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Interpreting Your Score – Credit Series – Part 4

Jeronathon Angeles — Thu, 20 Aug 2009 17:00:05 +0000

If you opt to get your credit score with your report, it will be generated for you at the time of your report. Your score is a static number and applies at the time you pull your report. If anything was reported even a few minutes after you pulled your report, you will have a dynamically different score. Since you can not have continuous monitoring of your score and since you should not pull your score often, it is good to understand what makes up your score.

When calculating your scores, your data is compared to a control group of approximately 10,000 other consumers with similar credit profiles to you. Your score is calculated as it compares to the rest of the consumers in your control group. Because control groups vary and are random, you will never be certain what your score will be. In addition, your score will vary between CRAs.

Equifax scores range from 300 to 850
Experian scores vary from 330 to 830
TransUnion scores vary from 150-934

The CRA’s themselves do not have the formula for calculating credit scores, however a company named Fair Isaac has actually developed a scoring model known as FICO. While the exact formula for the calculation of your score is top secret, the FICO takes into account the following categories:

Payment History – 35%
Amount of Debt – 30%
Length of Credit History 15%
Types of Credit 10%
New Credit 10%

PAYMENT HISTORY

Your pattern of making payments is the most heavily weighted part of your score. How often you have been late, how recent you have been late, and the severity it has been late all factor in to this section. If you had a 30 day late on a credit card 2 years ago, it would not weigh as heavily as a 30 day late on the same credit card 2 moths ago. Similarly if you had a 3o day late on one credit card and a 60-day late on another credit card, the 60-day late is more severe and would bring your score down farther. As for patterns of payments, if you have been late on a credit card one time in the past, it will not weigh as heavily as missing payments over a long period of time.

The Man Who Desired Gold

Jeronathon Angeles — Thu, 20 Aug 2009 03:43:19 +0000

I just reread a timeless classic on managing your finances by George C. Clayson. The Richest Man in Babylon was written well before my grandmother was born and it takes place in a time before most ancient civilizations were founded. It is a fictional tale about a man who seemed to have all the luck. He had vast properties, traveled the world, had large sums of gold, and his wealth was even greater than that of the king. Its written in a nice story format, but it has so many lessons about money and goes into great detail about why we desire it.

The quest for wealth is older than our written history and older than our cultural and religious traditions. Now after more than 6 and half thousand years of civilization, it still remains elusive to most of us. The book seeks to answer the question, why do most of us work so hard and yet have so little to show for it at the end of our lifetimes. What is our relationship with money and why is it such an unnattainable thing?

There are those of us who do make lots of money, only to be unhappy and wanting more. Are our desires running our life? Is our capacity to build wealth limited to our own output.

When you get a chance, pick up the book and drop a comment or two. I would love to talk more about it.

The Secret History of The Credit Industry

Jeronathon Angeles — Thu, 20 Aug 2009 02:35:00 +0000

I watched this video a while back and it really opened my eyes to the whole credit card industry. If you have some time, I recommend watching it as it gives a very good perspective of debt and how we are all drawn to it.

There were efforts to get credit card industry reform and its interesting to note that now we are seeing some of that reform take place. We aren’t completely there yet, but changes are being made.

Credit News Update

Jeronathon Angeles — Thu, 20 Aug 2009 02:26:04 +0000

Just as I am in the middle of writing a blog series on credit, tomorrow, major changes will be made in the credit industry. The new law, phase one of which is set to begin tomorrow, will have give more advanced notice for major changes to credit card agreements and will extend the amount of time to pay bills.

The additional time will definitely help us as consumers deal with the changes that may occur to our credit cards. There is now more time to reject changes by credit card companies and to cancel the card. This might mean higher payments for us in the long run as we will have a shorter amount of time to pay off the balances, but it will save more money by avoiding high interest rates.

There are some more changes to take effect in February which will limit credit card companies abilities to impose fees. I am looking forward to all the changes that are happening.

Understanding Your Credit Report – Credit Series – Part 3

Jeronathon Angeles — Wed, 19 Aug 2009 17:00:48 +0000

Now that you have a copy of your credit report, it is important to understand the details of what goes into it. Depending on where you pull your report, it will be formatted differently. All the information contained in that report ultimately will be the same. For you designers out there, think of each report as a different CSS layout. Ultimately the content is unchanged.

In every report you will find the following sections:

IDENTIFYING INFORMATION

This will include your Social Security number, name, phone, employment info, previous addresses. This information is entered directly by the entity running the report. You may have supplied this information but you should double check to see if it is all accurate.

CREDIT INFORMATION

This is the largest part of the report and it contains a detailed listing of every single account reported for you for the last 7 years. This will include all credit cards, auto loans, student loans, mortgages, and other lines of credit. Usually these sections are segmented by all current open accounts, all current derogatory or delinquent accounts, all closed accounts, and all closed derogatory or delinquent accounts. Every entry in this section includes the following:

Name and Kind of Business of the creditor
Type/Terms – There are three types of accounts: Installment Accounts or loans paid with a set number of payments; Revolving Credit Accounts more commonly known as credit cards issued by department stores banks and gas companies; and Open-30 day agreements which are accounts which you repay the full balance every month. In the example below you can see that some of the installment accounts have the actual terms listed by it.
Types of accounts held – There are three ways of holding accounts – Individual where you are in sole use of the account; Joint where two or more people use the account and is liable for payment; and Authorized user where you can use the account but are not legally responsible for paying the debt.

Ordering Your Credit Report – Credit Series – Part 2

Jeronathon Angeles — Tue, 18 Aug 2009 17:32:50 +0000

To keep up to date with your credit profile, it is recommended that you pull your credit report at least once per year. The information contained on your credit report is only as accurate as what is given by your creditors. In a 2004 study, the Public Interest Research Group, a non-profit organization and advocate for consumers, estimates that 79% of all credit reports contain some kind of clerical error. Left uncorrected, inaccuracies can potentially affect your ability to get credit, insurance and even employment.

There are many ways you can get your credit report. Typically the three bureaus will charge you for your report with a score generated. Under federal and some state laws, the CRAs are required to provide a free copy of the report annually. This is a great way to check for inaccuracies in your credit profile. Keep in mind, this will not include your credit score, however your score is not necessary for you to check for errors and omissions.

There are a number of websites out there that claim to provide free credit reports only to have users hit with monthly fees for credit monitoring services which serve no useful purpose. Annualcreditreport.com is a site that is recommended by the federal government and does really offer free credit reports. Because the site redirects you to the actual CRAs websites to pull the reports, you may still get some various offers from the CRAs. When I pulled my last report, it also offered the scoring information for an additional fee. If this is something that interests you, it is still cheaper than paying for the full report and incurring monthly fees.

When you pull your report here is a list of information you want to have with you:

Your full name, including all initials and suffixes
Current address with zip code
Any previous addresses
Social Security Number
Year of Birth
The name of your husband or wife, if married
Account numbers of some of your credit lines

The online system will ask you for any combination of the above information to verify your identity. While I do NOT recommend the old fashion way, you can always write to the CRAs and request a copy. This process will take 2-3 weeks. To order by mail, print out the Credit Request Form and mail it to the following address:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

Please note that once they receive it, they allow 15 days for processing and 2 to 3 weeks for delivery. It may take you over a month to receive your report using this method. Additionally, if they require more information to verify your identity, this could also add more weeks to the process.

PREVIOUS: Part 1 – CRAs and Credit Reports
NEXT: Part 3 – Understanding Your Credit Report

CRAs and Credit Reports – Credit Series – Part 1

Jeronathon Angeles — Mon, 17 Aug 2009 20:52:07 +0000

Over the years and through working with homeowners in getting their loans and saving their loans, I have realized just how sadly undereducated our population is to credit. One reason is that we just don’t have enough education about credit to make informed decisions. Secondly, our relationship to credit is such that some of us believe we are stuck with whatever our credit report says. FInally, we are not aware of the many consumer protection laws that help us protect our credit. With this in mind, I am creating a series of blog posts to cover the critical things regarding credit that everyone should know.

Credit Reporting Agencies or CRAs, more commonly referred to as credit bureaus, maintain the large databases which hold all of our financial information. It is of interest to note that Credit Bureaus are not run by government agencies but rather they are private corporations that focus on maintaining these databases. There are three major credit bureaus in the country; Experian, TransUnion and Equifax. So who uses CRAs? On the shortlist are banks, stores, employers, insurance companies, and pretty much anyone who wants to verify your credit history. The CRAs, for a fee, collect and sell information about your credit history and ensure the integrity of the database.

So for those of you are now curious, how do we know what these CRAs report is completely accurate? The painful answer to this is – we don’t. The information collected is entirely dependent on the accuracy of information reported by your creditors. The CRAs do not verify the information when it is received. To combat the spread of possibly inaccurate information, it is good to pull your credit report frequently. Over the years, various consumer protection laws have been enacted to protect us from the spread of inaccurate information. This allows us to dispute any information that shows up on our credit report which could lead to denial of credit, insurance coverage, or in some cases employment.

There are a few different types of credit reports used for a number of purposes.

CONSUMER CREDIT REPORTS

These can only be pulled by the consumer. These reports include all the information that creditors see with the exception of the credit score. Typically, CRAs charge the consumer to calculate the credit score. Most importantly, by pulling your own consumer credit report, you will not affect your credit score. Any other type of report will count as an inquiry and affect your score. We will discuss what affects your score in a later post.

INFILE CREDIT REPORTS

Infile reports are pulled by the creditor to check your credit history. These reports can be from one or more of the three credit bureaus. These may or may not have a score, however they do count as an inquiry against your credit score. Every time you run an infile report whether it is with an auto dealer or a credit card company, your score is affected. These reports require your authorization to complete.

RESIDENTIAL MORTGAGE CREDIT REPORTS

RMCRs are much like infile credit reports, however they contain the merged information of all three credit reports and all information is fully investigated to create the most comprehensive credit profile there is available. These reports are typically made when you are applying for a mortgage loan. These reports also require your authorization to complete.

NEXT: Part 2 – Ordering Credit Reports

Consumer Resources to Check Out

Jeronathon Angeles — Mon, 17 Aug 2009 18:57:00 +0000

These are all resources provided by the Federal Trade Commission, the nation’s largest consumer protection agency, to help protect against fraud and detect deception.

1. Report a Rip-Off

www.FTCcomplaintassistant.gov | 877-FTC-HELP

Does this actually resolve the complaint? Not necessarily. This just reports the activity to a database that is used by several law enforcement agencies across the country. If they see a pattern of abuse, or abuses that are extreme they will begin investigation which could lead to eventual resolution of the matter.

2. No More Phone Calls

www.DONotCall.gov | 888-382-1222

Once you place your phone number on this list, you will be put on a list of number not to call. Make sure to do it for all of your phone numbers.

3. Information about Credit

www.ftc.gov/credit |1-877-FTC-HELP

Information about consumer protection laws that are related to credit, loans and mortgages.

4. Get a free copy of your credit report

www.annualcreditreport.com | 1-877-322-8228

Do not go to any of those other sites that promise free credit reports, they may have subscription fees that you are unaware of. Make sure to get the free version of the report because it still asks you to choose between the free version and other upgrade features.

5. Report ID Theft

www.ftc.gov/idtheft |1-877-ID-THEFT

If you suspect identity theft, check out the resources available on this page and make sure you communicate with authorities, your creditors, and banks as soon as you can.

6. Stay safe online

www.OnGuardOnline.gov

Provides practical tips from the federal government and the technology industry to help you be on guard against Internet fraud, secure your computer, and protect your personal information.

8 Steps to Crisis Debt Management

Jeronathon Angeles — Fri, 14 Aug 2009 23:06:43 +0000

Talking about debt is probably one of the things most people tend to avoid yet it is among the most common problems in every household. We are surrounded by it even in our own governments. How many times have we heard on the news that the city may have to file for bankruptcy or the state has a budget crisis. The word crisis, an unstable or dangerous situation, when adding texture to the word budget can be a frightening scenario. Quite simply a crisis in finance means that there isn’t enough money to cover the expenses. For state and local governments, it means cutting funding for programs or increasing taxes. On the individual level it means we have to make changes in our lifestyle to accommodate our present circumstance.

A crisis can be caused by many things. In the world of personal finance the number one culprit for that crisis is not having a well defined budget to begin with. A crisis can also be unexpected expenses or an unforeseen loss of income. Whatever the reason, when you find yourself in a crisis, what you do next has dramatic affects on how you get through it. There are a few things to consider to successfully manage your situation.

Creating a Budget

Jeronathon Angeles — Fri, 14 Aug 2009 00:09:28 +0000

Budgeting can be one of the most perplexing parts of life. Sure, we all know that businesses and governments need to run on budgets, otherwise they could easily spend themselves into disaster. Personal budgets, however are a different animal altogether. Most people think of budgeting as just spending a little less than what they make so there is still some money in the bank at the end of the month. While this approach certainly keeps you out of the red, it still doesn’t provide the structure needed to reach your financial goals.

When you think about budgeting, you shouldn’t think of the budget as a prison warden that keeps your spending in check. Rather think of a budget as a friend who constantly reminds you what your goals are and what you need to do to achieve them. Now, in order to create your budget you are going to need to do a little homework about yourself.

Collect Data

The first thing you need to do is collect data about your spending habits. There are many ways you can go about doing this. The simplest way is to keep a journal. Start a worksheet in excel or a spreadsheet program and write down everything you spend. Label everything so you can keep track of it later. I would recommend checking out MINT.com. This website fully integrates with all of your online bank accounts and loans. It is a great way to mange your budget. The service is free and it allows you to track your expenses by categorizing your deposits and debits. I can go on and on about the features, but that would be another post altogether.

In collecting data you want to be able to categorize your spending. Household expenses would include Rent or Mortgage, and any fees or payments related to your home. This is an example of a budget:

This is definitely a lot of information to think about, but everyone should be doing it. Not all budgets will look the same, people have different expenses depending on their lifestyles. Incomes come in different shapes and sizes as well, especially if you are self employed. If you are self employed, its probably a good idea to project an average of what you think you will be making just to get a good sense of your cashflow in the coming months.

Budgeting is where it starts. If you don’t have a budget, make one. Even a simple budget is better than nothing. As soon as you get into a habit of thinking about your monthly expenditures, then you will be on track to achieving your financial goals.