Yesterday I was talking about what went into your credit score. We had payment history, length of credit history, amounts owed, new credit and types of credit in use.
Today, I want to discuss length of payment history. Obviously the longer your payment history the better your potential score. This assumes you have a good payment history. If you have been late in the past get current and stay current.
One mistake I have seen people make is closing all their credit cards after a bill consolidation loan and maybe leave one open line.
Conventional wisdom would be that since I no longer have all theses credit cards my score should go way up or least up.
Well that may be entirely true. Let's say you have major credit card not a store credit card for 8 or 9 years. You never missed a payment everything on time. However, this is one of the credit cards you decided to close after consolidating your bills.
Now the next newest credit card is only one year old. In effect you wiped away 8 years of good credit payment reporting. Now if you happen to miss a payment it hurts your score.
Let me use a school example:
You take a 100 question test and you miss one question your score is 99%, very good.
Next you take 10 question test and you miss one question your score is 90%, still good.
Next you take a 5 question test and you miss one question your score is now 80%, good.
Next test is 2 questions and you miss one question your score is now 50%, not good.
This is what can happen by closing all your credit cards when you consolidate all your bills into a home equity loan or even one credit card.
LESSON: Try to keep one old credit card even if terms not good. Still use it for something small and pay a little interest. This can help with keeping a longer payment history.
Please send any questions you may have regarding debt and I'll try to answer to my best ability.
Sunday, February 8, 2009
Saturday, February 7, 2009
FICO Scores
Yesterday I wrote regarding Experian may no longer allow people to buy their credit score.
Most people are clueless what a FICO score is or how it's calculated. If you walked down any street in America and asked "hey what's your FICO".
Most likely you'll get blank stares or if your in the wrong neighborhood probably punched since they'll think your cussing at them in some strange language.
But it is a very important question you need to at least have some knowledge of how it's calculated.
Now each company (TransUnion, Experian, and Equifax) has their own secret recipe kind of like Col. Sanders secret herbs and species.
However, we as consumers do know what is included. Let's take a look.
1. Payment History - How have you been paying. Have you made payment late before or always on time. Accounts for 35% of score
2. Amounts Owed - What do you owe on all your credit cards and other loans? If you are maxed out it effects your score. Accounts for 30% of score
3. Length of Credit History - How long is your credit history? Only new credit or do you have older open credit. Accounts for 15% of score
4. New Credit - How many new accounts have you recently opened? Accounts for 10% of score.
5. Types of Credit in Use - Two types of credit: Revolving (credit cards) or Fixed (Home, Car). The more revolving credit you have it can lower your score. Accounts for 10% of score.
As you can see there are a number of different variables and the reason why each credit bureau can have their own recipe.
In my upcoming book I will give tips on how to improve and what can lower your score. Sign my RSS feed to stay updated
LESSON: Learn your FICO score as soon as possible
Most people are clueless what a FICO score is or how it's calculated. If you walked down any street in America and asked "hey what's your FICO".
Most likely you'll get blank stares or if your in the wrong neighborhood probably punched since they'll think your cussing at them in some strange language.
But it is a very important question you need to at least have some knowledge of how it's calculated.
Now each company (TransUnion, Experian, and Equifax) has their own secret recipe kind of like Col. Sanders secret herbs and species.
However, we as consumers do know what is included. Let's take a look.
1. Payment History - How have you been paying. Have you made payment late before or always on time. Accounts for 35% of score
2. Amounts Owed - What do you owe on all your credit cards and other loans? If you are maxed out it effects your score. Accounts for 30% of score
3. Length of Credit History - How long is your credit history? Only new credit or do you have older open credit. Accounts for 15% of score
4. New Credit - How many new accounts have you recently opened? Accounts for 10% of score.
5. Types of Credit in Use - Two types of credit: Revolving (credit cards) or Fixed (Home, Car). The more revolving credit you have it can lower your score. Accounts for 10% of score.
As you can see there are a number of different variables and the reason why each credit bureau can have their own recipe.
In my upcoming book I will give tips on how to improve and what can lower your score. Sign my RSS feed to stay updated
LESSON: Learn your FICO score as soon as possible
Friday, February 6, 2009
Experian and Credit Scores
Just read that Experian is going to stop allowing people to buy their credit score (FICO) in February.
This is a huge announcement since before 2003 no one could even get their credit score. You only found out if you were approved or declined. Most banks and lenders never told you what your score was they would say you are A or B based on score.
Since three credit bureaus report your score and depending on your lender they can choose which one to use. Some you a combination and some only use one or two. If this is approved you, the customer, will limit your knowledge by 33%.
How would you like to receive 33% less pay?
Hopefully, Experian will change their minds, but don't hold your breath.
Another reason this is huge is that TransUnion or Equifax may decide to follow Experian's lead.
This was a tool I used when I worked with clients to attempt to get them approved. I would advise them to pull their report and score prior to buying anything significant such as a home or car.
If their score was just below B or A quality they could choose to wait until score would improve or apply anyway. Knowledge is power. If Experian or any of the other credit bureaus won't allow you to see your actual score it may cause you to pay more or not be approved.
LESSON: Make sure you can see your actual credit score
This is a huge announcement since before 2003 no one could even get their credit score. You only found out if you were approved or declined. Most banks and lenders never told you what your score was they would say you are A or B based on score.
Since three credit bureaus report your score and depending on your lender they can choose which one to use. Some you a combination and some only use one or two. If this is approved you, the customer, will limit your knowledge by 33%.
How would you like to receive 33% less pay?
Hopefully, Experian will change their minds, but don't hold your breath.
Another reason this is huge is that TransUnion or Equifax may decide to follow Experian's lead.
This was a tool I used when I worked with clients to attempt to get them approved. I would advise them to pull their report and score prior to buying anything significant such as a home or car.
If their score was just below B or A quality they could choose to wait until score would improve or apply anyway. Knowledge is power. If Experian or any of the other credit bureaus won't allow you to see your actual score it may cause you to pay more or not be approved.
LESSON: Make sure you can see your actual credit score
Thursday, February 5, 2009
Credit cards continue to earn money
Just read that Visa earned $574 Million in last quarter of 2008. This compared to $424 Million in last quarter of 2007.
See even in tough times credit card companies are still earning money. Obviously people are still using their cards. They are also not paying much of their balance off each month.
I remember seeing a stat that only 38% of people paid their cards off each month. I'm sure that stat has decreased meaning more and more are carrying balances each month.
We need good solid advice on how to payoff these credit cards and keep more money in your pockets.
This is my goal in my upcoming book. Please subscribe to my blog so you can be informed when book is complete.
LESSON: Even in tough times credit card companies still earn a profit from YOU and ME.
See even in tough times credit card companies are still earning money. Obviously people are still using their cards. They are also not paying much of their balance off each month.
I remember seeing a stat that only 38% of people paid their cards off each month. I'm sure that stat has decreased meaning more and more are carrying balances each month.
We need good solid advice on how to payoff these credit cards and keep more money in your pockets.
This is my goal in my upcoming book. Please subscribe to my blog so you can be informed when book is complete.
LESSON: Even in tough times credit card companies still earn a profit from YOU and ME.
Wednesday, February 4, 2009
Ways banks keep you in debt
Banks and credit cards always have special offers. Like transfer your balance and receive 1% for life of balance. OR All new purchases only 6.99%.
One of the things I've seen is most credit cards would like you to transfer most of your balances to one card. This gives several advantages.
1. If you miss payment they can increase your rate
2. More difficult to transfer a large $14,000 balance to another card
3. Can change terms after initial offer
What they also do is continue to increase your available credit. However, with the current credit environment some are starting to lower your available credit. This can hurt in several ways. One you now would have less purchasing power. More importantly it can hurt your credit score.
I will go in further detail in my upcoming book regarding banks and credit cards.
LESSON: Always read offers and make sure you fully understand how long initial rate lasts. Then make sure you find out what new terms will be if they are available.
One of the things I've seen is most credit cards would like you to transfer most of your balances to one card. This gives several advantages.
1. If you miss payment they can increase your rate
2. More difficult to transfer a large $14,000 balance to another card
3. Can change terms after initial offer
What they also do is continue to increase your available credit. However, with the current credit environment some are starting to lower your available credit. This can hurt in several ways. One you now would have less purchasing power. More importantly it can hurt your credit score.
I will go in further detail in my upcoming book regarding banks and credit cards.
LESSON: Always read offers and make sure you fully understand how long initial rate lasts. Then make sure you find out what new terms will be if they are available.
Tuesday, February 3, 2009
Money Today
I'm sure everyone is reading in papers across US and even the world about foreclosed homes. This is a very dramatic situation for most families. Many are still working, but just can't keep up with bills this situation could have been prevented.
Some probably lost jobs and can't make the payment this situation is more difficult since losing a job usually isn't your fault.
Not being able to afford higher payment could have been prevented very easily. When I worked as a loan officer I lost quite a few loans to my competitors since they had a "lower rate" than my loan.
However, I knew most of these loans had an adjustable rate, but the customer did not care. They wanted the lowest possible payment and could care less how that happened. Well jump ahead three, four years later and now the rate is going higher than my rate. Now I can't do anything to help since they may be behind on a payment or have little or no equity.
A lot of these adjustable loans were interest only loans. Which means you are only paying interest and nothing on principal of the loan. So you borrowed $400,000 three years ago and you still owe at least $400,000, possibly more if you missed any payments.
This is not a good situation if you want to refinance your home since most banks will no longer do 100% financing. In fact the company I worked for now requires at least 90% equity and sometimes 80% before they will approve the loan.
This could have been prevented since the customer could have locked in a fixed rate which was usually only .5% to 1% higher than the adjustable rate. They also would have at least paid something on the principal.
With the current mortgage crisis it is easy to play arm chair quarterback and say "see banks screwed the customer" OR "see the customer was stupid and should have known what they were buying."
Personally I'm split probably about 60% of blame goes to bank or mortgage broker since they should have educated customer about ups and downs of loan. I came across quite a few "loan sharks" who would say anything to close loan and flat out lie.
However, customers were blinded by rate and payment. That's all they thought about.
Once again not all banks or mortgage brokers took advantage of people, but there were enough. Remember the Law of Large Numbers.
You do enough of any activity and eventually you'll get a certain outcome whether it is good or bad. Your children hang around bad kids and eventually they will become bad kids.
LESSON: Use the three day review of loan which government gives to look at loan documents. In future posting I'll go over which one's to look at. Only about 4 pages, the 50 you receive at loan closing.
Some probably lost jobs and can't make the payment this situation is more difficult since losing a job usually isn't your fault.
Not being able to afford higher payment could have been prevented very easily. When I worked as a loan officer I lost quite a few loans to my competitors since they had a "lower rate" than my loan.
However, I knew most of these loans had an adjustable rate, but the customer did not care. They wanted the lowest possible payment and could care less how that happened. Well jump ahead three, four years later and now the rate is going higher than my rate. Now I can't do anything to help since they may be behind on a payment or have little or no equity.
A lot of these adjustable loans were interest only loans. Which means you are only paying interest and nothing on principal of the loan. So you borrowed $400,000 three years ago and you still owe at least $400,000, possibly more if you missed any payments.
This is not a good situation if you want to refinance your home since most banks will no longer do 100% financing. In fact the company I worked for now requires at least 90% equity and sometimes 80% before they will approve the loan.
This could have been prevented since the customer could have locked in a fixed rate which was usually only .5% to 1% higher than the adjustable rate. They also would have at least paid something on the principal.
With the current mortgage crisis it is easy to play arm chair quarterback and say "see banks screwed the customer" OR "see the customer was stupid and should have known what they were buying."
Personally I'm split probably about 60% of blame goes to bank or mortgage broker since they should have educated customer about ups and downs of loan. I came across quite a few "loan sharks" who would say anything to close loan and flat out lie.
However, customers were blinded by rate and payment. That's all they thought about.
Once again not all banks or mortgage brokers took advantage of people, but there were enough. Remember the Law of Large Numbers.
You do enough of any activity and eventually you'll get a certain outcome whether it is good or bad. Your children hang around bad kids and eventually they will become bad kids.
LESSON: Use the three day review of loan which government gives to look at loan documents. In future posting I'll go over which one's to look at. Only about 4 pages, the 50 you receive at loan closing.
Monday, February 2, 2009
Multiple Rates On Credit Cards Continued
I want to continue discussing multiple rates. This is an area I see mistakes made. One time I had a client have a 0% credit card, but she had to make at one purchase for $75 a month to continue rate.
Now she did have a balance originally of around $12,000 and paid down balance to around $7000. The only bad thing she had a balance of $900 from purchases which had a rate of 12.99%. She didn't think that was all that bad since she was paying any interest on the $7000 balance.
It did seem that she was getting ahead, but the thought I had was how many people are not that disciplined to follow this cards rules. She may have been 1 out 1000 who actually was getting ahead with these terms.
Having to make a purchase to keep rate and terms is bad thing. Since you have two things working against you.
1. Having to charge at least $75 a month
2. Missing a payment then getting a higher default rate. I have not discussed default rates yet, but we'll get to that later.
This just seems to be a card waiting for trouble for the consumer. A real good money maker for card since they at least earn interest on new purchases.
LESSON: Always read the fine print on credit cards. Know the rules or lose
Now she did have a balance originally of around $12,000 and paid down balance to around $7000. The only bad thing she had a balance of $900 from purchases which had a rate of 12.99%. She didn't think that was all that bad since she was paying any interest on the $7000 balance.
It did seem that she was getting ahead, but the thought I had was how many people are not that disciplined to follow this cards rules. She may have been 1 out 1000 who actually was getting ahead with these terms.
Having to make a purchase to keep rate and terms is bad thing. Since you have two things working against you.
1. Having to charge at least $75 a month
2. Missing a payment then getting a higher default rate. I have not discussed default rates yet, but we'll get to that later.
This just seems to be a card waiting for trouble for the consumer. A real good money maker for card since they at least earn interest on new purchases.
LESSON: Always read the fine print on credit cards. Know the rules or lose
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