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What’s All This Talk About Credit Scores?

Credit Score

You have probably seen and heard tons of advertisements advising you to check your credit report and credit score. With so much talk, it’s hard to believe anyone could have missed it, but has anyone really been listening? Do you know what your credit score is? Not just the number itself, but what that number means, why it’s so important and what that score potentially means for you?

Your credit score, or FICO score, is not just some meaningless number. It is a number, based on your social security number and financial history data, that is calculated by the three major credit reporting agencies. While each agency might have slightly different information and a slightly different calculation of your credit score, the numbers should still be similar enough to give a basic idea of just how credit worthy you are.

What Does My Credit Score Mean?

These scores are based on things the length of time that accounts have been opened and tracked. These accounts include revolving accounts (such as credit cards), installments, mortgages, bank accounts, debts owed, etc. If you have any kind of account with a company, typically, your activity will be reported to and tracked by the credit bureaus, regardless of whether your payment history is good, bad or in-between.

Credit scores typically range from a low of 340 to a high of 850. Few people achieve the 850 rating, as many things affect your overall credit rating, even if you do not have bad credit. An excellent score is 700 or higher. 600-699 is considered a satisfactory rating, even with the minor blemishes on your credit report. Any score below 500 is considered a low score and can make obtaining any kind of credit very difficult. Anyone with a score this low should think about taking a close look at their credit report and working hard to raise that number.

How Does My Credit Score Affect Me?

A high credit score is a major benefit. It will bring you the best offers for financing and lower interest rates for products such as loans, especially mortgages. A satisfactory score may not get you the best options, but since about 30% of people fall within the 600-699 FICO score range, most financial institutions want to work with them despite any flaws that appear on their credit reports. Maybe this is because even with the minor speed bumps, which are just part of life, people in this range have proven their want and will to keep their debts to a minimum and their financial reputation intact. A credit score of 500 or less will often leave you paying more in interest and fees, and that’s if and when you can get the credit. While credit is sometimes extended on a limited basis to people with very low credit scores, more often than not, credit is not offered at all. It’s nothing personal. While some people with a low credit score might be guilty of failing to pay there debts, others simply have little credit history to speak of. Not being given the credit because of a low score is simply because a person either seems high-risk or there just isn’t enough credit information to make lending or extending credit a plausible option. That’s why it is important for those with scores of 500 and below to work to increase their number.

Is There a Solution to My Low Credit Score?

Of course there’s a solution! Speaking with a credit counselor could help you to understand the fine points of credit and financial management and can help you to make a plan for improving your credit. Paying off debts you owe will also help. Other options include credit cards that offer a small spending limit and allow you to build up your credit as you use it and pay on the balance. The important thing is to look into your options and raise you credit score from low to at least a satisfactory level if you want the benefit of more credit and financing options.

Making the Choice between Bankruptcy and Credit Card Consolidation

Credit Card Debt

With the economy and credit crisis taking its toll on countless Americans, many people have had to make the hard decision to either file bankruptcy or enter into a credit card consolidation program. If you are on the receiving end of finances that have spun out of control, you may have also considered either bankruptcy or debt consolidation.

The question is: which one is right for you?

The deciding factor for most individuals is the impact these decisions will have on their credit score. In particular, they want to know which move will cause the least amount of damage to their credit.

Debt Consolidation Programs

Let’s first take a look at debt consolidation. A debt consolidation program is generally reserved for individuals who are already behind on their credit card payments. Although the process of debt consolidation does lower one’s credit, the impact of paying off bills also works to raise their credit score back up again.

However, it must be understood that, during a debt consolidation program, that the debt will be marked “satisfied” or “paid in full;” otherwise, the debt consolidation will likely have a negative impact on the individual’s credit score.

Bankruptcy

The other alternative to debt consolidation is usually bankruptcy, which generally carries with a negative connotation; and rightly so. Bankruptcy can lower one’s credit score up to 250 points, and bankruptcy can stay on an individual’s credit score for up to ten years.

Keep in mind, also, that not everyone will qualify for bankruptcy, and not everyone will qualify for Chapter 7, which is the total liquidation of all debts (also called straight bankruptcy). Instead, some individuals may qualify for Chapter 13, which essentially means that the individual must repay the debt.

Chapter 13, although it doesn’t provide for the total liquidation that Chapter 7 does, allows the debtors to keep their property and pay their debts over a certain period of time; usually three to five years.

In particular, Chapter 13 allows individuals to save their homes from foreclosure.

So, the question of whether debt consolidation is better than bankruptcy, or vice versa, will depend largely on the individual’s financial circumstances and needs.

Credit Card Solicitation on the Rise

Choosing Credit Card

It’s the start of a new year, and things are looking up for credit card companies. With the worst of the credit crisis behind us, many credit card companies have once again begun soliciting customers for new credit cards. If you are a consumer with a good credit score, chances are you’ve begun seeing an increase in credit card offers each time you visit your mailbox.

And, according to Synovate, a company that tracks credit card solicitations, credit card companies are marketing more than ever before. For example, in the last quarter of 2009, 398 million credit offers were sent to consumers; that’s a 46 percent increase from the third quarter of 2009.

One of the reasons credit card experts give for the increase in credit card solicitations lies with the new credit card legislation. Many creditors, wary of what lied ahead just months ago, stopped sending credit card solicitation. However, now that the credit card legislation is enacted and it is clear what creditors can expect, many of them have therefore begun marketing hard to consumers with good credit.

So, the question is: will you take advantage of these credit card offers? Your answer to this question will depend on two factors:

• Your Current Credit Score – If you have good credit, then chances are you will be eligible for most of the credit card offers that come your way. If you have seen an increase in your current credit card’s rate or fees then it may be a good time to once again begin exploring your options. Many creditors are offering great terms and conditions now, so it may be in your best interest to see what they can offer you.
• Your Financial Status – If you are coming off of any type of financial difficulty, now may be the time to repair your credit and start fresh. However, if you still find yourself struggling to pay bills and make payments, now is definitely not the time to begin looking for a new credit card. Instead, take this time to get your finances in order; it doesn’t make any sense to incur more debt during this difficult time.

Credit Card Usage Declines for Online Shoppers

News

It appears as if credit card users are less likely to shop online with their credit cards than ever before.

Many individuals, as a result of the poor economy and mounting debt, have chosen to put away their credit cards and instead shop online using different payment methods.

In fact, according to a recent study by Javelin, entitled “Online Retail payments Forecast 2010-2014,” e-commerce grew nearly 11 percent in 2009, while credit card purchases fell below online payment services (such as PayPal and Google Checkout) and gift cards.

Online Shopping Increasing

According to American consumers, nearly 63 percent of us shop online, and this number is expected to increase to 78 percent by 2014. So, it only makes sense that credit card usage will also increase along with it. But, this doesn’t appear to be the case. The question is: why?

Many individuals, with the best of intentions, have decided to use other forms of payment when shopping online. For individuals who have difficulty managing their finances, this may be the best option. But for everyone else, using a credit card to make an online purchase is still often their best bet.

Credit Card vs. Debit Cards

Using a credit card for online shopping is a much safer alternative to using debit cards; for example, if a computer thief snatches an individual’s debit card numbers they could drain their bank account. A credit card, on the other hand, is protected from unauthorized spending. Keep in mind that even if your debit card is protected from credit card thieves, it can still wreak havoc on your life and your finances if your bank account is drained and checks begin bouncing.

Other individuals are simply moving away from credit cards altogether because of the state of the economy over the last year. Although, again, this may be a good idea in general, many consumers should consider the fact that credit cards can provide proof of payment and can often act as a receipt.

In other words, it may be best to keep at least one credit card for online purchases so that you can protect yourself and shop without worry.

Free Credit Report Ads are Under Scrutiny

Credit Score

You know those catchy commercials where some guy is telling you that you should order a “free credit report” to protect your credit.  Well, so does the Federal Trade Commission, and they’re not too happy about them.

In particular, they think using the term “free” by these companies is misleading. Many people don’t realize that these free credit report companies are not merely offering a free credit report; in fact, they are trying to sell credit monitoring services.

Credit Monitoring Services for Sale

In fact, if an individual orders a “free” credit report through one of these companies they are often lured into signing up for credit monitoring services. Credit monitoring services are essentially memberships that charge monthly fees to update consumers on any credit activity taking place on their credit report.

These memberships are often automatically withdrawn from an individual’s account on a monthly basis and, because many consumers are unaware of how this membership works, they end up being charged for a service that they simply don’t want.

Consumers’ Rights regarding Annual Credit Reports

The FTC seems to have the biggest problems with these commercials because the people calling these companies are simply looking for a free copy of their credit report. What many people don’t realize is that everyone is entitled to a free copy of their credit report on an annul basis from all three of the nation’s credit reporting agencies (TransUnion, Experian and Equifax). Individuals are also entitled to a free copy of their credit report anytime they are denied credit.

Are Credit Monitoring Services Right for you?

Credit monitoring services are memberships that closely monitor an individual’s credit report for any and all signs of activity. The purpose of these sights is to catch unauthorized activity as soon as it occurs. For some individuals, these services may be quite helpful and may help provide peace of mind. However, for most individuals, a quick check of their credit on an annual basis is all they need to keep track of their credit report.

How to Stay on Top of Credit Card-Related Scams

Identity Theft

It is no wonder that credit card-related scams are on the rise. Many credit card thieves and scammers have taken advantage of the countless Americans who are in some type of financial difficulty.

In short, they are preying on the most desperate Americans. Although this sad truth is all too prevalent in today’s society, there are a number of things we can all do to protect ourselves from credit card scammers. In particular, we need to know what to look out for. Here are some of the latest credit card-related scams that have come to light:

• You should never have to give up your credit card or banking numbers on a job application. This newest credit card fraud took individuals who were anxious for a job for a ride; these scammers faked jobs and lured individuals into thinking they were being hired for a position. As a result, many individuals willingly gave up their personal credit card and banking information on these fake job applications. The scammers made the applicants think that they were merely checking their credit report; instead, they took them for a ride by stealing their credit card information.
• You should never become involved with any type of debt assistance company before thoroughly checking their credentials. There have been a number of debt assistance scams that have convinced individuals to pay them a fee in return for either erasing or reducing their credit card debt by working with their creditors. Unfortunately, all they did was take off with these consumers’ money.
• You should never give your credit card numbers over the phone unless you initiate the call. Credit card phone scams have been increasing as of late, so it is important to pay close attention to anyone soliciting you and promising you lower rates. Never, ever give your credit card information to anyone who calls you; there is absolutely no way to verify who is making the call. If you have any question regarding whether it is really a legitimate call, ask for their name and phone number and immediately contact your credit card company to check the validity of the credit card offer.

Your Rights under the CARD Act if you Carry a Balance

Introduction

Many of us carry a balance on our credit cards from month to month; in fact, statistics show that about 46 percent of all American families roll their balances over each month. If you’re one of those individuals, consider yourself lucky to be protected under the CARD act currently in place by Congress.

In fact, some of the provisions of these new credit card laws could very well be speaking directly to you, particularly if you find yourself carrying over your balances from month to month.

Here’s how the new CARD act may affect you and your credit card balances:

• Rate Freeze on New Accounts – The new legislation states that creditors must not change a cardholder’s interest rate during the first year of opening the account. That’s great news for the many cardholders who found credit card companies raising the interest rates on their credit card mere months into their new account. However, there are some exceptions to this rule: expiration of a promotional rate; variable APRs; or payments that fall 60 days past due. The creditors, in these three circumstances, have the legal right to change your credit card’s interest rate.
• Reward for Responsible Behavior – If you find yourself on the receiving end of a rate increase because you fell at least 60 days behind on your credit card payment, you may still be in luck. Although the credit card company has the legal right to raise your interest rate due to nonpayment, they must reinstate your original credit card interest rate if you make all required payments during a six-month period.
• Protection on Existing Balances – Although credit card companies are permitted to increase your card’s interest rate after a year of opening a new account, they are not permitted to apply the new, higher interest rate to your current balance. Only those purchases made after the rate hike can fall under the new interest rate.
• Payments to Higher Interest Rate Balances First – If you have a credit card that has different interest rate for different purchases, the credit card company must apply all of your payment (beyond the minimum payment) to your balance with the highest interest rate first, thereby enabling you to save big on finance charges.

Why Creditors are now Turning to Parents for Student Credit Cards

Credit Card Types

Getting a student credit card used to be as simple as turning the corner of any college campus. Creditors used to camp out and lure students in with special offers and free gifts.

However, given the recent changes to certain credit card laws through the CARD Act, students can no longer just snag a credit card the day they turn 18. In fact, creditors are only granting credit cards to college students if they can prove they have a source of income sufficient enough to pay their bills.

Unless, of course, students get a co-signer; in particular, their parents need to co-sign for the credit card.

A New Approach

As always, creditors have found ways to get around challenges, and student credit cards are no exception. Creditors are now targeting parents of college students for student creditors. In fact, you can be certain that student credit cards will start coming your way if you have a college student under the age of 21.

Parents are now being targeted by creditors because creditors know that parents will be the ones to determine whether their children will receive a student credit card. In particular, many creditors are targeting parents who already have credit cards through a particular credit card company and asking them to take on an additional account in the name of their student.

This direct mail approach may be a highly successful endeavor for credit card companies, as they can avoid marketing to students but nevertheless get to them through their parents.

Should you help your Child get a Student Credit Card?

If you are a parent of a college student, you will want to strongly consider whether it is time for your child to possess a student credit card, as ultimately the student credit card will affect your credit score if payments are not made.

There is no time like the present to teach your child responsible credit card habits, regardless of whether they are college students or not. Take the time to talk to your child about the importance of building a strong credit history, as a student credit card will be able to allow your child to begin building his or her credit history, so that he or she can have a strong credit score by the time college graduation rolls around.

How a Creditor Determines your Credit Limit

Credit Score

Have you ever wondered why you have the credit limit that you do?

Whether you were approved for less – or more – than you thought, you should know that there is actually a formula that credit card companies use to determine your credit limit.

• The first thing a credit card company will do when you apply for a credit card is look at your credit score. Your credit score (often referred to as a FICO score) is a clear indication of how you have managed your debts in the past. The scoring used in a credit score also predicts your ability to repay loans in the future.
• Credit card companies, after they look at your credit score, will then look at your debt levels and your income. Your debt levels, also commonly referred to as a debt-to-income ratio, is a common reason why many people, although they may have a gleaming credit score, will have lower credit limits. It is the credit card company’s way of protecting credit card customers from more debt than they can financially handle.
• In addition to looking at all of the above factors, a credit card company will also examine your current outstanding credit, or the amount of credit on other loans and credit cards that you have open and available. For example, if a credit card company notices that you have another credit card, but that it is maxed out, this may raise a red flag that you are taking on more debt than you can handle; as a result, your credit limit may be significantly lower than your previous credit card.

Many times, your credit card company will automatically raise your credit limit if you have established a good track record of punctual payments. However, it is also important to point out that creditors are also able to lower your credit limit if you show a steady of history of late payments.

The best thing you can do maintain a good credit score and ensure that you are eligible for higher credit limits is to make your payments on time, each and every month, and to keep your spending in check and not top out your credit limit.

A Useful Website for Cardholders

Credit Card Types

The Federal government has a great website that could provide you with plenty of useful information regarding credit cards.

This new site (found at www.federalreserve.gov/creditcard), which is maintained by the Federal Reserve Board, has been launched to provide consumers with a basic guide to understanding the credit card industry.

Some of the useful features on this new website include:

• An Interactive Tools and Features section, which includes an area about learning more about a credit card offer you may have received. Located in an easy-to-open PDF file, this handy link allows you to better understand the terms and features of any credit card offer. Also located in this section is a guide to understanding your statement.

We think this section is particularly useful, as it breaks down all of the legal credit card terms into easily understandable language so that you can better navigate your monthly credit card statement.

Finally, the last section of this Interactive Tools and Features section is a Pay it Off calculator, which allows you get an estimate of how long it will take to pay off your credit card balance, given your interest rates and monthly payments.

• The Federal Reserve also has a great section on their website that allows credit card customers to watch their PSA; this video essentially teaches consumers how to navigate the credit card process and get the most out of their credit cards.
• The What you Need to Know: Credit Card Rules section is designed to educate and inform consumers on the new credit card legislation and how it can change the way your credit card company handles your credit card account.
• A small section called 5 Tips for… on the Federal Reserve website provides easy-to-follow steps for doing a number of things, such as “Improving your Credit Score” and “Getting the Most from your Credit Card.”
• The Federal Reserve credit card website also features additional sections that allow you to learn more about: options, interest rates, fees, lost or stolen credit card, billing errors, general complaints and managing your credit.