Are There Negative Items That Can Stay on Your Credit Forever? – Credit Countdown With John Ulzheimer

August 23, 2021CreditBy toptierfinancial

Negative Items That Can Stay on Your Credit Forever - PinterestIn credit reporting, negative information can only stay on your credit report for a maximum of 10 years for a Chapter 7 bankruptcy and seven years for everything else—right?

The Fair Credit Reporting Act (FCRA) does mandate that the credit bureaus remove negative information from consumers’ credit reports within 7-10 years depending on the type of information. 

While this is true most of the time, there are three exceptions to this rule, meaning that certain negative items could potentially stay on your credit report permanently.

1. If the consumer is applying for a job with a salary of $75,000 or greater.

If a consumer is going to apply for a job that pays $75,000 or more, and the employer uses a credit report as part of the employment screening process, the credit bureaus are allowed to include information on this report about derogatory events that occurred more than 7-10 years ago, such as an old bankruptcy or old collection accounts.

2. If the consumer is applying for a life insurance policy with a value of $150,000 or higher.

If a consumer applies for a life insurance policy with a value of $150,000 or higher, then the credit reporting agencies are technically allowed to include negative information that is more than 7-10 years old on the person’s credit reports.

3. If the consumer is applying for $150,000 or more in credit.

If the consumer applies for credit in the amount of $150,000 or more, this also qualifies as a case where the credit bureaus could include old negative information that normally would not be listed on the consumer’s credit report.

The interesting thing about this exception is that it includes most mortgages, meaning that if you apply for a mortgage today, there is a good chance that you could fall into this category of exceptions to the FCRA regulations regarding negative information.

Applying for $150,000 in credit qualifies as an exception to the 7-10 year rule, which means most mortgages could be included.

Applying for $150,000 in credit qualifies as an exception to the 7-10 year rule, which means most mortgages could be included.

Should You Be Worried About Negative Items Staying on Your Credit Report Forever?

By now, you may be concerned that derogatory credit items that you thought were ancient history could haunt you in the future, in the event that you apply for a high-paying job, purchase life insurance, or apply for a mortgage.

However, there is no need to panic. While the credit bureaus are theoretically allowed to do this under the FCRA, that doesn’t mean that they choose to do so—and fortunately, they don’t.

Rather than maintaining old information to be used in specific situations, they simply default to applying the same 7-10 year policy across the board.

So if you do apply for a job that pays $75,000 or more, a $150,000 life insurance policy, or $150,000 in credit, you don’t have to worry about old negative items being revealed on your credit report.

Check out credit expert John Ulzheimer’s explanation in the video below. Visit our YouTube channel to see more educational videos on tradelines and credit!

 

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Credit Myth Busting: The Opt Out Myth – Credit Countdown With Consumer Credit Expert John Ulzheimer

August 20, 2021CreditBy toptierfinancial

Credit Myth Busting: The Opt Out Myth - Credit Countdown With Consumer Credit Expert John Ulzheimer - PinterestThe “opt-out” myth is one of many myths that lead consumers astray when it comes to credit. What is the opt-out myth and why does it not work?

What Are Pre-Screened Credit Offers?

Pre-screened credit card offers are preliminary offers of credit that credit card companies send to consumers who have a credit profile that matches with that of the company’s desired customer base. The way that the banks determine this is they purchase pre-screened lists of consumers from the credit reporting agencies.

For example, a credit card issuer could request a list of a million consumers who have a credit score between 650 and 725, do not have any bankruptcies on their records, and have not opened a new credit card in the past six months. The credit bureaus would then compile a list of consumers who fit that set of criteria and sell this list to the lender so that the lender can offer credit cards to these consumers.

Is It Legal for the Credit Bureaus to Sell Your Information on Pre-Screened Lists?

Yes, it is completely legal for the credit reporting agencies to include your information on pre-screened lists of consumers for lenders to purchase. It is not a controversial practice.

In fact, credit card issuers very commonly use these pre-screened lists as a way to acquire new consumers, as you may already know if you regularly receive such offers in the mail yourself.

Do You Get Inquiries on Your Credit Reports From Pre-Screened Credit Offers?

Because your credit report is generated and accessed by a business during the pre-screening process, this results in you getting a soft inquiry on your credit report.

For this reason, you may see soft inquiries on your credit report from companies you do not recognize who may have extended a pre-screened offer to you.

Can You Get Your Name Taken Off These Pre-Screened Lists?

You have the right to order the credit reporting agencies to not include your name on the pre-screened lists that they sell to banks. In other words, you are allowed to “opt out” of the pre-screening process.

Opting out is free and easy to do. All you have to do is go to www.optoutprescreen.com, which is a website that is operated by the credit bureaus because they are obligated under the Fair Credit Reporting Act to allow consumers the ability to opt out of having their names on these pre-screened lists.

At this website, you can opt out permanently, or, alternatively, you can choose to opt out for just five years.

If you want your mailbox to stop filling up with pre-screened credit card offers, then opting out via this website is the way to do it.

What Is the Opt-Out Myth?

The myth regarding opting out is the belief that if you opt out of receiving pre-screened credit offers, your credit score will go up.

The reasoning behind this myth comes from the misconception that soft inquiries on your credit report will hurt your credit score.

Soft Inquiries vs. Hard Inquiries

There are two types of credit inquiries: hard inquiries and soft inquiries.

Hard inquiries on your credit report are the result of you applying to obtain credit from a lender. When you do this, the lender pulls your credit report to see if you are creditworthy by their standards.

Because your credit report has been accessed by a lender for the purpose of approving or denying your application, a hard inquiry goes onto your credit report, indicating that you are actively looking to borrow. This implies that you are now a higher credit risk, so your credit score may go down a few points as a result of a hard inquiry.

Soft inquiries, on the other hand, may show up on your credit report when businesses check your credit for other reasons, such as a landlord pulling your credit before approving you for a rental or a prospective employer looking at your credit report as part of the job application process. This also applies to credit card issuers including you in groups of pre-screened consumers in order to solicit your business.

That means you can be confident that being pre-screened for credit offers only results in soft inquiries being added to your credit report.

Soft inquiries do not represent applications for credit on your part, which means they do not reflect your risk level as a borrower. For this reason, they do not impact your credit score at all. They just serve as a record of who has accessed your report.

Why the Opt-Out Myth Is Wrong

The myth that opting out helps your credit score would make sense if we were dealing with hard inquiries on your credit report because hard inquiries can hurt your score.

However, as we pointed out, the only inquiries you get from the pre-screening process are soft inquiries, and while soft inquiries do appear on your credit report, credit scores do not consider them as a scoring factor. Credit scoring systems don’t even know whether you are opted in or opted out of pre-screened offers.

Therefore, pre-screened credit card offers do not affect your credit score at all, so opting out of receiving them will not make a difference to your score either.

Avoid Opt-Out Scams

If you try searching for information about the opt-out myth, you might come across some offers to “help” you opt out and increase your credit score—for a fee. Avoid scam artists who try to sell you products and services to accomplish something that:

Will not actually improve your credit score,
You can do yourself,
Is free to do, and
Takes just about a minute.

Conclusions on the Opt-Out Myth

Despite the fact that misinformation about this topic is commonplace, we can safely say that opting out of pre-screened credit card offers will not help your credit score because being pre-screened does not affect your score in the first place.

However, if you do not want to be included on lists of pre-screened consumers for other reasons, you can quickly and easily opt out on www.optoutprescreen.com for free.

View the Credit Countdown video on this topic below and then check out our YouTube channel for more informative videos!

 

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Reasons Why You May Not Have a Credit Score

July 12, 2021CreditBy toptierfinancial

Reasons Why You May Not Have a Credit Score - PinterestWe’ve written before about the problem of credit invisibility, which is when a consumer does not have a credit score. Millions of consumers are credit invisible in the United States, which represents a serious obstacle in the path to financial success in a society where credit is interwoven with so many aspects of our lives. You yourself may even be credit invisible and looking for a way to become credit visible by gaining credit history.

If you do not have a credit score, credit expert John Ulzheimer explained why this may be the case in a recent Credit Countdown video on the TradelineSupply Company, LLC YouTube channel. Keep reading for the text version or scroll to the bottom of this article to see the video.

What Are the Minimum Credit Scoring Criteria?

In order to be able to generate a credit score, your credit report has to meet certain requirements. These requirements are slightly different depending on whether the credit scoring model being used is a FICO score or a VantageScore.

FICO Score Minimum Credit Scoring Criteria

You must have at least one undisputed tradeline.

A tradeline is an account on your credit report. This may include credit cards, lines of credit, installment loans, etc. (Other items on your credit report that are not accounts and therefore are not considered tradelines include collections, judgments, tax liens, bankruptcies, and inquiries.)

In order to be included by credit scoring models, the tradeline cannot be disputed.

The undisputed tradeline must be at least six months old.

At least six months of credit history are needed in order to accurately predict your likelihood of defaulting in the future, which is what credit scores are designed to do. Trying to come up with a credit score using fewer data points might cause the score to be less predictive of your actual credit risk, which could create problems for lenders.

You must have recent activity on your credit report (within the past six months).

To meet this requirement, you must have at least one undisputed tradeline that has been updated within the past six months. Don’t worry, this can be the same tradeline that qualifies you for the prior two criteria as long as it has reported activity within the past six months, or it can be a different account.

You cannot be listed as “deceased” on your credit report.

Credit scores cannot be created for individuals who are deceased (or appear to be deceased due to an error).

If your credit profile satisfies these criteria, then you will be able to qualify for any FICO score regardless of which generation it may be.

VantageScore Minimum Credit Scoring Criteria

Compared to FICO scores, the VantageScore credit scoring models have less stringent requirements on who can qualify for a credit score.

You cannot be listed as “deceased” on your credit report.

Like FICO scores, VantageScores also do not calculate credit scores for deceased consumers.

You should have at least one or two months of credit history with any credit bureau.

According to MoneyCrashers.com, “the VantageScore model typically produces scores for consumers with one to two months of credit history, regardless of which bureau reports that activity.” The account or accounts do not need to have six months of age in order to be scored.

The company claims that the VantageScore 4.0 and 3.0 models can provide credit scores to 40 million consumers who cannot be scored using other types of credit scoring models since it is easier for consumers with limited information in their credit files to meet the minimum scoring criteria.

What the Lender Sees When You Do Not Have a Credit Score

If a lender tries to pull your credit score and you do not have one for any of the above reasons, they will instead receive what is known as a “reject code” or a “failure code.” 

This reject code indicates to the lender that you have failed to meet the minimum credit scoring criteria and which criteria you did not satisfy.

Watch the video on this topic featuring seasoned credit professional John Ulzheimer below, or go to our YouTube channel to subscribe and see more credit-related videos!

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How to Use Credit Cards Responsibly Without Going Into Debt – Credit Countdown With John Ulzheimer

July 10, 2021CreditBy toptierfinancial

How to Use Credit Cards Responsibly Without Going Into Debt - Pinterest

Credit cards are often vilified for their high interest rates, which can be very costly to consumers who carry a balance from month to month rather than paying off the full balance that was accrued. Credit expert John Ulzheimer believes that credit cards do not deserve the bad reputation they have earned.

In a Credit Countdown video on our YouTube channel, John explained why credit cards are not necessarily as bad as they are made out to be and how to use them responsibly without going into credit card debt.

Keep reading to learn more on this topic and watch the video below!

Credit Card APRs

It’s true that credit cards do have high interest rates compared to other forms of credit, even if you have a good credit score. For this reason, once you get into credit card debt, it can be a very deep hole to climb out of, because the interest charges keep adding to your total amount of debt. 

However, as John points out in the video, no one forces you to open a credit card or go into credit card debt, so in his opinion, it seems unfair to blame the credit cards with high interest rates for actions that consumers choose to take.

If you choose instead to pay off your balance every month, then you do not have to pay interest on your purchase, so the APR of the card is irrelevant. Therefore, if you are going to use credit cards responsibly, then there is no need to choose a credit card based on its APR.

Always Pay Off Your Credit Cards in Full

The most important rule when it comes to using credit cards correctly is this:

Only charge as much as you can pay off in full every single month. 

When you pay your bill in full each month, since you are not paying interest, it is essentially free to use credit cards. The exception to this is if your credit card has an annual fee, but for some consumers, the annual fee on some credit cards may be worth paying in order to reap the rewards offered by the card.

If you want to be a responsible user of credit cards, it is essential to pay off your balance in full every month rather than carrying a balance and paying interest.

If you want to be a responsible user of credit cards, it is essential to pay off your balance in full every month rather than carrying a balance and paying interest.

Maintain a Low Balance-to-Limit Ratio

If you want to have a good credit score, it’s important to keep a low balance-to-limit ratio (also commonly called the credit utilization ratio). The closer your balance is to your credit limit, the fewer points you can earn toward your credit score.

This goes for both FICO credit scores and VantageScore credit scoring models.

Don’t take this to mean that you cannot use your credit card often or make large purchases with it. Just be aware that since a higher balance-to-limit ratio means a lower credit score, you may want to avoid doing anything to substantially increase your balance before you apply for a loan, especially a large loan, like a mortgage loan or an auto loan. Otherwise, you could end up with a higher interest rate that could cost you thousands of dollars in additional interest over the course of the loan.

Do Not Skip a Payment

Credit card issuers sometimes offer “skip a payment” programs that allow you to “skip” a payment for one month, especially around the holidays, when consumers may rely more on their credit cards.

John recommends never signing up for these programs because by skipping a payment, you are obviously opting not to pay in full that month. Since you are carrying the balance to the next month, you will be charged interest on the debt and you will have even more debt to pay back the next month.

Instead of skipping a payment, the more responsible thing to do is to go ahead and pay the statement in balance in full just as you normally would.

Conclusions

While credit cards may be risky in the wrong hands, responsible consumers do not need to forgo using them altogether. It is possible to benefit from using credit cards as a financial tool without going into debt or paying interest.

To that end, make sure you always pay your balance in full and maintain a low balance-to-limit ratio, and never skip a payment.

To hear from John directly, check out the video below. Follow our YouTube channel to see more of our Credit Countdown videos!

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Date of Last Activity (DLA): What Is It and Does It Really Matter? – Credit Countdown With John Ulzheimer

June 25, 2021CreditBy toptierfinancial

Credit Countdown: What Is a Date of Last Activity? - PinterestThe “date of last activity,” also known as the DLA, is often discussed within the field of credit repair in a way that is inaccurate or misleading. Because of this, many consumers do not understand the true significance (or lack thereof) of the DLA as it relates to their credit reports and credit scores.

Credit expert John Ulzheimer busted some myths about DLAs in a Credit Countdown video on the Tradeline Supply Company, LLC YouTube channel. Here’s what he had to say about DLAs on your credit report.

What Is a DLA (Date of Last Activity)?

The date of last activity is exactly what it sounds like: it is the most recent date on which activity was reported for an account.

It is a “legacy” data point that used to be included on credit reports for users (lenders), but this is not the case anymore, In fact, DLAs have not been shown on credit reports for lenders in decades, according to John.

Why Does a DLA Appear on Your Credit Report?

If John is saying that DLAs do not appear on credit reports, then why do you see DLAs when you pull your own credit report?

Two Types of Credit Reports

If you’ve watched our other Credit Countdown YouTube videos, then you may recall that there are two types of credit reports: “real” credit reports, and credit report disclosures.

Credit Report Disclosures

When you check your own credit report from annualcreditreport.com or from the credit bureaus, you are actually looking at a credit report disclosure.

Disclosures are provided to consumers and presented in a format that consumers can understand.

This is not the same as the version of your credit report that lenders see, and it contains different types of information, such as DLAs, that may be helpful to you as a consumer.

Credit Reports

Real credit reports are written in code using software known as Metro 2 and these documents are provided to “users” such as lenders, insurance companies, collection agencies, credit unions, credit card issuers, and mortgage brokers.

Actual credit reports do not contain DLAs. If you were to search the Credit Reporting Resource Guide (CRRG), which is essentially the Metro 2 manual, you would not find any information about DLAs because they do not exist within this credit reporting system.

Credit reports provided to lenders are communicated using the Metro 2 language.

Credit reports provided to lenders are communicated using the Metro 2 language.

Conclusion: Do DLAs Affect Your Credit?

You can rest assured that you do not need to worry about DLAs as they pertain to your credit reports and your credit scores (although they may be important for legal reasons, such as determining the statute of limitations for old debts).

Since DLAs do not appear on your actual credit reports that your credit scores are based on, they cannot impact your credit.

If you’d like to watch the video version of this post, hit play below. You can find the rest of our Credit Countdown videos over on YouTube!

 

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Secured vs. Unsecured Debt: What Are the Pros and Cons? – Credit Countdown With John Ulzheimer

June 4, 2021CreditBy toptierfinancial

Secured Debt vs. Unsecured Debt - PinterestSecured credit and unsecured credit are types of credit that are very different in terms of risk to consumers and lenders.

In a Credit Countdown video on our YouTube channel, credit expert John Ulzheimer explains the benefits and drawbacks of each type of credit and how different types of credit can affect your credit score. Read what he has to say below and watch the video on our channel!

What Is Secured Credit?

Secured credit is a form of credit that is backed by some sort of physical asset as collateral. If the borrower defaults on a secured loan, the lender can take the asset in order to recoup the loss.

Examples of Secured Credit

When you take out an auto loan, the loan is secured by your vehicle. Technically, the lender is the owner of the car until you finish paying off the debt. If you fail to repay the loan as agreed, the lender can take back the car using the process of repossession.

Similarly, when you take out a mortgage, that loan is secured by your home, and the bank still “owns” the home until you pay it off. In this case, not paying your mortgage can lead to the bank foreclosing on your home, meaning that they evict you from the home and then can sell it to someone else.

Pawn shop loans and title loans are also examples of secured loans.

While most credit cards are typically unsecured, secured credit cards do exist for consumers who may not be able to qualify for unsecured credit cards due to bad credit or a lack of credit history. With a secured credit card, you make a security deposit that counts toward your credit limit that the lender can keep in the event that you are not able to make the required payments on your credit card.

Mortgage loans are secured by your home.

Mortgage loans are secured by your home.

What Is Unsecured Credit?

Unsecured credit is credit that does not have a physical asset as collateral, so the lender cannot take back an asset if you default on the debt.

Examples of Unsecured Credit

A student loan is an example of an unsecured loan because there is no material asset that can be taken away if you do not pay your student loans. Student loans are used to pay for an education, and obviously, the lender cannot “take back” the education you have already received.

Credit cards are generally extensions of unsecured credit, except in the case of secured credit cards, as we described above.

Secured Credit
Unsecured Credit

Auto loans
Unsecured credit cards

Mortgage loans
Student loans

Home equity lines of credit
Unsecured personal loans

Secured credit cards
Unsecured lines of credit

Motorcycle loans

Boat loans

Pawn shop loans

Title loans

The Impact of Secured and Unsecured Debt on Your Credit Score

Secured and unsecured accounts are treated equally by credit scoring models, according to John. You are not penalized or rewarded by credit scores based on your accounts being unsecured or secured.

Different types of accounts are still treated differently by credit scores due to other factors (e.g. credit cards are treated differently than installment loans), but this particular factor does not play a role.

Secured Credit Cards: Use Them Carefully

Secured credit card accounts are commonly used by consumers to establish credit or rebuild their credit after having bad credit. This is a valuable credit-building strategy, but you should be cautious about how much you spend on your secured credit card.

Why? Because secured credit cards often have very low credit limits. That means you can quickly get to a high utilization ratio on the account even from modest spending. For example, if your secured credit card has a credit limit of $500 and you spend $250, you already have a utilization ratio on that account of 50%.

Having heavily utilized credit card accounts can have a significant negative impact on your credit score, so if you’re trying to keep your credit score as high as possible, you’ll want to keep an eye on the balance of your secured credit card and not let it creep too high relative to your credit limit.

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What Does It Mean if Your Credit File Is “Confused” or “Mixed”?

May 16, 2021CreditBy toptierfinancial

Pinterest - Mixed Credit FileDid you know that sometimes credit reports can become “mixed” or “confused”? This situation is rare, but it is good to be aware of nonetheless. In a recent Credit Countdown video, credit expert John Ulzheimer explained what these terms mean. Plus, he also describes some other types of rare credit file issues.

Keep reading for more on mixed files and watch the video version at the end of this article.

What Is a Mixed Credit File?

A mixed credit file erroneously contains information from more than one consumer within the file. This is due to a mistake at the credit reporting agency where the matching logic software that is used to match a consumer’s information to their credit file ends up matching the wrong consumer’s information with someone else’s credit file.

If you have a mixed credit file, that means you have someone else’s data in your file that should not be there, whether the information is good or bad. Of course, it can be especially problematic if the incorrect information is derogatory.

The good news is that mixed credit files are extremely uncommon. On the rare occasions when mixed files do occur, it is often between two people who have the same names and addresses and possibly similar Social Security numbers, as may be the case with family members who share a name and live at the same address.

Mixed credit files are also sometimes referred to as “confused” files because the credit reporting system has confused one consumer with another.

What Is a Duplicate Credit File?

A duplicate file simply means that there are multiple credit reports in your name at the credit reporting agency. According to John, having duplicate credit files can be an issue if one of the files generates a credit score that is lower than the others.

Professionals in the credit industry may refer to instances of duplicate files as “dupes” for short.

While duplicate files may occasionally cause problems, the credit reporting agencies have ways to resolve the issue by merging the dupes.

Mixed credit files computer screen

Mixed files occur when the credit reporting system’s matching logic incorrectly attaches one consumer’s information to a different consumer’s credit file.

What Is a Fragmented Credit File?

Another type of inaccurate credit file is known as a fragmented file or a “frag.”

Fragmented files lack some of the information that is supposed to be on your credit report, so only a fragment of your credit file is present.

Missing information on your credit file can, of course, prevent your credit score from being as high as it should be, since you might be lacking important credit history, or it may be otherwise not fully representative of your full credit profile.

Conclusions

Mixed files, duplicate files, and fragmented files are all cases in which your credit report may be inaccurate. It should be stressed that these situations occur very rarely, so they will most likely not apply to you. However, if you find yourself dealing with one of these file types, contact the credit reporting agency so that they can resolve the issue for you.

 

Head to our Knowledge Center for more articles like this, or visit our YouTube channel to see more videos on tradelines and credit!

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