Credit Scores

19Jan 2017

As a company, FaithWorks Financial tends to keep the focus on helping people resolve their credit card debts and get back on track to live a debt-free life. Only a small portion of our writings cover the topic of the credit report, mostly touching on the basics that are helpful for everyone to know.

Today however, we would like to take a look at why we believe that our credit reporting system is, in it’s inherent nature, flawed.

The FICO credit reporting system is the primary resource used by lenders to determine an individual’s credit worthiness. This system is what was historically used by “the big three” Equifax, TransUnion, and Experian. In recent years, however, other systems such as Vantage 3.0 are very gaining in popularity. What this means is that you may have a different score even from the same credit bureau, depending on the system used to procure your score.

As FICO is the more traditional of credit scoring systems, we’ll share a very helpful image from myfico.com that will help you to understand what your FICO credit score consists of.
Credit Score Breakdown

As you can see, 35% of your credit score is based on your payment history, 30% is based on the amounts that you owe, 15% is based on the length of credit history, 10% on new credit, and 10% on the types of credit that you use.

The one thing that every single one of these sections have in common is that they are based on your use of credit. That means that 100% of your credit score is determined by how you use the debt that is made available to you.

This is similar across all reporting systems, so the mechanics remain the same from one system to the next.

Forced To Make Poor Financial Decisions

Thinking back to when I was a young 18-year-old man with very limited understanding of how the credit system worked, I found it very difficult for myself to obtain a credit card. Did I need a credit card? Well, probably not. But it just seemed like a very important thing for me to do, a rite of passage, if you will. Truth be told, this was likely due to the wonderful job the banks did with their marketing campaigns.

Knowing now what lenders are looking at before they decide whether or not to issue a line of credit, I very much understand why it was so difficult for me to obtain a credit card at that point in my life… I had not yet established myself as being a credit worthy individual.

I was not yet in debt, so how could I be trusted to be in debt?

So, this experience taught me that in order to be considered eligible for a line of credit you first must find yourself in debt. That’s a conundrum right there.

My inability to get a credit card led to the eventual necessary purchase of a vehicle with a 24.99% interest rate from a buy-here pay-here auto dealer. That loan led to my being approved for my first credit card – an HSBC account with a $300 credit limit and a 29.9% interest rate. The two powers combined allowed me to begin establishing my credibility as a consumer.

Used Car SalesmanI mention that brief story because I could not be eligible for credit without first putting myself into debt by means of that incredibly high interest auto loan.

Had I not been blessed with a fair paying job at the right time, I would likely have found myself upside down on that auto loan which could have lead to a disastrous credit report before even having the chance to get my financial life started properly.

The truth is, most young adults find themselves in the same or similar situations. We have to make a poor financial decision in order to build our credit. Or, worse yet, a person without established would have to expect someone else to make a poor financial decision by cosigning for them.

In some instances parents help their children begin to establish credit at a young age, which may benefit their credit scores, but only at the high risk of jeopardizing the parents’ scores to begin with. Otherwise, the process of obtaining your first line of credit will often come from an experience such as mine or possibly from student loan debt that ultimately costs more than your degree is worth.

If the credit reporting system had taken a look at my timely payment history on my cell phone, utility bills, rent, and other obligations, it may have been clear that I had a good track record with my financial obligations. But our credit reporting systems are driven by putting individuals into debt.

It demands that you make high risk (and ultimately poor) decisions in order to be considered eligible for a reasonable loan in the future. Add in the recent news that some of the bureaus are themselves violating the Fair Credit Reporting Act, and we see that the entire credit reporting system is inherently flawed.

In working with our clients, we have found that for the young individuals that come to us for help, that initial loan is very often what puts individuals into a downward spiral with their personal finances to begin with.

Promoting The Cycle Of Debt

Even individuals who are incredibly diligent about maintaining a stellar credit history, working towards the ultimate goal of paying off their credit cards, their auto loan, and eventually even their mortgage, can be penalized as a result of this flawed system.

An individual who brings themselves to a phenomenal 850 credit score rating by means of “proper”credit card use and timely payments on installment loan such as their car and mortgage, can have their credit score quickly dwindle upon paying off their debts.

Anybody who reaches the goal of what should be the American dream- a debt-free life, having finally paid off their mortgage and the car- will eventually find themselves with a credit score lower than if they were up to the hilt in debt.

A Wide Reach, A Wider Impact

Aside from this very clear and obvious flaw in the credit reporting system, it has become very evident that the system is not even capable of furnishing accurate information about the individuals it is reporting on. According to a February 2013 press release (there do not seem to be any updates to this study), the Federal Trade Commission reported that 5% of consumers identified errors on their credit reports that would negatively affect their credit scores. This may not be a huge percentage, but a report by Business Insider dives much deeper on just what those numbers mean.

There is no way to say just how much the inaccurate information contained in credit reports has cost Americans in higher interest or denied loans, but certainly the number would be staggering to learn. And frankly, even if it weren’t staggering, it is simply unacceptable.

I look at credit reports on a near daily basis, and I can sometimes even spot the inaccuracies without even knowing anything about the individuals circumstances. Inaccuracies in name spellings and addresses are a dime a dozen and are generally blatantly incorrect. Seemingly small errors such as an incorrect name can lead to much bigger issues such as when a woman adopted the identity of the person she purchased a home from! These instances are examples of the lack of oversight of such an important matter.

In fact, I’ve seen enough errors on reports that it was the sole reason my wife and I didn’t name our first born son after me, as I know it is very common for Jr’s and Sr’s to get their credit reports commingled.

Considering the fact that this reporting system is the very basis for the vast majority of lending decisions, it is simply frightening that it is acceptable for it not to be working 100% seamlessly. If a company is going to undertake the responsibility of providing information on credit histories to lenders, the should be checks and balances in place to ensure that the information provided is factual.

Who Will Guard The Guards?

“Quis custodiet ipsos custodes?”- a beautiful and unsuspectingly deep latin phrase translating to “Who will guard the guards?”

The FTC, Congress, and the consumer financial protection Bureau all have this very important matter on their radar. As individuals forced into this system, we too need to take action by ensuring that our reports are accurate and disptuting inaccurate remarks. If you need help with your credit report, let us know.

Even better, let’s contact our state representatives and lawmakers to urge them to find a way to make a difference to overhaul this flawed system.

02Apr 2014



In an ideal world everyone would have enough cash to take care of their monthly expenses without ever having to take on unnecessary debt. However, the way our economy operates, it is quite inconvenient (although not impossible) to conduct your financial life without an adequate credit score. The question then is how to build or re-build healthy credit for those necessary times in life when your character is being judged by a FICO score.

Secured Credit Cards

Secured credit cards are a hybrid between a loadable debit card and an unsecured credit card. Basically secured credit cards allow individuals with poor or non-existent credit scores the opportunity to use a line of credit granted that the person first make a security deposit usually of $300-$500. Charges on the card are not deducted from this amount, but are actual credit charges. Paying off the entire balance each month will quickly begin to affect your credit score in a positive way.Credit Score

Gas Cards

Applying for a gas card is another very safe way to build credit because you will be limited to purchasing only one necessary item, gas. Gas is already part of your regular monthly budget, so if you simply put these purchases on the card, and then use the cash you have set aside for gas to pay off the balance each month, then you will be building your credit with no extra expense or risk to your financial security.

Pay Student Loans on Time

Many people do not realize that Federal Student Loans will affect your credit score negatively or positively. Student loans are usually a very easy debt to manage because the interest rates are generally very low, late fees are small or non-existent and in most cases re-payment plans are ultra-flexible. Staying on top of this easy debt can re-build a credit score very quickly.

Do Utility Bills Count?

Paying utility bills will usually only affect your score negatively if you allow a bill to become delinquent. However, the opposite is not true. If you consistently pay your utility bills on time it will not necessarily affect your credit score in a positive way. So, yes pay your utility bills on time, but do not except that alone to make much of an improvement to your score.

Is Cash Really King?

Attempting to live a cash only lifestyle is a wonderful, tried, and true method of controlling spending and reinventing your finances. However, you will want to consider that there are a growing number of areas in which a good credit score can assist you in reaching your goals. Operating entirely on cash will result in a non-existent credit score, which can translate into rejection. Individuals looking to rent a house or apartment are often very disappointed to learn that a good credit score is required. Purchasing a home definitely requires good credit, and even some employers are checking into your credit history in order to make a judgment of what kind of employee you will turn out to be.

Pay Down Debt Increase Income

New credit laws and credit practices are turning toward a more common sense approach when it comes to approving an individual for a line of credit. Many lending companies are looking more at a person’s credit to income ratio to help make a decision. You can improve your credit score by paying down current debt and making an effort to increase your yearly income by means of a part time job or generating side work in your current field of experience. Paying down debt is one of the key elements to restoring health to a damaged credit history.

Christian debt settlement can help you evaluate your current debt situation, and map out a Christian debt program that will work for you. Visit the link above, or fill out the short form to the right of this article to contact a representative for a FREE no-obligation quote today.

18Sep 2013

So, you have found the person that you want to spend the rest of your life with- congratulations! Few things can be more exciting and meaningful than this. Getting married comes with combining families, routines, living environments, and, of course, finances.

Credit ScoreWhile your basic philosophies on finances may already be well known to each other, one thing that may often be overlooked is how your credit report is going to be affected. It is incredibly important that among all of the other conversations that you are having while planning your marriage, that your credit and debt be a huge topic of discussion. After all, finances tend to be one of the most common sources of difficulties in marriage. For that reason we suggest that you get a good grasp on your combined situation as soon as possible.

One of the most common questions is whether or not one partners bad credit will bring down the other partners good credit. When you get married, items that are contained on your spouse’s credit report do not instantly become transferred over to yours. You do of course have the ability to add your spouse as an authorized user on your account, in which case it would then become an item on both persons reports. Aside from this though, the accounts and items reported on your spouse’s credit report before you are married will never show up on your own. In most instances, only the accounts which you obtain jointly will appear on both of your reports.

Although the items on each persons report do not automatically get transferred over, any negative items will absolutely affect your credit worthiness when you go to apply for a loan jointly. If one partner has great credit and the other one has bad credit and you go to obtain a loan for a home or a car jointly, the bad credit will absolutely pull down the good.

There are some instances where things do get a bit trickier. Some states have community property laws and in those states any debt incurred by either party after you have gotten married can be considered a joint debt. This means if you get married and your spouse goes out and obtains new lines of credit and defaults on them, this would then affect your credit as well. That said, it is ill-advised to be unconcerned about rebuilding one parties credit if it is already in the tank, as those new remarks brought on during your marriage will affect both individuals. Again, this is only in the states that have community property laws.

Here are the states that have community property laws according to Wikipedia.

Community Property States

Community Property States

 

For new couples or even couples who have been together for years, trying to overcome financial difficulties in your marriage can be a huge hurdle. You may also enjoy our Personal Finance 101 series, which discusses honest budgeting, the importance of an emergency fund, and the basics of your credit score.

If one or both of you have debts that are out of control or difficult to be managed, it is important to tackle that burden before it puts a strain on your new marriage. We suggest you reach out to a Debt Advisor here at FaithWorks Financial to learn how to put a plan of action in place to have these accounts resolved and together you can begin working towards your newly combined financial goals.

31Dec 2012

Through our experience in offering Christian Debt Relief programs, we have come to learn that whether you are in great financial shape or are up to your ears in debt, some things are universal. Most individuals that we speak with have heard the horror stories about harassing bill collectors. Bill collectors have been known to make incredibly outrageous statements in hopes of collecting on a past due account.

In hopes of putting an end to these unscrupulous collection methods, the Federal Trade Commission implemented the Fair Debt Collection Practices Act, better known as the FDCPA. Knowing your rights as a consumer can help you to handle phone calls from bill collectors and give you the knowledge that can keep you from being the target of unethical and even illegal collection methods.

Here are a few of the basic protections offered by the FDCPA.

When and Where A Debt Collector May Call-

A debt collector should not make any phone calls prior to 8 AM or after 9 PM unless given prior permission by the debtor.

Also, a debt collector should no longer attempt to reach a debtor at their place of employment if they have been notified, whether it be through verbal or written notification, that their employer does not allow such communication.

Types of accounts that are covered by the FDCPA-

The FDCPA covers consumer debts such as credit cards, auto loans, medical bills and mortgages. The FDCPA does not cover business debts.

How to stop phone calls from bill collectors-

If a debtor provides a written request to cease communications the collection agency should cease all collection efforts aside from the following:
o Notification that collection efforts are being terminated
o Notification that the agency intends to take legal action

Statements that a debt collector cannot make-

A debt collector may not use or threaten to use violence or other criminal means to harm the debtor, their reputation or their property. Also, a debt collector may not use obscene or profane language.

One of the most common violations is the frequency of the phone calls. A debt collector may not call repeatedly or continuously with the intent to annoy or harass the debtor.

While the FDCPA has helped to promote ethical collection tactics, there are absolutely still rouge bill collectors using less than professional methods to collect past due debts. Knowing your rights as a debtor will allow you to stay armed and protected in the event that you are the subject of harassing collection efforts.

If you feel that your rights have been violated, please speak with one of our Christian Debt Relief specialists to discuss, as you may qualify to be compensated up to $1,000 under the Fair Debt Collection Practices Act.

18Dec 2012

When it comes to eliminating debt and ensuring a debt-free future you have four main options available … but how do you know which one is right for you? Here’s a quick summary to help you make the best decision.

Debt Relief Option #1 – Debt Consolidation

While a common consideration for those with high credit card debt, debt consolidation offers some fairly significant disadvantages.

  1. Debt consolidation does not reduce the overall amount of your debt. With a debt consolidation loan you’ll still pay back 100% of your debt, plus interest. A debt consolidation loan basically transfers your credit card debt from one place to another.
  2. Debt consolidation loans are usually “secured” loans that cannot be lowered or negotiated. This could put your home, car or other personal assets at risk in the event of default.
  3. Funds from the debt consolidation loan are used to pay off your credit card debt. For some people, having credit cards with zero or low balances is too much of a temptation. Before they know it, they’re back in the same position again with high credit card debt.

Do your research before you choose Debt Consolidation. It’s a decision you’ll be living with for many years to come.

Debt Relief Option #2 – Credit Counseling

Credit counseling organizations usually try to reduce the interest rates and fees associated with your debt. Like debt consolidation, though, credit counseling doesn’t actually reduce the amount you owe. You’re still responsible for 100% of your total balance.

Many people are also surprised to learn that credit counseling can actually cause your monthly payment to go up. If you’re looking for some immediate financial relief and want to have more money in your pocket for rent, food, tithing and more, credit counseling may not be the best option for you.

Debt Relief Option #3 – Bankruptcy

Yes, bankruptcy will often eliminate all of your debts… but it also produces some significant negative consequences that you should be aware of.

  • The bankruptcy will show on your credit report for at least seven years
  • It will be much harder to obtain loans or other forms of credit in the future
  • The higher interest rates you pay as a result of filing bankruptcy may offset any gains you received from eliminating your debt
  • You’ll likely have unexpected attorney expenses due to laws that were recently enacted
  • A credit counseling course will be required within six months of filing bankruptcy…even if you have already taken one
  • Bankruptcy will stay on your court records for 20 years and could easily be uncovered when you apply for a job, a loan or rent an apartment

In addition, bankruptcy has a social stigma that many people prefer to avoid. Think long and hard before choosing bankruptcy as a debt relief solution. In most cases, it should be your last choice.

Debt Relief Option #4 – Debt Settlement

The three previous debt relief solutions all have some fairly significant negative consequences to their use – from not reducing the overall amount of your debt to taking five years or more to get you out of debt to potentially increasing your monthly payments.

Debt settlement, though, offers some of the best features of the other methods and eliminates many of the negatives. That’s why we believe that debt settlement is a great choice for those looking to reduce or eliminate their debt.

With debt settlement you’ll:

  • Immediately lower your monthly payment
  • Reduce your credit card debt
  • Become debt free in as little as 24 months
  • Pay no fees until your debt is reduced

Have more questions or want to learn more about the FaithWorks Financial debt settlement program? Visit our FAQ page or click here to receive a free consultation and quote from one of our friendly Christian Debt Advisors.

18Dec 2012

Have bad credit and want to improve it? There are two things you should know:

  1. You are not alone. According to recent statistics, there are over 30 million Americans who have difficulty obtaining loans and credit cards because of challenges with their debt.
  2. There are some simple ways to improve your credit score. Below I’m going to provide six proven tips to help you get started.

Remember, the better your credit, the lower your interest rate on car loans and credit cards. Good credit scores will also make home ownership much easier.

So what can you do to improve your credit score? Here are 5 tips:

  1. Get rid of credit card debtwhile paying off loans, such as your mortgage, car loan or student loan, can improve your scores it will not improve your scores as much as getting rid of revolving accounts such as credit cards.
  2. Cut back on credit card use – Making big charges can damage your scores whether you pay off your balances each month or not. As a rule of thumb, try to keep your monthly charges to 30% or less of your credit card’s limit.
  3. Make sure the credit limits being reported on your credit report are accurateif your lender is showing a credit limit that is lower than your actual amount your credit score can be penalized. Most credit card issuers will quickly update this information if you make them aware of the error.
  4. Continue to use older credit cardsquite simply, the older your credit history, the better. If you continue to periodically use the credit cards that you’ve had the longest your credit score will benefit (provided you pay the balance off in full each month, of course).
  5. Closely study your credit report for errors – when it comes to raising your credit scores, some errors are more important to get fixed than others. Here’s what you should look out for and get corrected if you discover mistakes have been made:
  • Late payments
  • Credit limits reported as lower than they actually are (See #3 above)
  • Accounts listed as anything other than “current” or “paid as agreed” (such as “paid derogatory” and “paid charge-off”) if you paid in-full and on-time.
  • Accounts included in a bankruptcy that are still listed as unpaid.
  • Negative items older than seven years (10 in the case of bankruptcy) that should have automatically been removed from your credit report.

Follow the five tips above and your credit score should steadily improve.

Bonus Tip – Don’t ask a creditor to lower your credit limits!

While your heart might be in the right place – i.e. reducing your limit will keep you from charging so much, the truth is lowering your credit limit will reduce the all-important gap between your balances and your available credit, which in turn will hurt your credit score.

It’s better to leave your limits where they are and try to limit your spending another way.

Interested in reducing or eliminating your credit card debt quickly and easily? Need a proven debt relief solution? Click here to learn more about how we can provide you with a customized debt relief solution that will help you achieve true financial freedom.