Q My credit score is 685. Is that good?
A Yes, your score falls with the "good" range of a FICO credit score. And you will probably be approved for a loan. But you will probably have to pay a higher interest rate than someone whose credit score falls within the FICO "excellent range". Check the credit score distribution chart below to see what percentage your score falls in compared to the rest of the country.
Credit Score Distribution
<-499 2%
500-549 5%
550-598 8%
600 - 469 12%
650-699 15%
700-749 18%
750-799 27%
800+ 13%
For more information on the FICO credit score ranges, see my October 20, 2006 post, FICO Score Range. And see my January 4 2007 post, FICO Credit Score Range, for more information on loan interest rates.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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The Vantage Credit Score is again making the news. What is it? It is a credit score that has been developed by the three major credit bureaus: Equifax, Experian and Trans Union.
It was designed by the bureaus to try to solve two problems. One problem was credit scores varying by up to 50 points depending on which credit bureau you used. And to eliminate which credit score you received.
It is a common myth that there is only one credit score. Currently, there are at least three different scores depending on where you requested the score from and what you requested. The most commonly used score is FICO, developed by the Fair Isaac Corp.. All three credit bureaus can provide this score, but two of the bureaus have their own score. Experian and Trans Union have their own credit scores Plus and True Choice respectively. If you request a credit score from Experian, are you getting a FICO credit score or a Plus score?
The other unspoken reason I think the credit bureaus are designing their own credit scores is to cut the Fair Isaac Corp. out of the picture. I do not have information on how the credit industry works, but I would be willing to bet your money that the credit bureaus must be paying the Fair Isaac Corp. to use the FICO formula. If they can stop using their formula, they can stop paying them money.
It's too early to tell if the Vantage Credit Score will catch on and replace FICO as the industry standard. The final decision will be made by the nation's lending institutions. What they decide to use will be what the credit bureaus provide.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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True or False?
Even though I pay my bills on time, I still have to check my credit report at least once a year?
True.
Errors on the credit report, especially errors indicating late payments or defaulted credit can severely affect a credit score. Most experts agree that errors in credit reports are very common. And some estimates have the error rate as high as 75%.
According to a July 2004 report by the US Public Interest Research Group, 25% of the reports contained errors that are serious enough to result in a denial of credit.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpcredit score reportsfico credit scorepersonal credit scoreunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score
True or False?
You have no business relationship with this credit institution, but ABC Bank can pull your credit report without your approval?
True.
Credit institutions can pull your credit report without your approval. The logic here is they are reviewing your credit to determine if they want to market financial products to you. These inquiries, are called soft inquiries, and do NOT impact your credit score. Hard inquiries are when a financial institution reviews your credit report because you have applied for credit. These hard inquiries do affect your credit score.
Your employer, or prospective employer do need your approval to check your credit report. These inquiries do NOT affect your credit score. You have probably given your approval if you have completed a job application or filled out all of those forms during new job orientation.
More fun tomorrow.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpcredit score ratingscredit score reportsfico credit scoregood credit score rangeloans credit scorepersonal credit scoreunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score
While perusing the internet I ran across a true and false quiz regarding credit scores. As strange as it may sound, I found taking the quiz to be fun. So let's have some fun.
True or False
Your embarrassing credit score can be fixed by paying off your debt?
False.
Paying off your debt will definitely not hurt your credit score, but it will not be a miracle cure. Four of the factors that go into calculating your credit score are not influenced by how much money you owe.
So, these four factors will not change if you pay off your debt. One criteria however, how much you owe, will be positively impacted, but not enough to be a miracle cure for your credit score problem.
Come back tomorrow to have more fun with the next question. Remember, if you’re not working the system, it’s working you.
PapaJoe
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Recently I was approached and asked to help design a plan to help fix this person's credit score. He told me his credit score recently dropped from the mid-700's to under 600. The financial situation that caused this has been resolved and his goal now is to fix his credit score. He was confused by the different advice he had been given by several other people. i.e. Transfer the credit card balances to one credit card and cancel the rest, and pay the minimum balance on the credit cards and then pay cash for everything else. He was not aware of how his credit score was calculated. So I explained the guidelines, which are:
When I started to ask some questions, such as:
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"How many accounts on your credit report are showing a late payment?"
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"What are the credit limits on your credit accounts?"
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"How much disposable income do you have to put toward your debt?"
The answer to all of these questions was, "I don't know."
At that point, I realized that developing a plan to fix his credit score was putting the cart before the horse. First, I told him that he needed to develop a budget to determine how much money he had to put towards his debt. Second, he needed to get a copy of his credit report. Third, he needed to develop a financial plan, set goals on what he wanted to accomplish. i.e. Have the debt from the credit cards paid off in two years. Then he could look at the different possible ways to accomplish this goal. And finally he could evaluate the different possible ways of accomplishing the goal and pick the one that had the most positive impact on his credit score.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpcredit score ratingscredit score reportsfico credit scoregood credit score rangeloans credit scorepersonal credit scoreunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score
The question we're looking at today is, "Is it a good thing for my credit report to consolidate my credit cards with a HELCO?" The answer, which seems to be a common answer when it comes to credit score, is "it depends". First, it's important to note that from a credit score point of view, a HELCO can be viewed as an installment loan (just like a mortgage or car loan) or a revolving line of credit (just like a credit card).
The determining factor seems to be the size of the HELCO. In either case it is a line of credit and the utilization rates apply. Remember 30% of your FICO score is based on the percentage of debt to the available credit. The rule of thumb is to keep the utilization percent under 30%. If you decide to consolidate your credit cards into a HELCO there are things to consider when it comes to your credit score. One is to keep the utilization rate low - under 30%, so you might want to get your credit line approved for higher than you need. After you have consolidated your credit cards into a HELCO, the question is "what to do next?" If you cancel all of your credit cards, it will have a negative effect because it will raise your utilization rate and it will lower the average length of time you've had credit. The average length of time you have credit is 15% of your FICO credit score.
If you decide to cancel some of your credit cards, cancel them in the following order:
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Visa or MasterCards that do not report your credit limit to the credit bureaus.
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Department store credit cards.
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If you have multiple Visa and MasterCards, cancel the newest ones first.
An alternative to canceling credit cards is don't cancel them, just cut them up. If you ever decide that you need the credit again, just request a new card.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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If you currently are or have ever been in financial trouble and are trying to regroup, it may seem like an insurmountable task. However, if you have a plan with some direction, it may help. If you have been denied credit, this direction could come from your credit report.
Whenever you are denied credit, you are entitled to a free credit report from the bureau that provided information to the lender. On the credit report there will be four reason codes (there are 40) why your credit request was denied. A plan could be developed to address the reasons given for your denial.
According to Equifax the most common reasons consumers are denied credit are:
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Serious delinquency, public record information, or collections filed.
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Time since delinquency is too recent or unknown.
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Level of delinquency on accounts is too high.
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Amount owed on accounts is too high.
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Ratio of balances to credit limits on revolving accounts is too high.
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Length of time accounts have been established is too short.
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Too many accounts with balances.
Fixing the reasons for denial is probably a good first step in a financial plan to fix your credit score.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpcredit score ratingscredit score reportsfico credit scoregood credit score rangeloans credit scorepersonal credit scoreunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score 