FICACreditScore.net

Somewhere between your SAT results and your cholesterol levels, your credit score becomes the most important number to govern how your life turns out. There are several factors that go into calculating your credit risk, and the result can have an impact in many arenas — affecting your ability to get an apartment, a mortgage, and even a job. Here are five questions you need to know the answers to regarding your credit score.

1. How many credit scores do I have? The Fair Issac Corporation (abbreviated as FICO) has the gold standard for credit-score computing. Based on a scale of 300 to 850, the FICO score is what the majority of banks use to determine what terms and rates a loan applicant will qualify for. To compete with FICO, the three credit-reporting agencies — Experian, TransUnion, and Equifax — have come up with their own system of credit scoring. The VantageScore scale starts at 501 and goes up to 990 and each consumer has three VantageScores (one from each credit bureau), which are calculated using a different metric from FICO. Introduced in 2006, VantageScore hasn’t really caught on with lending agencies at large yet, but it’s still not a bad idea to know what yours are.
2. Where do I check my score? You can get your official FICO score at MyFICO.com for $19.95, or you can get a free estimate of your score at CreditKarma.com. Users report no security issues and results that are pretty close (within 10 points on average) to their official score.
3. What about my credit report? Every consumer is entitled to three free credit reports per year — one from each bureau. AnnualCreditReport.com is the government-sanctioned website where you can pull your reports online. We recommend checking them every four months and saving them as a PDF on your password-protected computer.
4. How do I raise my score? In a nutshell, paying your bills on time, keeping old accounts open and active, and maintaining low balances are the essentials to increasing your score. You can find more in-depth advice in this Tuesday Top 5 post on how to beef up your credit score.
5. When should I try to raise my score? As a rule of thumb, maintaining a FICO score over 720 qualifies you for excellent interest rates and loan products. After your score surpasses 750, however, a higher score doesn’t net you any additional benefits. So while aiming for a perfect 850 might give you some personal satisfaction, rest assured that you’re already getting the best deals banks have to offer.

Jim Franco/RealSimple.com

Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.

In a down economy and with so many people looking for work, job seekers should take every precaution to avoid giving employers a reason not to hire them. Make sure your application stands out in a good way by being aware of these pitfalls.

1. You don’t have a degree. The Bureau of Labor Statistics has some bad news for people who skipped out on college. According to data from July, the unemployment rate for people with only a high-school degree is 9.9 percent — nearly double that of those with bachelor’s degrees, of whom only 5 percent are unemployed. But it’s never too late to go back to school, so consider how a degree might boost your job search.
2. Your résumé is too long. You’re 25 years old and your résumé strains to fit onto two pages? Revisit every bullet point to see if it’s relevant to the position you want. If you’re including your volunteer activities and that summer you spent as a summer-camp instructor when you’re applying for a job at a law firm, it’s time to trim the fat.
3. You’re out of state. You’ve heard of buying local, but what about hiring local? Unless you boast a highly specialized set of skills or are seeking a top-of-the-food-chain position, your chances of being recruited by an out-of-state company are pretty slim. The applicant pool is so large, many companies are excluding job seekers who would require time and possibly expense reimbursement before they could come in for an interview. If you’re trying to move, consider setting up a local P.O. box that forwards to your home mail or use the address of a friend on your résumé so you don’t shortchange your application.
4. You’re unemployed. It may seem grossly unfair with 9.5 percent of the population out of work, but many employers are putting up “unemployed need not apply” signs. Some hirers report the belief that if you don’t have a job, you must have lost your last one due to performance issues — whether that’s true or not. So if you find yourself laid off, do whatever it takes to keep the income flowing so that joblessness won’t hurt you when the next opportunity comes knocking.
5. Your credit score is low. In many industries where you handle money — any job from cashier to accountant — you will be asked to submit to a credit check. And if the company doesn’t like what it sees, you won’t get the job, simple as that. The practice is perfectly legal, so when you give a potential employer permission to pull your credit history, make sure it’s in ship-shape.

If you’re unemployed at the moment, we don’t have to tell you that the situation out there is pretty grim. But you’re not alone: The Senate passed a bill last week extending unemployment benefits for people who find themselves jobless for up to 99 weeks. However, with an unemployment rate hovering around 9.5 percent, there simply are not as many jobs as people looking for work.

Whether you’re among the jobless ranks or simply want to take precautions, here are a few tips for ways to stay afloat in troubled waters.

1. Keep your credit score high. Now is not the time to limit your lending options with a bad credit score. Make every effort to pay your bills on time, and if you can’t, try to work with lenders to negotiate payment plans before the account goes to collections.
2. Sell your clutter. Sentimentality can be a financial thorn in your side if you hold on to your valuables longer than necessary. If you haven’t touched that bass guitar since college or your wedding dress is just going to yellow in the back of your closet, sell your stuff on Craigslist for instant cash.
3. Use free services to fine tune your job search. Even if you graduated from college years ago, check with your school’s career-counseling office to see if they offer free resume tweaking for alumni. And tap into the university job network, which will put you in touch with fellow alums.
4. Go back to school. If you’ve ever had an interest in continuing your education, now’s the time to pursue that advanced degree. Interest rates are at historic lows, and the new degree could give you an edge in the job market after you graduate. Just make sure you’re not taking on more debt for a degree that won’t ultimately increase your earning potential.
5. Keep in touch with your ex-employer. If you were laid off, there’s a chance that your old company could use your services on a contract basis. It may not offer benefits, but it’s still a paycheck. Even if they don’t have work for you, it’s always a good idea to keep up contact for future references.

The article follows the Pemberton family in St. Petersburg, Fla., who have stopped paying their mortgage so they can put their money to more fun use, such as trips to a casino and joyrides in an airboat:

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

Because of the glut of homes in default in Florida, foreclosure proceedings last an average of 518 days. The Pembertons have yet to be evicted — meaning they will continue to live there rent-free until the bank collects its due.

The people interviewed for the article make the case that the banks should pay the price for the naïve decision to grant them mortgages in the first place, but the justification seems to originate from an ethics-free zone.

And it’s a short-sighted game, to say the least. Once the bank gets around to completing its paperwork, not only will these borrowers lose their homes, but their FICO scores will plummet by up to 280 points. And the foreclosure will stay on their credit reports for 7 years —almost as long as a bankruptcy.

Considering what their credit history means for their future job, housing, and credit prospects, these homeowners need to reconsider whether scamming the bank is worth it in the long run.

By now you know why a ship-shape credit score is in your best financial interests: It helps you qualify for the lowest interest rates on mortgages and other loans, saves you from having to put down a deposit on utilities, and it may even help you get a job.

What you may not know is how to add points to your FICO score, so here are a few tips to help you get the awesome perks that accompany great credit.

1. Always pay your bills on time. Payment history is the most important part of your credit score. Even one late payment can ding your score. If you have not been making payments on time, now is a good time to start. Get and stay current on your credit-card and utility bills.
2. Reduce your credit utilization ratio. Outstanding debt is the second-most important factor in calculating your credit score. You can figure out what your ratio is by dividing your outstanding balances by the amount of available credit you have; ideally, it should be under 20 percent. Lenders see high credit utilization as a red flag, and spending up to the credit limits on your plastic kills your score. To improve your score, don’t max out any of your cards and pay down the balances quickly.
3. Keep your oldest accounts open. The age of your credit history is another key component of your credit score; ideally, you want the average age of all your accounts to be at least 8 years. If you open too many new accounts in a short period of time, your score will drop. Likewise, closing an older account with a high credit limit could temporarily knock 50 points off your score. If you think you’ll be applying for a loan in the next year, be judicious about opening new accounts.
4. Maintain a good mix of credit. Showing responsibility for car notes, installment loans, and a mortgage in addition to revolving credit shows potential lenders that other banks have deemed you creditworthy. Some types of credit, like payday loans, are not factored into your credit score. This is a less important metric in your overall score, but consider it a reference for future loans.
5. Don’t sweat it if your score is over 750. While it might be personally satisfying to shoot for the moon and go for a perfect 850, once you’re in the “excellent” credit range you’re already qualifying for the best rates. At this stage, you can sit back and enjoy the rewards.

In line with that topic, there’s good news on the horizon for consumers concerned about the effect credit scores have on the terms they’re offered from a lender. Starting in January of 2011, the federal government will require lenders to give notice when a poor credit score results in a higher interest rate. From the Washington Post:

The rules require lenders to alert consumers whenever derogatory credit data cause them to be charged higher rates, higher down payments or less than optimal terms on a “risk-based pricing” system.

It used to be that a bad credit score didn’t mean a high interest rate – it meant you didn’t receive a loan at all. Consumers would then have the opportunity to find out why they were denied, and could appeal the decision to the lender – especially if the decision was due to an error on your credit report.

Modern credit technology changed all of that:

But with the rapid spread of risk-based pricing systems, fewer applicants were formally declined for loans; lenders simply raised rates to handle the perceived higher risk.

Though this expanded the availability of credit to those who may not have received it previously, it also meant you were less likely to find out if your credit score resulted in a higher rate until well after the paperwork was signed.

The Fair and Accurate Credit Transactions Act of 2003 set out to change that. Because of this law, you can access your credit score once a year from each of the three major credit agencies (Experian, Equifax, and Trans Union). And, starting in 2011, this new provision will ensure you know what effect your credit score has had on a loan’s interest rate before you‘re committed.

Of course, if you’re interested in improving your credit score, or in understanding your credit report, Econ4U has many resources available.

It’s no mistake. This credit card’s interest rate is 79.9 percent. […] So for a $300 balance, a cardholder would pay about $20 a month in interest.

The rate is the highest on the market, and- according to the latest rate information bankrate.com – almost seven times as large as the annual percentage rate (APR) on other credit cards.

However, before casting a skeptical eye towards the folks at First Premier, check the fine print:

Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line. […] First Premier lowers fees to just that limit – $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence, the 79.9 APR, up from the previous 9.9 percent.

Companies like First Premier play an important role in the credit market. While better-known companies like Chase and Citibank offer credit products with relatively low APRs to consumers who have solid credit histories, they are less likely to lend to those they consider a credit risk.

This is where First Premier steps in; they’re willing to provide a credit line to you even if you’ve got a bad credit score, but they have to be compensated for the greater chance that they won’t be repaid.

Previously, that income came through annual fees. However, now that these fees are capped by the federal government, First Premier can either stop offering their credit product, or they can make it up elsewhere – in this case, through a higher APR.

Some consumer advocates have called for a cap on all interest rates – but the reality is that an interest cap only ensures that credit is no longer available to those consumers who benefit from borrowing despite their poor credit history. For instance, they might be faced with a job loss or other life emergency, and temporarily need money to cover bills. In a situation like that, expensive credit is far better than no credit at all.

Whatever type of credit product you choose to use, Econ4U has a few basics you need to know on understanding and improving your credit score.

These topics are on the minds of many Americans as they balance their gift lists with their bank accounts during the Christmas season. But buyers beware – those good sales that stores offer through their brand-name credit cards could leave your credit score hurting in the New Year.

You may be tempted this season to give in to the plea from that persistent sales clerk at one of the big retailers — “Are you sure you don’t want to save 15 percent today?” — and open up a couple of store-brand credit cards. […]

But before you start filling out the application, there are some things you need to know. If you carry a balance on store-brand cards, known in the industry as private-label cards, or if you miss a payment on your no-interest purchase, you can end up wiping out those initial savings, and then some. And when you open a new credit card, your credit score can suffer, too.

Store cards typically have less strict credit requirements than other major issuers, so signing up for one of these cards could help build credit. However, companies compensate for less strict credit requirement through higher interest rates, and there’s a large risk to your credit score if you miss a few payments.

Since most store cards have higher rates than most general-purpose cards, you do not want to fall behind. And if you do, you can do major damage to your credit score. Those with a FICO score of 780 — the scale ranges from 300 to 850 — who are 30 days or more overdue can lose 90 to 100 points from their scores […]

While main factors like “payment history” and “outstanding debt” comprise a majority of your credit score, remember that opening up new credit cards still accounts for approximately 10 percent of your credit score. This is why one of our credit score improvement tips is to slow down on opening new credit cards.

Everyone loves a good deal, especially over the holidays, but check the fine print – and your bank account – to make sure it’s actually a good deal you can afford.

As the FTC says, “Despite the musical claims of some TV commercials, the only authorized source to get your free annual credit report under federal law is AnnualCreditReport.com.”

Federal law requires each of the big three credit bureaus to give you a free credit report every year. That means you can get three credit reports annually, all without paying a dime.

Many financial advisers recommend that you check your credit report once a year to make sure that the information is correct and to protect your identify.  Because you have three free reports, however, you can check your credit report every four months and have peace of mind year-round.

Here’s a video from the FTC explaining the difference between AnnualCreditReport.com and all the imitators. The difference? Their service is actually free.  “FreeCreditReport.com’s” annoying jinglers are hoping you forget to cancel your “free” account so they can hit you with the associated fees.  Those commercials don’t come free you know.