Shed a Tear for our Banking System - NOT!

We've read books and attended seminars saying that the way to become wealthy was to leverage "other people's money." Those "other people," the banks and credit card companies, have been sending us offers for low interest money for years.

So we followed the advice of the wealth building gurus and put that "free money" to work for us. But we found out the money was lazy and not only didn't it go to work, it died! And now the "other people" want their money back. But all we can do is shrug and say, "sorry, we don't have it. That guy does," as we point to the wealth building gurus. And "the other people" won't accept that.

Are we to feel sorry for the "other people"? I don't. They knew the risks they were taking. They knew that the people they were lending the money to may not be able to pay it back. In their rush over each other to shovel the money out to the consumer, they forgot about those pesky laws. Those pesky laws I refer to are the ones that state that when "the other people" lend money, they are to do so to the benefit of the clients, not just their own.

So don't feel sorry for "the other people." And don't feel bad if you can't pay them back on their schedule.

The 77% drop in Bank of America's earnings in the first quarter is their problem. The $393 million dollar first quarter drop for Wachovia is their problem. Wells Fargos' 11 percent drop and the 50% shortfall for JP Morgan is their problem.

Your concern is to feed and clothe your family and keep a roof over their head. Like cockroaches, the banks and credit card companies will survive.

Where's The Beef?

The most effective way of improving your credit score utilizes Section 609 of the Fair Credit Reporting Act. Section 609 is a section of law that tells the credit bureaus and other reporting agencies exactly what they must do in order to make somebody’s debt information public.

The 87 pages of this law boils down to two basic things. First, the information they provide must be accurate. Second, that information must be verifiable.

Most credit repair companies attack the first part of the law – the accuracy of the information. They have their customers pretend that the debts aren’t theirs or get a second social security number to create a second credit file – a tactic which is highly illegal, by the way.

A legitimate credit restoration company will take it as a given that that the information on the report is accurate. They do this despite the fact that statistics show that 25% of the information on credit reports is in error.

It is much easier and more effective to put the burden of proof on the reporting agency to verify the information – that is, they leverage the second part of Section 609. They do this because they KNOW that the credit bureaus are not legally or properly verifying the information as required by the law.

So, it’s assumed everything in a credit report is 100% accurate. And they know better. They know that 25% of all credit reports have errors on them. The verifiable side, however, is an entirely different story. And Section 609 is explicit about what verifies an account. The only piece of information that verifies an account is a copy of the original documentation – i.e. the original contract between the debtor and the creditor. Very rarely does a credit bureau have this documentation!

So, to repair your credit and improve your credit score, you simply write a letter to the credit bureaus and ask for verifiable proof of the information on the report. If they don’t provide this within 30 days, they have broken the law.

While you can pursue this yourself, we recommend that you contact us so that we can put you in touch with a company that does this for a modest fee.

Credit Scoring

There’s been a nasty trend where credit scores are becoming more and more involved in our business affairs. Credit scores determine if we qualify for a mortgage loan or car loan. If we do qualify, they determine what rates we’re going pay. If you get a student loan, your credit score is checked. If you go to apply for a job, they’re going to check your credit scores. Your insurance rates are contingent on credit scores. And our credit card offers are dependent on credit scores.

Credit scoring goes back to the 1920’s. They were primarily used for credit in stores, things like that. As they started to network and share information it grew into what it is today.

A credit score is comprised of many factors gathered over a period of time. In the current world, 45 percent of your score is based upon your payment history. This is what you’ve done over the years - if you paid your bills on time, did you pay late, did you have charge-offs, things like that. Another 30 percent of your score is based on outstanding debt – what kind of debt do you have now, are your credit cards maxed out, do have control. Another 15 percent of your score is based on the length of time you’ve had credit. The longer you’ve had credit, the more of a sample of how good you are with your credit and, therefore, the better the record that have on which to evaluate you.

A credit score is a report that shows your credit worthiness based on what you’re trying to purchase or what you’re trying to accomplish, credit wise. There are three primary reporting agencies: Experion, Transunion, and Equifax. They all have their own unique construction models – they’re all similar but not quite the same.

A credit score will range anywhere from a low of 300 to a high of 850. Technically, there’s actually a 900 and 920 score out there. In March of 2006, a new scoring system was tried, but the credit industry just didn’t take hold of it. So, for practical purposes the score ranges from 300 to 850. In today’s world, credit is being tightened. Anybody with a score of 690 or below will have a tough time refinancing their house right now whereas a year ago, somebody who had a 550 score could refinance. Now, you’re looking at needing at least a 690 and in many cases a 720 score.

In the next posting, I’ll be writing about what you can do to move your score up 60 to 100 points within a year.