BRUISED CREDIT AND BORING STATISTICS

InspiredFinancing.net helps place borrowers with imperfect credit on the fast track to improved credit.  We review your credit report with you and provide essential guidance to establish, repair, or restore your credit -- even if you might have a limited credit history or serious derogatory entries.

We can place you into one of many programs designed specifically for those with less-than-perfect credit.  Together we will tailor your loan to satisfy your needs and fulfill your goals.  But for useful information on proven repair and restoration strategies, we urge you to refer to our Credit Repair page.

• Your credit profile -- why is it so important?

• "FREE Credit Report" (akin to a "free lunch", there is no such thing)

• Interest rates and bruised credit

• The rest of the story

• We enjoy saying "yes!"

I have studied the mechanics of credit and credit scoring for years.  Interesting patterns developed as I reviewed thousands of credit reports.  This piqued my interest, motivating me to devour literature on credit and credit repair.  I have interviewed employees of credit agencies and even Fair, Isaac, and Company (developers of popular credit scoring models).

None of the literature addressed the empirical data that I amassed, and the people that I interviewed were jealously protective of their "trade secrets".  Most were either ill-informed or simply clueless!  Incidentally, I place the vast majority of all credit counselors and credit repair specialists in the same clue-impaired category.  (My apologies to the precious few legitimate ones.)

I have begun writing a book on credit and credit repair that will expose some of the deep dark secrets that I have uncovered.  The primary purpose is to educate the undereducated in the lending industry.  This is indeed a sad commentary on the financial sector.  The secondary purpose is to empower the consumer with information that can be used to their advantage -- and to the detriment of all those who might try to take advantage of the consumer.

Your credit profile -- why is it so important?

Credit profiles enable lenders to determine the statistical risks associated with lending to any prospective borrower, including you.  The rapid expansion in the demand for credit over the past half century, required a uniform method of determining borrower's creditworthiness.  Credit scoring models and credit bureaus / repositories were born of this necessity.

Credit bureaus were established to monitor repeat borrowers' payment histories. Credit guarantors (lenders) routinely report their customer's payment histories to one or more of the three major consumer credit reporting agencies (Experian, Equifax, and TransUnion) where payment histories are archived and where your current credit scores are calculated.  Credit scores are merely a method of evaluating the risk posed to a credit guarantor by any potential borrower.

Each time you make a payment on a credit card, installment loan, or mortgage (through participating lenders), it is permanently recorded in your credit profile.  Public records such as judgments, tax liens, or bankruptcies are also indelibly etched within your credit profile.  (Surely you remember being warned of your "permanent record" in elementary school?  Well, your credit profile is exactly that -- your permanent record.)

Equally important are credit inquiries -- whenever someone "pulls" your credit report.  These inquiries are tracked for the previous year, so that credit guarantors can assess when (or why) others have been interested in your credit history.  Each credit inquiry will reduce your score by a few points, with the exception of mortgage and automotive inquiries.  This essential exception grants a fourteen (14) day window that enables the prospective borrower to shop for a loan without sustaining long-term damage to their scores.

Your credit score is a computer-generated summary that is calculated at the time a request is made.  It is a "snapshot in time", that might otherwise vary from one day to the next.  Your scores are based on information that the three major consumer reporting agencies have on file.  Your credit scores are derived from your credit history and payment patterns, whether good or bad, accurate or inaccurate.

Credit scores are important because they assist a lender in determining whether you will be able to qualify for a loan and the interest rate offered on a particular loan program.  Borrowers who display a willingness to repay debts on time will see their credit scores rise as their history builds. Conversely, those who show a disregard for making timely payments will see their scores drop according to the number and severity of derogatory entries in their credit report.  Keep in mind that a couple of late payments can be devastating to a person with a short payment history and very few tradelines, but may have little impact on someone with a long history of timely payments and several active tradelines.

Beacon 5.0 (Equifax) and FICO^? 2 (Experian) scoring models provide credit scores which range from 300 to 850.  Empirica 950 (TransUnion) scores range from 336 to 843 (go figure).  All three scoring models were developed by Fair, Isaac, and Company for the respective credit repositories; so many people will erroneously refer to their credit scores as their "FICO^? scores".  Please note that only Experian employs the FICO^? name. This misnomer has been popularized by many high profile personalities, including the fallible Suze Orman (but I shall deal with her elsewhere on this site).

Credit scores with lower numerical values reflect inferior credit performance.  "Non-conforming credit" generally ranges below 660, with most lenders flatly refusing to lend any money to borrowers with scores below 500 (although I often can). It generally requires a great deal of deliberate neglect or misfortune to push a credit score below 500.

Higher numerical values reflect superior credit performance.  Conforming credit generally ranges above 680, with the most favorable rates and terms granted to those with credit scores above 720.  Likewise, it requires a great deal of concerted effort to push a credit score beyond 800. 

Layered risk such as loan-to-value (LTV) ratios above 80% of the appraised value, non-owner-occupancy, secondary or subordinate financing, cash-out, and other options will alter the associated risk to the lender.  As a result, interest rates and mortgage terms will worsen with the addition of additional layers of risk.

Credit scores are calculated from several different areas of credit data in your credit profile. These data can be grouped into five categories as indicated below. The percentages outlined in the chart reflect the relative importance of each category in determining your overall credit scores, when compared to the general population.  However, the importance of the individual categories may be evaluated somewhat differently for certain groups (i.e., people with very short payment histories).

Credit scores represent a snapshot in time.  They will often change a few points from one day to the next.  Your current credit score may be remarkably different than scores obtained in the past for any of the following reasons:

1. As information in your credit profile changes over time, these changes will be reflected in your current credit scores.

2. The risk models used for calculating credit scores are slightly different across the three major consumer credit reporting agencies.  On occasion, a lender may chose to use an independently developed risk model.

3. Financial institutions do not always report their credit experiences to the same consumer credit reporting agencies.  Creditors may even report sporadically or inaccurately.  In fact, some creditors may never report their credit experiences to any credit reporting agency.

However, your credit scores will change to accurately reflect your willingness and ability to repay your debts.  Your scores will change as you open or close tradelines, and as your credit history and payment patterns change.  Your scores may also change as credit scoring technologies evolve.

NOTE:  I recently observed an alarming deviation from traditional credit scoring techniques. One major consumer credit reporting agency is currently selling credit reports to consumers (for a handsome price), that DO NOT accurately portray credit scores being reported by their own agency!  The irrationally exuberant deviation is 50 to 60 points higher than reality.  The credit reporting agency attempts to conceal their egregious deception by stating that the overstated scores used in its report are "for educational purposes only".  Unfortunately, this worthless disclaimer appears some forty or fifty pages into the faux credit report, so it is very easily overlooked until it is too late.  This practice serves only to mislead the consumer into believing that their credit is much better than it actually is.  This might encourage the unwary consumer to shop for an unattainable interest rate, which in turn can lower the consumer's true scores even further.  "Educational" indeed!

FREE "CREDIT REPORT"

Request your free annual "credit report" by clicking here (it is really a "consumer disclosure").  It enables you to find out exactly what your creditors are saying about you behind your back, to a point.

The free annual "credit report" is useful in identifying errors and derogatory entries, and provides a wealth of information about your credit profile.  It does not, however, provide actual credit scores without paying a modest fee for each bureau's score.

The harsh reality is that, much like lunches, there is no such thing as a free credit report!  (TINSTAAFL = TINSTAAFCR)  This program is a great profit center for the major credit reporting agencies, however.  The link is to a secure website sponsored by Equifax, Experian, and TransUnion.  Do not fall for cheap imitations, not that the real McCoy is much better.  McDonald's may be a better analogy, since you will be asked, "Do you want scores with that?"

Nevertheless, InspiredFinancing.net will gladly provide you with your credit scores at no additional cost with your loan application.  Scott also discusses the best strategies for score improvement, free of charge.  If you have serious credit issues, Scott will gladly refer you to a credit restoration professional who he trusts not to waste your precious time and resources.

Since December of 2004, lenders must disclose to you the credit scores used in conjunction with your application for any loan.  Key factors affecting your scores must also be disclosed.  Although I have revealed this information for several years, it is finally the law of the land.  And that's a very good thing for the consumer!

Interest Rates and Bruised Credit

Interest rates are determined by free market forces.  They are directly influenced by activity in the mortgage-backed securities (MBS) market and indirectly influenced by the treasury bond market, which often parallels movements in the MBS market.  Interest rates are then adjusted according to additional layers of risk that a prospective borrower may pose to the lender.  The less risk that a given borrower poses to the lender, the better the interest rate and credit terms that the lender will extend to that borrower.  Good credit is always rewarded with lower interest rates and superior payment terms.  Of course, other layered risk factors will adversely impact rates and terms of even the best of borrowers.   Nevertheless, bad credit will always be subject to higher interest rates and inferior payment terms.

In order to understand how interest rates can work for (or against) you, you must first understand the underlying statistics behind credit scoring.  Let us begin by looking at the odds of a borrower becoming ninety days late on a loan.  This is based upon a recent study of loan defaults.

When you examine the table above, it shows that whenever a borrower's credit score is above 800 points, only one person out of 1300 people is likely to default on a given loan.  Alternately, this can be expressed as a .0077% chance of default.  Is it any wonder why people with 800+ credit scores receive the best interest rates and terms?

On the other hand, when a credit score falls below 600 points, one person out of eight people is likely to fall behind on a given loan.  That is expressed as a 12.5% chance of default -- or 162.5 times more likely than the person with an 800 score.  If you were the lender, which risk would you prefer to assume?  And which risk would you charge a higher rate?

Credit scoring is little more than a numbers game.  When you are able to increase your score through a long history of timely payments, creditors will risk lending you more money at a better interest rate and terms.  Statistics prove that there is a much better chance of the loan being repaid when scores are higher.  Statistics also prove that lower credit scores reflect an element of risk that needs to be offset (or "insured") through higher interest rates and more restrictive terms.

The Rest of the Story

The effects of bruised credit results in median credit scores that range below 620 ? often far below.  Never fear. We provide immediate 100% financing to most borrowers with median credit scores above 560, when the majority of all mortgage lenders limit 100% financing to median scores above 580!  To be fair, there are extenuating circumstances that may disqualify some borrowers with median scores well into the mid-600s from obtaining 100% financing, but this is exceedingly rare.  I have seen borrowers with so much "baggage" on their credit histories that it was impossible to obtain "zero down" financing with scores above 640.  The only way to know exactly where you stand is to contact me for a no obligation consultation.

Use the following lending guidelines to determine whether you may qualify under one of our many "bruised credit" programs:

• Difficult to document income (620 or higher credit scores are generally required)

• Two or more 30-day mortgage or rental delinquencies within the past year

• One or more 60 day mortgage or rental delinquencies in the past two years

• One or more unpaid non-medical collections in the past two years

• One or more charge-offs or judgments in the past three years

• One or more repossessions in the past three years

• Consumer Credit Counseling Services (CCCS) within the past year

• A bankruptcy filing within the past two years ( I can lend 1 day out of bankruptcy)

• A Notice Of Default (NOD) or foreclosure within the past three years

• Qualifying debt-to-income ratios greater than 45%
  (although we can go as high as 55% DTI under certain programs)

Judgments, liens, charge-offs, repossessions, and collections ? especially those that have been recently paid ? may continue to haunt you.  Consult us to diffuse or eliminate these and other derogatory entries in your credit profile.

As specialists, we work closely with you to select the best possible solution for your particular situation.  We have partnered with dozens of the best non-conforming lenders and offer hundreds of programs designed to assist those with damaged credit.  We then tailor the loan program to suit the individual customer?s needs.

Each of our loan programs includes a variety of options which are attractively priced at the most competitive interest rates available.  Most importantly, our staff will treat you with the dignity and respect that you so richly deserve.

Please remember that creditworthiness is not just about your credit score or your current debt ratios.  Missing a credit card payment or being hit with a medical collection does not automatically consign you to double-digit interest rates.  Nearly everyone has a couple of minor ?dings? in their credit profile, deserved or not.  Quite often, they turn out to be nothing more than easily corrected errors.  The only sure-fire method of knowing exactly where you stand is to contact us for a confidential credit and income analysis.

To learn more about Reason Codes please click here.

We Enjoy Saying "YES!"

I truly enjoy saying ?YES!? when you ask for a loan.  I can help, even if you have been denied by other lenders.   On the other hand, I also enjoy saying ?no? ? no stress ? no gimmicks ... no high-pressure tactics ? no inflated fees ... no problem!

ISN'T THAT A REFRESHING CHANGE?

NOTE:  Bankers are encouraged to refer your "fallout" (customers with bruised credit) to us.  We can usually provide sensible financing even when you cannot.