Credit scores go up, credit scores go down
Evon Yett thought she knew how to keep a good credit score: “Don’t overspend and pay your bills,” she said.
But when Yett, 53, of Wilmington, Del., checked her score a year ago when trying to buy a town house, she discovered a disappointing 547.
“It’s not as high as it should be,” she says.
Although most Americans know their credit score is important, a lot of people aren’t quite sure how it’s derived or how to improve it.
Yett got the credit score basics right: Keep debt low, pay bills on time.
But it isn’t always that simple, say credit counselors, especially when trying to repair damaged credit.
In fact, some actions people take to improve their credit scores actually make things worse.
Known as a FICO score because it is calculated using a formula devised by Minneapolis-based Fair Isaac Corp., your credit score is a number between 300 and 850 that is meant to show lenders how well you manage credit.
Lenders look for scores above 700 and become wary when they drop below 600.
The nation’s three credit bureaus, Equifax, Experian, and TransUnion, figure scores for about 210 million Americans based on information that more than 30,000 banks, department stores, mortgage companies and other lenders submit every month.
“A lot of people don’t realize how important your FICO score is,” says Mary Rammel, a senior credit counselor with the Consumer Credit Counseling Service of Maryland and Delaware.
Not only can it affect the interest rate you get when buying a home or car, it can also affect your auto and home insurance rates, she said.
Employers may even check your credit score before they hire you, Rammel says.
Lenders, by and large, are interested only in the score, not the numbers behind it, said Norm Magnuson, spokesman for the credit bureaus’ trade group, the Consumer Data Industry Association.
“They don’t even see the credit report,” he said.
The agencies calculate your score based on a complex formula that factors in payment history, credit history, outstanding debt, the types of credit you use and the amount of new credit.
The scores do not take age, sex, race, occupation, salary, marital status or national origin into account.
The largest portion of your score - nearly 35 percent - is based on payment history.
In other words, have you paid your bills regularly and on time?
This part of the score is like your personal reputation, says Fair Isaac spokesman Craig Watts.
“It takes years to build it and one night to trash it,” he said.
“Lenders like to see no more than one-third on any one credit obligation,” says Magnuson.
One mistake people make is closing out credit card accounts right before applying for a loan, thinking it will help their score, says Denise Freeman, a housing counselor at the National Council on Agriculture, Life, and Labor Research Inc.
Credit scores go up, credit scores go down (The Fort Collins Coloradoan)
Evon Yett thought she knew how to keep a good credit score: “Don’t overspend and pay your bills,” she said.
technorati tags:check+your+credit+score, improve+your+credit+score, FICO+credit+score+tips
Technorati Tags: check your credit
Written by Adam on February 27th, 2007 with no comments.
Read more articles on Credit Score and Credit Score Tips and FICO Score and Improve Credit Score.
How to have an extra $500 in the bank for emergencies
Having a few hundred bucks at the right times in your life can make all the difference.
Here’s how to tuck away money for emergencies, even if you don’t have much.
A reader asked me for help after racking up more than $2,000 in bounced-check fees.
Another owed thousands to a payday lender.
A third despaired of ever paying down his credit card debt.
Every time he started to make some progress, his car would break down or he’d encounter another unexpected expense that wound up charged to the cards.
These three are a fairly typical sample of the money woes that land in my e-mail box every week.
But they had something else in common: All three would benefit greatly from the simple solution of getting — and maintaining — a $500 cushion in the bank.
Most of the talk about financial cushions centers on the importance of an emergency fund, that stash of cash that’s supposed to equal three to six months’ worth of expenses.
As I wrote in “The $0 emergency fund,” though, that’s an awfully tough standard for most families to meet.
A $500 pad, by contrast, is something that just about everyone can scrape together with enough determination.
And it can make a real difference.
3 steps to a $500 cushion
Start by keeping an extra $100 in your checking account.
If you maintain this pad and resist the urge to spend it, you’ll greatly reduce your chances of bouncing a check.
(You also should sign up for overdraft protection, to minimize the damage if you do accidentally write a check that’s too big for your balance.)
Some posters on the Your Money message board — the ones who actually balance their checkbooks — write themselves a phony check for their “pad” amount to keep them from spending it.
If you keep track of your balance online or via an ATM, you’ll have to mentally deduct the $100.
Then funnel $400 into your savings account.
It may not seem like much, but $400 will cover a good chunk of the real emergencies that come your way, from car repairs to insurance deductibles to replacing an appliance that breaks down.
Even if the unexpected expense is higher than $400, you’ll at least reduce the amount you need to scrape up from other sources.
Then leave it alone unless you’re facing a real emergency.
If you’re in credit card debt or owe money to payday lenders, you must get out of the habit of looking for a quick “fix” when you encounter unexpected expenses.
The pain of taking money out of savings may help you look for alternatives to spending the cash.
If the spending is absolutely necessary, you’re better off paying cash than paying interest on money borrowed from credit cards or payday lenders.
Then you can concentrate on rebuilding your cushion as soon as possible.
The first $500 is the hardest
Eventually, you should try to build your pad of cash into a real emergency fund.
But that can come after you’ve taken care of more-pressing financial needs, such as paying off high-rate debt and saving for retirement.
The typical refund check is more than $2,000, so most people will have enough to fund their cushion in one fell swoop.
If you’re not getting a refund or it’s already spent, though, you still have plenty of options.
Several dozen posters on the Your Money message board are trying this experiment right now, and many are surprised at the amounts of cash they’re saving by buying only necessities for a single month.
If you don’t eat out, bring your lunch and snacks to work and avoid shopping for 30 days, you may find you can make a good deal of progress toward your $500 goal.
Try yard sales, consignment stores and online auction sites such as eBay or classified sites like Craigslist.
Sell your books on Half.com or Amazon.com.
Make sure the cash you raise gets put into savings immediately, or it will get spent.
Several readers tell of saving hundreds over the course of a year, even making a game of it with their children.
If you haven’t already, go through your regular bills and see what you can trim.
Dropping premium TV channels, or doing without pay TV entirely for a while, could produce significant savings.
Phone bills also are often rife with extras that can be cut, including call waiting or pricey voice-mail systems.
If you have high-speed Internet access, consider switching to an Internet calling service like Vonage or Skype to save even more.
Click here to learn how to make up to $400 a day simply writing online
Once you’ve trimmed, channel the extra savings into your bank account.
If you save $10 on your phone bill, for example, put that much into savings each month.
For best results: * Make it automatic.
Setting up a regular electronic transfer from your checking to your savings account is much better than making the transfers manually.
If you have to make the decision to save every month, you’ll probably decide to do something else with the money.
If the decision is made for you, it’s more likely to stick.
If you’ve been living paycheck to paycheck for a while, you may be unclear about what constitutes a true emergency.
Essentially, it’s an event that puts your livelihood or your family’s safety at risk.
The television dying, for example, is not an emergency.
A car repair may or may not be an emergency, depending on whether you have alternate transportation.
If you can’t get to work any other way, then getting the car fixed justifies raiding your emergency fund.
Get Paid To Write Online!
MSN Money |
Why you need $500 in the bank
MSN Money - Feb 12, 2007
A third despaired of ever paying down his credit card debt. Every time he started to make some progress, his car would break down or he’d encounter another … |
technorati tags:$500+emergency+fund, emergency+fund, setup+an+emergency+fund, setup+a+savings+account
Written by Adam on February 14th, 2007 with no comments.
Read more articles on Credit Repair and Credit Score and Credit Score Tips and FICO Score and Improve Credit Score and Pay Your Bills and Personal Finance.