ARE PERSONAL CREDIT SCORES DECEPTIVE?
Lately, I've been feeling proud of myself. I began dedicating time, energy, and money into correcting and improving my personal credit. I was really impressed with the apparent raising of my score by almost 100 points (on my own) and doing so using legitimate, well-established procedures. I'm not in the market for credit (business or personal) but I figured I would give it a go and maybe, someday, my experience could help others facing a similar dilemma. Well, someday is today... Awesome, right?
Well, not exactly...
You see, I am very mindful of my business credit scores. I'd learned what was important by working for D&B® and D&BCC® for several years. My experience as a resolution specialist helped me to understand the 75 factors that impact business credit scores, a skill I now use to help others. But, until recently, I hadn't focused much energy on my personal credit.
I won't kid anyone by saying I have perfect personal credit because I don't. Everyone goes through hard times at one point or another. In my case, I had some old medical bills a few years ago that I had refused to pay because they should have been covered by my insurance. Because of my hardheadedness, they went to collection. I was pretty confident there wasn't much I could do about those. While I didn't like the fact they were on there, I was content to let my personal scores improve over time by focusing on being a more responsible consumer in real time. After all, I have good business credit and that is what really matters to me.
But a couple of months ago, I had been sent one of those "pre-approval" letters for a personal bank card and decided to give it a try — and was denied. At first, it didn't bother me because I have the business credit I need, but after a few days of the denial gnawing at me, I decided to do something about it.
I pulled a copy of my personal credit report from Experian® and, sure enough, my FICO® score was not impressive. I even bought into a personal credit monitoring service so I could keep track of my progress — one of those services that allows you to dispute old or derogatory information to see if it can be removed and then sends alerts as your scores change. I was especially impressed with the one I signed up for through NAV® (formerly Creditera®) because it allowed me to monitor my business and personal credit scores at the same time for only $29.99 per month.
I launched a few disputes on the debts I had paid off, updated my personal information, and then signed up for the monthly monitoring service with NAV®. As the disputes were finalized, I began receiving alerts about score changes. I was busy working with clients and kept putting off reviewing my report. After about a month or so, the score in my monthly monitoring service showed major improvement so I took a few minutes to log in and check it out. In fact, my score improved so much (almost 100 points!) that it looked like I was now in a position for a credit card approval.
I also have a free credit monitoring with CreditKarma®, which was showing similar results. Several of the old debts had been removed from my file and my scores were up by about 90 points. I was feeling like I had accomplished something.
I decided to "test the waters" using an offer that keeps coming up in my Amazon® business account, but again, like before, my application was denied. In my business experience, I know the parameters for a business approval, and felt I had probably met their personal criteria handily (based upon what I was seeing in NAV®). I waited for the "official" decline notification to come in via postal mail, and was dumbfounded when (Amazon) Chase® stated my Experian® score was just fifteen points higher than it was before I started on this trek. Not 100 points better, just 15! I specialize in business credit solutions, so this made me curious, if not suspicious.
I made calls to Chase®, Experian®, and NAV®, which was basically a lesson in futility. Customer service at these companies, across the board, sucks. Generally, if they can't sell you something, they don't seem to want to talk to you at all. After 32 minutes on hold with Experian® to get an agent who was too "new" and "didn't understand", and another 10 minutes on hold waiting for another agent who asked me to hold (again) so he could transfer me to the correct department, he then "accidentally" disconnected the call, leaving me too angry to have reasonable conversation anyway. Then — after wasting an hour of my time — they had the gall to send me a customer satisfaction survey...
In actuality, all they did was harden my resolve to get to the bottom of this issue. I decided to pull both Experian® reports again and compare them side by side. I wanted to see what the difference was between the official Experian® score and the Experian® score shown in my NAV® file. In a side by side comparison, the data was virtually identical, and this is where the misconception (deception) became clearer.
Experian® shows the FICO score in your report, and even though the score in NAV® has that big blue Experian® logo over the top of it, it is not a FICO® score at all, but rather, a VANTAGE® credit score (in smaller print underneath the score itself). So even though my FICO® score was only showing about a 15 point improvement, the VANTAGE® score in NAV® and CreditKarma® shows comparably about 90 points higher. Unfortunately, very few lenders or creditors are going to look for a VANTAGE® score. Those who are looking for a FICO® score want to see a FICO® score, and NAV® and CreditKarma® don't provide that.
Further, most banks and major card providers don't factor in the FICO® score at all. They are required to provide it to you in their denial letter, but it is not the dominating factor in credit approvals or declines. Instead, creditors look to other factors, such as derogatory payment habits, public filings (such as liens and bankruptcy), bank and national revolving credit history, collections, and statistical data (such as debt to income ratios and credit limit to usage ratios).
So even though I still feel NAV® is the best site to be able to monitor your business and personal credit in one location, you still have to proactively work on the derogatory data in your personal credit file as much as possible in order to improve your scores. Even though my goal is to help you get strong business credit, you shouldn't be content to just let your personal credit go down its own path. There are steps you can take to improve your scores yourself without having to pay someone to do it for you.
Here are seven things I learned about improving personal credit:
1) Check your personal credit report for outdated or inaccurate data. (On my own file, I found erroneous addresses and non-existent former employers listed.) You may need to correct this information on all three of the major reporting bureaus, but it can help to improve your profile accuracy.
2) Check the dates on the derogatory information against your own records. Collections can only stay on your file for up to seven years from the date the initial claim was submitted by the original creditor. If it has changed hands with various collection agencies, you will want to make sure the original date of the original claim is the only one being represented.
3) If you have old delinquencies or collections, contact the original creditor and ask them to pull the collection back off your credit report in exchange for making payments to them directly to clear up the old debt. As long as you are making payments, they will usually be happy to honor new arrangements. Be sure to make payments under the new arrangement so the bad debt doesn't return back to your file again. You don't want to restart that seven year clock over again as of today's date.
4) When it comes to the scores, make sure you are comparing apples to apples. A FICO® score is a FICO® score. Anything else, isn't.
5) Keep inquiries to a minimum, especially since they can have an impact (minimally) for up to two years. The bureaus have their systems set up to automatically remove inquiries at the two-year mark, but you still want to be proactive and make sure only legitimate inquiries are being reported. (I once applied for credit at a car dealership who sent my application to 17 potential funding sources.) You can complain about such practices to the bureau and, in most cases, get the damage to your report resolved.
6) If your solid creditors and payments are not being reported to your file, make some phone calls. If they aren't willing to report your positive payment history into your file, maybe it's time to change who you do business with.
7) Contact currently reporting creditors if there are multiple reports showing good history and old reports showing past due payments. (I have one creditor who showed several current and paid off personal loans, but one of them from five years earlier showed three slow payments.) In my case, the creditor agreed to remove the old filing because all the rest of my payments for the past five years had been made on time.