OvationLaw's Blog

Six out of ten Americans suffer from a "bad credit rating." Bad credit starts with imprudent choices, maxed-out credit cards, exhausted savings, overdue bills ... then a letter from a collection agency.

This is followed by more letters and phone calls every day. Now each time you submit an application for credit or even a job, you will be troubled and humiliated by the specter of late payments on your credit rating.

Credit grantors tend to view any kind of collection account, whether paid or not, as negative. These negative entries can stay on your report for seven years and in the case of bankruptcy, ten years.

Here are some scenarios that can put black marks on your credit:
• You go through a divorce and your spouse maxes out your joint credit cards
• An unpaid bill from your college years comes back to haunt you
• A creditor fraudulently places a black mark on your report
• A contractor you employed places a black mark on your credit report because you refused to pay him for incomplete or substandard work
• You were late with your credit card payment.

Things happen in life: layoffs, poor health, unplanned crises that can have consequences on your credit report.

Divorce and separation can also cause bad credit. This does not mean you have to give up on dreams that you may have, such as owning a home. If the bank turns down your mortgage application, many brokers and lenders may consider you an "A" buyer.
Several companies offer mortgage loans to people with less-than-perfect credit ratings, because homes are very secure collateral. The rates and fees might be outrageous, but even people in bankruptcy and foreclosures can apply.

Automotive credit also plays a part in re-establishing your good credit standing because an automobile is an asset that can be repossessed if things go wrong.

There are two ways you can have bad credit: one is where you can't buy anything on credit, and the other is where you have a bad credit report, but you may still be able to buy on credit. There are also varying degrees of bad credit. Much depends on what you are purchasing and who the creditor is.

If you've reached the end of your tether, filing bankruptcy instead of trying to pay your bills in dibs and drabs can also decrease your ability to purchase on credit.

On March 14, 2006 the nation’s three main credit bureaus sent out a press release announcing that they have adopted a new credit scoring system.  This new scoring system is not a whole lot different then the old FICO scoring system, but there are differences.  The FICO scoring system had a different algorithm to compute the credit score for each bureau.  The FICO scoring system also had a different range of scores for each bureau. 

This was what the credit bureaus were looking to standardize with the new VantageScore system.  The VantageScore uses the exact same algorithm to compute the score for all three credit bureaus.  Also, the score scale is exactly the same for all three bureaus. 

Here is a brief explanation of the VantageScore system.  The VantageScore system will be on a scale ranging from 501-990 (the lower the score the higher the risk to potential lenders).  The VantageScore also has adopted the classical academic scale to make it easier for consumers and lenders alike to understand where they rank with their score.  This academic scale is grouped by the following:

A- 901-990
B- 801-900
C- 701-800
D- 601-700
E- 501-600

The VantageScore just like the FICO score will be based off the information that is reported on the credit report.  It will reflect how often a consumer borrows money, how responsible borrowers are at paying back their debt on time, as well as other file content.  Unfortunately the credit bureaus did not divulge how these factors would be weighted in the new VantageScore.  The new VantageScore will also be more accurate when rating a consumer who has a limited credit history.  This is one area in which the FICO scoring system was not very accurate.

The FICO scoring system will not be done away with; in fact it will still be used by many borrowers to evaluate those who are looking to get a line of credit.    It will be up to the credit industry and the individual enders to decide which score they use.  In fact the rate of adoption of this new score will be set primarily by lenders themselves.  As new information is presented about the new VantageScore system, we will make sure to keep you updated.  If you have any questions regarding this or any other credit matter, please contact us at 1-866-639-3426 or you can email us at questions@ovationlaw.com.