Get Great Credit

My gift to you for the year 2012

You’ve heard me say how important it is that you check your credit report. You’ve also heard me say that you can check your credit report for free – 3 times per year. That’s because each of the three major credit reporting agencies must give you access to their version of your report.

But, how many of you remember to order your credit report even once, let alone 3 times?

I promise to help you remember. As my blog subscriber, you will receive three reminders this year: one in January, one in May and one in September. Each reminder will tell you exactly how to order your report and which agency to choose. Easy!

Do you want to share this gift with your friends? Simply share this post and allow them to sign up for free credit report reminders, too! There are many ways to subscribe:

Debit or credit?

Which should you use: a debit card or a credit card? You all know the difference between the two – a debit card uses your own money and a credit card means borrowing with interest.

Here is what I recommend:

Use a debit card when…

You make everyday purchases in person. These are items that are part of daily living: groceries, doctor co-pays, restaurant meals, etc.

Use a credit card when…

You are purchasing big ticket items, anything with a warranty, travel reservations, online purchases, etc. Using a credit card will (usually) give you extra consumer protection for little or no additional cost.

More about that added layer of protection:

When you travel, certain credit cards give trip insurance for items such as lost luggage protection. If you are purchasing electronics, some credit cards extend the warranty period. If you purchase something online and it never arrives (or arrives broken), you can dispute the charge with your credit card company after you have attempted to resolve this with the merchant. You should check with your credit card issuer to see what benefits you have with your credit card. Then make your purchases where you will get the most benefits.

A New Sheriff’s in Town – the Consumer Financial Protection Bureau

If you haven’t heard, we now have a Consumer Financial Protection Bureau.

You may wonder why? What does it do? How can you use it? Good questions!

Why?

This has been needed for a long time. The CFPB describes itself as a neighborhood cop on the beat, supervising banks, credit unions, and other financial companies. Although we have consumer protection laws in place, there was no central policing agency for consumers to turn to when they faced unfair practices, or even illegal actions, from lenders.

There are many David and Goliath stories out there. Too often, when you have a financial problem, you’re the little guy against a big immovable corporation. You may have seen the news story about the foreclosure on a house with no mortgage. How can a bank seize your house if you don’t owe any money on it? A good question. This man literally had no one on his side until he turned to a local news station.

Hopefully, the days of fighting unwinnable battles are over. Thanks to the Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010, the CFPB is here to help. Hurray!

What does it do?

Its mission is to educate consumers (you), enforce the current Federal consumer financial laws, and study the actions of consumers, financial service providers, and the markets.

Education. If you know what you’re getting, you’ll make better choices. The CFPB believes “An informed consumer is the first line of defense against abusive practices.” You may say, “I don’t want an education, I just want the terms of my loan to be easy to understand.” They’re working on that, too. Most of us didn’t major in finance and we shouldn’t need a financial degree to understand the terms of our mortgage.

Enforce current laws. As mentioned above, we need a powerful advocate on our side. Unfortunately, it’s not enough that the laws are in place. We need someone to enforce them because the banks and credit card companies haven’t been willing to follow rules meant to protect their customers.

Study. The CFPB will study consumers, banks and the markets, so they can learn what the current problems are, how best to address them, and keep us informed on new risks.

How can you use it?

The CFPB actually wants you to use it, and they’ve made it easy with their interactive website. You can voice your opinions, submit complaints and learn more about finances.

Tell your story. They want your stories, good or bad, whether you’re an employee or a consumer. They want to know what people are up against. They want to know what doesn’t work and what does.

Vote on new practices. Right now they are looking for consumer opinions about simplifying mortgage paperwork. This is so needed. Having been in the mortgage field for many years, and having dealt with the numerous disclosures, I know how confusing it can be. The website is asking you to cast your vote for a disclosure with all the costs listed. Take a look and vote.

There is also a section for you to submit a complaint on a problem you have with your credit card company. They will forward your issue, give you confirmation, and keep you updated. So the next time you feel you are not getting your issue resolved, you might want to have the Consumer Financial Protection Bureau assist you.

They’re still a new agency, so we won’t expect miracles anytime soon. The best way to protect yourself is to do your research ahead of time so you can make informed choices. You can do that by following Quick Tips and passing it on to your friends. And don’t forget to bookmark www.consumerfinance.gov, the CFPB website.

Pay More than the Minimum

You know that little box on your credit card bill that tells you how long it will take to pay off the balance if you only pay the minimum due? Does it scare you? It should. You may be tired of hearing it, but I can’t tell you this enough. Pay more than the minimum.

Here are a few things you should know:

Let’s say you have a $10,000 balance at 12% interest and the minimum payment is $200 per month. You should know that if you stop using this credit card, and that means no more charging on this account, it will take you 70 months – almost 6 years – to pay off the balance and will cost you over $9,000 in interest.

Now think about this: Was whatever you purchased worth that additional cost?

Enough about that. You have debt. What are your options?

You could pay it off with your savings (I am not talking about retirement savings). But, chances are if you had the money in savings, you wouldn’t have made the charges.
You could figure out a way to get more income. Get a part-time job, turn a hobby into some extra cash, or sell items that you don’t need.
You could reduce your expenses. Mow your own lawn, cancel cable TV, stop eating out, etc. (Read my upcoming Quick Tips article on July 22nd for more information.)

Paying the balance off as quickly as possible is in your best interest. Let’s use my example above:

If you could increase your payments by $50, you would save 18 months of payments.
Increase it even more to $100 extra per month and you would cut the time to 41 months.
Pay $200 each month (that’s double the minimum) and you could have the balance paid in 29 months and only pay about $1,600 in interest versus the original $9,000.

Paying your credit card balances off as quickly as possible is a great thing. Make your new budget plan and get started.

What is the difference between a secured credit card and a pre-paid credit card?

Secured versus pre-paid credit – do you know what you’re getting? When I am giving a talk, I can see that many people don’t know the difference between them. Let me tell you the facts:

Secured Credit

With Secured Credit, the bank has placed a set amount of your own money in a special savings account that it controls. If you default on your debt, the bank can use the savings account to recover its losses. Your credit limit is always equal to the amount in the special savings account. Just like a traditional credit card, you will pay interest and receive a monthly bill.

A secured credit card is for someone who can’t get a traditional credit card. If you have bad credit or no credit at all, secured cards are a great way to establish your history. If you still don’t understand what a secured card is, think of it as a security deposit on a rental. The landlord holds that deposit and can keep it if you don’t pay.

As with any financial transaction, read the fine print before moving forward and make sure that the lender reports your information to the credit reporting agencies. Watch out for fees and make sure you understand them fully.

Pre-Paid Cards

With pre-paid credit cards, you simply load the card with money and use the card to make purchases. There are no bills or interest rates on purchases. The spending limit is always the current deposit balance on the card. In that sense, it works like a debit card, yet it has all the consumer protections of a credit card.

Pre-paid cards are often used as gifts and by people who want to avoid spending beyond their budget. You might use one on your next vacation or as a gift for your favorite college student. The consumer protections and the built-in spending limit make this card ideal for those two scenarios.

The fees can be expensive! Credit card companies make their money with the fees – activation fees, monthly fees, reload fees, etc. You might want to consider other alternatives for every day use.

Now you know the difference between them. Make sure you understand them and pick the right choice for you.

The legend of the no-limit credit card

Question: Which financial institution created a credit card based on an urban legend?

(The answer to our trivia question is at the bottom. But first, let’s talk about your credit cards.)

Are your credit cards right for you? If you’re not sure, here are some key points you can compare to determine which product is right for you.

Is the interest rate fixed or variable?
If you carry a credit card balance, you will want a fixed rate. If you pay in full each month, the rates won’t matter.

Will you use the card for purchases, balance transfers, or cash advances?
Your credit card company will apply a different rate for each transaction, so pick the right card with the right rates for your financial plans.

Is there an annual fee just to have the account?
You may not want an annual fee. However, if the annual fee covers your membership to a discount service or store (like a big box store), you may find that it’s worth it.

Ask about any other costs or fees.
Look for late fees, membership fees, over limit fees, returned payment fees, etc).

How is the billing cycle calculated?
Does the due date suit your monthly budget? If the card is due on the same date as your mortgage, that could cause trouble.

Your credit cards should work with the way you spend money and pay bills. Don’t let your cards cause you more trouble than convenience.

Trivia Question Answer:
The (virtually) no-limit credit card, the Centurion, was created by American Express for no other reason than the persistent rumors that it actually existed. This card is obviously meant for the rich and famous. For those of us with bigger dreams than budgets, a no-limit card would be a disaster. Fortunately, the Centurion is issued by invitation only.

Paying the Holiday Bills

Now that the holidays are over, it’s time for the bills to start to come in This time of year is when you need to be extra careful about your finances I know that this is a resolution that many of you made on January 1 You need to be carefully checking your statements (both your bank and credit card accounts) for accuracy In my experience, this is when the most errors occur So check those statements to your receipts, balance your checkbook and immediately call to dispute any discrepancies Look for unfamiliar transactions that you are unsure of Sometimes a charge will appear with a different company name than the store you made the purchase from Call to get more information to determine if it’s your transaction The longer you wait, the less protection you have.

In addition, now is the time of year to read the inserts in your statements You know those pieces of paper that you automatically toss Banks and creditors will inform you about changes to your accounts increased fees, new requirements etc You need to know about these before they take affect and it’s too late to do anything about them.

Be proactive with your finances by staying on top on what is happening with your money, will benefit you in the long run You will be able to make choices that are right for you and possibly save you money on fees Wishing you a happy and prosperous new year.

What's not on your credit report?

Last week, I told you what was on your credit report This week, I’ll tell you what’s not there.

Your credit report doesn’t say much about you as a person It has your name, address (possibly your past address), and your social security number But, it doesn’t show your age, gender, race, nationality, or religion It also doesn’t list your income, although it might show your employer If you’ve recently changed jobs, that information might not be up to date.

Your credit report is a snapshot of your finances, not your life And, it’s not even a perfect picture of your payment history Credit reports can change daily as your financial life changes: purchases made on credit, new accounts opened, payments made (or not) There may also be errors that will need to be corrected whenever you find them.

Even though your report does not reveal everything about you, it is the most important document that you have to show the world how you handle your money What you do today will stay on your credit for years to come When you make a financial choice, think about how it will affect you in the future.

How to Read Your Credit Report

Last week, I told you how to identify a true credit score. Today, I will be telling you what is on your credit report.

Your credit report is a reflection of your financial life Which credit accounts you have, how much credit you have available to use, how you have used, how you make your payments, and any other information that is relevant.

If you have a credit card (notice, I didn’t say debit card) with a bank, this is what it might say:

(Your name) has a credit card with ABC Bank with the account number xxxxxxx-xx and owes $1,248 with available credit of $5,000 The minimum payment is $45 The account was opened 11/02 and the payments are C, C, C, C, -, C

What does that mean? The letter C means that the account was made “current” each month, which means your payment was made on time The dash means no payment was due that month This is a great entry for anyone’s credit report.

Here is another example of an entry on a credit report:

John Doe has a credit card with ABC Bank with the account number xxxxxxx-xx and owes $4,559 with available credit of $5,000 The minimum payment is $65 The account was opened 11/09 and the payments are 2, 3, 3, 3

What does that mean? It means that John Doe is not paying his account on time A 2 means he was 60 days past due and a 3 means he was 90 days past due (A 1 would be 30 days past due.) Do you see the pattern?

John Doe will have a harder time getting another loan or credit card with good terms Credit reports weren’t created to help you and I, they were created to help creditors decide whether to lend someone money Yes, you can look at your credit report, but almost anyone you do business with can run a credit check on you as well That includes landlords, employers, banks, loan companies and insurance companies.

A great credit report entry can help you, but a late payment account can hurt you A history of late payments will tell businesses that you don’t pay your obligations in a timely manner This is definitely something that you want to avoid.

Next week, learn what’s not on your credit report.

Are you getting the correct credit report?

How do you know if you are getting your correct credit score? This is a dilemma for many people.

Fair Isaac and Company, known as FICO, is what the lenders and creditor use when you apply for credit This is one of the factors that you are judged as creditworthy or not A while back, people tried to introduce a new credit scoring system That wasn’t successful in over taking FICO as far as lenders where concerned.

But when you as a consumer want to know your credit score, you may be getting something totally different Many companies, including the credit bureaus may be selling you a score calculated differently and on a different scale than FICO FICO uses a scale that tops out at 850 If you have a score of 760 or higher, you have an A+ FICO score With others use scales that go well into the 900’s, that 760 or above score isn’t A+ like you are thinking You would be considered a B You see how this is confusing.

To top it off, when you order your FREE credit report form www.AnnualCreditReport.com, you don’t get your credit score To get your FICO credit score, you will need to go to www.MyFICO.com and pay a fee to see your credit score Remember that each of the three credit bureaus, have a score and they are not necessarily the same number at each.