Credit Score – How is it calculated?

Your Credit Minute Show Notes:

 

  • 00:01                                   Awesome credit question, guys, from Lori Magelky, Lori Magelky, nice to meet you, Lori. Um, and her, her question is real simple. How is a credit score calculated? So, guys, I’m actually going to pull this up and show you how it’s calculated. Okay. There are five parts. We call these the FICO 5 and if you simply just Google “FICO scores” and you click the images button, which is exactly what I’m doing right now, you’re going to see what makes up the credit score. Okay. So we have, let’s actually document this for you. We’re going to erase my pretty house.
  • 00:39                                   So, the FICO 5 is going to consist of … we’ve got 30%, actually 35%, we have pay history, guys. Okay? 30% is debt. Then we have 15% length of history. Then we have 10% credit mix. And then another 10% for new credit. Now, let me elaborate a little bit on these numbers. Let me move to the side so you can see them. The first one is payment history. 35% of the score is just payment history. Anytime you get a 30 day late, guys, it’s going to effect your credit score in a negative way. Okay? That’s going to effect the 35% of your credit score. Okay? Uh, of what makes up your credit score. Any time you make a payment on time, okay? It’s due on the first, you made it on the first. It’s due on the first even if you made it on the fifth, it counts as an on time payment. You’re getting the great credit for it. Okay? So on time payments are number one.
  • 01:41                                   The second thing is amounts owed. This is the big flop for a lot of, um, for a lot of our clients. Okay? Specifically the amount you owe in proportion to the credit limits on credit cards. Having past due balances and having items in collections. The amounts you owe is 30% of what makes up your score. So, for those of you that have never missed a payment on time, or excuse me, have never missed a payment, you’re paying everything perfectly for 50 years but you’re maxed out on your credit cards, you’re going to take a hit here. Okay?
  • 02:10                                   The next 15% is the length of credit history. How old your accounts are. Older people tend to have higher credit scores. Why is that? Well, because their accounts tend to be older. Okay? Age does not go into the credit score but the age of your accounts certainly do.
  • 02:27                                   Beyond that we have 10% which is new credit. When you get credit, people want to give you credit. Okay? Do you ever get approved for a credit card and then all of a sudden you get five new flyers in the mail for five new credit card offers that are even better than the one you just got? The reason for that is that inquiry is registered. That new account that hits your credit report is registered and you get a bump in your score. And all of a sudden you get more credit offers, guys.
  • 02:52                                   And last but not least we have credit mix. This is a big one. Okay? Although it’s only 10%, it’s an easy opportunity. Some of you only have student loans. Some of you have only had a mortgage. Some of you only have credit cards. Those are the three types of accounts. Mortgage or real estate related, revolving, and installment. Okay? You want to have a mix of all of that. You don’t just want to have credit cards or mortgages or installment or two out of the tree. The ideal mix is one of each. Okay? The number of accounts isn’t as relevant as the mix of the different types of accounts.
  • 03:26                                   So, guys, thank you again. Um, big thank you to Lori Magelky for that awesome question. And if you have any additional questions, obviously, hit us up directly at keycreditrepair.com. See you, guys.
Credit Score - How is it calculated?
Credit Score – How is it calculated?

Credit Cards – How often should I be using them?

Your Credit Minute Show Notes:

  • 00:00                                   YouTubers, what’s going on? This is Nik Tsoukales with Key Credit Repair. Excuse me, my voice is a little uh, beat, beat up here. Bear with me. A question of the day is, “Nik, how often should I be using my credit cards?” And, it’s a great question, and I think you’re going to be shocked at my response, and that response is never. I don’t think you need to. Um, I know you don’t need to, okay? One of the greatest little secrets of credit is the fact that if you don’t use your credit card, the bill comes in, it says zero due, and you don’t have to send a check, um, even though you’re not sending in a payment, it’s still reporting an on-time payment, guys.
  • 00:34                                   And a lot of people don’t know this. Your banker’s not going to tell you this. The credit card companies are not going to tell you this, but this guy’s going to tell you this, because I’ve looked at, I don’t know, a hundred bazillion credit reports in my lifetime, okay? Let’s say you have a slew of four or five credit cards right now that are active, but you really don’t use them. I mean you can just don’t use them every single month, you are getting an on-time payment from that credit card, okay?
  • 00:58                                   To fol-, uh, to follow up with that question, some people ask me, “Nik, but if I don’t use it, they’ll close it out.” That’s a good question. Okay. Um, if you’re scared of that, um, I, I haven’t seen it yet, I’ve not seen a card get closed, uh, because of no use. Uh, in my experience I have cards that are over 10 years old, I haven’t touched them, they’ve never been closed, okay? They’re expecting you at some point to make a purchase. But, if you’re worried about that, and you want to once every six months buy yourself a cup of coffee and pay it off the same day, if that makes you feel better, go ahead. Even that, I don’t think is necessary.
  • 01:32                                   Also, some people will say, “Nik, but there’s an annual fee for that card. Should I pay the annual fee just to keep it open?” Heck yeah, you should. You know, if it’s a $29 annual fee, or $59 annual fee, or whatever it’s going to be, there’s a higher likelihood they won’t close out the card. Because they’re getting something, okay? It does have a little … The card does have um, some costs associated with it, they mail out a card every so often, they have to send you a statement, so if that alone covers their cost, there’s a higher likelihood that they would never close it out. So, I would absolutely pay the annual fee. I’m cool with it, okay? Because you know what you get. You know, you get a card, it’s active, it’s open, and it’s reporting on time, because you didn’t use it.
  • 02:11                                   Keep the cash in your pocket, keep the cards at home. Throw them in the freezer. If you’re wondering what I mean by that, check out one of my previous episodes about, you know, how to freeze your credit cards, literally. Freeze them.
  • 02:22                                   Guys, this is Nik Tsoukales, with Key Credit Repair. Thank you so much, have a great day.
Credit Cards - How often should I be using them?
Credit Cards – How often should I be using them?

 

Voluntary Repossession – Is it a bad idea?

Your Credit Minute Show Notes:

 

  • 00:01                                   What’s going on, guys? This is Nik Tsoukales with Key Credit Repair. So, today we’re going to talk about car repossessions or voluntary car repossessions. So, the question I get a lot is, I owe too much on my car, I can’t afford the payment, I want to give it back. What should I do, Nik? Well, let’s talk about that. So, let’s say you do give the car back, okay? Um, and I’m going to give you a short little, uh, uh, example of w- what the worst thing that could happen is, okay?
  • 00:23                                   So, let’s say you owe $25,000 on your car, okay? You give it back, uh, you call the car company, you call Chase or Bank of America, whoever it’s going to be, and you say, “Come and pick it up.” They’ll gladly do it, okay? But let’s realize they’re not in the car business, so the second you do that, they’re going to turn around and they’re going to get it over to a wholesaler. They’re going to give it off to an auction, okay? That auction, for a fee, is going to sell it back to the marketplace to probably a used car dealership, okay? That used car dealership, obviously, needs to make a profit, so they’re going to buy that car pretty cheap.
  • 00:55                                   So, let’s say in this scenario you owed $25,000, okay? And you turn around, you voluntary or had it voluntary repossessed, okay? Car goes to auction and they sell it off for $15,000. Now keep in mind, now that you have or the bank has collected that $15,000, they can come after you for the difference, okay? Uh, not in every state, but probably half the states in the U.S. So, you got a $10,000 deficiency balance here, and this is scary, okay? That deficiency balance in half of the states in the U.S. can be collected, okay? And they will collect on it, and what they’ll do is they’ll, typically they’ll hire a collection agency that’ll start to solicit you and they’ll try to get that deficiency balance from you.
  • 01:37                                   Now, if they can’t collect on it, a few things could happen. It could turn into a judgment. They could try to take you to court, okay? In some cases, they will forgive the debt, in which case they’ll send you something called a 1099-C document, okay, where that $10,000 will be considered taxable income. I obviously prepare … I- I- I prefer to pay the taxes on $10,000, um, versus, uh, the entire $10,000, okay. Also, there are some laws in place regarding taxation where you can claim insolvency. Obviously, speak to a tax professional if this does happen to you, and it could be the case where you wouldn’t pay much of anything, okay?
  • 02:12                                   Um, but obviously they can come after you for the difference, so it’s not just, hey, let me hand the keys back and- and it’s all over, okay? If you do find yourself in a situation like this, there are other alternatives, guys. Let’s say you only have a year left in the car loan, okay, or it’s a car lease, in fact. You could turn around and swap it out to somebody. Find someone that only needs a car loan for a year that’s willing to pay the premium. Maybe sublease it to them. Find a friend. Try to sell it yourself, okay? Maybe in a case like this, if wholesale was $15,000, it’s possible that this car in the open market would go for $20,000, and then you’d only be making up a $5,000 deficiency versus $10,000, okay?
  • 02:50                                   Also, another thing to keep in mind is if it does get to the point where it does go to a debt collector, okay? If the debt collector has bought the debt for, as you hear, 10, 20, five cents on the dollar, you are in the position in a lot of cases to negotiate, uh, some debt relief on that and get a settlement on that debt. So, that always is an option, but that’s always something that we want to keep kind of as a back up plan. It’s not something we want to strategically approach because while we take that strategic approach, our credit really is going to take a bath, okay? So, there is no, uh, clean getaway from these, uh, uh, companies, unfortunately.
  • 03:23                                   Also, in regards to the deficiency balance in your state, that’s definitely something you want to speak to a professional about, okay? Because if it is a predatory loan you’re in, if it’s a 20 per- 20% interest rate, you got sold a lemon, there are some laws that protect you. Some states are a little bit more consumer-friendly in regards to deficiency balances, so you might not, this might not even going to be applicable for you, okay? Something to keep in mind and something you can actually ask us here at Key Credit Repair and we can help break down for you.
  • 03:50                                   So guys, this is Nik Tsoukales with Key Credit Repair. Thanks again for checking out our Credit Minute, and if you need anything else, feel free to email me at Nik, N-I-K, at keycreditrepair.com. Have a great day.
Voluntary Repossession - Is it a bad idea?
Voluntary Repossession – Is it a bad idea?

 

Employment – Why does it matter if I have good credit?

Your Credit Minute Show Notes:

  • 00:00                                   Why do I need good credit when applying for a job? Well, this is becoming more and more common, probably one of the more, um, prominent reasons we’re getting asked to repair someone’s credit for employment, okay? We get a lot of people that call us when they’re applying for a new job, whether it’s a finance company, a government job, or they’re doing an upgraded security clearance and they’re working for a government job. It’s very, very common. We probably get a good, you know, 50 to 100 calls a day for this exact same reason.
  • 00:26                                   So let’s talk about the importance behind this and why the government, why these employers actually care. So for example, the finance industry. So let’s say you were getting licensed to become a mortgage lender. Let’s say you were getting licensed to trade stock. Let’s say you’re getting a license to manage other people’s money. Well, the first thing they want to see is can you manage your own? Can you budget yourself before you’re giving that advice, before you’re becoming a fiduciary, um, and certified to actually help people financially plan? Can you financially plan yourself, okay? So that’s a major component.
  • 00:57                                   The other thing really is fraud. So, when people are under pressure, um, when they’re in debt, when things are falling apart, there’s a higher likelihood that you, or the consumer, um, the applicant, could possibly do something at that job to maybe steal someone’s money. Okay? If you’re handling someone’s money and you’re in debt, the concept, or the way these companies perceive it is you could be a higher risk at maybe stealing from the company or stealing from your clients. Okay?
  • 01:25                                   With government jobs it’s another issue, okay? We’re seeing it a lot. Um, where someone needs to get some sort of security clearance upgrade, they check your credit, and then that upgrade doesn’t happen. In fact, the government announced recently that they’re going to be monitoring credit on an ongoing basis depending on the security clearance levels of their employees, okay? And those security clearances can be effected in real time, um, in a negative way, depending on where someone’s credit is. And that’s kind of a scary thing, okay? This is making credit monitoring more and more important. And again, the perception is there, let’s say you’re under financial hardship, one indication of that is your credit score, at least that’s how it’s perceived, that you can in fact, um … There could be a higher likelihood that you might steal from the government. Maybe you’d be a spy. And this is the perception. Not to say that this is the case. It’s probably not going to happen, but this is where they’re coming from.
  • 02:16                                   That’s why monitoring your credit, um, being on top of your credit right now is more important than it’s ever been. 20 years ago it was a matter of not being able to get approved for a loan, or maybe you’re going to get a higher interest rate for a loan. Now it’s something that could actually effect how you earn. And that could be scary. It could effect, uh, how you keep your job, or if you can continue keeping your job, or the licensing for the business you’re in, okay? Another thing we’re seeing and we’ll touch on is bonding. We have insurance companies that are not issuing bonds to construction companies for that big job, um, because of a credit score. Okay? So credit scores are tying into not just your ability to lend, and the cost of lending, it’s tying into your ability to get a job, the ability to maintain a job, as well.
  • 03:02                                   So, guys, if you have any questions regarding how you should be monitoring your credit, and how you should protect yourself, um, if you’re trying to get some sort of security clearance, or you want to protect yourself ongoing, um, career, uh, career protection, call it, check us out. Give us a call at 617-265-7900. We’re happy to walk you through how you should actively be monitoring your credit and how you should be protecting yourself when it comes to something like this. Thanks, guys, have a great day.
Employment - Why does it matter if I have good credit?
Employment – Why does it matter if I have good credit?

 

Even if you’re not fully up to speed on the importance and significance of your credit score, you should have some general minimal understanding of just how important that three-digit number is. Yes, you should at least know that it’ll play a role in whether or not you’re approved for a loan as well as the interest rate on said loan. But you might be surprised at the various other ways a credit score can impact your life. While you should always want to qualify for the best interest rates on loans, what we’re about to tell you is even more motivation to whip your credit score into shape.

5 Ways Your Credit Score Can Affect Your Life

  1. Your love life: We’ll kick off this list with arguably the most surprising one. Yes, your credit score may impact your love life. New research shows that when people are evaluating romantic partners these days they tend to choose someone with a similar financial situation. A good situation – and a good credit score – seems to indicate a reliable, trustworthy partner.
  2. Insurance: Poor credit scores don’t just reveal potential unreliability, but research shows that the lower a consumer’s credit score, the more likely they are to file a claim. For this reason, consumers with low credit scores will likely pay higher insurance premiums.
  3. Employment: Are you a finalist for your dream job? Let’s hope you have good credit, too. Though laws vary by state, most employers have the ability to run credit reports on potential employees. Being that good credit scores typically signify trustworthiness, bad credit scores tend to reflect the opposite. According to some reports, nearly half of all employers run credit checks on prospective employees.
  4. Your utilities: You expect water, electricity, and heat at your home, but you may not realize that if your credit is poor, you could be paying more for it. Like we’ve noted in many of the other examples here, if your credit score is low, you’re perceived as more of a risk. The utility companies want their money, and charging higher fees is how they help make up for any possible missed or late payments.
  5. Your apartment: Many people assume that a mortgage is the only living situation-related thing a good credit score is important for. However, if you’re renting an apartment, your landlord will be looking at your score before approving you as a tenant too. That’s because landlords want their money – it’s far better for them than issuing evictions or taking tenants to court. If your credit report indicates a poor history, you’ll likely pay more in rent – if you’re approved at all.