Changes in Credit Scoring

Over the past few years, there have been some changes in the way your credit score is calculated.  These changes can help if you’re planning to buy a home, in fact, these new rules may even help you get the credit score that you need to get that mortgage!  Even though your payment data, debts and court records will all still count, the new scoring model reflects some different weighting – in favor of the consumer. Score 9 rolled out this fall, and you may have already noticed a change in your score based on the new formula.

Four Changes to Credit Score Calculations

Rent:  If you rent your home or apartment and you pay on time, you may just get a boost to your credit score.  The new formula promises to weigh renting more heavily than the previous version. Paying on time every month could give you a boost – and a better relationship with your landlord.

Medical Collections: If your medical debt was weighing down your score, then the new model is great news for you. Medical and healthcare related debts will matter less than they have in the past, allowing consumers with otherwise good scores to be hurt less by high medical bills or overdue medical expenses. If your medical debts were impacting your ability to secure a residential mortgage, this change is very good news for you.

Trending Data: If you have a very slim credit portfolio, your data may be interpreted based on trends – the new scoring formula will use predictive models to determine your credit worthiness. This new technique will impact youthful consumers who have not yet established much credit and those with a long history of avoiding credit and choosing cash instead. If you have an established credit record, use credit cards or have a car loan, this change will not have much of an impact on your score.

More Even Scoring: One of the goals of the Score 9 model was to encourage lenders to upgrade to this new formula. While upgrading is not mandatory, it is definitely encouraged – and some lenders and credit reporting agencies are still using old scoring models.  As businesses continue to adapt, credit scores across major credit bureaus are expected to become more consistent, thereby making it easier to for a lender to get a clearer picture of your background and creditworthiness.

While these changes are expected to help most consumers, the best way to boost your credit score is to pay your bills on time and make sure your debt ratio remains low. If you are considering applying for a residential mortgage within the next year, a good credit score is a must. The right score will not only make approving your loan easier for your lender, but it could help you secure lower rates on your homeowner’s insurance as well. If you haven’t checked your score lately, it is time to review your credit report, you could be in for a nice surprise.

Simple Mistakes That Can Hurt Your Credit

Have you ever forgotten to pay a bill? Bounced a check? Believe it or not, simple everyday mistakes with your finances can affect your credit score. Read on for a few things that you might want to think twice about.

Bouncing a Check:  This will come as a surprise to many, but a bounced check may actually affect your credit score at some point.  And that is the key phrase:  At some point.   Just because your bank doesn’t send a report to the credit bureaus every month, doesn’t mean that it can’t or won’t do so, especially if you don’t pay it back promptly!  Failing to cover a bounced check can result in collection, civil, and even criminal charges – both from your bank and/or from the company that you paid with the check.

Too Many Credit Inquiries:  Whenever you apply for any type of credit card or loan, the potential lender performs an analysis known as a ‘Hard Credit’ inquiry so that they can review your complete credit report, determine your FICO credit score, and decide whether or not to extend credit to you.  Applying too frequently for any loan or new credit card can and will affect your credit score as the financial risk to potential lenders increases as your score drops, and statistical analysis has proved that having numerous new credit cards in a short time span is a bad indicator of an individual’s financial responsibility.

Late Payments:  Late payments can indicate unreliability, lack of funds, and irresponsibility in an individual.  And, since your payment history accounts for 35% of your credit score, one late payment can cause your score to drop significantly, especially if you are more than 30 days past due on the payment.  

Co-Signing a Loan:  Before co-signing any loan for a member of your family or a trusted friend, you will want to consider the effect that your involvement in another person’s finances could have on your own financial picture.  Co-signing for a credit with a very high balance could affect your utilization ratio, consequently causing a drop in your credit score.  And of course, as a guarantor, you take up the responsibility of ensuring full settlement of the loan by the borrower in accordance to the stated terms. A default or inconsistent loan servicing by the borrower lowers your credit score.

Remember, the benefits of good credit far outweigh the effort that it takes to build and maintain a good credit score, so take care to ensure that you don’t let a simple, little mistake ruin all your hard work!

3 Things You May Not Know About Your Credit

How much do you know about your credit score?  If you’re like many people, you know you have a credit score, and you may even know what it is, but that’s about all you know!  Even worse, many people have no idea WHY your credit score is even important in the first place.

If you’re not sure why you need to pay attention to your credit report and your credit scores, then you definitely need to start working on it.  Because your credit score is more than just your financial history… in many instances, your credit score can actually change the course of your life!  The question is, is your credit score changing your life for the better or for the worse?

Here are three things you need to understand about your credit score:

  1. Bad credit is expensive!   Your credit score can cost you hundreds of thousands of dollars in extra fees when it’s less than excellent.  There’s an old saying, “Buy with cash, pay once; buy with credit, pay three times.”  Sadly, it’s the truth, as it refers to interest, or the cost of borrowing money.  Not to mention the many other potential costs to bad credit, most of which lead to hundreds and even thousands of dollars spent on higher premiums for your auto and home insurance!
  2. Background checks aren’t all that potential employers pull!  Your credit score can affect your ability to get a job.  That’s right: your estimated ability to repay borrowed money (i.e., debt) also can be used to assess your suitability certain kinds of careers.   Although legislation has been introduced to limit the access of prospective employers to your credit score, these are just limitations, not universal exclusions – and I promise you, many employers these days do check your credit score.
  3. Knowledge is power!  Your credit score is a big indicator of your financial health and, as much as you’d like to, ignoring a low score won’t make it go away.  Instead, it’s time to be proactive and start working to raise or restore your credit score. You just have to take the first step and then put your mind to it.

Remember, your credit score is somebody else’s business, and not just your own.  Your credit score is big business these days.  Not only is your score at the mercy of three different privately owned credit bureaus, whose entire business is rating you and your creditworthiness, but they actually make millions of dollars every year doing it!

These “big three” national credit bureaus, Experian, Equifax, and TransUnion, not only track your score, they CREATE your credit score. And this credit – or FICO – score that they assign you ranges anywhere from 300 on the low side to a perfect 850 on the high side.  Which side do you want to be on?

Low Credit Score? These 5 Things That Will Cost More!

If you have a low credit score, you’ll pay more for certain expenses.  Whether it’s a car loan, a mortgage loan, car insurance or even the rent on an apartment, the lower your credit, the more you’ll pay.  Lenders and financial service providers rely on credit scores to define if a customer can actually pay his or her bills on time. Those who skip paying bills or delay  payments are considered a risk by nearly all lenders.

Most lenders consider a FICO credit score of 640 or below as poor credit, so if your credit score is below that, chances are you will pay more for personal loans, credit cards and other financial options. In many instances, you may even be denied credit, so keeping your credit score at or above 740 is important.

Here are five things that will cost you more:

1. Your Mortgage:  

While it’s nearly impossible to get a mortgage with bad credit, in the event that you are able to do so, your interest rate will be quite a bit higher than someone with a higher FICO score.  Over the course of a 30-year fixed-rate mortgage, that comes out to tens of thousands of dollars in interest over the full thirty years.

2. Credit Card:

Once again, that low credit score may keep you from getting that credit card, but if you do, expect to pay interest rates up to 35%.

3. Auto Loans:

Automotive finance companies will definitely charge a higher interest rate if you have a low FICO score!  Those ads you see on TV only apply to “well qualified” customers. The better the FICO score, the better the interest rate you’ll get.

4. Insurance:

Surprisingly, your credit score also affects interest rates on your home and your car!  Most insurers believe that both homeowners and drivers with excellent credit scores are likely to file fewer claims and get into fewer accidents, while those with lower credit scores statistically file more claims and this makes them riskier clients.

5. Apartment Rentals:

Most landlords check credit scores, and with a low credit score, you may have to put down a larger security deposit or pay a higher monthly rental rate.

 

Your best course of action?  Remember, your credit score is extremely important.  Never miss an opportunity to improve your score, make your payments on time, and keep your credit card balances below 33% of your total credit.  If you’re just starting to work on your score, it will take time, but don’t give up!  Keep working on your credit and you will see improvement.

Do Your Credit Cards Work for You?

Do your credit cards actually work for you or against you? I know that sounds strange, but when you think about credit as a whole, your credit score either helps you or hurts you. Likewise, the credit cards you carry can either help or hurt you, too.

For example, your credit might be pretty good, but if you don’t have enough credit available, it can damage your credit score. You see, your credit score is calculated based on a number of variables, one of those being how much credit you have available. And if you don’t have enough, it can hurt your score. So, while you might be limiting your credit card use, if you’re still over the recommended 30% utilization, then you probably don’t have enough credit.

But how do you know if you have enough credit? One of the best ways is to look at how much credit other people in your credit range have. And that’s pretty easy to do with all of the free credit tools available these days. Almost every one of the free sites offers a comparison of your credit versus others in your credit range, all you have to do is log in and look. Then, once you’ve figured out whether you have the right amount of credit, you’ll want to take a look at the actual credit cards you have in your wallet.

Do they offer a decent interest rate for your credit score? If it’s been awhile since you’ve taken a look at your interest rates, or if your credit score has improved since you last looked, you might want to take a good hard look because you could be paying more interest than you should.

Do you have any rewards credit cards? Are the rewards that you’re getting the right rewards for you? Would a cash back card be better or should you get a travel rewards card? It all depends on your lifestyle. What works best for someone else may not be the best choice for you.

Remember, your credit should fit your needs, and it should work for you, improving your overall financial picture. Your credit should not hold you back, keeping you from doing or having the things that you want or need to make your life the best that it can be. So, if you haven’t examined your credit cards lately, there’s no better time than the present!

Have You Looked at Your Credit Cards Lately?

As you’re going through your receipts for filing your taxes, one of the things that you might want to consider looking at, along with everything else, are your credit card statements for the past year… How much are you paying for interest? How many annual fees do you pay? Has your credit changed? Do you have the available credit that you need to cover any emergencies that might crop up in the new year?

If you’re not sure of the answers to these questions, now is the best time to sit down and study those bills. Make a detailed list of each credit card that you have, showing the balance on the card, the interest rate that you’re being charged, any fees that you pay, any rewards that the card offers, and how much available credit that you have on each one.

Then, take a look at your credit score over the past year. Has it changed? Is your credit score better now than it was six months or even a year ago? If so, you might qualify for a better credit card, with a lower interest rate, more rewards, and a low or even no annual fee. If you don’t have a credit card, and your score has improved, now might be the best time to apply for a credit card. (If you can only get a secured card, you might want to consider using a little bit of your tax refund to get started with a secured card!)

Once you’ve listed all the details of your current credit, then you might want to consider upgrading one or more of your credit cards to a card with features that are more aligned with your needs and your current credit score.

Here are our best picks for credit cards to give you an idea of what’s out there:

Can’t Find the Right Credit Offer?

Sometimes, even after you’ve perused all the websites that you can find searching for the right credit card, the perfect loan, or even the right credit reporting / monitoring vendor, you still can’t find what you want.

What should you do?  Just take whatever offer you got in the mail?  Settle for less than you want or need?  Pay more interest?  More annual fees?

Absolutely not!

When you run out of options, we encourage you to let the experts help you to find just the right credit card, or personal loan, or whatever you need.  Use the tools that you’ll find online, get your free credit scores, let them “match” you to the best credit cards for your credit score.

Otherwise, you’ll pay way too much for far too little.

What’s On Your Credit Report

You know, when you’re just starting out financially, it’s not always easy to understand all of the financial terms, what they mean, and how they affect your credit score… truthfully, you may not even understand your credit report the first time that you request it, even though literally everyone says you should study it, make sure it’s right, and try to keep it in the good to excellent range. But, what exactly is on your credit report?

What makes up your credit report and your credit score? Basically, your credit report is your financial snapshot and it contains information directly related to your financial status. Here are the major categories of information that you should find on your credit report:

  1. Personal Information: In order to positively identify you, your report will contain your full name, including any variations such as maiden name, middle name, middle initial, misspelling and/or any other name that you may have used in your financial affairs. It will also contain your social security number, date of birth, and all addresses that you may have used over the course of your lifetime. It may include your telephone number and/or your places of employment.

  2. All Open and Closed Accounts: Your credit report will also contain a list of all credit that you’ve had over the past ten years (expect some variation on the length of time), including credit cards, mortgages, auto loans, etc. Each creditor will list their full name, your account number, balance owed (if any), payment history, and whether or not the account is current or past due.

  3. Public Records: Any public records, such as bankruptcies, judgments against you, and/or any liens.

These are the main items that you will see when you review your full credit report. Surprisingly, you won’t usually find identifiers such as marital status (although joint accounts will be included in both credit reports), level of income, bank balances, or level of education in your credit report.

Remember, the information contained in your credit report is used to paint your personal financial picture, therefore, it’s extremely important that you review all of the information carefully and report any discrepancies that you find to the credit bureau that listed it on your report.

Build Your Credit & Your Future!

So, you’re a grown up now… you’ve graduated from high school, college, or trade school.  You’ve got that first real job and you’re ready to start building your future.  One of the most important steps you can take to build the future you want is to start building your credit history.   Building a solid credit history enables you to do so many of the things that you’re planning for your future.  With good credit, you can get that nice apartment, buy that first brand new car, or even buy your first home.

But how do you go about building that all important credit history?

The very first thing that you should do, before you do anything else, is to find out exactly what your credit score is.  Even if you’ve never had a credit card, your credit history may include any student loans you have or have had in the past, a personal loan, an auto loan, or something else.

(Especially with the recent data breach at one of the big three credit bureaus, it’s imperative that you check your score!  Someone could already be using your information for fraudulent purposes.)

There are several places where you can access your credit reports, among them AnnualCreditReport.com (which gives you a free copy of all three reports), or you can set up a username and password with a company like these shown below and get your free credit score.

The main thing is to find out what your credit score is, see what’s on your credit report, and correct any inconsistencies that you find on the report.  Sometimes it’s as simple as filling out an online dispute form, other times you may have to send in documentation to correct something, but whatever you do, don’t stick your head in the sand!

Know what’s on your credit report, know your credit score, and be ever vigilant in all of your financial moves.  Remember, it’s your credit score that determines whether or not you’ll get that loan, that job, or even that first credit card.

And speaking of credit cards, don’t just apply for the first credit card that you find online.  Do your research!  Some credit cards offer seemingly low interest rates, but can be offset by high annual fees or really low credit lines.  Others offer rewards, like a rebate based on the amount of purchases that you make with the card, or reward points that you can use towards airfare, hotels, and more.

Choose a credit card that fits your credit score.

For example, if your credit score is higher, you’re very likely to qualify for those lower interest rate cards than if your credit score falls into the fair or even no credit range.  And if your credit score is lower because you haven’t really ever had credit before?

Then you should consider other types of cards to start, namely catalog or secured credit cards to “jump start” your credit score, thereby allowing you to build your credit profile sooner rather than later.   Visit our Store/Catalog Credit Card page or our page for a Limited or No Credit History to see which offers best fit your personal credit needs.

(Don’t make the mistake of applying for multiple cards at first – every time you apply for credit, lenders pull your credit report, and that can lower your credit score.)

Typically, if you know your credit score up front, and if you stay within the range of offers that are specifically designed for your credit score when choosing a credit card, you’ll get approved on your first or second try.   But, in the event that you do have trouble getting your first credit card, you still have options:

  1. See if you can become an authorized user on someone else’s credit card, such as a relative. Just remember that your use of the card will also affect the credit score of the person who put you on their account, perhaps even damaging their credit score if you make mistakes with the card. And, the person who puts you on their card is financially responsible for your use of that card, so if you don’t pay, the creditor will go after the other cardholder.
  2. Get a secured credit card.  A secured credit card is exactly as it sounds – your credit line is secured with a deposit that is held in a checking or savings account.  If you fail to make your monthly credit card payments, the bank will take the deposit out of the checking or savings account that “secures” your credit card. The credit limit on a secured card is typically the same as the deposit amount, but can increase or even be converted to a conventional credit card account over time. 

Finally, once you actually have your first credit card, make sure you use it responsibly if you want to start building that all important credit history!  And you will have to use the card, not just carry it around in your wallet – if you don’t actually use the card, you won’t need to make payments, so you won’t build your payment history.  Try making one or two smaller charges each month, then

Once you have your first credit card, use it correctly if you want to raise your credit score. The biggest factor in your credit score is your payment history. If you don’t use your card, you don’t need to make payments and can’t build a payment history. Make at least one charge each month, and make your monthly payment on time.  (Be careful that you only use about 30% or less than your total credit line, too, because that’s the second most important factor in building credit.)

Remember, your first credit card is the building block to your financial future – don’t blow it!

Think You Don’t Need a Credit Card?

You know, I read an interesting study the other day about Millennials and credit, and in the study, it stated that Millennials utilize personal loans at a rate of 98% higher than the previous generation, and they open auto loans at a rate that’s 21% higher than the previous generation, but they also open far less credit card accounts, averaging two less credit cards than their parents.  At first glance, those credit card statistics sound pretty good, don’t they?  But does it really make sense not to have some credit readily available on credit cards?

While a personal loan looks good on paper, what with the lower interest rate and all, there are drawbacks that you might want to consider before you decide not to open any credit card accounts.

First and foremost, available credit on a credit card is instantly available. Unlike a personal loan, which can take a couple of days between the time you apply and the time the money is deposited into your bank account, the amount of available credit that you have on a credit card is available at all times, day or night, regardless of where you happen to be at the time (ever had an emergency when you’re on a road trip – a personal loan doesn’t work at 3:00 am when you’re 300 miles from home).

Secondly, with a credit card, you can actually pay the balance off every month if you so choose and never pay a penny’s worth of interest.  That’s not the case with a personal loan.  Even though the rate on a personal loan is usually substantially lower than a credit card, you’ll still pay interest on the principal every month.  Over time, even that lower interest rate will add up.

And finally, even though many personal loans are reported to the major credit bureaus, not every company does, and what’s reported won’t show available credit, so your credit score may be impacted by not having any readily available credit (that’s about 30% of your credit score).

So, what should you do if you’re trying to limit your reliance on credit cards?  The answer is pretty simple – get at least one good credit card, use it sparingly, and pay off the balance every month!  That way, you’ll have the benefit of instantly available credit when you need it, but you can opt to pay no interest at all just by paying the balance in full when it’s due.