April Newsletter from DMI Financial Inc

April Newsletter from DMI Financial Inc

What’s in your FICO® score

FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score. These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.

Payment History

• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or collection items
• Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
• Number of past due items on file
• Number of accounts paid as agreed

Amounts Owed

• Amount owing on accounts
• Amount owing on specific types of accounts
• Lack of a specific type of balance, in some cases
• Number of accounts with balances
• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

• Time since accounts opened
• Time since accounts opened, by specific type of account
• Time since account activity

New Credit

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit history following past payment problems

Types of Credit Used

• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

• A FICO score takes into consideration all these categories of information, not just one or two.
  • No one piece of information or factor alone will determine your score.
• The importance of any factor depends on the overall information in your credit report.
  • For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
• Your FICO score only looks at information in your credit report.
  • However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
• Your score considers both positive and negative information in your credit report.
  • Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score.

Fixing Credit Report Errors

To insure that the mistake gets corrected as quickly as possible, contact both the credit bureau and organization that provided the information to the bureau. Both these parties are responsible for correcting inaccurate or incomplete information in your report under the Fair Credit Reporting Act.
First, tell the credit bureau in writing what information you believe is inaccurate.The credit bureau must investigate the item(s) in question – usually within 30 days – unless they consider your dispute frivolous. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should:

· Clearly identify each item in your report you dispute.
· State the facts and explain why you dispute the information.
· Request deletion or correction.

You may want to enclose a copy of your report with the items in question circled. Your letter may look something like this sample. Send your letter by certified mail, return receipt requested, so you can document that the credit bureau received your correspondence. Keep copies of your dispute letter and enclosures.
Second, write to the appropriate creditor or other information provider, explaining that you are disputing the information provided to the bureau.Again, include copies of documents that support your position. Many providers specify an address for disputes. If the provider again reports the same information to a bureau, it must include a notice of your dispute. Request that the provider copy you on correspondence they send to the bureau. Expect this process to take between 30 and 90 days.
In many states, you will be eligible to receive a free credit report directly from the credit bureau, once a dispute has been registered, in order to verify the updated information. Contact the appropriate credit bureau to see if you qualify for this service.

Any questions please hit the link below

Credit Advice

Most of us aren't born with a sense of how to use credit cards. Still, it’s important to learn the rules of the credit card game – preferably before you start playing. These following rules of credit card usage encourage healthy spending habits for new and experienced credit card users alike.

Don't

Use your credit card to make everyday purchases. Items like food, clothing, and gas shouldn't be purchased with a credit card. Using your credit card as a substitute for cash is a habit that can quickly lead to debt. For ordinary purchases, leave your credit card in your wallet and use cash or debit card instead.

Get into the habit of making minimum-only payments. Making only the minimum payment each month increases the amount of time it will take to pay off your debt. It also increases the amount of interest you end up paying. To pay your debts off quicker and cheaper, you should pay as much as you can on your balance each month.

Use your credit card to buy things you can’t afford. Living a borrowed lifestyle is the quickest way to get into debt. If you can’t afford a purchase today, chances are you won’t be able to afford it tomorrow, or even next month.

Close out a credit card without knowing how your credit will be impacted. There are times when closing a credit card can hurt your credit score. Avoid closing cards that still have a balance or those that make up a significant amount of your credit history.

Do

Make wise decisions about purchasing items you need versus those you simply want. We’ve all used the word “need” to describe something we really just wanted badly. Using your credit card responsibly means recognizing which things you need and which you just want.

Let your creditor know in advance if you won’t be able to make your monthly payment on time. The worst thing you can do is simply forgo your credit card payment, no matter the reason. Most creditors will assist you if you let them know before you miss your payment. Simply call your creditor, briefly explain the situation, and ask that any late fees be waived.

Stay within 30% of your credit limit. A large part of your credit score considers the amount of debt you have. Keeping your balances low helps you maintain a good credit score and lower balances are easier to manage than those that are higher.

Negotiate a lower interest rate. Especially if your current rate is higher than offers you receive. Your interest rate determines how much you pay for carrying a balance on your credit card. Evaluate the interest rate on your credit card periodically to be sure you are getting the best deal possible.

The cost of a low credit score

The other day I was putting a package together for a client and discussing interest rate options. They have been looking at options and have been inundated with offers with great rates and promises. Their credit scores were in the mid 600’s so they would qualify for an FHA mortgage, however due to their scores not being above the 720 mark the lender adds points to the offered rate. As I was explaining this to them I realized that they had no idea how their credit scores impacted their ability to obtain the best interest rates.

In the early to mid 1980’s credit scoring began to take hold as models were developed to establish parameters for determining the credit worthiness of an individual. Prior to credit scores lenders were making their decisions based upon opinions of your credit worth using the 5 C’s of Credit (Character, Capacity, Collateral, Capital, Conditions). Over the past thirty years the scoring models have become more sophisticated and elaborate. Today their isn’t too much you can do with respect to borrowing money, opening accounts, and getting insurance that doesn’t revolve around a credit score. Unfortunately, many people don’t realize the impact of a low credit score on decisions and offers they receive.

It is possible to add 2 to 3 percent on to your mortgage interest rate due to a low credit score, which on a 100,000 loan could be as much as $175.00 to $200.00 per month in additional principal and interest payments. If you are looking at a program that is greater than 80% loan to value other than FHA the cost of your mortgage payment insurance is based upon your credit score. In today’s market a score less than 700 will disqualify you from those programs. Credit score right or wrong, low or high, justified or unjustified will be a determining factor in credit decisions.

What you can do is be prepared prior to applying for any type of loan or account. Get a free credit report from the credit bureaus (Trans Union, Equifax, and Experian ) and review the information, both positive and negative. Verify all information on the report this is your report card on the financial side of life. You will be offered a credit score if you pay for it, don’t do it. Just verify the information for accuracy. Your credit score will change on a daily basis and is a point in time reflection of your chance of defaulting on a loan in the next 24 months. Furthermore, every reporting agency will have a different score and it is subject to their model.

If you find an error on your credit report you have the right to dispute the information either online or by mail. There are several credit repair companies that can help you as well. The process can be tedious if have many errors but follow through and organization will help guide the way.

My last piece of advice prior to completing any application for employment, housing, utilities, and auto/home insurance is know what is on your credit report. Not knowing will be costly. For more information please contact me at jimd@dmiindiana.com.