Who among us hasn’t needed a second chance? Or a first opportunity? For the millions of Americans who were battered by the Great Recession and came out of it with a tattered credit score, plus the legions of young people who haven’t had a chance to earn and spend money wisely, these are not abstract questions.
Even though the emergence of financial products like prepaid debit cards have made it easier to get some of the ease and benefits of plastic, solid credit still matters. Try to buy a house or a car and you’ll quickly learn how important it is. If you have bad or no credit, you’ll be turned down for a loan or offered an ugly interest rate.
This is where secured credit cards come in. Secured cards are a bit like a bicycle with training wheels – a tool to practice on and demonstrate your capacity to operate something bigger, faster and potentially more dangerous. Unlike unsecured credit cards, the secured variety typically requires a cash deposit in order to establish a credit line. If you put down a $500 deposit, you’ll have a credit limit of $500 (keep in mind that the money you put upfront is not used to pay off monthly charges). This initial deposit is the bank’s way of insuring that it doesn’t get burned if you do not pay your bills.
The best thing about secured credit cards is that, in most cases, the issuer reports your repayment behavior to the three main credit bureaus – TransUnion, Experian and Equifax. Translated, this means that paying your bill on time and following the terms and conditions of the card can, over time, boost your credit score. This makes a secured credit card an extremely valuable tool if, and this can’t be emphasized strongly enough, you are timely and consistent in paying your bill.
Still, there are red flags to watch out for with secured cards. Start by making sure that any secured card you consider will, in fact, report to the three main credit bureaus. If they do not, and your goal is to establish good credit, you’re wasting your time. Like any financial product, it is important to know that not all secured cards are equal when it comes to fees. Shop around. While secured cards generally have higher fees than unsecured ones, there can be big differences in the interest rates, activation charges and account maintenance fees. It’s also smart to know the card issuer’s policy regarding returning your initial deposit when you close the account. Sometimes it can take a few days to get your money back.
Be careful to avoid any secured credit cards that do not have a payment grace period. If it does not, that means you will pay interest on any charge you make from the moment your card is swiped. “With no grace period, there is no way to avoid paying interest,” says Amber Stubbs, editor of CardRatings.com. “With regular credit cards you can avoid interest altogether if you pay your statement in full.” Fortunately, the lack of a grace period is a rarity, although the Horizon Gold Card is one that does this. Also watch out for limitations on how you can use the card. The Horizon card, for instance, can only be used to make purchases on a Horizon outlet store website.
None of these cautions are meant to scare you away from using a secured credit card to rebuild your credit. But being aware of some of the potential problems will allow you to safely ride your training wheel equipped bike without falling into potholes or getting run off the road.
Credit bureau Experian recognized for efforts to promote financial literacy
by Shane Tripcony
One of the first lessons people interested in becoming savvy with their personal finances learn is to keep a close eye on their credit scores. In a nutshell, credit scores are a number meant to represent just how well someone pays their bills. Banks, mortgage lenders and automobile dealerships use the score to determine whether they will lend money to you and what interest rate to charge. Knowing what a credit score is and monitoring it routinely to make sure it doesn’t include faulty information, such as attributing someone else’s overdue mortgage to you, is an essential part of maintaining a solid financial life.
One of the companies that calculates credit scores and maintains the credit reports that document how people do in paying off credit card, mortgage and student loan debts is Experian. Based in Costa Mesa, California, Experian is, along with TransUnion and Equifax, one of the nation’s three major credit bureaus.
Along with maintaining all of this vital financial information, Experian also offers the general public a wide variety of educational tools, including a consumer education website. Recently, Experian was recognized for its advocacy and educational efforts geared towards boosting financial literacy by the National Foundation for Credit Counseling (NFCC). NFCC presented its Making the Difference Partner award to Victor Nichols, Experian’s North American CEO, at the nonprofit organization’s annual leaders conference in Denver in October.
The award, which has been handed out annually since 2005, recognizes individuals who have helped further NFCC’s mission of helping consumers become more financially educated. “Experian’s commitment to consumer education aligns with the NFCC’s mission of creating a national culture of financial responsibility, making Experian an obvious choice for this award,” says Gail Cunningham, Vice President of Membership and Public Relations at NFCC.
This isn’t the first time Experian has received this award. Last year’s recipient was Maxine Sweet, Experian’s Vice President of Public Education. In accepting the award Nichols vowed to continue working to promote financial literacy. “We understand what an impact education has in helping consumers manage their financial lives, and we will continue to make financial literacy a priority along with our commitment to always put the consumer first,” he says.
Scholarships are available to this November’s Jump$tart National Educator Conference in Washington, DC
by Shane Tripcony
The statistics paint a grim picture. According to the 2012 “Financial Literacy Survey of Adults,” two in five Americans gave themselves a grade of C, D, or F on their knowledge of personal finance topics. And if anything, the survey results indicate that those marks may have been too generous.
Indeed, 56 percent of those surveyed conceded that they don’t have a household budget and 39 percent reported not having any non-retirement savings. Ensuring that today’s young people don’t eventually find themselves in the same financial predicament as their elders is one of the main goals of the Jump$tart Coalition’s National Educator Conference, which will be held in the nation’s capital this November 1 through November 3.
Now in its fifth year, this annual conference is devoted to providing Pre-K through grade 12 teachers with the knowledge and resources they need to effectively instruct students about a wide range of personal finance topics. Designed with classroom teachers in mind – both those who lead stand-alone courses in personal finance or who incorporate it into other classes – this year’s gathering will include sessions on everything from curriculum development to what constitutes smart college borrowing for high school students to Federal Reserve Bank resources available to secondary educators.
The credit bureau Experian recently announced that it would provide 20 scholarships to teachers that have not attended the conference before. Experian, one of the underwriters of this year’s conference, will cover attendees’ registration fee of $395, all conference meals and receptions as well as two nights in a hotel; travel and incidental expenses are not included. Anyone interested in applying for the scholarship should email [email protected] and include the following information: the teacher’s full name; the full name and address of the school or school district where the teacher is employed; and a short description of the course or unit in which the applicant teaches personal finance.
All applicants must be full-time, licensed and certified teachers currently employed by a school district. Although there is no deadline to apply, scholarships will be awarded on a first-come, first-served basis.
True, it’s just a number, but maintaining a good credit score is key to getting the best rates for your mortgage and car loans
We all have numbers that, for better or worse, define us. Age is an obvious numerical marker, but so too are the ones that your doctor hectors you about – weight, cholesterol and blood pressure. In the realm of personal finance, the number that arguably matters as much as any other is your credit score. While the figure that is attached to you – be it 567, 680 or 750 – may not instinctually resonate, make no mistake that your credit score has big and very meaningful implications. Why? In the most basic terms, it’s because a good credit score (and higher is better) means that when you have to borrow money to buy a car or a boat or a house, a lender will not only be willing to fork over the money but they’ll do so at a better interest rate. In other words, a good credit score can significantly reduce the cost of borrowed money over the life of a loan.
The impact of your credit score goes well beyond getting a good interest rate on a loan. Although potential employers do not check the credit scores of job applicants, they may review a credit report, believing that a poor financial history could be an indication of irresponsibility, or may somehow impact job performance. But, back to the score issue, it gets worse. According to Kiplinger.com, some insurance companies charge customers with poor credit scores higher premiums because they are convinced that the way consumers manage their personal finances is a predictor of the number of claims they will file. Indeed, according to a 2004 Texas Department of Insurance study, more than half of insurance policyholders with high credit scores enjoy lower premiums.
All of this may seem terribly unfair. But the truth is that your credit score, also known as a FICO score, is simply a quick way for lenders to understand how risky it is to lend you money; or, more accurately, how likely it is they will get paid back. To come up with a score – which range between 300 and 850, with 680 the minimum to be considered credit worthy – the company that calculates it looks at 5 factors. Most important is your payment history, which is another way of saying whether you pay your bills in full and on time. Also highly important is how much money you owe; maxing out your credit card limits can indicate to lenders that you are in a precarious financial position and more likely to miss or make late payments. Also factoring in, though to a lesser extent, is the length of your credit history, how many new lines of credit you have requested recently as well as the mix of loans you have. The company that comes up with FICO scores, Fair Issac Corp., then throws all this information into a blender and comes up with a number.
Ignorance is Not Bliss
If you have read this far, the obvious question is this: do you know your credit score? Whether you do or don’t, you can be absolutely sure that any company considering lending you money sure does. And if you want to be a smart consumer, you should know it, too. Why? Knowing what potential lenders will see well before you actually ask them for a loan will not only give you a good idea of what sort of deal they will offer you, it will also give you a chance to change your score. In some cases, the score Fair Issac calculates for you is flat out wrong, the result of mistaken identity or erroneous information about your repayment of debts.
To find out whether that is the case, it’s best to contact one of the nation’s 3 credit reporting bureaus – Equifax, Experian and TransUnion – and request a copy of your credit report, which includes the granular information used to come up with your FICO score. Fortunately, the credit bureaus are required by law to provide a free copy of your credit report upon request each year (you can mark your calendar and request a report from a different bureau every four months). Be careful of lookalike websites that charge for free credit reports. Some websites will provide a credit report and/or score for free or for a small processing fee and then sign you up for a free seven-day membership. But the trick with these sites is that they automatically begin charging a monthly fee after that initial seven-day period unless you cancel it. To cancel the service, you have to call a designated number, and you may not be able to cancel online. In other words, it is a hassle to cancel.
To avoid that hassle, use this convenient link to request your (truly) free copy now. Unfortunately, getting your score is not free, but it’s probably worth the money to take a gander at the all-important number that lenders see. To do that, go to MyFico.com. While it is true that other credit scores are out there, the FICO score is the one used by the vast majority of lenders.
5 Tips for Raising Credit Scores and Lowering Your Interest Rates
People who have bad credit scores should take heart in the fact that they can be improved. Even if you’ve been tardy paying your credit card bills in the past but have since shaped up, time is on your side. All the negative information that led to the bad score in the first place will drop off your record in 7 to 10 years (assuming there is no additional negative information in that time). However, if you want to repair your credit a bit faster, here’s how to do it:
1. Make your payments on time. Timely payments are the single best way to improve a credit score.
2. Make amends. Get in touch with past creditors and agree to pay what you owe in full in exchange for them reporting your good deed to all the credit bureaus. Not only does this eliminate debt, it erases that black mark from your history. Be sure to get the creditor to put their promise in writing before you pay.
3. Don’t cut up your cards. It’s tempting to get out the scissors once you’ve paid off the balance of an account that has harmed your credit. Don’t do it. The lower the amount of debt you carry compared to your total allowable credit, the better off you are. For example, if you have $100,000 of credit available and you currently have a balance of $12,000 on your credit cards, department store cards, etc., you will have used 12% of your available credit. Shooting for 16% or less is a good goal.
4. Raise a stink. Dispute errors on your credit report. Find out which reporting agency is reporting the error and contact it. The credit-reporting agencies to contact are Experian, TransUnion and Equifax. Each maintains its own report. It is possible that an error is on one report but not another.
5. Take out a “credit builder” loan. One way to show lenders that you are low risk is to, well, show them by paying off another loan. Some credit unions offer a credit builder loan to their members. The money is actually placed in a savings account, which serves as collateral until the loan is repaid in full — then the payments and interest become yours.
You may also look into applying for a second credit card. Where prepaid or debit cards do not build your credit score, a secured credit card can help you build your credit score. We offer a selection of secured credit cards at BestPrepaidDebitCards.com. Compare their offers, but pay close attention to the interest rate. It is advised to try to go no higher than 18%, if possible.
Resources Below are some resources that may be helpful while researching your credit report and score. Remember that you can get a free copy of your credit report, but you must pay to receive your credit score, and MyFico.com offers the credit score most utilized by lenders.
In times past, the only time rental history would show up on a credit report was when a property management company would turn it over for collections. But in December 2010, that all changed when Experian became the first credit bureau reporting rental payments on consumer credit reports. Not only is this is great news for the millions of displaced homeowners looking to get back into the housing market, but it also gives consumers the ability to benefit from meeting their monthly obligations on time, instead of penalizing the ones that don’t. This opens up a world of possibilities for millions of consumers seeking to improve their credit rating.
It turns out, renters aren’t throwing their money away after all. Making up a large percentage of the population, renters will now have access to the credit products they deserve by meeting their monthly obligations, not just the ones they take out loans for. The change will have a positive affect for millions of renters including immigrants, students and displaced homeowners.
Experian collects data electronically from a property management network, rewarding responsible renters and reducing the risks of skips, bad checks, evictions and property damage for landlords and property managers nationwide.
It is unknown if TransUnion or Equifax will follow suit and begin offering rental payments on their reports, but a recent on eHow.com suggests having rental payments added to all three credit reports is as simple asking your landlord or property management company to report them.
