Financial Articles

I recently saw on CNBC that a new credit bureau called VantageScore is trying to update and levelize the way that credit scores are tabulated for creditors. Their “leveled credit characteristics” across the three credit agencies, Equifax, Experian and TransUnion will try to ensure that any credit score differences for the same consumer are attributable to what is in each agency’s database, not the scoring algorithm itself.

It is a little known fact that credit scores from the different credit bureaus can differ markedly in the score they give the consumer. Each may have different credit card and mortgage loan histories, and one or all of them could have erroneous or incomplete data that can affect the credit score. Most lenders will report to one or two, but not every one of the lenders report to them all. FairIssac, the developer of the original credit scoring system, has always been the “gold standard” of credit score numbers. VantageScore may change that.

VantageScore is unique as the first credit scoring model to be developed jointly by the national credit reporting agencies. That way, VantageScore can enjoy the expertise of industry specialists to lessen score variability and increase consistency in the consumer’s credit score. This can eliminate confusion for you and your lender.

To start with, VantageScore uses a different score range than the FICO Score model. The VantageScore range is 501-990. Using multiple scorecard technology, VantageScore seeks to give the lenders superior risk prediction. This results in a stronger separation of good and bad performing accounts. The new scoring system returns more predictable scores on “thin-file” consumers, which are those with little credit history to score. So, even if you have limited credit history, lenders can use VantageScore to best assist you under varied circumstances.

The criteria that VantageScore uses and the weights attributed to each are:

Payment History 32%
Have you consistently paid your accounts in a timely manner?

Utilization 23%
How much of the total credit available to you are you currently using?

Balances 16%
What is the total of your current and delinquent account balances?

Depth of Credit 13%
How long is your credit history and do you have a healthy mix of credit types?

Recent Credit 10%
How many recently opened credit accounts and credit inquiries do you have?

Available Credit 7%
What is the total amount of credit you have access to?

So in conclusion, VantageScore will have significant benefits to the credit consumer because it is consistent, using identical scoring algorithms and leveled credit characteristics across all three national credit reporting companies. It is accurate, because knowledge of the data ensures the most accurate scoring algorithm. And, it is easy to understand and apply, having a score range of 501-990 with higher scores representing a lower likelihood of risk.

My hope is that if you are in the market for a credit card or mortgage loan, VantageScore can help you get a lower interest rate, or get you a loan when using the old scoring techniques would have denied you that loan.

To learn more about VantageScore go to http://www.vantagescore.com

Have you had problems paying your bills on time lately?

The fact of the matter is that you are not alone. More than 30 Million people in the U.S. have the same problems as you. Poor credit can be the primary cause for a severe inability to obtain credit cards and/or loans.

There is a solution to this problem and it is right at your finger tips.

Here are 7 ways you can fix and improve your credit score and obtain credit cards and/or loans at favorable rates.

1. Reduce your balance to limit ratio.

When a company is reviewing your credit, most of them will look at the amount of balances on your current accounts and compare that figure to the amount of total outstanding credit you have available.

EX. Total Balances = $10,000 and Total Avail. Credit = $20,000.

Now in this example your ratio would be at 50% which in most cases would be frowned upon by lenders. The ideal ration would be anything less than 30%

A good idea would be to pay off those low balance credit cards to get your balance to limit ratio under 30%

2. Cut back your credit card usage.

Even if you are the type of person who typically pays off your credit cards every month, it is a good idea to keep your balances below 30% of the available credit limit.

Even though you are paying off your credit cards monthly your balance is still reported to the credit bureaus.

One of the best ways to keep track is by using financial software like Quicken or Microsoft Money. Using these programs can help you stay below 30% of your available credit limits.

3. Know your limits.

In some cases, your credit card companies may not report your limits to the credit bureaus. This may cause a drop in your FICO score.

What happens is the credit bureaus will use your highest balance as an estimation of your credit limit. So if you spend between $3000 and $3500 on your card monthly then on the credit bureaus you will look like you are using more of your available credit limit than you really are.

In most cases, you can call your credit card companies and have them report your limits to the credit bureaus.

4. Use your older cards.

One of the most important factors in determining your FICO score is the length of time a card has been open. The older the account the better it will make your credit score look.

It is a good idea to use your older cards every few months just to make sure that the credit card companies continue to update your information with the credit bureaus.

5. Help from credit card company.

If for the most part, you have been a good customer, you can call your credit card company and ask them to remove 1 or 2 late payments from your history. Most of the time, this request has to be made in writing but it is definitely worth a shot. Your chances of success using this method increase the better your record with your lender.

If you have had more than just 1 or 2 late payments, then another option would be to request that your lender “re-age” your account. Typically, this is where you and your lender work out an agreement that if you make 12 or more consecutive payments on time, they will delete any previous late payments.

6. Disputing your old negative items.

So you had a disagreement with a company over a bill a few years ago, and it is still hurting your credit today. Disputing that bill as “not mine” is an option you could use to fix or improve your credit score. A lot of times, if the item is relatively small and old, the credit card companies won’t bother to respond to the credit bureaus investigation. Most of the time, this will cause the item to be removed from your credit history.

I have seen success disputing negative items when a lender has merged with another company. The merger causes older debts to get “lost in the shuffle.”

7. Concentrate on the important stuff.

There are certain aspects of your credit report that really affect your score. It is important to know what they are and to really focus your attention on these items to repair and improve your credit score.

Here is a short list of the item I suggest you focus on:

1. Negative items that are not yours (e.g. Late payments, charge-off, or collections)

2. Incorrectly reported credit limits

3. Anything not listed as “Current” or “Paid as Agreed”. (e.g. Settled, paid derogatory, or paid charge-off)

4. Accounts that shouldn’t be there due to a bankruptcy.

5. Derogatory items that are older than 7 years that should have dropped off. It would be 10 years if you have a bankruptcy.

You want to be careful with this one because as we discussed earlier. Having aged accounts actually improves your credit score, even if they are negative accounts. It is not possible to know the effect of closing an old negative account. You are kind of “rolling the dice” when you do it.

As you can see, these 7 ways will get you on your way to raising your credit score and lowering your interest rates.

Good credit is obtainable if you just hunker down and put your mind to it. Following the tips above will help you get out of the credit “dog house”.

Are you familiar with student credit cards? These credit cards are meant for college students, and are easier to get than regular credit cards. They can help a student establish credit, but they can also bring credit problems to careless students.

Student credit cards can be a source of temptation for college students. Young adults can be easily tempted to buy unnecessary things with their credit card, even if they do not have the money to pay for it. Eventually the balance they charged for their shopping sprees must be paid back.

If a college student is unable to pay the full amount within a certain period of time, interest will be charged. Credit card companies charge interest at a percentage of the over due balance. For instance, if a student has a $100 balance and the credit card company charges a 15% interest rate, the student now owes $115 to the credit card company.

The interest keeps adding up and eventually the student may end up paying only the interest, and their credit card balance is never going to be paid off. That is why the parents of college students should first explain the proper use of student credit cards to their children, before they allow them to get credit cards.

There are also a few things that should be examined before students choose a particular credit card. It is important to check the annual fee of student credit cards. An annual fee is a lump sum that some credit card companies charge to their credit card every year.

It would also be wise to look at the interest rate and other fees of student credit cards. There are cases where the interest charges can send a credit card over the limit. This will cause extra fees, and the student will be unable to use the credit card. Students should pay attention to the different terms and conditions of student credit cards, so that they can determine the particular credit card that is best for them.