FAQS...

Q: Why is credit important?
A: Let’s put this into perspective: At least four out of every 10 people are paying higher mortgages than they would if they took a few simple steps to increase their credit. And on a $300,000 home loan, the difference between poor credit (under 620) and good credit (720 and above) is $589 a month, or $212,040 over the life of a 30-year loan. According to a 2004 survey, almost 80 percent of consumers have errors on their credit reports, and 25 percent have errors serious enough to cause them to be turned down for loans or jobs.

That’s right: Some employers won’t consider hiring you if your credit score is low. If you have bad credit, you will have problems finding an apartment to rent, much less a home to buy. You will search frantically for a car loan, only to be disheartened by large monthly payments due to sky-high interest rates. Even your automobile insurance premiums will be higher. Saving for your child’s college tuition? A nice vacation? Forget about it—you can’t afford them if your credit is poor. And if you decide to take a vacation anyway, you will likely charge it to your high-interest credit card, further adding to your financial hardships. This risky spending and subsequent compound interest can quickly spiral downward; you might miss a payment or two. Before you know it, you are being hounded at home and at the office by aggressive collection agencies demanding payment on your delinquent financial accounts. Complicating matters, you have to deal with the embarrassment of creditors calling your home and office all day.

On the other hand, if your credit is good, lenders will compete for your business. You will qualify for the best loans on cars, homes, boats, furniture, or whatever you might choose to buy. Throughout the course of your life, you will save hundreds of dollars in interest, money you can apply to retirement savings, your child’s college tuition, or investments. Countless offers for credit cards will flood your mailbox, and you will have a padded bank account that allows you to buy vacation homes, start businesses, or retire early. Moreover, you will have peace of mind.

Q: What are the factors that comprise a credit score?
A: Though your credit score is based on approximately 22 different criteria, five factors make up the bulk of the formula: 1) Your payment history comprises 35 percent of your score; 2) The amount of money you owe accounts for 30 percent; 3) The length of time you have had credit is used to consider 15 percent of your score; 4) 10 percent of your score is determined by the type of credit you have; and 5) The remaining 10 percent is determined by the number and frequency of credit inquiries.
Q: What is considered bad credit? And what is good credit?
A: If you have a credit score of 720 or above, then you have wonderful credit and will qualify for loans and interest rates for borrowers in the highest echelon.

If you have a credit score of 700 to 719, then you have excellent credit and are considered low risk, but you might not qualify for the best loans and your interest rates might drop if you raised your score a few points.

If you have a credit score of 660 to 699, then you have fair to good credit. You might qualify for a loan, but only if the rest of your application is strong. You definitely won’t receive the best loans or the lowest interest rates.

If you have a credit score of 620 to 659, then you have weak to borderline credit. The rest of your file will need to be perfect to qualify for an acceptable loan. You will pay higher interest rates and your loan terms will be less than ideal, assuming you even qualify for a loan.

If you have a credit score below 620, you have poor credit. Your loan terms—if you qualify—will be far from ideal. You pay the highest interest rates. The lower your score, the worse your terms, and the less likely you are to qualify at all.

Q: Where can I find my credit score?
A: To learn your credit score, visit the Resources section of our website, where you can purchase a copy of your credit report and FICO scores from all three bureaus.
Q: I want to increase my credit score. Where do I begin?
A: Before beginning anything, first let me congratulate you for taking ownership of your financial future. Bravo! The most empowered place to start any journey is with the truth. To that end, request a copy of your credit report. Contrary to popular belief, your credit score will not be hurt by requesting your report. (Credit inquiries only hurt your score when they are initiated by potential lenders such as an auto dealership, credit card company, or bank.) Feel free to request your own credit report every six months, or even more as you work to improve your score.

Once you have a copy of your credit report, consider reading 7 STEPS TO A 720® CREDIT SCORE and the accompanying workbook, APPLYING THE 7 STEPS TO A 720® CREDIT SCORE. If reading isn’t your thing, you might want to listen to the 7 STEPS TO A 720® CREDIT SCORE CD set. And if you need more personalized care, consider enrolling in our 7 STEPS TO 720® CREDIT INTENSIVE program.

Regardless, join our 7 Steps Masters Program to receive additional resources on increase your credit score to 720.

Q: What is the most important thing I can do to improve my score?
A: In Step 1 of my book, 7 STEPS TO A 720® CREDIT SCORE, I discuss the importance and impact that your utilization rate has on your score. The utilization rate is the debt you carry on a credit card in proportion to your balance. The balance of any one credit card should never exceed 30 percent of your limit. For instance, if you have a $10,000 limit on your Visa card, keep your total charges at no more than $3,000.
Q: Is it wise to transfer all my debt onto the credit card with the lowest interest rate?
A: Not unless you can keep the utilization rate less than 30 percent on this card. In an effort to save money, people often transfer numerous credit card balances to a lower (or zero) interest rate card, carrying all debt on this card and pushing a 100 percent utilization rate. The truth is that this approach will initially save money if you carry a balance, but at what cost? By carrying one card with a 100 percent utilization rate, your credit score will suffer. Remember the domino effect that a low credit score can have on a person’s life? A low credit score can cost you hundreds of thousands of dollars in higher interest rates. In the long run, this strategy could hurt you, especially if you are planning on buying a home or car within the next six months. Instead, remember that the lower your utilization rate, the higher your credit score. Try to keep all credit cards under a 30 percent utilization rate.
Q: My American Express card has no spending limit. How do the credit bureaus determine my utilization rate?
A: On cards with no preset spending limits, credit bureaus report your credit limit using the highest balance you have ever had on your credit card. This throws your utilization rate out of whack if you generally spend the same amount from month to month. To avoid exceeding your target rate, you can try this tactic: Spend one month hiking up your balance as high as possible, thereby increasing the highest balance to a mark high enough that you do not exceed the 30 percent utilization rate in subsequent months.
Q: What is the most shocking credit secret around?
A: There are two. The first secret is that credit card companies often intentionally report a lower limit than you actually have. Why do they do this? Some speculate that this makes you less desirable to competing credit card companies who might solicit your business if they knew your true balance. Unfortunately, a lower credit limit can throw your utilization out of whack and artificially lower your score.

The second secret is described in full in Step 6 of 7 STEPS TO A 720® CREDIT SCORE.

Q: What is the best way to get collection accounts off my credit report?
A: Believe it or not, you will do more harm than good to your credit by paying an account in collections, especially if the account is over two years old. Bills that have been turned over for collection affect your score only minimally after two years and are all but erased after four years. But each time you make a payment on a bill in collection, you create new activity on the account, which renews: 1) the length of time the account stays on your report; and 2) the currency of the derogatory account. You might also hurt your credit score even further. Because inactive items fall off the account in seven years and new items are weighted more heavily than old items, it is often better for your credit score (but not your conscience!) to let sleeping dogs lie.

Because your debts are your responsibility, you should always pay accounts in collection, but be strategic to make sure the payment does not renew the activity and hurt your score. If you have a bill that has been in collection, you might not want to pay it until you negotiate an agreement from the creditor or collection company to submit a letter of deletion to the credit bureau asking that the derogatory item be wiped from your credit report.

If you have items in collection, be sure to read Step 6 of 7 STEPS TO A 720 ® CREDIT SCORE.

Q: Is it possible to have too few or too many credit card accounts?
A: Yes and yes. Less credit does not equal a better score. Credit bureaus award higher scores to people with between three and five revolving accounts. Why this number? Lenders want to be sure that you will not abuse your credit privileges. If you have too few accounts, bureaus don’t have proof that you can manage multiple accounts. In fact, no credit is just as bad as poor credit. Credit bureaus want to see that you can handle credit responsibly, and the best way to prove this is by having a healthy mix of credit and a solid payment history.

On the other hand, if you have too many accounts, bureaus might think you have overextended yourself. However, do not close accounts. Pay down the balance and keep the cards open and active. Credit experts generally agree that closing accounts might hurt you score by lowering your overall utilization rate and shortening the average age of your active accounts. Keeping accounts active protects you from suffering lowered limits, a byproduct of inactive accounts.

Q: How can I protect my credit during my divorce?
A: If you are going through a divorce, immediately refinance your home and cancel any joint credit card accounts. If your spouse retains ownership of the home without refinancing, your credit will be damaged if your spouse becomes delinquent on payments. Some people mistakenly believe that the divorce decree and quitclaim deed with rescue them from any repercussions if a former spouse becomes delinquent on his or her house payment. Unfortunately, the agreement you had with your bank remains in effect until your former spouse refinances under his or her name. And what if you keep the home without refinancing in your name solely? In some states, a lawsuit filed against your spouse can result in your home being taken as part of the settlement.

For the same reason, cancel all jointly held credit cards.

Q: Should married couples avoid joint credit altogether?
A: Couples are best served by establishing credit separately. In fact, it puts them at an advantage in the credit game as they can leverage each other’s credit when necessary. For instance, if you need a new line of credit, you can transfer a portion of your balance to your spouse’s card, thereby lowering your utilization rate and qualifying for the best interest rate available. Also, individual lines of credit protect both parties from losing complete ownership of their credit score.
Q: Are there any types of credit that will hurt my score?
A: Generally speaking, installment loans are key to establishing a healthy mix of credit and securing the best credit score, but one kind of installment loan will always hurt your score as described in Step 4 of 7 STEPS TO A 720® CREDIT SCORE).
Q: If I’m buying a home, what should I know about credit?
A: When applying for a home loan, nothing is more important than your credit score. In fact, your credit score accounts for about 70 percent of your loan application. However, it isn’t the only factor. Lenders will determine your credit-worthiness by looking at your credit, your income, your savings (both before and after closing the loan), and your down payment. But if you have a 720 credit score, some lenders might not consider your savings or your income at all! Remember, 720 is the magic number that will bring you one step closer to the American Dream: owning a home. Your credit score not only determines whether you will overpay on home loan, but it also determines whether you will qualify for a home loan at all.

If you are improving your credit so that you can buy a home, start the credit improvement process early. Ideally, you would start at least 24 months in advance if your score falls below a 620 and a year in advance if your score is lower than a 720.

Your first step should be to pull your credit report. If your score is less than 720, ask your lender what this score tells him about your borrowing ability. If your lender does not suggest that you work to increase your credit score to 720, you have the wrong lender. Request a referral to a lender who will help you maximize your score and minimize your interest payments.

Q: I just had a bankruptcy. Can this program help me? If so, how long before I see results?
A: Absolutely! This program was designed to help anyone improve his or her credit. We have had clients re-establish their credit rating in as little as one to two years following a bankruptcy. In fact, if you have suffered a bankruptcy, the worst thing you can do is sit back, ignore the problem, and wait for it to disappear.
Q: You seem incredibly passionate about credit. Why?
A: Your three-digit credit score can have a six-digit impact on your finances, yet credit-scoring bureaus refuse to divulge the rules of the credit game. People are turned down for loans, unable to attain the American Dream, and struggle financially because of the closely guarded secrets of the credit-scoring system. Exposing the rules of this game means that countless Americans can save hundreds, sometimes thousands, of dollars in interest payments. This savings can change the course of a person’s life, and this is what we’re passionate about!
Q: I’m a mortgage planner whose clients would benefit from credit improvement. Where can I get more information that would help me build my business?
A: With the bottom dropping out of the mortgage industry, it seems that all mortgage brokers are standing atop a slippery slope. This question is no longer: What loan can I get for my client? Instead, the question is: Can I get a loan for my client? Will we find a loan before another credit crunch causes the guidelines to change again, making thousands of homeowners ineligible for mortgages?

To help mortgage brokers differentiate themselves during a changing real estate environment, we have created the 7 STEPS TO 720® LICENSING PROGRAM FOR PROFESSIONALS. This program allows mortgage professionals to continue growing their business by helping clients improve their credit scores and qualify for even the strictest of loans.

Q: I’m an advisor (financial advisor, real estate agent, insurance agents, accountant, or otherwise) interested in building my book of business and at the same time differentiating myself from the competition. How would I do that?
A: The 7 STEPS TO 720® LICENSING PROGRAM FOR PROFESSIONALS is also available to advisors in the real estate or financial industries. This program allows you to build your business by leveraging your position as a credit expert. Licensed professionals learn detailed information about the credit-scoring process as well as marketing strategies such as “Lunch and Learns,” whereby they present the 7 STEPS TO 720® to clients and/or employees.
Q: What if I need more help raising my credit score?
A: In today’s environment, credit is more important than ever. Unless your credit is flawless, many banks will not lend to a borrower, much less provide strong terms or refinance existing loans. If your credit is less-than-perfect, start improving it today by reading 7 STEPS TO A 720® CREDIT SCORE and the accompanying workbook, APPLYING THE 7 STEPS TO A 720® CREDIT SCORE. If reading isn’t your thing, you might want to listen to the 7 STEPS TO A 720® CREDIT SCORE CD set. And if you need more personalized care, consider enrolling in our 7 STEPS TO 720® CREDIT INTENSIVE program whereby one of our representatives will analyze your unique credit report and personally coach you as to what you need to do to raise your credit score.

Regardless, join our 7 Steps Masters Program to receive additional resources on increasing your credit score to 720. Remember: With a 720 credit score, banks will compete for your business.

Q: I have a question that hasn’t been answered. Can I contact you?
A: Of course! We welcome your questions. Please feel free to contact us at 1-888-254-2702 or use our web form.