Credit Tip Of The Week: Credit Score Breakdown

 

 

Credit scores range from 300 to 850, with 850 being the best possible credit score. According to FICO, five different categories of information are used to calculate your credit score: Payment history, credit utilization, length of credit history, mix of credit and new credit.

Payment History

Your payment history is based on the payments you have made to credit accounts in the past. It is the single most important factor used in determining your credit score and accounts for 35 percent of the overall result. Account types considered in this part of the calculation include mortgages, auto loans, retail accounts and credit accounts. This part of the calculation also includes judgments, foreclosures, bankruptcies and other serious financial issues.

Credit Utilization

“Credit utilization” refers to the percentage of your available credit that is currently in use. The higher this percentage is, the more your credit score will drop. Using a large percentage of your available credit is considered poor debt management, and potential lenders see it as a warning sign that you may have trouble making payments if they extend you more credit. Credit utilization accounts for approximately 30 percent of your credit score.

Length of Credit History

The length of your credit history shows lenders how long you have been using credit. This part of the calculation considers the age of each of your accounts individually, as well as the average age of all accounts. The longer your credit history, the higher your score will be. Length of credit history accounts for 15 percent of your credit score.

Mix of Credit

In general, it’s best to have a variety of credit types, along with some accounts that are not currently in use. Different types of credit considered include installment loans, mortgage loans, finance accounts, retail store accounts and credit cards. Your mix of credit accounts for 10 percent of your credit score.

New Credit

FICO reports that opening several new accounts in a short period of time indicates a higher credit risk. Thus, if you open multiple new credit accounts quickly, your score may fall. New credit accounts for the remaining 10 percent of your overall score.

 

 

How to Pay Down Holiday Debt ASAP

Pulse racing? Head pounding? Anxiety starting to surface?

No, we’re not talking about the hangover you may or may not have woken up with on New Year’s Day morning, we’re talking about what you felt when you took a look at your recent credit card statement. You know, the one with all of your holiday purchases on it.

Even despite a shorter holiday shopping season from Thanksgiving falling later on the calendar in 2019, holiday sales increased about 3.5 percent this year compared to one year ago, while ecommerce sales increased to the tune of nearly 19 percent from the previous shopping season. If you followed this trend, it likely meant spending beyond your means. But now that the realization has set in, it’s important to not let this holiday debt linger, and for a few reasons:

Your holiday debt is likely revolving debt, that is debt that consumers aren’t obligated to pay off each month. In fact, credit card companies don’t want you to pay off your balance monthly because they earn more off you in interest the longer it takes for you to pay it off.
It could be hurting your credit score: Holiday debt could impact your credit utilization ratio, or your balance versus your total credit limit. Usually, you want to keep this at or below 30 percent for the best possible credit score. For example, if you have a credit card with a $10,000 limit, you want to have a balance at or under $3,000 for a better credit score.

Like we said above, it behooves you to settle any holiday debt you’ve accrued as quickly as possible. Here’s a look at some tips on paying down your holiday debt to help you get it done:

Reel in Spending

Simply paying the minimum amount on your credit card isn’t going to pay down your holiday debt in the near-term, so we advise taking it easy in January so you can allocate more money toward your balance. Refrain from dining out, catch a movie on a streaming platform rather than go to the theater and skip the weekly after-work happy hour. Put what you save toward your debt balance.

Reduce Your 401K Contribution

If you’re contributing to a 401K each paycheck and you’re serious about paying down your debt quickly, we’d suggest temporarily decreasing your contribution and putting the excess money toward your debt. Just make sure that you’re disciplined enough to increase the contribution when you’ve paid off your holiday spending.

Combine Debts (if Applicable)

If you have debt on multiple credit cards, it may be worthwhile to look into combining your credit card debt at a lower overall interest rate so that you just have one — rather than several — monthly payments to make each month. Doing so can offer financial savings when it comes to the interest rate and make paying down your holiday debt and other payments much easier.

Reassess Monthly Spending

The new year is always a great time to reassess your monthly spending. Take stock of your expenditures and chart out what’s a necessity, what’s a luxury and what you don’t need anymore. Make sure you cut out anything that you don’t need anymore and think carefully about whether or not you need the “luxuries.” You might also shop around to see if you can save money on necessities like car insurance, homeowners insurance, cell phone plans, TV packages and more to see if there’s a better deal out there. When it comes to reducing monthly spending, it’s usually not just one thing, but several little things that can make a big difference in the end.

How to Vacation on a Budget


School’s out, the weather is nice and you’ve got some vacation days coming up – it’s time to plan a fun family vacation. But when it comes to a vacation, it’s common to go over budget with your spending. For many people, this can snowball into growing credit card debt, potentially even causing your credit score to take a hit. The good news is that it’s entirely possible to take a fun, memorable vacation without breaking the bank. We’ve stockpiled some of the most affordable vacation destinations and tips to save money in this post.

Affordable Vacation Destinations

Here’s a look at some of our favorite vacation hot spots for budget-conscious travelers:

  • The Grand Canyon: The Grand Canyon isn’t just an amazing sight to see, but with campsites available for as little as $15 per night, it’s also an affordable destination for the outdoor lover.
  • Fort Myers, Florida: Florida has a lot of great beach towns, and Fort Myers is one of the best. There’s the beauty and fun of the beach itself, affordable lodging accommodations and lots of other fun things to do in town.
  • Myrtle Beach, South Carolina: This is another fun, affordable beach town. Stay in one of the reasonably priced hotels on the beach and then soak up the sun during the day. There’s lots of other things to do in Myrtle Beach, like hit up the amusement park or stroll the beach shops.
  • Bar Harbor, Maine: If you want to head east, you probably won’t find a town more picturesque and affordable than Bar Harbor, Maine. It’s nestled right on the ocean and is great for the outdoor lover.
  • Pittsburgh, Pennsylvania: The western Pennsylvania city has earned the nickname “Kidsburgh” for all of the great affordable family-friendly activities and attractions it boasts.
  • The Mississippi Gulf Coast: If the Gulf Coast is more of your thing, anywhere in Mississippi makes for a great vacation location, especially when it’s not unusual to find a hotel room for less than $150 a night.
  • St. Louis, Missouri: We’ll round out this list with St. Louis, a city that blends history, great architecture and fun. Take a ride up in the Gateway Arch for a great view of the city and enjoy all there is to do on the mighty Mississippi River – all for a great value.

Tips to Vacationing on a Budget

If you want to be even more budget-conscious, here are some tips for saving money with your vacation:

  • Cash in your rewards: Consider using airline miles toward tickets or hotel rewards toward night stays.
  • Shop around: Don’t just book hotels, airfare or rental cars with the first provider you see. Shop around and look for discounts or promotional offers. Additionally, consider traveling during the week, when hotel and airline prices are generally cheaper than on the weekends.
  • Cook yourself: While it’s always fun to go out to eat while on vacation, consider hitting up the local grocery store and buying food items for breakfasts and lunches. This can help reduce meal costs, which is often a big overhead expense on vacations.
  • Ride share instead of taking a taxi: If you’re not renting a car, you might need to use a taxi to get around town. Forget the taxi on your trip and instead utilize cheaper ride sharing services like Uber and Lyft.

Protecting Your Child’s Credit Future

When it comes to credit scores and personal finances, there are several threats that people need to be aware of. There’s the actual financial aspect of credit issues, such as credit cards, debt, loans and more that need to be properly managed to maintain a good score. Then, there’s the aspect of identity theft, a serious issue that was highlighted last fall by the massive Equifax data breach, where about half of all Americans had their confidential information potentially swiped.

Yes, maintaining good credit is about a lot more these days than just forming good financial habits – and if you have children, part of your responsibility is raising them to learn from some of your generation’s mistakes. Among all the other responsibilities that you have as a parent, ensuring that your children have the knowledge to pave the way for a successful financial future is an important one. With that said, here’s a look at some ways you can help protect your child’s credit future, both from a monetary and identity theft standpoint:

Tips for Protecting Your Child’s Credit Future

  • Their name: Preventing identity theft arguably starts when you name your child. For instance, while it’s important for some families to follow tradition in naming their kids after their fathers or grandfathers, this can actually potentially implicate them when it comes to credit reporting. For instance, if David Jonathan Jones, Sr., has a negative item on his credit report, there’s a chance that David Jonathan Jones, Jr., may also have that same negative item on his credit report.
  • Beware of your online postings: Parents are proud of their kids, which makes sharing photos of them on Facebook, Twitter, Instagram and other social networks somewhat routine online behavior for them. That’s fine, but try to refrain from posting their birth dates, the city they were born in and other information a potential thieve could use to piece together information to steal their identity.
  • Freeze their credit: Experian estimates that about 25 percent of all children will have been victims of identity theft before they reach the age of 18. Noting this, consider calling up the credit bureaus and freezing your child’s credit. This ensures that nobody will be able to take out a line of credit in your child’s name unless they go through a rigorous process, which is very difficult for thieves to do. When it’s time to open a line of credit for your child, all you have to do is contact the bureaus and unfreeze it. To freeze their credit, you can go directly to the bureaus websites.
  • Discuss responsible money management: Certainly the other big aspect of ensuring a successful financial future for your child is instilling good money management habits. Start early in educating them on this important responsibility, and continue to speak with them about it as they get their first credit card, buy their first car and more. Irresponsibly managing money can lead to negative items on a credit report and significantly decrease their credit score, which can seriously jeopardize the things they’re able to accomplish in life.
One of Every 10 American Consumers Doesn't Have A Credit Score

No Credit Scores – 45 Millions Americans

No Credit Scores
No Credit Scores- America is a country made up of about 319 million people. However, according to a new report recently released by the Consumer Financial Protection Bureau (CFPB), up to 45 million Americans either have no history with the major credit reporting bureaus or No Credit Scores that’s so outdated or limited that they’re classified as unable to be scored.

Think about that: that’s 45 million Americans, or roughly one out of every 10 individuals in the country.

Report Details of No Credit Scores

According to the report, 26 million Americans don’t have history with the major credit reporting bureaus and another 19 million have outdated or limited credit history. The African American and Hispanic demographics were found most likely to be classified in one of the two aforementioned groups, with a 15 percent rate of credit invisibility compared to 9 percent for Caucasians. Furthermore, low income consumers are 30 percent more likely to have credit invisibility, compared to just low single digit percentages in upper income areas. No Credit Scores for 45 Million Americans.

Young adults ages 18-19 make up the majority of this “no credit score” stat at about 80 percent, as the study indicated that many had little time to build credit history or use debit cards instead of credit cards, among other reasons. Credit invisibility or lack of adequate history is also high among those 60 years old and greater.

Importance of a Credit Score

Those 45 million who don’t have an adequate credit score are obviously at a major disadvantage when it comes to getting a loan – whether it be a home, auto or student loan. But thankfully, there are a number of ways one can either build – or rebuild – credit history:

  • Get a secure credit card: These cards draw on money that is deposited in a bank and don’t require a credit score to obtain. Just be sure the card you choose reports to the three main agencies, as not all of them do.
  • Credit builder loans: These are loans where the lender makes payments over a loan’s life and then receives the money, along with any accrued interest, after this time period is over. If you belong to a credit union, you should qualify for a credit builder loan.
  • First credit cards: Remember, about 80 percent of those without a credit score are 18-19-year-olds. Make sure you get your kids an entry-level, low limit credit card before they go off to college or after they graduate high school so that they can begin to build credit and learn about managing it responsibly.

 

So if you’re among the 45 million Americans with No Credit Scores, now is the time to do something about it. And once you do, don’t forget that in order to attain the low interest loan – and loan approval altogether – benefits that a good credit score permits, it’s essential to keep it in tip top shape so that a lengthy credit repair process isn’t necessary.

Why a Collection Agency Won't Remove a Record After It Has Been Paid

Paid Collections – Why Are They Still on My Report?

Are you one of many Americans who have collection accounts on your credit report? If so, you unquestionably want it to just go away. This is a pivotal part of credit repair but raising your credit score back up to a favorable status is much easier said than done. That’s because according to U.S. law, collection accounts can be reported in your credit history for seven-and-a-half years from the original date you fall behind on payments.

Yikes!

Seven-and-a-half years. That’s a long time a bad record can weigh down your FICO score. Even worse, it’s possible that you can settle your debt with a collection agency and the record will still weigh down your credit score. Why? Because collection agencies are required to report information that is both accurate and complete and that includes this negative aspect of your credit history.

So now that you know why collection agencies won’t wipe a record clean, even after you’ve settled your debt, you might be wondering if there’s anything you can do? I mean, 7.5 years is a long time to wait out a bad record.

The good news is that there are some things you can do to wipe bad records from your report early, thereby allowing you to advance and repair credit. The bad news is these things are not sure-fire. Here’s a look at a few credit tips for working with collection agencies on this matter:

  • First, pull your credit history so you know what’s being reported. There’s a chance you might find an inaccuracy within the report, which can lead to a favorable outcome, as collection agencies aren’t legally allowed to report inaccurate or incomplete information.
  • Negotiate a “pay for removal” debt management deal: If you haven’t settled any debt yet, contact the collection agency and see if they will remove your record should you settle the debt. Many will likely respond and say that they’re unable to remove the record, as credit reporting agencies frown upon this policy. But it’s worth a shot.
  • Build new, positive credit: Part of your credit score is based on any new credit you’re building. So if you’re striking out with getting records removed from your credit report, it may just be best to cut your losses and focus on building new credit. As time goes on, these negative records will have less of an impact on your overall score, as long as your finances and credit history are headed in the right direction.

For more information on how to repair your credit after a collection you can Sign Up for $0 below.

maximize your fico with different tradelines

Different Types of Credit – How to Maximize Your Score?

There are five main factors that make up a FICO credit score – payment history, amounts owed, credit history length, new credit and types of credit used.

While the “types of credit” category only factors for about 10 percent of your overall FICO score, it can mean the difference between a good score and a great score, so it’s a category not to overlook if you’re on a mission of credit repair.

First, it’s important to note that there are two main types of finance loans: revolving and installment. Installment loans consist of things like auto loans and student loans — money that is loaned with the expectation that it will be paid back in a relatively short period of time. Revolving loans, which are things like credit cards and bank cards, involve debt that is accrued and, ideally, paid off on a monthly basis (i.e. debt management).

For the best possible credit score, it’s recommended that consumers try to establish a good balance between installment and revolving loans. But here’s a credit tip — there’s one other type of loan that can greatly aid your credit score for the better in the long-term: a mortgage.

When you’re first approved for your mortgage, it’s likely that your credit will take a hit in the near-term. But a mortgage is good for your credit score in the long run for two big reasons. One, it qualifies as a type of credit used. And two, if you make on-time mortgage payments, it will reflect well in the payment history portion of your credit score, which makes up 35 percent of your FICO score.

With all this being said, it’s also worth mentioning that just because you have a variety of installment, revolving and real estate loans to your name doesn’t mean you’ll have a pristine credit score. Like we mentioned above, on-time payments are key. And it’s also key that you don’t have any unpaid loans that are taken on by collection agencies, as it’s hard to repair credit when you have something that could stay on your record — and influence it in a negative way — for up to 7.5 years.

So while diversifying your credit is important, it’s important not to overlook other factors that go into the makeup of your overall score as well.

Cash or Credit

Cash or Credit – Key Credit Repair Tips and Advice

In order to avoid debt and overspending, many Americans have moved away from credit cards and loans and instead save up cash for purchases. The thinking behind this practice is that they’ll never have to embark on any credit repair or debt management mission, as paying with cash only ensures that they’re never spending beyond their means.

Paying only with cash also ensures that consumers are paying the lowest possible price for items, as they can avoid interest rates that can make large purchases even larger in the long run.

But is paying cash for everything all the time really the right way to go about your finances? While it certainly carries some benefits, one area where this practice can hurt you is how it pertains to your credit score.

Yes, your FICO score, that three digit number that’s essential for getting approved for loans and credit cards and also for cell phone plans, employment opportunities and more. Building credit is important for a variety of reasons, and while many people may be scared off by falling into debt and having to repair credit, a favorable credit score can help you with more than just home and auto loans and credit cards.

Here’s a look at some other reasons why paying cash for everything may not be the best financial strategy:

  • Your FICO score is composed of five factors: payment history, amounts owed, length of credit history, new credit and types of credit used. If you pay cash for everything, you won’t have a credit report. And while many people are OK with this, there’s the chance of being denied for a credit line in the event of an emergency or being turned away for a job or cell phone plan. Like we mentioned earlier, your credit score is important these days for more than just loan approval and favorable interest rates.
  • You can have a credit card and be responsible. One argument for paying cash over credit is that you’ll never have to worry about spending getting out of control. But there’s another way to use a credit card and keep spending within means — by being responsible. Here’s a great credit tip to build your score and keep debt down: Make payments on time. Not only does this save on interest, but it’s also the most heavily weighed aspect of your credit score.

So while many are spurning credit cards altogether and opting for a cash-only approach, it’s possible to have the best of both worlds, so your credit score as well as your finances don’t suffer.

Serious Credit Tips

Credit Mistakes to Avoid at Any Cost – Credit Tips

Credit Mistakes to Avoid- If you’re in need of credit repair, it’s something that you have to devote time and energy toward working on. Repairing credit takes commitment and a proper understanding of how credit is configured. And while improving your credit score isn’t something that’s easy or fast to do, harming it is something that is.
With that being said, here’s a look at the five most common blunders people make that harm their credit score. Knowing these could be the credit tips you need to keep your score favorable and not poor:

  1. Not paying bills on time: Payment history accounts for 35 percent of your FICO score, specifically if you’ve made on-time payments. A late payment won’t just incur late fees and possibly higher interest rates, but it can immediately dock your credit score of anywhere from 80 to 110 points.
  2. High debt-to-credit ratio: Ideally, it’s recommended that you keep debt-to-credit ratios at about 30 percent for the best possible score. So if you have one credit card and a credit limit of $10,000, keeping it no higher than $3,000 is ideal. Anything more will drop your credit score, so take debt management seriously.
  3. Bad debt: Simply put, don’t let any bills go to collections. Not only will they stay on your credit report for up to 7.5 years, they’re not good for your overall finance picture.
  4. Hard credit pulls: Hard credit pulls are done any time someone is officially approving you for some sort of credit line. They also impact your score by about 5-10 points for every pull and stay on your report for up to two years. Simply put, know the difference between a hard pull, which docks your score, and a soft one, which doesn’t. Many consumers don’t and are surprised to see their score so low.
  5. Check your credit report: You should regularly check your credit report – ideally, once a month. Why? Because it’s estimated that up to 40 million Americans have some sort of mistake on their report. By staying on top of your report, you can monitor and dispute incorrect information, which could be bringing down your credit score.
closing accounts

Closing Out a Credit Card – Does it Damage Your Credit?

So your credit score in unfavorable and you want to get your finances in order. However, credit repair is a big part of getting your FICO score back in favorable order. So what’s there to do?

To put it simply, there is not one tried and true “fix” to turn your credit score from poor to stellar over night. No, instead you need to take a look at the areas where your credit score is lacking luster and then make appropriate changes, whether in regards to debt management, making on-time payments, etc.
But one way people think they can magically improve their credit score quickly is by closing out credit card accounts. This is what we like to call a “repair credit no-no” when it comes to upping your FICO score. Here’s why:

  • Your FICO score takes into consideration what’s called a “credit utilization ratio.” Simply put, this takes into account your total credit amount versus the amount of credit that is currently being used. Generally speaking, you want to keep this credit utilization ration around 30 percent, meaning that you’re only carrying a balance at or below 30 percent of what your total limit is, for the best possible score.
    • If you close out a credit card, you’re also eliminating parts of your total credit amount. Say, for example, you have two credit cards. Between the two of them, you’re at a 30 percent credit utilization ratio. You close one of them, thinking it will help, except now your credit utilization amount will rise about 30 percent, hurting your FICO score.

So if someone offers “closing out a credit card” as one of their credit tips, don’t be fooled. The best way to repair credit is to simply make on-time payments, enact debt management strategies to pay down loans and credit card debt and be mindful of the types of accounts you open.