Tracy Becker Credit Expert and Author

Spring is in the air!

This is the season for romance but with romance comes relationships and for many marriage. Although we all have the best intentions and high hopes for the future of our relationship we all know the reality could be very different from the original dream. When a relationship ends in divorce or a break up, many successful individuals have assets to split which may include a property with a joint mortgage. If the property is given to one of the parties in the divorce agreement the mortgage must be refinanced into their name. Many divorce agreements state this must occur but if it is not done immediately there is no real way to enforce it. If the party who is taking over the property cannot qualify for the mortgage, due to lack of income or poor credit, the original mortgage will remain. Both parties will be responsible no matter what the divorce decree states unless the loan is refinanced. If the mortgage is not refinanced the individual that no longer reaps the benefit of the property will still incur delinquencies associated with the mortgage on their credit, remaining legally responsible if the loan defaults. If that individual wants to buy a property of their own in the future and they need mortgage approval their income will have to cover both the old and the new mortgage. This could be another issue since their income may be inadequate to cover both.

The CFPB Findings on Business Credit Cards & Credit

In December, the CFPB reported that although an individual may sign personally for a credit card, if it is a business credit card many are not listed with the credit bureaus unless the card goes into default. There are also business credit cards that are approved with liability only on the corporation and will not show up on personal credit. How can this help consumers that use their personal credit for business expenses?

We have found that a great amount of business owners use their personal American Express cards for business. When they are ready to purchase a property or refinance an existing loan they may find their Fico scores are low due to high balances on revolving credit. Revolving credit balances have a greater impact on credit scores than other types of credit.

For example:

Business owner John has an Amex card with a limit of $40,000 and a balance of $38,000. His second credit card (he uses for personal reasons only) has a limit of $10,000 and a balance of $5000. The $5000 balance is manageable and can be paid off at any time. Since his aggregate balance to limit ratio on revolving credit is 86% his scores have dropped 60 points and he no longer qualifies for the best interest rate on the large mortgage he needs. In this situation he may wind up paying an additional $200,000 over the life of his mortgage loan. In some cases applicants might even be rejected entirely due to a lowered score. Since he can’t pay the $38,000 on his business credit card debt he is stuck. If John had known in advance that there were other options things might be very different. With a business credit card that does not show on personal credit reports he could pay down the $5000 balance and his credit score would be much higher, affording him a much better cost mortgage loan. This would have kept his business and personal credit separate giving him more options on his personal financing.

Whether you find a business credit card you must sign for personally, or you are applying for a corporate credit card without personal liability, your business and personal credit reports and scores will be reviewed. With the best scores approvals and better offers are much more likely. With this knowledge a business owner might shop differently for a credit card. There can also be restrictive qualifications for approval on business credit cards depending on liability. Creditors check both personal and business credit scores for corporate liability. With the best business/personal credit scores and a healthy business history there are great offers out there giving business owners access to funds they might otherwise not qualify for. Making an effort to keep business and personal credit separate can work wonders and save a fortune for business owners.

To view your business and personal credit scores go: http://www.northshoreadvisory.com/orderreports.html

Feel free to call us with any credit questions or feedback!

Making sure credit is analyzed with future financial goals in mind is a MUST before taking an action that can foil those plans and limit a consumers options for a better quality financial life.

Now is the Time to Be Aware of Tax ID Theft

Tax ID theft is an increasingly popular crime. Criminals can sit at their computer in the comfort of their own home relaxing in their pajamas, sipping a cup of coffee, as they steal your hard earned tax refund. In 2011, cases of this crime were up almost 100% from the previous year with about 700,000 victims totaling billions in stolen refund money. Some ways this crime is perpetrated are a completely legitimate refund for a return is redirected to a different account, or a false (early) return with only the social security and name remaining accurate is filed and a refund is sent to a false address, debit card, or account. Thieves have also used the social security number and name of minors, those who don’t normally file tax returns, and even those who are deceased. Since the IRS issues refunds prior to employers and financial institutions providing income and withholdings documents, there is no verification needed and criminals have an easy avenue to make millions.

One method of this fraud started when e-filing was on the rise in 2009. Criminals would set up fake store front filing locations and use the name of a well known accounting franchise to market their services. They would save returns and file them all in one grouping with a phony account. Once they knew the date of payout they would have all the funds directed to one account and then they would disappear. They also set up fake websites that looked like a popular accounting firm where they would attract tax payers who then updated personal information and this would be used by criminals to set up phony tax returns early in the year. Most people don’t find out they are victims until they file a tax return only to be told by the IRS that one has already been filed in their name with a different address or account for payment.

Those more vulnerable for ID theft occurring have exposed their personal information in situations such as hospital visits, filling out doctors office forms, losing or having a wallet stolen, and creditor or lending notification that your personal information might be at risk. The IRS has taken some steps to organize this growing problem. Those victimized or tax payers at a higher risk can fill out and file an IRS Form 14039, as well as contacting the IRS Identity Protection Specialized Unit at 1-800-908-4490 to report the problem. It could take over 200 days for a response and acknowledgment from the IRS, and a year or more for resolution.

The information the IRS provides on how to protect against this crime is general and does not address ways to find out if returns have been filed early. There are IRS sites that allow us to check on e-filed tax returns but consumers have to know the exact dollar amount the return is requesting for refund otherwise they cannot find out the status. If the IRS would set up an online filing check system where just name and social security can acknowledge status it would be an easy way for tax payers to tell if they are victims.

In many cases those who have had tax ID theft have also found accounts on their credit profiles that they do not recognize. Having a credit monitoring product or checking your credit twice a year www.annualcreditreport.com (free annually) can help to uncover issues early on. There are many products available online to monitor credit and alert consumers as to changes in their credit and scores. We at NSA have our own product as well: www.ecsprofessional.com.

The IRS gives tips on how to protect yourself from tax ID theft according to their site: http://www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft-1

How can you minimize the chance of becoming a victim?


Don’t carry your Social Security card or any document(s) with your SSN on it.

Don’t give a business your SSN just because they ask. Give it only when required.

Protect your financial information.

Check your credit report every 12 months.

Secure personal information in your home.

Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.

Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Feel free to comment or contact me with any credit questions and connect with North Shore Advisory on all social media: http://northshoreadvisory.com/contact.html

Part II: Aftermath of Sandy Credit Tips

All of us at North Shore Advisory, Inc are sending out our thoughts and support to all of you that have been affected by Hurricane Sandy. We would like to offer some credit tips to help guide you in these tough times and protect you from even more damage that poor credit can cause long after you have recovered from the aftermath of this experience.

1. Make sure all credit cards, car, mortgage, or any other payments associated with credit reports and scores are paid on time.

2. If you do not have access to the internet to make online payments call your creditor, or ask someone who has access to the internet to get you the mailing address for payment. Send a payment out by snail mail and make sure you put your account number on the check.

3. For future use have a list of all of your creditors names, phone numbers, due dates, and payment mailing addresses for ease of access in times like this. Do not put your account numbers on the list for security purposes. Your creditor can always find your account based on your SS#, name, and address.

4. Those who normally send payment out through snail mail who are using the internet for convenience must be sure to get a confirmation number. Without a confirmation number, payment most likely did not go through. Keep a note of the number for future reference in case there is a problem. Many individuals who are not used to paying on the internet wind up thinking they have completed the payment process when in fact they did not, finding out later on they have damaged their credit causing even more problems down the road.

5. If you do not make your payment on time make sure to document exactly what happened, with a time line of events, and why the payment was not made. Later on when the time and funds are available to make payments and update the creditor the more detailed information available could make the difference between North Shore Advisory, Inc fixing credit or not.

Please don’t hesitate to contact us for any of your credit needs by following the link below:
http://www.northshoreadvisory.com/contact.html

Understanding the Vast Business of Scoring

Scoring thresholds for approvals and better rate offers on loans have become higher while lenders of all kinds depend on scores to evaluate and curb risk making it essential for all of us to understand who creates these scores, where they are offered, and what the variations are.

It is always important to note that there are many scores and each may have a different range. For example, if you pull a Fico score the range is 300-850 and anything above a 740 is excellent. If you pull a Vantage score the range is 501-990 and it has letter grades A-F. If your Vantage Score is a 740 it does not mean you have excellent credit.

Most consumers think all scores come from the bureaus which is also false. Fico created the first scores for lenders to evaluate risk. When banks found themselves getting sued for discrimination due to underwriters (bank employees) being the sole authority for rejecting applicants, the demand for a score to use as an indicator of risk became prevalent. This was a way for the focus to come off the banks when consumers were rejected. Fico is and always has been a separate company from Experian, Trans Union, and Equifax. The Fico scores used by lenders are scores created by Fico for the purpose of each bureau to sell to lenders. The bureaus use their Fico version score formula for lenders to evaluate the information the bureau compiled on a specific consumer in the form of a number. The lenders pay a fee to the bureau for this service. Equifax and the other bureaus pay Fico a royalty when using the Fico formula created for them. Equifax, Experian, and Trans Union did not create any Fico scores.

There are many models of the Fico Scores made specifically for Experian, Trans Union, and Equifax and each bureau has separate names for their versions:

Equifax has Beacon 09, 05, & 96 or you might see these same versions displayed on the report as Beacon 5.0 and 9.0 as well. There is also Pinnacle 1.0 & 2.0 which is Equifax Fico next generation.

Trans Union Fico scores are called Fico Risk Score Classic 08, 98, or 04. There is also Fico risk score Next Gen. The old name of the Trans Union Fico score was Empirica.

Experian has the Fico Risk Model 08, V2, V3 and Fico Advanced Risk Score 1.0 & 2.0. Experian use to call its score Fair Isaac Risk Score.

Although some of these scores are outdated they may still be used by banks. You can find the name of the model used to the left, right, or above of the score itself on a merged credit report.

Besides Fico scores, there are hundreds of other scores created by each bureau and sold for many purposes to lenders, insurance companies, credit card companies, landlords, finance companies, telecommunication companies, and much more. There are scores that decipher which consumers might be more likely to default on a mortgage already extended, scores that give insight into which consumers should be offered lower interest plus higher limit credit cards. Some scores even predict those who are more likely to go into strategic default on a mortgage loan. There are even global scores used by large corporations doing business internationally.

Just to give you a glimpse into varied scores here is a list of just a small portion of scores that one of the bureaus offers for sale:

In the Market Models
Income Insight
TAPS
National Risk Model-National Equivalency Score
Decision Insight
Credit Migration Solutions
Collect Score
Auto Risk Model
Bankruptcy Watch
Retail Risk Score

These are 10 of 100’s of scores offered by bureaus to corporations as a tool to help identify consumers and existing customers that will bring more profits as well as those that will deliver potential loss.

When we think of credit scores we think of consumer scores used to evaluate risk for mortgages and those that we as consumers buy online. But understanding the vast business of scoring can help us with the big picture. Since we are all being evaluated and watched through these algorithms it helps to get a clearer view of how they work within the corporations that use them.

Find out more information on my website www.northshoreadvisory.com.

Will the Consumer Financial Protection Bureau be watching Fico as well as the bureaus?

The CFPB recently disclosed to the public that it would be watching over the credit bureaus, analyzing and researching their processes prior to defining what changes, if any, would be in order starting this September. As of late, the effective date was moved from the beginning of September to the 30th. Having the CFPB involved may be a welcome aid to help voice the frustration and needs of consumers who have limited success, ability, and knowledge when coming up against issues with their credit. A poor mark on credit can have a powerful effect, limiting choices and incurring great costs on behalf of the consumer. It is therefore a priority for more consumer protection and education.

One question that is at the forefront of most credit, mortgage, and real estate professionals is will this include FICO and other score providers who use bureau information to create credit scores? Since FICO is the most popular credit score used by lenders to evaluate consumers risk it will likely be the first to be analyzed, if scoring companies are a part of the CFPB watch.

Although the CFPB did not disclose yet whether FICO will be included with the bureaus under their review they did have this to say in their final rule:

The Proposal stated that the term “consumer reporting” means collecting, analyzing, maintaining, or providing consumer report information or other account information, used or expected to be used in any decision by another person regarding the offering or provision of any consumer financial product or service. The Bureau stated that the proposed definition would cover different types of consumer reporting entities such as credit bureaus, consumer report resellers, analyzers, and specialty consumer reporting agencies like those specializing in consumer check verification and reporting of payday lending transactions.56

56 This definition might also include entities such as credit scoring companies. Whether such an entity is covered under this definition would depend upon its particular activities. To the extent that a credit scoring company is engaged in collecting, analyzing, maintaining, or providing consumer report or other account information for the purposes described above, it would be covered by the proposed definition. Several consumer groups suggested that the Bureau should explicitly state in the text of the regulation that credit scoring providers or developers are service providers. Assessing whether a particular entity is a service provider to a larger participant under the Dodd-Frank Act requires an evaluation of the person’s activities. The Bureau declines to identify specific activities that might make a person a service provider to a larger participant, or to provide an exhaustive list of such activities.

From my interpretation of these statements they may very well be knocking on FICO’s door in the near future! What this will mean for consumers and the industries related to mortgage lending only time will tell. As new information is revealed I will keep you posted.

Why is my credit score so poor?

Q: I have one credit card in my name, a retail store card, and my sister gave me an authorized credit card on her Visa account. They are all about two years old. I had two late payments on the Macy’s account due to confusion with setting up online payments. These late payments occurred when I first opened the account and they were for a very low dollar amount. I called Macy’s at the time and they said they would waive the late charge so why would these delinquencies still be showing up on my credit?

A: There are many factors that are affecting your credit causing your scores to linger at a low level:

1. First you have a somewhat young credit profile. Your average age of credit is two years old, so you are not a long term established credit manager. If you had older credit you would also receive the benefit of gaining more points on your credit score since older credit makes you a lower risk due to the long term practice you would gain. This is one benefit age delivers in regard to old accounts. Of course, if you have poor pattern payments on your credit, the age will not outweigh the affect of the extreme late payments.

2. You also lack a fully balanced mix of credit. Having a nice amount and variety of credit can add more points to your score once it becomes seasoned. It would be an asset over time to have some type of installment credit, such as a car loan or lease, a student loan, or even a secured personal loan with your current bank. A mortgage also would be an asset since it is the hardest type of credit to gain approval for therefore adding more points to your score once seasoned.

3. Having one recent late payment can drop scores dramatically, but two have a greater affect for a longer period of time. When Macy’s agreed to wipe off the late fee charged after receiving your payment, it had nothing to do with your credit report. A late fee and late payments on credit are two entirely different things. It seems many consumers confuse the two. They would have needed to agree to remove the derogatory information from your credit history and would have had to contact the credit bureaus and request this change.

If the situation was different and you had five to seven accounts in your name with their average age being 10 years old, plus these accounts included a good mix of installment, revolving and mortgage accounts, your scores could be much higher right now.

When it comes to credit scores, it is not just what is delinquent that causes scores to be low, but also what the credit as a whole contains. Besides your credit age, history, and mix, there is also debt. A great affect of debt on scores presents itself in the form of balance-to-limit ratios on your revolving credit. Revolving credit includes credit cards, overdraft on checking and some credit lines.

If the balances are over 7% of the limits this also will cause scores to drop. As balances creep up to limits, scores drop further. The higher your scores are, the more they will drop as the balances inch closer to limits.

Since having high debt ratios is, in many cases, a precursor to default, the score has to reflect the risk level it brings. When scores are higher they must drop lower to show a lender or creditor the higher risk borrower the consumer has now become.

Feel free to email your credit questions to tracy@northshoreadvisory.com. Visit our website, www.northshoreadvisory.com for more information on credit and how we can help you.

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Credit Question

Q: My sister recently got me an American Express Card with my name on it, which is associated with her account, without telling me. Does this or will this have any impact on my credit score? She pays all her bills on time, but I don’t like having anything in my name. I am in possession of the card but still, I have perfect credit, mortgage, car lease, etc, and don’t want to add additional credit cards if it will impact my score (I have my own Am ex as well). Can you possibly advise on this?

A: The account could help or hurt you depending on certain factors. First I am assuming it is an “Authorized User account (AU)”? You should ask her if it is a joint account or AU account. If she has excellent long term credit with Amex and keeps her balances well below the limit it could help your credit scores. If the opposite has occurred it could hurt you. Seeing your credit report and knowing the age and payment history of your sisters account would help me give you more detailed info. If you would like to order your Fico scores go to www.myfico.com and buy your Trans Union and Equifax credit scores. Once you get them send me a copy and I will evaluate them.

Here is a definition of a joint and authorized user account:

Authorized user accounts is when a second individual is placed on a primary cardholder’s credit card for the sole purpose of being allowed to charge on the account. The user can use your card freely and make changes to your account but will not have the responsibility to pay monthly payments and fees. Most authorized users are not responsible for the payments but will see the payment pattern on their credit profile. This account and its history will be added to the authorized users credit within 3-6 months. If the authorized user is taken off the credit card, the history, in most cases, can be removed as well. These accounts can dramatically increase or decrease the credit, depending on various factors. The problem with authorized credit is it cannot be used as a valid credit line when a bank is deciding if they will approve a loan. Most mortgage banks will not approve a loan if the consumer does not have a certain number of accounts of their own but has many authorized user accounts.

A joint account is when two individuals are equally responsible for credit card payment patterns and debt. When having joint accounts, the two applicants have a legal obligation to whatever debt is on the credit card. Each credit card user can use the card, and whatever paying patterns occur will affect both of their credit profiles equally. If one defaults on the debt owed, the other is still responsible. This can be a problem if one person loses their job and late payments occur; it will ruin both cardholders’ credit. If credit is kept separate and one person loses a job, at least the other person’s credit can be saved. The couple can decide which individual’s credit will be sacrificed and left unpaid until finances change. This can help in refinancing situations.

Leave your credit questions here or email me at tracy@northshoreadvisory.com. Feel free to visit our website, www.northshoreadvisory.com and find out more information.