Archive for the ‘Credit Reports and Scoring’ Category

Should College-Age Kids Have Their Own Credit Card?

Should college-age kids have their own credit card? That’s a difficult question to answer and a lot depends on the maturity level of the kid. One 18 year old may be vastly more mature and financially savvy than another, so making the blanket statement that no college-aged child can manage his or her own credit card isn’t quite correct.

There is no doubt that giving a credit card to someone who doesn’t yet have a stable income is risky, but, if your college-aged child is otherwise responsible, then allowing them to begin to build that all-too important credit history early may be a good choice.

Regardless of whether your child is a spendthrift or a miser, be sure to comparison shop for the best card for him or her, and along the way,  provide a little financial education as well. It is too bad that high schools don’t offer money management classes and sadder still, colleges are all too willing to lend money to their students without educating them on the interest they are accruing and the repayment terms. In this, you, as the parent, need to take the lead on this.

The CARD act of 2009 has some special provisions regarding the issuing of credit cards to those under the age of 21. Among these is the requirement no credit card may be issued to someone under 21 unless they a.) have a cosigner, or b.) they can demonstrate the ability to repay the credit card balance. In addition, no “prescreened” credit card offers may be sent to those under the age of 21.

Having good credit is of vital importance these days, and young people need to be taught sound money management practices early so that they can avoid credit troubles down the line. Having a credit card and using it wisely is a good way to start learning these principles.

How Many Credit Cards Are Too Many?

There is no hard and fast answer for this question. It is true that lenders look at open credit lines as a temptation to get into more debt, but it is far more important to look at your debt-to-income ratio than just your total number of credit cards. In fact, your debt- to- income ratio can tell you if you, as an individual, are carrying too many credit cards.

Your debt-to-income ratio is your total amount of debt divided by your income. To be safe, this number should never be greater than 25%. When you apply for a loan, the lender may look at your credit file and take all of your available credit, even if you haven’t used it, and do this calculation to see what your debt-to-income ratio could become should you max out all of your credit cards. If the number is greater than 30%, then the lender will likely consider you a higher risk.

You can do this calculation yourself and if your debt-to-income ratio, with all of your credit lines maxed out is greater than 30%, then you probably are carrying too much plastic. You should consider closing some of your open accounts. Be careful, though, not to close your oldest credit accounts. Doing this will negatively affect your FICO score since account age is one of the influencing factors.

When Five Days Late Equals Thirty Days Late

American Express apparently starts counting the days you’re past due from the date your billing statement is printed instead of the date your payment is due. This policy seems to fly in the face of the CARD act rules which state that credit card companies must give you at least 21 days from the time you receive your bill to make your payment.

One reason they might be getting away with this is because, according to Latoya Irby:

Fortunately, this is just an issue of phrasing and doesn’t impact late payment penalties or credit bureau reporting. It can just scare you into thinking your balance is seriously delinquent when it’s only mildly delinquent.

Another reason might be that American Express is a “charge” card rather than a credit card. There may be loopholes in the law that allow this.

Still, this policy smacks of operating in bad faith and, really, I do not see how a company can expect payment on the day the bill is printed when you haven’t even had a chance to receive your bill!

Perhaps AMEX customers ought to complain to the FTC.  American Express is clearly violating the spirit of the CARD Act, which aims to restore fairness to credit card company policies.

American Credit Scores: Another Casualty of the Great Recession

A full quarter of American consumers, 25.5%, now have credit scores of 599 or below, according to a recent sampling by FICO Inc.  People with scores this low are unlikely to qualify for any sort of consumer lending. They will be unable to get a credit card, buy a car, or a home.

As unemployment and foreclosures continue to plague the economy, more and more people will lose ground on this important metric for consumer lending. FICO expects the percentage of people with low credit scores will continue to rise in the near term, since credit reporting often lags behind late payments and the economy has gotten no better.

On the flip side, the percentage of consumers with scores of 800 and above has also increased over historic levels to 17.9%.  This means that anyone who has managed to hold on to his job and is still doing relatively well is being very cautious and paying down what he owes.

The effects of plummeting credit scores will be felt for years since banks have tightened lending standards recently. Even people with scores in the medium range of 650 to 699 will find it harder to obtain financing at a decent interest rate. Those with scores below that will be unable to find financing at any rate, and it will take years for them to recover what they’ve lost.

Related articles:

How To Rebuild Your Credit Rating

See Your FICO Score

Wall Street Is Circling The Wagons Against Elizabeth Warren as Head of Consumer Bureau

The newly created Consumer Financial Protection Bureau was an idea conceived Harvard Professor and long time advocate for the middle class, Elizabeth Warren.  Since the agency was her idea, and she is obviously the most qualified person to lead it, then her confirmation as its head should be a shoo-in.

That would be true in the real world, but in the Washington Beltway, what is up is down and what is wrong inevitably turns out to be right as long as enough lobbyist money is spent to woo political officials along the way.

Wall Street was extremely opposed  to the consumer financial protection bureau and  through their lobbying efforts, managed to get it moved within the Fed instead of outside it. Beyond that, they haven’t managed to weaken it any further, but appointing a Wall Street insider would ensure that the agency would have no teeth and be practically useless.

Treasury Secretary Timothy Geithner,  a Wall Street insider if there ever was one, is quite opposed to Warren, who has dressed him down a time or two as he appeared before the Congressional Oversight Committee that she chairs. Where no one else would ask the tough questions, Elizabeth Warren did, and when the answers given were less than candid or complete, she poured on the heat.

 

 

 

Now we hear that Senator Chris Dodd, Chairman of the Senate Banking Committee does not believe that there are sixty votes in the Senate to confirm Warren as director of the CFPB.  From the article:

I think Elizabeth would be a terrific nominee," Dodd told NPR’s Diane Rehm on Monday. "The question is, ‘Is she confirmable?’ And there’s a serious question about it.

Senator Dodd has taken a great deal of donations from the banking industry and while fighting for financial reform, he has also worked to weaken it at the behests of his donors. His remarks today are even more of an indication that Wall Street will fight tooth and nail to prevent Warren from heading the agency that was her brainchild.

How To Rebuild Your Credit Rating

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If you’ve had trouble paying your bills (who hasn’t, in this terrible economy?) and you have dings on your credit, you may think that it will be impossible to rebuild your credit rating. Nothing could be farther from the truth. Bad marks on your credit lose their impact on your credit score as time passes. Even a bankruptcy will lose much of its impact, although it will still remain on credit report, five years after the fact. Bad marks for late payments lose their impact over a much shorter period of time; perhaps  six months to a year after the fact, assuming you make all other payments on time.

So how do you rebuild your credit rating? The following four actions will help you to improve your credit score over a period of time. 

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Free Credit Reports: What You Need To Know

The CARD Act, the new law regulating credit card companies also sets forth  a new regulation  regarding companies that use free credit reports to entice people to enroll in paid services such as ordering credit scores, credit score monitoring, and identity theft protection services.

Basically, the new rule is this: anyone who provides free credit reports must let people know that they can obtain their government mandated annual credit report (three reports in total, one from each Credit Bureau) from AnnualCreditReport.com. This website has been established as the centralized location to allow people to obtain their credit reports for free.

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New Credit Score To Evaluate Small Business Risk Available From Experian

Experian, one of the three credit reporting  bureaus now has a score that evaluates small business risk. This score predicts which small business applicants are more likely to become delinquent on their credit cards and other loans within the next year.

While it is unknown what data go into this new scoring model, information from Experian’s website suggests that it includes more than just lines of credit, credit card payment history, and rental or lease payment history. It seems that it also includes payment histories on utility accounts and trade accounts as well.

The Small Business Credit Share(SM) score appears to range from 0 to 100, where 0 represents the highest risk and 100 represents the lowest risk.

Experian claims that this scoring model is highly predictive of small business risk. Time will tell if this is the case.

People With High FICO Scores More Likely To Default On Mortgage Than Credit Cards

A FICO  report released in February of this year reveals that people with high FICO scores (between 760 and 850) have a higher default rate on mortgages than on credit cards. From May through October 2009 the default rate for this group was .32 percent for mortgages and .12 percent for credit cards. This is an increase as compared to .08 percent for mortgages and .10 percent for credit cards in 2007.

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What Is A Good FICO Credit Score In 2010?

Your FICO score is one of the factors that lenders use to determine whether or not they will approve you for a credit card, auto loan or mortgage. Your credit score is also a factor in the amount of interest you will have to pay if you are offered a loan or credit. The higher your credit score is, the easier it is for you to qualify for credit cards and loans and the better terms you will get. FICO scores range from 300 to 850. Naturally, you might wonder what is a good FICO credit score?

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