But I bet you don’t know about some of the things that hurt credit! Today’s blog is about the first of three dirty little secrets that will hurt your credit card score.

HURT CREDIT SECRET #1: Credit card companies often omit or inaccurately report credit card limits, and this causes your score to drop. About half of all consumers are missing at least one credit limit on their credit reports. And in other instances, credit card companies intentionally report a lower limit than you have.

Why does this hurt credit?

The credit-scoring systems place a lot of weight on something called a utilization rate. The utilization rate represents your balance as a percentage of your limit. If your limit is $1000 and your balance is $300, you have a 30 percent utilization rate. If your balance increases to $500, your utilization rate would increase to 50 percent. In other words, you would be utilizing 50 percent of your available limit.

The credit-scoring formula responds more favorably to people who have a utilization rate that is no higher than 30 percent.

Now let’s imagine that you have a $300 balance on a credit card with a limit of $1000. Your utilization rate is 30 percent. Good news for your credit score, right?

Not so fast. If the credit card company is only reporting a $500 limit, you will appear to be carrying a 60 percent utilization rate. And this hurts your credit score.

There are a lot of theories as to why the credit card companies do this. One is that credit card companies buy lists of borrowers whose limits are, for example, more than $10,000. The companies then send credit card offers with enticing interest rates to the people on these lists. Their goal is to encourage borrowers to switch cards.

Your credit card company does not want your name on that list. They want to make sure that you remain a loyal customer. In an effort to keep you as a client, some experts say credit card companies report a lower credit limit than you actually have, or they do not report your limit at all.

This makes you less appealing to other credit card companies.

This might be good news for their client list, but it causes hurt credit.

Are you a victim of this scam? If so, take the following steps:

1.     Pull your credit report from www.720ficoscore.com.

2.     If the credit card companies are inaccurately reporting any credit limit of yours, immediately begin the process of correcting this mistake.

Or, simply get all the forms and worksheets necessary to correct this mistake, and others. And be sure to join us next week for the second insider secret about hurt credit.

Certain credit cards target people with bad credit—we call these “credit cards for bad credit.” And what the banks won’t tell you is that some credit cards for bad credit will hurt your credit score, while others will help your credit card score. Unfortunately, the banks won’t tell you which is which.

But I will!

For the ease of explanation, let’s call the cards that will hurt your credit score “subprime credit cards.”  Subprime credit cards come with such high interest rates and so many user fees that the cardholder’s balance immediately becomes too high to earn a good credit score.

Typical subprime credit cards will offer a low limit—say $500—and an interest rate in the neighborhood of 29.99 percent. These credit cards for bad credit add on fees to open the account, as well as annual fees. On a $500 limit, the fee to open the account could be as high as $125!

Keep in mind that the credit-scoring bureaus award the highest credit scores to people whose balances stay less than 30 percent of the limit. On a card with a $500 limit, the highest balance a person should carry is $150.

If the fee to open the account is $125, a person’s balance is already 25 percent the limit. And what about other fees, like interest rates, annual fees, and the like?

You can see that a person’s balance on a subprime credit card almost instantly exceeds that 30 percent threshold, and without the cardholder making a single charge.

If you are looking for credit cards for bad credit, your best bet is to apply for secured credit cards. Though secured credit cards require a deposit, the best ones do not charge fees that cause the balance to exceed 30 percent.

Fortunately, we have researched all the secured cards out there. These are the best credit cards for bad credit. Remember the basics of building a credit score using credit cards:

1. Keep your credit card limits no more than 30 percent of the balance.
2. Keep three to five credit cards.
3. Do not open retail account.
4. Pay your bills on time.

If you have any questions about credit cards for bad credit, be sure to leave a comment!

To follow are the credit cards we recommend. Please consider three things before applying:

1) Apply for these credit cards immediately – do not put this off! The longer you wait to apply, the longer it will take to raise your credit.

2) If you are married DO NOT apply for credit jointly with your spouse. You should each apply for three cards, you and your spouse. This way, you will build joint credit files which will protect you in the long run.

3) Apply for all three at the same time, this will help with your credit improvement.

CREDIT CARDS FOR EXCELLENT CREDIT

To follow are the credit cards we recommend for those who have excellent credit (credit history free of derogatory information, such as late payments, collections, bankruptcy or foreclosure):

DISCOVER “MORE” CARD

• 0% intro APR on balance transfers for a full 15 months, then the Regular APR
• 0% intro APR on purchases for a full 6 months, then the Regular APR
• 5% Cashback Bonus® in categories that change like travel, gas, groceries, restaurants, home improvement stores and more
• Up to 1% unlimited Cashback Bonus on all other purchases
• No Annual Fee

Apply Now!

DISCOVER “MOTIVA” CARD

• Cash rewards for your good credit management
• Each time you make 6 on-time payments in a row, you’ll get a Pay-On-Time Bonus equal to a full month’s interest added to your Cashback Bonus account
• 5% to 20% Cashback Bonus at over 150 top retailers through our online shopping mall
• Up to 1% unlimited Cashback Bonus on all other purchases
• 3.99% intro APR on balance transfers for a full 15 months, then the Regular APR
• 3.99% intro APR on purchases for a full 12 months, then the Regular APR

Apply Now!

IBERIABANK VISA CLASSIC CARD

• Introductory Rate of 0.00% or 7.50% based on creditworthiness for 12 months from date opened on Purchases. (If there is an interest charge, the charge will be no less then $1.00). This rate will not change during the introductory period.
• Low Introductory APR on Balance Transfers of 1.99% for the first 12 billing cycles, this rate will not change during the introductory period. Applies to balance transfers processed within three months of your account open date. After that, your APR will be the same as your assigned purchase rate, based on your creditworthiness. This APR will vary with the market based on the Prime Rate.
• Low Ongoing Variable Rate APR after introductory period of 7.50%, 9.50%, or 11.50% (Prime + 4.25%, Prime + 6.25%, and Prime + 8.25%) based on your creditworthiness. This APR will vary with the market based on the Prime Rate. (If there is an interest charge, the charge will be no less then $1.00).
• Online access to credit card account information

Apply Now!

CREDIT CARDS FOR FAIR TO GOOD CREDIT

To follow are the credit cards we recommend for those who have fair to good credit (credit history with derogatory information older than 1-2 years, such as late payments, collections, bankruptcy or foreclosure):

ORCHARD BANK VISA CARD

• Reports to 3 major credit bureaus monthly providing you the opportunity to rebuild your credit score!
• Acceptance at millions of locations worldwide, including website purchases and reservations
• Your account information is updated and at your fingertips 24/7 so you can manage it your way
• Email and text messages to remind you of your upcoming payment due date with online enrollment
• On-call customer service representatives to assist you with questions or concerns

Apply Now!

ORCHARD BANK CLASSIC MASTERCARD

• An excellent credit card for rebuilding credit scores; reports to 3 major credit bureaus monthly!
• Acceptance at millions of locations worldwide, including website purchases and reservations
• Your account information is updated and at your fingertips 24/7 so you can manage it your way
• Email and text messages to remind you of your upcoming payment due date with online enrollment
• On-call customer service representatives to assist you with questions or concerns

Apply Now!

If you have bad credit, we recommend that you apply for Secured Credit Cards which will help you rebuild your credit. CLICK HERE to view these cards.

We recommend you apply for each of the following Secured Credit Cards in this order. Please consider three things before applying:

1) Apply for these credit cards immediately – do not put this off! The longer you wait to apply, the longer it will take to raise your credit.

2) If you are married DO NOT apply for credit jointly with your spouse. You should each apply for three cards, you and your spouse. This way, you will build joint credit files which will protect you in the long run.

3) Apply for all three at the same time, this will help with your credit improvement.

Public Savings Bank Secured Visa Card

• Build credit history – reports to all 3 major credit bureaus
• 0% APR on all purchases for the first 6 months
• No annual fees or monthly maintenance fees
• No credit check
• No checking account required
• Your credit is not a factor!
• Choose your initial credit limit from $300-$2000
• Lifetime credit lines up to $5,000
• Free fraud protection against unauthorized use
• Use the card everywhere you see the Visa logo

Apply Now!

Orchard Bank Secured Visa Card

• Reports to 3 major credit bureaus monthly providing you the opportunity to rebuild your credit score!
• Acceptance at millions of locations worldwide, including website purchases and reservations
• Your account information is updated and at your fingertips 24/7 so you can manage it your way
• Email and text messages to remind you of your upcoming payment due date with online enrollment
• On-call customer service representatives to assist you with questions or concerns

Apply Now!

Orchard Bank Secured MasterCard

• An excellent credit card for rebuilding credit scores; reports to 3 major credit bureaus monthly!
• Acceptance at millions of locations worldwide, including website purchases and reservations
• Your account information is updated and at your fingertips 24/7 so you can manage it your way
• Email and text messages to remind you of your upcoming payment due date with online enrollment
• On-call customer service representatives to assist you with questions or concerns

Apply Now!

In most cases it, even if a judgment is paid off, the judgment will most likely remain on your credit report for seven years.

Not only must you settle the judgment, but you also must be sure that it is recorded properly as paid. You will receive some paperwork entitled “Satisfaction of Judgment” or a dismissal (order to vacate judgment). If you do not receive this paperwork, call the courthouse where the action was recorded and obtain a copy of the order. This will likely require proof of payment. Once it is recorded, make sure the appropriate credit bureau knows it has been paid. Follow up by checking your credit statement.

If you do not pay the judgment, your bank accounts might be seized and wages garnished.

A judgment is one of the worst thing that can happen to your credit score. Judgments stay on your credit report for seven years from the time they are paid. If you do not pay judgments on your credit report for three more years, they will be on your credit report for ten more years! To give you some idea of how damaging a judgment can be, consider what it looks like when it falls off your credit score. I’ve seen scores jump 30 or 40 points once a judgment falls off!

If you have judgments on your credit report, time to embark on a plan to rebuild your credit. The best advice is to start rebuilding now. A lot of people with bad credit think that time will heal their wounds. Because they have poor credit, they think they cannot get credit. They simply stop using credit, thinking that the problem will solve itself when the judgment falls off the credit report.

But credit-scoring bureaus place more emphasis on recent behavior than on past behavior. The also consider no credit activity just as bad as poor credit. If they do not have any information by which to judge your recent behavior, they simply assign you a poor score.

If you start now—today—you are one day closer to a score of 720.

When you have judgments on your credit report, the credit-scoring bureaus want to see that you have learned a lesson from the financial mishap. By wiping your hands of credit or ignoring the problem, the credit-scoring bureaus are unable to make this judgment call. They have no proof that you can indeed manage credit responsibly. And this is why I say you must start the process today!

If you have judgments on your credit report and want to learn how to improve your credit score, be sure to sign up for my no-cost teleseminar and receive all sorts of free goodies about recovering from financial mistakes.

Obviously, the best way to avoid judgments on your credit report is to pay your bills on time. But once you have been sued, you have only one course of action to stop the judgment: appear in court with proof that the lawsuit is not valid.

That being said, there is one great way to avoid judgments on your credit report: Call the creditor!

Like I said, paying your bills on time is the best way to avoid a judgment. But if you are having trouble paying your bills on time, the first thing you should do is pick up the phone and start negotiating with your creditor. The golden rule for all debt is to take it head on and not bury your head in the sand.

Burying your head in the sand might be the least threatening way to respond to a problem, but it is not the most effective. If you avoid the creditors’ calls, they will have no recourse but to file a claim against you.

Especially in today’s economy, reaching out to the companies that are trying collect debts from you can be beneficial. Creditors are afraid that you will declare bankruptcy (the bankruptcy facts show bankruptcy on the rise in tandem with a struggling economy), in which case they would receive no payment from you. Creditors would rather receive something than nothing. As well, they want to avoid court. They would much rather be paid for their services than face the trouble and expense of courtrooms and lawyer fees.

The sooner you begin the process of communicating with creditor to avoid having judgments on your credit report, the better. No matter how impersonal your relationship is with the water company or the cable provider, it will likely be a much friendlier relationship than that you will have with the collection agency. If at all possible, work out a payment plan early and avoid the harassment of the collectors.

Okay, so what should you do if you already have judgments on your credit report? Join me next week for Part III!

In this three-part blog, I am going to discuss:

• The facts about judgments (Part I: Judgments on Your Credit Report)

• How to avoid judgments (Part II: Judgments on Your Credit Report)

• What to do if you have a judgment on your credit report, and how to limit the negative affects they have on your credit score (Part III: Judgments on Your Credit Report)

In this week’s blog, we’ll take a look at the ABC’s of judgments.

A judgment is a court order that demands a debtor pay a debt. If a debtor cannot or will not pay the debt, the court might attach a judgment to a piece of property. These judgments are reported to the credit bureaus, have a negative impact on your credit score, cost you the original debt (plus interest and court fees), are part of your public record, and can lead to liens and property loss.

Any bill that you are taken to court for can result in a judgment lien on your property. This means that you are unable to sell the property until you satisfy the judgment. In worst-case-scenarios, you will be forced to sell the property to satisfy the judgment.

In any case, interest will accrue until the debt is paid in full.

So how do judgments works? Let’s say you stop paying your credit card bill. About ninety days later, the bill will be turned over to a collection company, who will attempt to collect the debt. If the collection company fails to collect the debt, the credit card company can decide to sue you. If the courts decide that you are at fault, the courts will issue a judgment against you, stating that you are responsible for paying the debt plus interest.

The statute of limitations determines how long the creditor has to sue you. This is decided on a state-by-state case. Most states have statutes of limitations that are at least ten years.  Usually, there is no “waiting it out.” Most states can renew a claim against you, meaning they can come after you for years and years for failure to pay a debt.

Obviously, judgments are not your friend! Come back next week to learn how to stop a judgment in Part II: Judgments on Your Credit Report.

Generally speaking, a person’s credit score consists of five things:

1. Payment history
2. Outstanding debt
3. The length of time you have had credit
4. The type of credit you have
5. The number of credit inquiries on your account

However, each of these five categories are comprised of several factors. What does a credit score consist of? There are actually 22 criteria used to determine a person’s credit score. Let’s take a look at the top ten.

1. Account payment information on retail accounts, installment loans, finance accounts, credit cards, mortgages, and other credit accounts. If you have paid on time, your credit score is good. If you haven’t, your score will be reduced.
2. Adverse public records, such as bankruptcy facts, judgments, suits, liens, collection items, wage attachments, and delinquencies will hurt your score.
3. What does a credit score consist of? A big part of your payment history considers how long an account is past due. Those items that you paid 90 days or more past the due date will more severely hurt your credit score than those that are 30 days past due.
4. The amount that is past due. The bigger the amount, the bigger the problem.
5. The amount you owe on all accounts combined. The less the better.
6. The amount owed on individual accounts. Lower balances receive better scores.
7. The recency of past due items, public records, or collection accounts. Older items are judged less severely.
8. The percentage of accounts that are in good standing. The bigger the percentage, the better!
9. The number of delinquent items on a credit report. The fewer the better!

10. The type of balances you carry. The healthier the mix, the better. Ideally, you should have a mortgage, installment loan (such as a car loan), and three to five major credit cards.

What does a credit score consist of? There are twelve other factors:

1. The number of accounts that have balances.
2. The utilization rate (the balance as a percentage of a limit) on revolving accounts.
3. Proportion of your installment loan balances as they relate to the original loan amount. If you have invested $6,000 into your $10,000 car loan, the banks see you as less risky than someone who has invested only $1,000 into a $10,000 car loan.
4. The average time since accounts were opened. The older the better.
5. The time since each individual account was opened. Again, older accounts fare better.
6. Time since the last account activity. Inactive accounts do not help your score.
7. What does a credit score consist of? The number of recently opened accounts plays a part, as does the proportion of accounts that are recently opened. Newer accounts are judged more severely.
8. The number of credit inquiries.
9. Time since the most recent account was opened.
10. The mix of various types of credit.
11. What does a credit score consist of? The final item is a big one: The reestablishment of positive credit after a past payment problem. If you have experienced a financial disaster, you must learn how to build credit so that your score can begin to improve!

1. Payment history
2. Amount owed
3. The length of time you have had credit
4. The type of credit you have
5. The number of credit inquiries on your account

So rather than asking, “What does credit consist of?”, let’s take a look at the things that are not considered in a credit score. You might be surprised by three of the things on the list!

1. Your salary. Though a bank will certainly want to know how much money you make before they grant you a loan, your three-digit credit score does not consist of your salary.
2. The length of time you have lived at a single location. Again, the banks will consider you to be a more stable person if you have lived at your home for a number of years. However, your credit score does not consist of this factor.
3. Late payments that occur less than 30 days past the due date (or, in some cases, less than one billing cycle past the due date). Though you will pay a late fee if you are one day past the due date, creditors usually do not report late payments to the credit bureaus unless they are 30 days/one billing cycle past the due date.

What does your credit score consist of? Or, in this case, what doesn’t your credit score consist of? Let’s take a look at a few of the other items that are not included in your credit score. Keep in mind that though the credit-scoring bureaus do not consider these factors, the banks might.

• Educational level
• Late payments on utility bills, such as electric, cable, or cell phone. However, if these accounts are turned over to a collection agency, your credit will be damaged.
• Occupation or history of employment.
• Bounced checks, unless turned over to a collection agency.
• Race, religion, nationality, gender, marital status, or age. (These criteria will never be considered by a bank either!)
• Rent payment history, unless you are evicted.
• Inquiries you make into your own credit report, as well as inquiries made my employers or landlords. These are considered “soft inquiries.”
• Child support or alimony obligations, unless you default.

With this out of the way, let’s get around to your initial question—What does your credit score consist of? I will identify these 22 criteria in next week’s post so that you can begin to learn how to build credit the right way!

Divorce and Credit Scores Rule #2: Separate any and all jointly held accounts, as well as accounts that list you or your ex-spouse as an authorized user. This includes credit cards and auto loans.

Even in the “best” divorces, couples often have a hard time separating finances and agreeing to the terms of the divorce. Divorce often means that a couple has less access to resources. One household becomes two households, and you might end up paying 100 percent of the overhead instead of 50 percent. Finances can become tight. Even if a person has plenty of resources, the pressures of divorce, custody, courts, and moving can wreak havoc, causing a person to make late payments simply because other items on the “to do list” are taking priority.

For this reason, cancel all jointly held accounts as soon as you begin the process of divorce. You might need to close the account entirely, or you might be able to transfer the card into one spouse’s name. Regardless, decide who will carry the debt, and transfer balances accordingly.

Likewise, remove your name from any accounts on which you are listed as an authorized user. And remove your ex’s name from any of your accounts. To protect your credit score, you should also refinance cars in one spouse’s name only.

If you have questions about the procedure for separating accounts, simply call your bank and explain your situation.