Friday, March 15, 2013

Can 25 FICO Points Keep Me from a Good Interest Rate?

This really depends on how much credit you have to manage at once and what your current credit score is as it relates to the credit tiers. If you are near the edge of a tier, than yes, 25 points could affect the interest rate you may have to pay. If you have only one credit card, it would be difficult to maintain a high score and utilize more than 30% of the card’s available balance. The 30% rule is still valid, meaning that to maximize your score you should not utilize more than 30% of your available consumer lines such as credit cards. As your credit usage increases above 30% you will likely have a corresponding decline in your FICO score. That is not to say you cannot ever max out a card. They would not allow you such high available balances if you could not max them out. But, before anyone maxes out a card, they should have a plan on repayment. Consider your budget and manage your money so you can pay a larger amount than the minimum payment monthly. This will pay the card down faster and help build your score.

Quick Example: In Debt Forever

Credit Card Balance:      $2,500
Interest Rate:                 18%
Minimum Payment:        $  45
Years to Pay Off               10 (120 payments @ $45 each)
Total Payments:            $5,400
Total Interest Paid:         $2,900

Now you have actually paid a total of $5,400 on that original $2,500 balance, More than twice what you originally owed. In this example, a $100 monthly payment at this rate would pay off the balance in 31 months, 75% faster!

Your credit report shows your high balance usage on all of your cards. It also indicates how you have made payments. If there have been any late payments, delinquencies, etc. Lenders look at this data. It tells us if this person has the ability to pay off debt or live with it by paying their minimum payments.

Now, let’s say someone has a car loan, a home loan, and couple of credit cards. They have installment and revolving credit in their financial portfolio. This person can utilize a higher level of their credit cards and still maintain a high score due to the other accounts they have.

FICO looks at your total credit usage. As you gain experience and manage your credit where you have no late payments and have maintained credit cards and other credit given to you, and paid back balances, you will see your score get stronger and more resilient and less effected by the credit line usage factor.

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Credit Myth in California: If I get a divorce, I am not responsible for my spouse’s debts.

Credit FACT: California is a community property state. A spouse can be liable for debts entered into by the other spouse during the marriage, even if they were unaware of them. In these community property states, debts entered into during the marriage are considered community debts, and both spouses can be liable.

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Special Events

This is a great workshop for the whole family. This one hour workshop is worth a lifetime of identity protection knowledge. You will learn how to protect your identity from thieves and hackers.
March 20th at 6:30 PM
Meriwest Credit Union Main Office
5615 Chesbro Ave, San Jose CA 95123

To RSVP: Greg Meyer or 408-365-6328

Credit Union Pre-Owned Car Sale
Take the Car of your Dreams and put it in your Garage!
All Day March 23rd and 24th   
Meriwest Credit Union Main Office
5615 Chesbro Ave, San Jose CA 95123
For more info: Link to Car Sale Page

Federally insured by NCUA. We do business in accordance with the Federal Fair Housing Law and Equal Credit Opportunity Act.
Copyright 2013 Meriwest Credit Union. All rights reserved.

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