Latest news with #credit counselor
Yahoo
a day ago
- Business
- Yahoo
What is a FICO score, and why should you know yours?
Several companies calculate credit scores, but one stands out as the gold standard: Fair Isaac Corporation (FICO), the company that invented the credit score algorithm in 1989. FICO credit scores are calculated by using the information in your credit reports, and they're used by the majority of creditors to make decisions about whether you qualify for mortgages, credit cards, loans, and more. As a credit expert and former NFCC-certified credit counselor, here's what I want you to know about your FICO credit scores. How are FICO credit scores calculated? A FICO credit score is a three-digit number that reflects the information in your credit reports. You can think of them like letter grades that reflect how well you performed in a class. Except instead of English or History, the subject is Debt Management, and the grades range from 300 (which is equivalent to an "F") up to 850 (which is a perfect "A+"). FICO creates your credit scores by taking the details of your debt and running it through one of their many credit score algorithms. Scores are based on five key categories, each weighted differently: Payment history (35%): The most heavily weighted credit score factor evaluates whether you pay your bills on time. Late payments, defaults, charge-offs, collections, bankruptcies, and foreclosures can significantly lower your scores. Amounts owed (30%): This factor focuses on how much of your available credit you're using, also known as your credit utilization ratio. For example, if you have $5,000 in available credit and currently carry a balance of $1,500, your utilization is 30%. Length of credit history (15%): This measures how long your accounts have been open, as well as the average age of accounts. The longer your credit history, the better. New credit (10%): This looks at how many new accounts you've opened recently and how many hard inquiries are listed on your credit reports. Too many hard credit checks in a short period can hurt your scores. Credit mix (10%): Finally, your credit mix evaluates how many different types of credit you have experience using (credit cards, installment loans, mortgage, auto loan, etc.). You don't need every type of account to have good credit, but a variety shows you can manage different forms of debt responsibly. If you have a long history of paying your debt as agreed, and you keep your borrowing to a minimum, you're likely to have good FICO scores. Read more: 8 factors that don't affect your credit scores Types of FICO scores It's important to understand that you have multiple credit scores, including different types of FICO scores. Your particular credit profile can produce different FICO scores depending on the version being used and which credit bureau (Experian, Equifax, or TransUnion) is reporting the information. FICO Score 8 is the most commonly used version today. However, there is a newer version known as FICO Score 9, which places less weight on medical collection accounts and completely ignores paid collections. In 2020, FICO released FICO Score 10 and 10T, which are meant to be even more precise when it comes to determining risk but have been slow to roll out among lenders. Older versions, such as FICO 2, 4, and 5, are also often used by mortgage lenders because these scores are hard-coded into Fannie Mae and Freddie Mac's underwriting systems. In addition to these base scores, FICO also has industry-specific scores, which use a range of 250 to 900. For instance, FICO Auto Scores are used by auto lenders to evaluate car loan applicants and weigh your history with auto loans more heavily. Meanwhile, FICO Bankcard Scores are used by credit card issuers and place more emphasis on your revolving credit history. Read more: VantageScore vs. FICO: How these two major credit scoring models compare Up Next Up Next How to improve your FICO scores One of the most common questions I hear about credit scores is, "How do I improve my credit scores fast?" The truth is, there's no way to improve your credit scores overnight, and it can take decades to achieve a perfect 850 credit score. However, there are a couple of ways you might be able to make significant FICO score gains over the course of a month or more. Plus, you can also practice good debt management habits to build and maintain good credit scores throughout your lifetime. Here are some strategies that work. Become an authorized user When you're in a hurry to increase your FICO scores, one of the best options I can recommend is to see if a loved one will add you to their credit card as an authorized user. With credit cards, an authorized user is someone who is not legally liable for the debt, but is still authorized by the main cardholder to use the account. When you become an authorized user, the information about the credit card will appear on your credit reports and be used to calculate your scores. That includes the past payment history, amount owed, and other account details. So, for this approach to work, the primary cardholder has to have a positive history with the account. Reduce your credit utilization One of the only other ways to gain FICO score points fast (30 to 45 days at minimum) is to reduce your credit utilization. The lower the percentage of available credit you're using, the better it is for your scores. There are two ways you can make improvements to your credit utilization. If possible, I recommend using a combination of both strategies to accelerate your progress: Pay down your credit card balances as low as possible. Ideally, pay off the full balance each month. Log into your credit card account and request a limit increase once a year (but don't increase your balances). Make debt payments on time Of the five categories that impact your FICO credit scores, the most important one is your payment history. When it comes to this area of your credit, slow and steady wins the race. You can build up good credit by making sure you pay at least the minimum amount due on your debt accounts, on or before the due date, every single month. Review your credit reports Finally, be sure to monitor the information in your credit reports, as it can directly impact your credit scores. You can pull your credit reports for free on a weekly basis from Be sure to review them for errors, such as payments that are incorrectly reported as late. You can file free disputes to fix any errors you find. Read more: This map highlights the average credit score in every state Frequently asked questions (FAQs) What is a FICO score in simple terms? A FICO score is a credit score that's calculated by a company called Fair Isaac Corporation (FICO). What is a good FICO score? According to FICO, most creditors will consider your scores "good" if they fall between 670 and 739 (on a scale of 300 to 850). What is my FICO score vs. credit score? There are several companies that calculate credit scores, including VantageScore and some of the credit bureaus, but it's only a FICO score if it's calculated by Fair Isaac Corporation.
Yahoo
6 days ago
- Business
- Yahoo
How to dispute errors on your credit reports
The information in your credit reports might not be as accurate as you would think. A 2024 study on credit report accuracy found that more than 44% of people who checked their credit reports found at least one error. If you're like most of the people I've worked with as a certified credit counselor and financial educator, you find your credit reports hard to read. And when you see errors in your reports, you may feel powerless to get them fixed. One potential solution is to hire a "credit repair company" you find on TikTok or hear about on the radio, but these companies often charge illegal fees and use dishonest marketing. What's the best way to get credit report errors fixed? Many people don't know they can file a dispute on their own — for free — and it usually takes just a few minutes to do online. This embedded content is not available in your region. Why do my credit reports have errors? The most common reason for credit report errors is identity theft. If someone steals your sensitive personal information and then applies for credit in your name, they might cause all kinds of incorrect details to show up on your credit reports, from a misspelling of your name to a credit card that doesn't belong to you. However, credit report errors can also simply be mistakes. For example, if a credit card company incorrectly reports that you missed a payment, the missed payment will appear on your credit reports. Here are some examples of credit report errors that were reported to the Consumer Financial Protection Bureau (CFPB) in 2024: Inaccurate balance information Fraudulent accounts Incorrect payment status Collection debt that resulted from unauthorized charges Applications for new credit that were not made by the consumer Why is it important to fix errors on credit reports? Certain credit report errors can cause major problems, from being denied a new credit card or loan to paying higher interest rates than necessary on new credit. Here's a look at the types of credit report errors that can impact you, and the consequences of each one: Incorrect identity information If there's an error when it comes to your name, date of birth, or Social Security number, you could have a variety of issues with your credit, including: Trouble accessing your credit reports: You have to verify your identity in order to pull your credit reports. But if your identity information is incorrect, you'll have to take extra steps to confirm your identity before you can get access. Debt accounts that don't belong to you: If you have someone else's identifying information on your credit reports, their accounts could end up on your reports and cause damage to your scores. In my experience reviewing thousands of credit reports, some of the most common reasons you might have incorrect identity information on your reports are if you have a family member with a similar name to yours, or if you've changed your name. Negative account history Your credit scores are calculated based on debt information in your credit reports. If the negative debt information in your reports is inaccurate, your credit scores will be lower than they should be. As a result, you might have trouble finding affordable loans or getting approved for mortgages, credit cards, or even apartments. Here are some negative marks that can severely reduce your credit scores: Missed debt payments (payments made at least 30 days late) Closed accounts with outstanding balances Debt that doesn't belong to you Credit card balances that are high due to credit card fraud or identity theft Credit applications made by someone else Each time you apply for a new credit card or loan (which results in a hard inquiry on your credit reports), your credit scores can be impacted. You usually lose anywhere from one to five points for each application. If someone steals your identity and uses your information to apply for credit, your scores could take a big hit. For example, if they apply for five to 10 different loans, your scores could drop by as much as 25 to 50 points. Up Next Up Next How to dispute credit report errors Many people think filing a dispute is a daunting process, but it doesn't have to be. If you find an error on your credit reports, here are the steps I recommend taking to have the best chance of getting a dispute resolved in your favor. 1. Make a list of errors. List out each error you find on your credit reports. If you find the same error on multiple credit reports, you'll need to file a dispute for each one. 2. Gather documents. If possible, find documents that support your claim. Depending on the error, this could include something like a name change document or a bank statement proving you made your loan payment on time. 3. Consider contacting the creditors. If you have incorrect account information, contact the creditor (that's the lender or credit card issuer) before filing your dispute. They may be able to fix it on their end and update the information they report to the credit bureaus. 4. Visit the credit bureau's website. You can file disputes by mail or phone, but the fastest way to do it is online through these websites: Equifax Experian TransUnion 5. Follow the prompts. You'll likely see a digital version of your credit report, where you can select the error(s) and provide a brief statement explaining the issue. If you have supporting documentation, be sure to upload copies. 6. Review and submit. Take a second look to ensure the information you provided is correct, and then submit your claim. How long does it take to fix a credit report error? The process of fixing a credit report error can take 35 to 50 days from start to finish. The credit bureau is legally required to investigate your claim within 30 days, though in some cases, they can extend to 45. During that time, they'll try to determine if they can resolve the issue on their own. If not, they'll reach out to the company that furnished the information, and the furnisher will investigate. Once the investigation is complete, the bureau has five days to send you the results. Should I hire someone to fix my credit? Chances are, you've seen TikTok posts or heard radio ads promoting credit repair. After all, it's a nearly $7 billion industry, and there are an estimated 46,000 or more credit repair businesses in the U.S. However, credit repair companies can be dangerous to work with. Most of them are sole proprietorships, meaning they're one-person operations. Even if you find a seemingly reputable agency, remember that they're still charging you to do something you can do on your own for free. On top of that, the CFPB has found that a dispute submitted by a credit repair company is less likely to be investigated than one you submit on your own behalf. So, if you find a credit report error, it's usually best to attempt a dispute on your own.
Yahoo
21-07-2025
- Business
- Yahoo
7 credit score myths you should stop believing
If you've ever learned anything about credit scores from a friend, a family member, or social media, I'm sorry to tell you this, but you may have some unlearning to do. In my past role as an NFCC-certified credit counselor and my cumulative 12 years working as a financial educator, I've heard some bizarre myths and rumors about credit scores, a few of which are really popular. Sure, myths can be fun. But when it comes to credit scores, they have major consequences. Some of the most commonly held myths can leave you with perpetually low credit scores and make it hard for you to qualify for mortgages or credit cards. Here are the most common and harmful credit myths I've come across, and the truth you need to know about each one. This embedded content is not available in your region. Top credit score myths debunked 1. Checking your credit reports lowers your scores When I encourage people to pull their credit reports, I tend to hear the same response: "Won't that hurt my credit scores?" The answer is a firm "no!" The truth is, pulling your own credit reports does not hurt your credit scores at all. In fact, if you don't pull and review your reports, you may never be able to build good credit. That's because reviewing your reports helps you with all of the following: Finding out what's in your credit file Discovering what needs to be improved Finding and disputing credit report errors Catching signs of identity theft You can pull your credit reports for free once a week at 2. You need to carry a balance to build good credit I wish I had a dollar for every time someone told me that carrying a 30% credit card balance (that's a balance equal to 30% of your card limit) helps you build good credit scores. The reality is that the lower your credit card balance is, the better for both your credit scores and your wallet. When you have low balances, you reduce your credit utilization ratio (the amount of credit you're using compared to your total available balance). The lower your credit utilization, the better it is for your credit scores because you're showing lenders that you don't need credit cards to cover your expenses. Additionally, if you pay off your full credit card balance by the monthly due date — which I highly recommend — you can avoid high interest charges. 3. I don't need to worry about my credit until I want a loan In my credit counseling days, I often got calls from people who wanted help fixing their credit ASAP. Often, it was because they had just submitted an application for a car loan, or made an offer on a new home. Unfortunately, I had to let them know that it usually takes months, and sometimes years, to clean up credit mistakes and build good credit. For example, even if you pay off your credit card today, it can take a month or more for the $0 balance to show up on your credit reports and be factored into your credit scores. And if you want to build good credit scores, it can take months or even years, depending on the condition your credit is in now. 4. Paying off collection debt helps your credit scores I receive several emails a month from people who are desperate to remove old collection accounts from their credit reports. The reason? They want to improve their credit scores — fast. Unfortunately, there's no guarantee that paying off a collection account will improve your credit scores. Here are a few credit score facts to keep in mind before you consider sending money to a debt collector: Medical collection debt under $500 has no impact on your credit scores. Paying off a collection account does not remove the account from your credit reports. Most credit score calculations do not make a distinction between paid and unpaid collections. That said, depending on the type of debt, you may want to pay off collection accounts anyway. It can stop debt collectors from contacting you or even taking legal action against you. However, if the debt is old and close to falling off your report (typically seven years from the original delinquency), paying may reset the clock on the debt. So, if you're unsure about how to handle a debt in collections, it's a good idea to reach out to an accredited credit counselor for guidance. 5. Disputing accurate information will improve your credit scores Most credit myths are a mix of truth and fiction, and this one is no different. Here's what's true: If you find an error in your credit reports, you have the right to file a dispute (for free) and get the information corrected or removed. But you do not have the right to get accurate information removed from your reports. Unfortunately, some people view the dispute process as an invitation to try and remove any negative information, even if it's accurate. In fact, there are credit repair companies that charge money to dispute correct information on your behalf. If you do dispute correct information, there's a chance it will be removed from your reports while the credit bureau investigates your claim. But once they confirm that it's accurate, the information will reappear on your reports. 6. A good credit score means you're rich Wealth doesn't impact your credit scores, at least not directly. Yes, your income level can impact how much money you borrow, whether you're able to repay loans and credit cards, and other behaviors that affect your credit. However, your income is not a factor in determining your credit scores. In fact, even if you're considered rich, but you don't pay your debt on time, you will have poor credit scores. 7. Bad credit history follows you forever As a credit counselor, I spoke to many people who believed that a bankruptcy or foreclosure from the '80s or '90s was still damaging their credit. While events such as bankruptcy, foreclosure, and repossession will cause severe damage to your credit scores, the damage only follows you for a limited time. Here's a breakdown of the timelines: 7 years: Missed debt payments (at least 30 days late), vehicle repossession, home foreclosure, and Chapter 13 bankruptcy. 10 years: Chapter 7 bankruptcy and positive credit information As negative information gets older, it has less of an impact on your credit scores. Once it's removed, it has no impact at all. Up Next Up Next
