Loans at least 30 days past due in in the most recent quarter totaled 2.65%. This is the highest level of delinquency since 1992, when delinquencies totaled 2.75%.

Source: USA Today – Late payments on consumer loans at 16-year high

Originally posted on pfhacks.com: Late Payments On Consumer Loans Reach 16 Year High

It details some of the tactics that companies are using to artificially inflate individuals credit scores, including piggy-backing on stranger’s loans.  This practice, using "seasoned primary accounts", attaches an individual with poor credit to a loan just as it is paid off and closed.  Positive credit score improvement flows through to the individual with poor credit within 30 to 45 days.  TradeLine Solutions, one of the companies selling this service, charges a $1,399 fee, for one loan, piggy-backing on additional loans, costs more, but they give you a discount with each additional loan.

Regarding the legality of the practice, TradeLine’s CEO, Ted Stearns, was quoted in the article thusly:

The program’s concept, he said, is similar to someone’s buying a car and taking over somebody else’s car loan or lease account at the time of purchase — except, in this case, there is no balance on the account. The original borrower is unaware that a new name is being attached to the account, he said. Mr. Stearns defended his program. “I am a legal entity that conducts business throughout the state of California and the entire continental U.S.”

Re-read the fourth and fifth lines carefully: "The original borrower is unaware that a new name is being attached to the account". 

Does anybody else find that statement frightening?

A similar "loophole" to using "seasoned primary accounts", is in the process of being closed by the major credit bureaus.  It involved adding individuals with poor credit to credit card accounts owned by individuals with good payment histories as "authorized users".  The new authorized user would pickup the positive benefits of the account in good standing. 

When a number of lenders complained about the practice, Fair Isaac (the company that developed the credit scoring system) changed their formula so that authorized users no longer receive benefits to their credit score.

The big takeaway from this article is that these services are in a very gray legal area.  While companies such as TradeLine insist that they are not breaking any laws, Credit Bureaus and lenders view the practice as a form of loan fraud.

While it may be tempting to engage a service like this, you can raise your score naturally, and legally, over time.  I detailed some steps in this post: Seven Ways to Improve Your Credit Score.

Originally posted on pfhacks.com: Beware of Companies Offering to Raise Your Credit Score

Your credit score is a three digit number ranging between 300 (terrible) and 850 (very, very, good), that is computed based on a number of factors.

Who pulls your credit? Well, obviously lenders, but you may be surprised to know that your employer may also pull your credit. Additionally, if you rent a car, purchase a cell phone plan, or sign up for electrical service from your local utility, each of these companies may run your credit. Service companies, such as the utility company, may require to put a substantial deposit, if you have a low credit score, in order to receive service. In the case of your employer, or potential employer, a low score may cost you a job or promotion.

The main purpose of a credit score is determine your credit worthiness. First, you must meet a minimum credit score threshold in order to get a loan, but your score will also determine the rate you will receive. For instance, this is a table from myfico.com that shows the rate you can expect to pay based on your credit score on a $300,000 mortgage, with a 30 year term. It also shows the variation in monthly payment based on the range.

As you can see, if you are on the edge of a range, improving your score, even a few points, could save you a significant amount of money.

Although there are a number of credit score variants, the most common formula was developed by a company called Fair Isaac. It’s methodology is called a FICO score. You may even hear the words FICO score and credit score used interchangeably.

All three of the major US credit bureaus (Equifax, TransUnion, and Experian) use a variation of the FICO score under their own branding. Equifax has the Beacon system, TransUnion uses the FICO classic system, and Experian uses the Experian/Fair Isaac risk model.

While each scoring system utilizes a slightly different formula, the scores produce similar results.While the exact formula is secret, experts have inferred the following breakdown of factors, and their weight in the score, this is indicated as a percentage in parenthesis:

• Your payment history (35%)
• Outstanding debt, particularly as a ratio of debt to credit limits (30%)
• Length of time with established credit (15%)
• Number of inquires. (10%)
• Types of existing credit (10%)
  

Now that we know the formula, we will look at seven ways in which we can improve our standing in each category, and therefore increase our credit score.

1. First and foremost, review your credit report on a regular basis and correct any errors. You should be doing this anyway regardless of your credit score, as you may be able to catch someone attempting to steal your identity. The Fair Credit Reporting Act requires all credit bureaus to provide one credit report per year, free of charge. Since there are three major credit bureaus in the United States, I would recommend requesting one report from each every four months. This allows you to actually review your credit for free three times per year. You can access your free credit reports online at annualcreditreport.com. This is the official website setup by the credit bureaus.Optionally, you can contact all three national credit bureaus individually, through the contact information listed below:
   • Equifax – www.equifax.com
     To order your report, call: 800-685-1111 or write: P.O. Box 740241, Atlanta, GA 30374-0241
     To report fraud, call: 800-525-6285/ TDD: 800-255-0056 and write: P.O. Box 740241, Atlanta, GA 30374-0241
   • Experian – www.experian.com
     To order your report, call: 888-EXPERIAN (397-3742) or write: P.O. Box 2104, Allen, TX 75013
     To report fraud, call: 888-EXPERIAN (397-3742)/ TDD: 800-972-0322 and write: P.O. Box 9532, Allen, TX 75013
   • TransUnion – www.transunion.com
     To order your report, call: 800-916-8800 or write: P.O. Box 1000, Chester, PA 19022
     To report fraud, call: 800-680-7289/ TDD: 877-553-7803 and write: Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, CA 92634-6790

   Note: You can get your credit report only. The credit bureaus will attempt to sell
   you your credit score for an extra fee. If you are curious, go ahead, but you may want to hold off until you work on some of the improvement steps listed here.

2. Don’t go over 30 days late on a bill. There isn’t a lot you can do retroactively to fix your past transgressions on this, but you should try very hard in the future to never let a bill get over 30 days past due. If you have had these in the past, they will decrease in their impact on your score over time. Likewise, Bankruptcies and collections will stay on your report for 7 – 10 years, but their impact lessens over time.The most important thing here is to catch up past due payments, and start paying on time from this point forward. Payment history is the most heavily weighted portion of the credit score. Your score will improve as you establish yourself as someone that always pays their bills on time.
3. Pay down credit lines that are close to, or over limits. This effects 30% of your credit score. The general consensus is that you should keep your credit lines at less than 75% utilization. For example, if you have a credit card with a $10,000 limit, you should always keep the balance below $7,500 to avoid a credit score penalty.Also, the amount owed on installment loans, versus the original loan amount is factored into this portion of the score.

   Closing accounts that are in good standing with zero balances does not effect your credit score.

4. Limit the number of hard inquiries on your credit. A “hard inquiry” is the type of credit report a lender runs to determine if they should give you a loan, and the rate you should receive. Having a large number of hard inquires in a given period of time will lower your credit score. Potential lenders may feel that a large number of inquires is indicative of someone potentially falling into financial trouble, and seeking as much credit as possible.Contrast this with a “soft inquiry” which does not effect your score. Soft inquiries occur when an employer, or marketer runs your credit. Also, inquires you originate, such as requesting your free annual report do not negatively effect your credit score.

   The FICO score takes into account the fact that someone may be “rate shopping”, for instance to buy a car, and isn’t supposed to unduly penalize several inquiries within a “short period” of time. The problem here is that Fair Isaac does not define what a “short period of time” is. One day? Two days? Inquiries stay on your record for two years. It is a good practice, to only allow someone to run your credit when you are seriously considering a purchase.
   
   

5. Don’t close old accounts unless you have to. Remember that up to 15% of your credit score is determined by the length of time with established credit. Your older existing lines of credit help this portion of your score. Keeping those old credit card accounts open will help increase your credit score.
   
   
6. Get a small secured loan to help repair or establish credit. Since such a large portion of your credit score is determined by payment history, making regular payments on a loan is a great way to establish or repair your score. If you have poor, or no credit, try to save up a little money and open a certificate of deposit at your local bank or credit union. You can then use this CD as collateral for a loan. Banks will almost always make this type of loan, regardless of credit, because they have a zero percent chance of losing money. If you don’t pay, they take your CD.You can expect to pay 1-2% over the yield of the CD, plus loan fees, so there is a cost to this type of credit repair.
7. Don’t open accounts to increase your score. You may see that “Types of existing credit” counts for 10% of your score and decide that opening a number of credit card accounts is a good strategy.This isn’t the case for a couple of reasons. First, each time you apply for a card, a hard inquiry is performed. Remember that too many hard inquires can be detrimental to your score. Second, having a large number of open lines of credit complicates your financial life, and can lead to potential late payments.

   It’s best to keep things simple, and not open accounts strictly for their credit score improvement potential.

It can take some time for a credit score to begin to improve, since most of the variables in the formula are measured over time. Rest assured however, that as you implement these tips over time, your score will eventually rise.

Originally posted on pfhacks.com: Seven Ways To Improve Your Credit Score