Archive for the ‘Credit’ Category

The Truth About Credit Repair

Promotions such as – We Can Repair Your Credit – are everywhere. They imply that all you need to do is hire a service to get negative items wiped off your credit history and your credit score will instantly improve. The reality is that consumers often pay a lot of money and their score does not improve in any significant way.

It is true that a consumer has several options to deal with debt and build a good credit history. These include DIY, debt management plans, debt settlement, and bankruptcy. The best option depends on a person’s specific situation.

Each option comes with different side effects. DIY may have the least side effects, but is only feasible for people who have enough income to cover living expenses & debt repayment. Debt settlement may have tax consequences. Bankruptcy can have longer lasting side effects, but for some people it is the best option to get back on track.

Removing negative credit items will not instantly lead to high credit score. A history of paying debts as agreed is necessary for a high credit score. So after dealing with negative debt, a consumer will need to use credit effectively to build a good history. Unfortunately, many consumers pay for expensive loans with a goal of building credit. Often the fees and interest are so high that they consume a large portion of income.

The truth is many consumers can build or rebuild a credit history. The first step is to analyze your specific situation, understand your options, and make an action plan.

If you need help making a plan consider working with a Florida Master Money Mentor. The mentors provide free 1-1 educational help and guidance. They cannot provide legal or investment advice, nor do they sell or endorse financial products. They can provide guidance in developing a plan to achieve financial goals such as building credit, debt repayment, or developing a savings plan. For more information about how to connect with Florida Master Money Mentor in Hillsborough County contact Lisa Leslie lmleslie@ufl.edu or 813-744-5519 ext.54143.

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Women & Money: Unique Issues

Join us for a program that will provide the motivation and knowledge to help you achieve your financial goals.

Topics will include:
Evaluating Money Decisions
Goal Setting
Cash Flow Management
Saving and Investing

When: April 25 & 27, 2016, 6:15 p.m. – 7:45 p.m.

Where:
Children’s Board of Hillsborough County, 1002 East Palm Avenue, Tampa, FL 33605. Registration is required.

Registration: $10 covers both days. No shows and late cancellations will not receive a registration refund. Refreshments will be provided.

Register at: https://2016wm.eventbrite.com

Registration Deadline: April 18, 2016. Seating is limited.

This is a non-commercial, educational program. No products or services will be sold.

Layaway Logic

Layaway has become popular again, especially during the holiday season. The idea is that consumers will get the retail items they want and avoid going into credit card debt. Stores are promoting it, likely seeing it as a way to entice customers to purchase more items. In that regard it does work on similar emotions as credit cards.

Ideally a consumer includes saving for holiday retail spending as part of their yearly budget. Save money all year conveniently through payroll deduction and then avoid paying a penny more than retail. But we all know that ideally and really are not the same. Consumers often face unexpected expenses and emergencies that put a dent in savings goals.

Layaway can be a reasonable option but it is important to be realistic about whether you can afford to meet the designated payment schedule and final pick up dates. Find out store policies:

  • If you have something on layaway and it goes on sale- can you pay the sales price instead of the price when the item went to layaway?
  • How much time do you have to pay for the item?
  • Does the online layaway policy differ from in-store layaway?
  • Is there a penalty or fee for missed payments?
  • If you change your mind and decide not to purchase, can you get a refund?
  • Are any fees non-refundable?
  • After you have paid the full cost, how long will it be before you receive the item?

As  with any purchase– comparison shop, calculate the total cost, and save your records.

New FICO Credit Scoring Model May Lead to an Increase in Scores for Some Consumers

The company behind the FICO scoring model used by many lenders has announced changes to its scoring formula. FICO reports that past due medical bills which have been sent to collections will have less of an impact than in their previous models. They state “the median FICO Score for consumers whose only major negative references are medical collections will increase by 25 points.” In addition the new FICO scoring model will bypass paid collection accounts.

FICO also states that the new model is an attempt to refine the scoring process to better evaluate consumers with limited credit histories. Folks in these credit categories are often referred to as having “thin-files.”

This new scoring model will be available this fall. FICO scoring models are frequently used by mortgage and other types of lenders. However, not all lenders use FICO and how many will replace their older FICO model with the newer version is unknown.

Consumers should keep in mind that a credit history of accounts paid as agreed and low debt-to-credit ratios are the factors that lead to higher scores. If a consumer has a relatively low score, they can avoid paying big dollars in interest by improving their score before taking on long-term debt such as a mortgage or large automobile loan.

There is additional information about this the at the FICO web site:
http://www.fico.com/en/about-us/newsroom/news-releases/fico-score-9-introduces-refined-analysis-medical-collections/

Credit Scores

A credit score is a numerical ranking of your credit history. That history is built when you start using credit and your account information is reported to one or all of the 3 credit reporting agencies. These agencies compile information sent to them into a report.  Each agency compiles a report so you actually have 3 credit reports. Items found on your reports include credit card accounts and installment loan accounts. Utility and rent payments are not reported unless you are involved in a special pilot program or those accounts are in collections.

The credit score is derived by inputting information from your credit reports into a scoring program.  There are 2 factors found in reports that have the most impact on your score. They are payment history and debt utilization. If these 2 factors are good than your credit score is likely to be fine.

A good payment history means building a long history of paying as agreed. A payment needs to be 30 or more days late before it is reported. One 30-day late payment will cause your score to drop in points. However, if it is just a onetime occurrence the effect is not likely to be severe. If you have a history of late payments the effect will be more significant. Making a payment 90 days late will have a greater negative impact than being 30 days late. Defaulting on loans, accounts in collections, and settling loans for less than you owe are all actions that will also cause a very significant drop in your credit score.

Debt utilization is the amount you owe compared to the amount of credit that has been extended to you. For instance if you have a credit card with a $1,000 balance and your current balance is $100, than your debt utilization is 10%. For credit cards it is best to keep your debt utilization below 30%. Even if you pay the balance in full each month, debt utilization should be kept below 30%. In addition, paying off or paying down loans can help build a credit score.  Even if you pay bills on time, high debt utilizations (also known as being maxed-out) can cause your score to drop.

A good article titled “Blunders That Can Ding Your Credit Scores” can be found on the America Saves web site at http://americasaves.org/blog/588-blunders-that-can-ding-your-credit-scores .

The secret is there is no secret

Credit history can impact many factors in our life. We all know a credit score will be a key determining factor in how much it costs to borrow money. In addition, a credit history can also impact the rates charged for automobile and/or homeowners insurance, eligibility to rent a home, and eligibility for certain jobs.

 A credit score is derived from a consumer’s  credit history and is a measurement of the risk the lender takes by lending money to that consumer. The two factors that most impact a  score are payment history and the amount of debt held. A nice long history of paying the terms of loans as agreed can help a credit score.

 However, if  a consumer owes large sums of debt, has shown no progress in paying down debts, or holds  “maxed out” credit cards, their credit score is going to be lower. So if a consumer has a credit card with a large balance and only makes minimum payments, they are not in default. Unfortunately, since the consumer is  likely to be making little or no headway in paying down the debt, this will negatively impact their score.

Making timely, minimum payments and staying out of default is a good first step. The next step is to try and put extra money toward debt reduction. Eliminating the debt will not only improve a credit score, but could also save a consumer money on loan interest.

 Many products on the market make it sound like there are special secrets  a consumer can use to improve a credit score. The simple truth is that paying on time and paying down debt is the key to a good score.

Fact & Myth: Building Good Credit

 A good credit score tells a lender that you are likely to pay a loan as agreed. Borrowers who are perceived as less risky score the best rates on loans. The way to build a good credit history is to demonstrate that you manage credit well. This means paying as agreed on loans and paying off loan balances as opposed to letting debt grow. Paying down an installment loan can improve your score. For credit card accounts, keeping the balances owed to 30% or less of your credit limit is important. So those are the facts.

A new urban myth being passed around is that in order to build credit you should not pay your credit card balances in full. The rationalization given is that if you pay off balances your credit report will say the account is not active and this will decrease your score. This is fiction not fact. If you pay balances in full when due, your credit history will reflect the balance at the time the report was pulled. So if you use the account and pay in full activity is demonstrated. Paying credit card balances in full is just fine for your credit and can save you money.