NOTE: THIS BLOG IS MEANT INFORMATION ONLY.
Most of us are familiar with credit scores, but are not really sure how the score is generated. The first thing to understand is there 100 different ways to score your credit. They are all based on your credit report and the most recognized is the FICO score. Developed by Fair Isaac, FICO scores entail a highly complex formula to determine a credit score with each factor’s value dependent on other pieces of information. There are five main factors that weigh into your FICO score to know.
• Payment History – This makes up 35% of your FICO score. This is the largest portion of the score and is due to the direct relationship of defaulting on loans and not paying bills on time. Your FICO score looks at the negative events and judges based on the recentness of late payments, the frequency of late payments, and the severity of late payments. Severity meaning how late were you in paying your bills, 30 day, 90 days and so on.
• How much you owe makes up to 30% of your FICO score. Utilization is the term used and it the sum of all your outstanding debt divided by your credit limits. Your FICO score see this as the lower the better since the higher default risk on those who are close to their credit limits.
• How long you have had credit equates to 15% of your FICO score. Lenders like a longer history of accounts. There are two major factors here are the oldest account’s age and the average age of all your accounts.
• Applications for credit make up 10% of your FICO score. This factor looks at how long has it been since you last applied for a new credit account. A negative factor here could be if you apply for several accounts in a short period of time. It is a factor based on the viewing times of your credit report by lenders.
• The credit mix you use makes up the last 10% of your FICO score. They want to see a “healthy mix” of credit. There is no rules to what a healthy credit mix really is, but certain types of debt are seen as better than others.
Putting this all together generates your FICO score. An important note is your FICO score will put more emphasis on recent events compared to the past. You can easily lose points on your FICO score and it is not easy to gain them back. That is why understanding and knowing your FICO score is so important.
Tuesday, March 16, 2010
First Steps To Choosing A Credit Card
For many, if not most people, choosing the right credit card when just starting out in adult life is a fairly simple process. It basically boils down to getting whatever card someone is willing to issue. For example, college students are often deluged with card offers from oil companies and department stores. While an easy way to build credit for a possibly more thoughtful approach in the future, such practices on the part of card companies also begin creating consumer debt at an early age. With card companies competing for consumers, it only makes sense that, even at an early stage of establishing credit, one should take one's time in deciding what cards to carry and use.
The most important factor in choosing a credit card is how you plan to use it. Before any other considerations, such as rewards, interest rates, or annual fees, decide what you will be doing with the card and how you plan to pay it. Basically, there are three types of usage to consider before proceeding any further. Figuring out which of these best describes your situation will go a long way in determining what card to get.
First, if you plan on paying off the card balance in full each month, the interest rate is not much of a concern. You should probably look for a card that has no annual fee, as well as a longer grace period in which to pay. Conversely, if you have a tendency to carry a balance from month to month, the interest rate becomes a determining factor. Finally, if you often use a credit card to get cash advances, you need to be aware that many cards charge a higher interest rate on cash advances than on purchases. Therefore, you need to make sure to look for a card that charges the same rate for both.
With all the credit cards on the market today, it is easy to get distracted by all the ancillary features offered. However, before deciding on a credit card based on bells and whistles, decide what kind of card user you are. This will vastly simplify the process at the start and help you focus on choosing extra features of those cards to which you are already best suited.
The most important factor in choosing a credit card is how you plan to use it. Before any other considerations, such as rewards, interest rates, or annual fees, decide what you will be doing with the card and how you plan to pay it. Basically, there are three types of usage to consider before proceeding any further. Figuring out which of these best describes your situation will go a long way in determining what card to get.
First, if you plan on paying off the card balance in full each month, the interest rate is not much of a concern. You should probably look for a card that has no annual fee, as well as a longer grace period in which to pay. Conversely, if you have a tendency to carry a balance from month to month, the interest rate becomes a determining factor. Finally, if you often use a credit card to get cash advances, you need to be aware that many cards charge a higher interest rate on cash advances than on purchases. Therefore, you need to make sure to look for a card that charges the same rate for both.
With all the credit cards on the market today, it is easy to get distracted by all the ancillary features offered. However, before deciding on a credit card based on bells and whistles, decide what kind of card user you are. This will vastly simplify the process at the start and help you focus on choosing extra features of those cards to which you are already best suited.
Make Credit Card Balance Transfers Work For You
Credit card balance transfers are simple in premise. You transfer a balance from one credit account to another. However, the benefits, goals, and results of transfers can often be quite different from one product and one opportunity to another.
Credit card balance transfers are routinely offered by card companies as a way to entice new customers away from competitors. Promotions vary, but the most aggressive offers typically include zero per cent APRs on balance transfers, for a specified length of time (the best offers are for 12-15 months). Some cards also combine rewards programs or other perks as part of this initial inducement.
Transfer offers are also used by companies when customers have low balances in their account. Companies throw promotional offers, convenience checks, and the like at customers to get them to transfer balances from other accounts. The idea is to infuse more balance into the customer's account and to get them back into the 'borrow and pay' cycle.
Using credit card balance transfers can certainly be beneficial if consumers use them wisely. Reading the fine print of transfer offers is essential. Some zero per cent offers come with transaction fees for each transfer. Additionally, timeframes vary. Borrowers need to know what happens with the remainder of the transfer balance at the end of the promotional period. For instance, at the end of a six month, zero per cent offer, does the balance return to the normal purchase APR?
Borrowers also need to know in what order credit payments are applied. Many companies slyly apply payments to the lower rate balances first, which leaves higher rate balances sitting on your account to accrue interest. This can actually lead to more interest payments over time than if you had not accepted the balance transfer, if the transfer offer comes from a card with a higher rate than the card the transfer is coming from. Beware of accepting zero per cent offers from cards that have high regular rates and that stipulate that makes apply first to lower rate balances.
Finally, consumers must be aware that while there are some good financial opportunities with balance transfers, transfer of balances do not make them obsolete. Some struggling borrowers simply move money around and take on new credit cards to transfer balances for lower rate promotions. When considering the benefits of credit card balance transfers, the borrower must think both about the short-term gain and the long-term results of a move.
Credit card balance transfers are routinely offered by card companies as a way to entice new customers away from competitors. Promotions vary, but the most aggressive offers typically include zero per cent APRs on balance transfers, for a specified length of time (the best offers are for 12-15 months). Some cards also combine rewards programs or other perks as part of this initial inducement.
Transfer offers are also used by companies when customers have low balances in their account. Companies throw promotional offers, convenience checks, and the like at customers to get them to transfer balances from other accounts. The idea is to infuse more balance into the customer's account and to get them back into the 'borrow and pay' cycle.
Using credit card balance transfers can certainly be beneficial if consumers use them wisely. Reading the fine print of transfer offers is essential. Some zero per cent offers come with transaction fees for each transfer. Additionally, timeframes vary. Borrowers need to know what happens with the remainder of the transfer balance at the end of the promotional period. For instance, at the end of a six month, zero per cent offer, does the balance return to the normal purchase APR?
Borrowers also need to know in what order credit payments are applied. Many companies slyly apply payments to the lower rate balances first, which leaves higher rate balances sitting on your account to accrue interest. This can actually lead to more interest payments over time than if you had not accepted the balance transfer, if the transfer offer comes from a card with a higher rate than the card the transfer is coming from. Beware of accepting zero per cent offers from cards that have high regular rates and that stipulate that makes apply first to lower rate balances.
Finally, consumers must be aware that while there are some good financial opportunities with balance transfers, transfer of balances do not make them obsolete. Some struggling borrowers simply move money around and take on new credit cards to transfer balances for lower rate promotions. When considering the benefits of credit card balance transfers, the borrower must think both about the short-term gain and the long-term results of a move.