Theodore Kleinman
Certified Public Accountant
PO Box 1899
Portland, OR 97207-1899
(503) 297-5256
(888) 297-5001 toll-free
demand@transport.com
www.ustaxhelp.com
Dear Friends,
Here is your copy of a Newsletter that I plan to distribute quarterly.
The Newsletter contains recent changes in the tax law and useful
planning strategies designed to reduce your taxes. After your
review of the Newsletter I would like you to take a moment to
think about your personal tax situation and decide how you can
be more proactive in the effort to lower the amount of taxes you
pay. Call me to discuss how we can work together to achieve your
financial objectives. There’s no charge for the service.
If you are considering a new home loan, refinancing an existing
loan, or simply interested in maintaining “good” credit
you should be aware that the lending industry has significantly
changed underwriting guidelines. Specifically, something called
“credit scoring” now determines which program and
interest rates are available to you. With few exceptions, “make
sense” underwriting is a thing of the past. There are three
main credit bureaus in the US: (1) TRW (Experian), (2) TU (Trans
Union), and (3) CBI (Equifax). Each company has its’ own
risk scoring system, which is a closely held secret. TRW uses
the scoring system named “Beacon”, Trans Union uses
a scoring system named “Empirica”, and Equifax uses
a system named “Fair Issac Credit Organization” –
FICO for short.
Since the scoring method is proprietary, the credit bureau reps
can give us only an educated guess as to how scores are determined.
Apparently, the scoring range is from 400-900. The typical score
is from 620 to 750. Most lenders want scores of 680 or above for
a strong conforming loan. Here are a few tips from the credit
bureaus:
1. If you have purchased a product through a 30, 60, 90, or 120
same as cash program, you have actually opened an installment
payment program through a finance company. Finance company loans
are considered higher risk than bank loans or credit cards, and
may cost you some points even if you pay on time! When you have
paid the account in full, the account will report open on your
credit report unless you close it in writing. Be sure you do this
as the scoring system reads an open finance account as an opportunity
for the consumer to charge up to the maximum amount in the future.
It can cost you up to 15 points per open account.
2. Credit cards with a balance higher than 50% of the maximum
allowable balance can cost you 5 to 15 points per account.
3. Those of you, who charge everything on your credit card to
get free air miles, pay close attention to this tip! If you charge
over 50% of the maximum balance and pay it off each month, the
scoring system reads this as an overly active account with a high
number of charges each month – considered a high-risk account.
This can cost you 15 points per account.
4. Landlords who have several mortgages on rentals may be unfairly
“dinged” because they have several mortgages with
high balances. To counteract this problem, limit your credit cards
to five, and keep your credit balances below 50% of maximum.
5. On the credit report there is a section for “inquiries”.
This section lists the names of creditors who have checked your
credit in the last six months. This section also affects credit
scoring. (Be aware that creditors who check your credit prior
to mailing you an offer are not counted as an inquiry by the system
unless you respond to their offer). When shopping for a new vehicle,
do not allow the car dealer to run your credit report without
your permission. Yes, it is legal, but you won’t catch it
until you try to buy a house or rental at a later date. Be sure
to be specific about this point. Each time your credit report
is run it costs you a least ten points. Advise your children to
buy their new home and close the transaction first, then shop
for a car!
6. This inquiry issue also applies if you try to increase your
credit limit. The credit scoring system will allow a maximum of
six inquires per rolling six months without negative affects on
your credit support.
7. Be aware that credit is pulled by name and address first, then
by previous address, not social security number, as assumed. It
is recommended that prospective parents do not name their children
after themselves. The credit report does not recognize the distinction
between Jr., Sr., or the IIIrd. Therefore, families with the same
names will have mixed credit reports and mistakes on their scores.
This problem can create nightmares for both customers and bureaus.
The best credit report has five major credit cards with less
than 50% owing on the balance, one or two mortgages, and no more
than 6 inquires in the last six months. In addition, no late payments,
collections, or judgments in the past five years are preferred.
Not only is credit scoring important for lending, but also as
of January 2000, many insurance companies in Oregon are underwriting
car and homeowner rates with similar risk scoring systems.
Getting Your Credit Report
If you've been denied credit, insurance, or employment because
of information supplied by a credit reporting agency “CRA”,
the Federal Credit Reporting Act “FCRA” says the company
you applied to must give you the CRA's name, address, and telephone
number. If you contact the agency for a copy of your report within
60 days of receiving a denial notice, the report is free. In addition,
you're entitled to one free copy of your report a year if you
certify in writing that (1) you're unemployed and plan to look
for a job within 60 days, (2) you're on welfare, or (3) your report
is inaccurate because of fraud. Otherwise, a CRA may charge you
up to $8.50 for a copy of your report.
If you simply want a copy of your report, call the CRAs listed
in the Yellow Pages under "credit" or "credit rating
and reporting." Call each credit bureau listed since more
than one agency may have a file on you, some with different information.
The three major national credit bureaus are:
Equifax, P.O. Box 740241, Atlanta, GA 30374-0241; (800) 685-1111.
Experian (formerly TRW), P.O. Box 2002, Allen, TX 75013; (888)
397-3742.
Trans Union, P.O. Box 1000, Chester, PA 19022; (800) 916-8800.
Please share this information with your family and friends.
Best Wishes,
Ted
