Trends in Credit Scores

  • Six basics you should know about credit scores (Business Insider)
    • What it looks like
    • What it’s used for and why you should care (this letter from a San Francisco landlordshould scare any renter)
    • Who creates it?
    • What FICO has to do with it
    • What it’s based on
    • How to find yours
  • Interested in ways to improve your credit score? (Forbes)  This was one of the more creative tips:  

“Using too much of your credit limit at any given moment doesn’t look good. Suppose your limit is $3,000 and a month’s worth of havoc (car repair, doctor bills, plane ticket for kid to get to college) means you’ve charged up $2,9000. Sure, you plan to pay in full by the 18th of the month – but until then it looks like you’re maxing out yet another card.

Instead, make one payment just before the statement closing date and second one right before the due date. The first will likely reduce the balance that the credit bureaus see and the second makes sure you won’t pay interest or a late fee.”

  • “Millenials have no idea how credit scores work:” Another reason to include credit scores in your personal finance curriculum or better yet have your students download their free annual credit report from annualcreditreport.com (Time Magazine):  
“One factor that seems to make a difference in how much credit knowledge people have is whether or not they’ve actually gotten their free credit report (if you’re one of the many who haven’t, you can do so at annualcreditreport.com). Interestingly, people who got their credit reports knew more than those who had just gotten their credit scores.”
 
  • Other key findings from Consumer Federation Survey on credit scores (CFA Press Release):  
    • Most don’t know impact of credit scores and who is looking at them:  “When asked which of six types of businesses – ranging from credit card issuers to landlords to cell phone companies — might use credit scores, only 18 percent of millennials, but 32 percent of older consumers, correctly identified all six.”
    • Here is the 20 question quiz that you can take to test your knowledge:  http://www.creditscorequiz.org/
  • OK, I know a house may seem a long way off for you but the actions you take today can save you thousands when you are ready to take the plunge and take out a mortgage and buy your first house (Modesto Bee):

“Though the tiers go up all the way to 850 on the FICO scale, a score of 740 or more should qualify for the best mortgage rates from most lenders. Depending on the lender, the mortgage rates offered to the highest and lowest credit tiers can vary as much as a full percentage point and a half, says Spagnuolo.”  For a 30 year $300,000 mortgage, that 1.5% interest rate differential (say 5.5% vs. 4.0%) amounts to $100,000 in savings from having the lower interest rate.  WOW!!!

  • Before you decide to co-sign on that loan…(Fox Business):

Because you were a co-signer on the loan, you are jointly responsible for the loan. As a joint owner, the account information is reported to your credit file and the information cannot be removed by the credit bureaus until the reporting period ends.

  • Credit bureaus are starting to track new information on your payment history…but aren’t incorporating it into your credit scores YET (Boston Globe):
“But more recently, he said, the major credit reporting agencies — such as Equifax, Experian, and TransUnion — have started including not only the minimum payment due on the account but also how much you actually paid. That means that it’s now easy to see whether you pay your balance in full before putting new charges on a card, Ulzheimer said, or whether you carry over balances from month to month.”