Don't Let Your Credit Hold You Back

According to FICO.com the average credit score now is between 690 and 700.  Average credit scores are increasing because consumers have begun to pay down their debts. However, many Americans are still in debt, some haven’t even begun making payments or can barely afford to make the minimum monthly payments.  Fifty percent of Americans spend more than they earn. 

Being in debt affects your credit score either negatively or positively.  If you pay your bills on time you score will increase, if you don’t it decreases.  Seventy-nine percent of all credit reports contain at least one error and 75% of all credit reports contain one major error.  According to a 2006 Consumer Action study, 27% of Americans had never checked their credit. Another 33 million had credit reports that do not contain enough information to generate a credit score. Twenty-four million Americans had no credit file.  According to a TrueCredit survey 90% of Americans don’t know their credit score.  

Due to the recession, 720 is the new 680.  Banks and lenders are now stricter with criteria for approval of a credit card or loan. If you have bad credit you will probably be denied. However, there are some companies that may give approval but it will be at a high cost.  You will have to pay higher interest rates and possibly upfront fees. 

Bad credit can hold you back from getting approval for a student loan, mortgage loan, business loan, or personal loans.  Bad credit affects:  getting hired, interest rate, terms and conditions, getting capital to start a business, insurance rates, approval for renting usually requires first month or first and last month deposit, ability to generate wealth, products and services offered, ability to get access to programs tailored to those with good credit, relationships and credibility with service providers and employers.

Bad credit and being in debt can also cause you to lose focus, cause anger, anxiety, stress and health issues.  Debt can affect relationships with friends, family or your spouse.  One of the biggest causes of divorce is due to finances.  Paying down debt can eliminate those negative feelings and improve your relationships as well as your credit score.

Using credit is a balancing act and most Americans don’t balance it very well which is evidenced in the amount of debt owed by Americans and their low credit scores.  If is crucial that you pay back any debt owed starting with delinquent accounts, especially if you plan on applying for credit in the future.  Paying down debt also prevents legal action taken against you for an outstanding debt.

Pay down debt as soon as possible to help increase your credit score, increase your savings account balance, reduce stress, improve relationships with creditors, and improve your financial future. Don’t let your credit hold you back.

FICO Score versus Vantage Score

Your credit score it is one of the most critical factors in your financial life. It determines if you will be approved for a loan or line of credit. A credit score is a number developed and calculated by the Fair Isaac Corporation (FICO) that lenders use to rate potential customers in determining the likelihood that a customer will pay their bills on time. Your credit score is used for employment, approval for loans and credit, insurance rates, opening bank accounts and affects critical aspects of your life.

The FICO credit score is determined by using 5 main criteria as defined by MyFico.com: your payment history which accounts for 35% of your credit score, the total amounts owed which accounts for 30% of your credit score, the length of your credit history which accounts for 15% of your credit score, new credit which accounts for 10% of your credit score, and the types of credit used which accounts for 10% of your credit score.

Payment history shows the history of how you paid your bills either on time or late. Amounts owed show the total amount of debt you owe. If your balance is near the credit limit this may lower your credit score. The length of history indicates how long you have had credit. If your credit history is 2 years or less this could lower your credit score. New credit indicates how many times you have applied for new credit.

If you open too many new accounts in a short period of time this may lower your credit score. The types of credit used indicate the types of accounts you have such as revolving or installment accounts. Revolving accounts are usually credit cards and installment accounts are usually mortgage loans, auto loans, personal loans, etc.

The higher the credit score the lower the interest rate you will receive for a loan or line of credit. Having a good credit score can save you thousands of dollars in interest over the life of the loan.

Another credit score that is used is called the Vantage Score which ranges from 501 to 990 and correspond to letter grades with “A” credit ranging from 901–990 and “F” credit ranging from 501–600. The Vantage score is currently available to customers for a nominal fee and can be ordered by calling the three major credit reporting agencies, Experian, TransUnion and Equifax. The scale for the Vantage credit score is: 901-990 A score, 801-900 B score, 701-800 C score, 601-699 D score and 501-599 F score.

Benefits of FICO Scores
1. Starts credit history as soon as a person starts using credit
2. Over half your score consists of payment history and total amount owed
3. Used for approval of loans and credit cards
4. Helps those with established credit history
5. Helps those with at least 2 years of credit history
6. Helps those aged 30-65

Disadvantages of FICO Scores
1. Doesn’t offer credit grades to coincide with credit scores
2. Scores range from 300-850 – a span of 550 points
3. Credit scores may not be the same with each credit bureau
4. Doesn’t consider rental payment history

Benefits of using the Vantage Score
1. Provides consumers with little to no credit or bad credit with more accurate scores
2. Starts credit history as soon as a person starts using credit
3. Uses rental information
4. Helps young adults aged 18-25 and college students
5. Helps those who are recently divorced or widowed
6. Helps those with bad credit or who previously filed bankruptcy

Disadvantages of the Vantage Score
1. You score could decrease, if your FICO score was 720 your score may remain in the 700s using a Vantage score which would give a C grade.
2. Scores range from 501-990 – a span of 489 points.
3. Over half your score consists of payment history and recent credit so you are penalized heavily for having any new credit. The length of credit history weighs less. Available credit only consists of 1% of the credit grade so you can have a credit card maxed out or with high balances and still have a good credit grade.
4. Credit scores may not be the same with each credit bureau.

However, it is up to the lender or company to decide which score they want to use to consider approving you for a loan or credit card.

Everyday Fixes for Credit Scores

Credit. Credit. Credit. Do you ever get tired of people talking about credit or asking for your credit score? Companies used to have IOUs and you would pay them back when you could. Credit has become an ugly monster in the world of finance. It has destroyed lives, caused suicide, caused health issues such as high blood pressure, depression, fear, anxiety and hopelessness. Is this the effect that credit card companies had in mind when they created credit in the 1950s? I don’t think so but greed has caused them to operate as a mafia.

Some owners, customer service representatives and collection agencies have no remorse, no feelings, and refuse to provide good customer service to help clients who are willing to pay back debt owed. Sometimes you feel as though you committed a crime based on how potential employers, current employers or companies treat you when they look at your credit score or when you owe a company money.

Credit is one of the most important aspects of your financial life. It is easy to create a credit history but can be hard to maintain. One you have bad credit it can take years to recover and establish good credit again. Here are 13 everyday tips on how to raise your credit score.

1. Pay bills on time
2. Get current on late payments
3. Pay more than the minimum monthly payment – pay multiple times per month
4. Pay late accounts in 3 installments
5. Re-age accounts
6. Get paid delinquent (negative) accounts removed from your credit report
7. Ask for a settlement or setup payment bills for late accounts
8. Ask a company not to report a late payment on your credit report if it is less than 90 days late
9. Open a secured credit card or a department store credit card to establish credit history or increase your credit score
10. Avoid cash advances, payday loans and home equity loans to pay down debt
11. Don’t open new accounts often
12. Don’t close old accounts that are 2 or more years old, this will lower your credit score
13. Keep credit card balances at 20% or less of the credit limit

The CARD Act and Your Credit Score

Your FICO credit score and is used to determine if a customer will pay their bills on time. A FICO score is made up of 5 factors: payment history (35%), total amount owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%). Ninety-percent of the largest banks use the FICO score. Based on the CARD Act effective February 22, 2010 many changes in the act will now affect your credit score in a different way. Here is a comparison of how the CARD act changes affect your credit score:

1. Previously your credit utilization could be 50% or more and it was not seen as a red flag. Since the CARD act, your credit utilization credit usage/credit limit should be 20% or less.

2. Previously if you had bad credit your credit score was greatly reduced by late payments. Now, The higher your score the more points you lose from a late payments or bad credit. The balance on your previous statement is reported to the credit bureaus. If you have bad credit, one 30 day late payment can lower your credit score by approximately 60-80 points and 90-110 points for those with good credit.

3. If you decide to settle do so quickly to increase your credit score. Your payment history is not affected much if you settle a debt, however, if you pay down a debt over a period of time say over 3-6 months this increases your credit score. If you try to settle a debt with the original creditor ask that the account be removed from your credit report. If the account is still open ask that the account be re-aged. Overall settling a debt or debt consolidation can lower your credit score approximately 45-65 points for those with bad credit and by 105-125 points for those with good credit.

4. Previously you could get another home 6 months to one year after a foreclosure if you had bad credit. Now, a foreclosure can lower your credit score by approximately 85-105 points and by 140 to 160 points for those with good credit. If you lose your home to foreclosure, do a short sell or deed-in-lieu of foreclosure and make sure the mortgage company does not report it on your credit report as a settlement usually reported as "settled", "settled for less than the full amount", or "foreclosure", or something similar.

5. Previously you could file bankruptcy and reestablish credit a few months after filing. Now, if you have bad credit and file for bankruptcy your credit score will be lowered by approximately 130-150 points. For those with good credit it can be lowered by approximately 220 to 240 points.

6. Previously you could close a new account and not worry about the impact on your credit score if you had good credit. Now, it's best not to close an account if you have balances on any open accounts because it will lower your credit score. If you have zero balances on all of your credit cards and close an older account your credit score will be lowered but not by much.

7. Previously when paying off debt, paying off the smallest or largest amounts helped increase your credit score. Now, if you are not making any purchases that require viewing your credit score within the next year pay off debt with the highest interest rate first, then tackle debt with the smaller interest rates.

Hope for Job Seekers

A credit score or FICO score developed by the Fair Isaac Company is used to determine if a consumer will pay their bills on time. It is using by most business when considering approval for a loan, credit card or service provided. A credit score is calculated using five main factors. Payment history accounts for 35% of your credit score, the total amount of debt owed accounts for 30%, the length of credit history (how long you have had credit) accounts for 15%, new credit (if you have opened any new accounts within the past 24 months) accounts for 10% and types of credit (revolving or installment) accounts for 10%.

Many employers use credit scores as a factor in hiring applicants but must have the applicant's permission before pulling their credit report and/or credit score. If you have bad credit you may not be hired for a job or may lose your job after being hired. In many cases potential applicants have bad credit due to a layoff, illness, medical bills or unfortunate circumstances but does not necessarily mean they can be bribed or will not be honest hard-working employee on a job.

For those of you who feel that using your credit as a factor in hiring is unfair you will be happy to know that Wisconsin State representative Kim Hixson recently authored a bill to have credit scores added to the list of discriminatory assessments in addition to race, gender, age, and disability which is prohibited under the Equal Employment Opportunity Act of 1972.

The bill called Assembly Bill 367 would remove individual credit history as a factor in hiring unless it was related to the job for which the applicant applied such as those who seek employment in the financial industries.

Contact your state representative and ask them to support representative Hixson's Assembly Bill 367. This will be one less thing for job seekers to worry about.

The New Credit Score

With all of the worry regarding the recession, job loss, rising prices of food and medical costs, we know have something else to worry about. Currently we have 2 types of credit scores, the FICO credit score and the Vantage credit score, vantagescore.com. However, Fair Isaac sued the three credit bureaus in 2006, accusing them of unfair and uncompetitive practices that it said harmed the FICO brand regarding use of the Vantage score.

Starting in late January or early February 2009 a new credit score will replace the current FICO credit score called the FICO 08. The FICO 08 will have the same range of 300 to 850 as the current (classic) FICO score.

The new FICO 08 will be used by TransUnion in late January 2009. Equifax will begin using the new FICO 08 in spring 2009. Experian has not announced when the new score will be used Equifax because it is waiting for the lawsuit filed by Fair Isaac to be resolved.

Fair Isaac insists the new credit score formula was created as a result of a demand by consumers due to increasing defaults on mortgage payments and late payments to creditors. The FICO 08 claims to provide a better way of analyzing consumer risk and that the product will be used by most lenders to grant credit and to set interest rates and other loan terms. FICO scores are also factored into credit decisions by insurance underwriters, cell phone, and utility companies and are sometimes used by employers to evaluate prospective employees.

Fair Isaac says most consumers will see a slight increase in their FICO 08 scores compared with their current FICO score numbers, but others will see a drop in their score. Fair Isaac says the new formula will do a better job of predicting consumers who are a good risk and who are a bad risk, especially among consumers: with bad credit or short credit histories, who are actively seeking credit or who are listed as authorized users ("piggybacked" on others' good credit).

Fair Isaac said FICO 08 will be less harmful to those who have had a single serious credit setback, such as a charge-off or repossession, as long as their other active credit accounts are all in good standing. Having a "moderate amount" of credit inquiries on your credit reports won't be as harmful to consumers under the new formula. No one knows what is considered a "moderate amount". However, consumers with several delinquent accounts may experience a drop in their credit score.

5 Ways to Boost Your Credit Score

Your credit score is one of the most important factors in your financial life. The current recession makes it even harder for consumers to get approved for a loan or line of credit which is why it is so crucial to have good credit.

If you have good credit and can afford to make purchases during this time you can get some great deals. However, if you are already in debt, don't have an emergency fund, savings account or retirement account you need to reevaluate your spending habits. While you are working on improving your spending habits you can also follow these 5 tips to boost your credit score so when the time is right you can make a purchase and get the best deal possible.

1. Change your mindset. You have to change the way your currently spend money and develop good spending habits so you make good choices when making purchases, buy in terms of needs vs. wants.

2. Get current on late bills. Pay old or late accounts immediately. Setup payment plans for bills that cannot be paid in full.

3. Establish credit. Open a secured account if you have bad credit or no credit to re-establish credit history. Use non-traditional forms of credit to establish history such as Pay Rent Buy Credit (Payment Reporting Builds Credit).

4. Keep balances low. Keep your credit card balances at 50% or below the credit limit. This shows you have good spending habits are not seen as a credit risk.

5. Don't open new accounts. Don't open any new accounts more than once every year when trying to improve your credit history. You will be seen as a credit risk and this will lower your credit score.