Think you have three credit scores? You may have 50 or more
You probably know you have a credit score, and that score dictates much of your financial future. You might know you have three credit scores, thanks to aggressive advertising from companies that sell access to them.
However, those hardly scratch the surface of the collection of credit scores lenders might use to judge you. There are, most likely, dozens of scores that might control your ability to get a mortgage, buy a car or obtain insurance.
Banks often use their own scores, tweaked versions of the FICO score that began the credit score craze. Auto lenders also have their own scores. So do car insurers. And old scores, based on old formulas, are still in use by many lenders. U.S. consumers may have 50 different credit scores — or more — that could impact their ability to borrow money, and that number is rising, experts say.
“The idea of there being a one true credit score, well that’s just not accurate,” said Michael Schreiber, editor in chief at Credit.Com, a consumer advice website.
John Ulzheimer, a credit score expert who formerly worked for FICO score inventor Fair Isaac Corp., produced a detailed infographic for CreditSesame.com in September which detailed 49 different scores based on the FICO. He has found another five or six since them. And that number doesn’t include competitors like Vantage Score, invented by the credit bureaus in an attempt to cut out Fair Isaac, or other proprietary kinds of credit scores.
Getting your actual credit score is a like game of roulette at this point,” said Ulzheimer, now president of consumer education at SmartCredit.com. “Getting the wrong number can be overwhelming to a consumer. The lender is using one score but you don’t know which score.”
There are also exotic credit-based scores, such as a “revenue score,” which predicts how much interest revenue a credit card holder will generate; a bankruptcy score indicating the likelihood someone will file for legal relief of debts; and a collection score that helps debt collectors prioritize their efforts.
Credit scores were once held completely in secret by the credit industry, but are more available to the public today. Credit monitoring services include them with monthly subscriptions. Fair Isaac, the inventor of the credit score, sells FICO scores at MyFico.com. Wells Fargo gives them away to consumers who walk in and ask about new accounts. Credit.com gives away a free score to site visitors. But with more scores being invented all the time, it’s hard to say what consumers are looking at when they receive a credit score.
“It does irk people when they find out there’s a very different number they get from one scoring model to another,” said Gerri Detweiler, scoring expert at Credit.com. “People wonder, ‘What good is it to check my score if the score banks see is different?’”
If any credit score provider implies consumers are getting a comprehensive view of their creditworthiness by ordering three credit scores — based on their three credit reports at Equifax, Trans Union, and Experian — that’s misleading, Detweiler said. It’s also misleading for any firm to suggest their score is the one used by most lenders.
Ulzheimer think so, too.
“If you go to MyFico and you get a score, that is the same brand of score that lenders are using predominantly,” said Ulzheimer. “Going past that is an embellishment. … MyFico does sell you a FICO score, but it may not be the same FICO score that lenders use.”
In fact, many banks have their own scores, which sprinkle their own criteria into the complex algorithm. Car loan issuers, for example, often choose to weigh previous car loan payment history higher than other lenders, Detweiler said.
The proliferation of scores is partly the result of continuous updates to scoring formulas that are expensive for financial institutions to adopt, Ulzheimer said.
“Scores are really nothing more than generations of software,” he said. “Think of how many generations of Microsoft software are out there, for example. Every year, there’s something new that’s a little better but kind of does the same thing. Scoring systems are like that.”
For example: Last week, the group behind the Vantage scoring system announced VantageScore 3.0. It has some consumer-friendly features, such as ignoring collections accounts that have been paid off (such accounts generally lower a consumer’s FICO score), and providing exceptions for consumers who don’t pay bills because of natural disasters like Hurricane Sandy. But firms may continue to use VantageScore 2.0 for a long time.
“A large bank that didn’t want to update its systems could force providers to keep old scoring systems going for years,” Ulzheimer said.
Given the proliferation of scores, should consumers even bother trying to see one of their credit scores? Absolutely, says Detweiler. She says any score will offer a helpful reference point.
“Don’t focus so much on the number as much as what direction you are moving,” she says. “The number will give you some information about what areas of your financial life you need to work on. But if there is a drop, you will know something significant has happened.”
The number itself doesn’t matter as much as how a consumer compares to the general population, she said. Armed with this information, consumers should be able to ensure they are getting a fair interest rate when borrowing money for a home or a car or applying for a credit card. Consumers who rank near the top of a scoring scale should get a bank’s best rate.
Because she thinks consumers should track their score over time, Detweiler says it’s important to stick with the same score than trying to compare a free score doled out by a bank with another score purchased from a website.
Ulzheimer said it’s fruitless and frustrating for consumers to obsessively follow their credit scores as they pop up and down, given that lenders see different scores anyway. He recommends “managing” to your credit report instead of your credit score, since the report is at the heart of all score formulas.
“What’s constant across all scores is that doing the right thing will lead to a better score across the board,” he said. “If you pay your bills on time, your scores will go up. So worry about that. Managing to three credit reports is easier than trying to manage all those credit scores. …Consumers have to let go of that, because the number of scores will continue to get larger, not smaller.”
That’s not to suggest variations among credit scores aren’t important. In September, the Consumer Financial Protection Bureau published a study of credit scores revealing that variations among different scoring models could impact as consumer’s borrowing costs about 20 percent of the time.
The study recommended that firms that sell credit scores “should make consumers aware that the scores consumers purchase could vary, sometimes substantially, from the scores used by creditors.”
The best way to avoid paying too much for credit because of a credit score variation is to shop around. Never take the auto dealer’s word for it that they’ve gotten you the best deal on your car loan. The variations matter less with mortgages, where banks usually get three credit scores and throw out the lowest and higher score.
Detweiler said for personal sanity, consumers should avoid treating credit scores the way they treated SAT scores in high school, or grade point averages in college.
“Don’t get too hung up on a number,” she said. “You know the serenity prayer? There are some things you have control over, and some you don’t. Take care of the things you can control, like paying your bills, and the score will take care of itself.”
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OG Article here http://redtape.nbcnews.com/_news/2013/03/19/17361604-think-you-have-three-credit-scores-you-may-have-50-or-more
Beware, there’s no asset ownership at the end of these loans
1. Student Loans
The topic of whether or not to borrow a lot of money to go to college, thus incurring installment debt, is a lightening rod, to say the least.
I don’t think you can say that an education and a degree aren’t assets. But, I do think you have to consider the “I didn’t go to college and I’m still successful” argument, which is possibly why so many people think student loans don’t yield any sort of asset. In the strictest definition of an installment loan, an education isn’t tangible and it doesn’t secure any sort of loan obligation. I mean, a lender can’t repossess your knowledge for non-payment. Semantics, I know.
2. Auto Leases
Now we’re talking. Borrowing money to buy a car is one of the worst investments you can make because of the quickly depreciating value of the asset. But, at the very least you’ll own the car after 36, 48 or 60 months of payments. With a lease you’re essentially renting a car for some fixed period of time.
Even when you’re done making lease payments you don’t own a thing. In fact, in many cases you’ll owe still more at the end of the lease because of mileage that exceeds the maximum contractual allotment. If you like a new car every few years then leasing is a good option but you’ll be making car payments perpetually. If you want to drive something supercool every once in a while then call HERTZ instead. You can give it back at the end of the weekend.
You own nothing after satisfying your rental agreement, which is technically an installment agreement. The tenant gets a place to live (the “extension of credit”) and makes an equal payment to the landlord (the “creditor”) for a fixed number of months per contract (the “loan term”).
Don’t get me wrong; there are tens of millions of homeowners who would rather be home-renters right now because they’re upside down on the home loans. That’s a familiar position to be in with auto loans, but not mortgages. Tax deduction notwithstanding, renting ain’t a bad deal right now.
4. Title Loans
You know what these are, right? You take your car title (yes, you have to have clear title in hand) to this vulture of a lender who then gladly let’s you borrow about 50% of your car’s appraised value and expects you to smile about it while he hopes you default. You make payments of some amount over some period of time and you get your title back. I fully agree that a car’s title is a tangible asset, but you’ve already earned it by paying off another loan. Buying it back again…not so much.
5. P2P Lending
Yes, and no. P2P loans (peer-to-peer) occur when you borrow money from another person or group of people who act as the “lender” in the transaction and cobble together the funds to lend. There are several sites that facilitate P2P loans but since I’m not a fan of them I’ll let you find them on your own.
Peer-to-peer loans are, in fact, installment loans and some of them are attached to an asset. Some P2P loans are taken out to pay for orthodontic work, business equipment and yes, even plastic surgery. Still, just as many are taken out to pay for vacations and other non-tangible items. Regardless, defaulting on a P2P loan won’t result in the consumers/lenders showing up at your door. I think that’s a contributing reason for their high default rate … it’s hard to think about Joe the Consumer Lender like you think about Wells Fargo or Citibank.
What about plastic?
So, here is a sixth…What about credit card debt? Yea, this is one also- Have you ever heard of a credit card issuer repossessing clothing, vacations, dinner out, or anything else charged on a credit card?
by John Ulzheimer onwww.mint.com/blog/how-to/no-asset-ownership-loans-042011/
Do you know what type of information is on your credit report?
With all the credit reporting and scoring advice circulating the internet, sometimes it’s refreshing — and helpful — to just get down to the very basics. Namely: what exactly is in your credit report, and what isn’t?
Credit reports are generally broken down into five to seven areas, depending on what credit report you’re looking at and whether it’s a “consumer” version or a “users” version. Here’s are the sections and what you’re likely to find in each:
Personal Identification Data
This is where you’re going to find your name, any variations of your name, current and former addresses, date of birth, social security number, and perhaps your current or previous employer.
This is a list of who pulled your credit reports and on what date. The “consumer” version of the credit report is going to have all of your inquiries. The “user” version is only going to have hard inquires.
There is a separate section on a credit report for 3rd party collections. This is not the internal collection department at your bank or credit card issuer. This is when your creditors have either sold or consigned your delinquent debts to an outside company for collection efforts.
The trade section is going to make up the bulk of your credit report. This is where all of your accounts with lenders are going to show up. Some times they’re called “trade lines” as well.
On some old credit report formats the Public Records’ section also houses 3rd party collections despite the fact that a collection is hardly a public record. In the newer consumer versions they are called out as their own unique item leaving the public record section to only house liens, judgments and bankruptcies.
You might not know this but you have the right to add a short statement to your credit reports. In most states this is limited to no more than 100 words so you’ll need to bust out your best Twitter or text messaging skills to fit an explanation of why you stopped paying on your credit cards.
So now that we know what you WILL see on your credit reports, let’s address what you probably won’t see on your credit reports.
Under most circumstances you won’t see…
These were reported at one time but only when they went delinquent. Do you remember when gyms would sign people up for 3-5 year contracts and if you decided you were buff enough and cancelled they’d try and hit you up for the full amount?
You won’t normally see your gas, power, cable, or telephone service account on your credit reports while they’re in good standing. There are some exceptions. I’ve seen NICOR accounts on credit reports reporting month after month just like any other loan. NICOR is a gas provider in Illinois. Most of the time if you see these types of accounts on a credit report it’s because they’ve been sent to collections and the collector is reporting it.
You’ll rarely, if ever, see your rental payments on your credit report because most landlords don’t have accounts with the credit reporting agencies and they are unable to report. Even if you are living in an apartment complex with hundreds or thousands of units it’s unlikely you’ll ever see the payments on your credit reports. Of course if you default on your lease they’ll turn it over to a collection agency and you’ll see that on your credit reports lickety split.
Almost all insurance companies will allow you to pay your insurance premium in installments. I’m quite certain most people would consider that a form of extending credit, and I’d agree with them. However, insurance companies do not report the installment payments to the credit reporting agencies. If you don’t pay them they’ll just cancel your coverage. And of course driving without insurance is illegal. Talk about the ultimate leverage over their borrowers!
by JohnUlzheimer for Mint.com
How Can I Stop The Credit Card Offers?
Everyday millions of consumers get home from work to find a small stack of credit card offers in their mailbox. These offers, many of them from the same credit card issuers who sent you an offer last month, purport to offer you new credit cards. These are called “pre-approved offers of credit” and account for hundreds of millions of dollars in revenue not for the credit card issuers…but for the credit reporting agencies.
The credit reporting agencies, in addition to selling credit reports and credit scores, sell lists of consumer names and addresses to credit card issuers so they can send you those offers. The list of consumers has been “screened” by the credit reporting agencies and meets certain minimum credit score requirements. For example, a bank can buy a list of consumers who have FICO scores greater than 650, thus eliminating very risky prospective customers.
Thankfully there is a way to have your name removed from those screened lists. And, even better news, it’s free to do so. By going to this site you can have your name removed for 5 years or even permanently. But don’t worry, you can always opt back in if your mailbox starts having separation anxiety.
Opting out is easy, but giving out the amount of information you’ll be asked to give is going to be hard. You’ve got to provide your name, address, Social Security Number, Date of Birth and your phone number. They need this information to ensure the correct credit file has been “blocked” for screening purposes.
Some people don’t like the opting out idea because they can get a proxy of their credit scores by the offers they’re receiving. For example, if you’re getting Platinum style offers then you’ve got great credit scores. If you’re getting “classic” card offers with limits of “up to” $1,000 then your scores aren’t that great.
Just because you’ve opted out it doesn’t mean you’re going to stop getting offers. First off, your name is probably already on several pre-screened lists and you can’t get your name off of them after the list has been delivered to the lender. And, opting out just gets your name removed from screened lists sold by the credit bureaus. It doesn’t remove your name from other lists that are sold by other companies.
Finally, the website I sent you to is the legitimate unified “opt out” site sponsored by the national credit reporting agencies pursuant to Federal law. There are companies who, for a fee, will opt you out. Don’t get tempted into thinking you have to pay for this.
When Does The 7 Year Period of Negative Credit Reporting Actually Begin?
If you have made credit management mistakes in the past then I have some great news for you. Negative credit information cannot remain on a consumer’s credit report indefinitely. Thankfully, the Fair Credit Reporting Act (FCRA) requires the credit reporting agencies to remove negative information from a consumer’s credit report after a certain period of time. The date which an account must be removed from a credit report is often referred to as the “FCRA compliance date of first delinquency” or the “purge from date.”
Depending upon the item, the credit reporting statute of limitations can differ. However, a majority of the negative items on a consumer’s credit report must be removed after about 7 years. But, 7 years from when?
There is a great deal of confusion regarding specifically when an account can be expected to age off a consumer’s credit report. If you were to perform an internet search for the question “When will a collection account be removed from my credit report?” you would likely find dozens of different answers. However, the true answer to the previous question is “it depends.”
For credit items which have a purge date after 7 years, i.e. collection accounts, charge-offs, repossessions, etc., the item will be removed 7.5 years from the date of first delinquency or 7 years from the date of default. The date of first delinquency (DFD) is defined as the date that the original account went delinquent (past due) for the first time leading to the default. The default date can also be expressed as the date the original account became 180 days past due.
So, as an example, if you defaulted on a credit card account in June 2013 then it can remain on your credit report for either 7 years from that date (deleted no later than June of 2020) or 7.5 years from the date the credit card account went delinquent leading to the default. Either way, the default cannot be reported more than 7 years.
Here is a cheat sheet which you can use as a reference when you want to know specifically how long a negative account can legally remain on your credit reports.
Collection Accounts – Accounts reported by a collection agency are purged from your credit reports 7 years from the date of default on the original account. The FCRA does not allow collection agencies to “re-age” collection accounts when they are purchased from the original creditor in an attempt to keep a negative account on a credit report longer. If a collection agency tries to re-age an account by manipulating the FCRA compliance date that is illegal.
Charge-Offs – Accounts with a charge-off status should be purged from your credit reports 7 years from the date the charge-off occurred.
Judgments – The purge date for a judgment is 7 years from the date it was filed. If the judgment is re-filed and thus has a new filing date, it will remain for 7 years from that new date.
Repossessions – You can expect a repossession to be removed from your credit reports 7 years from the date your auto loan went into default (or 7.5 years from the date of first delinquency on your auto loan that lead to the default).
Chapter 13 Bankruptcy – A chapter 13 bankruptcy should be removed from the credit report 7 years after the date discharged, not the date filed. Note, it can take several years for a chapter 13 bankruptcy to be discharged after the original filing date. Therefore, a chapter 13 bankruptcy cannot remain on a credit report for longer than 10 years from the date of filing. All bankruptcies are capped at 10 years for credit reporting.
Paid Tax Liens – The purge date for paid tax liens is 7 years from the date the lien was released. Unpaid tax liens have no purge from date and can remain indefinitely if the credit bureaus so choose.
Chapter 7, 11, and Bankruptcies Which Have Not Been Discharged or Dismissed – Bankruptcies which fall into 1 of these 4 categories are purged from credit reports 10 years after the filing date.
The Insider – October 22nd, 2013
By John Ulzheimer
Carrying the plastic means you’re susceptible to a host of temptations and mistakes that can bring regrets later. Savvy cardholders know to resist them.
Credit cards can be a great asset or a great liability, depending on how a cardholder uses them. While you probably won’t go to hell for committing any of these sins, the financial situation you will find yourself in afterward can certainly cause some pain to your pocketbook and damage your credit score. Read on to find out the seven deadly credit mistakes you should avoid at all costs.
1. Gluttony: Bumping up against your credit limit
Just because your issuer awarded you a $6,000 credit limit doesn’t mean you should max the card out. For starters, those who aren’t able to pay off their balances in full increase the likelihood of winding up in debt, since they’ll be subject to the interest on their purchases. Secondly, bumping up against your credit limit is likely to have a negative overall impact on your credit score.
“The closer you get to your credit limit, the riskier your credit profile is going to look,” says Chris Mettler, the founder of CompareCards.com, since it leads to a high credit-to-debt utilization ratio. Mettler says it’s best to use credit in moderation, using only 15% or less of your total credit at any given time. And yes, you should also pay off all those balances in full by the end of the month whenever possible.
2. Pride: Not checking your credit report
You might assume your credit score is in fine standing based upon a presumably stellar payment history, but the truth of the matter is that credit reports can easily contain errors. And the more egregious ones, like inaccurate delinquencies or improper credit limit information, can cost you more than a few points on your accompanying credit score.
Consumers therefore should check their credit report at least once a year — especially since you’re entitled to one free copy each year, thanks to the Fair Credit Reporting Act — or right before you apply for a big loan, to minimize the chances that you’ll encounter any surprises.
3. Lust: Applying for too much credit
Lucrative sign-up bonuses can certainly be attractive, but that doesn’t mean you should apply for every credit card that’s touting one. Too many credit card inquiries — generated by lenders that are looking to see if you deserve a new line of credit — in a short time frame can also negatively affect your credit score. Instead, apply for credit as you need it, and add a new card to your payment arsenal about once a year until you’ve got three or four you can consistently pay off on time at your disposal.
4. Greed: Taking out a cash advance
It may seem like a great idea to use your credit card to get a cash advance at a casino so you have some cash to gamble with, but in addition to the lousy odds you’ll have trying to make the money grow, the paper comes with a price.
“You’re going to be charged a significant amount of interest,” Mettler says, estimating that most transactions will carry an interest rate around 23% or higher. As such, it’s best to use a credit card only in instances where the plastic itself can be used to make the purchase and you can pay back the funds by the subsequent bill’s due date.
5. Envy: Applying for a card that’s out of your league
Your globe-trotting friend may continually flash a credit card that grants access to swanky airport lounges, earns free airfare and avoids foreign transaction fees, but don’t let jealousy lead you to sign up for one of your own. Typically, cards of that caliber contain high annual fees that are worth paying only if you travel enough to justify the rewards.
Instead, ask yourself a few questions to figure out what type of credit card is more suitable to your lifestyle. (You’ll also want to check that your credit score qualifies you for the account so you don’t rack up any of the unnecessary inquiries we were talking about.) There may be a great rewards card with no annual fee that will look much better with your name on it.
6. Wrath: Closing all your credit card accounts
Those who have gotten burned by their plastic may be inclined to cut up all the credit cards in their wallet and close all the accompanying accounts, but it’s best to curb your anger. Closing accounts can negatively influence your credit-to-debt ratio, especially if the one card you’re leaving open — or transferring a balance to — is bumping up against its credit limit.
It’s better to keep the account open but not use it, since that will keep your credit-to-debt ratio positively intact and not jeopardize the average age of your credit report.
7. Sloth: Not checking your monthly credit card statements
It can be easy to set up automatic bill pay on your account and then forget all about your credit card, especially in instances where you use it infrequently. However, it’s a bad idea to skip checking your monthly credit card statements.
“You can be paying for things you’ve signed up for and forgotten about,” Mettler says, in addition to any fraudulent charges that may appear, courtesy of errors or, even worse, identity theft.
By Jeanine Skowronski, MainStreet http://money.msn.com/credit-cards/the-7-deadly-credit-card-sins-mainstreet.
I found this article and thought it was useful and relative as ever. Get your learn on as we dive into a bit of history.
The History Behind Credit Bureaus, And The Founding Of The Big Three
When you’re in the process of buying a home, looking for a new car or trying to get a credit card, one of the first things the banks or credit card companies will do is check your credit score and pull a copy of your credit report. They want to see how well you handle borrowing money, and whether or not you’re going to be worthy of receiving a new line of credit. If your credit history is bad enough you may be denied a loan, or at least be given a higher rate because you’ve shown yourself unable to handle credit very well.
Having our credit checked when we borrow money has become a fact of life these days, and we’ve all come to expect it as part of the process. But where did the credit bureaus come from, and how long have they been around?
Credit Bureaus In The 1800s
Back in the day when a merchant or business was asked to extend a credit line to an individual, all the merchant had to go on was their personal knowledge of that person, and whether or not they might be a good credit risk. As you might imagine that doesn’t always work out well if someone is new to town, has no history with local merchants, or the merchant just doesn’t know them.
As a solution to this problem as far back as the 1860s local merchants began to maintain lists of individuals who were poor credit risks, and then would share the lists with other merchants. In essence they became the first credit bureaus. By sharing information about people who were poor credit risks, they lessened their own risk and were able to offer more credit to more people.
Populations in the U.S and elsewhere began to move more freely about the country with the advent of mass transit via train and automobile, and as a result more merchants across the country needed to have information about a wider range of individuals (especially those from outside their local area). Larger regional and national credit bureaus as we know them today began to start cropping up.
Credit Bureaus: The Big Three
As the numbers of people seeking credit grew, so did the amount of data about those people – and the need to have consolidated sources of credit information for financial companies to access.
NOTE: In the U.S. there are around 2 billion data points entered every month into credit records, and there are around 1 billion credit cards actively being used.
There have been quite a few bigger national and smaller local and regional credit unions on the scene over the past century and a half, but most lenders and financial institutions now use one of the main “big three” credit bureaus. They include Equifax, TransUnion and Experian. Here’s a brief history of the big three.
Equifax – The First Of the Big Three Credit Bureaus
Back in 1899 Equifax was founded under the name of the Retail Credit Company. They quickly grew over the years to the point where they had offices all over the United States in the 1920s. By the time the 1960s arrived RCC had credit information and files on millions of Americans and would share it with just about anyone.
When the Fair Credit Reporting Act was passed in 1970 credit bureaus had limits placed on what information they could share, and with who. Up until that point it had been a bit of the wild wild west and regulators knew there had to be laws in place to govern the credit industry, as well as to protect consumers. Retail Credit Company suffered some bad PR around this time, and by 1975 they had re-branded as Equifax.
TransUnion – From Rail Equipment To Credit Reporting
TransUnion was founded in 1968 to be the holding company of Union Tank Car, a rail transportation equipment company. TransUnion became a part of the credit reporting industry in 1969 when they acquired some regional and major city credit bureaus.
They’ve continued to grow over the years and now have over 250 offices in 24 countries including the U.S.
Experian – Newcomer Of The Big Three
Experian is the new kid on the block when it comes to the Big Three. They were founded across the pond in England in 1980 as CCN Systems.
They only came to the U.S. in 1996 when they bought a company called TRW Information Services. They’ve continued expanding their credit reporting operations to grow to the point where they now have a presence in 36 countries.
Things Have Changed From The Early Days
In the early days of credit bureaus local merchants were sharing information about local residents who might be bad credit risks, and it didn’t consist of much more than a list of people who hadn’t paid off their debts.
Today credit bureaus process billions of points of data every month and monitor activity on at least a billion credit cards in the United States. Based on the myriad of data they collect they make decisions about the credit-worthiness of individuals and assign them credit scores. Consumers can also access their credit reports online these days and make disputes about the accuracy of the data held there. In the past it would have been much more difficult.
Thanks to the Fair Credit Reporting act consumers can go to the government’s website at AnnualCreditReport.com and check their credit report from each of the big three. Not only that, but there are ways to get a look at your credit score via free or paid services, so it’s easier than ever to determine how good, or bad, your credit situation is. Much easier than it would have been back in the early days of credit bureaus.
by Peter Anderson for Bible Money Matters
During my years reviewing credit reports and working with consumers on their credit, I see a pattern. This pattern follows a similar time frame with many individuals that have challenges with their credit. It seems to begin at an early age. College aged years or shortly after graduating college proves to be a point in life when so many individuals are negatively affected with credit and debt. So, what age is appropriate to teach kids about credit?
This can be an explosive topic for parents as they try and raise kids in times of financial “gloom and doom”. With the mortgage crisis of 2006 and recent Wall Street spikes and crashes, today’s economic environment is prime for educating kids about credit. But not every parent agrees with this viewpoint. In 2010, an ABC News poll found that 71 percent of parents are opposed to giving kids a credit card before the age of 18.
Most parents agree that kids should learn to save and budget and should earn their own money. But when adults are struggling with their own credit, compounded with material needs of raising children, handing out plastic becomes a much more difficult decision.
So, when should a parent teach the basics? Recently, I spoke with a group of kids aged 15-17, here are some questions they posed:
If you’re a millionaire, can you have a better score than everyone else?
How does a debit card affect your credit?
Asking such innocent questions is a clear view of their youth and inexperience, but should not be seen as lack of intellect. Exposing teenagers to the facts about credit and money management is critical. Senior year is a great time to talk to young people. If they were eighth graders, this will be foreign to them, but at this age it is relevant. Understanding the obligation to pay your bills on time is one part, knowing the downside to not doing it will hit close to home.
Here are some tips on how to introduce money management and credit with your young ones.
• Begin with repeated duties like grocery shopping or buying clothes and gifts. Show them what you are looking for in products you are purchasing.
• Consider getting your teen a credit card that links to your account. Something that you have full control of and helps guide on spending and repaying.
o Review the bill with them and talk about interest and fees
• Be a good role model yourself. If you can’t manage it yourself, you shouldn’t expect it of them.
• Get help with an online site like Mint.com, which helps to easily track their spending, create a budget and gives them a good understanding of where exactly their money is spent.
• Review your credit report and check to see if they have anything on theirs. The only true place to get your free report is www.annualcreditreport.com
• Consider 16 as a milestone age to begin teaching your kids about financial independence and responsibility.
The intention here is to create dialogue between parents and kids. Unless your kids attend a college where credit card companies are banned or with credit education already in place, students and parents must take the responsibility of educating themselves about credit cards and acceptable amounts of debt. By the time a student is off to college and living away from home, they become more likely to share the more irresponsible spending behavior of their peers.
Finally, if you find it difficult to understand and this seems as a daunting task, seek help and advice from a professional.
By Cesar Marrufo
ELITE FINANCIAL, LLC
Consumer Protection through Education
Cesar is an expert in the credit repair field, with over 11 years experience analyzing credit reports. For more information or for help with your credit, visit http://elitefinancialllc.com or call (909) 570-9048 or email firstname.lastname@example.org for a FREE Consultation.
Here is a bit of information I found- By the Numbers
Credit-Savings-Mortgage, By The Numbers
That’s the credit score you need to qualify for the lowest interest rate on a new home or car. It makes a huge difference: On a $300,000 mortgage, someone with a score of 760 or higher could get the best rate of 3.24 percent, which works out to roughly $1,304 a month. But if your score drops 100 points, your payment will shoot up another $100. Ouch. The best ways to raise your number? Pay all your bills on time and pay down your debt–those two things make up 65 percent of your score. To make sure there are no errors dragging you down, get your credit reports annually from each of the major credit-reporting agencies (Experian, TransUnion, and Equifax) for free at annualcreditreport.com
This is the national average for credit card interest rates. If you’ve got a card in your wallet with a higher rate, pay that balance off first, because you’re getting slammed with major charges. The good news: Interest rates are generally negotiable. If you regularly pay at least the minimum on time, try haggling your way to a better rate, or consider moving the balance to your card with the lowest one–but do that only if you won’t get socked with hefty fees for the transfer.
That’s the maximum percentage of your take-home pay that should go toward housing, including mortgage payments, insurance, and property taxes. Pre-recession, many experts put the figure at 33 percent, but in this unpredictable job market, that’s too high. If you and your spouse make a combined $80,000, keep your new-home budget under $200,000. And if your housing expenses top the 25-percent mark, refinance your mortgage to lower your interest rate. You’ll feel a huge financial lift once you can truly afford the roof over your head.
That’s the amount to sock away each week in a savings account reserved for emergencies. You should have a six- to nine-month reserve in case you lose your job or face some other budget-blowing problem, but that goal can seem overwhelming. So start small with $50 a week. In one year, that’s more than $2,500 saved, which will put you ahead of many households. One recent poll found that roughly one in four Americans wouldn’t be able to come up with $2,000 in 30 days if they needed it. Start saving now.
The number of savings goals you should have. A recent University of Toronto study found that people who limit themselves to three goals under one theme–say, long-term saving–are three times more likely to say they’ll save than those who have myriad competing goals, such as retirement, a super-luxe vacation, a new home, and college funds for your kids. We say: Focus on retirement and an emergency fund, and the last one is up to you–so pick something worth it!
•Add an authorized user acct
Ask a friend/relative/business partner to add your name to one of their good credit card accts as an authorized user. This enables their good credit acct to reflect on your credit report and you automatically have their years of good paying history. This is an overnight success for your credit score. (Normally takes 30 days to get on the report.) Although it is good for score, lenders know that this is not your account and has no benefit through the lenders’ eyes.
• **Open a secured credit card account like the one above. This card is set up with no credit check. This account will take 4- 6 months to mature, but is a good way to invest in your credit. Try with your local bank to see if they offer one of these. Otherwise, go to credit cards.com click on left side column that says “cards for bad credit”. Open one of these to begin your credit history. Make sure you pick one that has the best deal for you financially, but more importantly, one that reports to all 3 credit bureaus.
• The 3rd option is something our company offers. For a fee of $495, we can have a credit account added to your report with a $5000 limit. This can only be used at an online e-books store and is set up for automatic approval.
• Whenever you add a new account to your credit report, the account needs time to age and add points to your scores. Generally, 4-6 months is that time frame.