First what is a Fraud Alert?

An alert places a statement on your credit report so that if a fraudster attempts to obtain credit in your name, the creditor, in checking your credit, will encounter a statement that says something to this effect: “I may be a victim of fraud. Call me at my phone number 312-555-7890 before extending credit.” By calling you, the creditor ensures more security.

There are two types of Fraud Alerts

The first and much more common is a 90-day fraud alert. This is for someone who “suspects” they have been an id theft victim, but doesn’t know for sure.

So, I setup a 90-day alert a few weeks ago and here’s how it impacted me. When I went to switch cell phone carriers, instead of the normal online credit check they usually do — yes, your credit score is checked when you apply for a cell phone plan, did you know this? — they tried to call my contact number to verify it was me, so my old cell phone rang and then I was able to verify over the phone that yes it was me trying to order a new plan. My visit to the cell store was longer, but it was a lot safer.

As I was just suspicious that I was a victim of ID theft, just a few weeks earlier, I got the 90-day alert.

To set this up call any of the 3 bureaus, Equifax’s number is 1-800-685-1111 — select option 4. Or go to www.equifax.com. Again, you can call any of the bureaus, I just liked the Equifax automated system.

The second type is a 7-year alert and this for people who MUST prove to the Credit Bureaus that they were victims of ID theft by providing documentation from their credit card companies or other financial institutions. A good idea, if you’ve been a victim.

Finally, there’s something called a Fraud Freeze or Credit Freeze which is available by law or on a volunteer basis by the bureaus in all 50 states and Puerto Rico.

So what is it?

A security freeze means that your credit file cannot be shared with potential creditors or insurance companies; It can help prevent identity theft since most businesses will not open credit accounts without checking a consumer’s credit history first; Once your account is frozen, credit cannot be granted until you unfreeze it – So remember my cell phone story a moment ago? If I had a fraud freeze in place, I would not receive a call and credit would have simply been denied. So, it’s more protective than a Fraud Alert.

ID theft victims can list for free in most states but ‘non-victim’ consumers will pay $10/bureau set it up and $10 each time they need to unfreeze it. In most cases you have to send your requests by certified mail. Click the link under resources to find out more specifics with your state.

If you are past the credit needing age, and not likely to need credit for anything, you may want to do a credit freeze. Okay this isn’t right for most of us, but it might be for your parents, or your aunt or uncle. The elderly are common targets of ID theft as they often have great credit scores and aren’t checking accts as frequently.

Fraud alerts and fraud freezes are not 100 percent fail-safe as some creditors can and will issue credit without pulling a credit report. But they are effective as most financial institutions use credit checking to protect themselves and that, in the end, protects you better.

Okay let’s recap. There are three types of protective measures: the 90-day alert, the 7-year alert, and the Fraud Freeze. The Fraud Alerts are Free and provide an extra layer of security. The 7-yr fraud alert will only be placed with Proof that you were a victim whereas the 90-day alert can be placed by anyone merely suspicious of fraud. The Fraud Freeze is more protective and costs $10 to setup and $10 to unfreeze for each bureau. A good idea if you don’t need a loan, credit card or new cell phone plan in the near future.

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Fraud Alerts and Credit Freezes – Lesson #9

In this lesson we are going to discuss ID theft treatment or what to do if you become a victim with ID theft.

Identity Theft Treatment

We talked to someone the other day that thought he was victimized and he gave us his story

First off, he saw something on his credit file he simply couldn’t recognize and he had a credit report from his lender he was having trouble deciphering it. I know you want to save money, but the reports at myFICO, Equifax, TrueCredit and the other consumer websites are just easier to read.

He appeared to have a credit line or card that he didn’t recognize and he couldn’t easily tell. In his case the line item was an $18K credit line with $4K used. He really had no idea where he should start.

So here’s a good checklist of what to do

• Place a 90-day fraud alert on your credit file, by contacting any of the 3 bureaus. It’s free and it’s easy. Again, you don’t need to contact all 3 bureaus. Once, 1 knows they tell the other 2. To set this up call any of the 3 bureaus, Equifax’s number is 1-800-685-1111 — select option 4. Or go to www.equifax.com.
• Ok, now you need an Identity Theft Report, which you can get by contacting the local authorities. What is this? An Identity theft Report is simply a police report that contains details of the ID theft. You need this report to dispute any fraudulent account behavior on your report.
• Contact your financial institutions by phone AND by certified mail to file an existing account dispute and/or a new account dispute. The FTC has nice forms for this, and you can get them from our website as well under credit resources. Include your Identity Theft Report with your dispute letters.

As an alternative, instead of using the FTC forms you can ask the representative to send you the company’s fraud dispute forms.

Send copies of these letters to the credit bureaus as well.

The companies have 15 days to ask for more info, and then 15 more days to ensure your Identity Theft Report contains everything they need.

• Send follow up letters to the credit bureaus detailing status with Credit/Financial Institution companies. While the bureaus should get an update anyway from the Credit Card Company, it’s a good idea to follow up on your own.
• Consider a 7-year alert or a Freeze on your account. More on this in Lesson 9 on Credit Freezes.
• Report the crime to the FTC

Ok, those are the major steps. Expect some back and forth on this. While the average ID theft resolution time is on the decline – it’s still a hefty chunk of time at 28 hours, so dig in and attack it.

If you are in the military…
When you are away from your usual duty station, you can place an active duty alert on your three credit reports as an extra protection against identity theft. The alert remains on your credit reports for 12 months. Contact the fraud departments for the three credit bureaus.

Wow, this is still a lot of work. Why bother? Well most people don’t report their fraud and that’s risky. For one, the Credit Bureaus are likely to think a new credit line is YOURS not FRAUD. So, your score will be on the hook.

Join us for Lesson 9 Where we will Discuss 90 day Fraud Alerts, 7-yr fraud alerts and Credit Freezes.

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Identity Theft Treatment for Victims – Lesson #8

This Lesson Addresses Fraud and Identity Theft

This is a big topic so we are going to split it up and we will cover the “definitions” and ID theft prevention in this lesson and how to “treat” an Identity theft in Lesson 8 and then in Lesson 9, we will address Fraud Freezes and Fraud Alerts and when to use each one.

There are generally 2 terms that are thrown around quite a bit so first we need to clarify…the difference between credit card theft and Identity theft.

I have a really smart, i.e. highly educated friend who thinks these are the same. Wrong! So here’s the difference. Existing Credit Card theft is one type of ID theft. Credit Card theft is when some one uses your card to make purchases. The other two types are New Accounts and Existing non credit card account fraud. These together make up the major categories of ID theft. One major difference, your credit card has a nice little law protecting it, so that you are only liable for $50 per card. But you have to dispute the charges within 60 days to get this protection.

So let’s start with Prevention

What’s the best way to protect yourself? Here’s our list of the best preventative tips.

Remember this Phrase: Protect, Detect, Resolve, Block

Okay, first, protect your personal information. Don’t give out your SSN or other personal information unless you know it’s a trusted source, and keep a list of account numbers in a safe place.
Next, manage your mail. Here’s the pattern we use at my house. I pick up the mail and walk to the recycle bin, I dump all the catalogs and non-personal junk and then walk to the shredder to put in my credit card/loan offers that keep coming. Yes, you need to shred these. Then I put the rest on my desk. Having a system will avoid large piles to sort through each month.

If you’re not already online, Get online. Online consumers check their accounts more frequently which mean less damage is done should a fraud occur. Note that in a Javelin study, the average was $551 in losses when detected online vs. average $4,543 when detected from paper statements. A Harris Interactive study says that 50% of all households pay some bills online. So, if you are online, your risk is a great loss would appear to be lessened.

We realize that the other 50% of you out there are saying ” I don’t shop online” or “I don’t do anything online” or that “the Internet is evil”. Saying you are going to stay offline is like saying I refuse to use an ATM or I refuse to use a cordless phone”, it’s simply not feasible. Look… we are not asking you to get a computer and internet access if you don’t have it. You can do this from your library as long as you are careful to log in and out of your accounts. Besides, online ID theft is just about 10% of all ID theft. The real common ways ID theft happens are stolen wallets, checkbooks and credit cards.

Next tip: Check your accounts regularly. One study suggests 40% of us don’t review our statements on a regular basis, or even at all. ID thieves are counting on this!! You should review your accounts online once a week. Or check into the email alert service many banks have so you can be alerted for large balance changes. Wamu’s credit card has numerous setting options for alerts, where you can set to be notified various ways. Here we are setting an alert to be notified when my balance goes over $500.

A new service called Mint.com sends out alerts for you if your bank doesn’t offer this service. Mint is neat as it consolidates all your cards in one place.

Start using a credit-monitoring product or at a minimum check your credit free once a year at annualcreditreport.com. The annualcreditreport.com site is just okay as you only get your free report 1 time per year. The monitoring products are the “”Set it and Forget it” approach. Since we realize that checking your accounts once/week is simply not ideal for most people on the go — we like monitoring products as a simple alternative.

The good news, it that most of the monitoring products do ID theft protection – even if they are not marketed this way. Score Watch, while not marketed as an ID theft product, provides great monitoring. By the way, you may see ads for $1MM in id theft insurance included with some products. That’s no different than $20-25k in insurance as they only pay recovery fees i.e. it only covers your loss and legal and professional fees. And as you saw above, with an average fraud loss of $4543, much of this covered through your credit card’s $50 liability, $20K-$25K of insurance is just fine.

If you are past the stage of needing credit – for example, you own your house, own your car and don’t need any new cards, and not likely to need credit for anything– you may want to do a credit freeze. [We discuss Freezes in Lesson 9]. Okay this isn’t right for most of us, but what about your parents, or your aunt or uncle. The elderly are common targets of ID theft as they often have great credit scores and aren’t checking accounts as frequently. Yet, they often don’t ever need new credit.

We know this might seem like a lot to digest, but remember you have options, you can do much of the legwork yourself by disciplining yourself to check accounts regularly or you can pay a monitoring service to do it for you

In the next lesson, we’ll discuss how to deal with an ID theft if you get victimized.

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ID Theft Prevention and Basics – Lesson #7

Higher Credit Scores

This lesson covers some tips to get a higher FICO credit score and reduce your personal debt.

See all the ads on TV that say – “we erase your bad credit” or “we can remove bankruptcies”? Notice your gut reaction is to not believe them. Trust your gut. There is no quick fix for a low credit score, but that doesn’t mean you are sunk. We’ve spoken to lots of folks who have increased their credit scores by a 100 points or more in less than a year.  Yes, a higher credit score is in your reach.

So first things first, if you want to get your credit score higher, first you need to know what it is. We’ve discussed various websites in previous lessons and you can help out our cause by connecting through the VideoCreditScore.com website.

Next, in tackling a hard project of any kind, it’s nice to get a few easy victories. When you clean your house, sometimes it’s better to tackle the easy jobs first. Apply this theory to your credit scores.

Question: in your case, what’s easier, paying of thousands of dollars in debt or removing incorrect items on your report that could be as detrimental to your score? Inaccuracies can be fixed in a few months or less so that’s the place to start. Your first step after receiving your credit scores, is to read your report carefully and dispute any inaccuracies you have.

We talked about credit disputes in our credit score myths lesson. 25% of you may have score impacting errors; make sure you dispute errors, as it’s usually easier than some of the next steps.

Next, you’ll need to build a “credit snapshot and we’ll show you an example. For all your cards, you need to collect the following info, your APR, or annual % rate or interest rate, your balances, your minimum payment, calculated as 2-4% of your balance and your credit limit so you can see your credit utilization ratio.

In our example, Jamie has 3 cards, yes we know that’s less than average, but we want to keep this simple. She’s collected all the info: the card, the APR, the balance, her minimum payment and her credit utilization.

Let’s take a look back at the credit score pie.

High scores are all about managing to the credit score factors or the credit score pie. We think it’s best to focus on the biggest pieces which are payment history and amounts owed. Impacting these is critical to a great score and here’s how.

In our example, Jamie has paid her cards late; this could mean not paying at all, or paying less than the minimum. First off, she must pay the min, on time, each month!!!

So if you’ve been late, for your sake, you’ve got to back on time and NOT be late again. If you don’t have a system for paying on time, get one. You’d be surprised how high a score someone can have if they just pay on time. I saw this first hand at a university where few students could pay more than the minimum yet they had decent scores. If you are late, your first goal is to be on time with the minimum payments, once you do this then it’s time to be on time with more than the minimum. If you can’t make your minimum payments each month, you may want to contact a non-for-profit credit counseling organization to assist you.

So let’s say Jamie has $500/mth to put towards her cards. Now that she’s disciplined, she pays the $308 in minimum fees, and then needs to apply the rest someplace else. In most cases, you want to pick the highest rate card first, and apply all of it until it’s paid off, then the next highest card and so on. Remember in some cases it helps a score more to payoff by how “maxed out” the card is. But, both strategies have long-term positive impacts.

The key is paying above your minimum payments. Here’s an example of how credit adds up: your kids beg you for a Playstation 3 for $499 [or maybe you want one yourself]. A $499 charge will take almost 8 years to pay off doing just the minimum payments, and less than 3 years if you pay double the minimum payment each month. By paying just the minimum you have almost doubled your total cash paid.

Let’s say your cc debt is now consolidated on to a few cards that have all the same rates.

Because we get tired of saying Credit Utilization Ratio we are going to use the Acronym C. U. R.

CUR stands for Credit Utilization Ratio and it’s the ratio of Credit Used to Credit Limits. People who max out their cards tend to have lower credit scores because they are statistically more risky – i.e. likely to default.

Let’s go back to Jamie’s situation. She’s done great and paid off her store card and she’s managed to get her cc debt into cards with the same rates. Next, she needs to work on her individual CUR and her aggregate CUR.

For her $500 to apply, she wants to make the minimum on both and then apply the rest to the more maxed out card, in this case example, the MasterCard. See how the MasterCard has a 66% CUR vs. the VISA at 50%? Making a bigger payment to MasterCard will allow her to lower her CUR. Once she gets these 2 CURs to be even, she will want to split the funds to lower them both simultaneously.

…You’ve got to start working on your credit utilization ratio or CUR. In addition to following Jamie’s example…here are some other things worth trying to get a higher credit score. Especially if you have gained a few score points as of late. You can apply goodwill tactics.

1. Call your credit card company and tell them you will switch providers unless they will raise your credit limits. This doesn’t always work, but it might, as they want your business. What does this do? A higher credit limit lowers your CUR and that will improve your score. Note: this is getting harder in the current economy as credit issuers are cutting credit limits.
2. Also, ask your credit card company to lower your interest rate. This one can be tougher, but again the threat of leaving them might help. Or you can ask to be converted to another of their cards with a lower rate. Note: this will lead to a hard inquiry. This won’t help your score so much as it will help you pay less in interest and more in principal!!! And that will lower your balances!
3. Make a payment on your cards twice a month. Hey, you get paid 2x per month, so even if your monthly outlay is the same, it will help you as you will not incur as much interest expense. If you pay online many sites allow you to pay as often as EVERY FEW DAYS! If you pay by mail, just write down the address and make your own envelopes.

We look at Goodwill tactics as your opportunity to reward yourself for good behavior. Look, behave badly and a credit issuer may lower your limit or raise your APR, so shouldn’t you get a limit raise or an APR decrease if you’ve been paying on time?

Let’s go back to the Credit Score Factors Pie. What about length of credit history? Avoid closing down credit cards that you have a long history with. Start building credit early in life, after high school, so you can have a long credit history by the time you are 30 years old. What about mixture of credit? Not the best strategy to try to aim higher by getting a mixture. Leave this until your credit is more sound. Inquiries? Simple, no new cards/loans until you have a high credit score again.

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Higher FICO Credit Scores – Lesson #6

Today we are going to talk about Marriage, Divorce and Credit Scores.

As if the credit scoring game isn’t hard enough to track with 3 scores per person, once you get hitched, you now have 6 scores to worry about. Many people think their scores merge when they marry. Not true. There is no such thing as a joint credit score. So face it, you have 6 Scores now. If you haven’t pulled all 6 of your scores do it now.

Your scores can become interdependent depending on how you handle credit.

There are many situations you could be in but all the scenarios take too much time, so we will go right to our recommendation. each of you should have your own personal cards and also establish some joint cards. These don’t have to be new cards; you can take one of your current cards and make it joint. Why do we like this setup? It means you have your own credit but share credit as well.

Financial experts will then tell you that you should try to use your personal cards for personal use and your joint cards for joint-community purchases.

If you came into the marriage with no credit cards, this is a great opportunity to establish credit of your own. Get your own cards, and establish a bank account. These are good things to do while you are married, as you can get an “assist” from your spouse’s credit.

Remember we discussed earlier how credit scores are looked at when getting a home loan and that often they take the mid score. So what do they do now when you are married? Answer: They often compare your mid score to your spouses and take the lowest one. Car companies usually pull one for each of you but they may take a similar approach if you both plan to sign for the car. They will likely go with the lower score, because it gets them a higher interest rate. Did you know that some car companies make most of their profit from financing?

Another option: if you have a higher score than your spouse and you can qualify for a better rate based on your income, with just your score, then just put your name on the loan application but put both names on the title. This way you get “community property” AND you get the best loan rate.

Divorce is hard. No way around this. We constantly hear stories of people whose credit was wrecked in divorce. So everyone wants to know what should you do with your credit when you get divorced?

When you divorce, you must contact each credit grantor and either close all joint accounts or convert them to individual accounts. Personally, I like converting accounts so you hang on to your credit limits. Let’s go back to our example with Jack and Jill, in this case Jack converts the Visa and Jill converts the Amex to an individual acct.

If you have trust issues, you should consider closing down the joint accounts completely. This way, what you end up with should like what you came to the marriage with, only cards that just have 1 name on them.

Why be so careful? Well finances usually get harder after a divorce.

According to the US Census Bureau, only 37 percent of custodial mothers receive the full child support payments they are due. Only 15 percent of all divorced women are awarded alimony, and more than one out of four never receive any of the awarded alimony payments.

Countless studies show that money is the biggest cause of marital stress and divorce, so follow our advice and check all 6 of your scores first, and setup your cards to lead to success. If you are going to monitor your score with a product like Score Watch, you should monitor it for both spouses.

Join us in the next lesson, which discusses Higher Credit Scores.

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Marriage, Divorce and Credit Scores – Lesson #5

This lesson focuses on credit score myths. People ask a lot of questions about credit scoring. But, is it because it’s complicated? We think that one thing that makes it appear complicated is the vast number of myths that exist in Credit Scoring. Here’s our list of some of the biggest.

Credit Score Myths

1. Closing Credit Card Accounts Helps
   
2. Checking Your Credit Score Hurts You
   
3. Online Home Loan Shopping Dings You
   
4. Paying off the highest interest rate cards first is best for your score
   
5. Needless Disputing is a Good Practice
   

So, let’s tackle these one by one.

The first one is really one that’s counter intuitive. It seems like closing down credit card accounts should help your credit score but in fact, it doesn’t. This comes back to the credit utilization. You want your aggregate credit usage/credit limit ratio to be as low as possible. 20% is Great! If you are like me you have a few store cards that you never use. Just leave them open, but cut up the cards, or hide them in a safe place.

The second myth, checking your score hurts you, has a history. It used to be the only way to get your credit score, was from a lender, and when lenders check your score it’s for an application – so that impacts your score. So when the bureaus and myFICO started making scores available, they reached a consumer that was leery of the impact. The truth is, as long as you are not talking to a lender or credit card or other loan related company, you are fine. If you order from the bureaus, annualcreditreport.com or myFICO, you won’t impact your score AT ALL. Again, watch out for the broker with a free offer to pull your credit for you. He’s doing this to win your loan. This could hurt you. You can pull your scores safely by connecting through our links in our ads or links under the How To Get Your Credit Scores area to the right.

The third myth, online shopping causing numerous inquiries, is also historical. Pre-internet [caveman], you were likely to just use one lender for a loan, so someone really applying in multiple locations seemed risky. But even pre-internet, the folks at Fair Isaac had to figure out how to deal with someone wanting a second bid, so they created a 30-day window where all loan applications are treated as 1 inquiry. This is clearly a necessity in today’s world where consumers use websites like LendingTree and eLoan to shop for home loans. Incidentally, there’s a study out that consumers that get more than 1 loan offer usually get better rates. So shop around!  However, this 30-window only applies to home loans. Student loans, do not have this de-dupe inquiry feature.

Paying off the highest rate cards is best if you are trying to save money, and that will ultimately help your score. However, in the short term, if you are after higher credit scores, you want to pay off the highest utilized cards first. For example if you have 3 cards, a visa, a home depot and a pottery barn, it would make financial sense to pay off the pottery barn one first as in our example, it has the highest rate. But if it’s your score you want to impact, maybe so you can get a home equity line to payoff the cards completely, you want to pay off the home depot card as it’s impacting your credit utilization ratio the most and then the chase visa and work on the pottery barn one. Remember this is an example. Your first step will be to figure out what rates you have on your cards. The key here is, while the aggregate ratio here will not change at all, credit scores also look at your individual ratios.

One caveat, if you are NOT needing to use your score in the next 12-18 months for credit, then PLEASE pay off by interest rate first, you can always work on your score closer to when you need it. Got it?

Needless disputes are just that… needless. First off, what’s a credit dispute? If you believe information is incorrect on your credit report, you can dispute it with the bureau to have it removed. By law, they must verify with the creditor and if they don’t hear back, remove the item. But some people out there think that disputing correct info will succeed in having it removed. A] this is wrong b} it won’t work and c] did I mention this is wrong.

Don’t waste time trying to “trick” the scoring machine. That said, as I mentioned in an earlier lesson, the 2004 PIRG study pointed out that nearly 79% of credit reports have errors and that 25% are potentially score impacting. So, Take a close look at your reports to make sure everything is correct. Don’t waste time disputing your birthdate, if that’s the only item, but do dispute things you are sure are false, like a credit card you never owned, etc. Since most of us don’t like to write letters anymore, the Suze Orman FICO Kit has a nice tool to generate them for you. There are also numerous credit dispute letter samples in our resources section. Note that this can take some time to clear up. While the credit bureau is obligated to respond in 30 days, some back and forth may occur. It doesn’t happen overnight, but depending on your situation, it can be worth it.

We are always looking for more myths to bust, so if you have a good one send it to us at info [at] videocreditscore.com.

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Biggest Credit Score Myths – Lesson #4

Welcome back to VideoCreditScore. There are numerous places to get your credit reports and scores and while it seems to be that everyone is looking for the clear right answer for which product or website is best, it really depends on what you are looking for.

We’ll go through some of the better products here, but also check out the Comparisons Tab to see how each product is different.

If it’s scores you’re after, the only place to get all 3 FICO Scores – again this is the score that most mortgage lenders are using — is on myFICO.com.

If you are just starting out we recommend getting the FICO Complete which features all three FICO scores from myFICO and then signing on to Score Watch to get regular alerts. Why not just get FICO Complete every few months? Well it can be more expensive to go that way as you are trying to guess when your score might change. Why not just get Score Watch? Well you can, but according to 1 study about 20% of consumers can have 75-100 pt differences in their scores from the 3 bureaus, so it might make sense to check with FICO Complete to start.

If you know your score is going to be low, then the Suze Orman FICO Kit is nice alternative to the FICO Complete as it has numerous coaching modules. For just a few dollars more, the Suze Kit has some really nice features such as family sharing, and the credit coach.

If you absolutely feel you need 3 bureau monitoring, we like the Equifax product the best, but all three bureaus have nice offerings here. TU and Experian products feature their own proprietary credit scores.

You may have heard about AnnualCreditReport.com. This is the government sanctioned web site. As of 2004, You are entitled to 3 free reports a year. Unfortunately, you have to pay for the scores, which are only $5-7. Plus, only the Equifax score is a FICO score, the rest are non-FICO scores.

Be careful when you go to find this site. The World Privacy Forum did a July 2005 study that found that there were 233 domains with names very similar to annualcreditreport.com.

While the spirit of AnnualCreditReport is great, a free report without scores is kind of like Abbott without Costello, Jerry without Dean, the Grateful dead without Jerry…man, I sound old. Okay, how about Beyonce without Jayz, Mary Kate without Ashley. Plus, the report products are more barebones than the pay products. But hey, it’s free.

Speaking of free. Be careful with the “Free” language you hear, many sites are touting Free when it’s really a 30-day free trial. These are only free if you remember to cancel — if you intend to. These products can be as much as $150/yr, so you want to make sure you are using them if you are paying that much.

Again, check out the reviews Tab to see our product walkthroughs of various products. In summary, with FICO scores being the most used, we like getting FICO Complete if you’ve never seen your scores, or Score Watch to track your scores going forward.

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How To Get Your Credit Scores – Lesson #3

Credit Score Factors

Once people get their credit scores — and if you haven’t done this already you should – anyway, once they get their credit scores, they tend to look at their credit report and see that they may have a couple of items flagged for impacting their credit score. The gut reaction is to treat these all equally. Or, worse, focus on the easiest item. That’s a mistake.

The most commonly used credit score, the FICO score, is made up of 5 credit factors. Here are the 5 pieces and the percentage of the score each piece accounts for.

Payment History – 35%
Amounts Owed – 30%
Length of Credit – 15%
Credit Inquiries – 10%
Mix of Credit – 10%

The irony is that it’s really not all about the credit score pie, it’s mostly about the biggest pieces.

Payment History and Amounts Owed. These are the biggest credit score factors and nobody has a great credit score if these are out of sync. That’s because they represent nearly 2/3rds of your credit score.

Payment history is critical and as the name suggests time is your best ally to impacting this area. The key lesson is that a late payment in the recent past hurts more than one a few years ago. In fact, all your history is wiped clean after 7 years, unless you had a bankruptcy and then it’s 10 years. Net, net, if you aren’t paying on time, you have to figure out how to do this now. You can’t be late and still have a good score. Being late on payments a month before you hope to get a major loan is a no-no.

Amounts owed are all about Credit Utilization. What? A fancy term for the ratio of what you can charge – your credit limit – to what you do charge – how much of that credit limit you use. Let’s look at an example; Jack and Jill have the same credit limit on their cards, yet Jill uses her card less so she has a 25% ratio. It turns out that risk experts say people who use more of their limits are more risky. While many sources say a credit utilization ratio of 40% is fine. Someone with a 775 and higher scores tend to have about card utilization ratios in the 10% range. In short, don’t overuse your credit cards.

Mix of Credit. This wedge says that people with installment credit and revolving credit tend to be less risky than people with just one or the other and thus have higher credit scores. Installment credit examples are auto, home and personal loans. The most common revolving credit is credit cards.

Length of Credit. When it comes to length of credit just start early and stay on it. You can’t change time. If you are young, you want to start developing good habits now, so when you are ready to make a major purchase you have a few years of good credit history. Don’t cancel any credit cards with long credit histories.

There are 2 types of inquiries: Soft and Hard Inquiries. A soft inquiry is whenever you, for example, check your own credit score, or pull a credit report on your own. Soft inquiries are non-score impacting because they are not requests for new credit. Hard inquiries are requests for new credit. An example of a hard inquiry is applying for credit like getting a cell phone, or a credit card. So why do hard inquiries ding your score? It turns out that people who request credit more frequently are more risky, so the credit score reflects this.

Our experience is that most people love to focus on credit inquiries. While they shouldn’t be ignored, it’s only 10% of your score. When it comes to credit inquiries, timing is more the issue, don’t apply for credit at the same time when applying for a loan.

Also, don’t let credit inquiry fear stop you from shopping around for a loan, in most cases all credit inquiries in a 30 day window are considered as just 1 inquiry, and the industry to trying to move this to 45 days in the future. Note: this is true for home loans, but not for car loans and personal loans, so be cautious.

In summary, spend most of your effort around the biggest two credit score factors: Payment History and Amounts Owed, by paying on time and keeping your balances low.

Post from: Video Credit Score

Credit Score Factors Pie – Lesson #2

Companies use a credit score to assess your likelihood of paying whether its to get a car loan, a home loan, a credit card, or even a cell phone.

Credit Score Definition

A quick Google search discovered nearly 20 definitions for “credit score” which highlights how confusing this can get.

To quote myFICO “This term is often used to refer to credit bureau risk scores. It broadly refers to a number generated by a statistical model which is used to objectively evaluate information that pertains to making a credit decision.” Yikes!! Okay, take a deep breath and let’s simplify this.

This credit score isn’t one score at all, it’s 3 credit scores. Why? Because there are 3 companies that collect data on your credit history and create reports. Plus, you may hear the terms “FICO Score” and “Credit Score” used interchangeably. This is sort of analogous to Band Aid and Bandages. Band Aids aren’t the only bandages, but they probably are the ones most people recognize and the same holds for the FICO brand as FICO is the most used credit scoring system.

Next you might guess the score range is 1-100. Nope. Generally it’s a 3-digit number and the FICO system goes from 300-850.

So is it like an SAT score? Yes and No. Yes in that it’s really important. But, your SAT score is set in stone once you’ve taken the SAT. Your credit score changes over time, more like your cholesterol score. Both change as your behavior/habits change!

So how does this impact our lives? Besides the fed rate, this is going to be one of the greatest determinations of your loan payments. At the time of this recording the best rate for a 30 yr mortgage is 5.45%. But the worst rate is over 10%. Today, the best rate can mean $1000/mth LESS in payments for a $300K house. Check out the chart on myfico.com to see what this means for your house or car. One thing is certain, the price of credit score/report products often pay for themselves.

You can increase or decrease your scores through your behavior. But, we are going to focus on upward movement. So, what’s a good credit score? The banks are awarding the best rates to people with a FICO over 760. But wait, if you have 3 scores which one has to be a 760? Well many home loan lenders seem to take the middle score. So if your scores are 710, 720 and 760, they will likely use the mid score to calculate your rate. Most car loan lenders just use one score, but it makes sense to know all three as different lenders use different data sets for their scores.

If you’ve never seen your three scores, that’s the first step, just click on Score Watch ad next to this screen to get started.

In order to start figuring out how to manage your scores, you’ll need to understand what goes into your scores.

There are 5 key areas that impact your score. I’ll cover these in the next lesson #2 – the credit score factors pie.

Post from: Video Credit Score

Credit Score Definition 101 – Lesson #1