Tag: FICO

Building Credit

View Your Free FICO Score for all 3 Credit Bureaus

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View Your Free FICO Score for all 3 Credit Bureaus

There are lots of free credit scores floating around, but most of them are not the true FICO score that lenders subscribe to and use as part of their decision.

However FICO is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

The easiest place for anyone to get their free FICO is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO score for free. The data is from the Experian credit bureau.

To find out where to get your FICO score from the other credit bureaus, read on.

Every bank chooses at least one of three credit bureaus to calculate a FICO score: Equifax, Experian, and Transunion. The FICO score one bank uses can be different than another depending on which credit bureau they pulled a report from.

The good news is, you can now see your real, free FICO score from all three credit bureaus depending on which banks hold your accounts. FICO itself charges almost $60 for you to see those scores, though they also throw in full copies of your credit reports, which the free bank scores do not.

Here’s where to find your real, free FICO scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available With: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Where to Find It: On your online statement
  • Score updated: Monthly
  • Learn more

DCU Credit Union

  • Available With: Any credit card, or a checking account with direct deposit
  • Where to Find It: Look for an invitation in your online account
  • Score Updated: Monthly
  • Learn more

Huntington Bank

  • Available With: The Huntington Voice credit card – you will get a FICO Bankcard 02 Score from Equifax
  • Where to Find It: Log into your account and you’ll see a link

PenFed

  • Available With: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score Updated: When PenFed refreshes – no set schedule
  • Where to Find it: Login to your account and click ‘Your FICO Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO score that has a different scale than traditional FICO scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

Experian Scores

Capital One and American Express regularly use Experian’s FICO among others for credit decisions.

American Express

  • Available With: Any American Express credit card
  • Score Updated: Monthly
  • Where to Find It: On your online account

Chase

  • Available With: Chase Slate credit card accounts
  • Score Updated: Monthly
  • Learn more

Discover

  • If you have a Discover credit card already, you will see your FICO score on your statement and online. It is updated monthly.
  • If you are not a Discover customer, you can sign up to get your FICO score for free by visiting CreditScoreCard.com.

First National Bank of Omaha

  • Available With: Any credit card account
  • Score Updated: Monthly
  • Where to Find It: On your online account
  • Learn more

Please note: a previous version of this blog post noted that USAA provides a free FICO credit score. USAA actually provides a free VantageScore.

Transunion Scores

Bank of America

  • Available With: Select credit card accounts
  • Score Updated: Monthly, with history
  • Where to Find It: Link available on your account summary page under the ‘Tools and Investing’ section

Barclaycard

  • Available With: Any credit card account
  • Score Updated: Monthly
  • Where to Find It: Link available on your account summary page
  • Learn more

Walmart / Sam’s Club

  • Available With: A Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card
  • Score Updated: Monthly
  • Where to Find It: At Walmart.com/creditlogin, only if you enroll in online delivery of monthly statements
  • Learn more

Unknown Bureau

 State Employees Credit Union of North Carolina

  • Available to all credit card holders

Other, less open to the public free FICO providers include:

  • Ally, for auto loan holders
  • Hyundai and Kia Motor Finance, which offer a quarterly score, but only if you’re a new buyer, recent college grad and bring your diploma to the dealer at the time of purchase.
  • Sallie Mae, which offers a free, quarterly Transunion score if you receive a new Smart Option Student during the 2014-2015 academic year or later.
  • Merrick Bank doesn’t have open applications, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

 

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Featured

The Perfect Credit Score Isn’t Really 850

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Do you really need an 850 credit score to get the best rates?

Most people assume that in order to get the best treatment from lenders, you need to have perfect credit. Across both of the most common credit scoring brands, FICO and VantageScore, that highest score is 850 out of the now-standard range of 300 to 850.

But the truth is that while it’s nice to boast that you’ve maxed out your credit score, it’s almost impossible to achieve the magical 850. It’s also entirely unnecessary. There is no lender or credit product that requires you to have a credit score of 850 in order to be approved.  There is no lender or credit product that requires you to have a credit score of 850 in order to earn the best terms. In fact, your credit scores can be 90 to 130 points off the maximum and still result in your getting approved for the best deals from mainstream lenders.

To put it bluntly, 850 doesn’t buy you anything but bragging rights.

Case in point, according to Informa Research, which tracks interest rates by credit scores on a daily basis, the lowest rates offered on various mortgage related loans are being offered to people with scores at or higher than 760. And, the lowest rates offered on various auto loans are being offered to people with scores at or higher than 720.

The quest for a perfect 850 is often given different fictitious monikers like “Triple-A Credit” or “A+ Credit”, when in reality there is no such designation in the world of consumer credit scoring.  Your credit “rating” is the number, whether it’s an 850 or a 525.

Earning the ever-elusive 850 credit score requires that you have a statistically perfect credit report that indicates you are completely void of any sort of credit risk. But again, this is unnecessary and you will do just fine with 760 or better, which is a much easier target to hit.

How to get to 760

A score of 760 doesn’t require perfection. You can even have derogatory entries (like a missed payment) and still get there. It just requires that these negative marks are older and limited. You can even have a balance on your credit card and still score at or above 760. Your best bet is to use 10% or less of your card’s credit limits.  That means no more than a $1,000 balance for every $10,000 in credit limits across all of your cards.

The other targets are harder to hit because they’re not entirely in your control.  For example, the older your credit history is the better you’re going to score. Since you can’t exactly control time, this will be one of those areas where you’ll do better organically as time passes.

Account diversity is also a tough one to control. People will score better if they’ve got a record of managing different types of accounts, such as credit cards, student loans, auto loans, and mortgages. Nobody will (or should) go out and buy a car or a house just to benefit their credit scores. This is one of the metrics where you will improve as time passes and you build a history of auto loans and mortgages.

If all of this seems too complicated then let’s make it really simple. If you pay all of your bills on time all the time, apply for credit only when you actually need it and use credit cards sparingly then you’re going to earn and maintain great credit scores. It would be impossible for you not to do so.

Still obsessed with hitting 850?

If you are still obsessed with credit score perfection then there are some milestones that are going to need to be met and maintained.

A perfect payment history. Your credit report is going to have to be void of any negative information, and there are no exceptions. If you’ve got derogatory entries like late payments, liens, judgments, collections, defaults and the like then an 850 is not in the cards for you.

A low utilization rate. Utilization plays a big role in your score and it can be a little confusing. Essentially, credit scoring models look at your total statement balances across all your cards and compare it to your total available credit limit. They don’t even give you bonus points if you pay that balance off in full each month. They simply look at how much your balance comes out to with each billing cycle. The lower your total statement balances are, the better off you are score-wise. To get the perfect 850, don’t even think about carrying a balance on your cards. You need to be at or close to zero percent.

You’ve shown a long history of good behavior. If you apply for credit too often, have limited credit score information or have a young credit report then you’re not going to max out your score. You can’t open a bunch of accounts in a short period of time without hurting your scores. It reduces the average age of your credit and it also means a hard credit inquiry on your account, which can also ding your score. Again, this is no big deal if you’re shooting for the ideal credit score of 760 (or in the neighborhood of that) but it can certainly hurt you on your path to 850.

Have more questions about your credit score? Send us an e-mail at info@magnifymoney.com. 

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Earning Cashback, News

Discover it: Cash Back Bonus Offer Launched

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Credit card companies continue to raise the stakes in the cash back war for your wallet. Discover today has launched a special bonus offer, doubling the cash back that you can earn. The standard program offers 1% unlimited cash back and 5% cash back in certain bonus categories (that rotate every quarter and require you to opt in). At the end of the year, all new cardholders can double the cash back that they earned.  This is one of the most lucrative cash back offers we have ever seen. In this post, we will explain how the bonus offer works, compare the card to other cash back credit cards, and help you avoid some of the tricks and traps. We will also review some of the other benefits that Discover regularly advertises, like the ability to freeze the account and receive your FICO score for free.

Discover it 18month BT card art

You can learn more by reading our Discover it review.

How Does The Bonus Offer Work?

Discover it charges no annual fee. You can earn 1% cash back, unlimited, on all of your spend. Every quarter, Discover selects bonus categories where you can earn 5% cash back on up to $1,500 of spending.

During the first 12 months that you have the card, you will earn your cash back in the normal, standard way. After 12 consecutive billing cycles, Discover will double the cash back that you earned during the year. It will then credit that amount to your account in the next billing cycle, which would be month 13. This is an incredibly lucrative offer.

How Does Discover it Compare To Other Cash Back Credit Cards

With this new bonus offer, Discover it is now one of the best cash back cards on the market for the next 12 months.

With cash back credit cards, you can earn cash back in two ways. The first is the baseline cash back rate. The second is bonus offers. Discover is now leading the way in both.

Flat Rate Cash Back On Everyday Spend

Capital One Quicksilver started the battle a few years ago, by offering 1.5% unlimited cash back. However, Citi countered by offering unlimited 2% with Citi Double Cash, so long as you pay your balance in full and on time every month. At the end of the first year, Discover will double the 1% base rate, which makes this a great offer.

Bonus Offers

There are many category bonus offers out there. We have put together a list of the best bonus offers by category.  In general, the best you can do is 5%. Now, with special offer, Discover will match the 5% that you earn in bonus categories at the end of the year, making this the highest earn rate available.

Just remember that the bonus is capped to $1,500 of spending per calendar quarter.

What Is The Catch? 

Like all credit cards, you have to be careful. Here are the 5 things you need to know.

1. Make sure you pay your balance in full every month.

2. Make sure you opt in to the bonus category every category. If you don’t opt in, you will only earn the base earn rate of 1%.

3. Avoid cash advances.

4. Pay your balance on time every month. Discover has a nice feature. It has eliminated penalty interest rates, which means your rate will not increase if you are late. In addition, it waives a late fee the first time you are late. However, from the second time, you will have to pay $35 each time you are late. And, if you are more than 30 days late, your credit score will suffer. We applaud Discover for eliminating penalty APRs and waiving the first late fee. However, we encourage you not to take advantage of those benefits by automating on-time payments every month.

5. Discover acceptance is a lot less than Visa or MasterCard, especially overseas. You will likely have problems using your card at some point. As a result, we recommend that you always have a back-up card, especially for travel abroad. We recommend Capital One Quicksilver, because there is no foreign transaction fee and you earn 1.5% cash back. Citi Double Cash, on the other hand, still charges a foreign transaction fee.

Other Discover it Benefits

Discover has invested in some other good benefits. We think you should choose the card that offers the most value. However, these benefits are nice to have, and nice to know about.

  • On every statement, you will see your FICO score for free. You can also see your FICO online, and in the mobile app. The free score websites do not provide you with your FICO, so this is a great way to see your official FICO for free.
  • Discover has launched “Freeze it,” which allows you to put a temporary block on your account. We think this is a great feature. Although you are never liable for fraudulent charges, you want to avoid fraud completely. Putting a block on the card means that you can limit charges if you think you misplaced the card, or if you know you won’t be using the card. We think the best credit card companies will increasingly put more fraud protection tools into the hands of their customers, and MagnifyMoney really likes this tool
  • Free overnight shipping if you lose your card, or if you card was compromised.
  • Discover also offers on-shore call centers.

The Final Verdict

With this special cash back match offer, Discover has one of the most lucrative cash back cards in the market. Just make sure you pay your balance in full and on time. If you charge more than you can afford, the interest bill will end up higher than the cash back that you receive.

At the moment, this is one of the best cash back credit cards on the market, and it is worth exploring for the next 12 months.

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Building Credit

Convert a Secured Card to an Unsecured Credit Card

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Young couple calculating their domestic bills

A secured credit card is a great way to build your credit history. When no one else will give you a credit card, a secured card offers you the opportunity to improve your credit score in a controlled way. However, at some point the goal is to convert from a secured card to an unsecured card. We will help you decide when is the best time to make that conversion, and how to do it.

When to Make the Switch

The only reason to have a secured credit card is to get a better credit score. Once your score is good enough to get another credit card, you should consider making the switch. Some secured cards, like Capital One, actually show your credit score on your statement every month, which can help you plan.

Once your credit score is 650 or higher, you will have a number of options for a credit card. Once your score is 700, you can pretty much take your pick of any credit card out there.

So, we recommend keeping the secured card for at least a year. After 12 months of positive activity (never spending more than 20% of the available limit and paying on time), you should start looking closely at your score. If it is above 650, you have a very good chance. If your score is above 700, you should definitely switch.

How to Make the Switch

You have 2 options when switching from secured to unsecured:

  1. Your secured card is migrated to a new credit card, or
  2. You apply for a new credit card and close your secured credit card

For the first option, just call your bank directly and ask for a conversion. I helped my wife establish credit with a secured credit card, and I had to pro-actively speak with the bank in order to get the conversion completed. Just make sure you remember to do the following:

  • Ask to be converted to a credit card that does not have an annual fee
  • Ensure that you receive a refund of your original deposit. At Bank of America, I had to chase them a few times before we received our deposit refund
  • Ask to keep the same account number, so that your credit history continues to build

Banks like secured cards, because you are keeping money with them, and they earn interest on that money. They are not always eager to make the conversion for you. If that is the case, then you need to apply for a new card.

If your credit score is less than 700, you should consider a credit card issued by a department store. For example, WalMart issues a Discover credit card, that can be used like any other Discover card. However, there is no annual fee and they will approve very low credit scores. You can learn more about that card here.

If your credit score is above 700, just pick the best cash back credit card for your needs.

Do not close your secured card until you are approved for a new credit card. Once you are approved for your new credit card, call the bank that issued your secured card. Tell them that you are going to close the account unless they convert you to a secured card. It is always worthwhile trying to get the conversion, and here you will be making a threat that you will keep. Because, if they don’t convert your card, you will close it. That means you will likely end up in retention unit.

If you do close the card, make sure you receive a refund of the deposit. Closed accounts stay on your credit report for 7 years, so you should not worry about your credit score. The other credit card you opened will help to build your score, so long as you continue to use it responsibly.

If the retention office agrees to convert your card, follow the same advice we gave above: get your deposit refunded, switch to a fee-free credit card, and make sure you keep the same account number.

The purpose of a secured credit card is to establish your credit score. Once you have a good score, you shouldn’t continue to pay fees or keep you money tied up in a deposit with the credit card company.

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Building Credit, Pay Down My Debt

Decoding How FICO Determines Your Credit Score

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Below is an excerpt from our Debt Free Forever Guide. Be sure to download the free guide to help dump debt for good. 

There are a lot of myths out there about credit scoring –hopefully we can help you understand FICO scoring, so you can take action to build your score. There are five major components FICO uses to determine a credit score. Fortunately, understanding the secret sauce can help you build a strong score and healthy credit report. Both a 700+ score and healthy credit report will help keep the rest of your financial life cheaper by enabling you to get lower interest rates on loans and approved for top-tier financial products.

35%: Payment History

This is the single most important part of your credit score. Quite simply, this looks at how many on-time payments that you make. You will:

  • Get rewarded for on-time payments
  • Be punished for missed payments: Not all late payments are created equally. If you are fewer than 30 days late, your missed payment will likely not be reported to the bureau (although you still will be subject to late fees and potential risk-based re-pricing, which can be very expensive). Once you are 30 days late, you will be reported to the credit bureau. The longer you go without paying, the bigger the impact on your score, ie: 60 days late is worse than 30 days late. A single missed payment (of 30 days or more) can still have a big impact on your score. It can take anywhere from 60 to 110 points off your score.

If you don’t pay a medical bill or a cell phone bill, your account may be referred to a collection agency. Once it is with an agency, they can register that debt with the credit bureau, which can have a big negative impact on your score. Most negative information will stay on your credit bureau for 7 years. Positive information will stay on your credit bureau forever, so long as you keep the account open. If you close an account with positive information, then it will typically stay on your report for about 10 years, until that account completely disappears from your credit bureau and score. If you don’t use your credit card (and therefore no payment is due), your score will not improve. You have to use credit in order to get a good score.

However, there is a big myth that you have to borrow money and pay interest to get a good score. That is completely false! So long as you use your credit card (it can even be a small $1 charge) and then pay that statement balance in full, your score will benefit. You do not need to pay interest on a credit card to improve your score. Remember: your goal is to have as much positive information as possible, with very little negative information. That means you should be as focused on adding positive information to your credit report as you are at avoiding negative information.

30%: Amount Owed

This part of your credit score will look at how much debt you have. Your credit report uses your statement balance. So, even if you pay your credit card statement in full every month (never pay any interest), it would still show as debt on your credit report, because it uses your statement balance. This part of your score will look at a few elements:

  • The total amount of debt that you owe across all of your accounts. On your credit cards, the utilization ?If you have a lot of credit card debt, your score can be hit.
  • In addition to the total amount of debt that you have, your utilization is very important.

To calculate utilization, divide your statement balance (across all of your credit cards) by your available credit (across all of your credit cards). For example, if you have credit limits of $40,000 across 4 credit cards, and you have a total balance of $20,000 – then you have a utilization of 50%.

To have a good score, you will want your total utilization to be below 20%.

Why is utilization such an important concept? If you use every bit of credit made available to you, then it looks like you do not have self-restraint. Maxing out all of your credit cards is a big warning sign to lenders.

If you are able to restrain yourself and have a lot of available credit (that you do not use), then you are showing self-discipline.

It may sound strange (and, in fact, it is): but the key to having a good credit score is having a lot of available credit and not using it.

promo-balancetransfer-wide

15%: Length of Credit History

This is the easiest part of the credit score to get right. So long as you don’t close accounts, every day this part of your score improves (because all of your accounts become one day older).

FICO will look at the age of your oldest account, as well as the average age of accounts.

10%: Types of Credit in Use

If you have experience with different types of credit (installment loans, revolving loans, credit cards, etc.) than you will get more points than if you don’t have a variety of experience.

The most important product is a credit card. If you have a credit card and manage it well, then you will be rewarded in this. Remember: there is no greater temptation than a credit card. If you are able to withstand the temptation of plastic, you get the most points.

10%: New Credit

If you open up a lot of new credit in a short period of time, you will be sending a warning signal to the credit bureau. But this part of the credit score has turned into a myth that scares a lot of people. They are afraid to shop for the best deals, because they are afraid of what shopping for credit would do to their credit scores.

The FICO score will look at credit inquiries from the last 12 months.

This factor is only 10% of your total score. And, there are a lot of myths. Lets break a few of them now:

  • Checking my own credit report will hurt my score: FALSE! If you check your own credit report at www.annualcreditreport.com, it will not hurt your score
  • If I shop around for a good mortgage or auto loan rate, my score will get crushed: FALSE! Multiple inquiries for a mortgage or auto loan are usually treated as a single inquiry.
  • If I shop around for a balance transfer credit card, my score will get crushed: FALSE! If your score does decline, it probably will not decline by much. You can expect 10-20 points per credit application. But, remember: you apply for a balance transfer to help reduce your balance faster. When you open a new credit card and transfer your balance, then you will be able to:
    • Have a lower overall utilization, because you have new credit available (and of course you will not use it!)
    • Pay off your debt faster, because the interest rate is lower. At the end of 12 months, your score should be even higher than when you applied for the balance transfer or personal loan.

Quick Steps to Building and Keeping a Good Credit Score

  • Use your credit card every month, but keep your utilization well below 20%. In other words, never charge more than 20% of your available credit. You can reduce your utilization by (a) paying down your debt and (b) increasing the credit that you have available
  • Make your payments on time every month If you repeat these two things over time, you will eventually have a score above 700. However, if your score is below 700 and you want to improve it, you need to focus on:
  • Putting more positive information into the credit bureau
  • Getting your utilization below 20%
  • Dealing with the negative information

Download our Debt Free Forever Guide! It’s FREE and will help get you back on track.

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Fine Print Alert

Fine Print Alert: $500 Bonus Offer from Ally, Free FICO Scores and Overdraft Caution

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In our weekly Fine Print Alert we call out any good news from the financial community and shine a spotlight on any sneaky changes in the fine print. We also share our favorite reads from the week.

FINE PRINT ALERT

Thinking about rolling over an IRA…?

Ally is offering up to a $500 bonus for making a qualifying rollover or transfer from outside Ally Bank to a new or existing Ally IRA CD or IRA Online Savings Account. The bonus is a tiered structure ranging from $100 – $500 depending on the amount of qualifying deposits, which range from $25,000 to $200,000+.”

Deposits must be made before May 31, 2015 in order to be eligible for this offer.

For more details about how to take advantage of this bonus offer, read our full blog post here.

Get your free FICO (not FAKO) score…

Five more banks and a credit union will be offering customers access to a free FICO score this year. This is indeed different than the ‘FAKO’ score you get on free credit sites. These are the actual scores each bank uses when making credit decisions.

  • Citibank: You’ll get your Equifax version of your FICO score if you hold any Citibank branded card starting later this month. Non branded cards issued by Citibank like Sears and Best Buy cards won’t get the free score.
  • Chase: The score will be made available to Chase Slate card holders only sometime this year.
  • Bank of America: Sometime later this year. Bank of America pulls from all 3 bureaus so it’s not clear which version of the FICO score they will offer.
  • USAA: Starting in March all credit card holders will get the Experian Vantage version of their FICO score.
  • State Employees Credit Union of North Carolina: Sometime later this year all members with credit cards will get their FICO scores. They generally use the Equifax version of the score.
  • Ally: If you have an auto loan with Ally you’ll get your score by this summer. They generally use the Transunion version of the FICO score for decisions.

Read more on our blog post.

A word of caution to TD Bank customers…

Don’t go overdraft! Don’t get even close.

TD Bank loves overdraft fees so much it’s willing to pay fines.

Courthouse News Service reports New York resident John Kashgarian has filed a class action lawsuit against TD Bank claiming egregious overdraft fees.

Specifically, he’s claiming the fees TD and other banks charged since 2010 are unreasonable and manipulative, and reordering of those fees to make accounts that are in otherwise good standing go overdraft is the biggest problem.

TD’s ‘Simple Checking’ account fee schedule says you will be hit with a $35 fee for each item overdrawn, and will let up to 5 items be overdrawn each business day. That’s $175 in fees a day. The bank is also known to participate in transaction re-ordering.

Read more about TD Bank’s history with overdraft fees on our blog.

MAGNIFYMONEY IN THE NEWS

FAVORITE READS FROM AROUND THE WEB

What Your Bank Owes You: Clarity – For example, banks ought to be required to show through third-party random sample testing that when customers trigger overdraft protection, they know what it is and what fee they will be charged. Investment brokerages ought to produce data on what proportion of their retail clients know the fees they will incur on each investment, and brokerages with low numbers penalized. A great look into whether financial literacy is worth our efforts and focus in this LA Times op-ed by Lauren E. Willis and Theresa Amato.

Where are they now? The most inspiring personal finance stories of 2014Five years since the recession officially ended, more and more stories of families overcoming insurmountable financial obstacles have begun to emerge. We’ve taken a look back at 2014 and picked our top five most inspiring personal finance stories of the year. These personal finance heroes have tackled six-figure debt, redefined the idea of retirement and turned their lifestyles upside down. Mandi Woodruff shares these five stories of financial triumph on Yahoo! Finance.

Most Americans feel they are falling behind – Forget getting ahead. Most Americans say their income isn’t even keeping up with the cost of living. Some 55% say they are falling behind, according to a new Pew Research Center study. That’s the case even though most of those polled feel the economy is recovering. Tami Luhby shares the recent data on CNN Money.

My Darkest Financial Secret – I bought my first home in July 2013. I funded the renovation with a 203k loan, but went over and had to raid my savings account to finish the project. Having no savings cushion then led me to lean on my credit cards for “emergencies” in the Fall of 2013 and by NYE 2014, I was 8,432.16 in debt. L Bee shares her story of amassing debt while she was focusing on paying it down on her site, L Bee and The Money Tree.

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News

Comparing Mortgage Rates Just Got Easier

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Today the CFPB has launched a mortgage price comparison tool on its website, alongside the shocking results of a survey. At MagnifyMoney, we applaud both.

The survey (of mortgages taken out during 2013) showed that 50% of borrowers only consider a single lender or broker before deciding where to apply for their mortgage. This is largely the result of an over-reliance upon their real estate agent, local bank branch or mortgage broker to make the decision for them. This can have expensive consequences for the borrowers, because CFPB data shows that shopping around could save up to 0.5%, on average. For a typical $200,000 conforming mortgage, that could be $3,500 over the first five years of the mortgage.

Why do real estate agents and brokers get it wrong? Their interests are not aligned. Real estate agents want to minimize the chance of the home being sold to someone else, and maximize the amount that their client can borrow. So they are solving primarily for speed. If a particular mortgage company is consistently the fastest, they will tend to send their business that way, even if it may be a bit more expensive. In addition, real estate agents who have spent their career working in a particular neighborhood form relationships with certain banks and lenders. Out of no ill will, they may “always” send their business to that particular bank, even if the rates are not always the best.

Brokers, on the other hand, still have an incentive system that conflicts with borrowers. They live on commission, and the mortgage bank or brokerage willing to pay the highest commission in the shortest period of time will likely get the business of the broker.

If a consumer wants to make sure they have the best deal, they need to take shopping into their own hands. And the deals can be excellent.

A New Tool

The CFPB has just launched a new tool. You just enter a few pieces of information (your credit score, your state, your house price and your down payment), and it will provide you with the typical mortgage rates in your market. It will also show you the highest rate you should be paying. Here is a screen shot of an example:

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Although they will not provide the names of the lenders where you can get the lowest rates, they will help you set your expectations. And the tool makes it very easy to see if you are being ripped off.

We recommend that everyone should take the 2 minutes to input data into this tool before deciding upon whether or not they are getting a good deal. And, if you see better interest rates than what you have been quoted, it is time to shop around.

If you have excellent credit and are making a good down payment, we still have yet to see much lower rates than Pentagon Federal Credit Union (https://www.penfed.org/) and encourage people to use both the CFPB tool and the visit the PenFed mortgage page to get a good indication of the rates available. And then, don’t be afraid to shop around for the best deals. The FICO score does not punish multiple mortgage applications, and the savings can be significant.

At MagnifyMoney, we believe that more transparency into pricing can only help consumers. For most people, their home is the biggest single purchase they will make, and their mortgage is the biggest debt they will take out. We should no longer rely upon the desire of a real estate agent or broker to make a commission, and this CFPB tool helps to make that a reality.

For regular updates, follow us on Twitter @Magnify_Money

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Fine Print Alert

Fine Print Alert: October 10, 2014

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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In our weekly Fine Print Alert newsletter we call out any good news from the financial community and shine a spotlight on any sneaky changes in the fine print. We also share our favorite reads from the week.

FINE PRINT ALERT

Citibank Increasing Fees, Eliminating Rewards

Effective January 1, 2015 Citibank is making some big changes to its checking accounts. For consumers who have a Basic Banking Package (the core checking account), the monthly fee will increase from $10 to $12. The requirement to have the monthly fee waived has not changed: you need one direct deposit and one bill-pay per billing cycle, or a minimum balance of $1,500. In addition, you can no longer earn ThankYou Rewards on the basic checking account.

Convenience fees might cost more than your cash back…

Every time you swipe plastic the merchant pays an interchange fee to the credit card company. Usually this fee is worth it because owners of stores like Target, Wal-Mart, GAP, and grocery stores know you’re inclined to spend more if you pay with credit instead of cash or debit. But when it comes to paying a bill – well they’d rather you pay the fee.

You aren’t going to overspend on your bill, so merchants often pass on the interchange fee (typically around two percent) to the customer. These are known as convenience fees.

Sometimes these convenience fees are so high they wipe out any benefit of getting cash back.

Con Edison, electricity supplier in New York City, charges a $4.75 service fee for residential bills paid with a credit card online. With a two percent cash back card, you’re not even making up for 50 percent of that convenience fee.

The IRS also charges convenience fees, which start with a range between $2.79 and $3.95.

So keep in mind, if you’re paying for the rewards benefit, that convenience fee is probably not only making it worthless, but also charging you more than you make in rewards.

MAGNIFYMONEY IN THE NEWS

FAVORITE READS FROM AROUND THE WEB

  • A Silent Majority of Undereducated And Underemployed Millennials – “Millennials are often mocked as Starbucks baristas with Ivy League educations. And while they are the best-educated generation to date, data from the Pew Research Center show about two-thirds of millennials between ages 25 and 32 lack a bachelor’s degree. That majority is often ignored in conversations about millennials.” – Read or listen to the full story from NPR’s All Things Considered.
  • My experience with alternative healthcare insurance – “What we belong to is not health insurance; therefore, we don’t pay a premium (although we pay a “gift” each month or what amounts to a deductible, except it’s called a “personal responsibilty”). We chose this option because neither my husband nor I have access to an employer-sponsored plan.” – Read more about Lisa’s experience with her Healthcare Sharing Ministry over on Get Rich Slowly.
  • ‘Invisible Credit?’ (Read This Now!) – “If Congress passed a law requiring everyone in the United States to get a license to be considered for a job or rent an apartment, the nation would rise up in protest. The irony is that such a system already exists and its validity is rarely questioned: the license is, of course, your credit score.” – David Bornstein’s New York Times piece about the millions of unbanked Americans who struggle each year to be recognized by our current financial system.
  • The One Word All Financial Experts Want You To Know – “In my bachelor days, I remember being stuck in a ridiculous cycle of starting every month off with plenty of money in my bank account, and ending that very same month wondering where in the world it all disappeared too. Has that happened to you? It was one of the most frustrating things that I continued to endure, over and over again. I had a good paying job, but I had absolutely nothing to show for it in my account, at the end of the month.” – Talaat of His & Her Money talks about a commonly hated word (*spoiler* it’s budget).

Have questions or a fine print alert tip for us? Get in touch via Twitter, Facebook, email info@magnifymoney.com or in the comment section below.

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College Students and Recent Grads

A Beginner’s Guide to Using a Credit Card

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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So, you want to open a credit card? It’s a good idea – most of the time.

Opening and using a credit card provides a simple way to establish and build credit history. Yes, certain credit cards can earn users rewards for cash back, travel miles, and redemption points, but the road to reward chasing is littered with people who slipped into credit card debt. Beware of your budget and your personality if you elect to pursue the path of reward chasing.

If you have trouble paying bills on time, saying no to purchases you can’t afford or just sense a credit card may not be a good idea for you – then trust your gut. While a credit card is a great tool to build financial health, it can also lead to painful consumer debt when used improperly.

Still think you’re ready to take on the responsibility of owning a credit card? Then let’s walk through how to select, understand, apply and manage your credit card.

Step One: Select your type of credit card

Credit cards were not made equal and we’re not just talking in terms of interest rates and rewards. Your unique situation will determine which credit card you should (and could) apply for.

Student card

Lenders understand college students aren’t flushed with cash. In fact, college students’ debt-to-income ratios are commonly skewed in the wrong direction. But lenders still make it possible for young adults to acquire credit cards through student card programs.

(Yes – they’re hopefully you’ll fall into debt.)

College students with an established bank account or credit union can likely get a credit card from their current financial institution. Other options include:

Fine Print Alert: these cards often come with high interest rates – so be sure to read the tips in step four and mind your spending.

Secured card

The secured card offers an option for anyone looking to build (or rebuild) his or her credit history.

With a secured card, a potential borrower puts down a deposit in exchange for a credit card from a lender. Often the borrower’s credit limit is the same amount as the deposit, but this isn’t always the case. In the instance of CapitalOne’s Secured MasterCard, a borrower puts down approximately $50 for a $200 credit limit.

The deposit works as collateral for the lender. If the borrower cannot make payments, he or she will forfeit the deposit. If the borrower proves to be dependable over time, he or she will receive the deposit back after closing the secured card for a regular, unsecured credit card.

A secured card gives a lender a sense of assurance, while the borrower proves his or her responsibility. The borrower will see his or her credit score improving over six months to a year and can eventually leave behind the secured card for a traditional credit card.

Fine Print Alert: Be sure to take a secured card from an FDIC-insured organization, like your bank or local credit union. It’s important not to spend much on the card because your credit limit is likely to be quite low. Read more about secured cards here.

Store credit card

Odds are high you’ve been offered a store credit card at least once in your life. Store cashiers inquire if you’d like to open a store credit card, often in exchange for a certain percent off your purchases.

In general, a store card can be a trap into consumer debt. Just one round of missing a payment in full can lead to painful interest rates and leave consumers struggling to pay down their bill.

However, store cards often accept lower credit scores than traditional cards. Someone looking to rebuild credit, but carrying a score in the low 600s, could apply and feasibly get approved for a store card when they’d likely get rejected for a card from another lender.

Naturally, the bank hopes said person will have trouble paying off his bill – but the diligent borrower can use a store card to help rebuild a credit score.

Fine Print Alert: Store credit cards often have incredibly high APRs (annual percentage rate). For example, the Gap Visa starts at 23.99%. While a traditional card, like CapitalOne’s Quicksilver has an interest range of 12.9% – 22.9%. Read more about store credit cards here.

Traditional credit card

If you have a good to excellent credit score (often 680 or higher) then you’ll likely qualify for most credit cards. There is no need to deal with a store card and their monstrous APRs or secured cards with their low credit limits.

Do some research to see what type of credit card best suits your needs. You can use our cashback tool to input your spending habits and find a card to maximize your rewards.

Step Two: Understand the details of your card

Once you decide the type of card to apply for, it’s time to do your research.

You need to understand the details of your card, before signing on the dotted line.

Evaluate the APR (interest rate) on the card. It’s ideal to have a credit card with a low interest rate, like PenFed’s 9.99%. You want to avoid ever paying interest, but in the case you do end up not being able to pay your bill in full, you need to understand the rate you’ll be charged.

Is there an annual fee associated with your card? With the exception of needing to get a secured card, don’t bother spending money on an annual fee when you’re starting out with a credit card. There are plenty of great cards with no annual fee – so why spend the extra $50 to $100?

What’s your credit limit? You likely won’t find out until after you’ve applied and been approved for a credit card. It’s imperative you remember your credit limit to avoid maxing out your card. In fact, you will want to stay well below your limit, but we’ll get to that in step four.

While we don’t recommend beginners focus on credit card rewards, it is good to understand the perks (if any) associated with your card. Be careful not to increase or change your spending habits simply to churn points.

Step Three: Apply for your card (and read the fine print)

The simplest step, apply for your card.

You can often apply online, but if you’d prefer to go in person then head down to your local bank or credit union.

Be sure to give that fine print one last look while you’re in the application process.

Step Four: Properly handle your credit card

Now that you have a credit card at your disposal, it’s time to use it properly.

  • Understand the difference between borrowing and spending

Credit cards are structured to create debt. It’s a simple, not often discussed, truth. To avoid debt, it’s important you understand the difference between borrowing and spending. Do you set a strict budget and only spend what you can afford to pay off each month? Check for spending. If you eye a purchase you know you can’t afford and whip out your credit card, well that’s borrowing. Credit cards are often not the best route to go if you need to borrow money. However, if you are going to turn to a card for borrowing, then have the lowest interest rate you possibly can (ie: the PenFed 9.99%). Borrowing at a 15 to 23% interest rate (common on many cards) will do major harm to your bank account.

  • Ignore “minimum due” and pay your bill in full

Credit card companies like to offer a “minimum due” in hopes customers will just pay a fraction of their total bill, so interest will start accruing. For credit card rookies, this can be incredibly confusing when they see minimum due on the first billing statement. The simplest thing to do is act as if the minimum due doesn’t exist. Always pay your bill in full. Paying the minimum just means you’ll end up paying more to your lender in the form of interest.

  • Pay your bill on time

Paying your bill on time is possibly more important than paying your bill in full. Being just one day late on your credit card bill could crush your credit score. If the bill is due Tuesday, but you won’t have the money to pay in full until Wednesday, then pay as much as you can (at least the minimum) on Tuesday and pay off the remainder on Wednesday. In your mind, it might seem that paying it off in full a day later makes more sense than just paying part by the due date – but that isn’t how your lender will see the situation. They’ll see you as irresponsible for missing your payment deadline.

  • Keep your utilization rate low

Your utilization rate (or ratio) is the amount of your overall credit limit you spend. Ideally, you should try to keep your credit used below 30% of your available credit (ie: if your available credit is $1,000 then only spend $300). A low utilization rate will show responsibility to lenders and help improve your credit score.

  • Don’t do a cash advance

Don’t use your credit card like a debit card. Just don’t do it. You’ll be paying high interest rates (typically higher than store cards – around 25%) for withdrawing cash from an ATM.

  • Careful where you share your card information

In the end, you need to protect your credit card. Odds are high you’ll experience fraud at one point in your life, but it’s best to be proactive and be careful where you share your credit card information.

Don’t forget to use your card, because a lender can discontinue an inactive card. If you feel a little uncomfortable using your card, but need to build your credit then buy one small item a month (perhaps a cup of coffee) and set up an automatic payment, so you know you’ll never be tardy with your bill.

Still have questions? Explore our Building Credit section or get in touch with us via TwitterFacebook, email info@magnifymoney.com or in the comment section below!

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Pay Down My Debt

Introducing FICO 9: What This Means for You

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Yesterday, FICO announced that it will be releasing FICO Score 9.  If you have unpaid medical bills or other collection items, this change will impact you.

What is FICO?

FICO is the most widely used credit score in the country. 90 percent of all credit decisions (mortgages, cards, credit cards, personal loans and more) use the FICO score in some way.

So, when FICO makes a change to its score, we should listen. This score has a big impact, because lenders use it and others (like CreditKarma) are trying to approximate it.

What are they changing?

This change is huge for people with unpaid medical bills and other collection items.

Unpaid medical bills

According to Experian, 64.3 million Americans have a medical collection record on their bureau. In the current world, this can significantly harm their credit score.

If you have an unpaid medical bill, it can be reported to a credit bureau in two ways:

  • The medical service provider can report to the bureau, or
  • A third party debt collection agency that has purchased the debt, or has been contracted to collect the debt, can report it

99.4 percent of cases have been reported by collection agencies. So, if your doctor is calling you to pay – it probably hasn’t been reported to an agency. But, once a collection agency starts calling you, you probably have a negative item on your credit bureau.

The purpose of a credit score is to help lenders understand the likelihood of someone being responsible and paying back on time. There has been a widespread belief that people have been unfairly punished for medical bills. In fact, the CFPB has proven that people have been unfairly punished, in a May 2014 report.

With the new score, FICO is agreeing with the CFPB. Medical collections will now be differentiated from non-medical collections. And people will be “punished less” for medical collections. This makes sense, for three reasons:

  1. The medical system is complex, and many people have been hit with small medical collections that they didn’t even realize they owed. For example, with a small co-pay that ended up with a collection agency.
  2. Historically, many responsible people could not get insurance because they had a pre-existing condition. And, when medical disaster struck, they had no way to pay the medical bills. They tried to be responsible, but couldn’t.
  3. Even with insurance, multiple emergencies in a family can lead to large deductible payments. Doctors and hospitals can quickly turn over bills to collection agencies, resulting in a negative remark on the credit bureau. Even people who are just paying back their medical bills, responsibly, over time can be punished.

This is a big win for the CFPB. Hats off. A government agency has done the math for the industry, and the industry has agreed. This should result in better access to credit, and lower rates on existing credit – once (and if) the changes are accepted by the industry.

Paid Collection Accounts will now be bypassed

Beyond medical bills, many other types of debt can end up on your credit bureau. For example, failure to pay your utility bill, your phone bill, your overdraft or any other type of debt can result in your account being sold to a collection agency. And the agency will usually report the collection account on your bureau. Having these accounts can seriously harm your score.

But, the older the collection item, the less impact it has on your score. I have regularly met people who felt confused. They have recovered and now had money. Should they pay back that five-year-old collection item, or just let it age. They wanted to pay it back, but would receive advice from some people not to do so. Why? Because activity on a collection item could make it appear more recent.

This change removes all ambiguity. If you pay back your collection items, your score will benefit. This is the way it should be.

When will I see the impact

Unfortunately it will take a while. FICO sells its credit score to banks. Whenever a new score is introduced, a bank has to decide whether or not to upgrade. In order to make this decision, they need to do a lot of analysis.

First, they will perform a “retro” analysis. This means they will look at the past few years of their portfolio history, and they will estimate how the portfolio would have performed if the new score was used.

They will then need to build strategies, which includes the cutoff (above what score will they approve accounts), the pricing and the extra rules that they want to build. In my experience, this takes 12 to 18 months (there are so many committees that need to approve this!).

Banks are very eager to “swap in” new customers. So, if previously rejected customers can now be approved, banks will be keen to proceed.

They are less keen to charge people lower interest rates. So, the CFPB needs to watch the banks closely. If people are truly lower risk, they should pay lower prices. But, banks are not eager to reduce pricing.

In Conclusion 

We fully support the changes. Medical bills are being severely punished. And people should not be afraid to pay off collection accounts.

We are realistic: it will be a while before we feel the impact.

And we are rightly skeptical: banks will be happy to approve more people and give more credit. They will be less excited to reduce interest rates.

Got questions? Get in touch via TwitterFacebook, email info@magnifymoney.com or let us know in the comment section below!

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Get A Pre-Approved Personal Loan

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Won’t impact your credit score