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Thursday, July 26, 2012
Tuesday, July 17, 2012
Top 6 credit score misconceptions
You know the 3-digit number has a powerful influence on your financial life, but some other things you 'know' might just be wrong.
Article by Justine Rivero from Frobes.com
Credit scores were never meant for consumers.
Implemented in the 1980s for lenders and banks to provide an algorithm-based assessment of consumers' creditworthiness, the clandestine, proprietary credit score models are the credit industry's secret sauce, and they sell it to every bank and lender on the market.
So it's no surprise that most consumers have misconceptions about their credit, especially when it comes to what hurts and helps credit scores. In fact, a recent survey found that 42% of Americans would prefer a letter grade associated with a credit score rather than the traditional three-digit number. A letter grade would presumably help consumers to better grasp where they rank in creditworthiness.
And most Americans rank pretty low. With the average credit score at 661 nationwide, according toCredit Karma, a majority of Americans have poor credit, which means most consumers would be hard-pressed to gain approval on mortgages, loans and credit cards. If they are approved, it's likely to be at exorbitant rates.
Polishing up your credit starts with understanding the ins and outs of credit scores. Here's your cheat sheet to debunking the top myths about credit.
1. FICO is the one, true credit score. While the FICO credit score is widely known, there is no one, true credit score. There are dozens of credit score models generated by each credit bureau and unique to different industries, such as mortgage lenders and auto insurance providers. Risk assessment isn't consistent from industry to industry or even lender to lender. For example, your credit score pulled by one credit card issuer is likely to differ anywhere from 5 to 50 points from another issuer.
Lesson: You can't predict what credit score a lender will assess you by. Since you can't keep track of dozens of scores, track one credit score, such as the free credit score (see "Are FAKO scores worthless?") provided by Credit Karma, for a general sense of your credit health. While the actual numbers may vary, you're often in the same "risk range" across all credit score models. As you build and improve the factors affecting your credit score, your scores should pick up across the whole spectrum of scoring models.
2. Checking our score is bad for your credit. There are two types of credit checks. Hard inquiries knock a few points off your credit score and are initiated when a financial institution pulls your credit report to assess you for a lending decision, such as approval for a mortgage or credit card. Soft inquiries do not affect your credit and are initiated as part of a background check, such as for pre-approved offers or as part of a hiring process. When you check your own credit score, it is considered a soft inquiry and won't affect your credit score no matter how many times you check.
Lesson: Go ahead and check your credit score as often as you'd like. You have nothing to lose and tracking your progress over time will give you more insight into what's affecting your credit.
3. My credit score affects future job opportunities. Contrary to popular belief, potential employers don't look at your credit score. They actually pull your credit report, which is a data-rich document detailing your credit history. Employers look at your credit report as part of your background check, but they must get your permission before doing so. Take the pre-emptive step to review your full credit report for free at AnnualCreditReport.com, which provides you with a free credit report once a year from each of the three credit bureaus. Regularly check your credit report throughout the year by spacing your free credit reports every four months.
Lesson: Your future job opportunities could be influenced by your credit report, so check your credit report regularly for errors and fraudulent accounts. The Federal Trade Commission has a quick guide on how to dispute credit report errors.
Tuesday, July 10, 2012
U.S.A. consumer credit surged 10 % in November, its biggest jump in a decade in a positive signal for the economy as consumers tapped their credit cards and the government doled out more student loans.
Outstanding consumer credit increased by $20.37 billion during the month, the Federal Reserve said on Monday. That was the biggest gain since November 2001 and nearly three times the median forecast in a Reuters poll.
Revolving credit, which mostly measures credit-card use, rose $5.60 billion, a third straight monthly increase.
"Credit growth is a positive sign for the recovery in that it signals increasing demand and willingness to spend," said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts.
Edelstein said, however, that there was a risk the credit growth could be a sign that chronic unemployment was leading more people to turn to credit to fund necessary expenditures.
The government said late last month that consumer spending edged up just 0.2 percent in November, with households cutting back on their saving.
JPMorgan economist Daniel Silver said the increase in credit card borrowing might have been aided by some big banks imposing new fees on debit card use. It "may have pushed people to favor credit cards over debit cards," he said.
The increase in consumer credit was the 13th in 14 months and the biggest jump since creditors boosted lending in the wake of the September 11, 2001, attacks in New York and Washington.
Nonrevolving credit, which includes student and auto loans, rose a seasonally adjusted $14.78 billion in November.
Government lending to students appeared to be a significant factor in the increase, rising $6.4 billion. Unlike the broader credit gauges, the student lending data is not adjusted for seasonal fluctuations.
Over the 12 months through November, government loans to students rose 31.9 percent, outperforming any other kind of non-revolving loans tracked by the Fed, including those made by commercial banks.
However, there are some signs the surge in student lending registered since the last recession is tapering off. Year-over-year increases in student lending peaked at 78 percent in September 2010 and have trended lower since then.
Reporting by Jason Lange; Editing by Kenneth Barry and Leslie Adler from NBC Miami
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