FICO Explained
What in the World Is a FICO?
When it comes to credit scores (also generically referred to as a credit rating), most Americans know that they are important and that they can have a major impact on our financial lives. However, very few know what goes into a credit score or just how influential it can be.
First of all, the term, “credit score” does NOT refer to a SINGLE scoring system. In the US, there are over a thousand credit scoring models in existence, created and used by hundreds of creditors and consumer reporting agencies. However, the most common credit scoring model (used in about 80% of all credit-based decisions) was developed by Fair Isaac Corporation (FICO for short). Continue reading “FICO Explained” »
What’s on a Credit Report?
Seriously, how are we, the average Joe or Jane on the street, supposed to build (or rebuild) our credit when no one ever teaches what’s on our credit to begin with? Well, here’s the answer:
• Contact information (no impact on credit score): It simply includes the names, addresses, employers, and, sometimes, marital statuses under which you have applied for credit in the past.
• Credit/Trade Lines: Details on the various lines of credit the consumer has had in the past 7-10 years, including balances, terms and their history of on-time payments. Continue reading “What’s on a Credit Report?” »
Why Care About Your Credit?
It’s a fair question: “If I’m not planning to make a purchase on credit anytime soon, why should I care about my credit?” While it’s true that the most commonly known use of credit has to do with getting approved for a loan, there are other situations when credit can have a positive or negative impact (direct or indirect) on our lives.
1. Many employers check job applicants’ credit prior to making a hiring decision. This may seem unfair and irrelevant to many, but employers reason that since a person’s credit is indicative of their efforts to repay financial obligations, employers may use that information as an additional insight into the job applicant’s overall qualifications for employment. When the potential employer is in the finance, law enforcement or government sector, credit checks are even more common. Continue reading “Why Care About Your Credit?” »
“Leveling” our Expenses
I regularly teach in my Budgeting (“Spending Plan”) classes that our goal should be to turn as many of our Variable and Periodic expenses into Fixed (or “level”) expenses as possible.
A Fixed expense is one that occurs every single month at the same cost. Examples are rent or mortgage, car payments, 401(k) contributions, monthly bus passes and day care center bills.
A Variable expense occurs every month also, but the amount varies. Electricity, heating, gasoline, and groceries are among the most common variable expenses in our household budgets.
A Periodic expense, obviously, occurs less than monthly, irregularly or just once in a life time. Typical of this type of expense are medical-related charges, vacations, car or home repair, taxes, and most insurance premiums. Continue reading ““Leveling” our Expenses” »
Why Should I Care about My Credit?
Credit (an agreement to repay a loan over time) is pervasive in our society. What used to be the exclusive privilege of the wealthy has only in the past half century or so became available to the masses. From buying a home or car to purchasing a burger, shake and fries, credit – whether in the form of a loan and a credit card – has become a familiar sight just about anywhere anything of value exchanges hands.
As credit’s popularity increases, so too do the purposes for which businesses use an individual’s personal credit history as a tool in making business choices. Decision-makers that are influenced to one degree or another by how an individual has used and managed their credit accounts include the following: Continue reading “Why Should I Care about My Credit?” »
Basics of the New Couponing
Couponing has been making a strong comeback recently thanks to the down economy. The promises of free items or even getting cash back with “doublers” and “catalinas” is more than just merely alluring to many. If you’re tempted to coupon more than just casually, here are some things to keep in mind: Continue reading “Basics of the New Couponing” »
Maximizing Benefit of Tax Refunds
It’s tax return time. Many households are receiving tax refunds now or will over the next month or so., but too often, these refunds – which can amount to several thousands of dollars – are spent on consumer goods. Such emotion-based consumer spending typically has no significant impact on the household’s net worth or financial stability. Instead, it tends to perpetuate the mindless spending cycle that keeps too many American households stuck in the rut of paycheck-to-paycheck living. Continue reading “Maximizing Benefit of Tax Refunds” »
Correcting Credit Report Errors from Defunct Creditors
Having taught nearly 500 personal finance classes since 2004 to over 8,000 individuals, it’s not often that I get a question about course topics that I haven’t heard before. I love it when I do, though, and that’s exactly what happened last week at a local housing authority. Here is the question:
What can I do if the title loan company to which I once owed money but have paid off in full has gone out of business but is still listed on my credit report with money owing? Continue reading “Correcting Credit Report Errors from Defunct Creditors” »
Cost of Groceries per Person per Month
I recently had an email I appreciated greatly from one of our management leaders regarding the suggestion in our budgeting presentation that households should try to spend between $75 and $125 per person per month in their household on groceries. His concern (a valid one) is that the number appears quite low when compared to the suggested figures released by the government (upwards of $200 per person per month). Continue reading “Cost of Groceries per Person per Month” »