Money Blue Book

If you’re like most consumers, you will probably need to apply for jobs or take out loans to buy a car or a house sometime in your life. What do these things have in common? They all may require that you have a decent credit score to reasonably qualify.

Currently, the most uniformly and commonly used credit scoring system is the FICO score, developed by the Fair Isaac Corporation. The competing credit bureaus have come up with their own scoring systems with various names including VantageScore and Plus score. However, they are all imitators at best and not universally used or recognized by lenders and creditors. There’s a reason why many refer to these other scores as “FAKO” scores. The FICO score is still the most widely used method. If you want to compare apples with apples, then it’s best to keep your historical credit scores consistent and stick with the FICO. That’s the only credit score I really care about.

Many employers today use credit scores to initially gauge prospective job applicants. Even rental apartments frequently run credit checks to make sure future tenants have a history of making good on credit payments. Credit lenders use people’s FICO scores to determine whether the person gets approved for credit, how quickly they get approved for credit, the extent of the credit limit, and what kind of terms they get. Those with lower credit scores tend to get stuck with terms that demand higher interest payments and stricter down payment requirements. These days, your FICO score is almost becoming a reflection of your financial trustworthiness so it’s in your best interest to keep periodic tabs on your credit score changes and credit report activity.

Not everyone lives a financially perfect life and we’ve all made financial mistakes or have had unintentional credit difficulty in the past or even currently. Some people like myself even voluntarily subject our FICO credit scores to punishment so we can can take advantage of free interest money generated by no balance transfer fee cards. Either way, it takes time to recover from major credit hits and lapses.

However There Are Several Things You Can Do To Better Understand and Improve Your Credit Score Situation:

1) Check Your Credit Report and Credit Score Regularly – Knowledge is power. It’s important and wise to check your free credit report and score regularly and know where you stand in the eyes of creditors. Having a stellar FICO credit score isn’t as immediately important if you’re still many months or years away from needing a major loan for a house or car, but it still affects your chances for things like jobs and credit cards.Be careful of some websites that purport to offer free or easy to request credit reports. Sometimes requesting from these companies will lead to hard credit pulls that may hurt and lower your credit score – essentially the credit bureaus think you are asking to borrow money and the creditor is checking your credit. I recommend sticking with more reputable sites that offer free credit scores, like MyFICO which I currently use to track my credit situation.

2) Don’t Cancel Credit Card Accounts – Many people mistakenly think that if they cancel their credit card accounts, that it will have a positive effect on their credit score. This is incorrect and in fact, canceling older accounts may actually hurt your score. The FICO score relies heavily on the average age of your credit accounts to calculate your credit worthiness score. The longer a particular credit account has been around, the more beneficial its presence will have on your credit score.The other key component of the FICO score is your total credit utilization ratio, which is the total amount you currently owe on all of your revolving credit cards divided by the total credit limit available to you. Closing an unused credit card reduces the amount of credit available to you, making it seem like you are closer to maxing out your credit cards. Once the cards have been issued and activated, the credit ding’s already been made so canceling thereafter won’t help your score. Try to store the cards away in a safe place if you don’t use them, and resist the temptation to cancel if you can.

3) If You Must Cancel, Don’t Close Old Accounts But Start With Newer Cards First – Sometimes canceling credit accounts is the only option. If you are having extreme difficulty managing credit and find the temptation utterly irresistible, perhaps canceling a few cards is your best path to a more secure financial future. Consumers frequently seek to cancel their higher interest rate cards first, but in terms of your credit score, you are better off canceling your newer cards first, even if they have the lower interest rates.

4) Pay Down Your Total Debt and Lower Your Overall Credit Usage Ratio – Paying off the minimum payment required on time is important but it’s important to keep your total utilization ratio as low as possible, preferably under 30 percent. Since a large FICO credit score component is your total credit utilization ratio, try to lower your usage by either paying off your outstanding debt or by calling your credit card company and requesting a credit limit increase.

5) Resist the In-Store Temptation To Open Credit Accounts – I’ve written about the dangers of applying for department store credit cards. Each time you apply for one, the resulting hard credit inquiry will hurt your FICO credit score. The one time retail discount you’ll get isn’t worth the credit hassle.

6) Be Aware Of Credit Inquiries That Will Affect Your Credit Score – Frequent hard credit checks by creditors will negatively affect your score, but soft checks made by you will not. Always make sure you are aware of what type of inquiry is being made when you request your credit report or score – whether it is a hard credit pull or a soft pull. Try to keep the frequency of hard credit inquiries as low as possible, but if you need credit, it’s more beneficial to request them all within a short span. A rapid succession of inquiries made by credit institutions like banks, credit card companies, or auto loan financing companies within a short period of time (under a 1-2 week window) will usually be considered as one credit ding.

I’m thinking of a number…between 450 and 850. Do you know what it is? It’s my credit score, and it happens to be be 720.

Ok, my credit score is actually 750, but I’m sure you’ve heard that commercial before from freecreditreport.com. It’s the one where the guy is sitting on a producer’s chair talking about his credit score in front of a plasma tv. Well I’m here to warn you not to fall for their slick advertising. Their marketing technique is very clever but seemingly misleading. The free credit reports they offer are not truly free as most people would understand it. You have to enroll in their credit monitoring trial program to obtain your complimentary report. If you don’t cancel within the trial period, you will be charged.

AnnualCreditReport.com is the Only Official Free Credit Report Site

There is only one truly free way to obtain your credit report, and that is through AnnualCreditReport. There are numerous sites out there that claim to offer “free credit reports”, “free credit scores”, or “free credit monitoring” but none of them are part of the legally mandated and official free annual credit report program. In most cases, the so-called credit report product comes with strings attached.

By law everyone is entitled to a free copy of their credit report from the three major credit agencies, Equifax, TransUnion, and Experian, upon request once every 12 months. These credit reports usually cost upwards of $10 each. It’s a good idea to keep tabs on your credit report and credit score periodically for any fishy fraudulent activity. It’s also a good idea to know where you stand in the eyes of lenders. Don’t worry, requesting your own credit report is considered a soft credit check and won’t have a negative effect on your credit score.

Your credit report will contain a snapshot of your entire payment history, accounts, balances, and payment history. Keep in mind that even though you are allowed by law to receive a free credit report every year, the free report does not come with a free FICO credit score, the three digit number that lenders use to gauge your credit worthiness. It’s disappointing that the free credit report doesn’t come with a credit score, which some consider just as if not more important than the actual report itself. Hopefully future government legislation will allow everyone to get their credit score as well. Currently, you will have to pay extra to get the score.

How To Request Your Free Report

To get your free credit report, simply visit their website at AnnualCreditReport.com or call (877) 322-8228. You will have to provide identification information such as your name, address, and social security number. The website is jointly operated by the 3 major U.S. credit reporting agencies and each has to provide you a free copy of your credit report. You have the option of requesting reports from all three credit agencies at the same time, or you can choose to stagger the three requests as some experts recommend to better monitor your credit throughout the year.

What If You Already Used Up Your One Free Annual Credit Report

If you have already requested your free annual credit report within the last 12 months, you will have to wait until the 12 month period is over before you can request again from AnnualCreditReport. If you’ve already used up your free official credit report for the year, your other choices include taking advantage of the 1 month credit score and credit report trial offers provided by sites such as MyFico or Equifax. They will provide you your complimentary credit report and score for enrolling in their credit monitoring program’s trial period. Just remember to cancel the trial service if you don’t plan on using it after the trial period. Some people do choose to keep the service as they find the monitoring service to be useful. If you want to take advantage of trial offers to get your complimentary credit report and score, my suggestion is to stick with the major companies. There are many shady sites out there looking to steal your confidential information, so please be careful.

Other Ways To Get A Free Credit Report

There are few remaining ways to get your free credit report if you’ve already tapped out the AnnualCreditReport.com option. By law you can get a free report if:

• You are unemployed and seeking employment in the next 60 days.
• You are receiving public welfare assistance.
• You believe there are inaccuracies in your report due to fraud or identity theft.
• Also, if you were denied credit based on information found on your credit report, you are entitled to a free copy of your report from the credit bureau that supplied the credit report. This entitlement would arise if you were denied insurance, rental housing, or employment due to issues found on your credit report.

After spending some time on the sidelines, I think it’s time for me to get back into the whole 0% balance transfer game, also known in some circles as the App-O-Rama (insert ominous lightning and thunder crack).

The App-O-Rama Game – What Is It?

For those of you unfamiliar with the concept, the App-O-Rama (more formally known as credit card arbitrage or balance transfer arbitrage) is a way to generate money through the calculated use of interest free credit card balance transfers. The process operates by you opening numerous credit cards that offer special introductory 0% APR balance transfer rates. The introductory period is often up to a year long, during which time you deposit the balance transfer funds into a high yield savings bank account. Essentially you are making money from borrowed money for an extended period of time. At the end of the introductory period, you promptly pay everything back in full and you pocket the savings interest as profit.

The process requires prior preparation and may be difficult for some people to automate and pull off without a hitch. Participation is certain to negatively affect your credit score in the short term and there are also many hidden dangers as well so it’s certainly not suitable for some people. It is definitely not recommended for those people who need to maintain excellent credit because they are planning on buying a new house or car in the next 12 months. It is also not recommended for those who are disorganized or are unable to handle the responsibility of using and paying off credit cards.

But for others, if you do your research and plan everything carefully and thoroughly, credit card arbitrage can be a great way to earn remarkable and relatively effortless profit. The more credit you are willing to take on and transfer, the more you”ll earn in interest.

Preliminary Steps Before Beginning the Credit Card Arbitrage Process

I am still in the initial preparation stage. Before I start the App-O-Rama, I need to first complete several preliminary steps:

1. Request and examine my free credit report – Before I begin I need to know my current credit status. By requesting and examining my 3 credit reports and free credit score, I can determine how much of my existing credit I am using and my current credit worthiness. This will also allow me to more accurately track the extent of the temporary credit score hit that is bound to occur when I start the process.
2. Examine and carefully evaluate all future credit-dependent plans for the next 12 months – Participating in the App-O-Rama is certain to ding your credit score at least for the short term. If you plan on applying for a loan to buy a house or a new car in the next year or so, then credit card arbitrage probably isn’t right for you. In that case, you’re better off keeping your credit score as high as possible.
3. Research banks and narrow down the savings accounts that will provide you the highest interest rates possible – I’m sort of bummed that interest rates have dropped recently due to the Fed’s recent decision since this will decrease my App-O-Rama returns, but all is not lost. There are still banks offering 5% APY interest or more.

I know some people will say there’s no free lunch and will think that I’m nuts, but the process really works. I’ve done it before, although on a much smaller scale. Once I have taken care of this preparation stage, I will write about my experience.

My FICO credit score is currently 750 and due to the terrible housing market, I don’t plan on buying a new house in the next few years. How much 0% credit card loans do you think would be reasonable for me to take on?

This is my first entry about my student loans. For starters, I think I am very lucky compared to some people. As of today, I only have about $30,000 in student loans left from my college and graduate school days. Aside from the prestige or other benefits of attending more expensive private schools, I feel fortunate to have stuck with more affordable state schools for my undergraduate and graduate education. As a result, I’m not living a life of student loan servitude like many of the people I am reading about in the news, and personally am in no particular rush or hurry to quickly pay off my student loans.

Student Loan Debt Is A Massive Burden To Many

Student loans never go away and can’t even be discharged through bankruptcy. The student loan creditors will essentially come after you until you eventually pay it off, a sobering reality that many students don’t fully comprehend or realize until they’ve graduated. I truly sympathize with their burden and know how much of a shackle it can be. I have friends who graduated from law school and medical school carrying tremendous six figure student loans. Even with their advanced degree education, in today’s market, there is no easy guarantee that they will have a breezy way of paying it off.

But I Am Taking My Time Paying Off My Loans Thanks To Low Interest Consolidation

I am fortunate to have consolidated my student loans at the lowest rate seen in the last decade or so. I finished graduate school in 2003 with a combination of variable and fixed rate student loans, which were at a relatively low 3.42% at the time. In May 2004, I consolidated my Sallie Mae loans into a very low fixed rate and since then, I’ve taken advantage of every borrower benefit available to lower my rate.

I applied for Sallie Mae’s Smart Loan Direct Repay, which drops your interest rate by a .25% discount if you make your monthly loan payments through automatic debit. I also later qualified for the SLMA Consolidation Savings Options, which provides you a further 1.00% interest rate discount if you make your scheduled monthly payments consistently for 3 years straight.

Currently my total student loans are consolidated at a very low fixed interest rate of 2.25%. I am definitely going to take my time in paying off my loans. Because I was able to consolidate at such a low rate, I am better off keeping my money in an interest bearing account earning more than 5.00% than I am in quickly paying off the loan. If there’s any type of debt that can be considered “good debt” this one is it. Not only can I get more money by not paying off the low interest loan in full right away, I can also qualify for a tax deduction for the student loan interest that I pay.

Maybe it’s also a psychological cushion factor, but I would much rather have $30,000 in the bank and be $30,000 in debt, than I would having $0 in the bank with no debt.