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Credit Matters: Being informed about credit helps
you manage your money.
You might have
considered scaling back your credit card use in light of the recession,
layoffs, and general uncertainty about the economy. Your credit
card company doesn't want you to. Did you know that during the
holiday season, consumers were expected to rack up $121.4 billion in
credit debt? The following are things your credit card company
wants you to do to make them richer: DON'T do these things and
you'll be richer for it.
1. Pay Late.
Go ahead, they say, let your card bills slide for a few days past the
due date. First you'll pay as much as $35 in late fees.
Second, if you pay late more than once in six months, the issuer will
raise your interest rate. Not only that, but other credit cards
monitor your payment history. If you exhibit a habit of paying
late, your interest rates on other cards might also increase.
Fight back:
mail your checks as soon as
you get the bill. If your rate gets hiked but you've improved your
payment history, call your provider and ask for a lower rate.
2. Pay the
minimum. Credit card companies love people who pay the
minimum: it stretches out the debt forever since the minimum payment
doesn't cover the interest due on the card. An example: if you
spent $1150 this holiday season on a 14.4% credit card and only paid the
minimum it would take 8 1/2 years to pay off the debt--the credit card
company would make $600 in interest off of your loan.
Fight back:
pay as much as you can each month, and don't be swayed by the minimum.
If you frequently pay the minimum, seek out a card with the lowest
interest rate.
3. Pay most
of your full balance every month. Many people figure they pay
less interest if they pay, say, $900 of a $1000 balance. Chance
are they are wrong. If you carry over any balance, you'll likely
pay interest on the full balance on your card during the month.
Some card companies charge interest based on your average balance over
the past tow months, others on the highest balance you had during the
month.
Fight back:
if you can, pay in full as early as possible.
4. Pay late
during a special introductory period. If you're late, that 2%
interest rate will balloon to double digits.
Fight back:
pay on time.
5. Go over your
credit limit. Not only will that trigger fees of $30 or more,
it can also affect your
credit record.
Fight back: call
ahead to increase your credit line if you really need it. If you
receive an overage fee, call your credit card company to see if they'll
remove it as a courtesy since you informed them.
7. Use your
credit card at the ATM. Credit card withdrawals at the ATM are
treated as cash advances so they carry the higher interest rate.
In addition, many cards tack on a fee for using the card. Because
cash advances begin accruing finance charges immediately, even if you
normally pay in full every month, once you use the ATM any new purchases
will be subject to interest fees.
Fight back:
if you can't pay in full, call to see if you can arrange to pay back the
advance separately. Find out what you need to do to be sure your
payments are credited appropriately.
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The FICO Score: what is it and what does it mean
to you?
The FICO scoring system
was developed in the early 1990's by Fair Isaac and Co. A FICO
score, as it is commonly referred to, is a number ranging from about 350
to 900, and it is added to a consumer's credit report at the request of
a lender. The number is calculated by a computer program which analyzes the
person's past and current credit ratings, and lenders try to use the
score to predict the future performance of a consumer on a loan.
The FICO score
calculation uses the guidelines most commonly reviewed by credit
underwriters when assessing a potential client. The program looks
at 33 variables that can be grouped in five broad categories:
- Previous credit
performance
- Current level of
indebtedness
- Amount of time credit
has been in use
- Pursuit of new credit
- Types of credit used
In addition, the FICO
score includes "reason codes" . These codes reveal
what has had the most influence on lowering a credit score, including:
- Current delinquency or
too few accounts currently paid as agreed
- Too many credit
inquiries (seeking new credit) in the last 12 months
- Proportion of balances
to credit limits is too high on revolving accounts (at or near the
maximum amount allowed on the accounts)
- Too many revolving
accounts and/or too many finance company accounts
- Too many accounts
opened in the last 12 months
The data used to compute
the FICO score is provided by the three main credit reporting agencies:
Equifax, Experian, and TransUnion.
Lenders like credit
scoring because it gives them an objective standard against which to
measure borrowers potential for default. In addition, because a
score is easy to read and the reason codes are universally applied,
lenders can incorporate them into their automated underwriting systems,
making for quicker decisions with higher likelihood of being the right
lending decision.
- Pay your bills on time
- Don't max out your
credit cards. And don't add new ones unnecessarily
- Don't be late on your
mortgage payments
- Don't let anyone
inquire into your credit without your approval
- Avoid collections, tax
liens, and, of course, bankruptcy filings if you can
- Check your credit
report once or twice a year and check it for accuracy.
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5 Quick Steps to a Different Credit Score
Learn how to manage your credit score and improve your creditworthiness
Think of your
credit score
as a picture of your credit risk. This picture reflects your risk at a specific point in time. A picture does not change; however, when you take another one, you will probably look a little different. Similarly, when your credit information changes, your score will also change to reflect the updated information.
There are steps you can take to ensure that each time a new
credit picture taken, it shows your best side. By observing the following guidelines, you can influence your credit worthiness for the better:
- Be punctual
- Pay all your bills on time. Late payments, collections, and bankruptcies have the greatest negative effect on your credit score.
-
Check your credit report regularly and take the necessary steps to remove inaccuracies
Dont let your credit health suffer due to inaccurate information. If you find an inaccuracy on your
Credit Report
contact the creditor associated with the account or the credit reporting agencies to correct it immediately.
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Watch your debt
Keep your account balances below 50% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $500.
-
Give yourself time
Time is one of the most significant factors that can improve your
Credit Score
Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit report open in order to lengthen your period of active credit use.
-
Avoid excessive inquiries
A large number of inquiries occurred over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay.
TrueProfiler Credit Report & Score
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Becoming Debt Free
Five Steps to Become Financially Healthy.
This year, choose a smart resolution that will positively impact your pocketbook and your peace of mind. Make a pledge to reduce your debt and boost your credit score. Lowering the amount of debt you carry can significantly improve your credit profile, reduce the loan rates you
could receive and save you a lot in interest payments. It just takes a few easy steps and a little dedication to take charge of your debt.
- Get the Facts- Collect all your account, loan and credit information and go over the records with a fine tooth comb. Write down the monthly payment, debt amount, interest rate and term of each debt on a sheet of paper. Next, write down your total monthly income and list your estimated monthly expenses. Order your
TrueProfiler Credit Report & Score
online to get a baseline for tracking your improvements.
Do the Math- Calculate how much you usually spend paying each debt and how much interest that debt collects per month. Define which debts need to be paid off first. Credit card
debt and small loans should probably be paid before low-rate student loans and home loans. A "yes" answer to any of the questions below is a red flag for accounts that need immediate
attention:
Which debts have the highest interest rates?
Are there accounts above 50% of their credit limit?
Do you have any debts that are close to being paid off?
Which debts have the highest annual fees?
Negotiate and Consolidate- Start working on those high-interest credit card debts first. Call your creditors and negotiate lower interest rates or move your balances to less expensive credit cards. Accounts that are above 50% of the available line of credit can harm your credit score; pay off or move some of the balance to a different card. If you have a credit card debt that is too large to handle, consider taking out a personal loan from your bank for the amount. Your bank can probably give you a much lower rate and a more lenient payment schedule.
Refinance- After taking control of your credit card and small debts, take a look at your major loans. Would it make sense to refinance your mortgage? Could you consolidate some of your other debts into the loan? What about cashing out some home equity to pay off a high-interest debt?
Stick to the Plan- Now that you have lowered your rates and refinanced your loans, create a payment schedule and a monthly budget. See exactly how much you can afford to pay each month by subtracting your expenses from your monthly income. Divide the remaining amount between the accounts, paying the most to the debts with the shortest terms and highest interest rates. Create a payment calendar with the due dates and the payment amounts you just calculated for each bill. Sign up for automatic bill payment through your bank or register for online payments to keep you on schedule. To continue to keep your credit on track, register for
Credit Monitoring online and you'll receive quarterly credit reports, credit alert emails and trending charts that outline how much your credit improves over time. Set goals for yourself and don't forget to celebrate when you reach debt-removal milestones!
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Guard Against Identity Theft
Stay informed to minimize your risk.
Identity theft is the fastest growing crime in America. According to the Federal Trade Commission, the number of identity theft incidents reached 9.9 million in 2003. These crimes are estimated to have taken the average victim $500 and 30 hours to resolve. From stolen credit cards to total identity kidnapping, these ugly and prevalent crimes are hard to prevent and often difficult to correct. Although it is hard to truly avoid becoming a victim of
identity theft, there are a few ways you can guard against this damaging crime.
Types of identity theft
Identity theft crimes range from purse snatchings to kingpin-style fraud rings. The definition of identity theft is a crime in which an imposter obtains key pieces of personal information, such as a Social Security number, in order to impersonate someone else. Identity theft can occur when someone takes your mail, steals your wallet or swipes your records from an institution. Most cases can be resolved fairly easily if they are caught early. Creditors and banks usually hold you responsible for only the first $50 of fraudulent charges. The most serious cases of fraud can take several years and many resources to resolve.
Preventative measures
In this world of smiling strangers, it can be tough to keep your identity safe. The best security policy is to be aware of fraud and cautious about where you share personal information. Check your account statements carefully each month and keep an eye out for suspicious activity on your
credit report. A paper shredder can also be a powerful tool for making sure personal information and pre-approved credit offers don't end up in the wrong hands.
If your identity is stolen
If you suspect that your identity has been stolen, the first step is to get all the facts about the damage. Become your own detective-search your
Credit Monitoring Service
will inform you of changes to your credit. It may take a while to fully recover the security of your accounts, but it's crucial that you don't let the fraud escalate.
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