Two More Reasons Your Credit Score Might Drop

Yesterday, I wrote about a temporary drop in credit score due to opening a new line of credit. Today, I explain two additional reasons you might see your score go down.

Possible Reasons for a Credit Score Drop

  1. If you raise your revolving credit card balances to above 50%, above 80%, or max them out, your score will drop, even if all payments are made on time. The cure is to reduce your balances again (and keep them low).
  2. If you have recently removed all collections/charge-offs from your credit report, you might see your score go down. This is because there are at least 10 credit slots (some call them buckets) or categories for credit profiles.

    All the people who have a bankruptcy go in one category. All the people who have collections/charge-offs go in a category. All the people who have seven years of perfect credit go in a category. Etc. (This is an example. I don’t have the actual category “bucket” labels as that is highly protected and classified by the credit bureaus.)

    If you have been moved from the “D” credit category to the “C” or “B” credit category, then you are competing with people who have better credit than before. Credit scores are calculated by comparison with the rest of the population. It is like a grading curve in school.

    If this happened to you, don’t fret or get upset. It will work itself out in time.

    Manage your credit like the people who have 740+ credit scores, and eventually you will get to 740+ also.

    The best policy is not to obsess and micro-manage your score day-to-day or even week-to-week. That is like a person who is working on weight loss jumping on the scale every hour and then getting upset because their weight went up slightly due to drinking a glass of water.

    Repair Your Credit Like the Pros, and your score will improve — sometimes faster than you expected!

By the way, I have a brand new, ground-breaking book coming out soon!!! It is written, the formatting is complete, and the cover design is in progress. I am very excited about this, so keep a watch out for the announcement coming.
Hint: everyone who has had a bankruptcy in the past 10 years will benefit.

Help! My Credit Score Dropped!

Have you ever seen an unexpected drop in your credit score? And then freaked out, maybe just a little?

If you opened new credit, then your credit score will likely go down. This is TEMPORARY. I’ll explain…

  1. Opening a new credit card
    If you open a new credit card, expect your score to drop 10 to 40 points temporarily. The reason for the drop is that the credit bureaus do not yet know how you will handle this new credit. Will you max out your card and go into more debt than your budget can handle? Will you pay the bill in full or will you carry a balance, thereby indicating that you are overspending? Will you pay on time, as agreed?

    What to do next: Handle the new account like a pro. Pay the bill in full on time each month. Never charge more than 10% to 30% of the limit. Then don’t worry, because in about 3-4 months, the temporary score penalty will be lifted. At this point, your score will likely go higher than ever, because you have more available credit with a low usage rate — and all paid on time.

    If you needed the additional credit because your credit file was too thin (only one account), then you have done the right thing by adding an account to your credit profile. Building good credit takes some time and everyone has to start somewhere.
  2. Opening a new installment loan
    If you needed transportation and it was time for you to get an auto loan, then you have a new installment loan. An installment loan has a set ending date, unlike a revolving credit card that is open indefinitely. Depending on your credit profile, a temporarily score drop sometimes occurs. However, you will not be penalized for having a high balance-to-limit ratio with an installment loan, because that is the nature of a new loan of this type.

    What to do next: set yourself up for auto-pay or pay your bill as soon as it comes in each month. Don’t set it aside and forget the date. Even with auto-pay, keep a watch to make sure the payment went through on time and was not delayed due to a holiday or due to being sold to another finance company.

    An installment loan often raises a credit score, because it creates a more complex mix of credit, as opposed to having only a couple revolving credit card accounts. However, this is not an excuse to go out and buy a car or truck that you cannot really afford. Do not buy at the top of your budget. Be smart and keep your debt-to-income ratio low so that you can handle unexpected situations that require money outside of your normal budget.

    In addition, do not buy a new vehicle if you plan to buy a house within the next year. Remember: buy the house first, then the car later. Doing it backwards is one of the worst mistakes people make, because the new auto loan then prevents them from getting approved for the home loan.

    “House first, car later.” No exceptions!

One Last Word of Credit Advice

Do not obsessively watch your credit score. There is no point in making yourself crazy with micro-managing your score on a daily or weekly basis. If you Build and Protect Your Credit Like the Pros, then your score will reflect that. I have seen a young person’s score go from nothing to over 700 in six months, simply by following good strategy.

If you know someone who might benefit from this information, please share on social media and/or pass it on.
Thank you.

“Smells Like Money”

“This house smells like money,” said my friend, the real estate investor, when she walked into a stinky, ugly, fixer-upper. She should know. She and her husband had purchased over a dozen ugly homes, remodeled them, and then either rented them or resold them for profit.

I purchased a smelly house myself when I purchased my first little one-story as a single woman. It wasn’t because I knew anything about investing in real estate, it was because that was all I could afford. The nice homes were all out of my price range.

Dog urine soaked carpet: it really stinks.

A stove that is crusted an inch thick with burned-on gunk doesn’t help the odor any.

When my loan closed on this little “gem” the first thing I did was get the carpet and stove hauled to the dump.

I had intended to have the hardwood floors refinished, but the hardwood company said the stains were too deep to get out. I didn’t have the funds to rip out and replace floors, so I had a fresh new carpet installed instead. Walls were painted. New light switch covers, the pretty kind, replaced the yucky old ones.

Within a year, the water heater went out, so that was an unavoidable expense. At the same time, it was necessary to replace the toilet in the bathroom.

The house was located on a cul-de-sac, which was great for privacy. I told my kids they could ride their bikes on the street and streets heading east. Under no circumstances were they to ride west, three blocks up to the highway that ran past the airport hotels — and if you are an adult, I am sure you can guess why that part of town was unsuitable.

We lived in that little white house with green shutters for three years.

During that time, I worked hard and increased my income. Then it was time to sell and move into a nicer home in a better neighborhood. The real estate market was good, the house was clean and attractive in a Bohemian, carefree style. I sold for a profit. And get this…

When I added up my net profit (after paying off the loan, closing costs, excise tax, and realtor fee), and then subtracted the cost of cleaning up the house and the cost of my total mortgage payment…

The numbers showed I had lived there FOR FREE and had actually made money every month!

This is why I tell people not to wait until they can afford their dream home with the hardwoods and granite countertops. Don’t wait until you can buy in the most desirable part of town.

And, don’t wait until you have 20% down. You can get a mortgage with only 3% to 3.5% down.

Get yourself a good Buyer’s Agent, a licensed real estate agent who knows the neighborhood, to help you locate a property. A Buyer’s Agent costs you NOTHING. The seller pays all agent fees, not you. I had a good, experienced agent who scouted out the little white house and negotiated a good price.

Buy that stinky house that smells like money if that is what it takes to get your start in real estate.

Did You Receive a Phony Investigation Response?

If a debt collector contacts you for payment on a collection or charge-off, this information is for you.

If the collector is not the original creditor, but a company that purchased the debt from the original creditor, then you have the right to demand a complete validation of the debt. An example would be Midland Credit Management purchasing debt from your credit card holder.

Without validation, how can you be sure that the amount they claim you owe is correct, or that they even have the right to collect on the account?

In Repair Your Credit Like the Pros, there is a letter you can use that requests the five items you are entitled to have verified, per the Fair Debt Collection Act. Sounds good so far, but here’s the problem…

Oftentimes, the collector sends back one document, such as a copy of your bill, without properly validating all five items. This, of course, is not a true and proper debt validation.

The typical next step is to write to the credit reporting agencies. But then what happens if Experian, Equifax, or TransUnion send you back a letter stating the account has been investigated, verified, and remains? You see it is a form letter and you know it was a FAKE investigation, because the collector never provided you with a proper validation when you requested one!!!

This is exactly what happened to one of my book readers recently. She asked me how to proceed.

I do not do credit consulting, but since she had purchased my book, I told her what I would do in her situation. I would send a letter of demand to the credit reporting agency asking for the method they used in their (so-called) investigation, whom they communicated with, and what that person’s contact info was. Then I would add that if they could not supply me with this information, to delete the account immediately, because it was neither validated by the collector nor was it properly validated by them.

She followed my suggestion, and I heard back from her just yesterday.

VOILA! The response came back from the credit reporting agency that the collection account had been DELETED!

That is credit repair success, and it is legal according to federal law and in all 50 states.

If you need credit repair, if you believe you can do it yourself with a little step-by-step guidance and letters already written for you to customize to fit yourself, then you are a good candidate for this strategy here.

Important Tip For Credit Repair

This is not a big secret or a special strategy. It is a wake-up call for people who are on a credit repair journey and are shooting themselves all to pieces.

I was shocked to hear from a national credit repair service executive that about 30% of their clients are currently late on a brand new payment. This led me to think about all the people who are doing their own credit repair.

Listen friends: you cannot challenge an old account for inaccuracy in an attempt to have it deleted from your credit report IF YOU ARE CURRENTLY LATE on a payment.

Would you wear muddy boots while mopping your kitchen floor? What would be the point? You would be making a mess as fast as your attempt to clean it up. Same for credit repair.

If you cannot afford to pay all your bills, then it is time to look deeper to discover why. Do you need a better income? Do you need to add a side hustle or ask for overtime hours? Do you need to look for a better paying job (while still keeping your current job)?

If it will take you more than 7 years to pay off your debt, you should consider speaking with a bankruptcy attorney in your area to see if a BK Chapter 7 makes sense. Every state has its own bankruptcy laws and many attorneys offer a free initial consultation.

If you miss payments due to being disorganized, set up automatic payments. Then set an alarm on your phone to check your bills to make sure auto-pay worked properly.

Pay your bills the same day they arrive, don’t set them aside for later.

I hope this message does not apply to YOU, but for those whom it does, today is a reality check. You cannot fix credit mistakes of the past while you are still making those same mistakes, just as you cannot get a wound healed while you are still poking a stick at it.

Available in paperback and Kindle on Amazon.

Deceptive Radio Ads

Will the lying ever stop? This week I heard another deceptive ad aimed at home owners refinancing. It aired on KIXI Radio in Seattle., but might have been broadcast in other cities, also.

The ad said when you refinance with their company, you “may even get to skip a payment or two.” That is false! Furthermore, it is illegal to state “skip a payment” as a benefit of refinancing, because you do not actually skip a payment, ever.

It can seem like you are skipping a payment, because mortgage payments are made in arears, not in advance. If your refinance closes in August, your first payment will be due October 1st. Does this mean you get to live for free in your house for the month of September? No.

You don’t, in fact, skip the September payment. Your Oct 1 payment covers for September, because mortgages are paid in arears.

If your payoff included a payment due to the day of the month the loan closed, then it might seem like you are skipping two payments. YOU ARE NOT.

You made one payment in the payoff via the closing. You make the next payment after the month is passed. You do not actually get to live in your house free for one month or two months when you refinance. That is deceptive and a violation of mortgage lending law.

I could not locate a phone number on the offending mortgage company’s website, so I sent in an email. At this point, I have received no reply. If I had been inquiring about getting a loan, someone would have replied quickly. Should I report their illegal ad to the Consumer Finance Protection Bureau? What do you think?

I believe I should. After all, I didn’t write Mortgage Ripoffs and Money Savers for nothing.

Crazy Credit Score Penalty: Amounts Owed

We all need to understand the Amounts Owed section on credit scoring, because it makes up a crazy 30% of the credit score!

The points you get under Amounts Owed is almost as much as all your positive credit history and all of your derogatory

See if you can get this credit scenario right:

Three people have identical good credit reports except for each one having one negative item. Which person will have their Amounts Owed (30% of the scoring model) docked the most?

1) Ms. Blue has a $500 Nordstrom card that went unpaid, became a charge-off, and is still has a balance of $500 on a $500 limit.

2) Ms. Green has an unpaid tax lien of $860.

3) Ms. Purple has an unpaid utility bill of $1,000.

Whose credit score got hit the hardest under the Amounts Owed section?

Take your best guess and then let me know by leaving a Comment if you got the answer right.

If you said Ms. Purple because her utility bill has the most money owed, you are wrong.

If you said Ms. Green because a tax lien is serious stuff, you are also wrong.

Ms. Blue is really feeling blue right now, because even though she owes less than her two friends, her credit score got hit the hardest for the $500 maxed out Nordstrom card. How can that be?

The Amounts Owed section applies only to revolving credit. Revolving credit does not have a fixed number of payments, and every time you make a payment, the credit is automatically renewed. Neither a tax lien nor a utility bill are revolving credit. Therefore, the amount you owe on those bills does not affect the super-important Amounts Owed section of your credit score.

When you know how the scoring system works, you are in control of your own credit score. To learn more about credit scoring, pick up a copy of Build and Protect Your Credit Like the Pros here.

Carolyn Warren’s Personal Story, Part 2: “Two Surprises Come My Way”

I was surprised to receive a phone call from the former Activities Director at the company where I had worked in sales before the company shut down. I had only known her for a short time, and not very well.

“Carolyn, I have a fabulous new job, and I want you to come work with me,” Allison said. She went on to explain she had become a mortgage loan officer.

“No thank you, I don’t know anything about mortgages or loans,” I replied.

“It doesn’t matter! They will completely train you. You aren’t working yet, right? Just come and interview. I know you can do it,” she said.

I was getting desperate for a new job, so I interviewed, took an IQ test and a personality test, and was hired. Allison was right: they trained us new hires and gave us each a personal mentor.

What I grew to love about the mortgage business is that it is all about the numbers. Either the loan makes good financial sense or it doesn’t. That was the easy part; the guidelines and rules are complex. Every customer presented a different and unique scenario, making every day a learning experience.

Many challenges presented themselves, and in those early days, it was always something. There were credit challenges, income challenges, employment challenges, and if the borrower happened to be perfect, then a weird property challenge would pop up, like the appraiser would discover a hidden propane tank in the yard or the underwriter would question the life of the roof. People were crazy, too. Like they would go out and buy a new car before their loan had closed, which made the loan flip from approval to denial.

I used to receive a lot of phone calls from collection companies and attorneys asking if I could do a debt consolidation refinance for one of their debtors who owed money. That gave me valuable experience into what goes on inside the collection offices (which had secret entrances and the collectors used fake names), and how to negotiate settlements.

After working for the direct lender, I went on to being a full-service mortgage broker, then to working in wholesale as an account executive.

All those seemingly dead-end jobs in my past had served a purpose. As a receptionist, I learned telephone skills. As a secretary, I learned organization. My sales jobs taught me about people and how to listen to their needs and provide excellent service. My last job provided me with a contact who invited me into the mortgage industry. It was all a big puzzle that fit together in time.

One day, a friend invited me to attend her church with her. After the service, the pastor led me back to my Savior. It was like the curtain of heaven rolled back and a funnel of love poured down upon me. It was instant and powerful! God’s love washed away years of pain and confusion. Tears of joy ran down my face. My heart felt like it would burst with gladness. The drive home was 40 minutes, and I wept for joy all the way. God did love me. It was marvelous beyond comprehension! What a great surprise it was!

I pray that you may have the power to grasp how wide, how long, how wide, and how deep is the love of Christ. (Taken from Ephesians 3:17-18.)

I should also mention that a new sweet kitty came into our home. I named her Francie and she brought us much joy.

Kitty Francie

Carolyn Warren’s Personal Story, Part I: “I need a better income.”

I lost nearly everything in the space of a week.

My teaching job, my dream house, my marriage: all were gone.

It was never my life plan to be a single mom of two elementary-age kiddos; but here I was, and there was no time to waste.

I found an 800-square foot apartment to rent that was within walking distance of the kids’ school. My son got one of the bedrooms, and my daughter and I shared the other. Our room was too small for two beds, so I became a mama sleeping in a bunkbed.

We desperately needed some joy in our lives, so I adopted a kitty She was so cute and made us laugh every day. We loved her dearly. My daughter named her Vanessa.

Since I needed an income asap, I went to an employment agency. I did not have many marketable skills. At that time, the fee was $1,500 for a minimum wage job, a small fortune. I called my brother three states away and asked for his advice. “Take the job and I will loan you the money for the fee,” he said.

It was a full-time position working as a receptionist for The Southland Corporation. I handled phones and mail. It paid $7.00/hour. By the time afternoon rolled around, I was bored half out of my mind and feeling trapped behind the switchboard. I drank bad coffee to get through the rest of the day.

Fifteen months later when I had completed paying back my brother’s loan, I realized I was not getting ahead, I was barely getting by with nothing extra for my future. I needed a better income. But how?

My best friend suggested going back to college, something she herself was doing. But she wasn’t a mom, and I couldn’t see how I could do both work and school and still devote time to my children. So I did what I thought was the next-best thing.

I applied for a commission-based sales job. I knew nothing about sales, but I figured I could be good at it. The position was for Enrollment Specialist at a local diet and nutrition center. The commission structure sounded lucrative and would be a big boost in pay. I was so enthusiastic in the interview–having recently lost 12 pounds myself — that I got the job. New Year’s was just around the corner and with all the resolutions people make to lose weight, I was sure of having a better life soon.

The sales training was thorough and intense. Nothing less than 100% would satisfy the boss. Anything less than 75% meant you were fired. My sales were 89.9%, which was very good — except for one thing.

I hardly had any appointments. The company had over-estimated their advertising campaign and had over-hired. There were not enough prospects to go around, and we were all basically starving. Since it was commission-only, there was no base pay. My income had plummeted to an unlivable and unsustainable situation. I no longer had enough money to get by.

I was left with no choice but to swallow my pride and visit DSHS. They gave me food stamps for my children’s sake.

I went back to looking for work. A woman I knew was a manager at a retail closing shop. She took pity and hired me. It was a miserable situation. We were under constant pressure to sell a minimum of five items per customer with the cash register keeping stats. The pay was minimal and if we made a misstep, she’d get out a wood ruler and whack our hands. I remember shivering in the back room with a raging fever from influenza, because she did not allow time off for illness. “Come to work or get fired!” she’d say. I couldn’t walk away; I had children to support. I had to find something better. I began interviewing again.

This was before the days of personal computers when jobs were advertised in newspapers. I found another sales job and faxed in my resume, which highlighted my 89.9% closing rate, and that I had won a coat-selling contest at the retail shop.

I have always been a good interviewer. Here is my secret:

I ask the question, “What would be your ideal candidate for this position?”

In response, the interviewer tells me the traits and skills they are looking for. It’s like they have showed me the Answer Book! It was the same technique I’d learned in my sales training: ask the prospect what they want and then build the bridge from the product (or yourself) back to them.

It worked, and I got the job as Sales Consultant for a social and activities club. It was fun and my sales were great. I simply asked the prospects why they needed a better social life and then built the bridge. Then one morning when I arrived at work — it was an upscale office in a downtown high-rise — the company president asked me to step into his office. The other employees were already there.

“Here’s a company sweatshirt,” he said. “Take it and go home. I’ve sold the company to (our biggest competitor).”

Nice for him to make a big profit. Not so nice for any of us. I went back to looking for work and even signed up with another job placement agency, but this time, it wasn’t so easy.

I went out on scads of interviews, but there was always a candidate with a lot more experience than me who got the position, or else it wasn’t a good match. After one interview, the hiring manager told the job placement agency, “She is nice, but there was no chemistry.” It was true. I could not imagine anything more dull than selling their Xerox machines.

In the meantime, I signed up for a size hustle. I knew this was going to be an amazing opportunity. People were making big money and changing their lives, I was told. I was all in! I attended every meeting and followed every instruction to the T. At the end of the year, I wrote out my Profit and Loss Statement. I had earned $34 for the year, selling Amway. I decided not to waste any more time making the upline richer. I felt disappointed and disillusioned, both with work and with my life.

Why hadn’t God given me a job that worked out? I wondered. Why had all of these bad circumstances come my way? Why did I feel so alone?

It was about this time that Vanessa got an illness that three veterinarians could not fix. Vanessa died. I cried and cried. Why should such a beautiful, innocent creature die?

Why was life so hard and filled with sadness? Why didn’t God, who is all-powerful, help out? I got out the phone book and made an appointment to speak with the pastor of a nearby church. I needed some counseling. At the appointed time, I went to the church and walked in. It was so quiet you could reach out and touch the silence. I finally found a secretary in a back office and explained I had come for my appointment. She looked surprised and went to check.

“I’m sorry, the pastor is not here. I think he forgot,” she said. That was all. She said nothing more. I went home.

I prayed and prayed. But there was no answer and nothing came. I continued to interview and continued to lose out to people who had more or better experience. My savings was running out.

I searched for answers and came to the conclusion that even though “God so loved the world,” God did not personally love me. God was not answering my cries for help. Evidently, God was not seeing me. Or maybe he did see me, but I was too big a sinner to deserve an answer. That was probably it.

In my dark hour, I felt like the only one who was a failure in life. I had forgotten that many of God’s most famous people went through hard times. Like the widow of Zarephath with her son who was ready to die of starvation until the prophet Elijah showed up on her doorstep. Like Ruth, who was picking up scraps left behind by the harvesters to barely keep ahead of starvation, before she met her kinsman redeemer. Little did I know that my next job would turn into a long-lasting career in a brand new field that was complex, crazy, stressful, and yet such a blessing that I would fall in love with it, and it would love me right back.

You will suffer for a short time. But after that, God will make everything right. He will make you strong. He will support you and keep you from falling. He is the God who gives all grace. He called you to share in his glory in Christ. That glory will continue forever. All power is his forever and ever. Amen. ~ I Peter 5: 10-11 (ICB translation)

Thank you for reading this snippet of my story. Feel free to leave a comment. You can also reach me here.

Change Your Credit, Change Your Identity

Sunday, my pastor spoke about the blind man, Bartimaeus, who threw off his cloak and called out to Jesus.

In ancient times, beggars — who were blind or physically impaired and unable to work for a living — wore an outer garment that identified them as such. Their coat was literally their identity.

This reminded me that today in the business world, our credit is our identity. Without good credit, we are reduced to “beggar status” and have to take the cast-off loans with high rates and fees.

When we take an expensive loan, we waste money; thus, our finances are further penalized.

People with subprime loans pay more for their cars, more for their insurance premiums, and more for their mortgage loans. How can you get ahead when you’re throwing away money making the rich creditors even richer? It’s time to stop the absurdity!

When Bartimaeus heard Jesus was coming, he jumped up, threw off his coat, and called out to Jesus. He wasn’t going to need that beggar’s coat anymore! He knew Jesus would heal him.

Are you ready to throw off your identity of bad credit? Are you ready to jump up and have a new identity?

Jesus said to Bartimaeus, “Your faith has made you whole.”

Do you have faith that you can change your mistakes of the past, your financial hardship? Do you want a new identity you can be proud of?

There was a time when I stood in line at the food bank because my part-time job at minimum wage was not enough to feed my two kids. Mentally, I never took on the identity of a welfare mom — I knew it was temporary and that I had to get a better job. Three months later, I was off food stamps, and I was on my way upward.

Believe you can make the change, and then take action! Every journey begins with a single step.

P.S. Let me know if you want to hear my story. (At the top you’ll see Leave a Comment.)

Thank you for one of my book readers who sent me this photo.