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Free Credit Report Ads are Under Scrutiny

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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These memberships are often automatically withdrawn from an individual’s account on a monthly basis and, because many consumers are unaware of how this membership works, they end up being charged for a service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 a Creditor Determines your Credit Limit

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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.

Smart Steps to Build a Positive Credit History

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The last year or so has done a lot of damage to many Americans’ credit scores. With lending standards tighter than ever, it is now of extreme importance that we all work towards a strong credit score because our ability to obtain any type of credit depends on it.

Our credit score is determined, in part, by our credit history; in particular, if we have one, and if that credit history is positive. There are many ways to build a strong credit history; here’s how:

• Pay everyday bills on time and in full each and every month – Not only do loans and credit cards affect your credit score, but everyday bills do, as well. From your electric and gas bills to your phone and water bills, your payment history on your monthly utility bills can make a big difference in your credit score.
• Open a checking and/or savings account and take care of it – An active bank account is another great way to build a strong credit history. Take care of your bank account; don’t overdraw it and keep a steady balance in it, if possible. Your ability to manage a bank account is essential for developing a strong credit history.
• Obtain a credit card and never, ever miss a payment – A credit card is a great, first step in establishing a positive credit history. If you can’t snag a standard credit card, consider a secured credit card. Although secured credit cards must be secured with a cash deposit, regular payments still positively reflect your credit history.
• Choose credit over cash – When possible, choose to pay your purchases with a credit card. The more activity on your credit card the more history you can establish. Make certain, however, to keep close track of your monthly purchases and to pay off your credit card in full each month.  Remember: we must use credit to build credit, so establish a healthy respect for your credit cards and you will soon find that your credit score is making positive gains.

The Top Four Reasons why Maintaining a Strong Credit Score is more Important than Ever

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FICO scores are now, more than ever, the most important thing you have going for you when it comes to obtaining any kind of financing. Because of the poor economy and the near collapse of the credit industry over the last year, creditors are now being extra cautious when it comes to lending money.

From credit cards and auto loans to home loans and personal loans, creditors now want clear proof that you are a good credit risk; and your FICO score is often the first thing they look at to determine this.

Here are the four top four reasons why your FICO score is now more important than ever:

1. Your ability to purchase a car or home relies on it – Don’t even think about snagging an auto loan or a home loan if your FICO score isn’t exemplary. Creditors use to give loans to even those with poor credit; they simply charged them more in interest and finance charges. However, today’s credit industry is decidedly different, and individuals with poor credit scores are no longer squeaking by. Instead, only those individuals who have proven themselves to be great credit risks are getting the loans.
2. Your ability to save on finance charges relies on it – Many credit card companies are willing to give credit cards to individuals with lower FICO scores, but they certainly tack on high interest rates to go along with them. Although individuals with very low FICO scores can not get any type of credit card (unless it is secured), only those individuals with the best credit are now getting the lowest interest rates.
3. Your ability to have access to credit relies on it – Having access to credit is highly useful for most individuals. From purchasing a vehicle to using a credit card in the event of an emergency, most all of us are thankful for being able to have access to open credit. However, in today’s economy, only those with strong FICO scores will be afforded this luxury.
4. Your ability to obtain a great job may rely on it – Just when you think it can’t get any worse regarding your FICO score, employers are now looking at applicants’ FICO scores to determine if they are trustworthy and responsible.

How to Keep your Credit Score Strong

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We all need to pay close attention to our credit score these days, as a strong credit score is essential for obtaining any type of credit. Things certainly have changed in the credit sector, particularly as a result of the struggling economy and the new credit card legislation, so it certainly benefits us to find new ways to protect our credit score.

We all know that paying our debt on time, each and every month, is the number-one thing we can do to keep a strong FICO score, but there are also many other things that may hurt our credit:

• Cash Advances – Do not, under any circumstances, take out a cash advance on your credit card, unless absolutely necessary. Credit card companies see a cash advance move as a bad financial sign on your end, and will often pay close attention to the number of cash advances you take out. Many consumers wonder why in the world a creditor would offer a cash advance, given that information, but the fact of the matter is that creditors make a lot of money on cash advances, mainly due to the high fees associated with them.
• Maxed out retail cards – Your retail credit cards with high balances often send a signal that you are using your credit irresponsibly and that you may be under financial stress. In addition, most retail credit cards come with high interest rates and fees, thereby making them more difficult to pay off. The best rule of thumb, when dealing with a retail credit card, is to not purchase anything that you can’t pay off within a month or two.
• Too many new accounts – If you open too many credit card accounts at one time, or if you apply for too many credit cards, and are rejected, the credit reporting bureaus often see this as a sign of financial desperation. As a result, you may experience a hit on your credit score. If you were recently rejected for multiple cards, or if you opened more than one card within a month or two of each other, you may see a drop in your credit score, so pay close attention when opening any new accounts.

The FICO Score Problem – How it May Become Your Problem

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Many of us have watched helplessly as our creditors started slashing our credit limits. Many banks and lenders began cutting credit limits in an attempt to avoid additional losses after the credit crisis took its grip on the economy. As a result, many of us saw our credit card limits being cut – often in half.

However inconvenient or irritating this may seem, it may actually be much, much worse.

Why?

Well, it all begins and ends with the FICO score model. Your FICO score is often directly related to your debt-to-income ratio. So, if your $20,000 credit limit is suddenly slashed to $10,000 then your open credit all of a sudden took a hit – and so did your FICO score.

The worst part, perhaps, of this whole FICO score mess is that many cardholders have seen their credit limits slashed simply because the creditor or bank was looking to avoid losses, not because of anything they did or didn’t do.

As credit limits continue to be cut (with many financial experts predicting that this will only get worse, given the new credit card legislation), many consumers are now watching as their FICO scores fall. In fact, FICO estimated that more than 30 million Americans saw their credit limits reduced in 2008 alone.

A lower FICO score, as many consumers already know, will make the consumer look like more of a credit risk. This, in turn, often means that their ability to secure a loan becomes more difficult, and that they will begin paying higher interest rates than their financial counterparts.

In other words, the FICO scoring system, at this time, may be quite an inaccurate way to gauge an individual’s credit risk.

Is there anything you can do?

Unlikely. You can certainly call your bank and plead your case; however, the credit reductions are usually set in stone and done across the board. The best thing we, as consumers, can do at this time is to keep available credit open, to not cancel any credit cards, and to pay down our balances on our existing credit cards and loans.

How to Protect your Credit Score Following a Layoff

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A layoff, however common in today’s economy, still comes as a bit of a shock to most Americans. Aside from being emotionally upset and mentally stressed, you may be worried if your credit is going to take a hit during this difficult, financial time.

The bottom line is that you can protect yourself and your credit now, even in the midst of a layoff.

Aside from curbing your spending and putting yourself on a tight budget, there are a variety of things you can do now to protect your finances and your credit following a layoff:

1. Always pay your credit card on time – no matter what! The worst thing you can do is to simply throw your hands in the air and admit defeat. Do whatever you need to do to pay your credit card bill on time each and every month. You may want to consider lowering your monthly payment to cover just the minimum payment while you are unemployed, and that’s ok. However, not paying at all will do nothing more than put yourself in a sticky situation regarding your credit score.
2. Use your emergency fund to get by – Now is the time to dip into your emergency savings funds, if necessary, to pay your bills and take care of your monthly debts and obligations. However difficult it may be to use your savings account, remind yourself that this is the reason you established it in the first place. You can also replace your savings once you get a new job, but you can’t repair your credit that easily.
3. Avoid dipping into your 401K – In extreme circumstances you may need to borrow against your 401K to get by during a layoff or other financial difficulty, but this should be the exception and not the rule. The penalties and fees you will pay to borrow money from your 401K simply don’t make sense.

College Students: Easy Ways to Begin Building your Credit Now!

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The college years are filled with excitement and optimism, yet they can also be riddled with uncertainty about life after college. It is therefore of the utmost importance to start thinking about life beyond college, even if you’re still a freshman!

In particular, it is vital that you begin working to establish a strong credit history so that you can begin your life after college with a good FICO score in your back pocket. After all, your ability to obtain a car loan, a home loan or even a good job relies on a strong credit score.

How to Start Working toward a Great Credit Score while you’re still in College:

a)      Jump onto your parent’s credit card. If your parents are good with their credit, and if you are ready to take on the responsibility of a credit card, you may want consider asking your parents if they can add you to their credit card account as an authorized user. This is often a great way to begin establishing your credit history, and is a solution to the tight restrictions due to be placed on student credit cards as a result of the new credit card legislation.

b)      Ask your local bank or credit union if they provide student credit cards. Although these types of cards typically come with a low limit and a higher APR, they are still the ideal way to begin building your credit history. This is not the time, however, to get yourself into credit card debt. Make a point to purchase only needed items, and to also pay off your balance in full, every month, without exception.

c)       Consider a secured credit card if options A and B aren’t possible. Secured credit cards require a cash deposit equal to your credit limit, so that the bank will be protected in case of your failure to pay. However, they are also a practical way to build your credit history. Then, once you have established a strong credit history you can move to a standard credit card.

Protect your Credit: Order a Copy of your Credit Report Today!

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What you can’t see won’t hurt you, right? Wrong!

For many of us, ordering a copy of our credit report is downright frightening, as we simply don’t want to deal with the details of our credit report and what is may or may not contain.

However, monitoring your credit report is one of the smartest things you can do to maintain your credit score and work towards an excellent FICO score.

The key is to remain proactive when it comes to your credit. Just think of how satisfying it would be to have a clean credit report, free of errors and discrepancies!

It’s Never Been Easier…

The fact of the matter is that it has never been easier to get a hold of your credit report, as the three, national credit reporting agencies – TransUnion, Experian and Equifax – are all obligated to offer consumers a free copy of their credit report every year.

So, what are you waiting for? Bite the bullet and take a good, hard look at your credit report.

Once you have a copy of your credit report, it is important to check it carefully and immediately contact the appropriate credit bureau if you find any inaccuracies or errors. It is important to understand that the information found on each of the three credit reporting agencies may be different, so you may find an inaccuracy on one and not the other.

Making Changes

For many consumers, examining their credit report is a difficult task, mainly because they may have to take a good, hard look at their credit card debt and of their spending habits. Although this may be a difficult thing to do, know that it is an important step to recognizing the state of your credit and for making the necessary changes for the future.

For many of us, ordering a copy of our credit report may be a necessary step to changing our spending habits. After all, it is a lot easier to ignore your credit problems than it is to face them head on.

Take advantage of your free credit report and start down the road to financial responsibility – today!

Get Ready, Get Set: Charge!

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With the downfall of the economy over the last year, and the fear that has been instilled into many consumers’ minds as a result, the number of consumers charging on their credit cards has dramatically decreased, and understandably so.

But is abandoning your credit cards really the right decision to make?

Perhaps not.

Although there certainly are reasons why consumers should stop using their credit cards, for most consumers this may be a poor decision.

Maintaining your FICO Score

The reason is because much of our credit rating, or our FICO score, is directly related to our ability to responsibly handle credit. And the best way to demonstrate our ability to handle credit is to charge on our credit cards.

Of course, there are certainly situations where charging on our credit cards is NOT the right decision: we have outstanding debt on our credit cards that is not paid off; we recently suffered a layoff or termination from our job; we have difficulty handling credit responsibly; or we have fallen behind on other bills that need our attention.

However, for the average consumer, often the best way to keep our FICO scores up is to simply use our credit cards. There are a few catches, though.

Using your Credit Responsibly

One of the worst things we can do to maintain our FICO score is to incur a significant amount of debt on our credit cards, as this simply raises our debt to income ratio, which then lowers our FICO score.

Therefore, if you have outstanding debt, work on paying it off instead of spending.

For the rest of us, using our credit cards throughout the month and then paying the debt off is not only practical, but very smart in terms of our FICO scores.

A good rule of thumb when charging is to always remain aware of our purchases so that we aren’t caught off guard when our bill comes. Otherwise, charging can be a practical and convenient way to pay for a wide variety of things throughout the month.

As always, the key to working towards an excellent FICO score is to charge responsibly and make a point of paying off our debts in a reasonable amount of time.