Tracy Winters
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Not a whole lot
To begin with, credit scores are only a very small part of any credit decision. What counts is what actually shows on your credit report.
Your credit score can be low because of bad credit, or (most likely) due to lack of credit history.
It also depends on where you got that score. Not all scores are the same. Is it even a Fico?
Third party credit monitoring services use Fakko scores that can be off by more than 100 points are practically worthless. All three major credit bureaus now sell consumers non-FICO scores (Vantage) that run on different scale. There’s no way to compare these to Fico and they are also worthless. The only score that really counts is FICO. More than 90% of all creditors use Fico for their lending decisions.
What’s more important than the score is what appears on your credit report. If you haven’t done so yet, pull your credit report from all 3 major credit bureaus (Equifax, Experian & Trans Union) and check them thoroughly for errors. If you have defaults debts – that would certainly explain such a score.
It’s probably your current landlord
From time to time, property managers re-check renters’ report with SafeRent. Private landlords don’t usually do that, but property managers tend to do a re-check when the lease is up and it’s time to renew it.
Just to be sure, drop by the management office and check with them. If they didn’t re-check, then someone else is using your information to try to get an apartment.
Most identity theft cases are done by someone close to you such as a family member. Look carefully into the matter until it is resolved. You can find some useful information about identity theft recovery and prevention here.
A classic case of Identity theft
The majority of identity theft cases are made by family members, closed friend or neighbors – people we know. Your case is no different.
What your sister did is very wrong, and unless you confront her you stand to loose. Not only will your credit get ruined. By this time the account is probably in collection, and appears on your credit report. This is why you can’t get any kind of credit, including a cellular contract.
The collection agency is likely to file a law suit against you, and will probably get a judgment.
The only way you can avoid all this is to file a police report, and with this police report you can have remove the negative information from your credit report, and the collection agency off your back.
This involves reporting your sister to the police. It’s not an easy thing to do, but considering what she’s done to you, I think that you are left with no other choice.
See ../how-to-report-identity-theft for a checklist for clearing the damage of identity theft.
P.S. Do pull your credit report and check it thoroughly. Your sister may have opened other accounts as well. The sooner you deal with it, the better.
Did you have your car repossessed or not?
To start with, did you or did you not had a car repossessed? If not – you may be a victim of yet another identity theft
And another thing – did you check all 3 reports from the 3 major credit bureaus (Equifax, Experian & TransUnion)? It’s not uncommon for information to be reported for just one or two bureaus but not to all three. If you haven’t, then it’s probably showing on the ones you didn’t check.
Every time your application for credit is declined because of information that’s on your credit report you get a letter from the bank (Adverse Action Letter) that states which credit bureau they used.
When you get that letter contact that agency and request a (free) copy of your credit report based on that adverse action letter. If you don’t see it there, go back to the bank and ask them to show you where that repossession they’re claiming you have.Exactly where did you get these scores?
The credit bureaus now sell consumers only vantage scores, which are on a different scale then FICO and are practically worthless. In fact, an 800 vantage score is mediocre at best.
Even if you got a “real FICO” scores, the scores you can buy as a consumer are different from the actual scores your mortgage officer pulls. Home lenders use special version of FICO called ‘Factual’ that can be 50 – 100 points off your “real Fico”.
In any case, Fico scores of 760 and above get the best interest rates, and anything above 800 is just bragging rights. So assuming these are the scores your loan officer pulled – there’s really no reason for you to wait for your scores to go up. Besides, in this score range it can take 3-4 years for your scores to go over 800.
Yes it will
Paying back your debts is the right thing to do, regardless of how it helps to rebuild your credit.
Your credit is much more than just your score. While your credit score may take a lot of time to recover from 3 years of unpaid debts, your credit standing can certainly benefit from you paying back past debts.
Credit score is just a formula. It penalizes late or unpaid debts severely, and I imagine that your score took a serious hit. Unfortunately, bad credit doesn’t go away regardless of whether or not you pay off your debts. Late payments, charge-offs, collection accounts, repossession, liens etc stay on your credit report for up to 7 years. As time passes their impact on your score is reduced, while new (and hopefully positive) information raises it.
Continuing to make payments is always a good thing, because this is what actually builds credit. You need to keep in mind that it takes at least 2 years of timely payments to see a significant improvement of your score.
Another thing to keep in mind is that lenders look at much more than your score. When you apply for new credit’ lenders actually pull your complete credit report and see how you pay your debts. Although your credit score is very low, the fact that you continue to pay back your debts will stand up for you.
For more information please see why-pay-off-debts.html.
Here’s a short summery
The bill has been put before the congress, but has not passed yet. Here are its main points:
- The bill provides full loan forgiveness for current borrowers who have paid the equivalent of 10 percent of their discretionary income for 10 years or who are able to do so over the coming years.
what this means is that after 10 Yrs (i.e.120 payments on the loan) forgiveness is possible. - The bill caps interest rates on federal student loans at 3.4%.
- The bill allows many people to convert private loans into federal loans.
- The bill sets the maximum loan forgiveness to $45,520 for new borrowers and full loan forgiveness to current borrowers.
- Unemployment and/or illness would be eligible to enroll in the new program.
Here are some useful links:
The bill’s congress site: The Student Loan Forgiveness Act of 2012The bill text in full, or an Understandable PDF version
40 – 70 points
A fair assumption would be 40-70 points, depending on many factors such as your current utilization, length of credit history, diversity of credit accounts, current score etc. For each different credit profile, a different increase can be expected.
If it’s really important for you to know in advance how high your score will go, use a FICO Simulator to figure out exactly how much YOUR credit profile can benefit from lowering revolving utilization.
Paying off your credit cards is actually the only quick way to raise your credit score. In fact, if you’re planning on applying for a car loan, mortgage or even another credit card – you’ll do yourself a big favor by paying of your credit cards.
Paying off CCs does three good things to your credit
- Lowers your utilization
- Raises your credit score
- Lowers your debt-to-income ratio
Since debt-to-income is a major factor in any lending decision, I always advice to pay off credit card before applying for new credit. You can even do better by paying credit card before statement arrives to actually force the credit card companies to report a $0 balance. This will improve your chances of approval and get you the best available terms.
It’s called “thin credit file”
To start with, a 600 score is not so low for a credit newbie. Your score is around 600 because you’ve had one card for ONLY one year. It’s not bad credit, its limited history.
Credit scores (especially Fico) are sensitive to the amount of information that’s on your credit report. If you have only one credit card for a year with no other credit lines such as student loan, car loan etc then this explains your score.
You need at least 24 months off consistent, on time payment history to see a decent score, and YEARS to see a really good credit score. Even then you probably will be turned down for new credit (car loan or mortgage) due to the limited history. What shows on your credit report is more important than score.
Another reason for the low score could be a derogatory account that appears on your credit report. An unpaid medical bill, cell phone or utility bill that was sent to collection can adversely impact your credit score. Also, someone else may have taken credit in your name w/o you knowing it. Often, the first indication for Identity Theft is low credit score.
If you haven’t done so yet, you may want to check your credit report to see if there are derogatory accounts on it. See free-annual-credit-score.html for more information.
You have a few options available to fix your credit
Hello Courtney. Tracy here…
There are two different issues here that need attention: The (false?) damages, and the credit issue.
Unfortunately, anyone can accuse you with pretty much anything. The question is – can they prove it? Can you prove that the damage was NOT your fault?
Naturally, I can’t answer this question because I’m not familiar with the fact. Even if I had all the information – I’m not a lawyer. ONLY a lawyer can answer this question.
To get a judgment, the collection agency needs to file a lawsuit. Will they? Probably yes. This is what they do for a living… Can they win and get a judgment against you? I have no idea…
This brings me to the credit issue. Disputing the collection account will get you nowhere. Until proven otherwise – the account is valid and no credit bureau will remove it.
As you already know, a collection account is very bad for your credit. A judgment is even worse. Falsely accused or not – this account will drag your credit down.
You have two courses of action:
- To take the collection agency to court, prove that you owe nothing and have the account removed
- Try to negotiate a Pay For Delete Agreement with that collection agency.
Just paying the bill won’t improve your credit a bit. Paid or not – the collection account remains on your credit report for 7.5 years!
Taking the collection agency to court in an attempt to prove you don’t owe them may cost you even more than the debt itself because of legal fees.
My advice?
- Take legal advice regarding your chances of winning a lawsuit
- Try to negotiate a PFD agreement.
I know that you’re probably feeling pissed off, but you need to try and put your feeling aside and try to find the best solution for the problem. Don’t be right – Be smart.
Please see also how-to-pay-off-debt.html for tips on how to deal with collection agencies.
All the best
Tracy
Initially hurt. Eventually help
Initially, your score will drop anywhere between 20 – 60 points, depending on your specific credit standing. A thin credit see larger drop than a thick file. Any new credit cause a drop in credit score because the risk of lending you money increases because of your higher debt to income ratio. So you will certainly see a drop in your score immediately.
On the long run however this loan can benefit your credit. As time passé you will see your score bouncing back to where it was, and possibly higher. Just how much depends in your credit standing and your ‘credit file thickness’. For most people it takes 6 – 8 month for this credit score to bounce back.
Installment loans are good for building credit. As a rule of a thumb – never make any change in your credit standing at least 6 months prior to taking a loan. Since you’re planning to apply for a mortgage a year from now – Your credit score will benefit from it.
Just keep in mind that credit score is not everything. That car loan will be included in your debt-to-income ratio when you apply for a mortgage. It’s hard if not impossible to tell what affects the lending decision more – a slightly higher score or a lower DTI.
Absolutely not
I’ve never heard of a lender requiring this. Lenders will accept your individual application for credit even when you’re married.
There are however situations where YOU may want to apply for new credit as a couple rather than individually. For example when a non-working spouse needs to apply for a new credit card or a car loan.
Another example is when YOU want to both your income to be used, such as when applying for a mortgage, because applications with household income is more robust vs. a single applicant income when calculating debt-to-income ratio. In this case however, this requires both parties to be on the application and that means that both credit reports and scores will be pulled for both applicants and you’ll both be legally contracted for the loan if approved.
Credit score is only one factor
Credit score in itself is only a small part of the lending decision. Your Fico score may very well be good, but you probably have a “thin” credit report, meaning that you don’t have other credit other than being an authorized user on your father’s card.
Creditors and lenders look at much more than your score. They pull your actual credit reports, and want to see how you handle credit (and you don’t). It’s very common not to get approved with a high score but a thin credit report.
There are plenty of other factors that may be the reason for rejecting your application such as insufficient income, employment stability, too low down payment etc.
What you can do is either come up with a larger down payment, have your father cosign for you, or simply build your credit for a year or so and re-apply.
You can start improving your credit with secured loans, retailers’ credit card, secured credit card etc. See Building Credit History for more information.
I’m afraid you can’t dispute it
Unfortunately, lenders and creditors are not interested in you divorce decree. While it bounds you and your former spouse, the credit bureaus and lenders are not bound to it.
As far as lenders and creditors are concerned, the contracts that you’ve signed are the only thing that defines your obligation to them. Your marital status is of no interest.
As for the credit bureaus, their only obligation is to correctly represent the information from creditors and lender. In fact, marital status has no effect on your credit reports and scores by law!
What you should have done two years ago is to separate all of your accounts – close all joint accounts and open new individual ones. You still need to do this, and the good news is that you don’t need your ex for this. All creditors must close a joint account at the request of either spouses.
To start with, you must act now before things get out of hand. Talk to your ex, pay off the debt and close the account. As for the damage that has already been done to your credit report – I’m afraid you can’t do much about it. Here is what you CAN do:
- Add a statement to your credit report, explaining the situation to potential lenders.
- Write a letter of good will to that creditor, asking him politely to remove that negative information.
For more information see also Divorce & Credit. Good luck.
There’s always a reason
FICO score is an information based algorithm. What this really means is that for your FICO score to change – the input information to the FICO formula (i.e. your credit profile) must also change.
Even if you haven’t spotted any obvious reason that explains why your FICO has dropped, there must be less-than-obvious changes to your credit profile that may have caused the drop.
One such very common, yet not entirely obvious cause is an increased utilization ratio. If you’ve been using more of your available credit lately, that could account for a drop in your FICO score.
Another cause could be search for new credit. Each time you apply for a credit card, car loan etc., an inquiry (one or more) is added to your credit report. While one inquiry hardly impacts your score, few inquiries in a short period of time may explain 10-30 points drop.
If you’ve been actively searching for new credit while gradually increasing your utilization, a mid to low 770s drop in your score is actually very obvious.
If you can, try to reduce your expenditure, pay down the balances on your credit cards and hold off from opening any new credit accounts. By doing this, you should see your FICO score bounce back fairly quickly.
- The bill provides full loan forgiveness for current borrowers who have paid the equivalent of 10 percent of their discretionary income for 10 years or who are able to do so over the coming years.
