Credit Scoring Expert speaks candidly about his personal growth and asks respected writers to share content to help others improve their life.

Check your credit report immediately – if you’re one of 10 million Sallie Mae borrowers! On Tuesday, MSN Money reported that a blunder by the nations top student loan provider “briefly trashed the scores of thousands of oblivious borrowers.” Scores nosedived after Sallie Mae mistakenly reported their borrowers’ graduated loans as arrangements for partial payments. Graduated loans benefit borrowers by – allowing them to initially start with lower (sometimes interest only) payments for the first few years of the loan with a gradual increase to full payments over time. An arrangement for partial payment typically signals the credit bureaus to code your account as delinquent – precisely what Equifax proceeded to do when Sallie Mae reported these loans to them. The loans were coded as delinquent, with past due balances and a recent history of missed payments – even though they were current.Sallie Mae has since reported that it has rectified the problem; that only 10 per cent of all customers were affected by the error and these customers’ scores have been readjusted to previous levels. To be safe, I would advise Sallie Mae borrowers to take a proactive approach and personally double check their credit reports to ensure that that this error has been removed – It is a high priority error. High priority errors can do significant damage to your credit score and need to be removed immediately. After notification from his credit monitoring service, one affected borrower found that his credit score had dropped from 727 to 646 – the difference between qualifying for a loan with a low interest rate and a high one. With a 720 and above credit score most lenders will automatically approve you for the best available loans with the lowest interest rate. Vice versa, a poor credit score can ruin your chances for buying, refinancing or renting a home or getting a better deal on your auto insurance premiums, car loan and credit cards, and it may even affect an employer choice in hiring you.

In Step 5 of my book 7 Steps to a 720 Credit Score, Fourth Edition (pages 76 -94), I discuss high priority errors such as – mistakes in payment history, incorrect credit limits, duplicate collection notices and collection notices that are not yours. Removing these types of mistakes can positively impact your score by 20, 50 or even 100 points. My recommendations if you are a Sallie Mae borrower – is to do the following now:

1. Contact www.AnnualCreditReport.com for a free copy of your credit report (you are allowed one free report every year). Or purchase a copy at www.myFICO.com. Find your Sallie Mae account on the report. If it states that “Arrangements made with credit grantor to make partial payments,” contact Equifax now: www.Equifax.com.Dispute the error. Let them know that the account is being paid as agreed upon with Sallie Mae and – it is not delinquent.When dealing with the credit bureaus sometimes it’s sometimes helpful to have an already pre-formatted letter you can tailor to your specific needs – My “Mistakes in your payment History” template letter found in “Applying the 7Steps to a 720 Score Workbook” may help you find the words. Send this letter along with a copy of the portion of your credit report that has the Sallie Mae error listed and include any other supporting documents. Send this via certified mail, return receipt requested.

1. If this doesn’t work contact Sallie Mae directly at 1-888-2-SALLIE. They have promised to provide references and other related help to accommodate customers with concerns and questions.It is especially important if you’re having trouble with other lenders or companies that need a credit score to qualify you for programs or services offered – to call Sallie Mae right now for a reference!

Your credit is your financial reputation… Stay on top of it!
Philip Tirone’s, book “7 Steps to a 720 Credit Score: Strategies for Excellent Credit” as well as Applying the 7 Steps to a 720 Credit Score Workbook”, containing samples of the forms, letters and worksheets are both included in his 7 Steps to 720 Credit Score Kit. The kit is available at www.720score.com or by calling 1-888-254-2702.”

Borrowers are belting the blues with higher credit minimums!

Wells Fargo recently tightened credit restrictions on its non-conforming loans – loans of more than 417K. Effective April 25, the financial services company now requires borrowers of non-conforming loans to have a minimum credit score of 700. Additionally, in March Fannie Mae and Freddie Mac, the government-chartered mortgage buyers increased interest rates for borrowers with credit scores below 700 – formerly higher rates were triggered by a 680 score.To bring things into even more perspective – prior to the latter part of last year, 620 was the minimum demarcation line required to garner respectable mortgage rates and terms. This line has since then been elevated to 680. And, now it seems that – lenders petrified and frustrated by the ongoing sub-prime mortgage crisis are sifting through loan portfolios with a fine tooth comb. They’re cautious and guarded with even their most credit-eligible customers. This resurgence of stricter underwriting standards have left borrowers with fewer financing options as lenders now require higher credit scores for loan approvals. How does this “borrowers barred” climate affect your credit worthiness? Clearly, it is even more crucial that you have an impeccable credit score. There is no real problem lending to people with great credit scores. The credit crunch mostly affects the lower end of acceptable credit. In my book “7 Steps to a 720 Credit Score” I encourage behavior alteration to rebuild, strengthen and protect your credit for a lifetime – no matter your credit level or current market conditions.You can start the process by becoming proactive about your credit health. From ensuring that the information on your credit report is accurate, maintaining low credit card balances, reviewing your credit card and bank statements regularly, avoiding late payments to checking your credit history with all three bureaus frequently – Your own best advocate is you! Pessimistic bankers, mortgage companies and other lenders faced with a bitter forecast are squeezing borrowers out of the American Dream.The writing on the wall couldn’t be clearer – “Think twice before you come to us for a loan!” To avoid trouble lenders are avoiding all risk. Fortunately, borrowers with a great credit score have less to worry about than those who don’t. And, even if you don’t have the credit score you need at this moment, there’s hope. By changing your credit mindset and cultivating the habits required to make the leap to a 720 plus credit score – you won’t have to worry about meeting your lenders’ minimum.

This week’s post is a little outside the topic of credit, but it definitely falls within my expertise as a lender. The issue is this: How does a person manage his or her mortgage payment if a lender closes or files for bankruptcy? In utopia, you’d be off scott-free, right? Not so lucky. Just keep making your payments as usual until you receive instructions to direct your payment elsewhere. If your lender files for bankruptcy after the loan closes, your loan and the rights to service them might be bought by another mortgage “servicer.” If your loan has been transferred, you will be given two notices: One from your current servicer—the company to whom you have been making payments—and another from the new servicer. Be sure this isn’t a scam and call both your current servicer and the new servicer to make sure the transfer is legitimate. Which brings me to the topic of your credit score: Always double and triple check before sending a payment to an unknown lender, or before giving your account information to someone. Identity theft can trash a person’s credit score, and in today’s age of technology, it is becoming more and more common. Prudence is especially important when responding to emails. Some crooks disguise their email addresses and links to web addresses, making it look as though they are representatives of a legitimate creditor. When paying a bill online, or when updating account information, never click on links within emails. Instead, type the company’s legitimate URL within your browser.

I regularly counsel people against letting their credit cards go inactive, but the repercussions of inactive credit cards can be a little bit of a mystery. Here are a couple of the reasons against it: First of all, the account may eventually drop off your credit report. Though this wouldn’t happen immediately, after seven to 10 years of inactivity, it simply won’t be included in the formula for determining your credit score. And some credit card companies might choose to stop reporting your inactive account even sooner, meaning it might drop from your credit report within a year or two of inactivity. Regardless, the length of time you have had credit comprises a big chunk of your score, so having it drop from your report will likely hurt your score. But the more important reason is that an inactive account can mess with your utilization rate (the account you carry in proportion to your limit). Let’s say, for instance, that you have a credit card with a $10,000 limit and a $3,000 balance. You have a 30 percent balance, the most you can have to tilt the scoring formula in your favor. Then you stop using the card, but you pay only the minimum required. Your credit card’s policy might be to drop your limit after a period of inactivity, so it reduces your limit to $5,000. Your balance, however, has only been reduced to $2,800. Now your utilization rate is 56 percent, which isn’t good from a credit-scoring perspective. The good news is that the solution is relatively simple. So long as your credit score hasn’t dropped since you opened the card, you can likely call and get the card reactivated. Be sure to specify that you want to reactive the account, not open a new one. That said, you might not receive the same limit you once had, so it is best to never let a credit card go inactive. Nowadays, this is easier than ever. You can create an automatic “bill pay” using the credit card to pay a regular bill (such as cable), and then create another automatic “bill pay” from your checking account to pay the credit card bill, which means you won’t pay interest, but will keep all credit cards active.

He may be the richest person in the world, but Warren Buffet’s credit score won’t get him the best interest rates. According to Fortune, when Buffet pulled his credit report recently, he learned his score is 718, two points lower than the cutoff for the best interest rates.

To be clear, 718 is a good score, but it isn’t great. On a $300,000 home loan, the difference between a 718 credit score and a 720 credit score could be as much as $8,640. Buffet will probably survive—he’s worth $62 billion dollars—but he serves a good lesson: salary and net worth have nothing to do with a credit score.

Your credit score is a sign of your financial reputation. Regardless of whether you make $10,000 a year or $1 million a year, your credit score will determine the interest you pay on your home loan, car loan, or credit card. In fact, I recently processed two loans at the same time: one was for a CEO, the other for her assistant. The CEO’s assistant, who made one-tenth of his boss’s salary, had a much higher credit score than his millionaire boss.

The article goes on to say Buffet’s subpar score is a result of identity theft. Even someone as famous, protected, and well advised as Buffet can become a victim of fraud, yet another reason to regularly pull and monitor your credit report.

In my book, 7 Steps to a 720 Credit Score, we talk about the myths of the credit-scoring world. Here’s another one I just read about in YOU Magazine. In short, the myth says that if a credit card company authorizes an over-the-limit purchase, your score won’t suffer. After all, the credit card company authorized the purchase. YOU Magazine goes on to explain that this myth couldn’t be further from the truth.

The article is right on!

In my book, I counsel people to keep their balances no more than 30 percent of their limit. On a $5,000 credit card, this means your keep your balance no higher than $1,500. On a $10,000 limit, your balance should never be higher than $3,000. The credit-scoring bureaus want to see that you can handle credit responsibly, and anything higher than 30 percent suggests otherwise. If you actually go over the limit, even if the credit card company approved it, you have a double whammy: Not only do the credit bureaus worry that you cannot handle credit wisely, they also worry that you are getting yourself into a deep financial bind that is causing you to trespass into forbidden territory. Also remember that the credit card companies and the credit-scoring bureaus are two different things. They aren’t communicating with each other, and the credit-scoring bureau doesn’t know or care whether the creditor allowed the charge—they simply look at your balance, compare it to your limit, and start deducting points.

*You Magazine is an online magazine by Cindy Ertman and Linda Buchanan. The full article can be read at http://www.allaboutnews.com/vc.php?a=y&b=29&i=183&u=ceplatinum@aol.com

I talk to my clients a lot about the “two steps forward, one step back” of credit scoring, especially when their score dips unexpectedly.

One of my clients recently saw a ten-point decrease for no apparent reason. She had been improving her score, following the seven steps, so she was confused about the decrease. I explained that FICO’s scoring formulae places consumers into categories, and the formula changes slightly depending on which category you are in.

Let’s take a hypothetical situation and look at how this works. Pretend that you had a foreclosure a little less than two years ago. You fall into the category of “people with foreclosures in the past two years.” You also had a ton of late payments, before and after the foreclosure. Late payments represent “normal behavior” for people in this category, so each individual late payment isn’t judged as harshly. For instance, a person might have 20 late payments, and each one causes her score to drop by two points. Considering all of your late payments and the foreclosure, your score is 620. Now let’s say that her foreclosure becomes 25 months old. Suddenly, she’s moved into the “people without foreclosures in the past two years” category, and in this category, late payments aren’t considered normal behavior, so each late payments gets dinged more heavily. The good news is that her foreclosure aged, so her score jumped 50 points. The bad news was that her late payments are now worth five points instead of two points.

Previous score: 620
Foreclosure ages: +50 points
Difference in late payment: -60 points (20 late payments now worth five points each instead of two points each, a three point difference)
Current Credit Score: 610

In this scenario, your score actually decreases. But don’t worry, this really is a two steps forward, one step back process, and eventually, your score can increase much, much more. As your late payments age, your score will start jumping five points at a time, and within months, you will be well above the 620 mark and climbing toward 720.

I read today that California lenders started foreclosure proceedings on more than 72,500 homeowners in July to September of 2007. I’m sure fourth quarter statistics will be even more alarming. Imagine how easily politicians could stop giving lip service to economic rejuvenation programs. If our education included outreach on the importance of credit, the economy would boom.

According to one study, approximately 60 percent of Americans carry a balance from month to month to month on at least one card. Let’s reduce this figure by 10 percent and assume that only half of population has accumulated credit card debt. Without over 303 million people in the United States, approximately 150 million have credit card debt, and half of those – 75 million – have scores below 720. If we could conduct outreach to educate those consumers to increase their credit scores and lower their interest rate, we could pump $150 million back into the economy each month if those consumers saved only $2 each month!

This adds up to $1.8 billion in savings each year just in credit card debt. Add to that the billions and billions in foreclosure cost and excess mortgage payments, and we’re looking at a windfall!