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Is Having Perfect Credit Just About Having a High FICO Score?

Factors contributing to someone's credit score...

If you have never seen your credit reports, or been told your credit scores, you may have only a rough idea of your standing. If so, that’s a big mistake. I don’t want you to have hazy or vague knowledge about such a very important topic. I want you to be crystal-clear about your credit rating and know what specific actions you can take to maximize and even profit from it.

Toward that end it’s important to explain the most commonly used credit scores. FICO is an abbreviation that stands for Fair Isaac Corporation. Fair Isaac is a publicly traded, Minneapolis-based company that creates credit scores for tens of millions of Americans. While there are other credit scores out there (such as VantageScore and Experian’s PLUS score, which I’ll tell you about later in this book), FICO scores are the most widely used by U.S. banks, mortgage companies, credit-card issuers, and auto lenders. About 90% of the top banks in America use FICO^â scores. So throughout this book, when I refer to “credit scores,” I’m generally referring to FICO^â scores, unless otherwise noted.

FICO^â scores range from a dreadful 300 points to a pristine 850 points. The higher your scores, the more attractive you are to banks and other creditors, because your FICO^â score is designed to predict the chances that you will miss a payment or default on a debt. People with low FICO^â scores are riskier to banks because those individuals are statistically less likely to repay a loan than are people with high FICO^â scores. That’s why lenders are quicker to say “Yes” to the latter group and to offer people with top-notch credit scores better deals overall.

Excerpted from Perfect Credit

Can You Bump Hard Inquiries Off Your Credit Report By Monitoring With Soft Inquiries?

Author: The Money Coach

“Soft” inquiries – even lots of them – will not bump off or remove “hard” inquiries on your credit reports. This is because all inquiries stay on your credit report for two years, and hard inquiries count against you, for the purposes of calculating your FICO scores, for one year.

What Is the Difference Between a “Hard” and a “Soft” Inquiry?

A hard inquiry in your credit file is a record of any application for credit that you made. For example, if you seek a mortgage, student loan or car loan, or even if you apply for a credit card or perhaps request an increase in your current credit card limit, any of these actions can result in an inquiry on your Equifax, Experian or TransUnion credit files. Other business-related transactions can also produce inquiries: Among them: signing a cell phone contract, launching new service with a utility provider (like a local gas or electric company), filling out an apartment rental application, and – as even using a debit card to reserve or pay for a car rental. All of these activities generate inquiries that are known as “hard” pulls. By contrast, when you examine your own credit report, or when an existing creditor does a review of your credit files, those are called “soft” pulls, and they do not impact your credit score. So let’s say you use a credit monitoring service, and you review your credit report each month – or even weekly or daily. Those “soft” inquiries will be noted on your credit files, but they won’t hurt your FICO scores, and they won’t make your “hard” inquiries go away.

Don’t Allow Excessive Hard Inquiries of Your Credit Files

The American Bankers Association says a single inquiry can drop your credit score by 35 points. According to the formula used by Fair Isaac Corporation (the company that created FICO credit scores), inquiries account for 10% of your score. So think about it this way: If your FICO score is 680 points, inquiries account for 68 of those points. Obviously it’s not that simple, because different elements of FICO’s formula are weighted differently, based on a slew of considerations. And inquiries can have a greater or lesser impact on your score depending on the length of your credit history and other factors. Nevertheless, to minimize the impact of inquiries on your credit rating, only apply for credit when you truly need it. And if you have to shop around – say, for a mortgage or a new car loan – do so within a concentrated period of time. FICO executives say that multiple inquiries for auto financing or home loans are treated as a single inquiry, so long as the inquiries all occur within a 14-day period. The idea, according to FICO, is for them to avoid penalizing consumers for shopping around for the best rate.

Should I put a “consumer statement” in my credit report?

Author: The Money Coach

Q: Should I put a “consumer statement”in my credit report to explain a bad mark or mistake in my credit file?

A: Despite what some people may suggest to you, it’s best to refrain from adding a “Consumer Statement” to your credit files.

Consumer Statements in Your Credit Files

Under the Fair Credit Reporting Act, you are allowed to add a 100-word “Consumer Statement” to any of your credit reports if you have disputed an item in your credit files, but the item was not removed because it was verified by a creditor. Frequently, consumers think that taking advantage of this “right” to add a consumer statement is a good opportunity. After all, you would get a chance to divulge what happened, elaborate on the dispute, or perhaps explain why going through a divorce resulted in you not paying a bill or how being laid off for six months is what led you to default on a loan. In your mind, perhaps you think that your explanation will prove that something wasn’t your fault, or at the very least t show a lender that you had a “good” reason for failing to pay.

The Lender’s Point of View

Well, the truth of the matter is: from a lender’s standpoint, especially in today’s economic environment, there is not a single reason under the sun that can justify something negative in your credit report. Creditors want to know whether you paid your debts as agreed, or not. Period. So don’t fool yourself into thinking that your consumer statement will be “taken into account.” It won’t. In fact, your 100-word statement will most likely be viewed as confirmation that you were financially irresponsible, perhaps because you didn’t manage your finances in such a way as to weather some unexpected event such as divorce or a layoff. Nor will it help your cause to have a Consumer Statement, because it lumps you in the same category with all the other credit-damaged individuals who are using consumer statements to plead their case.

So my advice about Consumer Statements is simple: Refrain from putting any statement at all on your credit file. For those of you fretting over something in your credit file, and worried that it may damage your chances of getting a needed loan, fear not. When you apply for a loan of any kind, chances are it will be approved or denied solely based on numbers – not words. The numbers will be things like: What is your FICO score? How much debt are you carrying? What is your income? If your application is truly in a gray area, and a potential lender has a question about your credit history, rest assured that they’ll ask if they need more information from you in order to approve your loan. And at that point, you can write a letter directly to that lender, succinctly explaining anything you feel is necessary. You don’t need to put explanations it in a credit report, however, where scores of businesses and others will see it, and may even view the consumer statement as an admission of guilt (so to speak), and as proof that you aren’t a good credit risk because you couldn’t pay your bills on time.

How a Consumer Statement Can Actually Hurt Your Credit Reputation

There is another practical reason why you should avoid Consumer Statements: They remain on your credit reports for 10 long years. Assume you had a dispute with a creditor and, through your own perseverance, or through some settlement, you actually resolved the matter. The dispute is over. The creditor may even agree to delete negative information, change your payment status or update your credit history – all of which could wipe away any reference to the matter. But if you have that consumer statement still lingering on your credit file, it will be a “heads up” to potential lenders and others that – at one point – you were late with a bill or had some dispute with a creditor. It’s worse if you have a late payment or a negative account that was several years old. If the blemish on your record occurred, say, four years ago, it will come off your credit file in another three years. However, if you added a consumer statement subsequent – perhaps just a year ago – then the statement referencing the black mark on your credit will remain another nine years – six more years than the late payment itself was shown!

Hopefully, your credit reports currently indicate: “There is no consumer statement associated with this file,” or something to that effect. If not, you can dispute an existing consumer statement, or simply write a letter to the credit bureaus, and try to get it deleted. For example, TransUnion allows individuals to write a letter to add or remove a consumer statement from their credit reports. To get a consumer statement removed, send a consumer statement removal request, along with your name, address and TransUnion File Identification Number to:

TransUnion Consumer Relations

P.O. Box 2000

Chester, PA 19022

If you write the credit agencies to delete a consumer statement and it doesn’t work, just be prepared to wait it out until any consumer statement you supplied to the credit bureaus eventually expires.

Congress considers a bill that could help your credit report (walletpop.com)
How do I establish my first FICO score? (askthemoneycoach.com)

How can I make some extra cash, I am living paycheck to paycheck

Author: The Money Coach

By Lynnette Khalfani-Cox, The Money Coach

If are living paycheck to paycheck and need some extra cash, there are lots of ways to raise money. Here are a few of them.

Sell Stuff You Don’t Want, Need or Use

Are there pants, sweaters, dresses or suits in your closet that you haven’t worn in a month of Sundays? That clothing would be far more valuable in the hands of someone less fortunate than you. Here’s a case where you can do well by doing good. Donate unused or unwanted clothing, electronics and other household goods to charity – and get a tax deduction for your generosity. Alternatively, you could have a garage sale and instantly pocket the cash, then use the money toward vanquishing your credit card debt. In addition to clothes, you can sell unwanted or unused toys, furniture, appliances, and other household items.

Turn a Hobby Into Cash

Whether you turn a hobby into a cash-making business, sell new or used products online, or stuff envelopes for another business, the key is for it to be a no-cost or low-cost venture that can be operated exclusively from the privacy of your own home. Why these characteristics? For starters, you don’t have the money to buy tons of products. You also don’t want to have to hire anybody or lease space. You want to keep all the money you earn, right?

Adjust Your Withholdings at Work

If you’re getting a big income tax refund from the government each year, you are squandering a precious financial opportunity. Currently, the IRS reports that the typical tax refund check tops $2,500. For those of you who routinely receive tax refunds, instead of giving the government an interest-free loan, get your money now. Go to your HR office at work and adjust your W-4 withholdings so that your employer takes less money out of your paycheck. This way, you’ll have more money coming in every pay period, and you can use that extra money to knock down your debts. Check out IRS publications 505 and 919 at www.irs.gov to learn how to properly adjust your withholdings so that you don’t take out too much money and end up owing taxes.

Get a Second Job

I realize that most people already work really hard, and might even be covering for recently laid-off co-workers, but if you can fathom the idea, consider getting a second job or part-time work, even if just for three months. This may seem like a burden, but trust me, this option can work wonders. Having additional income can not only provide you with money to eliminate credit card debt, it can also help you build an emergency savings fund – hopefully before you’ll ever actually need to tap it.

Squeeze money from your residence

Whether you rent or own, getting a roommate or housemate is another way to generate income. If you can tolerate having an extra person around, you’ll likely find takers willing to lease out a spare bedroom or space in your attic or basement, especially given the high rate of people being put out of their homes these days due to foreclosure or inability to get a mortgage for their on place. Taking in a roommate will provide you with extra cash to pay toward your debts. However, before forging ahead if you are a renter, be sure you’re not violating any clauses in your rental contract by letting someone else live with you.

Leverage The Internet To Spend Less

Many of us routinely may too much for goods and services that we could get for far less money, if only we’d take the time to comparison shop. Thankfully, with the power of the Internet, you can easily cut your spending and apply the savings to your debt by comparison shopping online. Here’s what to do: Come up with a list of at least five things you can do to curb your spending. Also think about major categories of spending where you’d like to be able reduce your costs. Then visit the financial website http://www.lowermybills.com, which helps you comparison shop to save money in 18 categories of household bills, ranging from home equity loans to auto insurance to long-distance telephone service. They do the hunting for you to make recommendations about where you could be saving money. But don’t rely exclusively on leveraging the Internet. Consider this area a unique challenge. Get creative about your finances. Look at ways you can save money by shopping around or by modifying some of your spending habits, whether it’s checking out books from the library instead of buying them at a bookstore, or using a movie service like Netflix instead of going to the movies.

Whatever cost savings you achieve – including doing things like clipping coupons or canceling unnecessary magazine subscriptions – make sure you apply that “extra” money to your debts, save it, or spend it in a positive way, as opposed to just blowing the money.

How to pay off your credit card debt (askthemoneycoach.com)
New Credit Scoring Rules to Make Qualifying for Loans Tougher in 2011 (askthemoneycoach.com)

I Can’t Afford to Pay Off My Credit Card Debt. Can I Still Lower My Credit Utilization?

Author: The Money Coach

Q: I Can’t Afford to Pay Off My Credit Card Debt. Can I Still Lower My Credit Utilization?

A: To raise your credit scores, it’s always best to pay down debt, as opposed to shifting it around. However, for most people trying to boost their credit rating, it’s not always possible to instantly pay off all their credit card debt. So what can you do in that case? You can shift debt around in order to strategically lower your credit card utilization rate.

Remember that 30% of your FICO credit score is based on the amount of credit card debt you’re carrying versus the amount of credit card debt you have available (i.e. your credit utilization rate). For example, if you have $15,000 in available credit on all your cards, and you’ve charged $10,000 on those cards, you’ve used up two-thirds of your available credit and your credit utilization rate is 67% – not good.

What Is The “Ideal” Credit Utilization Rate

To increase your credit scores, it’s imperative that you slash your credit utilization ratios. No one knows the precise magic number when it comes to credit utilizations rates; FICO doesn’t reveal the exact “ideal” credit utilization rate. However, we do know that higher credit utilizations rates generally translate into lower FICO scores. And statistically speaking, those with lower credit utilization rates have higher FICO scores. Therefore, conventional wisdom is that it’s best to keep your credit utilization rates at a maximum or 25% to 35% for an optimal FICO score. If you maintain zero credit card debt, by paying off your credit card bills in full each month, realize that you may not have a 0% credit utilization rate simply because of three timing factors:

the date when you pay your bills,
the date when your creditor reports your payment history to the credit bureaus;
the date that your credit report is pulled to generate a credit score

Besides, you need not worry about having a 0% credit utilization rate simply because, believe it or not, individuals with a 0% credit utilization rate actually have lower credit scores – an average credit score of just 678, versus average credit scores of 745 for those with credit utilization rates ranging from 1% to 10%, according to data from CreditKarma.com, which analyzed a random sample of 70,000 credit scores.

How is it possible that those with a 0% credit utilization rate have average credit scores of only 678 points? CreditKarma.com suggests a few likely causes. First, it’s possible that individuals with a 0% credit utilization rate have no credit cards at all. This could actually hurt their credit rating, because remember that 10% of your credit score is based on the mix of credit that is contained in your credit files. Having a credit card, along with different forms of credit, shows that you can responsible manage various types of credit simultaneously. Another plausible reason for that 0% credit utilization rate is that those individuals never use their credit cards at all. (Another reason to use your credit cards on occasion, just to keep them active).

No Money … No Problem?

If you don’t have the money to pay down debt, here are the four chief strategies that you can use to lower your credit card utilization rates:

Use a Home Equity Loan

Getting a home equity loan or an equity line of credit can be a smart strategy for a few reasons. The interest rate on home equity loans (currently in the 6% range) is far less than what you’re probably paying on your credit cards (likely in the 15%-plus range). Additionally, the interest on home equity loans is tax deductible up to $100,000; the interest levied on your credit cards is not. Finally, from a credit-scoring standpoint, mortgage debt is treated more favorably than credit card debt, so converting that consumer debt is likely to positively impact your FICO score, by helping you reduce your credit card utilization rates.

A Strong Caution To Those Using Home Equity Loans to Pay Off Credit Card Debt

If you decide to consider this strategy, I have to issue a very serious word of caution: Don’t pay off those credit card bills, and put your home at risk with an equity loan if you’re just going to go back out and run up your charge cards again. The decision to take out a home equity loan is one that should not be made lightly. I believe that you should only use your home equity to pay off debt under two circumstances:

1) You got into credit card debt because of what I call “The Dreaded D’s: (downsizing, divorce, death (i.e. a main winner in the family died), disability, disease, or some other disaster, like a business failure or lawsuit); and

2) The situation that threw you into debt has now been rectified. (For instance, you were downsized, but now you have a job, or you faced a disease or a disability, but now you’ve bounced back from your medical problems).

If you got into debt for other reasons of your own doing, such as overspending, and if you haven’t learned how to get those impulses under control, I urge you to refrain from tapping the equity in your home to pay off credit card debt. I’ve heard heart-breaking stories of people who paid off their credit card debts by converting those obligations into mortgage debt – only to keep spending, not change their financial habits, and ultimately wind up losing their homes in foreclosure. I don’t want this to happen to you.

Shift Balances From One Card to Another Existing Card

Shifting debt from one credit card to another is more art than science, but done properly, it can boost your credit scores, and also save you lots of money (particularly if you’re taking debt from one high interest rate card and putting it on another lower interest rate card). The key here is to minimize the debt you’re carrying on a card that has a high credit utilization and transfer that debt onto a credit card with a zero balance or a low balance. For example, if you have two cards, and each has a $5,000 credit limit but one has a $3,000 in charges, and the other one only has $500, your current credit utilization rate is 35% ($3,500 divided by $10,000). You may be able to positively impact your credit scores, however, if you spread out some of that $3,000 in credit card debt from the first card. By shifting $1,000 of that balance onto the other card, your overall credit utilization rate will still be the same: 35%. However, the credit utilization rate for the first card will drop from 60% to 40%. Meanwhile, the second card will have a new credit utilization ratio of 30%.

Open A New Credit Card Account

Opening a new credit card account can lower your overall credit utilization ratio, even if you don’t charge anything additional on that new credit card. Yes, the inquiry will appear on your credit report, and you will likely take a hit to your credit as a result. But having that additional line of credit can make up for the ding you take from the inquiry. After all, your credit utilization ratio comprises 30% of your credit score, and inquiries only account for 10% of your score. Using the same example above, assume you have those two credit cards with a total of $10,000 in available credit, and $3,500 in charges made, for a current credit utilization rate of 35%. If you open a new credit card account with a $5,000 credit limit, now your overall credit utilization rate drops to just 23% because you’ve charged $3,500 and you have a grand total of $15,000 in available credit.

Secure an Increase in Your Existing Credit Card Line(s)

A fourth and final strategy to bolster your credit utilization rate is to simply ask your existing creditors for an increase in your credit lines. The principle behind this is the same as opening a new credit account. Essentially it boils down to you having more available credit in order to improve your standing in the eyes of the credit scoring world. Amid the credit crunch, it’s likely that your current creditors may do a “hard” pull of your credit reports. Or perhaps they won’t if they’ve already been reviewing and monitoring your credit files – as many of them routinely do. You’ll never know until you call and ask for a credit line increase. In the process of doing so, you can flat-out ask the customer service representative if it’s necessary for them to pull your credit record. That way you’ll know whether or not an inquiry will be generated, and if it’s worth it for you to use this strategy.

Before you try this option, some more research from CreditKarma.com is worth examining. CreditKarma.com wanted to see whether there was a correlation between people’s credit scores and the credit limits set by banks and other credit card issuers. And sure enough, there is. Credit Karma samples more than 500,000 credit card accounts in June 2009, and compared average user credit limits with their credit scores. The results showed that across all credit score ranges – from bad credit to great credit – consumers with higher credit scores had higher credit limits.

Credit Scores and Credit Card Limits

601 to 620

For example, those with credit scores ranging from 601 to 620 had an average credit limit of $1,765.

661 to 680

Individuals with credit scores ranging from 661 to 680 had an average credit card limit of $3,305.

701 to 720

Those with scores ranging from 701-720 had average an average credit limit of $5,449.

761 to 780

Meanwhile, those with credit scores from 761-780 had an average credit limit of $7,464.

801 and higher

And those with credit scores of 801 and higher had an average credit limit of $12,175.

What’s more Credit Karma found striking differences among the average credit card limits set by various companies. Credit Karma said that based on its data of the top 5 credit card issuers, Bank of America had the highest average credit card limit at $11,288, while Capital One had the lowest average credit limit at $3,524.

What Exactly Is Perfect Credit? (askthemoneycoach.com)

Ask The Money Coach

Archive for the ‘Perfect Credit’ Category

Is Having Perfect Credit Just About Having a High FICO Score?

Can You Bump Hard Inquiries Off Your Credit Report By Monitoring With Soft Inquiries?

Related Questions:

Should I put a “consumer statement” in my credit report?

Related Questions:

How can I make some extra cash, I am living paycheck to paycheck

Related Questions:

I Can’t Afford to Pay Off My Credit Card Debt. Can I Still Lower My Credit Utilization?

Related Questions:

Ask The Money Coach

Archive for the ‘Perfect Credit’ Category

Is Having Perfect Credit Just About Having a High FICO Score?

Can You Bump Hard Inquiries Off Your Credit Report By Monitoring With Soft Inquiries?

Related Questions:

Should I put a “consumer statement” in my credit report?

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How can I make some extra cash, I am living paycheck to paycheck

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