Archive for the ‘Credit Help’ Category

You see them all over the Internet; those enticing little links challenging you to test your brainpower with an IQ test. While entertaining for sure, you don’t really learn anything more than how well you take an IQ test — and possibly that your teenage cousin is way smarter than you. Ouch. Personally, if I put the time in, I want something more applicable to the real world out of it. Take for example the FreeScoreQuiz.com site, brought to you by Freescore.com. There, I tested my knowledge of the credit-scoring world and actually learned something about what makes it tick — which in this credit-crunched economy is more important than ever.

Funny little Filbert the Squirrel of FreeScore fame happily guided me through a series of questions designed to test and educate me about the ins and outs of the credit community. A little understanding of what are and are not positive credit practices goes a long way to helping me improve my score.

We all know (or some of us do anyway) that a poor credit score and battered credit history can raise your interest rates, cost you a mortgage and even stop a home purchase dead in its tracks. But FreeScoreQuiz.com — and of course, Filbert the Squirrel — revealed just how far into other areas of life a low credit score and less than stellar credit history can reach.

I got a little tripped up on a question asking who exactly has access to my credit report — apparently employers, landlords, and even insurance companies do. Who knew a few late credit card payments could hurt my chances at landing a job or getting a new apartment? Well, apparently Filbert the Squirrel did. And now so do I.

Even if you think you know it all, it’s always good to take a second look. Who knows you might learn something new? I know I did. And when I forward FreeScoreQuiz.com to my bratty… I mean brilliant cousin, hopefully she will too. And with any luck she won’t make those college-age credit mistakes that could kill her credit score years before she even enters the real world.

It’s been said that in a recession, the price of everything is negotiable. That includes medical bills, but many patients feel squeamish talking money with their doctor.

A New York Times story assures readers that doctors, hospital and labs are used to negotiating, since they do it constantly with insurers. A single procedure may have a dozen different price tags, depending on whether the patient, a private insurer or Medicare is picking up the tab. And neither party wants to deal with bill collectors, which costs time and money. Read more »

Routine credit checks by employers screening job applicants may not be so commonplace in the future if several state legislators have their way.

Lawmakers in Hawaii, Connecticut, New York, Missouri and Texas, as well as the Obama administration’s acting chairman of the Equal Employment Opportunity Commission, have criticized unrestricted credit checks that unfairly rule out job candidates.

According to a USA Today story, roughly 43% of U.S. employers review job applicants’ credit reports for late payments on mortgages, rent, credit cards or student loans, which some argue has nothing to do with a job applicant’s ability to perform a job. Credit screening has jumped in the post-9/11 era, but in this economic slump, millions of laid-off workers are desperate for a job.

Two of the proposed bills would require employers to demonstrate that such checks were essential for hiring. Credit screening is most frequently done for bank teller positions, cashiers and others working in financial services jobs, but many times, it’s also done routinely.

What do you think about an employer checking a job candidate’s credit report? Do you think it’s important for an employer to have this information, or does it depend on the type of job that’s involved?

Fair Isaac Corp., the company behind the FICO credit score, has launched a new product for banks and credit card companies that might make it easier (and cheaper) for you to get your credit score more regularly. It’s called FICO “Scores on Statements,” and it allows banks that pay for the service to offer monthly updated credit scores on their online bank statements — with some customers perhaps getting them for free (depending on the bank).

So far, Pennsylvania State Employees Credit Union, Washington Mutual (which is being acquired by J.P. Morgan Chase), and the Sears Solution MasterCard, issued by HSBC, are part of the program, and their customers can get their FICO score free. Also included with the score are the top reasons why the score is what it is, and how they may improve the scores (that’s Fair Isaac’s language, not ours).

This may be a service to look out for if you’re in the phase of life where you’ll be making a lot of major credit purchases, such as a home, auto, or large appliance. The higher your FICO credit score, the less you pay in interest. There is also plenty of information about credit scores online, if you want to learn more about credit.

It’s about time.

After receiving a record number of public comments — 65,000 — on proposed rule changes for credit card companies, federal regulators responded by adopting expansive new rules that clamp down hard on what many perceive as the cutthroat lending practices of credit card companies.

The move is a good start in leveling the playing field between credit card lenders and borrowers, although as far as I can tell, it doesn’t attempt to limit credit card interest rates, which can exceed 25%. (You might do just as well borrowing money from the man in the dark overcoat standing in the alleyway.)

The new rules, which don’t go into effect until July 2010, do stop credit card issuers from:

•    Hiking interest rates on existing balances;
•    Applying all payments to balances with lower interest rates when a borrower has balances with different rates;
•    Changing account terms after just 15 days’ notice; now, they’ll need to give 45 days’ notice;
•    Giving less than 21 days to pay before incurring a late fee; and
•    Making deceptive credit offers.

While consumer protection was the intent of the rule changes, federal regulators acknowledge that the changes may also end up making it difficult for millions of people who have either bad credit or no credit from getting a credit card.

Well, wait a minute. Whoever said that access to a credit card was an inalienable right?  If your credit history reflects a poor track record for holding up your end of the bargain — in other words, if you don’t always pay your debts responsibly — then why should any company feel obligated to loan you money?

After all, credit cards are an unsecured loan, meaning that, unlike a mortgage or a car loan, there’s no collateral the lender can reclaim if the borrower fails to pony up. So all they’ve got to go on is your credit history.

I have more sympathy for those with no credit. The people with a sparse credit history are usually young adults who may not have had a need or opportunity to borrow money. But paying off student college loans is one way to build a credit history, as is a car loan.

That’s what I did in my early 20s, a time when I hadn’t the foggiest clue about credit histories or why I should care about them.  Most student loans are federally administered with a built-in deferral period that lets recent graduates get on their feet before beginning repayments, and federal student loans generally carry reasonable rates.

While not everyone attends college, most young people will still need a set of wheels, and that’s another way to get started building your credit. In my case, I saved as much cash as a 16-year-old could, with my grandparents matching that amount. My grandfather, a mechanic and the owner of a small service station in Boonton, New Jersey, picked out a reliable used car for me, a Ford Maverick. After an unfortunate encounter with a deer, I ditched that car and got a $3,000 bank loan for my next used vehicle, a Datsun King Cab pick-up.  Repaying the loan wasn’t a problem, even on the modest salary of a newspaper reporter.

I think the many new protections the new credit card rules offer consumers far outweigh whatever inconveniences they may create for new borrowers. Credit, after all, should be a privilege that is earned.

What say you? Will the new rules affect you personally, and did they go far enough?

Everyone with a credit card or loan of some kind understands that making a late payment or missing a payment altogether will hurt their credit score. In general, when we talk about a credit score, we’re referring to the FICO score, the three-digit number calculated by a formula created by Fair Isaac. But some companies rely on their own formulas for score calculations that are then used to make decisions about consumers and their credit worthiness (or lack of it!).

For example, your mortgage interest rate, credit card maximum limit amount and the amount of money you pay for automobile insurance premiums may all be a result of proprietary scoring models created by statisticians for the companies you do business with. The trouble with such systems is that consumers don’t have any idea what factors are playing a role in their financial futures. How can you work at managing your credit if you don’t even know what companies use in their calculations?

There’s currently a Federal Trade Commission suit against CompuCredit’s Aspire Visa card. The credit card is intended for risky borrowers and falls under the classification of a subprime credit card. The card, like all credit cards, claims you can use the credit card anywhere. The problem is, CompuCredit conveniently left out the fact, that if you use your card in certain locations, your credit line could be cut. A reduced credit line often results in a lower FICO score, as it reduces the amount of credit you have available to you while simultaneously increasing the amount of available credit you’re utilizing.

What purchases are punished by CompuCredit? Any purchases made through tire retreading shops, bars, marriage counseling offices, billiard halls and massage parlors, to name a few.

Is it possible your lifestyle and credit score are working together to influence other lenders as well?

Americans aren’t the only ones struggling with recessionary times and bank bailouts. British candy makers hope to soothe worried consumers with the ultimate comfort food ⎯ chocolate. The upscale British department store Selfridges has introduced a new chocolate candy called “Credit Crunch.”

Brits consume more candy weekly ⎯ an average 8 ounces ⎯ than anyone else in the world. (Americans average 5.6 ounces weekly.) Presumably, this might help to explain the Brits’ top world ranking for bad teeth, with annual dental care totaling $140 million, according to Time magazine.

The candy, made of chocolate and crunchy honeycomb, could cheer you up, even when your savings and investment account statements won’t.

If you had to come up with a snack or candy treat that describes the state of your current personal finances, what would you call it? Peppermint patsies, anyone?

You may be thinking that closing credit cards is a great idea: It will reduce the temptation of using them and “simplify” your life. And it will make you a lower credit risk if you have fewer cards, right? Well, before you take the plunge and cancel credit accounts you’ve had for a while, think twice — your credit score is what will take the plunge!

One of the most common misconceptions about personal credit is that closing credit cards, particularly accounts you don’t use, is a good idea. If you close an “established” account, especially if it has been a satisfactory (always paid) account for over two years, it will lower your credit scores. Why does this happen? The reason is that 15% of your credit score is computed from the “length of credit history,” which is the time since accounts were opened and the time since account activity. Hence, people with credit accounts in good standing for a long time typically have the highest credit scores.

If you close a seasoned credit account, you lose the ranking and value this account had in the calculation of your credit score. How much could it go down? Well, that depends. However, because the FICO credit score range is 550 points (300-850), the most it could reduce your score should be 82 points (15% of 550). That is a huge hit to take and would almost certainly bring your credit rating down so far that you would pay higher interest rates on any new accounts you open. If your credit issuer applies “universal default,” you could even find yourself paying a higher interest rate on existing accounts that are in good standing!

The only valid reason to close an unused account is risk: Either you’re worried about someone stealing the numbers and committing fraud, or you fear you’ll overspend if you have the card available. Well, your fraud protections on credit cards are actually quite good, as long as you check your statement and report acts of fraud quickly. As far as overspending goes, that’s a personal choice — just be aware of the negative impact of closing accounts.

The bottom line is, you want to avoid closing out older credit card accounts, since your credit score will go down.

You’ve likely seen the offers for credit monitoring services that promise to monitor your credit file and notify you within hours of any changes. Typically, a monitoring service will notify you of changes to your credit file that occur as a result of new inquiries, late payments, new accounts opened in your name, address changes, new employers, bankruptcies and other public records and more.

So is credit monitoring worth the money? Well, that’s a personal choice that depends largely on your specific situation and if you have a spare $100-$150 per year that you want to spend on monitoring services. Here’s some information that can help you decide for yourself.

Credit monitoring benefits

• Alerts and notification. Credit monitoring does indeed offer you value in that you will be alerted, albeit not necessarily as fast as they would like you to believe, in changes in your credit report. If an identity crook is opening new accounts in your name, changing your address, or otherwise causing changes in your credit file, then you will get notified of those changes. And the sooner you know of potentially fraudulent activity, the sooner you can do something about it to minimize the financial impact to you.
• Credit management. In addition to alerting you for fraudulent activity, credit monitoring can actually assist you in managing your credit.

Credit monitoring limitations

Understanding the limitations of credit monitoring is a critical step toward deciding if it’s right for you. Among its limitations, credit monitoring:

• Doesn’t detect all types of fraud. There are plenty of fraudulent acts that can occur that don’t cause changes to your credit report and therefore aren’t included in credit monitoring alerts. If an identity crook compromises your existing accounts, steals and uses your Social Security number with another name, or opens an account that doesn’t require a credit check, credit monitoring won’t help you.
• Is expensive. For some, credit monitoring is pricey at $100-$160 per year for services that, for the most part, you can do yourself. Some folks would rather spend that money on something else.
• Isn’t as real-time as advertised. You’ll notice that many services boast about daily monitoring. The reality, however, is a bit different, especially when you realize that creditors often delay their reporting to the credit bureaus.
• Isn’t your only option. There are alternatives to monitoring, such as identity-monitoring services that might cost less. Plus, you can do a fair job of monitoring your credit reports yourself for free. While not as “real time” as a monitoring service, you can get a free report from each of the bureaus and examine these reports for changes several times per year. Due to the cost of credit monitoring, this can be an appropriate alternative for some.

In the end, whether or not credit monitoring is worth the money is a decision that you have to make. It provides a good amount of value, but it might be cost-prohibitive for some people, and they might choose an alternative.

We all know that improving your spending habits will improve your credit score, but what we really want to know is, just how long will it take to reflect favorably on our credit report?

Before I answer that, let’s first define what improving your spending habits means in relationship to your improving your credit. Essentially, we’re talking about you spending responsibly so that you live within your means, pay your bills on time all the time, and avoid incurring too much debt and maxing out your credit accounts. Improving your spending habits in this way is most likely going to relate to two specific areas of your FICO credit score — payment history and amounts owed. Approximately 35% of your credit score is based upon your payment history, and 15% of your score is based on the amounts owed on your accounts. By paying your bills on time and keeping the balances on those credit cards low, arguably at or under 30% of the available balance, you have the opportunity to influence about 50% of your credit score. The other 50% of your score is determined by things such as your length of credit history, new credit and the types of credit that you have.

So the question still remains: Once you’ve committed to making the necessary changes, how long will it take to see results?

Most creditors report to the credit bureaus every month. Therefore, if you pay down the balance of an account, the new balance should be reported to the credit bureau over the next month, and if your credit score is improved, you should see such improvement. While it’s also true that the timeliness of your payment will also be reported on a monthly basis, they’re really looking at your payments from a historical perspective over a period of time. Therefore, improving your score based on your payment history will likely occur over a period of several months. Even still, there’s no time like the present. Start improving your spending habits to improve your credit score. You should begin to see results over the next 30 to 60 days, but remember to be patient, because significant improvement will take a little time