The Ideal Credit Card Balance to Optimize Credit Scores

As a reader of our HOPE4USA Credit Blog you already know that credit cards can potentially be a very powerful tool - when used properly - to help drive your credit scores upwards. A credit card with a $0 or very low balance can potentially help to give your credit scores a substantial boost. If you need some more great credit boosting tips check out this article for some of my favorite suggestions.

Lately I have noticed a lot of confusion regarding whether or not it is best for a consumer to carry a balance on a credit card in order to receive a potential score boost from FICO. For a long time, I have held the opinion that carrying a $0 balance on a credit card is always the best way to go. However, as I have consulted with professionals whom I respect within the mortgage industry I have found that many of them have the opinion that a consumer should carry a $10 balance to achieve the maximum score increase possible. So I set out to research the topic. What I have found is that the truth is actually somewhere in between the 2 opinions.

FICO rewards consumers (with points added to their credit scores) when the consumer has a 0% utilization ratio on a credit card or, in laymen's terms, a $0 balance. However, FICO rewards consumers just a little bit more when they have a 1% utilization ratio. What does a 1% utilization ratio look like? Here are a few examples:

1. On a credit card with a $300 credit limit a balance of $3 = a 1% utilization ratio.
2. On a credit card with a $500 credit limit a balance of $5 = a 1% utilization ratio.
3. On a credit card with a $1,000 credit limit a balance of $10 = a 1% utilization ratio.

This means that if a consumer has a credit limit of only $300 and they are carrying a $10 balance then the consumer is above the 1% utilization ratio and, therefore, is not receiving the full potential score benefit from that card. In fact, the consumer is losing some of the points that he or she would receive if the same card had a $0 balance. However, on a credit card with a $1,000 credit limit then carrying a $10 balance is a good idea in order to receive the maximum points available. Don't look at a zero balance as a bad thing. It is awesome. But, a 1% balance on a credit card is awesome + 1.  

Another factor to consider is how difficult it is to actually have a precise 1% balance show up on a consumer's credit report vs. a $0 balance. Let me give you another example. Joe Consumer wants to boost his credit scores as much as possible before applying for an upcoming mortgage loan. Joe has a VISA with a $300 limit. Joe knows that 1% credit card utilization ($3 on his $300 VISA) can help to improve his scores. So Joe goes to his local mall on July 1st and charges $50 on his VISA. Unbeknownst to Joe, VISA reports the $50 balance on July 3rd. On July 5th Joe pays the $50 balance down to $3 which equals a 1% utilization ratio on his VISA card. However, on July 10th when Joe's loan officer pulls his credit report the balance on his VISA is being reported as $50 NOT $3. Joe's limit of $3 will not be reported to the credit bureaus by VISA until August 3rd (assuming that Joe does not use the card for any additional purchases in the meantime). Because Joe's VISA is at a $50 balance, which is a little over a 16% credit utilization ratio, Joe lost potential points that he could have gained with a $0 limit.

Therefore, my recommendation in most cases is still that a $0 balance on a credit card is the best way to go to help boost credit scores. If you have time to play around with your balance for at least 60 days prior to a loan to try to reach the perfect 1% credit card utilization ratio - go for it! Never turn down extra points. However, if you know that you are going to be applying for a large auto loan or mortgage within the next 45 days then your best bet is to keep a $0 balance.

Either way you go - $0 balance or 1% credit utilization ratio - you will be showing the credit bureaus that you are a good credit risk. While you have the right to fully utilize the entire credit limit on your credit card accounts you are choosing to exercise discipline and financial restraint. In other words, you are not maxing out your credit cards each time the shoe store comes out with its hottest new releases. Showing the credit bureaus that you have this discipline and restraint will result in a reward - extra points for your credit scores!

Have credit card debt that you need to consolidate? Click here to compare consolidation options.

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Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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How to Spot a Scam!

How to Spot a Credit Repair Scam

I recently saw a sign that said:  “720 scores in 30 days guaranteed.” Since no one can truly and legally make this kind of guarantee I naturally knew that something was wrong. My team and I immediately investigated to find out more information. The company was selling alternate social security numbers. These types of numbers are illegal, even though the company in question promised otherwise on their website, and something you want to stay away from. (By the way, I sent out a secret agent, aka “Credit Man,” to remove these fraudulent signs from the side of the road so no one else would have the chance to be taken advantage of or to fall for this scheme.) Another common credit scam that has gained popularity in recent years is used by companies who will sell you seasoned credit cards to falsely elevate your credit scores. This practice is also illegal and you want to stay away from these companies as well. It is 100% possible to fix and improve your credit with a little time, a good plan, and some hard work. In the business of credit improvement, shortcuts are always either a scam or illegal. If it sounds too good to be true, then you want to avoid it.

Many people want help correcting inaccurate and erroneous information on their credit reports. Many others want help building excellent current credit but don’t who they can trust. It is important to be careful who you trust when it comes to correcting your credit report. There are a lot of companies out there who are scamming customers. These companies will take your money, will not help you to legally correct the errors, and – in the worst of cases – you may never even see them again.

Another factor to keep in mind when choosing a company to help you with your credit is that many companies desire to keep you in their program as long as they can. Why do these companies desire to keep you in their program so long? The reason is so they can continue to collect a monthly, residual fee for as long as possible. These companies are in no hurry to help you reach your goals. Our goal at HOPE, for over 12 years, has been to help you graduate from our program as quickly as possible. Because of this fact, our clients are our best referral source. When a HOPE client hears of a friend or family member having credit problems they are quick to say: “I know who can help you because they helped me.”

At least 25% of our clients have had a bad experience with ‘credit repair” companies in the past before they come to see our credit experts at HOPE. We love these customers because know we can restore their confidence that someone is doing things correctly. Integrity is at the center of all we do.

Remember, you always have the right to try to fix your credit on your own. However, most people simply do not have the time or the knowledge on the subject to do so. Also, those who try to fix their credit on their own usually pay more money in the long run than they would if they hired a reputable, professional company to assist them. If you would like to know more about the HOPE Program, please give us a call at 704-499-9696. Our team would love to hear from you and to answer your questions. You can be sure that the HOPE team will take great care of you.

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Personal and Business Credit Expert, Ron Lambright

About the author: Ron Lambright has been a credit expert for over 12 years and is the Executive Director of HOPE - a company he helped to found after struggling to overcome personal credit issues on his own twice before. He is a regular guest on radio talk shows and is featured weekly as the premier credit expert at training seminars in the Charlotte, NC region and up and down the East Coast.  Ron is an expert on teaching consumers how to achieve a "loan ready" credit report, improving credit scores, and an expert in the fields of business financing and business credit as well. You can connect with Ron on the HOPE Facebook page by clicking here.

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The 411 On Dispute Notations

What Are Dispute Notations? When you dispute an account on your credit report, the credit reporting agencies (i.e. Equifax, Trans Union, and Experian) are  obligated under the Fair Credit Reporting Act [FCRA 15 U.S.C. § 1681s-2(b)] to report the account as “in dispute” on your credit report. Data furnishers (i.e. creditors and collection agencies) are also required to report the account as “in dispute” under the Fair Debt Collection Practices Act (FDCPA 15 USC § 1692e). The credit bureaus list an account as “in dispute” on a credit report by assigning the “XB” code on the disputed account. Whenever the “XB” code is placed on a consumer’s credit report a note or narrative appears with the account information which reads something along the lines of “Consumer disputes, investigation in process.” Translation: the credit bureaus received the dispute and they are in the process of investigating the consumer’s claim.

Why Do Dispute Notations On a Credit Report Matter?

Dispute notations on your credit report can make it difficult for you to be approved for a mortgage. The reason that lenders and loan underwriters often have a problem with the “XB” code, aka the dispute notation, is because the FICO scoring model voluntarily treats accounts with the “XB” code differently than normal accounts. FICO chooses not to allow an account which is in the middle of an active, initial dispute to lower a consumer’s credit score. The account will still appear on the credit report; however, FICO will ignore the following: payment history and balance. For example, if a consumer is in the middle of an active dispute on an auto loan with late payments, then FICO will not consider those late payments when calculating the credit score. The result? The potential for a falsely elevated score—temporarily. This potential for the falsely elevated score is why underwriters typically require the removal of any dispute notations from a credit report prior to a mortgage loan approval, in order to ensure that they are seeing a consumer’s true FICO score.

What Happens After the Dispute?

When the 30 days of an active dispute cycle has been completed then the credit bureaus will typically take one of the following actions:

(1) Delete the disputed account if it was not properly verified by the data furnisher (aka the original lender or collection agency) or

(2) Remove the “XB” code from the tradeline and replace it with a persistent narrative code like -

(a) “XC” - completed FCRA dispute, consumer disagrees or

(b) “XH” - account previously in dispute, now resolved

The “XC” and “XH” codes signify that the consumer disagrees with the way the account is being reported; however, FICO will NO LONGER treat the account differently by ignoring payment history and balance on the account. The result? The score NO LONGER has the potential to be falsely elevated.

 Be Aware!

Unfortunately, loan underwriters (especially on manually underwritten files) will often simply read the words "in dispute" and assume the account is undergoing an active dispute. The result is that an underwriter may turn down a loan due to the "in dispute" notation because he/she assumes that the FICO score is falsely elevated with the "XB" code.  The good news is that you have the right under the Fair Credit Reporting Act (FCRA) to ask the credit bureaus and data furnishers to remove the "in dispute" notation from your file. Typically, you would only learn of a problem with outstanding and/or invalid dispute notations on your credit report if (a) you apply for a mortgage and are turned down due to this issue or (b) you are working with a professional credit restoration service who catches the error for you ahead of time.

NOTE: Current members of the HOPE Program can request for their case manager to send dispute removal request letters on their behalf at no extra cost.

Removal of Dispute Notations

I mentioned that it is your right to request the removal of any dispute notation from your credit report on any account which is not actively in dispute. The question you are probably asking right now is "how?" What steps can a consumer take to get this error corrected? Here are 3 options to consider:

1. Call the Credit Bureaus Often you can receive the removal of the "XB" code or any other dispute code by simply calling the credit bureaus, letting the consumer service representative know that you no longer dispute the account, and asking them to remove the "XB" code and any dispute notations from your report.

2. Write the Credit Bureaus You can submit a written request to the credit bureaus and the data furnisher directly to request the removal of a dispute notation. Remember, online disputes are typically not your best option and the credit bureaus and data furnishers have 30 days, by law, to process your request.

3. Consider Settling the Account It can be frustrating to settle an account which you do not believe is being reported accurately. However, especially in the case of low balance accounts, you may wish to consider settlement. A dispute notation usually does not matter to the mortgage underwriter if the account has a $0 balance. (Be sure to verify this fact with your loan officer or underwriter first.)

HOPE has developed a detailed, step by step, dispute removal handbook to help you. The HOPE Dispute Removal Handbook (Loan Officer Edition and Client Edition) contains direct phone numbers to all 3 credit bureaus and more detailed instructions to help make this process a little easier for you. Please feel free to contact us if you would like to request a free copy.

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Michelle Black,
Credit Expert

About the Author: Michelle Black is a 12+ year credit expert with HOPE, the credit blogger at www.HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft.

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How Long Will Items Stay On My Credit Report?

Here is a question that myself and the other credit experts at HOPE4USA get all the time: "How long will this account remain on my credit report?" As you may know, there is a legal statute of limitations regarding how long information is allowed to to stay on your credit reports. However, the time frame is different for individual types of accounts. Here is a great cheat sheet for you to use when you are trying to determine whether a negative account has been on your report too long.

Collection Accounts:  A collection can remain on your credit for 7  years from the date of default. The date of default is generally the date that the account became 180 days past due. Please note, the 7 year time clock begins when the ORIGINAL account becomes 180 days delinquent, not when the account is sold to a collection agency. If a collection agency is illegally attempting to re-age your account or if the agency is trying to manipulate the date of initial default on your account then you have the right to dispute the account under the Fair Credit Reporting Act (FCRA).

Charge-Off Accounts: If an account on your credit reports has been charged off then the account can remain on your credit for 7 years from the charge-off date.

Bankruptcies:  Chapters 7, 11, and some chapter 13 bankruptcies (only those which have not yet been discharged or have been dismissed) are allowed to remain on your report for 10 years from the date they were initially filed. Discharged chapter 13 bankruptcies are allowed to remain on your report for 7 years from the discharge date, but that date is not allowed to exceed 10 years from the original filing date. Some credit bureaus may have policies to remove discharged chapter 13 bankruptcies 7 years from the filing date, however, that is not necessarily a requirement. 

Repossessions: A repossession should be removed from your report 7 years from the date the auto loan initially went into default.

Judgments: A judgment is allowed to remain on your report for 7 years from the date it was filed.

Tax Liens: Unpaid tax liens are allowed to remain on your credit report permanently. However, paid and released tax liens (federal, city, state, and county) should be removed from your credit reports 7 years from the date they are released. (NOTE: If you have paid a federal tax lien you may be able to have the tax lien withdrawn and removed from your report early.)

Inquiries: When someone looks at a copy of your credit report an "inquiry" is placed on your credit report. Certain types of inquiries may negatively affect your credit scores (i.e. inquiries that occur when you apply for financing for a loan, credit card, car, mortgage, etc.). These types of inquiries are allowed to remain on your report for 2 years. When you look at your own credit report this is a "soft" inquiry. It does not hurt your scores at all and it can remain on your credit report for 6 months. Finally, if your credit report was pulled for a pre-screened offer then this type of inquiry will not hurt your scores and it should be removed from your report after 6 months. Remember, you can always opt out of having your credit pulled for pre-screened offers at www.optoutprescreen.com.

You have rights! The Fair Credit Reporting Act (FCRA) exists to protect you if accounts are being reported on your credit report past the legal statute of limitations. Pull your credit report at least 1-2 times every year and if you find errors or violations you can dispute them or have a professional to dispute them for you. Remember, you may want to think twice before you dispute your accounts online as you may be agreeing to terms and conditions which do not work in your favor. 

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Michelle Black is an author, a 12+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here.

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Adopting the Perfect Attitude to Reach Your Goals!

Fort Mill Magazine - Spring 2013

Please take a few moments to read a truly inspiring story, featured in the Spring 2013 edition of the Fort Mill Magazine (pages 50-53). The story is written by HOPE Credit Expert, Michelle Black, about an amazing couple who recently graduated from the HOPE Program. We believe you will find their story to be as encouraging and uplifting as we do!

Adopting the Perfect Attitude to Reach Your Goals

At HOPE (Home Ownership Program for Everyone) we have a slogan, “Bad credit happens to good people all the time.” I believe that statement to be 100% true, but it has never been any MORE true than in the case of recent HOPE graduates, Todd and Melissa Melton. Their story is one of selflessness, extreme generosity, and love. Over the past 12 years in my field as a credit expert I have never been so happy to assist a family in overcoming credit issues, nor have I ever felt so personally inspired afterwards.

Todd and Melissa, teenage sweethearts who married in 1994, always knew they wanted a family. A little over 5 years after being married Melissa gave birth to Brandon, a blonde haired, blue-eyed, beautiful baby boy who stole mommy and daddy’s hearts at first sight. As Brandon grew older Todd and Melissa wanted to grow their little family of 3 and they hoped to give Brandon, aka Bam Bam, a baby sister. However, the years passed and Melissa was unable to conceive again. In 2007, Melissa had to undergo a total hysterectomy due to a severe case of endometriosis which she had battled for 6 years. Still, Todd and Melissa knew that their family was not yet complete. They didn’t want Brandon growing up without a sibling.

Since Melissa could no longer carry a biological child of her own, the Meltons began to consider adoption. Previous full-time missionaries with Ambassadors to the Nations, Todd and Melissa first began to research adoptions from China where so many baby girls are born unwanted due to China’s strict one-child policy. Shockingly, Todd and Melissa soon learned that the cost to adopt a baby from China was close to $30,000 – a price that was, unfortunately, out of reach. Still desiring to adopt, Todd and Melissa looked into adoption through foster care in their county. Upon learning about the large number of local children in need of foster homes they promptly applied and were approved to be foster parents. From 2008 - 2011 the Meltons were able to care for and love a total of 7 precious foster children.

In 2009 Todd and Melissa became foster parents to 2 children - an 8 month old baby girl, Shyann, and her 3 year old brother, Isaiah. Shyann and Isaiah’s other 2 siblings, Nathan and Elijah, were being fostered by 2 separate families as well. Then in 2010 a baby girl, Summer, the biological sister of Shyann, Isaiah, Nathan and Elijah, was born and placed with the Meltons at the age of 3 months. In total, there were 5 siblings being cared for by 3 foster families. When the children were finally cleared for adoption in 2011, the Meltons were the only family out of the 3 foster families involved who was able to adopt all 5 children. Yes, their plan was originally to adopt one little girl, but Todd, Melissa, and Brandon had fallen in love with their foster children and couldn’t imagine them being permanently separated from their siblings, or living with anyone else for that matter either. Their little family of 3 had suddenly become a large family of 8!

Shortly after the adoption was finalized, the Melton family was nominated to receive a home from Extreme Makeover Home Edition for their newly enlarged family. In fact, the Meltons were not merely nominated, but they later learned that they were one of the 5 finalists selected to receive a brand new home! Todd, Melissa, and all of the children attended the pre-show rally for Extreme Makeover Home Edition at Belmont Abbey College. The fact that the rally was held at Belmont Abbey College seemed like a good sign since Todd was a student there. (Todd ultimately graduated in May of 2012 with honors from the college receiving his BA in education – no small feat considering that he also worked full time, volunteered at his local church as the children’s church pastor, and was father to a family of 8 all while keeping up with a full time college student’s coursework!)

On the night before Extreme Makeover Home Edition would go to the winners’ home Todd and Melissa sat down with their children. “We explained to them there was a chance that we would be chosen to receive a new, bigger home that next morning,” says Melissa. “But, we also told them that even if we were not chosen we knew that God still had a better plan in store for our family of 8.” Everyone woke up extra early the next morning, a Sunday, and got dressed for church as they did every week. “We knew when they weren’t at our house by a certain time that we weren’t the chosen family. So, we stopped and prayed together. We thanked God for the family that was chosen (in Lincolnton only 20 minutes from our home) and we went to our church, Freedom Christian Center of Charlotte” recalls Melissa. “A lot of our friends were very disappointed, but we were at peace. We really were very excited for the family that was chosen.”

Since more space was still desperately needed, Todd and Melissa decided to try to buy a larger home. Unfortunately, they soon discovered that a home large enough for their family of 8 was way out of their price range, especially since Todd was now the sole breadwinner with the task of caring for such a large family making it impossible for Melissa to continue working outside of the home. So, instead of buying a new home Todd and Melissa would build on to their existing home. By adding a 2nd level to their one-story house the Melton family could add an additional 4 bedrooms, 2 more bathrooms, and an extra laundry room – a great necessity if you have ever tried to do laundry for a family of 8! It was the perfect plan, a more affordable way to provide their family with the space they needed to thrive. Blueprints were purchased, a contractor was found, but when Todd and Melissa went to apply for the construction loan they hit yet another road block. They learned that their credit scores were not high enough to qualify. This was rather surprising because Todd and Melissa always worked hard to maintain good credit and took their financial responsibilities seriously. However, Melissa was uninsured during her 6 year battle with endometriosis and her hysterectomy and we all know how astronomically expensive medical bills can quickly become. The other factor that negatively affected their credit scores was a simple mistake. Todd and Melissa had worked hard to pay off several of their credit card accounts. After paying off the debt, they closed the accounts, believing that to be the right thing to do. What they didn’t realize was that closing those old, seasoned credit lines would drop their credit scores significantly.

You have probably figured this out by now, but Todd and Melissa Melton are not quitters. When they learned that their credit scores were not high enough to qualify for the construction loan they needed they decided to do something about it. Here is where I come into the story. Melissa contacted HOPE for professional credit restoration assistance. The Meltons began working with our team immediately and, before long, their credit scores had increased tremendously! Melissa says, “We would encourage anyone whose credit doesn’t seem to have any hope to contact the HOPE Program! Don’t think it’s impossible to bring your dreams to pass because of low credit scores. HOPE can help your dreams to come true just like they helped our family. Because of the team at HOPE our scores have increased and construction begins on the 2nd level of our home next week!”

Todd and Melissa are a shining example of why we should never give up on our dreams. No matter what setbacks they encounter along the way the Meltons kept their faith in God and their belief that their dreams would come true. When a hysterectomy stopped them from having another biological child of their own, they decided to adopt. When adopting a baby girl from China proved to be out of reach, they opted for a local adoption through social services. When they were not able to adopt the first children they fostered they continued to love other children in spite of their own heartache and vulnerability in doing so. When given the opportunity to keep 5 siblings together in one, loving home, they said “yes!” In the face of great disappointment at not being chosen by Extreme Makeover Home Edition they kept positive attitudes and they taught all 6 of their children the grace to being truly happy for someone else’s miracle instead of being bitter or jealous. When purchasing a new, larger home proved to be unaffordable, the Melton family decided to build on to their existing home. And when unforeseen credit issues made approval for their construction loan impossible, they found HOPE with a company who would help guide them through the process of rebuilding healthy credit again.

Life isn’t always easy and dreams often don’t come true without a fight. You may fall down a hundred times along your journey, but determine now that you will never stop getting back up again. Your dream is worth fighting for just like Todd and Melissa’s dream was worth overcoming every obstacle they encountered. The funny thing is I have a feeling that their dream is not quite through coming true just yet. A national television show may not have decided to build them a dream home, or to pay off their mortgage and debt, but who knows what the future may have in store…

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Michelle Black is an 11+ year credit expert with HOPE4USA, a published author, the credit blogger at www.HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here.

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