Bob O'Brien
Head Instructor
bobrien@mywealth.com
If you have never really gotten your head around the whole credit score thing, this is an excellent time to figure it out! There have been some changes, and with credit being as tight as it is, this has never been MORE IMPORTANT!
A good credit score can be one of your greatest assets, and literally save you hundreds of thousands of dollars over the course of your life!
If this seems like a lot of money, or a complete exaggeration, just breakdown a 30 year, $300k mortgage and the difference between a rate of 6% (good credit) and 8% (bad credit) and you will find that it is ENORMOUS! . The difference…$150,000 over the course of the loan! This doesn’t even begin to mention car loans, insurance premiums and getting a job. Your credit score is like a report to the rest of the world! I call it, “Your financial report card”.
The first thing I would do is go to www.annualcreditreport.com and get your free credit report. Look it over. If you have never done this before, you will really find that it very interesting! After looking at the report, I think a lot of the rules that you have already heard in the past will make a lot of sense.
Here are the six major changes that went into effect yesterday with FICO 2008.
Small things matter less... Prior to the changes, your score could get slammed for small debts that went into collection. Under the new rules, this will not hurt you as much. Missed parking tickets or late doctors bills are not going to bring your score down as much now.
More Practical… In the past, if you had one major problem, like car repossession, it would kill your score. FICO 2008 will look more at the big picture and not just the one problem.
Authorized users benefit... This has been an issue that has created some controversy, because in the past a spouse or a child would not a get credit rating for being an authorized user. Under FICO 2008 this will change, since many of these users are genuine authorized users.
Closing cards and not using them will hurt more... This is something that a lot of people would not do if they got their credit report. You can see cards that you have had for years that make up a lot of the report, and all the payments that you’ve made in the past.
Also try to set up a system of keeping all your cards active and charge small things automatically and then just set up automatic payment for the card as well. Use reminders if needed as well.
Greater impact for less credit... When you are maxed out on your lines of credit this brings your score down. A lot of people fail to keep an eye on this. Make certain that you stay under 50% percent of your available credit, because this will be looked at more closely.
Different types of credit will help your score... A mixture of credit cards and personal loans will help your score, as opposed to just credit card credits alone.
Personally I feel the entire system is bogus and all it does is encourage more borrowing! But it is really important, and one of those things where you should just conform and don’t be a rebel! Being a rebel or not paying attention to this can really cost you! I have heard some real horror stories.
Write you congress person and tell them that you think it is ridiculous how people are encouraged to borrow like this, but play the game until these things are changed.
Is there an article that you would like to see written? Please e-mail me at: bobrien@mywealth.com. Please also check out our courses, like our Personal Finance Course that goes into even more detail about credit scores.
Bob O’Brien
Sr. Instructor
