If you think you know what your credit card company charges for a late payment, take another look. You might be shocked!
Capital One posts their interest rate as 27.24%. But look at this statement. Because this consumer was late, Capital One is charging over 70%!
Top line shows the balance was $41.17.
Sixth line (underlined) shows the fee charged is $29.00.
$29 = 70.4% of $41.17
I think that is outrageous, and I hope this goes viral.
It means the consumer is paying $70.17 for an item that cost $41.17. That is a terrible deal, no matter how you look at it!
I suggested that the consumer call Capital One and ask not to be posted 30 days late to the credit bureaus, because she has never been late before and has a perfect credit history. Getting docked 100+ points on her FICO score would hurt more than $29.
Here is the Conversation with Capital One
Cap One Rep: Sorry, we have to report it as late to the credit bureaus.
Consumer: I have a perfect credit history with you. Could I have this one grace?
Cap One Rep: No, we can’t do that.
Consumer: I would like to talk with a Supervisor (following the script in Repair Your Credit Like the Pros).
Cap One Rep: It won’t do you any good. She’ll just tell you the same thing.
Consumer: Nevertheless, I want to talk with a Supervisor.
Supervisor comes to the phone and Consumer asks again.
Cap One Supervisor: We won’t report you late to the credit bureaus. I apologize for what our customer service representative told you.
As a bonus, she waived the late fee. It seems the Supervisor was more interested in good customer service than the representative. It is a good thing she asked! Doing so saved her money and grief.
Scripts for how to negotiate with creditors are in the book. They are based on my own experience in negotiating for my mortgage clients in the past. I do not negotiate for consumers now, but there’s no reason why you cannot D.I.Y.
Setting up automatic payment to pay off your balance in full each month is a good practice. Don’t waste your hard-earned money on outrageous credit card interest. It’s not even tax deductible.
Don’t worry about the credit card companies making a profit. Even if you don’t pay them a single cent, they make money by charging the merchant or seller.
Please help get this education out to good folks: If you don’t pay your balance in full each month, you are paying too much! And if you accidentally go late one month, call immediately and get it resolved before it gets reported to the credit bureaus.
Earlier this week while checking out at the supermarket, the clerk asked me, “Would you like to save 10% today by opening our store credit card?”
“No thank you. I have enough credit cards,” I replied.
How many credit cards is enough? At what point does having too much credit hurt your score and dock points?
If you plan to apply for a home or auto loan in the near future, these are very important questions, because credit cards play a major role in determining your score. And your score dictates whether or not you qualify for the best loan at the best interest rate.
Too Much Credit Lowers Your Credit Score
“I have 17 relationships,” said a woman who wanted to buy a home. I had asked about her credit and was dismayed to learn how over-extended she was. Not only did she carry too much debt, but her abundance of credit cards put her in a below-average credit rating.
There are two ways having too much credit harms your score:
- If your balance-to-limit ratio is even one dollar over 50 percent, you are losing credit points. If your balance is 80 percent or higher, you are losing even more points. On the other hand, if your balance is below 30 percent of the limit, you gain points.
- If you have too many open accounts, your score might suffer, because you have the potential to bury yourself in debt — especially if some of the accounts are newly opened. On the other hand, if you have had ten open accounts for ten years and you have managed them perfectly, then you can still have a top score.
Three open credit cards is good. Three is enough. You want at least two of those three to be a major card, such as Visa, MasterCard, or Discover. Individual store cards such as Target and Macy’s are not major cards; therefore, they are not weighted as heavily. When you have two major credit cards, you don’t need a wallet full of individual store cards.
If you have maintained perfect credit for over three years with five to ten cards, you should be fine. Do not close your longstanding major credit cards, because they are giving you valuable credit score points. On the other hand, if you have 17 “relationships,” close some of those store cards, and ask for it to be reported as “closed by consumer request.”
Too Little Credit is Bad for Getting a Mortgage
Whether you want to borrow half of a million dollars or less than a hundred thousand dollars, mortgage lenders want to see that you have a track record of managing credit. One credit card is not enough to establish a strong credit pattern.
FHA wants at least two credit accounts to obtain a mortgage. Conventional loans (the preferred loan) wants at least three credit accounts. These accounts need to be established for at least six months in order to count toward your score.
Debit cards do not establish credit or go on your credit report. Therefore, a debit card does not give you credit score points.
Get Smart About Your Credit!
Don’t be in the dark about your personal credit rating. Learn the rules so you can control your own credit score. If you have made mistakes in the past, you can start today in establishing perfect credit for your future. If your credit report contains errors, take action now and get it cleared up. Don’t procrastinate, because the credit bureaus have 30 days to investigate and respond to your request. And if they don’t get it right the first time, you might have to send a second letter.
Don’t make the colossal error of ordering your credit online. Write that down and remember it. You give up important rights when you order online. Attorneys and certified credit repair specialists do not order online, and neither must you.
Your credit score is vitally important. Not only does it dictate whether or not you can buy a home of your own, it also influences your auto insurance premium, your fire insurance premium, auto financing, and more.
Listen Up! Credit cards are not your friends. Do not collect them like you’re collecting buddies. Credit cards are like razor sharp tools that have the ability to help or hurt.
There is much more to be said about credit, and I will continue to write posts. In the meantime, please help me educate good folks by posting to Facebook, Twitter, and passing on the website address http://www.AskCarolynWarren.com.
Thank you and use credit wisely!
I checked my credit score today using the free site, Credit Sesame. More about what that means in a moment. But first, I was pleased–but not surprised–to see that my score today is 815. Here is how I earned the coveted score of over 800.
Payment History = 35% of the credit score
I have zero late payments on my report. (It wasn’t always that way. More about that later.)
Credit Utilization = 30% of the credit score
If your credit cards are maxed out, you get docked a lot of points, even if all payments are made on time. If your credit cards are over 50 percent of the limit, you get docked points. My credit utilization is only 6%; so because it is under 10 percent, I gain points.
Age of Credit History = 15% of the credit score
My oldest active account is 18 years, 1 month old. If I close that account, I will lose points, so I don’t want to do that.
My newest account is 8 months old, because I opened a credit card within the last year. Once an account is open for six months, it is considered old enough to be included in your credit rating. Also, at 8 months, it has aged enough that it is no longer docking me points for “unknown usage,” meaning they don’t know if I will max it out or pay on time when first opened. This is why you don’t want to open a new account right before applying for an auto loan or mortgage.
Account Mix = 10% of the credit score
The credit bureaus prefer a mix of credit cards, installment loan (such as auto or student loan), and mortgage loan. However, you can still get a score of over 800 without a mix; as is my own case. I have five open credit accounts.
Credit Inquiries = 10% of the credit score
I have zero inquires in the past 12 months, according to Credit Sesame. That seems odd since I opened a credit card just eight months ago. Either Credit Sesame is incorrect or the card didn’t result in a hard credit inquiry. I will have to look into that.
Is Credit Sesame Accurate?
Credit Sesame provides one score obtained from the Experian National Credit Equivalency, which means it is one bureau’s consumer credit score. The consumer score is more lenient than the mortgage score, because it is less risky to give someone a credit card than it is to give them a mortgage. The score from Credit Sesame varies from the actual Experian score by an average of 33 points, according to a study conducted by Doctor of Credit.
Using Credit Sesame is free, gives a good ballpark estimate of your score from one of the three bureaus, and will not hurt your score or show as an inquiry on your credit report.
If You Need to Repair Your Credit (Like I Did)
There was a time when I did not have an 800 score. I unknowingly made some mistakes, including letting a department store credit card payment slide for a month. On top of that, someone else’s late auto payment was showing up on my report. When I purchased my first home as a young, single woman, I had to take an FHA loan, because my score didn’t qualify for a conventional loan.
I took charge of my situation and raced to the top of the chart. You can do the same!
Certified credit repair specialists and experienced attorneys are one way to go. But if you don’t mind taking the time to do the work yourself, you can save $500 to $2,000 in professional fees. Instructions on how the professionals restore your credit and good name are in my book, which is getting great reader reviews on Amazon, and many more emails to me from folks who don’t post reviews. Feel free to check it out here.
Here are four things you should know about how credit cards affect your FICO score:
1) If you carry a balance that is over 50 percent of the limit, you will lose credit points.
To remedy, either call your creditor and ask to have the limit raised, or spread out your spending over an additional card. I am assuming, of course, that you are not overspending for your income and budget. That is another topic altogether!
2) If you pay off your balance in full each month, you will be rewarded with additional credit points.
The credit system recognizes the proper use of credit and adds points to your FICO score when you don’t carry a balance from month-to-month. Moreover, you don’t waste your money paying interest that is non-tax deductible.
3) If your total use of credit is below 50 percent of your total available credit, you will gain points.*
Not only does the system look at your individual credit card balance-to-limit ratio, but it also looks at the total of all your available credit cards. So if you are maxing out all your cards, your score will receive a double whammy in point subtraction.
4) Any payment that is 30 days late will dock your score. If you’re 60 days late, it gets worse, and ditto for 90 days.
If you are 31 days late for the first time and call your creditor immediately, they might give you grace and not report you as late, especially if you are a long-time, perfect-paying customer.
If your one-off late payment has already reported, then you should take steps to get that removed from your credit report. The law gives you the right to dispute the late payment, and many creditors are happy to remove the late payment when you send the right type of letter through the good old-fashioned USPS mail system. Why? Because it is a good business practice for them, and it is within their legal right to do so. As the creditor, they own your credit information.
When you understand how the system works, you are in control of your own credit score.
* If you reduce the 50% credit usage to 30%, you gain even more points.
Having a score of 740+ puts you in the top tier for a conventional mortgage loan. If your score is 800 or higher, you gain respect, bragging rights, and may qualify for slightly better terms, depending on the lender and loan program.
Learn what the credit professionals know that you don’t about restoring credit and your good name. I received an email from a gentleman who read this book and has been following the steps for do-it-yourself credit repair. “Three negative accounts gone, three to go,” he wrote. Yes, credit repair does work when it is done properly.
Unless you’re as cute as a cat or have just won the lottery and plan to pay cash for everything for the rest of your life, you need excellent credit and a high FICO score in order to obtain the best financing, the cheapest insurance premiums, and save money.
“Can I buy a house with bad credit on my report?” She felt like she was being unfairly profiled and locked out of buying a house. She knew she could afford the mortgage payment; after all, the rent she was paying was higher than that.
Maybe her credit was inaccurately placing her in a category in which she did not belong. Maybe it is happening to you or someone you know. Here is what landlords say about people with low or no credit score.
“It is a fact that lower credit score individuals engage in riskier behaviors… Lighting off fireworks in a high-density environment, fighting, speeding, being drunk in public, DWI, driving without insurance, dealing and using drugs, etc. would be examples of risky behaviors that we would want to avoid.”
~No Nonsense Landlord
Does that describe you or the person you know who has a lower score than average? Maybe not, but that is what “they” are thinking about you when they see your credit score or see that you have no score.
A gentleman, a construction worker, wrote to me after his credit score took a dive and he wanted to restore his good name. It all started when a truck ran over his foot. He couldn’t work and medical bills piled up and slipped into collections faster than his insurance company took care of business. He was neither irresponsible nor a deadbeat. He didn’t light fireworks off in crowds nor did he drive drunk or deal drugs.
You don’t need perfect credit to buy a house. A score of 580 will qualify you for an FHA loan with some lenders, and a score of 620 will qualify you for a conventional, VA, or USDA loan. However, you will have to take a higher interest rate and make a higher payment with those scores. I think it is worth taking a few months to raise your score first.
You will save yourself a lot of money if your score is at least 620 rather than 580 for the FHA loan.
Similarly, if your score is at least 740 rather than 620 for the conventional loan.
Your credit score is something you control. It is a number, and when you understand what it takes to get that number, you can make it happen. There is no need to be a victim of the credit system.
“No one can get bad credit off of their report” is a false statement. People — lawyers, credit repair specialists, and individual citizens — do get bad credit off of their reports every day of the year that the credit bureaus are open.
If you’d like to know how this is done, if you’d like to boost your credit score and qualify for a GOOD home loan, then take a look at Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete your bad credit and restore your good name. It contains insider information from some of the top credit specialists on the planet. Loan officers and journalists tell you it’s impossible… and all the while, these people are quietly raising their scores.
If you have questions, I am happy to help the best I can. Your comments are welcome. Thanks for stopping by.