Your credit score determines a lot of things in life. A poor credit score can keep you from securing an auto loan, being eligible for an apartment lease. It can also determine the interest rate on any credit card that you apply for. That is why having a good credit score is so important, but how can you get a good credit score if you currently have a bad one?
Credit issues are sometimes complicated, and improving one’s credit score can be a very time-consuming endeavor, which is why many people opt to hire professionals to assist in improving their credit scores. These professionals are employees of credit repair companies.
A credit repair company is a business entity that offers to improve the client’s credit in exchange for payment. You can hire these active companies to raise your credit score. Once you hire one, they typically go about improving your score by first requesting your credit report from each of the three major credit bureaus.
They look for derogatory marks such as charge-offs, bankruptcies, and tax liens. They also look for possible errors in your report that could be negatively affecting your score. Then they usually petition for these marks to be dropped off your record or negotiate with the creditors to make your report more favorable.
Once they have done everything they could on their end to amend your credit report, a good credit repair company will then work with you directly to devise a financial plan that will keep you on the right path towards better credit. There are a lot of essential questions that get asked of these companies during this process, which include:
How Long Will it Take to See an Improvement in my Credit?
The length of time will vary greatly depending on the situation, but there are usually simple steps that can be taken that make an immediate improvement. A credit repair company can request certain frivolous marks against your credit be removed, and creditors will usually comply with these requests. So a good credit repair company can make a slight improvement in as little as a month.
If a request for an investigation is made on the client’s behalf, the reporting bureau has 30 days to complete the investigation to determine if any mark should be stricken or sustained. Of course, the bureau has the right to review and deny any request for an inquiry if they deem it to be dubious.
Sometimes though it is not as simple as sending out a letter and improving a client’s credit can take up to a year. This usually happens when litigation must be involved to dispute fraudulent reports from crediting entities.
Do you Offer A Money Back Guarantee?
What if a client’s credit cannot be improved? There are certainly cases that can’t be helped so what if you hire a credit repair company and they can do nothing for you? These situations are why so many companies hear questions about a money-back guarantee.
The truth of the matter is that most reputable credit repair companies will not ask for money upfront. The credit repair industry is rife with scams, and one of the most telling signs that you are dealing with an illegitimate organization is if they ask for money before any services are rendered.
On the flip side, almost all respectable credit repair companies will not charge you if they could not improve your credit score and they will never guarantee results. They will usually offer a free initial consultation wherein they will assess your situation and how they might be able to help. Or not.
What Kind of Information will I need to Provide?
The reason people opt to work with credit repair agencies is there is usually a lot of confusing red tape, and the process takes a lot of time. So one concern that is often expressed relates to how much of the client’s time will need to be committed to the process and what kind of information or documents they will need to produce.
Most companies will request things like a list of current debts, payment histories for existing obligations, and if possible, the client’s credit utilization rate. This will involve gathering some documents and also giving the company access to any credit monitoring software that the client uses.
Hiring a credit repair company will usually mean a correspondence will open up between the company and creditors and the credit bureaus. All correspondence letters are sent to the client’s address, and they will need to either physically give copies of these letters to the company or send them digital copies.
There is no improving your credit without being directly involved in the process and carving out at least a little time to work with whatever company you hire so you should avoid any company that says they will take care of everything for you as they are probably trying to scam you.
When evaluating the major credit scoring models against each other, it seems to be a case of “out with the old, in with the new.” As FICO has been top dog in the credit scoring industry, VantageScore is edging its way in with small differences that lends itself to greater flexibility.
While lending companies everywhere use a variety of scoring methods, both proprietary and the two major methods, both FICO and VantageScore are the two primary go-to models consumers can use to get a gauge of what lenders are seeing.
Their newest versions, FICO 8 and VantageScore 3.0, are showing increasing consideration for consumer circumstances over older, more stringent versions. FICO offers a basic report which the consumer can see, but also provides at least 50 different types of credit scores that it derives, depending on the requirements of potential lenders.
Despite VantageScore and other models creeping their way in, FICO has been the forerunner in the credit rating industry since it invented the scoring system. FICO, the Fair, Isaac, and Company have been around since its founding in 1956 in San Jose, California. It quickly gained traction after pitching a number of lenders it’s scoring algorithm to help companies determine a potential borrower’s creditworthiness. In 1986, the company went public and has been offering general-purpose and more tailored credit scores ever since.
In 2006, VantageScore hit the scene as a result of a collaboration between the three major credit bureaus: Experian, TransUnion, and Equifax in an effort to provide a competing scoring system against FICO. VantageScore is run by VantageScore Solutions, LLC, and features a very similar scoring system as FICO.
Similarities Between FICO and VantageScore
VantageScore originally began calculating scores based on a 501 to 990 range, assigning a letter grade to subranges between those two numbers. But, in an effort to be more consistent with what consumers were used to seeing, VantageScore’s system changed to reflect the same range as FICO. Both firms assign scores between 300 and 850. Scores up to 689 translate into a bad credit rating. 630 to 689 equals fair or “average” credit. 690 to 719 means you have good credit, and anything 720 and up is excellent.
Hard Inquiries
FICO and VantageScore also both penalize consumers for too many hard credit inquiries in a short period of time. Hard credit inquiries are any checks on your credit score that you’ve initiated, i.e. when applying for a credit card or personal loan. They ignore soft inquiries – any inquiries made by potential lenders that borrowers haven’t initiated – but will lower a score if a hard inquiry for the same type of credit is made in a narrow window of time.
They both deduplicate, however, which means they won’t penalize you for a shotgun blast of credit inquiries by different lenders for a single credit line. This is especially relevant when a car dealership, for example, sends auto loan applications to a large selection of lenders on the car buyers’ behalf.
Debt Forgiveness
Newer development with both FICO and VantageScore is their willingness to ignore debt that’s been paid off. The record of the initial bad debt is still on the credit report, but both scoring models no longer include it in their scoring evaluations. This new approach to debt repayment gives consumers big incentives to pay the debt off.
Differences Between FICO and VantageScore
Essentially, differences between FICO and VantageScore are minimal enough that you could order a report in either format and be confident in getting very similar appearing ratings, with only a minor difference in points. But there are some subtle differences between the two systems.
Credit History
The key advantage VantageScore has over FICO is that it allows the consumer to establish a credit history much sooner than FICO. This is beneficial for those consumers needing or hoping to fix their credit score quickly. For those credit lenders who are eager to have some indications of an individual’s creditworthiness, VantageScore delivers on any consumer that’s been active for very little time. FICO requires six months from the time of first credit entry before it will generate a report on a consumer, whereas VantageScore only requires one month.
Minimum Debt
On the other hand, FICO is more tolerant of delinquent accounts, incorporating only outstanding debt that’s over $100 in value into its credit score calculation. VantageScore gives you no break and includes all bad debt into its scoring model.
Debt Weighing
VantageScore is also more strict than FICO in terms of late payments. It takes all forms of late payment into consideration with different degrees of importance when calculating a credit score. A late mortgage payment is weighted more heavily than a credit card payment or an outstanding medical balance. FICO weighs all types of outstanding debt over $100 equally. There’s no difference in weight between mortgages, credit card debt, or medical bills.
The advantage for consumers with this schema is found in the leniency over medical debt. With so many changes in medical insurance terms in the past ten years, increasing medical costs have fallen on consumers’ shoulders, and an uptick in billing mistakes have also resulted in billing disputes and unpaid balances.
Scoring Models
Another difference that may be less noticeable for consumers is the way both FICO and VantageScore’s scoring models are set up. FICO collects consumer data from each of the three credit bureaus individually. They use a customized method for each bureau since the bureaus do not communicate their data to each other. VantageScore uses the same algorithm to compile all data from the three bureaus at once.
Crowded Business
Although VantageScore and FICO are the two primary sources for consumers to obtain a score of their creditworthiness, they are only two of nearly a thousand different scoring methods on the market.
The problem is, consumers will never see the scores generated by all of the other methods. The vast majority of these are all proprietary in-house scoring algorithms used by major lenders. The good news is, the score that the vast majority of these proprietary methods will generate is going to be similar enough to the VantageScore or FICO score that you see. So, you’ll have ample peace of mind knowing where you stand based on receipt of a FICO or VantageScore rating.
Although both FICO and VantageScore have unique characteristics that set them apart from each other, you can rely on either scoring model to get an accurate assessment of where you stand in terms of creditworthiness.
The Phenix Group has a deep passion for helping individuals fix bad credit and achieve financial security through our attorney-backed credit repair process.
