How Many Points Will An Inquiry Lower My Credit Scores?

The fact that inquiries have the potential to lower consumer credit scores is not breaking news. Credit savvy consumers know that letting too many lenders pull their credit reports in a short period of time is a bad idea (with the exception of rate shopping for a mortgage, auto loan, or student loan within a 45 day period). However, the idea that inquiries lower your credit scores a particular number of points is a complete myth.

There is nothing on a consumer's credit report that raises or lowers your scores a fixed number of points. For example, an inquiry does not always lower your score 4 points (or 3, 5, or 6 points for that matter). An on-time payment does not raise your credit score 5 points. A late payment does not lower your scores 30 points. That is simply not the way that credit scores work.

How Inquiries Actually Impact Your Credit Scores

Remember, not all inquiries will have a negative impact upon your credit scores. (CLICK HERE to read The Difference Between Hard and Soft Inquiries for more information.) However, as mentioned above, those hard inquiries which do have the potential to negatively impact your credit scores are not going to lower those scores a specific number of points per inquiry that occurs.

Instead, imagine a set of 5 buckets lined up side by side. Each bucket bears a sign which represents the number of inquiries which appear on a consumer's credit report over a period of the past 12 months.

•  Bucket #1 = 0 Inquiries
• Bucket #2 = 1-2 Inquiries
• Bucket #3 = 3-4 Inquiries
• Bucket #4 = 5-6 Inquiries
• Bucket #5 = More than 6 Inquiries
  *NOTE: These are hypothetical categories for demonstration purposes only.

Since inquiries are the primary factor which accounts for 10% of your FICO credit scores and the range of FICO scores is 300 - 850 (550 total available points) then there could be the potential for a consumer to earn up to 55 points for her credit scores in the inquiry category. Here's a hypothetical look at how credit score points might be awarded within the inquiry category of a consumer's credit report.

• Bucket #1 = 0 Inquiries = 55 points
•  Bucket #2 = 1-2 Inquiries = 45 points
• Bucket #3 = 3-4 Inquiries = 35 points
• Bucket #4 = 5-6 Inquiries = 20 points
• Bucket #5 = More than 6 Inquiries = 10 points
  *NOTE: These are hypothetical categories and points for demonstration purposes only.

While the points listed above are not an exact representation of how many points a consumer's credit score would receive based upon her number of inquiries, the concept is an accurate representation of how credit scores are calculated within a category. In the example above if Jane Doe had a credit report with 3 inquiries then she would receive 35 points (of the 55 available points within the category) to be added to her overall credit score. However, if Jane Doe had no additional credit inquiries and the 3 inquiries became over 12 months old then she would move to the "0 inquiry" bucket and would receive 55 points instead of the 35 points she had received previously. In the case of this example Jane's credit score would increase by 15 points once the 3 previous inquiries aged out of credit score calculation range and she moved to the "0 inquiry" bucket.

When it comes to inquiries just remember that the fewer hard inquiries the better it is for your credit scores. (Soft inquiries which typically occur when you check your own credit are fine. They never lower your scores.) Additionally, as you can see from the "buckets" example above, no single inquiry is worth a particular number of points. Now that you understand that individual credit inquiries are not worth a particular number of points, congratulations! You now understand more about your credit scores than probably 99% of the population.

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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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Is Settling My Debt the Key to Better Credit?

Let's face it, no one plans on having bad credit. Aside from a few bad apples, the vast majority of consumers never set out with the intention of acquiring debt and failing to pay it off according to terms. Instead, most consumers who develop bad credit do so as a result of some unfortunate circumstance such as a job loss, an illness, divorce, etc. Even those consumers who find themselves swimming in collection accounts as a result of poor financial planning typically do not realize that they have overextended themselves financially until they have already bitten off more than they can chew.

One of my favorite sayings is the HOPE4USA slogan, "Bad credit happens to good people all the time." The reason why this statement means so much to me is because it is 100% true. Whether a person is facing credit problems due to bad luck or bad decisions, that does not mean that he or she is a bad person. Everyone deserves a second chance.

Cleaning Up Past Mistakes

Unfortunately, when most consumers set out to begin cleaning up their past credit mistakes they do it wrong. I cannot count how many consumers have expressed their frustration to me over the years after they paid off a pile of old collection accounts and their credit scores remained low - often even lower than they were initially. The fact that most consumers fail to understand is that paying off or settling collection accounts generally will not do anything to improve credit scores.

Why Paying Collections Doesn't Raise Credit Scores

The FICO credit scoring models currently in use by lenders do not reward consumers for paying off collection accounts. Current versions of FICO are much more concerned with the fact that a collection occurred in the first place than they are with the balance of the account. In fact, a collection account will have virtually the same negative impact upon a consumer's credit scores whether the balance is $2,000 or $0. (Defaulted credit card accounts are typically the exception to this rule.)

The purpose of a FICO credit score, also known as the design objective, is to predict the likelihood that a consumer will become 90 days past due on any of his/her credit obligations within the next 2 years. Current FICO credit scoring models are built with the assumption that a consumer who had collection accounts in the past is still likely to be 90 days late on an account in the future. Therefore, the presence of a collection account - regardless of the balance - is going to have a negative credit score impact.

Change on the Horizon?

FICO 9, the most recent credit scoring model released by FICO was designed to treat $0 balance collection accounts very differently than they have been treated in the past. The new scoring model was built with scoring logic to completely ignore collections with $0 balances. The result? Consumers who settle or pay their collection accounts could potentially see a massive score increase under the new scoring model.

Before you get too excited it is important to realize that it will likely be many years before FICO 9 is widely adopted by lenders - if it is even adopted at all. Check out my previous article, "Why You Shouldn't Be Too Excited About the New FICO 9 Scoring System...Yet" for more details. If lenders are not using the new scoring model then it is impossible for consumers to see any benefit from the new scoring logic.

What Should I Do?

If you believe that the fact that settling your collection accounts will not likely help your credit scores is a good reason to ignore the accounts, you may want to think again. Unpaid collection accounts have the potential to come with a lot of nasty consequences. Lawsuits, judgments, and wage garnishments are a few of the unpleasant side effects that often accompany unpaid debts. Settling past due accounts can be a very smart move, though it may be advisable to consult with a reputable professional for help and guidance before you get started

Where to Begin

It is important not to become overwhelmed when you make the decision to begin trying to fix past credit issues. The best place to start is to get a copy of all 3 of your credit reports (and possibly your scores as well). You can access a free credit report from each of the 3 major credit bureaus every year at www.annualcreditreport.com. Credit scores are not free, but you can often access them as part of a free or inexpensive trial to a credit monitoring service. CLICK HERE to compare trial offers which offer 3-credit scores.

Once you have your reports, review them thoroughly for mistakes. Credit mistakes happen more commonly than many consumers realize. In fact, the FTC estimates that over 40 million consumers may have errors on their credit reports.

When reviewing accounts for errors remember that all aspects of the account (i.e. balance, date opened, date of last activity, etc.) should be correct. If errors are discovered you have the right according to the Fair Credit Reporting Act to dispute those errors. You can dispute credit errors on your own or with the help of a professional. CLICK HERE for a great, free Credit Repair Toolkit to help you get started or you can schedule a no-obligation credit analysis with a HOPE4USA Credit Expert.

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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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Protecting Your Marriage from Credit Problems

Financial problems, divorce, and trashed credit reports often go hand in hand. In fact, some studies suggest that up to 80% of divorces cite financial problems as the primary factor leading to the dissolution of the marriage. It is no secret that divorce tends to cause major credit issues after the fact as well - credit issues that can take as long as a decade to fully resolve. Protecting your credit from divorce is an unpleasant reality that many people face.

However, is it possible to protect your marriage from credit problems? If so many divorces stem from financial problems and disagreements does it not stand to reason that making a solid plan to address these issues before they get out of hand could be beneficial to your marriage itself? The answer to both of these questions is "Yes!" It is absolutely possible to protect your marriage from credit problems but it will take hard work, a solid plan, and a commitment to follow the plan. Here are 5 steps to help you get started.

1. Do not ignore the problem.

When money and credit problems arise it can be tempting to stick your head in the sand and try to ignore the fact that you are in financial trouble - or at least headed that way. After all, financial problems are extremely stressful. Many people use "ignoring the problem" as their coping mechanism to try to escape from pressure and stress.

Unfortunately, ignoring financial problems tends to backfire. Late payments on your mortgage can lead to a foreclosure down the road. Unpaid credit obligations can lead to increased fees, collection accounts, and even lawsuits. It may not seem like it initially, but pretending that your financial problems are not happening is a recipe for disaster. Be open with your spouse about financial and credit problems when they arise and be sure to be proactive where your creditors are concerned as well.  

2. Consider seeking professional help.

The decision to "handle things yourself" might not always be in your best interest. Yes, it may require an investment to work with a professional but that investment is often well worth the financial sacrifice in the long run. If you need help rebuilding damaged credit then consulting with a reputable credit expert may be great place to start. (CLICK HERE to schedule a no-obligation credit analysis with a HOPE Credit Expert.) If you sense that your marriage is in trouble due to financial problems then speaking with your minister or a professional marriage counselor is another option that you may want to strongly consider. Never be afraid to ask for help.

3. Plan to succeed together.

Have you ever heard the saying, "Failing to plan is the same as planning to fail?" The statement is especially true where your finances are concerned. If you do not have a family budget set up then you should (a) track and figure out where you are spending your money and (b) create a spending plan - aka a budget - for your household to begin following right away. CLICK HERE for a free budgeting worksheet to get started.

4. Be quick to admit your mistakes and even quicker to forgive the mistakes of your spouse.

Almost no one is perfect when it comes to managing their finances and credit - not you and not your spouse. If you do make a financial mistake, whether it be minor or major, be quick to fess up. Your spouse may not be happy with you, but it will be much less of a betrayal than if he/she finds out about your misdeeds from you directly rather than from your bank account or credit report after the fact. Additionally, if your spouse is the one who makes the financial mistake you should be quick to swallow your anger and forgive.

5. Be accountable.

When you commit to changes, such as following a budget or cleaning up past credit mistakes, do not be afraid to rely upon your spouse for help. In fact it is a great idea to schedule a weekly "meeting" with your spouse to remind one another of the reason you are working to make financial changes (i.e. to buy a home, to get out of debt, to reduce the stress on your marriage, etc.) and to assess how your plan is progressing. Discuss what each of you could have done better and what successes you achieved. Remaining accountable to one another and encouraging each other as you achieve small victories will not only help to insure you reach your financial goals sooner it will also strengthen your marriage.

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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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Can Collection Accounts Really be Removed from My Credit Reports?

In my previous article, Will Paying Collections Help My Credit Scores?, I discussed the common misconception that paying a collection account will raise your credit scores. It is true that paying a collection account probably will not raise your credit scores and, in some cases, may even lower your scores if recent activity is reported on the account due to your payment. However, there is another credit myth which I would like to debunk today and that is the misconception that a collection account cannot be legally removed from your credit report. The statement that a collection account cannot legally be removed from your credit report is simply untrue. When a collection account is deleted from your credit report the result is almost always a credit score increase - great news for the consumer! There are several possible ways that collection accounts can be deleted from your credit report. Let's discuss a few of them:

Removal by Dispute - 

Have you checked your credit report lately? Chances are that, if you did so, you found errors and inaccuracies. In fact, a recent study released by the Federal Trade Commission found that 40 million Americans had errors on their credit reports. 

According to the Fair Credit Reporting Act (FCRA) you have the right to dispute any errors, mistakes, or inaccuracies with the credit reporting agencies - Equifax, Trans Union, and Experian. If any of the data is incorrect on an account (i.e. the balance, the date of first delinquency, the date of last activity, the date opened, the date of default, the date reported, account notations, etc.) then you have the right to dispute it. Furthermore, you are even allowed to dispute erroneous accounts with creditors and collection agencies directly.

Pay for Deletion -

It is possible for you to make an arrangement with a creditor or collection agency to pay an account in exchange for the deletion of the account from your credit report. You should know that it is extremely difficult to get a creditor or collection agency to agree to these terms. Some companies will reject a pay for deletion offer out right. However, payment for deletion is possible and it is 100% legal.

There is nothing in the Fair Credit Reporting Act which compels a creditor or collection agency to report an account to the credit bureaus. The reporting of accounts is 100% voluntary. Even though it is not illegal for an account to be paid for deletion, the act is frowned upon by the credit bureaus and most of the agreements that the bureaus have with collection agencies states that the collection agencies cannot engage in pay for deletion settlements.

Finally, if you do get a creditor or collection agency to agree to a pay for deletion arrangement you will likely be required to pay 100% of the debt. As with any debt negotiation, it is always important to get agreements sent to you in writing since "he said, she said" will not hold up if a dispute arises later.

Goodwill Deletion - 

You can request for a creditor or collection agency to grant you a goodwill deletion after an account has been paid. It is a long shot to have a goodwill deletion request honored; however, it certainly cannot hurt you to ask.

These are a few of the ways that a collection account can be removed from your credit reports. You have the right to try to employ some of these strategies on your own, though doing so will likely be time consuming and very difficult. You also have the right to hire a reputable credit restoration company to assist you. If you would like to speak with a HOPE Credit Expert regarding your credit report please give us a call at 704-499-9696 or click here to schedule a no-obligation credit analysis today.

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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 Do I Know When Something Has Been On My Credit Report for Too Long?

Overcoming past credit problems can sometimes be a long, tedious process (especially if you are going it alone without professional assistance). However, thankfully there is a strict time limit regarding how long past credit mistakes are allowed to haunt your credit reports. In other words, most negative credit information is not allowed to remain on a consumer's credit report forever.

What Determines When Items Are Removed from Credit Reports?

The Fair Credit Reporting Act (FCRA) provides set-in-stone guidelines to the credit reporting agencies - Equifax, Trans Union, and Experian - which instructs them when an item must be removed from a credit report. That date is known by a couple of different names: the "FCRA compliance date" and/or the "purge date." Depending upon the type of credit item in question, the purge date will be different. However, the credit reporting agencies (CRAs) always rely on the information provided to them from data furnishers - aka your creditors - in order to determine the date when an item should be purged from your credit report. (The exception to this rule is in the case of public records where the credit reporting agencies proactively seek out this information and no "data furnisher" is involved.)

As mentioned above, the time frame for removal varies depending upon the type of credit report item in question. Due to the difference in purge date timelines, the subject of when an item should be removed from a credit report creates a lot of confusion amongst consumers, and even among many professionals as well. Check out this handy guide if you need help determining when an item should be purged from your credit reports.

2 Years

Inquiries - After a period of 2 years, inquiries are removed from your credit report by the credit reporting agencies (CRAs). The FCRA [15 USC Sec. 1681g] (a)(3)(A) requires that the CRAs maintain a record of employment inquiries for a minimum of 2 years and other inquiries for a period of 1 year. As a policy the CRAs maintain most inquiries, regardless of their purpose, for 2 years.

7 Years

Charge-Offs - These accounts must be purged from your credit report after 7 years from the date of the charge-off.  

Judgments - After 7 years from the filing date a judgment is required to be purged from your credit reports. However, creditors do have the option to try to re-file the judgment and, if the re-filing is granted, the judgment could remain on your credit report for an additional 7 years.

Repossessions and Foreclosures - The purge date for repossessions is 7 years from the date of the original terminal delinquency (when the account became 6 months past due without being brought current again) on the original loan.

Collections - Collection accounts are required to be purged from your credit reports after a period of 7 years from the date of default on the original account. Collection agencies are not legally permitted to tamper with the purge date in any way. This practice is known as "re-aging" and is prohibited under the FCRA.

Released Tax Liens - Tax liens which have been paid and released must be purged from your credit reports after a period of 7 years from the date of release.

Chapter 13 Bankruptcy - The purge date for a chapter 13 bankruptcy is 7 years from the date the bankruptcy is discharged. However, as it can take several years for a repayment plan to be completed, the maximum amount of time a chapter 13 bankruptcy is allowed to remain on a credit report is 10 years from the date of filing, even if 7 years from the date of discharge has not yet passed.

10 Years

Chapter 7 and 11 Bankruptcies - Chapter 7 and 11 bankruptcies must be purged from your credit report 10 years after the filing date.

Non-Discharged and Dismissed Bankruptcies - These 2 categories of bankruptcies are also required to be purged from your credit reports after 10 years from the filing date has passed.  

Never

Federal Student Loans - The FCRA does not govern how long negative student loan account information is allowed to remain on your credit reports. Instead, federal student loan credit reporting is governed by the Higher Education Act. Unpaid federal student loans are not required to be removed from your credit report...EVER.

Unpaid Tax Liens - There is no purge date associated with unpaid tax liens. In other words, unless you pay a tax lien it can remain on your credit reports, damaging your credit scores forever.

Immediately

Withdrawn Federal Tax Liens - If you have paid a federal tax lien or entered into an arrangement to pay a lien in full then you may be eligible to receive a withdrawl of the lien under the IRS Fresh Start Program. Currently the credit reporting agencies do not report withdrawn tax liens on consumer credit reports so if you dispute a withdrawn lien and include proof of the withdrawl the lien can be removed from your credit reports immediately.

What to Do about Re-Aging

If an account is currently showing up on any of your credit reports which is past its purge date, then you may have been the victim of re-aging. Re-aging occurs when a data furnisher (usually a collection agency) either accidentally or purposely reports an incorrect purge date to the credit reporting agencies. Re-aging can be disputed with the credit reporting agencies directly and it is very helpful if you can provide proof as well. Remember, it is your right to dispute accounts on your own, but it is also your right to hire a reputable professional to help facilitate this process on your behalf - saving you a great deal of time and frustration. 

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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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