Tag Archive | FICO

The Esoteric World of Understanding Credit Scores

dvThe Jackson family just recently lost their only means of transportation when the family’s SUV engine died rendering it useless. The family’s SUV met its surmise in the morning as the Jackson’s were heading out to work and school. Mr. Jackson, the sole breadwinner, worked as a fireman and was usually dropped off at the firehouse right after their three kids were dropped off at school. On this particular morning the vehicle never made it out of their driveway. The children became frantic as they wondered if they would be able to make it to school. Each kid wanted to know why, what, and how as they inundated their parents with a flood of questions. Mr. Jackson began interrogating Mrs. Jackson about the last time she took the SUV in for an oil change. Mrs. Jackson began to feel as if she was being blamed for the vehicle breaking down and became irate. Mr. Jackson raised his voice as he expressed to his wife the importance of vehicle maintenance. Mrs. Jackson, who was usually always calm, unknowingly began shouting in an attempt to be heard. Simultaneously, the children all started yelling amongst themselves while their parents jousted in an attempt to knock the other down with insults. The ruckus reached a fever pitch then abruptly stopped as Shelly, the youngest of the children, began to cry.

That morning the Jacksons all made it to their destinations because of the support of their friends. After having the vehicle looked at by their mechanic, a decision was made to purchase a new SUV because the cost of repairs outweighed the cost of acquiring a new vehicle loan. Besides, the SUV was six years old and the couple figured it was time to get a new one. The Jacksons knew that they both had excellent credit and getting a loan through their credit union would be a cinch. So, Mrs. Jackson gathered their information and applied online for a new vehicle loan through their credit union. They were instantly approved for the auto loan and they were awarded the best rate available because of their excellent credit scores. When Mr. Jackson was dropped off at home later that evening, Mrs. Jackson greeted him with the good news. With the loan already approved, the couple decided that they would go shopping for a new vehicle on the weekend.

When the couple arrived at the first dealership, they were bombarded by salesmen asking them if they needed any help. Mr. Jackson knew that he held a slight advantage over the dealer because he already had funding for his loan. He figured that he could go in and shop around and not worry about being approved for a loan or haggled on the price. The couple finally decided on a vehicle they both liked and was ushered into an office to close the deal. When the salesman sat down he instantly began to tell them about the benefits the vehicle offered. He talked about the upgrades they could get and the importance of adding an extended warranty to protect the vehicle. Mr. Jackson denied all of the offers and said that he already had financing. Without breaking a sweat the salesman asked Mr. Jackson if he did not mind telling him what rate he was getting. Mr. Jackson said sure and told him the rate. The salesman then told the Jacksons that he could get them a much lower rate than the one their credit union was offering. Mr. Jackson quickly said, “No, we are going to stick with the one we currently have!” Then the salesman gave them an offer they could not refuse, he said that he could knockdown the rate by up to 2 percentage points. The salesman then left the office to give the Jacksons some time to think about it.

Mrs. Jackson was really hesitant about using another lender and did not want to go through the trouble of applying somewhere else. Mr. Jackson was intrigued by the lower rate and wonder how much he could save per month. They both worried about having their credit pulled again because they did not want their credit scores to go down. The salesman came back in and asked them if they had made a decision.

Hesitantly, the Jacksons decided to see how much lower of a rate they could receive. When the salesman came back with the numbers they were blown away by the difference. The biggest variance was that of the credit scores. The Jacksons wanted to juxtapose their scores with that of the dealer. Mrs. Jackson pulled up their current credit scores through an online site and told the salesman what their scores were.

The salesman showed them their scores and it was almost 100 points higher than the online site scores. Mr. Jackson decided to call his credit union and ask them what their scores were. The credit union scores showed a difference of almost 50 credit points. Feeling flabbergasted and frustrated the Jacksons decided to hold up on the auto loan until next week. When they arrived at home, Mr. Jackson immediately went online to order his FICO credit scores. Again, these scores were also different. The Jacksons decided to wait until Monday so they could talk to their banker about the varying types of credit scores.

That Monday morning the Jacksons came into my office with an abundant amount of questions about their credit scores. I sat them down and offered them some water or coffee; but they both refused because they were focused on getting down to business. I explained to them that the rate we gave them was the best rate that we offered and we did not negotiate on our rates. They wanted to know why their credit scores were so different with each pulling. I told them that their credit scores depended on what credit scoring system was used when it was pulled. I told them that there are three credit reporting agencies and each of them has different scoring ranges for their credit scores. Equifax score ranges are from 280 to 850; Transunion are from 300 to 850; and Experian are from 330 to 830. Each of them may have different information being reported to them from different sources and creditors. Thus, because of these differences the credit scores could be different by several credit points. In addition, FICO has its own scoring system. Contrarily, the information FICO use is being pulled from the three major credit reporting agencies. So, your FICO Experian score may be different than your FICO Equifax score. On top of that, the three major credit reporting agencies has joined together to create their own unique scoring system to challenge the dominance of the FICO scoring system. Their new system is called the Vantage Scoring system and they scores range from 501 to 990. I also explained that each of the credit reporting agencies have specific scoring systems for auto lenders, mortgage lenders, and other lenders of different loan types. I also told them that most of the free online credit score sites may use different reporting agencies as due lenders.

They looked more confused when I finished than when they arrived in my office. I told them that the best way to be at ease about their credit is to pull all three credit reports and make sure that all the information is correct. Some information may not be reported or some may be fraudulent. In any case you may want to dispute some of the erroneous information or file a police report for the fraud. I told them to not worry about the inquiries because the scoring systems are intelligent enough to know that you are car shopping and not just randomly having your credit pulled. For instance, with FICO, an applicant can do 30 or more inquiries in a two week period and they will count it as one. Also, many underwriters know when someone is shopping for the best rate and will not look at the inquiries as a negative thing when making their decision.

Before they left my office, I told them to contact a credit professional because understanding how your credit work can be quite confusing. They both stood up and shook my hand and said that they felt better since I had explained to them why they were seeing different credit scores. As they left, I could sense that they still had a lot of questions, so I recommended to them some credit consultants who could help them. They thanked me and because I was so helpful and nice to them, they decided to keep the loan with us as a show of their loyalty.

Understanding how your credit work can be quite tedious. I would recommend that you pull your credit at least once per year. If you have any questions or don’t understand how to fix or repair your credit, please contact a professional

How to Get Your Teen Started With Credit Cards

rtyRecently, college students were offered credit cards on campus and thus often get into debt before actually earning an income. Although, now there is a Card Act of 2009 that no longer allows credit card issuers to advertise or promote their products and services on campus. Anyway, students still face potential pitfalls. The thing is every teen thinks that he or she needs a credit card just as well as a cell phone. So, it is a smart move for any parent to use these ubiquitous devices as teaching tools meaning that they should be monitored while explaining how valuable credit may be. And this will help to protect teens from abusing credit.

The following tips will help you to get started.

Check the teen’s credit report together.

It is not a secret that you can simply do this online. At first there should be no credit. Parents should explain that the use of the credit card will be reported to the major credit bureaus, thus any late payment will stay on the credit report for seven years. Teens should know and understand that credit reports are very important and they affect the cost of loans, mortgages, auto insurance as well as it impacts the decision of a potential employer or a landlord.

Parents can add a teen to their cards as an authorized user.

It can be useful to open a new account together with a teen. Just use a low credit limit and set up an online access to monitor spending.

Parents can consider student credit cards.

They are now offered by the major card issuers. They are provided with rewards including free FICO scores.

Secure credit card can be a good alternative.

These cards require a savings deposit in the bank that issues a card. So the credit limit is actually the amount of the deposit. Thus, teens can start building a good credit report while using the card regularly as well as paying on time and in full, of course.

There is a special card that is built for parents and teens – VisaBuxx.

It’s linked to the account of the parent and both (teens and parents) can monitor all the transactions online. Besides, this credit card can be automatically refilled if there is no money.

The point is parents and students (or teens) should cooperate. Credit cards are the first steps for any teen to start managing his own financial life. Parents should be patient. Don’t bail your teen up when he had reached his credit limit. Everyone makes mistakes and there are actually a lot of adults who fail with their credit and budget management. Let him consider a part-time job to get some extra cash for paying down the balance. Talk to your kid and explain the major points. Monitor his spending together and stay patient while paying attention to his mistakes. The truth is the earlier teens learn those financial lessons, the easier time they will have in their future life.

3 Popular Credit Myths!

tyMyth #1: You share a credit score with your spouse.

This is a myth! Both spouses have separate profiles. If you have joint accounts they will show up on both of your reports. If you call your credit card provider and add a spouse as an authorized user then that will also show up on both your reports. BUT, if you have no joint or authorized user accounts then there will be nothing that will affect your score from each other.

I ALWAYS suggest keeping separate credit profiles. The reason is simple. If you have a joint credit card and forgets to pay the bill, then both will incur a 30 day late. This along can easily reduce a score from a 750 to a 650. So there is no benefit to having a joint account. Keep separate profiles in case one spouse makes a mistake.

Myth #2: Your credit score only counts when you’re applying for a loan.

Our score is looked at for almost everything you do, such as:

*Applying for a job
*Applying for auto insurance
*Homeowners insurance
*Life insurance

Don’t fear the past. We all have made mistakes! It’s important to take control of your credit sooner rather than later and we hope this tip helps!

Myth #3: Paying off your credit cards in full will give you the best credit.

This topic is a huge debate! Some will say to keep a small balance (less than 10%), others will say to pay off your balance entirely. You see, these are both correct. Let me explain the difference.

Keeping a small balance: It’s no secret that FICO hits us dramatically for maxing out our credit cards. You will hear people say to keep your balance at 50% less than your limit, others will say 30%. Ideally the correct answer is between 1-9%, or in other words less than 10%. The theory on this is FICO will reward you for making payments per month which gives us great payment history. Payment history is a large part of our score so there is truth to this strategy.

Keeping a $0 balance: The argument here is that if you are not carrying a balance then you are not showing any payment history. Payment history is a large part of our score.

My opinion: I’ve changed my opinion on this strategy throughout the years and what I came up with after years of testing is this. I will suggest paying off your cards in full and have a zero balance. BUT I will suggest charging something small once every 3 months. For example, you can simply charge a pack of gum, or like I do, a tank of gas every 3 months. This will report as positive payment history.

The big caution here is to keep a 0 balance for a long period of time. By charging a small item every 3 months it’s enough to keep positive payment history.

This strategy will also be easier to remember compared to worrying what balance you are carrying over each month.

This entry was posted on May 24, 2016, in Finance and tagged .

If You Have Bad Credit, You Need to Read This

dfMany consumers wonder is credit repair legal? YES, actually it’s your right as a consumer to make sure your credit report is accurate, so there is nothing illegal about it!

There is also a huge misconception that credit bureaus are some type of government entity, they are not. In fact your local bar is just as much of a government agency as a credit bureau. A credit bureau is a business pure and simple, they have one purpose, which is to make as much money as possible. They don’t want to help you- they just want to make money! Making sure you have a low score helps them make cash, how?

Credit bureaus are essentially a lead source for lenders. They get paid by lenders so they can run your credit files when you want credit. They also sell thousands of leads everyday to lenders all over the country.

You know those “pre-approved” credit card offers you get in the mail? Well those are directed to your mail box from information sold by the credit bureau to the credit card companies.

I’ll give you one guess what type of consumer commands the highest lead price?

No it’s not the ones with excellent credit, they already have a good credit card and probably have money! You guessed it, lenders earn the highest profit off consumers with bad credit! Why?

If you have between a 580-680 you are the most profitable client for a credit card company or lender because you can still qualify for a loan and usually your willing to pay high interest for the privilege.

You might think this sounds crazy, aren’t those with bad credit a higher risk? Well not really because these lenders take out insurance to cover their loss in the event you don’t pay. If you have over a 600 FICO score they can get insurance on your account. Then if you don’t pay they collect the insurance and sell the debt! When you take into consideration the high interest rates you will pay most likely the lender would never lose a cent on your account.

Lets compare the lenders income possibilities for the following clients:

Good credit: Paying Bills on time, low interest rates, no late fees, low risk but low profit as well!

Bad Credit: Paying late fees, paying higher interest rates, needing more credit, cash advance fees. Higher risk but way higher profits!

As you can see over the life of the customer the bad credit client will always be more profitable. So its sad but the credit bureaus actually have an incentive to keep your score low!

You have the legal right to challenge anything you might feel is not accurate on your credit report. There have been laws written regarding your credit: how it’s reported, how long it can be reported, the accuracy of the reporting, and so much more. These laws are written to PROTECT THE CONSUMER!!!

Here are the main groups of laws and a short description of some of what they do:

The Fact Act (FACTA) – This act entitles you to a free credit report every year. It also forces the credit bureaus to disclose the factors that are affecting your FICO scores.
The Fair Credit Reporting Act (FCRA)-This act forces the credit bureaus to maintain accurate information on all its clients.

The Fair Credit Billing Act (FCBA) – This act is for original creditors. It forces them to bill correctly, notify the consumer correctly, handle disputes properly, and report accurately.

The Fair Debt Collections Practices Act (FDCPA) – This act is for debt collection companies. This act spells out exactly what collectors can and cannot do when attempting to collect a debt.

So as you can see credit repair is totally legal. It’s your right to make sure you have an accurate credit report. Have you been denied for a loan? Are your interest rates too high? Well its only for one reason, your credit report! You owe it to yourself to make sure the information is accurate.

Does This FICO Score Make Me Look Fat

dTHE ANDROMEDA EFFECT

I’ve heard it and I know you have, pretty people always seem to get a break.

I want to believe the opposite is true, but sadly, ugly people are screwed out of some perks just for being, well, ugly.

THE SKINNY (NO PUN INTENDED)

EVERY experience I’ve had during a traffic stop, no matter my disposition, is tense and I’m approached as if the stop sign or turn signal I omitted meant something personal to the officer.

My omission is followed by a ticketing to warning ratio of several to none. Even after ticketing, I am remanded again, “watch your driving, ya hear?”

My girlfriend on the other hand, fits the Andromeda mold.

She seems immune to the ills of the ticketed masses.

In fact, these “confrontations” become more of a social delay, and result in the officer giving helpful tidbits, and a warning that almost seems care more about her safety from other driver’s careless habits.

Why the score matters

If you want to join the ranks of the faceless ugly masses, try having a low FICO score.

In reality, it only takes a slightly blemished, neglected score to feel the pain of financial rejection.

Like the type of score that comes from not caring much about the facts, turning a blind eye–all while still paying the bills.

Really. I’m not kidding you.

You’ll be screwing yourself out of a ton of unseen perks, and out of your own hard earned cash. They won’t even have the gall or decency to say it to your face.

From credit approvals, to rates, to paying more for just about everything, a poor credit score keeps you down like nothing else financially.

The same product will cost you more. Period.

For example, a $20,000 car will set you back $21,248.95 at 48 months and 4 percent.

The same at 12%? $25,280. That’s a $4,000 difference on the exact same $20,000 car, all because your credit has a mullet.

For a house? It gets downright ludicrous. A 200,000 house, financed for 30 years.

Pretty FICO: 3% interest, pays 103,554.90 in interest alone.

Ugly FICO: 6% interest (good luck even getting that), pays 231,676.38 in interest alone.

That’s 128,000 more in interest!!

Same house, same time. Ugly credit. Pay twice the interest.

Again, this isn’t even looking at really ugly, or even kind of ugly credit either.

It’s looking at slightly blemished credit. If that doesn’t scare you, it should.

You can extend this scenario to everything purchased on credit. That should shock you… even more than looking into the mirror each morning.

With a moderate interest credit card, say 15%, making the minimum payment, you can expect your original balance to DOUBLE in as little as 3-5 years. Still reading?

The good news, your FICO can be sexy… and they said you can’t fix ugly!

NOW, THE IMPORTANT STUFFWHAT DO THE NUMBERS MEAN?

800+

Exceptional, less than 1% of people in this range are likely to be seriously delinquent on payments in the future.

These people are WELL ABOVE the average US consumer’s score, and will experience easy access to credit, and RECEIVE THE BEST RATES from lenders.

740-799

Very Good, approximately less than 2% of people in this range are likely to be seriously delinquent on payments in the future.

These people are ABOVE the average US consumer’s score, and will experience relatively easy access to credit, and MAY QUALIFY FOR BETTER RATES from lenders.

670-739

Good, approximately 8% of people in this range are likely to be seriously delinquent on payments in the future.

These people represent the MEDIAN US consumer’s score, and will experience decent access to credit, and are considered “ACCEPTABLE BORROWERS” by lenders.

580-669

Fair, approximately 27% of people in this range are likely to be seriously delinquent on payments in the future.

These people are BELOW the average US consumer’s score. They are considered SUBPRIME borrowers, and obtaining credit may be DIFFICULT. If these borrowers are approved for a loan, IT WILL BE AT A MUCH HIGHER RATE.

579 and below

POOR, approximately 61% of people in this range are likely to be seriously delinquent on payments in the future.

This is considered poor credit. Most applications for credit will be DENIED. If you are approved for a credit card, it is likely to require a FEE and/or DEPOSIT. A score this low is usually a result of bankruptcy or other major credit problems.

WHAT AFFECTS YOUR SCORE?

35% – Payment History

30% – Amounts owed on credit and debt

15% – Length of Credit History (Don’t close old accounts!)

10% – New Credit (Don’t open new accounts!)

10% – Types of Credit Used.

3 Things You Don’t Know About Your Credit Score

download (3)Yet, if you’re like many Americans, just knowing that you have a credit score may be just about all that you know. This is a bad situation, and you need to fix it, sooner than later.

“Why?” you ask. Well, your FICO score is, for better or worse, like your financial DNA. So, while you hopefully know that you have a credit score, you may not know just how important that score is to your life and livelihood. Unlike DNA, however, your score isn’t a number that just takes care of itself. No, you need to take care of it.

Here are just three reasons for making sure that you do.

Your credit score is somebody else’s business.
That’s right: big business. Your score is at the mercy of three privately owned mega corporations, whose business is rating you and your creditworthiness. In fact, it is these companies, or credit bureaus, that create your score in the first place. The “big three” of these national credit bureaus are Experian, Equifax, and TransUnion. This credit – or FICO – score that they assign you ranges anywhere from 300 on the low side to a perfect 850 on the high one.

Bad credit is expensive.

Your credit score can cost you hundreds of thousands of dollars in extra fees if it is less than excellent. You may have heard the saying, “Buy with cash, pay once; buy with credit, pay three times.” This refers to interest, or the cost of borrowing money. There are many other potential costs to bad credit, however. This can lead to hundreds and even thousands of dollars spent on higher premiums for your auto and home insurance.

Background checks aren’t all that potential employers pull.

Your credit score affects 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 fittingness for a specific kind of job. Although legislation has been introduced to limit the access of prospective employers to your credit score, these are just limitations, not universal exclusions.

Knowledge is power!

Hopefully, you’ve seen by now that your credit score is a big indicator of your financial health. Ignoring a low score won’t make it go away. However, proactively taking the proverbial credit bull by the horns and working at restoring or just raising your credit score is something that anyone can do. You just have to put your mind to it.

Click on the link below to receive free information on how you can take charge of your financial future. After all: your credit is big business… isn’t about time to make it your business? This changed economy means that our financial well-being is ever more in our own hands!

This entry was posted on January 25, 2016, in Finance and tagged , .