- How to Dig Out of Debt, Part 2
Have you lived without your credit cards for the last week? Has it seemed rather mid-20th century, or even un-American, to go “cash only” for all of your purchases?
If it feels odd, just remember that your ancestors lived this way for all of history; consumer debt is a recent luxury. You may also feel like a little kid again, carrying your weekly allowance around in your pocket for purchases. Trying anything new is bound to feel strange until it becomes a new habit.
- How to Dig Out of Debt, Part 1
At the end of 2008, the total credit card debt of Americans exceeded $972 billion. For those households that had a credit card, the average outstanding credit card debt was $10,679. Uninsured medical expenses, lost jobs, and other emergencies no doubt contribute to many Americans falling behind. However, overspending—otherwise known as deliberately living beyond your means—is a significant cause as well.
If overspending describes your behavior, the next few blogs are for you. Later postings will address approaches used for debt relief, no matter what the cause.
- Credit Card Rules Are Changing, Part 2
The Credit CARD Act of 2009 will be the law of the land on February 22. It gives consumers greater protection from the abusive practices of credit card companies, as well as better education on responsible credit use. I know that the word responsible implies a values-laden judgment on credit usage. My goal, however, is not to chastise or shame, but to nudge you toward better financial planning practices. I define better as that which saves you money.
- Credit Card Rules Are Changing, Part 1
Have you noticed a flurry of mailings from your credit card account providers lately? Since the first of the year, I’ve received many letters that all start the same way: “Important Notice of Changes to Your Credit Card Account Ending in xxxx.” Almost all of them are notifying me of higher rates on any balances I might carry. Since I never carry balances, I just briefly scan the brochure and duly file it away without a second thought.
- What Doesn’t Help Your Credit Score
One cardinal rule for financial health is to avoid accumulating credit card debt in the first place—it’s a clear sign that you’re not living within your means. Compounding matters, interest is not tax deductible, and rates are outrageous. So if you never carry a balance from month to month—but pay off your account balance diligently—you should have a great credit score, right? Wrong!
- How to Boost Your FICO Score, Part 2
Last week, I described the three major components of your credit score. Two minor ones are left.
New credit and credit inquiries = 10%: Have you opened several new credit accounts in a short amount of time? Have you shopped at several car dealerships lately?
Too many new credit card accounts could signal financial distress or reckless behavior that could affect your bill-paying capacity. And auto dealerships are notorious for running credit checks on you, even if you’re not in serious negotiations for a car purchase.
- How to Boost Your FICO Score, Part 1
Fair Isaac Corporation uses a trade secret algorithm to construct your FICO score. However, the broad parameters of credit score construction are now known and consist of five components, with their approximate percentage contribution to the final FICO number. The following are three of the components; the remaining two will be discussed in the next blog.
- How Your Credit Score Is Derived
Most lenders will rely on your FICO score to assess your creditworthiness. Your FICO score is derived by the Fair Isaac Corporation from information reported by three national credit reporting bureaus: Equifax Inc., TransUnion LLC, and Experian Group. These agencies, in turn, get their information from voluntary submissions from certain creditors across the country. Mortgage companies, auto loan financiers, and consumer credit card companies are the major contributors of information.
- A Responsible Use of Credit
My next several blogs will cover the financially responsible use of credit. The year 2009 has clearly been one of financial uncertainty, both in the stock market and in the credit market. The days of abundant and cheap credit are gone. The easy underwriting standards of 2007 seem like distant history. More than $1 trillion of credit lines extended by banks have been eliminated in the last few months.