Education


Can you achieve a perfect credit score? We’ll show you how!

Posted on November 7, 2017 by Norm Schriever

When you get together with your friends, family, and coworkers, there’s always one person who loves to brag about how well they’re doing. It may be about their new car, high-paying job, or even the amazingly low interest rate they just got on their mortgage.

So wouldn’t it be great if the next time they opened their mouth to be braggadocious, you could one-up them by reporting that you had a perfect credit score? There’s no topping that!

But there are plenty of financial benefits to a perfect (or excellent) credit score, too.

FICO, the most popular credit scoring model, issued by the Fair Isaac Corporation, ranges from 300 all the way up to 850. Generally, a score above 680 or so is considered “good,” and once you hit the 720 to 740 range, your score is considered “excellent.”

But there’s another level or two above that for consumers to strive for. In fact, 32.8 million people have FICO scores between 700 and 749, but approximately 70 million consumers have FICOs above 760.

Don’t stop there, because it’s possible to raise your credit score even higher. An estimated 36.4 million people have scores between 750 and 799, and 38.6 million are in the 800+ FICO range.

Only about 1% of consumers, around 2 million people, ever reach high-end 800-850 scores.

In fact, FICO estimates that only about .5% (half of one percent) of all consumers with a credit score have a perfect 850 FICO. To put in in context, the average FICO score in the United States has just reached 700 for the first time.

Remember that FICO isn’t the only credit scoring model, as there are dozens of other scoring models that banks and lenders use to make lending decisions, and then different versions of each depending on what kind of loan or even consumer they’re vetting.

So let’s say you reach an 800 credit score, or even an enviable 850 – a perfect credit score. Beyond bragging to your friends, what are the benefits?

An 850 credit score may not help as much as you think IF you compare that to another great score, like an 800, 780, or even lower. That’s because FICO uses algorithms that rate scores within “brackets,” which means that if you have above 750 or maybe 780, there really won’t be an additional benefit the higher you go.

“It’s important to understand,” reports FICO spokesman Anthony Sprauve, “that if you have a FICO score above 760, you’re going to be getting the best rates and opportunities.”

For instance, a consumer with an 850 FICO will most likely be offered the same mortgage interest rate, auto loan rate, or 0% interest credit card offer as another consumer that “only” has a 780 score.

While you may expect little perks, additional beneficial terms, and premium services with a perfect credit score, you most likely won’t see any huge benefit once you reach the “super-prime” scoring bracket.

So why strive for a perfect score? Remember that credit scores are dynamic, constantly going up and down, so today’s perfect score may be a little less next month. Furthermore, it certainly doesn’t hurt to aim for a perfect score and still have an excellent FICO even if you fall a little short. And since your credit score is a good indicator of your financial acumen and dealings with debt, a perfect credit score most likely means that your financial house is well in order.

Whether you want a perfect credit score – or just trying to improve your score until you reach 700 or even 800 – here are ten important strategies:

  1. Pay on time (and never miss a payment)

Even one late payment can hurt your score, and paying on time is about 35% of how FICO calculates your score. In fact, 96% of people with a FICO score of 785 or greater have no late payments on their credit reports.

  1. Pay down your balances

Your credit utilization ratio – how much debt you keep compared to total available balances – makes up about 30% of your credit score calculation. While you commonly hear that you should pay your credit cards and debt down below 30% of the available balances, to shoot for that perfect credit score, you’ll want to pay then down to 10% or below. In fact, a survey of consumers with 800+ scores revealed that their average credit utilization rate was just 7%.)

  1. Keep older and seasoned accounts

About 15% of your credit score is calculated by the length of your accounts, so older is better. According to FICO research, the average credit super scorer has an account that’s 19 years old. Likewise, the average age of their accounts is between 6 and 12 years, and they opened their most recent account 27 months ago or more.

  1. Keep a good mix of credit

10% of your credit score depends on managing a healthy mix of credit, including mortgages, installment loans, and high-quality revolving accounts. Consumers with FICO scores 760 and up have an average of six accounts that are currently “paid as agreed,” and an average of three accounts with a balance.

  1. Shop around in clusters

When you have your credit pulled to “shop around” for a loan, make sure it’s within a 30-day window and FICO won’t factor those pulls into your score. Even if they are spread out within 45 days, they’ll only be treated as one credit inquiry.

  1. Check your credit report often

About 25% of all credit reports contain errors, and ID theft and fraud affect about 1 in 8 American consumers. So to achieve a great score, check your score frequently and consider a credit monitoring service.

  1. Make payments before the due date

To earn an 800+ credit score, make payments well before you receive your bill and the due date. Try paying off (or down) your purchases at the end of every week for the best credit score.

  1. Increase your credit limit when offered

Another way to improve your credit utilization rate and boost your score is to take advantage of any offers to increase your credit line.

  1. Stick to one or two good credit cards

It’s best if you only use one or two cards on a regular basis. American Express is a great choice, as the balances don’t report to FICO since you pay them off in full every month.

  1. Improve your score with Nationwide Credit Clearing!

We’re the trusted leader in credit repair done right. Contact us at (773) 862-7700 or MyNationWideCredit.com for a free report and consultation so we can get you started on the way to a perfect credit score!

 

Answering the top-10 Google searches about credit and credit scores

Posted on November 2, 2017 by Norm Schriever

Google is by far the world’s biggest search engine, with about 63% of all search traffic and 30 billion inquiries every month. In fact, type in “credit score” and you’ll get more than 69 million results! While we won’t try to answer all of those queries, here are the top 10 Google searches about credit and credit scoring:

  1. How is my credit score calculated?

There are several versions of your credit score, but the most common is issued by the Fair Isaac Corporation (FICO). While FICO keeps its credit scoring algorithms secret, we do know that the fundamental building blocks of any credit score are:

30% Credit utilization.

Your ratio of debt to available credit. It’s recommended you keep all of your debt balanced within 30% or less of your total available credit.

35% Payment history.

FICO and the other credit bureaus want to see that you’ve paid on time and in full every month, an important predictor of future payment behavior.

15% Length of credit history.

The longer your accounts have been open and in good standing, the better it reflects on your credit score.

10% Mix of credit.

A good mix of quality revolving accounts, mortgage debt, and installment debt, etc.

10% New credit.

Opening new accounts – or the wrong credit – is deemed risky and can lower your score.

  1. How much will a late payment hurt my credit score?

Since 35% of your credit score is based on your payment history, you always want to avoid paying any credit card or account late. Generally, if you do pay after the due date, your score will drop about 80-100 points. But you definitely don’t want to miss a payment for 60 days or even 90 days, which will cause serious damage to your credit score.

  1. What credit score do you need to buy a house?

If your goal is to buy a house, you’ll want to start with the mortgage process, and that means making sure your credit score is good enough to qualify for a loan, among other factors. While you’ll always have access to the best programs, terms, and the lowest interest rates with a great credit score (above 720, or even about 760 are considered “prime” scores), there are options for homebuyers with lower scores.

The Federal Housing Authority (FHA) has a great loan program that allows you to put only 3.5% down and qualify with a credit score in the 600’s, or possibly even lower in some circumstances. However, it’s always a good idea to come talk to us about six months before you plan on applying for a mortgage so we can increase your credit score and save you money.

  1. Will it hurt my score if my credit is pulled several times while I shop for a loan?

When you apply for new credit cards or loans with multiple creditors at the same time, it may signal to the credit bureaus that you’re recklessly taking on new credit – an indicator of future default. Therefore, your credit score may drop with these “hard” credit inquiries.

But the credit bureaus also understand they most consumers want to “shop around” for the best rates and terms when they’re making big purchases, like mortgage or auto loans, and that means having your credit pulled more than once.

To make allowances for this common consumer practice, the credit bureaus don’t ding you a batch of inquiries, as long as they’re within a 30-day period or less. Just don’t overdo it, or have your credit pulled from different kinds of debts (credit card, retail, etc.) or it will signal to them that you’re desperate to take on new debt, and your score will drop.

  1. Why is it important to check my credit report often?

The news these days is filled with reports of data leaks and hacks, such as the recent one of Equifax’s database that saw 235 million records compromised. Identity theft is the fastest growing crime, and most of that sensitive financial information is obtained online. For that reason, you should be checking your credit report often to screen for accounts that have been opened in your name.   Likewise, the credit bureaus make a lot of mistakes when it comes to credit reporting – which could impact your score. In fact, it’s estimated that 50% of all credit reports contain errors, duplicates, or misreported information!

  1. How long will a bankruptcy/foreclosure/judgment stay on my credit?

Most delinquent items will report on your credit for 7 years before falling off, but there a few exceptions:

Charge-offs stay on your report for 7.5 years from the first missed payment.

Chapter 7 bankruptcies remain for 10 years from the date filed.

Chapter 13 bankruptcies remain for 7 years from the date discharged or a maximum of 10 years.

Student loans can remain on your credit until they’re paid.

Foreclosures and short sales will probably report for the full 7 years, but the negative impact will diminish over time. But changes in the industry now make it possible for some people to buy another home in as little as 1-2 years.

If you’ve experienced one of these negatives, contact Nationwide Credit Clearing.com so we can start repairing your credit and get you on the track!

  1. What happens if my husband/wife or cosigner on a loan and the other person defaults?

When it comes debt responsibility among married couples, different states have different laws. Community property states (include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) deem that you’re responsible for your partner’s debts if they were charged up during the marriage. Even if you get divorced, you’re both accountable for the debt, and it will show on both credit reports.

That’s also the case when you co-sign for a loan with someone else – the debt obligation is shared, but both parties are fully responsible. So if the other person fails to pay, or even misses a payment, your credit score will go down, and the creditor will pursue you, too.

  1. Why is a good credit score important?

A good credit score can save you thousands or tens of thousands of dollars on mortgage loans, credit card interest rates, car and student loans, and even insurance. Many employers are even now looking at credit reports when screening applicants!

  1. What is credit repair/How can credit repair help me?

Credit repair is a process where you try to clear up inaccurate, outdated, or other misreported negative items on your credit history so that your score will go up. Credit repair entails a formal procedure where we send dispute letters to the credit reporting agencies to challenge the validity of negative information. The credit bureaus are governed by the Fair Credit Reporting Act, which requires them to either fix the problem or respond with evidence that it’s true within a certain timeline. Either they will fix the inaccurate negative credit item, or, if they don’t have evidence or don’t respond in time, the item will be removed. Both outcomes help your credit score rise to where it should be.

Credit repair done through an experienced and trustworthy firm like Nationwide Credit Clearing can increase your score, remove incorrect information, and save you a lot of money in the long run.

  1. Do I have to pay to check my credit score?

According to the Fair and Accurate Credit Transactions Act (the FACT Act), you are eligible to receive a free copy of your credit report once each year from each of the three major credit bureaus by going to www.annualcreditreport.com. This will show your credit history, not your score, but at least you’ll be able to monitor your credit activity and make sure you’re on track.

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For a more in-depth look at your credit score, credit report, and what you need to do to improve and save money, contact Nationwide Credit Clearing.com for a FREE credit report and consultation! We’re here to help you!

Just how much money will you save with a good credit score? The answer may shock you!

Posted on October 26, 2017 by Norm Schriever

Most people don’t think about their credit score on a daily basis, even as they use their credit cards, make their auto loan payment, or write a sizable check for their monthly mortgage. However, there’s a direct correlation between a good credit score and saving on all of these accounts – and more.

The top credit scorers typically save tens (or even hundreds!) of thousands of dollars over their lives, helping them pay off debt, amass savings, invest to retire comfortably, or achieve their other financial goals.

Meanwhile, consumers with subprime or even average credit scores get charged higher interest rates, fees, and see a lot of doors closed when they apply for new loans.

So how much money will a great credit score actually save you? Let’s take a look:

Credit Cards:

According to Bankrate.com, if your credit score falls between 600-679, the average U.S. credit card APR (annual percentage rate) is 22.9%

But if your score is in the 680-739 range, your APR drops significantly to 17.99%.

However, for the highest credit scores in the 740-850 range, the average APR is only 12.99%.

So how much can those lower credit card interest rates save you?

Looking at a popular tiered credit card with a $10,000 balance as an illustration, we see that with the lower 12.99 percent APR for high-score consumers, the monthly payment would be $297 for over five years to pay it off. But if you had that that higher 22.9% rate because your credit score was mediocre, that monthly payment would jump up to an astronomical $715…and for more than 7 years!

Therefore, keeping a great credit score could be the difference between paying $18,414 total to pay off this card or $44,330 – a whopping $25,000+ savings!

Auto financing:

When it’s time to purchase a car and apply for auto financing, your rates and terms can vary widely. But one thing is for sure: a great credit score will save you a lot of money when you’re paying off that shiny new auto month-after-month.

According to VantageScore, which is the main purveyor of credit scoring for auto lenders, a typical $25,000 auto loan for a 5-year term:

  • Below 550 Vantage Score (poor credit): 18.9% with $13,828 interest paid
  • Below 620 score (subprime credit): 17.9% with $13,009 interest paid
  • 620 to 680 credit score (average): 11% with $7,614 interest paid
  • 680-740 credit score (good): 6.5% with $4,350 interest paid
  • 740-850 credit score (excellent): 5.1% with only $3,375 interest paid

While a 760 is considered a top-notch credit score for mortgage lending, you’ll probably qualify for the best auto financing with a 720 or higher score. In fact, consumers with excellent credit scores may even qualify for 0% financing on new car purchases.

Mortgage:

One of the biggest ways your credit score will save you huge bucks is when it’s time to buy a home. And unless you’re paying cash for that home, you’ll be applying for a home loan, with rates and pricing based heavily on credit score.

Assuming that the average sales price of a house is $343,300, with a mortgage of $274,640 (20% down payment) and a 30-year fixed mortgage:

Let’s start with a 5% interest rate just for illustration purposes (historically, that’s low, but right now it could be a little high):

Your monthly payment will be $1,474

Total payoff over 30 years is $530,758 (interest and principal payments)

But if you have a better-than-average credit score and qualify for a 4.5% interest rate on that same loan, your monthly payment will be $1,392 with a total payoff of $500,962.

And if you have a great credit score that grants you a 4% interest rate, that means you’ll only pay $1,311 per month with a $471,960 payoff

So how much will a good credit score save you when it comes to this typical mortgage illustration?

-Savings in 1 year (compared to a 5% rate)

4.5% $984

4% $1,956

-Savings in 5 years

4.5% $4,920

4% $9,780

-Savings in 10 years

4.5% $9,840

4% $19,560

-Savings in 30 years

4.5% $29,796

4% $58,736

And for a $500,000 home, the difference between a 760 and a 620 credit score could cost you about $150,000 or more in additional interest payments due to higher rates!

In fact, according to Michelle Chmelar, the vice president of mortgage lending with Guaranteed Rate, every 20-point step down from a 760 credit score could cost the borrower 25 basis points when it comes to pricing, as well as higher fees and closing costs.

Other ways a good credit score will save you money:

Qualify for the best credit cards:

With a top score, you’ll have the best credit cards jockeying for your business, offering the lowest interest rates (sometimes even 0% for a period), options for low or no annual fees, and great perks and rewards. The credit card companies will also gladly extend you higher balances. Together, this can save you hundreds of dollars every year.

Better car insurance deals:

You may not have known that car insurers also rate and apply coverage based on credit scores. While some states, like California, Hawaii, and Massachusetts, don’t allow car insurance companies to look at credit, in most states, you’ll see much lower premiums with a better credit score – saving you money.

Cheaper cell phone plans:

If you’ve walked into a store recently to buy a new cell phone, you were probably asked to authorize a credit score check. In fact, cell companies will require a hefty security deposit and might even charge you higher rates – or outright deny you a contract – if you have enough blemishes on your credit report.

Get approved for rental housing and apartments:

Most landlords include an authorization for a credit check when you submit an application, and your payment history is a pivotal factor in approving you for a lease. Likewise, if you have judgments from past landlords or collections from utility companies on your credit history, you can probably kiss your chances of getting that nice apartment goodbye.

Utility bill savings:

When it’s time to sign up for a new electricity, heating, water, or trash account, a bad credit score can cause some serious problems, In fact, most utility companies will charge increased security deposits – sometimes hundreds of dollars – for bad credit consumers.

Make the grade with student loans:

The average college graduate now leaves school with $37,172 in student loan debt, an increase of 6% (or +$2,200) over just last year. You better believe that a great credit score will help you qualify for lower-interest student loans!

Don’t miss out on your dream job:

A bad credit score can hurt you in ways that have nothing to do with taking out a loan. In fact, employers are screening their potential employees for credit score, especially with government jobs or those in the financial sector. It’s estimated that 1 in 4 Americans have been subjected to a credit score check when applying for a job, and 1 in 10 have actually been denied a job because of a bad score or something on their credit report!

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Are you ready to start saving money? Let’s start with your credit score! Contact us for a free consultation and credit report.