Blackstocks.com: In the Know

What Happens to My Credit Score if I Get Rid of Cards?

The following information is curtosey of myfico.com. Please note that in this example; we assume that questioner (Erick) is asking whether to close a credit card account that is in good standing. 

Dear myFICO,

I’m trying to get my finances under control and would like to consolidate the 6 credit cards I currently have into 1 or 2 cards that have zero-balance transfer options plus lower interest rates.

What should I do with the cards I no longer want to use? I’ve heard that closing them can affect my FICO score.

Eric
Chicago, Illinois

Dear Eric,

How closing and opening credit cards affects your FICO® score is a common concern, so you’re smart to get the lowdown before doing something that could hurt your score. The short answer: we never recommend closing old or unused credit cards because this rarely helps your FICO score .

Why Inquiries Matter

Why they Matter

New credit is one of the factors used to determine your credit score. In fact, new credit accounts for 10 percent of your credit score.

Hard inquiries are considered a subset of the new credit category.

According to Fair, Isaac & Co., the information about inquiries that can be factored into your FICO score includes:

• the number of recently opened accounts that you have and the proportion of accounts that are recently opened compared with long-standing accounts, by type of account;
• the number of recent inquiries;
• the time since recent account openings, by type of account; and
• the time since you last had any credit inquiries.

As Fair, Isaac & Co. writes on its Web site:

For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all. For others, one additional inquiry would take less than 5 points off their FICO score.

Why do the TransUnion and Equifax Score Differ from MyFICO Score?

 

Why does TransUnion say my Equifax score is 733 when myFICO says my Equifax score is 689? I pulled both scores on the same day. Both credit reports contain the same information. Which score is right, and which one are lenders going to use?

 

Here is the scoop according to MyFICO.com.

This is a great question and one that's been a very hot topic. The reason you're seeing a discrepancy is because you purchased scores from two different scoring systems. The score you bought from TransUnion is their consumer version of your credit score, but it's not your FICO® score. Many different websites sell credit scores to consumers, but only myFICO.com and Equifax.com sell actual FICO scores to consumers. In fact, you may be surprised to know just how many different credit scores are sold to consumers – most of which are never used by lenders.

This is not to say that getting your credit scores from online vendors is a bad idea. Checking your credit scores from a trusted seller can often serve as a guide for pointing you in the right direction. If you pull your credit score from a reputable source and find that you have a very high score, then more often than not, you'll have a good FICO score as well. Just be sure to check your actual FICO score before applying for a loan – this is the best way for you to know what the lenders will base their terms on.

What does the difference in the two scores you pulled mean to you? Well, don't demand a lender's best rates based on your TransUnion credit score of 733! Your FICO score of 689 is the score you should be basing your expectations on. Generally, a FICO score above 720 will qualify you for good rates on most loans.

25 Terms about credit you ought to know

As you learn about credit scoring, you may hear some new terms. Thanks to bankrate.com, this glossary covers commonly used words and phrases related to the industry.

Algorithm: A complex mathematical model. In credit scoring, it is used to compare data in millions of credit reports and predict a person's likelihood to repay debts.

Join Blackstocks/ShareBuilder

Bankruptcy: A legal proceeding designed to help people in financial difficulty get a fresh start by relieving them from having to pay their current debts. Bankruptcies usually stay on a person's credit report for 10 years.

Charge-off: An unpaid portion of a bill that a lender has accepted will never be paid and has recorded on the books as a bad debt. It is a serious negative item on a credit report.

Collection: A creditor's attempt to recover a past-due payment by turning the account over to a collection department or company. Having a debt in collection is a serious negative item on a credit report.

Credit bureau: A credit-reporting agency that is a clearinghouse for information on the credit rating of individuals or firms. Often called a "credit repository" or a "consumer reporting agency." The three largest credit bureaus in the U.S. are Equifax, Experian and TransUnion.

How to Win at Credit Cards

According to Consumerreports.org here are ways you can win at the credit card game:

Choose well. Hunt for cards with consumer-friendly policies. Top 10 credit cards lists bank cards with interest rates and fees at the low end of the spectrum. Also consider cards issued by credit unions. A July 2005 study by the Woodstock Institute, a nonprofit economic development policy group, found that cards issued by credit unions had much lower fees and penalty APRs. To find a credit union for which you might be eligible, visit the Credit Union National Association Web site at www.creditunion.coop or call 800-358-5710.

Scope out the offer. Scan the Schumer box, named for Sen. Charles Schumer, D-N.Y., who sponsored a law mandating disclosure of all rates in a type size that customers can read. Pay attention to notices you receive from your card issuer. If you use your card after receiving them, you may be tacitly agreeing to new terms, even if you claim you never saw the notice.
Negotiate better terms. If your card issuer hits you with a late fee or a rate hike, ask for a waiver. The better your credit score, the more leverage you have, says Scott Bilker, author of “Talk Your Way Out of Credit Card Debt.” “Even if your score is a little below average, you’re still going to spend money and they would rather have it be on their card than a competitor’s,” he says. If you can’t get a better deal now, you can improve your credit score over time by making on-time payments and by not increasing your balance. You can ask for a lower rate later.

Pay on time. Mail your payment as soon as you receive your bill or set up direct online payment arrangements with each card issuer, suggests Curtis Arnold, founder of CardRatings.com. “Even when you’re paying electronically,” he says, “some issuers may take two or three days to post payment to your account, so it’s wise to go online to authorize your payment at least that far in advance of the due date to play it safe.”

Complain. First register a complaint with your state attorney general. (Contact information is available at www.naag.org.) Also lodge a complaint with the Office of the Comptroller of the Currency, at www.occ.gov or 800-613-6743. If the OCC doesn’t regulate the card issuer, it will help you find the agency that does.

The 10 most consumer-friendly credit cards

According to CardWeb.com, a leading source of data on the credit-card industry, analyzed 10,200 card offers to identify those with the lowest cost in a group that provided the best terms based on CR’s criteria. None of the 10 cards has a universal default clause, two-cycle billing, or balance transfer fees, all of which can jack up finance charges. All cards have a grace period of at least 25 days and have no annual fees. The information is current as of Aug. 1, 2005. An “f” indicates that the card has a fixed rate; “v,” a variable rate. Rates are the lowest offered to customers who meet issuers’ credit-score standards. The “go-to APR” takes effect at the end of the promotional period.

Click on the picture to enlarge

 

Credit - access to capital either business or personal pressing issue facing people of color

Here at Blackstocks.com we believe that credit - access to capital either business or personal is perhaps the most pressing issue facing most folks of color as well as people in general. In fact, we believe that this replace civil rights - as one of the most pressing area facing people of color. That's why in addition to investing, if you look at the blog postings, you will find that the Category ' Credit" is one of the most posted areas.

Here is an outstanding post compliments of Myfico.com.

Dear myFICO,

A few years ago I fell on some hard times and missed a bunch of payments to my creditors before finally declaring for bankruptcy. Now I’m dedicated to getting my financial life back on track and have paid all my bills on time for almost three years now!

Can you tell me how long my bad history will remain on my credit report? Do different types of information remain longer than others? Is there anything I can do to remove these old items from my credit report any quicker?

Karen

//////////

Dear Karen,

The fact that you’ve been paying all of your bills on time for nearly three years is a huge step in the right direction. Your recent good payment history won’t make your past payment history disappear, but it has laid a strong foundation for a better credit history going forward. Keep it up!

I Bet You Didn't Know that Business Credit Matters!

Most people know about personal credit and the impact on personal credit in our lives ranging any where from buying a home to getting insurance for your car. But most people have not heard of or focused on Business Credit. This is where many of us are really missing the boat. During the next 5 days, we're going to talk about business credit and how it can impact our lives - especially if you are a small business!

Join Blackstocks/ShareBuilder

What is business credit?

Your business credit record is the primary way that companies evaluate whether to do business with you—and on what terms. Companies rely on your business creditworthiness to make critical decisions, including whether:

• to sell to you
• to lend you money
• you are viable as a partner
• to lease the equipment you need to grow your business
• to increase your line of credit
• to help you carry more inventory at competitive prices
• to give you favorable financing rates and terms
• you stack up favorably against other companies competing in your market space

Business credit includes a variety of data points about your business, such as the date it started, the skills and experience of your top leaders, number of employees and annual sales. This type of information is listed in your business credit profile, along with scores and ratings that are derived from your business’s past behavior to predict its future behavior. For example, your ability and willingness to pay your bills on time in the past is factored into your ability and likelihood of paying your bills in the future.

Join Blackstocks/ShareBuilder

Here is a good example why business cerdit is important:

Example

You have an average personal credit history (FICO of 650) without a business credit profile and the business is approved for a loan of $100,000 on terms of 13% interest over 10 years. If there had been a favorable business credit profile the terms on the same loan might have been 7% interest over 10 years resulting in the savings of tens of thousands of dollars.

Here is what you could save by having a Favorable Business Credit

Profile:

Loan Amount                $100,000                          $100,000

Interest Rate                        13%                                   7%

Term of Loan                10 years                           10 years

Monthly Payment           $1,493.11                       $1,161.08

Total Payments           $179,173.20                   $139,329.60

 

Total Savings:                                                    $39,843.60

7 Sure Fire Ways to get and Remain Debt Free

According to Steve Bucci, Bankrate.com's debt advisor, there are seven sure fire ways to get and remain debt free. Here they are and we endorse each step.

1. Live below your means. You cannot become debt-free if you spend more than you earn. It's that simple! Financial stress relief is called "money in the bank" or "positive cash flow."

2. Decide where you want to spend your money. Don't let others decide for you. Know how much money you are bringing in, how much goes out and to where it goes. If you are not satisfied with the answers you get from this exercise, now is the time to change your spending habits. You (and your significant other) are ultimately responsible for how your money is spent.

3. Pay your bills on time, every time. Managing monthly bills is an essential part of staying debt free and maintaining a good credit rating. If you find this difficult, come up with a system to ensure that bills are not paid late.

4. Set financial goals, both short- and long-term. Having goals in place makes it easier to make the necessary spending cuts to get what you really want. Without reasons to cut spending and save, you will constantly be under pressure to spend money you don't have for things you don't need.

5. Use credit only as a tool and with a plan. Figure out how and when you will pay the balance. Imagine building a house without a plan or blueprints. That's what your financial house will look like, too, without a plan. Your goal should be to pay for credit card purchases within three months. Remember, unlike wine, cheese or my wife, debts do not improve with age.

6. Have an adequate emergency savings fund. Life will throw curveballs at you, ranging from the need to replace a worn-out washing machine to a temporary job loss. Three to six months' worth of bare-bones living expenses should shield you from most of these problems. Can't do three months' worth? Start with three days' worth and watch it grow as saving becomes a habit.

7. Learn how to invest your savings. Your money has to earn more money to keep you out of debt, especially in your later years. Take a class, find a referral to a great adviser or just start reading. Do it your way, but do it; and start now!

Things You Ought to Know About Credit Unions

According to aboutus.com most people never notice the differences between credit unions and banks. However, as an educated consumer looking to get the best deals (that is you, right?) you should know how the institutions differ. By reading these fast facts about credit unions, you’ll know what to expect.

Who Owns a Credit Union?

A credit union is an institution owned by the “members” or customers. Contrast this with banks where the customers are just customers. Banks answer to profitability – usually shareholders own a bank and expect financial performance from bank management.

Credit unions are nonprofit organizations that strive for service over profitability. Note that I said that credit unions are nonprofits, however they are not charities. Credit unions must make sound financial decisions.

Who Runs a Credit Union?

If all the customers own the credit union, then who has time to run the place? Credit unions actually have the same types of personnel as banks.

Upper management consists of a board of directors who makes decisions on credit union operations. This board is composed of elected volunteers. They don’t do it for pay – rather, they’re credit union members who want a say in how the place is run.