Data Facts Blog


Debt Relief Act Extended Through 2013

calendar_iconFor the past few years, homeowners were able to utilize a tax break (part of the Mortgage Forgiveness Debt Relief Act) when dealing with a short sale.  Fortunately for many, this debt relief has been extended until the end of 2013.

Under the United States Federal Tax Code, any debt that is forgiven is treated as debt discharge income . As such, short sales with a deficiency balance could be counted as income on the difference between the mortgage balance and the sale price.

EX: If a person has a $200,000 mortgage balance, and short sold their home for $150,000, the deficiency balance is $50,000. Under the original Tax Code, the  $50,000 would be reported as income and taxed.  This can cost the homeowner 2 ways:

1: In this example, tax on $50,000 of income can rack up to thousands of dollars.

2: An extra $50,000 of income could raise the homeowner to an entirely new tax bracket.

The Mortgage Forgiveness Debt Relief Act, however, forgives the difference between the debt owed and the sale price, up to 2 million dollars on a primary residence.

The Act-which passed in 2007- was scheduled to expire at the end of last year, but Congress did some last minute maneuvering to extend it out another year, due to the still struggling housing market.

{591A83C3-EE82-46D3-A0B9-F0B07F20A31C}09232011_Underwater_Mortgages_articleHomeowners may choose to short sale for a variety of reasons:

  • They are late on the mortgage payments
  • They are not eligible for HARP, or any other refinancing
  • They owe more on the home than it’s worth
  • They can no longer afford the home , due to job loss or other circumstance
  • They have tried unsuccessfully to sell the home at a price that would cover the mortgage balance

Homeowners choosing to short sale can sometimes face large drops in their credit score.

According to CNN/MONEY, shorts sales have tripled over the last 3 years.  In some areas of the country, short sales make up almost half of the area home sales.

With this extension, homeowners who are underwater can breathe a little easier for a few more months, knowing this option is still in play.

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services

 

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Spending Mistakes Smart People Make Over the Holidays

empty-pocketDecember is a time for families and friends to come together over the holidays. However, the last month of the year can also be a big budget buster that can leave you broke and in debt if you aren’t careful.

We have created a breakdown of mistakes smart people make over the holidays that result in January being hard to bear.  Avoiding these actions can help you make certain you roll into January with some money left in your pocket and your credit score intact.

The “I’ll pay it off next month” blunder.  Perhaps the best thing you can do for yourself is to set a budget for the holidays, and pay for those plans with cash. Using a credit card for holiday purchases sets you up to overspend. Paying for gifts you bought in December all the way through April is nobody’s idea of fun. Not to mention the negative affect those credit card charges could have on your credit score.

The “I’ll know it when I see it” shopping plan. Scour sales papers BEFORE your shopping trip to get an idea of the items you will be buying, and the cost. Shopping without a plan is like going into the grocery store hungry; it sets you up to overspend on impulse items.

The “it’s a bargain” trap. Don’t fall for the deep discount prices and one-day only ads. These ploys can break your budget and rack up lots of credit card charges. If the item wasn’t on your list and included in your budget, don’t buy it.

The “open a credit card today” ambush. Sure, an extra 10 or 15% off for simply opening a store credit card sounds great. However, don’t be taken in by this offer. A new credit card will show up as an inquiry on your credit report, and will give you the urge to use it lavishly. Just say no.

Now, those are goofs that deal with shopping. However, other activities can be budget breakers during the holiday season.

The “this dress makes me look skinny” argument. While we all like a new outfit, do you really need that new dress, new purse, or new cufflinks for your holiday party? Do you really not already own an outfit you can wear? Make sure you don’t overspend on clothing for the holidays that will end up only being worn once.

The “eat, drink, and be merry” boo-boo. Holidays inspire quality time with friends and family. However, expensive meals and overindulging in alcohol can tank your budget. Plan ahead for nights out, and suggest less expensive venues if your budget is tight.

Being aware of these holiday budget saboteurs is the first step to success. By avoiding these mistakes, you can keep your bank account and credit score high! Don’t let money mistakes over the holidays turn HO HO HO into NO NO NO!

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.

4 Tips for Reviewing Your Credit Report

You have probably read the advice everywhere:  CHECK YOUR CREDIT REPORT!  However, what does that really mean? What are you supposed to be checking?

While pulling your credit report at least once a year is very good advice, a person needs to know what to look for when reviewing their information. Start with these tips to make certain you are making the most out of the credit report:

1: Check out identifying information. Look over the names, addresses, and social security numbers appearing on the credit report. While slight misspellings are common, alarms should sound if an entirely different name or address is associated with your social security number, or if there are multiple social security numbers showing up on the report.

2: Examine the creditors. All tradelines of credit should be reviewed closely. Note any creditors that you are not familiar with. Also review the balances on each account, looking for discrepancies.

Another important piece of information that is in the creditor tradelines area is joint or individual account information. This tells you if you are the only one on the account, or if you share it with another person.

3: Note any late payments. Accounts showing late have the single biggest impact on your credit score. The date of the late payment should be reviewed to see if the account really was paid late, or if the late was reported in error.

4: Review all public records: Serious financial missteps such as bankruptcies, foreclosures, collections, and tax liens will show up in this section. Go over these closely to see if any of the items are reported in error.  If you have relevant public records in this section, make certain the dates are reported correctly.

The hope when assessing your credit report is that you will find no surprises.  That is not, however, always the case. Various reports have found that up to 25% of credit reports contain errors.

What should you do if you find errors on your credit report?

Contact the bureaus. Write all 3  bureaus (either on their website or by mail) and tell them about the error.  Send copies of any documentation that backs up your claim.

Notify the creditor. Send the creditor a letter saying that you dispute the item, along with copies of documents that give evidence to your claim.

Follow up. The credit bureaus have 30 days to investigate your dispute. They will then contact you to give you the outcome.

Implementing these tips can help you understand your report, catch any errors or mistakes, and assist you in staying on top of your reported credit history.  Pulling and reviewing your credit report once a year is an important aspect of maintaining a successful financial life.

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.

Data Facts Answers Question About Authorized User Accounts

Question:  “In the past, our mortgage company has encouraged borrowers who have either little credit or are rebuilding their credit to become an authorized user on the account of a spouse, parent, or sibling. Recently, however, we have heard that authorized user accounts are no longer factored into a person’s credit score, and will not help increase a credit score. What is true?  Help!”

Data Facts answers: The designers of the credit scoring formula model (FICO) meant for authorized user accounts to be utilized for a person with good credit and a long credit history to be able to assist their children, spouses, or siblings with their credit history. When an account holder adds another person to their account as an authorized user, that person gets all the benefit of the good payment history. In lots of cases, this dramatically increases a person’s credit score.

Sneaky people began to exploit this practice. Websites popped up selling “piggybacking”. A person with less than stellar credit history could be added to a complete stranger’s credit, and artificially boost his score.  These websites charged thousands of dollars, and paid people with good credit to add dozens of stranger’s names to their credit accounts!

In an attempt to eliminate this practice, the credit score model builders for Fair Isaac originally decided that their new scoring model- FICO 08- would NOT consider authorized user accounts in the formulation of the credit score.

 After further research, however, they reversed this decision. Eliminating authorized user accounts would wipe out millions of consumers’ credit scores who utilize the authorized user status legitimately (they are authorized users on their parents’, spouse’s, children’s, or siblings’ accounts). The model builders decided to allow the authorized user status to still be figured into the credit scores. (Keep in mind the model builders have added additional- although undisclosed- measures that will close the piggybacking loophole).

Allowing authorized users accounts to be figured into the credit score is great news to millions of consumers who maintain that status legitimately. However, if you are an authorized user, try to follow these tidbits of advice:

 – Make sure the main account holder has a good credit history. An authorized user does not need to be on accounts that have just been opened, or accounts with late payments or high balances. The goal is to use the account to boost a credit score. A credit line that is new, paid late, or almost run to the limit will most likely result in the score dropping.

–  Open at least some accounts in your name. While an authorized user designation does figure into the credit score, some lenders remove those accounts from consideration during lending decisions. Consumers should realize it’s risky to rely on authorized user accounts for their entire credit history. It is recommended that consumers be a main or joint borrower on at least a couple of credit lines.

–  Be sure you trust the main account holder. If the main account holder begins paying late or runs up the balance, your credit will be affected (remember, however, an authorized user will not be responsible for the debt).  Make certain the account holder is someone you trust to make good financial decisions before becoming an authorized user on their account.

When employed correctly, the authorized user designation continues to be a helpful tool which consumers can utilize as a boost to their credit history. It is not a long-term solution, and should be used as only one small portion of the credit building plan.

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.

Credit Score Success from Scratch; a Simple Recipe

A high credit score is like a homemade meal; it takes time, patience, and cannot be whipped up instantly.  Let’s look at the recipe to build a great credit score from scratch:

First, you need to have the ingredient of credit. People who don’t have any credit are not showing the credit scoring model their financial management skills.  A credit card, home loan, or car note is a main ingredient in the credit score recipe.  Remember: you are not required to carry a credit card balance. Using a credit card will help build your credit even if you pay it in full every month.

Second, make sure you pay a lot of attention. Pay those credit obligations on time, because timely payment is the single most important aspect of building a good credit score.  You can gain lots of points by having a good history of on time payment, and, conversely, you can spoil your credit score with just a few missed or late payment patterns.

Third, keep those credit card balances low. Credit card balances are like salt, less is more.  The credit scoring model looks at your credit card balance in relation to your credit limit (this is called a credit utilization ratio). The lower the ratio, the more positively it affects your credit score. Make sure to never charge over 30% of your total credit limit, because you don’t want to get penalized.

Fourth, keep those old credit cards open and use them every now and then. You will get points for a long, lengthy credit history.

Fifth, don’t add too many ingredients all at once. If you don’t have any credit and are just starting out, don’t open too many credit cards too fast. One line of credit every year or so will work out great.

Sixth, remember to have more than one ingredient, if possible. The scoring model likes to see that a person can manage a mix of credit. Having installment loans (mortgage or car) and revolving loans (credit cards) will give a boost to your score.

Seventh, keep an eye on it. Check your credit report at least once a year and examine it carefully.  Make sure there aren’t any errors (such as creditors that you don’t recognize, late payments or collections reporting incorrectly, etc). This happens all the time, and the sooner you catch it, the better off you will be. Dispute any incorrect information to get it removed.

Attaining a great credit score takes a little time, self discipline, and attention. However, putting in the effort will assure that you can get the best deals on mortgage, auto, and credit card rates. Following the recipe we just laid out is a great start to help you cook up a great credit score!

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.

Credit Scores: Small Mistakes that Spell Big Trouble

Most people are aware of the big actions that can cause your credit score to take a tumble: filing bankruptcy, having an account sent to collections,or being foreclosed upon. However, these are not the only actions that can decrease your credit score. Here are some other mistakes a consumer can make with their credit. While not ‘major offenders’, these 5 missteps can still prohibit you from joining the credit elite.

Maxing out your credit card.

 The balance to limit ratio is almost as important as paying your bills on time, accounting for 30% of your credit score.  A good rule of thumb is to never charge over 30% of your credit limit. This means if you have a total of $10,000 as the limit on your credit cards, you should never have a balance greater than $3,000.

Consumers who think they are managing their finances wisely by only having one credit card, but are using over 30% of the limit are actually HURTING their credit score.

 Missing a payment

 Just one 30 day late payment can drop your credit score significantly. Payment history is the single most important factor in the calculation of your credit score, at 35%.

A consumer who has no late payments on their credit history is gaining lots of points for their positive usage! One late pay can change all that. It is possible for a good credit score to drop 80 points with just one 30 day late.

Whether you sign up for automatic payments through your bank, get an app that reminds you, or write the date your bills are due on your calendar, pay those bills on time!

 Not checking your credit report.

It is estimated that over a third of credit reports contain some sort of error. These bits of erroneous information can be accounts showing late that were actually not late, collections that should have never gone into collections, or accounts that are not even yours! 

By not checking your credit report, these errors linger on your credit history and can cause your score to take a dive. Be sure you are checking your credit report at least once a year.  Review all accounts, balances, and payment history.  Make certain to follow up on any information that looks erroneous, and get it removed from your report by filing a dispute.

 Co-signing a loan.

 Sure, you want to be a good friend, neighbor, cousin, brother, etc. and help obtain a line of credit your loved one cannot qualify for on their own.   However, becoming a co-signer on a loan for someone else is really asking for trouble.  If the borrower does not pay on time or at all, you are responsible for the loan.

The loan will also show up on your credit report and be factored into your credit score. If the borrower is paying late, all those late pays will show up on your credit report, affecting your credit score in a very negative fashion. And once that happens, there is nothing you can do about it.

The scariest part of all is that this can happen without your knowledge. Co-signers rarely receive a copy of the bill, so they would not be made aware of the issue until the account was in a default status.

The best advice on this one is: Just say NO!

 Closing an old credit card

 15% of a person’s credit score is their length of credit history.  Credit cards are factored in by the age of the oldest account, and the average age of all the accounts.

Look at this example. Say you have 4 credit cards. The oldest is one you opened in college, 22 years ago. The others you have had 15 years, 9 years, and one you just opened 2 years ago.  Currently, the oldest account is 22 years old, and the average age of the accounts is 12 years.  If you close the oldest account, that changes the oldest account to 15 years, and the average age of the accounts decreases to 8 years. This change in credit history can cause a decrease in your credit score.

The best idea would be to keep the old credit card, and use it a few times a year to make sure it is positively factored into your credit score.

 It’s obvious to guard against bankruptcy, foreclosures, and collections.  Also make it a top priority to put measures in place to make sure you don’t make any of these small credit mistakes either.  Your credit score will thank you for it!

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company that provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.

The Truth About Closing Credit Cards

If you have read anything about how to get and keep a high credit score, you have probably seen this advice: never close your credit cards. This advice is true and good. Sort of.

The 2 parts of valid reasoning behind the idea of not closing any credit cards are:

1: Closing a credit card will decrease your debt utilization ratio. A whopping 30% of your credit score is calculated from your Amounts Owed. Your debt utilization ratio (your total revolving debt divided by your total credit limit) needs to be as low as possible in order to reap the maximum credit score. Closing a credit card takes away some of your total credit limit, which can raise this ratio, and lower your credit score.

2. Closing a credit card will impact your length of credit history. It’s a fact that the credit scoring model looks at how long a person has had credit established; the longer, the better. Closing a credit card you have had for many years may cause your length of credit history to decrease, which can result in a lower score.

So, there are valid reasons to not close your credit cards.

ADVICE: Never close a card that has a balance, your only credit card, or your oldest credit card!

But what if you have a ton of cards, are aiming to streamline your finances, and want to close some of them? Which ones can you close that will have minimal impact to your credit score?

If you have made the decision to close some of your credit cards, choose these (in this order):

Your newest card. The last credit card opened needs to be the first one to go. This card is not helping you very much with your length of credit history, so closing it should not have much impact on your credit score.

Your card with a zero balance. If you never use a particular piece of plastic, it is probably not figured into your credit score (credit lines must be used at least every 6 months in order to be factored into your credit score). Closing a card you never, ever use should have no impact on your credit score.

Your card with the worst terms. Big annual fees, high interest rates, and no perks give you no incentive to keep a card active.

You card with the lowest limit. A low limit credit card is probably having little effect on your debt utilization ratio. Closing low limit plastic can help limit your number of cards without great danger of credit score damage.

Closing credit cards doesn’t have to kill your credit score, just make sure you are choosing wisely.

Other points to remember are:

Always look at your debt utilization ratio before closing a credit card. If your ratio is going to be over 30%, don’t do it.

Always keep at least one credit card open and active, and pay the bill on time. This will give you points for managing credit wisely.

Always keep your oldest credit card open and active.

Take these tips to heart to ensure that whittling down your lines of credit has minimal impact on your credit score.

~~Susan McCullah is the Product Development Director for Data Facts, a 22 year old Memphis-based company that provides mortgage product and banking solutions to lenders nationwide

Credit Score Health: Common Conditions that can Tank your Score

Posted in Budget,Credit Score,FICO,Uncategorized by datafactssolutions on October 31, 2011
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A credit score is a measurement to determine your credit worthiness, and we should all strive to keep ours as HIGH as possible. This means managing our payments, watching our credit card balances, and not frivolously applying for new credit.
However, certain seemingly innocent actions can result in credit score decreases. Do you recognize yourself as having any of these “conditions”?
The “I gotta have it-ache”. A new fishing rod, a great pair of heels, a beach vacation. We all have the budget breaking Achilles heel. While splurging every now and then won’t be detrimental, a habit of treating yourself to everything that catches your eye can damage your credit score. Overspending can result in maxed out credit cards, which can lower your credit score (remember, credit utilization accounts for 30% of your score). Another result of over-extending can be not being able to pay your bills on time. If you begin paying bills late, your credit score will definitely pay the price.
The “I’ll worry about it tomorrow-itis”. Procrastinating on making a budget or delaying facing your mounting bills is a sure fire way to sink your credit score. A few missed payments along with a few bad purchases can cause a mess that will take you months (or YEARS) to recover from.
The “I can’t miss a deal-phobia”. 20% off if you open a credit card! Ends today! If either of these speaks to you, this may be a problem. Department stores often offer discounts for opening a new credit card, and these show up on your credit report as an inquiry. Too many of these can have a very negative effect on your credit score.
The “It will work itself out-flu”. Collection calls, liens, lates, OH MY! These are credit score tankers and they need to be dealt with thisveryminute! There is a chance that they are erroneous, and could be removed from your credit report with a little effort on your part. Letting them linger on your credit report will send you straight out of 700 and 800land into 600 or 500ville. And nobody wants to live there.
The best remedies to get and keep a high credit score?
Think about your purchases. Being impulsive with money is going to lead you down a debt-ridden path. If the object of your desire costs more than 1% of your monthly income, think about it for at least 24 hours and figure out how you are going to pay for it.
Always keep your budget on your mind. Write out a monthly budget so that you know how much extra money you can spend every month. This will keep you making your payments on time and your debt manageable.
Just say no to marketing. Don’t be swayed to buy something or open credit lines you don’t need because of a great sale or discount. If you weren’t looking for it before you walked into the store, chances are you can live without it, no matter how great the ‘deal’. Your financial future is more important than saving a few bucks.
Keep your head out of the sand. Big credit problems such as collections and liens will not vanish by themselves. Make sure you are checking your credit report regularly. Never assume that creditors will realize they have made a mistake and then take steps to correct it on their own. Jump in and get any erroneous information handled immediately.
     The health of your credit score depends largely on your ability to control your impulses when shopping. Keeping a handle on spending and seeing your big financial picture will help keep your credit score healthy and in top form.

~~Susan McCullah is the Product Development Director for Data Facts, a 22 year old Memphis-based company that provides mortgage product solutions to lenders nationwide.

Pay off your credit card every month? Your credit report may still show a balance

Posted in Credit Score,Uncategorized by datafactssolutions on October 13, 2011
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To all you consumers who pay your credit card balances in full every month; good for you! 

Not carrying a balance on a credit card is one of the best financial maneuvers you can make for yourself. This ensures that you won’t rack up expensive finance charges, nor will you find yourself deep in credit card debt.

However, if you are using your credit cards, your credit report may still show a balance, even if you pay it in full.
What??
The answer is simple. Creditors only report and bureaus (Experian, Transunion, and Equifax) only update your accounts once a month, but not necessarily on the first of the month.

For example:
You charge $2000 on your Visa. The bureaus may have updated their records on the 25th. You pay it in full on the 1st of the month.  If you pulled your credit report before the bureaus updated again, the $2000 balance would show up on your credit report and impact your credit score.
Now remember, balances make up 30% of your credit score, so this little process could cost you lots of points if you don’t manage it beforehand.

Here are 3 points to remember:
know your limit. Your credit card limit is an important piece of knowledge when managing your credit score. Be sure you are aware of the limit of each and every credit card in your possession.
-keep the ratio low. Never at any time charge more than 30% of your credit card limit. This is known as ‘credit utilization’. If you have a Mastercard with a $10,000 limit, never at any time should you have a balance greater than $3,000. Charging more than this could decrease your credit score. If you need to charge more than 30% throughout the month, it is better to increase your credit limit or charge it on more than one credit card, thereby keeping the credit utilization low.
-remember there is no way to know when creditors report to the bureaus. Creditors send their consumer information to the bureaus at different times throughout the month, so there is no set time that your credit report will ‘update’.
Paying your credit card balance in full every month is fabulous for your financial (and mental) health. Taking these extra steps and managing your balances throughout the month will help you greatly in maintaining the very best credit score available to you.

~~Susan McCullah is the Product Development Director for Data Facts, a 22 year old Memphis-based company that provides mortgage product solutions to lenders nationwide.

Credit Scores and Why You May Not Have One

Posted in Credit Score,FICO,Uncategorized by datafactssolutions on September 2, 2011
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So, you want to buy a house, car, boat, or some other item that requires monthly payments. One of the first actions a lender will take will be to pull your credit report and look at your FICO credit score. Your approval and terms of the loan depend heavily on these numbers.

What if you don’t have a credit score?!?

Not having a credit score is not the end of the world, and about 50 million people fall into this category.  There are several reasons why you may not have one.

  1. You are young. Jennifer just graduated from college. She has no credit cards and her car loan is in her parents’ name. She does not have a credit file, so she has no credit score.
  2. You have always paid in cash. David subscribes to the policy that if you cannot pay for it, you don’t need it. He has always paid cash for his cars, he rents an apartment, and he doesn’t use credit cards. The bureaus would have no record of David, and he would not have a credit score.
  3. You paid off all your loans last year. This is frustrating but true. If you have paid off your car, house, and credit cards and live a life of no debt (sigh, you are so fortunate), then your credit report would not be updated with any new information. Because of this, you may no longer have a credit score.
  4. You are dead. Ok, I added this one to see if you were paying attention. However, sometimes a creditor will report you as deceased, and this wipes out your credit score. This can happen in situations where a person is an authorized user, or co-borrower with another person, and the other person on the account dies. The creditor may report to the bureaus that the owner of the account is deceased. As a result, you would show as deceased, and you would not have a credit score.

If you are one of the millions of people who do not have a credit score, there are steps you can take to build your credit file which will generate a score.

Open a credit card. This is a great way to begin building your credit. By opening a credit card and using it monthly, the creditor will report this usage to the bureaus. They will start a credit file on you and collect your payment habits. After about 6 months, there will be enough information available to generate a credit score for you.

Be an authorized user.  Your parents, spouse, siblings, or friends can add you to one or more of their accounts as an authorized user.  This allows you to take advantage of the credit history that they have built up on the account. An authorized user status will help generate a credit score faster than opening a credit card on your own. HOWEVER; make sure that the account is in good standing (no late pays, balance is low), or the resulting credit score will not be great.

Break out the unused credit cards. If you are debt-free, you can still use your credit cards every month or so and pay the balance off at the end of the month. In order to have a credit score, you must have one credit line that has updated within the last 6 months. This works even if you pay off the balance every month. So, charging dinner or a tank of gas every now and then will keep your score active and alive.

Go nationwide. Small community banks and credit unions may not report to all 3 credit bureaus. If you already have credit, do a little research on your creditors to see if they report to the bureaus.  If not, then your credit line with them is not helping to build your credit score.

Check your credit. Pull your credit report at www.annualcreditreport.com to see what is showing up on your report, and if there are any errors. If an item is reporting incorrectly, or you are showing as deceased, get that corrected immediately.

Making sure you have a credit score takes a little effort. However, by taking these actions into consideration and implementing them into your financial life, you will be on your way to a great credit score!

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