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Financial Literacy

Financial Literacy

Money, calculator and credit document

Essentially, credit is accepting  something of value now with an agreement to pay for it later.  Moreover, there is usually a finance charge added by the lender.

Consequently, moves made after establishing credit will impact your score.  In any case, a solid strategy will benefit you. 

You can find a plethora of information via the links provided.  Nevertheless, these aren’t affiliate links.  I merely, wanted to share information that is readily available to the public. 

Know your rights, that’s a key component in financial literacy.

Consumer Rights

Credit cards and law

To start, the Consumer Financial Protection Bureau (CFPB) determines how financial products and services are offered to consumers.

Also, The Fair Credit Reporting Act (FCRA) ensures your entitlement to accurate and error-free credit reports. Additionally, the Credit Repair Organizations Act (CROA) safeguards consumers by regulating credit repair firms.

Enforced by the Federal Trade Commission, the CROA prohibits credit repair companies from making false claims about their services and charging fees before completing them.

Under the CROA, these firms must:

-Provide a written contract outlining your legal rights and the services they will deliver

-Allow a three-day cancellation period without charges

-Specify the expected timeline for results, total costs, and any guarantees.

If a credit repair company fails to fulfill its commitments, you have several recourse options:

-File a lawsuit in federal court for actual losses or the fees paid, whichever is greater

-Pursue punitive damages to penalize the company for legal violations.

-Participate in a class action lawsuit against the company, with potential reimbursement of your attorney’s fees upon a successful outcome (consumer.ftc.gov).

Credit Reporting Basics

Document on desk. glasses

In the United States, there are over 400 credit reporting agencies (CRAs), with Equifax, Experian, and TransUnion being the most well-known.

These major companies gather sensitive data like addresses, birth dates, credit card details, driver’s license numbers, and Social Security numbers. They compile this information into consumer reports, which they then sell to third parties.

Third parties, such as banks and insurers, utilize these reports to assess consumers’ eligibility for products like loans, credit cards, and insurance.

Where Does the Data Originate?

Furnishers, like banks and credit card companies, gather consumer information such as account activities, payments, and overdue notices, and provide it to CRAs.

CRAs then use this data along with information from public records, like bankruptcies, to generate credit reports.

Users such as banks, credit card companies, employers, and other organizations, purchase these reports to make decisions about individual consumers’ eligibility. Some entities, like banks, may serve as both furnishers and users.

Disputes

Scrabble game

All three major agencies have an online dispute process, which is often the fastest way to fix a error, or you can write a letter.

It is to my understanding that writing letters are more effective, unless you’re updating your personal info/addresses.  Additionally, if items are determined to be fraud, contact the creditor.

Then you can request a security freeze via the agencies. It is suggested that victims of identity theft should file a police report contact the FTC.

How Disputes Work

Laptop, person searching online

The credit agencies must note the dispute and investigation on your credit file.  To add, this process should be completed in about 30 days and you should be updated with the results.

There are a few decisions you’ll see such as, Verified: No change is made.  Modified: Revisions are in place.  Deleted: Removal of items.  Deemed frivolous: No further investigation will be made.

Look for lawsuits or judgments after the statute of limitations expired, which can vary by your state.  Inquiries should automatically delete after two years, but dispute those if necessary.

Credit Score

Cell phone, credit score

The credit agencies must note the dispute and investigation on your credit file.  To add, this process should be completed in about 30 days and you should be updated with the results.

There are a few decisions you’ll see such as, Verified: No change is made.  Modified: Revisions are in place.  Deleted: Removal of items.  Deemed frivolous: No further investigation will be made.

Look for lawsuits or judgments after the statute of limitations expired, which can vary by your state.  Inquiries should automatically delete after two years, but dispute those if necessary.

Credit Mix

Card and money blended together

Maintaining a blend of revolving credit accounts (such as credit cards) and installment loans (like auto loans and student loans) with a history of timely payments demonstrates your ability to handle various credit types and can boost your credit score.

Debt

Desk, computer and pen

Life happens… regardless, you’re responsible for your debts.

However, the FDCPA prohibits debt collection companies from using abusive, unfair, or deceptive practices to collect debts from you.

Are FICO® Scores and VantageScore® Different

Credit score on colorful gauge

Highlights:

  • FICO and VantageScore are two different companies
  • Both companies create credit scoring models
  • Their models give different levels of importance to different information in your credit reports

“Did you know you don’t have only one credit score? There are many different credit scoring companies and credit scoring models, or differing methods of calculating credit scores. Credit scores are calculated based on the information in your credit reports.

Depending on which model, or even which credit bureau furnishes the information used in calculations, your credit scores may vary. Lenders and creditors may use your credit scores to help determine whether to approve your application for credit. Before approving you, they want to know: What’s the likelihood you’ll pay your bills on time? Lenders generally also have their own lending criteria, which may include other factors, such as your income.

Two of the biggest companies when it comes to credit scoring models are Fair Isaac Corporation, or FICO, and VantageScore. VantageScore is the result of a collaboration between the three nationwide credit agencies – Equifax, Experian and TransUnion. 

Both FICO and VantageScore assign higher credit scores to consumers deemed as lower-risk borrowers, and both currently range from 300 to 850. 

FICO scores are generally calculated using five categories of information contained in your credit reports, with varying weight given to each:

  • Your payment history (35%)
  • The amounts you owe, or credit utilization (30%)
  • The length of your credit history (15%)
  • The mix of your credit accounts (10%)
  • Your new credit accounts (10%)

VantageScore is calculated with six categories of information contained in your credit reports. It doesn’t assign percentages to how much weight the categories are given, but instead describes their level of influence:

  • Your payment history (extremely influential)
  • Your credit utilization, or the percentage of your credit limits you’re using (highly influential)
  • The length of your credit history and your mix of credit accounts (highly influential)
  • The amounts you owe (moderately influential)
  • Your recent credit behavior (less influential)
  • Your available credit (less influential) 

However, there are some differences between the two to highlight:

Length of credit history – To have a FICO score, consumers must have one or more credit accounts that have been open for at least six months and has been reported to the three nationwide credit agencies within six months. VantageScore credit scores can be calculated if consumers have one or more credit accounts that have been open for at least one month and one account reported within the past two years.

What does this mean for you? If you’re new to credit or haven’t used your credit accounts in a while, you may not have a FICO credit score, but you may have a VantageScore credit score. 

Hard inquiries – if you’re applying for a vehicle or student loan and shopping around for the best loan terms, both FICO and VantageScore count multiple hard inquiries for the same purpose on your credit reports as one inquiry for a certain period of time to minimize the inquiries’ impact on credit scores. The time period, however, generally differs. FICO uses a 45-day span, while VantageScore uses 14 days.  And while FICO only includes mortgages, vehicle loans and student loan inquiries, VantageScore will do the same for hard inquiries dealing with other types of credit, including credit cards. 

One note: All mortgage loan inquiries within about 45 days count as one inquiry, according to the Consumer Financial Protection Bureau. 

Collection accounts – If your past-due account is sent to a collection agency, it may impact your credit scores from either company. But FICO generally ignores smaller collection amounts, when the original balance is below $100. VantageScore, meanwhile, doesn’t factor in paid collections, but includes all unpaid collections regardless of amount. 

If you are applying for credit, you might consider asking which credit score the lender will use to evaluate your request. There is no one credit score used by all lenders and creditors, since there are so many credit scoring models. But knowing the differences in calculation methods can help you better understand what lenders may see when accessing your credit scores.” (equifax.com)

Footnote:

Equifax. “Are FICO® Scores and VantageScore® Different?” Equifax, Equifax, 1 Aug. 2019, www.equifax.com/personal/education/credit/score/difference-between-fico-scores-vantagescore/.

 

**Very Important**

Fraud on computer screen, red font

“A CPN, or credit privacy number, is a nine-digit number that’s formatted just like a Social Security number (SSN). It may also be called a credit profile number or credit protection number. Companies that sell CPNs to consumers market them as a way to hide a bad credit history or bankruptcy. They’ll also claim you can use the CPN instead of your SSN to apply for credit with your new credit identity.

Does this seem too good to be true? That’s because it is. In fact, it’s illegal. Keep reading to discover the truth about CPNs.” (experian.com)

What are CPN's?

“Companies selling CPNs market them as replacement SSNs, promoting the idea that CPNs are legitimate. For example, one site advertising CPNs claims the numbers are “fully tri-merged with the Social Security Administration.” (Sounds official, doesn’t it?)

In reality, these companies are scam artists. They may obtain SSNs by dubious means—often from children, senior citizens or prison inmates.

If you’re paying attention, you’ll spot plenty of warning signs that CPN sellers are involved in something shady. While SSNs are issued for free, companies will charge you money for a CPN—sometimes thousands of dollars. They may tell you to provide false information—such as a different address, phone number or email address—when you fill out credit applications using the CPN. Often, they’ll pretend this is a way to protect your identity—but they’re really directing you to create a false identity.” (experian.com)

How Are CPNs Different From ITINs and Social Security Numbers?

“The Internal Revenue Service (IRS) uses taxpayer identification numbers in administering tax laws. SSNs and Individual Taxpayer Identification Numbers (ITINs) are two types of taxpayer ID numbers. SSNs are issued by the Social Security Administration; they’re what most people use when filing taxes.

ITINs are issued by the IRS under special circumstances for some non-resident and resident aliens, their spouses and dependents who can’t get SSNs. An ITIN is formatted like an SSN, with nine digits and dashes; the difference is that all ITINs begin with the number nine.

CPNs are nine-digit numbers that resemble SSNs and ITINs.” (experian.com)

Footnote:

Axelton, Karen. “The Truth About CPNs, or Credit Privacy Numbers.” Experian, Experian, 13 Dec. 2019, www.experian.com/blogs/ask-experian/what-is-a-cpn-or-credit-privacy-number/.

 

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