June 19th, 2009
While experts say that at least 50 different kinds of scores are compiled and kept about each of us, the one we hear about most is our “Credit score.” The most popular is the FICO score – the one used by mortgage lenders to decide if you can buy a house, and if so, at what rate of interest.
That score is made up of 5 parts, each with a different degree of importance. In order, they are:
1. 35%- Your Bill Paying History
2. 30%- The credit available to you vs. how much of it you use
3. 15%- How long you’ve had credit
4. 10%- The variety of credit you carry
5. 10%- The number of “hard inquiries” from creditors
Bill Paying History
It’s not surprising that would be creditors put a lot of emphasis on how you pay your bills. High-scoring individuals always pay on time, as agreed. Low scores in this category are the result of late payments, accounts going to collection, foreclosures, and bankruptcy.
The good news is that under the new FICO scoring model, an occasional late payment won’t carry the weight it once did. The people who analyze these figures have come to realize that even the most responsible person can have a late payment when there’s some other kind of crisis in their life – or when the mail is slow.
Credit Available vs. Credit Used
This one is a fine balance – experts say it’s good to have plenty of credit and use only about 10% of it – 30% at the most. Others point out that historically speaking, those with plenty of credit tend to use it.
What really hurts is using your available credit to the maximum – and even using it to the maximum on one credit card while others carry no balance at all.
It is important to use at least some of your credit on a consistent basis, because that demonstrates your ability to use credit well. No use equals no history, and that hurts.
Length of time that you’ve had credit –
Using credit well over a long period of time gives you high marks – especially if you’ve had credit with the same issuer over that of time. This one makes it tough on young people just starting out.
The Mix of Credit
This part of the scoring formula assumes that using a variety of credit well shows that you know how to handle money. So having a mortgage, a car loan, and credit cards is better for your score than having just one kind of experience with credit use.
Inquiries on your Credit Report
Multiple inquiries on your credit report are particularly harmful if you’ve recently had credit problems such as late payments, or a bill sent to collections.
Credit issuers assume that if you’re making application for new credit, you may be looking for a “life preserver” with which to pay other debts.
Author:Marte Cliff
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June 19th, 2009
Credit card issuers looking for new customers routinely order “soft inquiries” on citizens who have not requested credit. Unlike “hard inquiries,” these inquiries in to your credit report have no effect on your credit scores.
They’re simply out there “fishing” for people with good credit so they can send offers to apply for their credit card. These offers will include low introductory rates, rewards, and even gifts for making application.
Companies with which you already have credit will go looking to see if your credit is still superior before they send you cash advance checks with letters suggesting that you really do need a vacation or a new wardrobe.
They also fish for people with poor credit and credit problems, so they can offer a different kind of credit card.
They know that most of us need a credit card at one time or another – when shopping on line, for instance. So they’ll send an offer for a card with a low credit limit, a huge annual fee and a staggering interest rate.
Some of these are the “fee harvester” cards whose gouging techniques have now been reined in by the Credit Cardholder’s Bill of Rights of 2009. At the present time, the initial fees charged to gain a $250 credit limit can reach upwards of $175!
When the new law goes into effect, they’ll be limited to charging 25% of the card’s credit limit in fees during the first year.
You trigger some of this snooping…
Often, those who aren’t sure about their credit scores will allow a car dealer or a furniture store to check their credit report – just to see if they can extend credit to them. This is a poor idea, as it triggers a “hard inquiry.”
“Hard inquiries” do have an effect on your credit score, so you should not use this method to learn your scores, and instead should take care not to give out your personal information until you’re sure you want to ask for credit from a particular merchant.
Your credit report will show the inquiry – it won’t show if you were turned down for credit or simply decided to keep shopping because that merchant didn’t have exactly what you were looking for, or because you couldn’t agree on the price of a car.
There’s no longer a reason not to know your own credit scores before you go shopping. You can get your credit report with scores, right here, for FREE. Do it today.
Author:Marte Cliff
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June 15th, 2009
Q:
I have a question regarding a credit issue and hospital bills. I had a very bad allergic and went to the hospital. I was there about 4 hours and received two seperate bills as usual. I don’t have insurance anymore from losing my job like so many others during these times. So ultimately I have a problem paying an outlandish amount of money at once or even in a few months, which 12 is the max apparently anyhow. For the doctors portion I made an agreement to pay 95 dollars a month, and the hosptal emergancy room one would only offer me 12 months as well at 340 dollars a month which I can not in any way come up with that kind of money. I explained that and she very much expressed her lack of concern. OK, however I did send in money, I told her I would try to send between fifty and hundred dollars a month and she told me she would still send me to collections. Now I did send money like I said and unlike other companies who will send a follow up statement or something, I have not received another bill in three months. I don’t understand why and I would like to know if my credit will be ruined now, and you probably won’t know or be allowed to answer, however is that legal for them to do? I have worked hard to get my credit back up and have not been late on a payment since 2003, if you could also lead me in a direction that might help me better understand my rights and possibly fight to keep what I have worked so hard to get. Thank you for your time.
William
A:
Hi William, this is a common problem with medical obligations. I would call back that emergency room to talk to a manager, to see if they will accept a lower monthly payment. It is unusual that they will not negotiate a lower monthly agreement. If for some reason they will not work with you, yes a medical collection will drop your credit scores. Any collection typically will drop your score around 100 points or so. There is really nothing legally you can do other than pay the the bill since you excepted medial treatment. If I understand your question about the emergency room visit, you sent some money in, not sure if it was the amount requested by the hospital or not. If you just sent in some money, I would assume the money you sent was based on a agreement. If the money that was sent was not based on a agreement, then they probably sent your bill to collection.
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June 15th, 2009
Two years ago the answer would have been yes. Consumers were advised to contact their credit card issuers as often as twice yearly to request cuts in their interest rates.
Now it might not be such a good idea.
Unless you absolutely can’t meet the minimum payment with your current interest rate, it might be best to lay low.
Because of the changes that credit card companies have been imposing on even their most creditworthy customers, your credit scores may have come down. Unless you check your credit report regularly, you might not even know that your once “excellent” rating now only looks “good.”
Because any time you ask for a change in terms the card issuer will pull your credit report, asking could backfire. They’ll also ask for additional information such as your employment history, monthly income, etc. If your income has come down due to the economic crisis, or if you’ve changed jobs, it could combine with a lower credit score to work against you.
Your request for a reduction could result in an increase instead – along with a reduction in your credit limit. Then the inquiry on your credit could bring your scores down another notch, which could trigger adverse actions from other credit card issuers.
This is a snowball that is gaining both speed and size, so it’s time for consumers to be very careful.
If you’re having trouble but feel confident that you will manage to stay afloat with your current minimum payments, you shouldn’t draw any attention to your account. Don’t let on to the credit card issuers if your income has dropped – and don’t ask for a change that will cause them to examine your current financial status.
If you truly can’t meet the minimum payments, that’s different. In that case you should ask for assistance.
Credit card issuers don’t want another charge-off. They want to keep you in a position to keep paying, so they are in many cases willing to work with you toward a solution. In fact, in 2008, they gave some kind of debt relief to approximately 2.7 million cardholders. That relief came in the form of a settlement, temporary forbearance, debt consolidation, a payment plan, or an interest rate reduction.
Interestingly, had the credit card issuers not taken such an aggressive stance in trying to boost their profits, many credit card holders might not have had a problem. In a study by Synergistics last January, two-thirds of consumers who received a change in terms reported that they had trouble making minimum payments as a result.
Author: Mike Clover
CreditScoreQuick.com your resource for free credit reports, credit cards, loans, and ground breaking credit news
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June 13th, 2009
When FICO introduced the new FICO 08 credit score in January, TransUnion jumped on board, but Equifax and Experian did not.
Now Equifax will also make this newest version of the FICO score available to lenders and businesses. Equifax calls the new score “Beacon 09″ and joins FICO in saying that it is the most accurate scoring model yet for predicting a consumer’s credit risk.
Some things will remain the same. For instance, the scores will still range from 300 to 850 and consumers will still have to meet minimum criteria to even have a credit score.
In order to generate a score, a consumer must have an account that has been open for six months or more, and that has been updated within the past six months. Since many small companies such as utilities don’t report to the credit bureaus, consumers need to have some kind of credit card, car loan, mortgage, or other account that does report.
In addition, your credit report must not indicate the word “deceased.” This can be a problem for a spouse who has held all accounts jointly.
Good news for some consumers is that under the new scoring model, a one-time mistake such as late payment won’t count so heavily. In fact, consumers whose scores have dropped due to such an entry will probably see their scores go up.
The bad news is that the new model will put more weight on the total debt load a consumer carries. It will become more important than ever to pay down debts and maintain a large margin of unused credit.
“Piggybacking” will once again carry some weight, because of new technology that will help prevent its abuse. This practice, in which an authorized user could “piggyback” on someone else’s good credit rating, led to abuses in the past.
The old FICO scoring model will still be available and will be used by companies who choose not to switch over. Predictions are that most users will be smaller lenders because the change will be complicated for large lenders.
Experian is currently in a lawsuit with FICO and there is no word on when or if it will adopt the new model. Since Experian severed ties with myfico.com, Experian’s FICO scores have not been available directly to consumers but could still be accessed by banks and other lenders.
Author: Mike Clover
CreditScoreQuick.com your resource for free credit reports, credit cards, loans, and ground breaking credit news
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June 8th, 2009
Credit card issuers have been targeting college students for years – setting up tables on college campuses and offering everything from teddy bears to pizza coupons to entice them to apply for a card.
Often, in their enthusiasm to obtain the “free” gift, students have applied for cards without reading the fine print. Thus, along with their new cards they got a first statement – one showing that they owed for a variety of fees. This could include an annual fee, an application fee, and possibly even a monthly access fee. If immediate payment of those fees wasn’t in the budget, the account immediately began gathering interest charges at a high rate.
Thus, these aggressive card issuer tactics have been helping those students leave college and enter the workforce with a debt that can seem staggering, especially when added to student loans for tuition.
This is about to change, due to the new Credit Cardholder’s Bill of Rights of 2009.
Once the law goes into effect, students will need two things to even be approved for a credit card:
• Adequate income and/or a co-signer
• Completion of a certified financial literacy course.
Credit limits will also be limited for students who do not have a co-signer. A student will be able to get a card which is the greater of $500 or 20% of their annual gross income. The total amount of credit extended from all of their credit cards cannot exceed 30% of their annual gross income for the most recently completed calendar years.
Creditors will be prohibited from opening an account for any student who does not have a verifiable annual gross income, or who already has an account with that creditor or its affiliates.
Your high school student will also be prevented from getting a card. The new law prohibits issuance of a credit card to any individual under the age of 18, unless a parent or legal guardian is designated as the primary account holder. (This does not apply if the youth has been emancipated under state law.)
These new regulations are, of course, designed to protect students by preventing them from beginning their financial lives with an overload of debt. But financial analysts fear that this program, like so many others that appear beneficial at first glance, may backfire.
Students in need of fast money may resort to using Payday lenders or pawn shops – both of which charge interest rates that even the most aggressive credit card issuer might find reprehensible.
Author: Mike Clover
CreditScoreQuick.com your resource for free credit reports, credit cards, loans, and ground breaking credit news
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June 8th, 2009
The Credit Cardholder’s Bill of Rights of 2009 makes some significant changes in the way your credit card issuer treats your account. Among other things, the law puts an end to double-cycle billing, gives you more time to pay, and imposes fairer payment allocation.
You may not have been aware that the double-billing cycle was costing you money each month. In most cases, it didn’t amount to a lot of dollars, but spread over millions of cardholders, it was an income-booster for credit card issuers. Under this practice, finance charges were imposed on the average balance of both the current month and the previous month. So you paid interest on dollars you no longer owed. This could be significant if you’d made a large payment the previous month.
Under the new law, banks will not be allowed to charge interest on debt already paid.
Another provision, which goes into effect this August, will require card issuers to mail their statements 21 days before a payment is due. The current requirement to mail 14 days before the due date has caused many consumers to incur late payment fees. Cardholders could either mail the payment and hope for the best, or pay a fee to make a payment by phone or internet.
Many credit card issuers charge as much as $15 to take a payment over the phone or on line. (Some do offer free on-line payments.) Under the new law, banks will only be allowed to charge those fees if you are asking for an “expedited payment.” Also, if you make a payment at a local bank branch, they will be required to post that payment the same day it was made.
Credit cardholders get a huge break due to the new payment allocation rules. Right now, when your account shows balances at different interest rates, your bank automatically applies all of your payments to the balance carrying the lowest interest rate. You may have charged a $200 purchase that gathers interest at 29.9%, but you can’t pay it off because you used a $3,000 cash advance check that was offered to you at 4.9%. Before you can “get to” the $200 purchase, you have to pay off the entire cash advance.
No more – when the new laws go into effect, all amounts in excess of your minimum monthly payment will be applied to the balance with the highest rate of interest.
CreditScoreQuick.com
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June 2nd, 2009
Fees make up a large part of a credit card issuer’s revenue, but that source will be shrinking when the Credit Cardholder’s Bill of Rights laws go into effect.
For instance, under the new law you can opt out of the privilege to go over your credit limit. Only if you elect to allow your creditor to approve overlimit transactions, will you be charged the overlimit fee.
Another change is that your credit card issuer will be limited to charging one overlimit fee per billing cycle. So if you make several transactions before realizing you’ve over spent, you can’t be charged a separate fee for each transaction.
Credit card issuers will also be prevented from charging consumers a fee to pay their credit card debt via telephone or internet. At present, some card issuers charge as much as $15 to accept a payment over the phone. You do need to watch the fine print on this one, because they will be allowed to charge a fee for expedited payments. You may still need to pay a day or two prior to your due date.
Payments received on the due date, or on the next day if the card issuer doesn’t accept payments on the due date, will no longer trigger a late fee. At present, paying on the correct day isn’t always enough – you may also need to pay before a certain time of day.
If the cardholder pays at a local bank branch, the payments must be credited the same day.
Under the new law, consumers will also have more time to receive a bill and return the payment. Present law requires the issuer to mail a statement 14 days before payment is due – which often means it doesn’t reach the consumer in time for a payment by return mail to post on time. The new laws requires 21 days.
The new law also sets limits on “fee-harvester” subprime cards. These cards typically have a credit limit of $250 to $500, and are issued to people who can’t get a standard card, but feel they must have a card in case of emergency. Unfortunately, the fees can sometimes leave cardholders with a hefty bill, and hardly any credit limit to use in an emergency.
In one example, a card featured a $250 credit limit, but new cardholders were automatically hit with a $95 program fee, a $29 account set-up fee, a $48 annual fee and a $6 monthly participation fee. That’s $178 in instant debt, and only $72 in actual credit. On top of that, because Federal laws preempt state laws, the card issuer has no limit on the interest rate it can charge on this balance.
Under the new law, during the first year after the card is issued, such fees may not exceed 25% of the cardholder’s initial credit limit.
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June 2nd, 2009
A welcome end to retroactive interest rate hikes
When the Credit Cardholder’s Bill of Rights go into effect next February, consumers will be protected from a host of money-draining practices.
One that will save consumers the most and cost the credit card issuers an estimated $10 billion is the prohibition on retroactive rate increases.
Banks will no longer be able to raise the rates on your existing balances unless your payment is late by 60 days or more. That means if you’re late on Card A, Card B won’t be able to raise your rates. This of course doesn’t apply to introductory rates, which you accepted with the clear understanding that the rate would raise on a set date.
But even those introductory rates will have restrictions. In order to offer them, credit card issuers must keep them in force for a minimum of 6 months. No more introductory rates that expire and bump to the highest rate within 30 days!
Even better news – if a cardholder becomes 60 days late and his interest rate is increased as a result, he can regain the lower rate by making 6 consecutive on-time payments. This particular provision doesn’t take effect until August 2010, however.
Cardholders will also get 45 days advance notice of rate hikes and/or any other key contract changes. Under the current truth in lending law, credit card issuers must only give cardholders a 15 day heads-up. While I haven’t seen this in writing, the notice they give must have plenty of leeway, because I know dozens of people whose interest rates and credit limits were changed without them being aware until they received their bills.
Perhaps this is one reason why the new laws will call for the terms of the agreement to be written in a large type size. Hardly anyone actually reads those lengthy notices written in a 4 or 6 point type.
The bad news is that this provision doesn’t apply to changes in credit limits, so you will still need to go on line and check your spending limits before embarking on a quest for a house full of new furniture. You could get to the store and find that you don’t have the credit limit you expected.
The good news in that bad news is that credit card issuers will no longer be allowed to slash the limit to a level that would trigger a penalty such as an over limit fee. That’s a practice that has become common in recent months and could become even more common in the months leading up to implementation of the new laws.
Remember that credit card issuers will be using the next months to ramp up their profits, so be very careful to read everything that comes in the mail from any of your card issuers.
Author: Mike Clover
CreditScoreQuick.com
Posted in credit card | 1 Comment »
June 1st, 2009
Credit card issuers don’t make it easy for us to know the right things to do to keep our good reputation with them. In fact, trying to navigate through all the advice we get can make us feel like doing a Yale Jashan Bhangra Dance! If you haven’t seen the Bhangra dance, it’s a bit on the wild side.
Take, for instance, the fact that your credit card issuer may have you labeled as a “deadbeat.” Why? Because you pay your bill in full, never go over limit, and never pay late fees. In fact, because your credit rating and your FICO scores are excellent!
Why do those actions turn you into a deadbeat? Because they aren’t making enough money from you, that’s why! They want you to carry a balance so they’ll earn interest each month. And they don’t mind at all if you pay a day or so late so they get to tack on a nice fee. Going over the limit is fine, too, because it also carries a fee.
Because you don’t do those things, they may be lowering your credit limits, raising your interest rates, and canceling your unused cards. Those actions, of course, will lower your FICO scores.
You’ve probably heard that the “Credit Cardholders Bill of Rights” is going to put a stop to many of the consumer-unfriendly practices used by credit card issuers. It is. When the new laws go into effect in February 2010, many of those practices will be forbidden.
But since the card issuers stand to lose billions in profits as a result, they’re looking to their most creditworthy customers to take up the slack. Experts are predicting that card issuers will now begin routinely charge annual fees even to their “best customers.”
“Best customers,” by the way, are those who carry a balance. Typically, they’re consumers who charge a few thousand for a major purchase every few months, pay it down, and then start all over again.
Grace periods may also be phased out, so that if you’re a “deadbeat” you’ll begin paying interest from the day of your purchase. As a result, many will abandon credit card use in spite of the convenience and bookkeeping benefits.
If you’d rather keep your life in order – and make your life more akin to a Foundation Showdance than a wild and crazy Yale Jashan Bhangra – take control now.
If you do carry a balance, begin paying it down. Spend your rewards credits before they fade into the sunset, and try to maintain your credit scores by keeping all credit card accounts open. You may be able to do so by charging a small amount at least once per quarter. Remember that the more available and unused credit you have, the better your credit rating, so if you can get your credit limits increased, do so.
Author: Mike Clover
CreditScoreQuick.com
Posted in credit cards | 1 Comment »
Disclaimer: This information has been compiled and provided by CreditScoreQuick.com as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.
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