Success

 

Mel  

 

 

The Advantage

The Advantage belongs, not to the spectacular, but to the persistent, seeking to do everything better..........

It's not so much where you are but in what direction are you heading.................

What direction are you heading with your dreams....

To Your Great Success

Mel Richardson

How does a foreclosure affect your credit report?

Overview<p>If you are unable to make your mortgage payments there is a good your lender will start foreclosure proceedings. Once a foreclosure takes place it can be devastating on your credit file and it may take you awhile before you can re-establish your credit. Foreclosures can remain on your credit file for approximately seven years.

<p>Foreclosure<p>When you fall behind on your mortgage payments, as many borrowers have done because of the economy, your mortgage company or lender will begin foreclosure activities.  Your home will eventually be sold at a Sheriff's auction to the highest bidder. The minimum bid is usually enough to cover the balance, attorney fees, accrued interest and other costs and expenses.

<p>Deficiency Balance<p>After your home is sold there could be a remaining balance, called a deficiency balance, which you are responsible for, depending on the state you live in. Most lenders don't pursue you for the balance but there is a chance that they could. If they decide to pursue you for the balance they could get a deficiency judgment which allows them to seek other means to collect such as wage garnishment or even a bank levy.

<p>Credit Report<p>A foreclosure will be reported will reported to a credit reporting agency. Your information could be reported to one, two or even three credit reporting agencies, but it depends which one your lender utilizes. The three major credit reporting agencies are Transunion, Equifax, and Experian.  Once a foreclosure is reported your credit score can drop approximately 250 to 280 points. A credit score is used by lenders to determine the likelihood that you will default on a loan. Credit scores can range from 300 to 850 and the higher your score the better chance you have of receiving the best terms and agreements for loans and credit cards. Even a credit score of 850 will be lowered significantly by a foreclosure.

<p>Re-establish credit<p>It may be difficult to re-establish credit after a foreclosure. One of the ways to re-establish credit is with a secured credit card. With this type of account you will need to open a bank account with an initial deposit of $300 to $500. Your credit card will have a limit equal to the deposit in your bank account. If you default on your credit card the money will be taken from your bank account to pay your past due amount.  When you have made payments on a secured credit card for approximately one year, on time, you may be able to apply for a regular credit card which has more favorable terms and agreements. Secured credit cards come with annual fees. <p>Bad Credit - credit cards<p>Another type of credit card are, "bad credit", credit cards. These credit cards are for people with damaged credit. The interest rate will be very high and there could be a number of non-standard fees such as an application fee, monthly servicing fee, maintenance fee, processing fee and an activation fee. Your credit limit will be reduced by the amount of your fees. There will probably be an annual fee as well.  Some of the fees are recurring and some are one time fees.

<p>Universal Default Clause<p>When a foreclosure starts it could affect your other accounts with other creditors such as credit cards. Some credit card companies will periodically review your credit file to see if your financial situation changes over time. If they see that you have delinquency with other creditors such as your mortgage they may lower your credit limit, close your account or even increase your interest rate. This is called the universal default clause.

To your great success

Mel

What are bank owned homes?

Many people don't have a lot of information when it comes to terms like foreclosures, sheriff's sales, short sale or even a bank owned home.  A bank owned home is probably the least understood term. If a home owner fails to make their mortgage payments in a timely manner the home can be foreclosed on which means the bank or lender can repossess the property.

Once the property is repossessed it is sold at a sheriff's sale, which is a public auction, to the highest bidder. A borrower can also contact the lender and make arrangements for a short sale, which is when the borrower accepts less than the amount owed on the property.  In certain instances the borrower will be responsible for the remaining balance after a short sale, but most lenders don't pursue the balance owed.<p>Which brings me to what is called a bank owned home or real estate owned, (REO). If a home goes to foreclosure, as previously mentioned it will be sold to the highest bidder. The least amount that can be bid is usually enough to cover the mortgage balance any interest that has accumulated all attorney fees as well as any other costs.

There are many situations when no one bids on foreclosed properties. If this happens the home is turned over to the bank which means it is a bank owned home.  Any mortgage on the property is wiped out.  The bank will now attempt to sell the property using some conventional methods, for as much as they can get. The bank will be responsible for any tax liens that may be on the property.  As owners of the property the bank must now handle any evictions that need to be done. <p>Banks will begin to accept offers and they may counter your offer. It's always a good idea to inspect the property to see if there is extensive damage. Banks will try to sell homes as is and they may not want to provide financing when this is the case. <p>The state of the economy has caused bank owned homes to increase at a rate not seen in past times.

There are some dire consequences as a result. The property values of homes in the neighborhood which have not been foreclosed on begin to decline at a steady pace. Empty homes which are not well kept have a tendency to quickly bring down property values when they are vandalized.

To your great success

Mel

Cash-Out Refinance

A cash-out refinance is when you refinance your mortgage and the new loan amount is greater than the original loan.  The new cash you receive, which is over and above the previous loan can be used for a variety of purposes including consolidation of debt, home improvement, tuition, and many other things.

When you refinance you want to make sure you can receive a lower rate of interest which helps you save money in terms of finance charges. You should also look at a term which is comfortable for you. Some of the more common terms are 15 and 30 year.  With a 30 year mortgage you will have lower payments but you will pay more in finance charges.

There could be closing costs involved but you should be able to get those rolled into the total amount of the loan which limits your out-of-pocket expenses.

To your success

Mel

Debt Forgiveness/Settlement

If you are overwhelmed with credit card debt you may get the urge to contact your creditors and make an offer to settle. Initially this can help you relieve your debt but there are some consequences.

If you owe $8,000 and you settle for $5,000 you could owe taxes on $3,000, the amount of forgiven debt. There is a chance that you may be required to report this as taxable income when you file your taxes.

There are two situations in which you are not required to report settled debt as taxable income. If you are bankrupt or insolvent. Insolvent is a situation in which your liabilities exceed your assets. Once you settle your debt you will probably receive a 1099-C, which is a debt cancellation form. As soon as you receive this form contact a tax attorney or a tax adviser for more direction. Your tax professional may require you to file IRS form 982 in addition to the 1099-C.

To Your Great Success

Mel Richardson

Make a decision today and take action

Question for you.  Two birds are sitting in a tree and one of them decides to fly away.  How many birds are left in the tree?

If you guessed one you are wrong.  Actually the answer is two.  You see that bird is just like most people. He made a decision to fly away but he never did anything about it so he just sat there. Even though he made the decision he didn't take action.

What decisions have you made but never bothered to put into action.  To make a decision means to leave no other possibility and you cut off all alternatives and pursue your dreams. 

Fly out of the tree today and take action.  Move a step closer to your goals and dreams.

To Your Great Success

Mel Richardson
P.O. Box 538
Jessup, Maryland 20794

During tough economic times don't go see the coach

I was watching a movie some time ago called,” Invincible”, starring Mark Wahlberg. It was a true story based on a bartender trying out for the Philadelphia Eagles football team.  One segment of the movie featured Mark Wahlberg,  going through tryouts and he made it to training camp.  As the tryouts progressed the coach was trimming more and more players from the roster until he finally got down to the team that he would field on opening day. 

 

When all the cutting was going on the assistant coach would go to the hotel that the players were staying and he would knock on the door of the player that was going to be cut that day.  He would always tell that player the same thing, “Hey, coach wants to see you and bring your play book.”  If the assistant coach said that to you then you were good as done.  I liken that situation to how a lot of companies release employees during these tough economic times.   More than likely someone will come out and get you and say hey Mr. Brown wants to see you in the conference room and bring a box.

Having said that here are 10 ways that signal you will be fired:

1.       People that sit in your department that used to talk to you will no longer speak to you.

2.       If you are walking down the hall and people avoid eye contact

3.       If you pass by someone and they appear to be spaced out

4.       If you are called into a meeting late in the evening.  You close at 5:00 pm and the District manager shows up at 4:55pm

5.       If the boss says to you no matter what happens I think you are doing a decent job

6.       If you start hearing a lot of whispering and they shut when you show up.

7.       If you speak to someone and they turn their head side ways and then give you an apologetic/sympathetic smile but they never speak

8.       If the atmosphere suddenly becomes so thick you can sense something is going on

9.       If it becomes so quiet you can hear a pin drop in your department

10.   Someone says the coach wants to see you and bring your play book.

If that should happen to you, and many are experiencing this very thing, don’t panic.  Take a deep breath and relax. Then call the unemployment office and see if you are eligible for unemployment.  Chances are you will be. Take an assessment of your financial situation and see how long your funds will last.  Next start applying for jobs within your expertise or even if they don’t fit your expertise apply.  During these tough economic times finding a job will be challenging.

You may want to consider taking part time work or working through a temporary agency until the economy picks up. Now is not the time to lapse into bad habits such as improper diet or skipping workouts.  These will only help to fuel your despair and depression.  Speak to someone about your situation and don’t be afraid to let others know that you are out of work. You just never know who will be able to help you get a job.  One estimate says 80% of jobs are found by networking.

Finally keep a positive outlook and know that things will eventually turn around.

If you saw the movie then you know that Mark Wahlberg did in fact make the team as a walk on and played several years with the Philadelphia Eagles.  So he never had to go see the coach, hopefully you will be as blessed.

 

 

To your Great Success

 

Mel Richardson

P.O. Box 538

Jessup, Maryland 20794

 

Melvin21@msn.com

 

 

 

 

The Economic Stimulus Package - What's in it for you?

The New Stimulus Package Plan:  What’s in it for you?

The new stimulus plan is designed to stimulate the economy, increase jobs, boost spending in the economy, increase the amount and time frame for collecting unemployment benefits among other things.  Well you are probably wondering, just like every other concerned American, what does that plan have to offer for each of us as individuals?

 

According to the USA Today the total amount of the package is approximately $789 Billion.  This package is about 1100 hundred  pages and inches thick.  Now that’s a lot of money but let’s see if we can dissect it and see where it’s going and who is going to benefit

 

Housing Market

Well we all know what’s going on within the housing market.   In some parts of the country, the price of homes have decreased, as much as 25% which is contributing to the housing crisis.  Well the package is designed to increase home sales because anyone that’s looking to buy a home can receive an $8,000 tax break which you don’t have to pay back to the government.  Housing starts in the country are at the lowest levels in years so hopefully this will provide some type of incentive for people to start purchasing homes again.   If people are buying homes then demand will pick up, and according to the laws of supply and demand the prices of homes should increase.  This can prove to be a very enticing incentive for home buyers.

 

Automobiles

 

The auto industry is really taking it on the chin.  We are seeing automobile sales dip to the lowest levels we have ever seen.   Right now, as part of the stimulus package, you can receive a sales tax credit for your automobile purchase.   If you purchase a $30,000 car in a state where the sales tax is 5% then you your credit would be $1,500.  

 

Taxes

The stimulus package will put more money back in your pay checks.   With a cut in taxes consumers will have more disposable income to make more purchases thereby stimulating the economy and helping to increase aggregate demand.  There package also includes a $2,500 tax credit for parents who have children in college.  According to the USA today this credit would only be good for the first two years of college. 

Energy

 

Everyone is looking for ways to save money.  Another way you can do this is to winterize your home, which includes a tax credit if you decide to take on this endeavor.  On average you can save over $250 per year if you winterize your home. 

 

 

Unemployed

 

If you lost your job and you are currently collecting unemployment or will be collecting unemployment in the future then your weekly amount will now be $25 more.  Once again people have more money to spend and it will be thrust into the economy as another method for stimulating the economy.

 

These are some of the more popular sections of the stimulus package but rest assured there are some more things which are designed to turn our sagging economy around, put more money in the pockets of consumers, create more jobs and put us in a favorable economic position globally as well.

 

To Your Success

 

Melvin Richardson

P.o. Box 538

Jessup, Maryland 20794