A recent encounter with a friend reaffirmed my belief that managing your credit score is a critical and ongoing process. A friend had approached me to find out what she could, and should do to fix her credit score. I was surprised because she had always taken pride in having a good credit score for someone her age. So I asked, "What happened?"
She explained that in the process of moving to a new address, one of her credit card bills did not get forwarded. As a result she missed a payment on one of her six credit cards. Then the evil face of Universal Default popped up. Very simply put, Universal Default is a provision in a credit card agreement that says if you miss a payment with any creditor, that they can consider it a missed payment on their account and can adjust your interest rate. In her case, all six cards raised her rates. She went from having interest rates ranging from 0% to 9.99% to rates ranging from 21% to 25%. Her minimum payments increased dramatically and caused her to miss more payments. And a bad situation became a disaster within three months.
Some warnings to take from her situation:
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Have a list of all your bills and their due dates and mark them off each month as you pay them. This way if you never get a bill, or you lose it, you still know it needs to be paid and can get it paid on time.
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Don't drop and add credit cards to save a couple of dollars. Her experience was the creditors who were most willing to work with her were the ones that she had a longer history with.
- All other things being equal, pick and use the credit cards that do not have the Universal Default provision. The only problem with this is the credit card companies can change these provisions whenever they choose. i.e. they can add the Universal Default provision at any time.
A closing thought: It is your responsibility to pay your bills on time every month, bill or no bill.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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True or False.
The Financial Planning Association lists "getting a handle on your credit score" as one of their 5 tips to follow to get your financial affairs in order.
True
The association does recommend you get a handle on your credit score because the higher your score the more likely it is you will be approved for credit and the lower the interest will be for this credit.
The other 4 things they identified as needing to address to get your financial affairs in order are:
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Develop a budget that includes regular savings to be put aside for emergencies.
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Set up a will with durable power of attorney.
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Plan for retirement - start early and save regularly.
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Check to make sure you have adequate insurance coverage. Take the time to make sure you understand what you're paying for and that it provides the coverage you need.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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True or False?
I have credit cards that I never use. I want to cancel them to reduce my risk of losing them and to reduce my risk of identify theft. What I cancel can affect my credit score.
True.
Canceling credit cards can have a negative effect on your credit score because it can result in your utilization rate going up and your average length of credit going down.
If you decide to cancel some cards, take the following into account when considering which cards to cancel.
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
credit score helpunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score
True or False?
Once I have all of the information from my credit report, I still cannot calculate my own credit score.
True.
The Fair Isaac Corp., which designed the FICO score, has issued guidelines regarding which factors are included in your credit score.
These are:
But they have not, and probably never will, given a breakdown on how each factor is calculated. For example, 10% of your score is for the type of credit used.
But some unanswered questions are:
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Do I need to have a mortgage to get the maximum score in this area?
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How many installment loans is the right amount?
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Do I get penalized for having too many or too few credit cards?
That's enough to give you the idea. Even though you can't calculate your exact credit score, you can still manage your credit score. By using the guidelines you can develop a financial plan that considers these guidelines. The end result should be a higher credit score.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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True or False?
I pay my MasterCard bill on time every month, therefore they cannot contractually raise my interest rate.
This is False if there's a provision in my contract called Universal Default. Quite simply it states, "If you fall behind on any payment in any account they can consider it falling behind on their account." That could include medical bills, utility bills, rent, etc. Your interest rate could go from low and reasonable to 25% or more.
Not all credit cards have Universal Default. When choosing a new credit card or deciding which credit card to keep or cancel, read the small print. Obviously choose the credit card that does not have Universal Default. The last number I saw said 45% of credit cards do not have Universal Default. They can change that anytime they want. So when they send you that notice saying your contract has changed, read the small print to see if Universal Default has been added or deleted.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpcredit score ratingscredit score reportsficofico credit scoreunderstanding credit scoreunderstanding my credit scoreunderstanding your credit scoreuniversal default
True or False?
It is against the law when it comes to credit to discriminate against me because of my gender.
True.
Federal law prevents the credit industry from discriminating against you because of your gender, national origin, age, marital status, or the receipt of public assistance.
However, federal law does not specify what factors are to be used in determining your credit score.
The guidelines used by FICO are:
Your credit score is based on:
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpcredit score ratingscredit score reportsfico credit scoreunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score
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
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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 reports 