Category: Credit Score

How to Overcome Your Personal Finance and Credit Fears

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Personal finance isn’t limited to money in your bank account or your credit card statement: it’s an emotional subject. Your financial standing and creditworthiness affect everything in your life, from the home you live in and the food you eat to your family’s well being. When life feels unstable, the sum of these factors is often avoidance. If this sounds familiar, consider these tips to help you overcome your fears and improve your lifestyle.

Fear #1: Checking Your Credit Report

A credit report can feel like a grade school report card you’d rather forget. It includes current and past information like your mortgage balance, credit card balances, late payments, collections, judgments, and more. If your past was rocky, it’s natural to feel hesitant about reviewing it.

The Fix: Focus on Your Potential. Sure, you never want to think about that collection account again, but summoning the strength to check your credit reports can actually change things for the better. For example, the credit bureaus—TransUnion, Experian and Equifax—recently issued a statement saying that certain information will no longer appear on credit reports, including settled tax liens and civil judgments. Verifying your credit reports’ accuracy and adherence to new standards is the best way to ensure positive change.

Fear #2: Checking Your Credit Scores

Credit scores…plural? Already, you’re feeling overwhelmed, and it’s true, the average consumer has about 50 credit scores grading their financial prowess, and it isn’t always clear which one a potential lender will use.

The Fix: Go Straight to the Source. Educational credit scores are helpful when you want a general idea of your creditworthiness. That said, it’s a good idea to go straight to the source—FICO—for the credit score used by 90 percent of lenders.

Fear #3: Debt

Believe me, I get it. Outstanding debts can take over your life and cause unwanted stress. Whether it’s a high credit card balance, student loans, an expensive mortgage, or medical bills, it can be tempting to adopt an out-of-sight, out-of-mind philosophy. That said, the problem with this strategy is compounding interest that can accrue over time on your existing balances, causing them to become more overwhelming and unmanageable.

The Fix: Financial Counseling. Take a deep breath and meet this challenge head-on. Consult a financial planner or a credit repair professional for a fresh perspective. They will help you clarify the situation, prioritize and create a repayment strategy.

Fear #4: Savings

If you don’t have enough savings, you aren’t alone. According to a recent Equifax survey, 42 percent of Americans don’t have the liquid funds to cover a $1,000 emergency.

The Fix: Start Small. You don’t need an enormous income to make saving a priority. Cutting as little as 5-10 percent of your monthly budget could help you invest for retirement and build a liquid account for emergencies. If you need some motivation, check out our example of how $5 a day could add up to millions over time.

Fear #5: A Lack of Knowledge

Outwardly successful people seem to have all the answers, and you might feel too intimidated to ask your family and friends financially-centered questions. Credit and financial knowledge isn’t intuitive, and no one has the answers without doing some research.

The Fix: Make Learning a Habit. We may be biased, but learning about credit and finance can be fun. There are so many free resources available (including this blog) for those who want to brush up on the factors of credit scoring, learn how to save for retirement, pay off student loans and generally live a better life. Consider dedicating some time each week to the pursuit of education. Not only can it alleviate your fears, it can help you make well-informed financial choices.

If you want to start repairing your credit click here. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Making a Six-Figure Income Doesn’t Mean You Won’t Have Credit Issues

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During the 1980’s, when I was growing up, knowing someone who made a six-figure salary was like knowing royalty. It was that number that made you think of owning fancy cars, living in a huge house, and going on lavish vacations. Fast forward to the 21st century and making $100,000 plus does not really seem like all that much money anymore. Still, according to recent Census Bureau data, only a little over 20 percent of American households even break into that six-figure number.

But doesn’t making a six-figure salary pretty much guarantee you will have a good credit rating? Not necessarily. Your salary is not factored into your FICO score, but lenders will consider it when approving you for a loan. Loan and/or credit approval is based on your income and your FICO score. But how can someone who makes over $100,000 a year possibly have credit issues? There are some interesting factors which play into why someone who makes a decent income has bad credit. Let’s see what they are and how these factors affect their credit scores.

Feeling the Pressure to Keep up with the Joneses

This is cliché but true. Let’s say you have graduated from college and landed your first real job. Gone are your grungy pals from college only to be replaced with well dressed, sophisticated work colleagues and/or neighbors. They all drive BMW’s and have a garage full of “toys” and you feel the need to join in the fun. These extravagant purchases require applying for auto loans and/or credit cards and opening new lines of credit all at once. This could be lowering your FICO score. Why?

Two categories used by FICO when calculating your credit score is “New Credit” and “Credit Mix.” In fact, 10% of your FICO score is based opening new credit lines and another 10% is based on the mix of credit you use. According to myfico.com, FICO’s official website, “Research shows that opening several credit accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history.” Not only does FICO look at how many new accounts you open, but also what types of credit you apply for. So, trying to keep up with your neighbors by applying for a lot of credit in a short period of time may negatively affect your credit score. In addition, each time you apply for a loan or credit card, an inquiry shows up on your credit score. Each inquiry can ding your score up to 5 points apiece.

Large Student Loans

When you were in high school, I am sure you thought a lot about what you wanted to be when you grew up. Achieving that goal probably meant going to college, which in turn meant taking out student loans to pay for college. After graduating from college, you landed a good paying job but your six-figure salary doesn’t go very far when paying a large monthly student loan payment. Add that payment to your rent/mortgage payment, car payment, food, and utilities and you have the problem of possibly not being able to make your payments on time.

Why is this important? Making on-time payments makes up the largest portion of your credit score, 35 percent to be exact. To quote FICO, “This is one of the most important factors in a FICO® Score.” So, even though you are making a six-figure salary, paying one or more of your bills late may cause your credit score to decrease.

How to Avoid Credit Issues Making a Six-Figure Salary

Touching on a few reasons why someone making over $100,000 is capable of having credit issues is great – but how can one avoid damaging their credit rating? Get yourself on a monthly budget plan and you will see the following improvements:

  • You will pay your bills on time (35% of FICO is based on payment history)
  • You will lower the amounts owed on your outstanding debts (30% of FICO is based on amounts owed)
  • You will lengthen your current credit history by paying these timely (15% of FICO is based on length of credit history)
  • You will curb the need to apply for new credit (20% of FICO is based on new credit and a mix of credit)

Knowing some of the reasons why a person making a six-figure salary can have credit issues can be helpful to the person who is making half of that salary. Living beyond your means and getting into debt can happen to us all, not just the wealthy. We all need to be mindful of what we spend our money on and making a budget is the best way to keep you and your family on track. Teaching your children about money management will help them avoid credit issues when they become a wage earner. Hopefully, they will look back and realize that no matter how much money they make, they can live within their means, have excellent credit, and be able to save money for their future.

If you find yourself having credit issues despite your salary, you can start your credit repair journey here. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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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. “MyFICO.com 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.
Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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How a Lengthy Credit History Can Improve Your Score

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Debt is a dirty word, for millions of Americans, and yet, the average household depends on it for survival. Despite the negative connotations, did you know that owning a mortgage, auto loan and/or student loan can actually help your credit? Surprising, but true. Long-term debts have the ability to improve your credit scores by creating:

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5 Ways to Get a Free Credit Score

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The Fair and Accurate Credit Transactions (FACT) Act of 2003 guaranteed the right of every American consumer to see a copy of their credit report from each of the three main credit bureaus every 12 months. But the law said nothing about credit scores. For years, the only way to see your credit scores was by paying for them, but recent developments makes getting your credit scores for free fairly easy. Here are five ways to do so.

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