Month: March 2017

What’s the Difference Between an Educational Score and a FICO Score?

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Building credit strength is a delicate balance of time, strategy, and information. When it comes to the latter, accuracy is crucial, especially concerning your credit scores. For instance, suppose you plan to buy a new house by the end of the year. Your mortgage broker friend suggests raising your credit score to at least 720 before applying for a loan. She explains that a higher credit score qualifies you for a lower interest rate, which will reduce your monthly payments and the long-term cost of your mortgage. So, which score counts? You’ll find the answers here.

What is an Educational Credit Score?

An educational credit score is based on a private lender or credit bureau’s ranking of your financial information. For example, the PLUS score was designed by Experian and uses your bureau-specific credit report to tally a score from 330 to 830. The purpose of educational credit scores is to provide you with a basic idea of your risk level and creditworthiness.

Are Educational Scores Used By Lenders?

No. Although they are designed to measure credit risk, educational credit scores are not used by lenders. Models like the PLUS score are meant for consumer use only, which means that they are not considered when lenders review your loan application.

What is a FICO Score?

The FICO scoring model is used by more than 90 percent of lenders. Developed by the Fair Isaac Corporation (FICO), your traditional FICO score is graded on a scale of 350 to 850, while industry-specific FICO scores are measured on a scale of 250 to 900. Your score is based on five factors: payment history, debt utilization, credit length, new credit, and types of credit used.

You have several FICO scores, but in general, the average lender will review the three scores based on your TransUnion, Experian, and Equifax credit reports.

Where Can I Check My FICO Scores?

Many websites advertise FICO score purchase options, but when you’re planning a financial move, it’s best to go straight to the source. “ is the only place where consumers can access all three FICO Scores based on Equifax, Experian and TransUnion data,” the FICO team said in a statement. Your scores can be purchased directly from the website.

You may find educational scores that model the FICO scoring method from the following sources:

  • The Credit Bureaus: TransUnion, Experian, and Equifax all sell credit scores to consumers, and some provide regular updates when you sign up for their ongoing credit monitoring services.
  • Your Credit Card: Many credit card members receive access to their educational credit score as a monthly perk.

Which Score Should I Check Before Applying for a Loan or Credit?

When it comes to learning the facts yourself, you should always rely on the credit score used by your intended lender. “Before getting a loan for a major purchase, such as a home, you should check all three of your FICO scores,” the FICO team said. “Most lenders will look at all three FICO scores—one from each major credit bureau—when evaluating your loan application.”

Reviewing your credit scores can be confusing, and it’s a good idea to familiarize yourself with the FICO model and understand how your lender analyzes loan applications. The result could save you a lifetime of excessive debt.
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How Do Credit Card Grace Periods & APRs Work?

Man Studying Credit Card Grace Periods & APRs

Credit cards are a two-sided coin. On one hand, when used responsibly, they are a great tool for building credit. They can also be a great budgeting tool, helping you finance a large purchase over time, sometimes interest-free.

On the other hand, credit cards can put consumers in debt, when they aren’t used responsibly. With the purchasing power of a credit card in hand, it’s easy to make more purchases than you can afford to pay off when the bill comes.

Let’s talk about the cost of credit card interest, how it works and how to avoid having to pay it.

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How to Choose the Right Credit Card

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For many, choosing a credit card is a reflection of identity. It can help you pay for the things you need, enhance the things you love like traveling, and with time, it can improve your credit score. So, which credit card is right for you? Choosing a new card depends on a few factors. Take these steps before you apply.

Check Your Credit Score 

The first step is to learn which credit cards you qualify for. “You might want to check your credit score before searching for credit cards, as some are only available to those with good credit,” David Bakke of Money Crashers said. You can view your TransUnion and Equifax credit scores for free on our website here. It’s also wise to check your credit reports to ensure that your accounts are reported accurately and there are no errors that could impact your scores. You can also access your free reports once a year through Annual Credit Report. 

Decide How You’ll Use It

Once you know your credit score and the cards you qualify for, consider how you’ll use your card to narrow your focus. A few ideas include: 

  • Credit Score Improvement: If you’ve struggled with credit damage in the past, it’s a good idea to choose a card that can help you get back on track. Secured credit cards allow you to pre-load cash like a debit card to use for purchases. That said, your account activity is reported to the credit bureaus like a credit card with the same benefits of positive use. A successful trial period may also qualify you to convert your account to standard revolving credit.
  • Rewards for Everyday Purchases: Some cards offer rewards and cash back on necessity purchases like groceries and gasoline. Review your budget to highlight the big-ticket items; you may find a card that can help you save.
  • Investments: Some investment firms offer credit cards that allow you to funnel rewards into a retirement account or a college savings plan. This strategy frees up money in your budget while also helping you to focus on the future.
  • Airline Miles and Travel Perks: Some credit card issuers partner with airlines to provide miles and amenities to frequent flyers. Plan your trips and choose a card based on destinations, preferred airline and other travel factors. “Plenty of cards have generous sign up bonuses,” Bakke said. “And if travelling internationally, look for one with no foreign transaction fees.” 

Choose Long-Term Use

It’s tempting to open a credit card that offers short-term rewards or discounts, but it’s better to choose something that offers long-term benefits. The reason? Closing an account down the road could hurt your score and undo your efforts to improve. A lower credit score could impact your ability to secure a low-interest loan, finance a home or car and even open new credit cards.

Avoid Fees and APR 

The benefits of a credit card can amount to nothing if they are overshadowed by annual fees. Financial planner Jay Schurman of the Lincoln Financial Group advises clients to weigh their options carefully. “Do you really need a credit card that has a yearly fee?” he said. “They have to give you something of greater value than the fee or this is a bad deal.” Do the math before allowing upscale perks to persuade you.

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How Store Credit Cards Impact Your Credit

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These days it seems that everywhere you go, no matter which store you’re in, someone wants to sign you up for a new store credit card. Whether shopping for apples or zip-ties, the checkout clerk is often certain you need to save 10% on your purchase by applying today — and by the time they’re done describing the many benefits of your new card, you may begin to feel pretty certain, too.

However, just because the card offers you a nice discount doesn’t mean you should hop on its bandwagon. What many people often forget about the temptation-rich store credit card is the “credit card” part. The plastic may say “Kohls” instead of “Chase,” but that doesn’t make it safe; a store credit card can have just as much of an impact on your credit score as its more traditional counterparts.

Store Cards Can Have Real Credit Impacts

To start, the initial application for a store credit card comes with the same hard pull of your credit report as for any other credit application. Depending on the state of your credit, that hard pull can cause your FICO score to drop by as much as five points and your VantageScore by 10 to 20 points. If you have any major purchases coming up for which you might need a loan, such as a vehicle or house purchase, avoid opening any new credit accounts, including store credit cards.

Once you’ve applied, just as with a regular card, the issuer will consider your entire credit history before deciding whether to approve you. Despite popular lore, while store credit cards may be a bit easier to get than other types, stores (or, more specifically, the banks backing the stores’ credit cards) do not simply approve anyone who applies for a card. Those with less-than-perfect credit will have the best luck applying for a privately backed card (one without a major issuer logo). That said, if your poor credit is preventing you from obtaining even a store credit card, you may need to consider a subprime issuer who specializes in credit cards for bad credit.

At the other end of the spectrum, not only does applying for a store credit card impact your credit, but so too can closing an old one. Depending on how long you have had the card — and the age of your other accounts — you may actually see a dip in your credit score from closing a store credit card. The average age of all of your credit accounts combined is one of the main factors that goes into calculating your credit score.

On the Plus Side

While it may sound like a lot of negatives, store credit cards (and credit cards in general) aren’t all bad. The responsible use of a store credit card can have many of the same positive impacts to your credit score as would a non-store credit card. For instance, by avoiding late or missing payments on credit cards that report to all three credit bureaus, you can demonstrate positive credit behavior, improving your credit score and your chances of being approved for future credit.

Additionally, not only do many stores have special coupons exclusively for cardholders, but most stores will stack the cardholder discount with in-store coupons. Example? Pair a great Kohl’s coupon with the 25% discount for opening a Kohl’s charge card and you could save hundreds off your purchase.

Spend Wisely

Regardless of your reasons for opening the card, be it for the discounts, the peripheral perks, or simply to improve your credit, always be wary of carrying a balance on a store credit card. Store cards come with notoriously high interest rates that can quickly negate any savings from an in-store discount. To illustrate this point, let’s consider a shopping trip where $100 worth of items are purchased with a store card. If we say the initial savings from using the store card is 10% (or $10), it leaves a $90 balance on the card. By paying the minimum monthly payment of $5 and carrying the rest of the balance, it would take almost two years to pay off that shopping trip — and it will cost $21 in interest charges.

If you’ve already given into temptation — or a particularly convincing checkout clerk — a few too many times and gotten in over your head with store credit cards, you’ve likely already seen the negative effects they can have on your credit. While getting a handle on your debt is the first step toward rebuilding your credit, it isn’t always easy, especially if the debt is spread across multiple accounts. In this case, working with a reputable debt relief company can be the best way to establish a plan to get back in charge of your finances.

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5 Painless Ways to Cut Expenses in 2017

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Spending money is complicated; at least, that’s what our brains tell us. According to a Capital One Bank survey, 54% of Americans feel happy when they save money, and yet, 25% struggle to keep up with their monthly bills. Feeling motivated to save is tough when your wants and needs are at war, and let’s be honest: You aren’t likely to afford a home or save for retirement by kicking a Starbucks habit. Big changes require bigger savings. The good news is, there are a few painless ways to accomplish your goals.

  1. Track Spending: It’s difficult to cut expenses without a plan. Creating a budget is the fastest way to gauge financial strength and learn how to save. Download your free budget template
  2. Embrace Eco-Friendly Living: Saving money doesn’t always require a lifestyle change. In fact, it’s possible to cut costs and help the environment with a few basic steps. “Get a home energy audit conducted on your house through your energy provider; most do them for free,” David Bakke, financial blogger and owner of Money Crashers said. “Also, only run full loads of laundry and dishes.”

Take your efforts further by investing in a smart thermostat and Energy Star products that provide eco-friendly designs, monthly bill savings and even product rebates for mindful consumers.

  1. Negotiate Revolving Expenses: The average American household spent $103 per month on cable in 2015 according to a survey conducted by Leichtman Research Group. Even if you aren’t willing to cut the cable cord, there’s still room to cut costs. “You won’t get a discount without asking,” Andrew Marshall, a San Diego-based financial planner said. “Call your cable company, your phone provider and other companies with bills you want to pay less for and ask for a discount.  I recently had $80 taken off my monthly cable bill for being a longtime customer.”

Other experts suggest leveraging the competitive marketplace to slash fees in addition to your monthly bill. “There are so many TV alternatives; having a station that only has one program on at a time almost feels archaic. Ditch it,” Michael Newcomer, vice president of Retirement Advisory Consultants said. “Some carriers even eliminate taxes and fees, making it easy to budget phone and internet prices every month.”

The lesson: Everything is negotiable. Contact your service providers and communicate your budgetary needs.

  1. Clear Away Clutter: Financial dissonance can be as stressful as physical clutter. According to Phil Risher, the voice of Young Adult Survival Guide who paid off $30,000 in student loans in 12 months, there are a few ways to spring clean your spending. “As you question your expenses, ask yourself: Why do I have it? Does this fit with my goals in life? Will this change my life if I get rid of it?” Judging expenses based on emotional value could ease the pain of cutting back. Consider changing your perspective as you redefine necessity.
  2. Read the Fine Print: Automated bill pay has made life more convenient, but it has also created a risk of abuse. Mobile apps like FeeBelly sniff out hidden fees associated with paying off loans early, buying a plane ticket, transferring money and other transactions. Once identified, you may be able to have them waived or choose another provider who doesn’t impose the same costs.Similarly, other apps like Prosper Daily take the mindlessness out of spending by illustrating costs by frequency. “It highlights your recurring purchases,” said Jared Franklin, product manager for the financial tech company, Blispay. “It’s a good way to see a bunch of those annual $20-30 services you pay for, but don’t use much. I identified a few services this way that I cut ties with.”

Saving money isn’t always easy, but it doesn’t need to be painful. Take advantage of creative saving opportunities as they arise. The result can help you plan for emergencies, invest for the future and focus on credit health.

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