Video Transcript Below:

What’s up everyone is Derek Vogel with Credit Absolute. So this is going to be the first part of the credit knowledge and information I’m going to share with you on how the credit scores are broken down.

So the number one component of our credit score that has the biggest impact is payment history. Okay so let me show you this chart here. Alright, so what we’re looking at here is thirty-five percent, thirty percent, fifteen, ten, ten. Okay and as I told you our total score is based on five hundred fifty points. Alright, so when we break down thirty-five percent into five fifty you can then see what the total value of points is that impact our score. So payment history is 192.5. Credit cards are 165. Age of credit is 82.5. You got the proper mix of credit which is 55 points and then new credit line inquiries is 55 points which add up to the 550.

Let’s first talk about payment history I’m gonna go ahead and put this board down but a payment history alone is one of the key factors in our credibility on how we are credible and/or irresponsible enough to pay our bills on time. Now, one 30-day late payment can actually impact your score over 100 points. Okay, because it’s worth 192.5 and so whatever you do and whatever situation that you get in no matter what if you can at all possible always make the minimum payment. Okay, it’s critical because if you get a 30-day late it’s going to impact the scores dramatically and, more importantly, it takes nine months to recover from one thirty day late payment and these are on credit card accounts.

Now if it’s a mortgage late there is a little bit of longer recovery time. They say one 30-day late can take up to two years to completely recover from. Okay and then if you get multiple lates you’re talking, you know, three to five Years. Okay and then if it goes 90 days pretty much what happens is you go into what’s called T key derogatory and it takes seven years to recover from that. So it’s almost like a charge off for collection which is brutal.

Now you could have heard in the past you know just make your payments on time and your scores will be fine. Well your scores could be fine but I just want to share with you making your payments on time is not everything that you can do to have perfect credit and what I mean by that is I see quite a few of my clients that come to me that have perfect payment history, have never missed a payment and they have a low credit score like in the low 600s. Okay, the reason why is because the other 65% of the score that we talked about makes up the total 550 and it’s extremely important that that is managed properly.

All right so you can have perfect payment history again but if you have high balances, if you don’t have the proper mix of credit, if you have a young credit history, all of those things are going to factor into what I think is really cool and important which I’m going to cover a little bit more on the proper mix of credit but if you have a few accounts and not multiple then your scores will be damaged more excessively or harder because you have less credit reporting. So it’s going to have a heavier impact.

So let’s say that you have ten accounts and all those accounts have two years of perfect payment history and let’s say one of those accounts you end up getting a 30-day late payment well they’re gonna take everything and look at that and say “look well we had nine accounts with positive payment history and this one account it’s still going to have a negative impact very heavily but still it’s gonna be less of an impact because you do have credibility with those other accounts.

Now let’s use that same example let’s say that you only had three accounts and you had two of them that have a perfect payment history and you have that one get two late payments. Well obviously because you have less documentation and data that’s going to allow you to show that you’re more responsible or credible you’re going to get hit much harder if you only have those three accounts. So just know what payment history is, it’s pretty straightforward.

Okay, whatever you do try to make your payments on time and one important thing to understand is that you are not allowed to have a 30-day late report to your credit report unless you’re actually 31 days late.

Okay so on that, on that thirtieth day there are some definite things to be aware of. So like on the report it says fifty thirty-one to like sixty and so they couldn’t report a sixty day late unless you were 61 days late so it’s just you know it’s just important obviously you never want to get to that point anyways but if let’s say that you’re 15 days late you’d get a late fee but if you made the payment and it wasn’t 30 days late they can’t report a 30 day late against you so it is a big violation that we see quite a bit but with the payment history.

Again I hope this helps a little bit, helps you understand that payment history alone like I said it was 35% of the score which calculates to 192.5 but as long as you can manage your payments on a monthly basis it’s going to be one huge component to keeping your scores at the top and then part two actually we’re going to get into the credit cards which is my favorite so I’m looking forward to talking to you about that again.

Again, guys, it’s Derek with Credit Absolute and I hope this helped you today. Thank you.

 

 

There are certainly many things that can negatively impact your credit score, some more than others. If you are worried about your credit or are trying to maintain a good score, it is helpful to know items on your credit report could cause the biggest impact on your score.

Below we’ve outlined four issues that could cause the biggest drop in your credit score. We have also listed the average point loss for each item.

How Much Does a Bankruptcy Lower Your Credit Score?

The higher your starting score, the more points you’ll lose for filing for bankruptcy. For a person with a credit score of 680, filing for bankruptcy will lower your score by 130-150 points. For a person with a score of 780, filing for bankruptcy will cost you 220-240 points.

How Much Does a Foreclosure Lower Your Credit Score?

According to FICO, if your credit score is 680, a foreclosure will drop your credit score on average by 85 to 105 points. If your credit score is excellent, at 780, a foreclosure will drop your score by 140 to 160 points. In other words, the higher your credit score, the more your score will be affected.

How Much Does a Late Payment Lower Your Credit Score?

One late payment could have a more significant impact on higher credit scores. According to FICO data, a 30-day delinquency could cause as much as a 90- to 110-point drop on a FICO Score of 780 for a consumer who has never missed a payment on any credit account.

How Much Does a Car Repossession Lower Your Credit Score?

Having your vehicle repossessed could cause a 100-point drop in your credit score. And late payments, collections, and public records generally all stay on your credit for about seven years, according to myFICO.com.

For most people, the above issues are unavoidable but in certain circumstances, it is a choice to make depending on your financial situation. If you are swimming in debt and are debating filing for bankruptcy, for instance, you may want to consider a few things first. In that scenario, if your credit score is already low due to late payments, high debt-to-income ratio, and delinquent accounts, you could potentially improve your credit quicker by filing for bankruptcy as it would not have as big an impact on your score but would give you the fresh start needed to start rebuilding your credit.

For assistance with credit repair or counseling, contact Credit Absolute.

Will Your Personal Credit Score Affect Your Business Loan Application?

Congratulations! You’ve decided to begin the process of applying for a small business loan. This is an exciting time for your new or existing company and could forecast many great things.

If this is your first time applying for a business loan, you might not be aware of the potential barriers that can get in your way. After all, receiving a business loan for your start-up or expansion can be competitive, and banks want to ensure that they trust only the best with their investments. Before you jump all in, you’ll want to have a clear understanding of the things that could qualify or even disqualify you from receiving funding.

One of these factors is your personal credit score.

If you are a small business owner in the United States, the three credit bureaus track two profiles: your personal financial history and your business credit history. Each profile plays a vital role in getting approved for a business loan. However, if your starting a new business or your existing business doesn’t have established business credit, the lender may rely more heavily on your personal creditworthiness when making their lending decision.

While your personal credit score and business credit profile express different information about you and your business, both have a substantial impact on the options available to your business and your ability to qualify for a loan.

Why Lenders Care About Your Personal Credit Score

Some business owners don’t think that their personal credit score has much of an impact when it comes to their organization. This just isn’t the case. A potential creditor is going to consider your personal credit score when making a decision to grant your company a business loan.

In general, a potential lender is going to view your credit score to determine if you:

• Have the ability to repay the loan?
• Are going to repay the loan?
• Will pay the loan even if something unexpected happens?

Lenders see your credit score as an insight into your financial health and responsibility. Unfortunately, if a lender sees that you are not able to manage your personal finances, they may assume that you are a high risk for managing business finances as well. This is especially true if you are a new business owner. Without an established business history or credit to your company’s name, the only way the lender will be able to determine creditworthiness is by accessing your personal credit score.

How is my credit score calculated?

Three primary credit bureaus generate a credit score for lenders to access. Each reporting agency uses the same basic FICO formula to score the information that they collect. They also obtain personal information such as full legal name, date of birth, employment history, address, etc. They also list a summary of information that was provided to them by your creditors. Other information found in public records like bankruptcy or judgments are also included on your credit report and factored into your score. Each time that you apply for credit is also recorded on your report.

There are primary differences in the way that the three credit bureaus review and calculate your personal credit history. For example, Transunion holds more detail about your employment information, Equifax separates your accounts that are open and closed, and Experian will record data like whether or not you are paying your rent and other bills on time. Essentially, these agencies are competitors, and lenders may choose to report to one bureau and not the other. While their data might include different results, their score is typically similar.

Importance of a Good Credit Score For Your Business

While you may not feel that your personal credit history is the best representation of how you will meet and exceed your business’s financial obligations, the need to establish and maintain a positive credit score is vital for every small business owner. Most banks and lenders take a close look at your credit score when they evaluate your worthiness as a business borrower and even consider the score in their decision-making process – regardless of how long your business has been operating.

As is the case with every facet of consumer spending and credit card usage, credit scores have changed during the COVID-19 pandemic. Because of how long this pandemic has lasted, many people became unemployed or started working fewer hours to accommodate the temporary shutdowns that took place in many industries.

As a result, a large percentage of consumers were bringing in less income. By having access to less income, it’s possible that credit scores would drop significantly as a result of late payments or foreclosures. On the other hand, people could be more cautious about spending too much of their money. The following guide looks at the types of effects the pandemic had on credit scores.

How Credit Scores Have Changed During the Pandemic

When looking at FICO credit score data from Experian, this data indicates that the average credit score has increased throughout the pandemic. At the beginning of 2020, the average credit score in the U.S. was right around 703. This average score had increased to 711 by the end of 2020 despite the impact that the pandemic had on household finances. Another credit-scoring model called VantageScore also saw an increase of four points in average credit scores between 2019 and 2020.

Even though VantageScore was created by TransUnion, Experian, and Equifax as an alternative to FICO, it isn’t used as widely. The average score for VantageScore at the end of 2020 was just 690. The difference between VantageScore and FICO is that VantageScore generates scores from a larger population and doesn’t require up to six months of credit usage to generate a score. Throughout the pandemic, more Americans have risen above the subprime VantageScore category, which involves any score from 300-600. In January 2020, over 25% of all consumers had subprime scores. These numbers fell to 23% by the end of November 2020, which indicates that credit scores are increasing.

How Consumers Benefit From Lender Accommodations

One of the reasons that can explain the increase in credit scores during the pandemic is that many consumers have benefited from lender accommodations while the pandemic is ongoing. Most of the consumers who were able to get out of the subprime credit category did so because of these accommodations. Many credit card companies and lenders worked with consumers during the pandemic to reduce minimum monthly payments and delay payments altogether.

As a result of a provision that was included in the CARES Act that was first passed in 2020, lenders must report accounts that have accommodations as being “paid as agreed” or current as long as the borrower adheres to the details of the arrangement. With this level of protection in place, consumer credit scores wouldn’t drop unless preexisting delinquencies caused a drop.

Despite the protection, however, consumer credit scores haven’t been entirely frozen. Once Congress or President Biden terminate the national COVID-19 emergency, any provisions in the CARES Act will only remain in place for 120 additional days, after which lenders could request full repayment.

How Consumers Paid Down Debt

Another reason that the average credit score has increased during the pandemic is that many consumers have paid down some of the debt that they owe. They were able to pay down their debt because of the stimulus payments and increased unemployment benefits. Since Americans weren’t dining out or traveling as much during the height of the pandemic, only a smaller portion of credit limits was being reached by consumers.

According to a consumer credit review by Experian, consumers were able to cut credit-card debt by nearly 15% in 2020, which invariably helped increase credit scores. Credit-utilization rates also dropped by around 3.5 points between 2019 and 2020. Keep in mind that many consumers have extra cash in their bank accounts because of a repayment pause for certain student loans that lasts through September 30 as well as mortgage loan forbearance for any loans backed by Freddie Mac or Fannie Mae.

Will These Changes Last

While many of the changes that have occurred during the pandemic should help Americans better understand how to manage their credit scores and handle their finances, most of the protections that helped facilitate an increase in the average credit score will go away towards the end of 2021 and into 2022. For instance, there’s very little chance that people will continue to receive high unemployment benefits and stimulus checks in the future, which will make it more difficult to pay off debt.

To prepare for the end of these protections, it’s important to take steps to improve your credit and reduce debt, which will pay dividends in the future. Two easy methods for improving a credit score include keeping credit utilization below 30% and making payments on time. Paying off an entire credit card balance can increase credit scores as well.