Questions About Your Credit You Should Know the Answers To

What is a good credit score? Lenders see the FICO score as an indicator of risk. The higher the score, the odds are favorable that loan repayment will take place. As the score gets lower, the odds decrease that payments will be made on time. Right now, most financial institutions are looking for a FICO score of 740. This is rather high when you consider the score tops out at around 850. Prior to 2007, lenders were accepting a 680 FICO score as A- credit. Those who had a 680 then were able to access good rates and terms for their consumer and home loans. Regrettably, in the recession, people with a 680 FICO score were facing trouble with adjustable rate home loans, over-extended credit obligations, and even job losses. Many people with a good FICO score were obliged to put off payments on credit cards due to job losses. Many suffered through foreclosures on homes that had interest rates that adjusted up while the home’s value adjusted downward. As the economy improves and the job markets get better, we should see the “good” FICO score come down a bit from 740. Will we see 680 as the “good” score again? Maybe, but not for awhile.

What is your credit score? CreditKarma.com is a good site to get your FICO and Consumer Vantage scores for free. There are a lot of sales offers there, but the score info is worth it. Knowing your score and checking it at least a few times a year can help you manage your credit. If your score is low, you can look for ways to improve it such as paying down debt or settling collections. If your score is good, continue to utilize practices that maintain it like making all your payments on time and not acquiring unnecessary credit lines and credit inquiries that might negatively affect your score.

Often, a low score could be related to a delinquency, collection, or bad information. It’s a good idea for someone to view the details of the credit score to understand the steps they can take to help improve the score.

Do you know what is in your Credit Report? AnnualCreditReport.com was begun in 2002 when Congress passed the FACT Act. The Act says the FTC and the three credit bureaus shall provide U.S. consumers with a copy of their credit report from all three bureaus for no charge on an annual basis. I recommend everyone access this site every year. I hit it on or about my birthday to check my report and verify the info on there is accurate and it all belongs to me. It is a simple identity theft protection tool to which every American has access. Knowledge is power and understanding your credit report is one of the most powerful pieces of financial knowledge.

How much do I owe? This is a no brainer that people should always know. They should know what they owe in credit debt, meaning any loans and credit cards that are outstanding. They should also be aware of any Debt Collections they may have. Too many people have no idea what debts they owe. .

More importantly, I would ask the question:

How long will it take me to pay off my debt? This is the more relevant question. What resources do you have to pay your debt? Can you concentrate a greater amount of money on them from your budget to get them paid sooner? Paying down your debt improves your FICO score. Incurring high balances or maxing out cards diminishes your score. Paying down these balances props up your score and shows creditors that you are a “good risk.”

What rates are you paying on outstanding balances? Lower rates mean you can pay off your debt faster, and save money on interest payments. You should examine your loan and credit card interest rates regularly; like the same time you check your credit report. If the report is good and your score is fine, you may want to consider transferring your card balances to lower rate cards and cancelling your higher rate cards. Another option is to contact your card holder and request a lower interest rate. Closing old cards we have had for years is not always a good option as the positive history of the card usage helps our FICO score. If they will not lower your interest rate, as a consumer you have the option of moving your money should you choose. But keep in mind that some of the low rate offers may only be introductory. Know what the rate will be after that “intro-rate” expires.

How do inquiries affect my credit?  It is important to know that multiple inquiries from different creditors can be trouble for your score. Applying for multiple credit cards at once is not a good idea. Each inquiry will take a few points off your score. It’s not a lot, maybe 8-14 pts depending on your credit standing and they only last a year against your score. But, multiple inquiries from various creditors can generate negative effects your FICO score and then you have to wait for them to drop off for your score to improve. Multiple inquiries from auto and home lenders in a short amount of time can be combined into one inquiry. You were not shopping for five cars at five auto dealers! You were shopping for one car and one loan at multiple dealers. The same holds true for multiple real estate loan inquiries while loan shopping. Lesson; know what credit you want to apply for before applying.

How does cosigning for my kid’s loan affect my credit? When you cosign a loan it goes on your credit report as if you were the main responsible party. Do you know why? It is because you ARE THE MAIN RESPONSIBLE PARTY! You are the one with a credit score. You are the one with a history of repayment. The entire loan depends on your child or whomever you co-signed the loan with, making proper repayments. If they don’t, the financial institution will look to you to make the loan good. The balances incurred by both parties on the loan will have an effect on your overall balances owed to creditors as if it were your loan. If you cosign for a credit card and the balance is used to maximum limit, that high balance could and most likely will have a negative effect on your FICO score. If co-signing for a family member or friend, think twice. Parents, things get better when your children can apply for credit on their own without your help. 

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Your FICO Score-Mystery no More!

 

Is your FICO score a mystery to you? Don’t feel bad, most American consumers don’t know their FICO score much less how it is determined. Generally, your FICO score can vary from 300 at the lowest to a high of 900. People ask me, “Hey, Credit Union Guy, what’s a good credit score?” Today, a good score would be in the neighborhood of 740. At this level you can access good rates on car loans, home financing, and credit cards. Go below 740 and you may find yourself paying higher rates of interest on your loans and credit cards.

“What is a FICO?” FICO is an acronym for the Fair Isaac Company; the company that invented the calculations that result in a measurement of credit risk. The score is determined by an algorithm. In a sense, it is a highly complex algebra problem that takes into account your payment history, the ratio of your loan and card balances vs. your available balances, the length of your credit history, your credit request inquiries and the types of credit you are managing. The formula for exactly how the score is calculated is proprietary information and owned by Fair Isaac.

“Why does the FICO score exist?” In the old days of lending, loan managers looked at the physical credit report for a person and made a judgment call on the risk involved with making a loan to that person. Back then, two loan underwriters might look at the same report and have very different opinions on the applicant’s payment history. Credit Scoring took the judgment call out of the process. A person either scored well or they didn’t. Another reason for FICO score is volume. As our population grew and more people started using banks and credit unions, the loan volume increased significantly. In order to speed the loan process, the FICO score was used. Loan processors can input a minimum of data and get a score for a credit decision rather than reviewing the entire credit report.

Here is an approximate breakdown of how it is determined:

·   35 percent of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how timely) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.

·   30 percent of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have that have maxed out lines, the lower your score will be. The rule of thumb is to keep your card balances at 30% or less of their limits.

·   15 percent of the score is based on the length of time you've had credit. The longer you've had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.

·   10 percent of the score is based on the number of inquiries on your report. If you've applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven't used the cards or gotten the loans). The more recent these inquiries are the worse for your credit score. FICO scores only count inquiries from the past year.

·   10 percent of the score is based on the types of credit you have. The number of loans and available credit from credit cards you have makes a difference; installment loans vs. revolving lines of credit. There is no magic number or combination of types of accounts that you shouldn't have. These actually come more into play if there isn't as much other information on your credit report on which to base the credit decision.

Questions? Ask the Meriwest Credit Union Guy at gmeyer@meriwest.com.

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The next Meriwest Credit Union Financial Education Workshop will be our Reality Based Budgets Workshop for teens and college students on Wednesday, Nov. 28th at our Monta Loma Financial Center in Mountain View. This workshop takes through a post college money management simulation where they are given a salary, rent, car payments, and other bills and build their living budget. 

Our Monta Loma Financial Center is located at the corner of Rengstorff and Middlefield  Road in the Monta Loma Shopping Center. The program begins at 6pm. We hope you can join us. Please RSVP at our Events Link.

 

7 Tips for New Credit Users

1. When establishing your first credit, consider using a secured credit card; a card where you have to make a deposit in a savings account in order to establish and maintain the card. The money on deposit is your security for the credit. You now have an additional incentive to be on time with your payments; your own money is at stake. Meriwest Credit Union offers this type of Secured Visa Card. Info on Secured Visa Cards is here.

2. Another secured type of credit option is the credit union share account loan. Most credit unions have this. You make a deposit to an account and then take a loan out against the funds in the account. As you pay it back on time, your CU lets the credit bureau know and it helps get you get established in managing credit. Secured Share Account Loan info is available here.

3. When you get your first credit card, do not celebrate. There are those who like to go out and get a quick pizza or a movie when their new credit card arrives. A new credit card is not a good excuse to go out to spend and celebrate.

4. Use your credit wisely, purchase assets you need. There are too many people in the world who have credit card bills and have nothing to show for thousands of dollars in debt. Pizzas, concerts, and movies are fleeting and soon forgotten. Furniture is a good reason to use the card. That way, when you are on your couch writing the check for your credit card payment, you have something to show for it. You are sitting on your asset. (Hey, that’s a little credit joke!)

5. Avoid gas cards issued by Shell, Chevron, and other oil companies. Those who are new to credit are often unaware that gas purchases on oil company cards have to be repaid monthly. Only repairs and major purchases, (tires, transmissions, etc.) can be paid over time.

6. Check your credit report annually at AnnualCreditReport.com to verify your current outstanding credit and prevent identity theft. Do you see a card on your report you didn’t order or apply for? If you are reviewing your report annually, you can take action fast and stop identity theft.

7. It seems simplistic, have a budget and plan your spending. A good budget can keep you from using your credit cards or help you pay off the debt you already have.

We are starting to set our schedule of Fall Financial Workshops. If your business, school, or organization has a need for this sort of financial education for employees, students, or clients, please feel free to call upon me to arrange workshops for them. It’s what we do to make our community a better place. 

Please contact Greg Meyer, the Credit Union Guy, at gmeyer@meriwest.com or 408-365-6328 if you are interested. 

 

Child Identity Theft

We do a lot to protect our identities. We buy software for our computers to protect us from hackers. We change our passwords on our accounts regularly (or at least we should!). We write “Ask for Identification” on the back of our debit and credit cards. We do all this in an effort to protect our credit and our assets from criminals. We worked hard to build these things and will work equally hard to keep hold of them and guard them from those who would take them from us. How much time do you spend protecting your kids’ identities?

That’s right, I asked about your kids’ identities. Your kids have Social Security numbers and identities just like you do. Sure, they don’t have all the financial baggage that your personal data comes with, but they are just as vulnerable. I hear you thinking, “But they’re just kids! Why do we need to worry about their identities?”

The Bad Guys out there don’t discriminate when it comes to age. The social security number of a fourteen year old is just as good as one from a forty year old; often better as there is no past history. When a minor’s social security number is used to access a credit report, the reports are usually squeaky clean. There is not even a date of birth attached to the record. It is a beautiful clean canvas that a criminal will use to create their false identity.

Every year I meet several high school students who have had calls from collection agencies or have discovered through other means that their personal information was compromised. These students are all under the age of 18 and have credit problems caused by someone else. Sometimes they learn of it when they go to order their first cell phone and discover that a relative who had a previous account cancelled for nonpayment had used the youngster’s personal info to access a new phone and a new cell account. Some do not learn of the identity theft until they have graduated high school and are denied student loans due to a person’s misuse of their personal data. Often, relatives are involved. Each case is its own tragedy.

These students who have had their information compromised have a lot of work to do before they can access credit for themselves. They have to get started on their own credit repair process. In some cases it involves turning in relatives or family friends to the authorities for investigation of identity theft.  

But what about your children’s personal data? How safe is it?

What have you done to protect them? Who has access to your child’s social security number? Have you ever talked to your kids about sharing information? You need to protect your children’s personal data just as you would your own. Medical, school and banking documents that have your child’s social security numbers on them need to be locked up and eventually shredded properly. Ensure that going forward the only people with access to your son or daughter’s personal info is you and your spouse. When the kids are old enough, have that talk with them about what information about them is secret and should never be shared with strangers.

Far too many parents don’t talk about money and credit with their kids and their kids suffer because of it. Don’t be that parent! Prepare your kids for life after school.

Credit Reports and Employment Background Checks

For jobs that require a high degree of trust and responsibility, a background check is required. Part of that check includes a review of your credit report.

In the business of finance, credit reports are critical to the hiring process. You would not want someone handling your money if they could not manage their own! The credit report can tell us a lot about our potential employee. It gives us insight into how responsible they are with their money and credit. The thinking is, if someone is responsible with their own money, they will be accountable and reliable when given responsibility for your money.

But, right now, it can be difficult to find someone who has been unemployed for a while with perfect credit. We are seeing people with a number of credit issues applying for jobs. The bottomline is: Honesty is the best policy. My HR team appreciates when an applicant is upfront about their credit status and speaks to us about the deficiencies in their report. In example, “I have been out of work for six months and had to make several concessions to my budget to make ends meet for my family. I have one Visa account that is 30 days in arrears and I am two months behind on my mortgage. I should be able to bring these items current within two months of being hired.”  In these recessionary times, we need to be flexible and do our best to see the entire employee and not focus on one or two aspects of their past credit behavior. If someone were to be upfront with us regarding their past credit, we would appreciate their honesty. It is best to know ahead of time and not be surprised than the other way around.

Credit checks or inquiries for employment do not show up on credit reports requested by employers or creditors. Where you apply for work is none of their business. Those inquiries only appear on your copy report if you request it from a credit bureau or if you order it through WWW.AnnualCreditReport.com.

A person has the right to add a 100 word statement to their credit report at anytime should they feel the need. In the case of someone being unemployed or underemployed for a length of time, one could place a message on their credit report with all three credit bureaus that they were unemployed from xDate to xDate and had to allow some bills fall into arrears.  The message will stay on the report for 7 years. This message also plays for someone who was disabled and unable to work for a time. These messages will not help you access further credit, but may be helpful in accessing employment or rental housing. 

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Are you looking for a new car this summer? Tired of feeling you paid too much for your car? You can make a change by contacting Bill Fultz, our Personal Auto Shopping Service Manager.  Bill is an Auto Broker who works for our members for FREE! Bill can get you the best deal on new and used cars; often at invoice or below. Learn more about our Personal Auto Shopping Service on our PASS Page.

Adustable vs. Fixed Rate Home Loans

Are you thinking of diving into the market and buying a new home? Home Loan Rates are at a historic low point. Fixed 30 year rates have just gone below 4.00% and could go lower if the real estate market stays slow for now. Interest rates are not effected by gravity so when they go down, they will not stay down. They will go up when the economy heats up. That could be by the end of 2012 or it could be a year or two away. The economic situation is very fluid right now.

This brings me to my point; rates don’t have very far to fall but they have a lot of headroom to rise. On a loan taken out today, an adjustable rate can go down a little bit over the near term, but those who have a new adjustable rate mortgage need to be conscious of the movements of the market and be prepared to refinance to a fixed rate loan quickly. The best bet is to grab a fixed rate mortgage now. At 4% a borrower is borrowing at one of the most significantly low rates in recent U.S. history!

The Fed says that rates will remain low for a while. If there is a fix to the EU Debt Crises and our economy heats up, rates can go up fast. We have seen it repeatedly since 1978. Each time a recession has ended, lending rates went up quickly. Those with adjustable loans were hit the hardest as their loans are tied to the Fed rate, LIBOR, or the prime rate. Those rates can be very volatile in a heated economy. The Fed controls the money supply with interest rates. If the Fed governors feel there is too much easy money or because of the easy money they are seeing inflation, they can put the brakes on the economy and slow it down with a rate increase.

One last thing to keep in mind is a lender’s spread; the amount of interest he makes on money he lends vs. what he is paying for savings accounts. Typically, the spread should be about 2% or greater between the average interest rate being paid on savings vs. the average overall loan rate. Right now, financial institutions are paying less than 1% on savings accounts. There is room for rates to go down a little bit so that may make an adjustable loan more attractive. Many adjustable loans can go up 2% in one year. Thus, one can go from 3% to 5% on a mortgage loan in about a year. That would cause the payment to increase pretty dramatically. I think this is a good argument for a fixed rate loan. 

Our next financial education workshop is:
 Free Financial Education Class: Auto Financing 101
Wednesday, June 20, 2012 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

7 Steps to Buying your First Car

Buying a car is often our first big expenditure and our first foray into the world of credit. Buying a car is not all about numbers, dollars, and cents; it is an emotional experience. It is that dream of rolling down the open road with the window down and our elbow resting on the door while we cruise along going somewhere in our car. That dream of buying a car is important, but equally important is the work that gets us to that point.  Your first car purchase is a major financial transaction and should not be taken lightly.

For many, a vehicle means freedom. But, it also means economic empowerment as it gives you increased job opportunities and increased earning potential. You will also have an improved quality of life. Some crosstown buses can take hours to reach their destination. With your personal car, you will have more quality time with your friends and family. Since you will be making a regular monthly payment on the loan, your car ownership is also an opportunity to improve your overall credit picture.

1. Your first step in the transaction is to know how much of a car you can afford. Refer to your budget to see how much disposable income you have available after paying your rent and monthly bills. That is what you have available for a car payment and insurance.

2. Do you know the condition of your credit? What's your FICO Score? First, get your free credit report at  WWW.AnnualCreditReport.com. This website is managed by the three credit bureaus and the Federal Trade Commission. You can access and printout your report from all three bureaus for free once a year. Yes, NO CHARGE.

3. As for your FICO Score, you can access that at WWW.MyFico.com. MyFico.com is not free ($14.95 a month), but it will be the most accurate representation of your score that is available. If you cancel before the end of the ten day free trial, you will not be charged.
1. Do you need a co-signer? Need to learn more about it? Check out our Co-Signer Blog from a couple of weeks ago.

4. What have you saved for a down payment? The down payment is part of your purchase price. It determines the amount you will be financing. A significant down payment can decrease the monthly payment amount. The down payment also plays a role in determining your interest rate.   Often lenders will give you a better rate based upon larger down payments. A large down payment tells your lender that you have “skin in the game.” They will be more comfortable lending to you and providing a favorable rate if you have a personal investment in the vehicle they are financing. We offer the “You Name It!” savings account that is designed just for this sort of purpose.

5. Once you are financially up to date, you can start researching the car you want to own.  What do you need? Good gas mileage? Sporty? Four Wheel Drive? Do you need a wagon or SUV for your family? Or is it going to be basic transportation? This is where you need to study and learn what the best and most affordable car is in your price range. Here are three excellent websites I am using to research my next vehicle purchase. Each of these has extensive information on the technical issues and the fair market prices of the car you may be purchasing.
1. Credit Union Dealer Network  WWW.CUDLAutoSmart.com
2. No. American Dealer's Association Guide  WWW.NADAGuides.com
3. Edmunds Automotive  WWW.Edmunds.com

6. Now we need to shop for vehicle financing. Credit Unions, banks, finance companies, and auto dealers all offer auto and truck financing. I am partial to credit union financing because I like lower rates, faster approvals, faster loan processing, and, a big reason I like them, discounted extended warranties for my car. I put a lot of miles on my vehicle. By financing my car through the credit union, I can buy the extended warranty at a huge discount over the warranty the dealer will sell. Once you have selected your lender, you should get pre-approved for a car loan. Then there is no doubt about how much car you can afford and it makes your purchase negotiation much easier!

7. Now it's time to go to the dealership or private party and negotiate your best deal. The best negotiating tip I can give you is to stick to your budget. Dealers will try to egg you into a slightly higher payment for some options, “The premium stereo will only cost you another $15 per payment. Are you going to let $15 keep you from having the best stereo?” REMEMBER: $15 per month on a 36 month loan means you will pay the dealer $540 for that stereo. Stick to your budget and don't let the dealer try to sell you on the payment amount.

• Meriwest Credit Union offers a full array of tools to help with your auto purchase decision. We have loan calculators, vehicle research, interest rates, and even a link to tell you the value of your trade-in.

Many of our members tell us that building their budget and getting their financing is the easy part of buying a car. It is negotiating the price of the car that seems to be the hardest part of the process. One option I have used in the past is an Auto Broker. An Auto Broker can find the car you want and often negotiate a good price for you as they bring large volumes of business to the dealership. But Auto Brokers charge for their services; sometimes well over $500 for high end vehicles. An option that some credit unions have for their members is an auto buying service or, as we call it, a Personal Auto Shopping Service or P.A.S.S.  It is an Auto Broker who works for your credit union and works for you for no charge! It's as if you have a friend in the car business.

If you are interested in our Personal Auto Shopping Service, please contact Bill Fultz at 408-365-6321. Bill has 25 years in the car business. Let Bill use his connections and expertise to get you the best deal.

Auto Sale at Meriwest Credit Union – Main Office

May 19th - 9AM to 5PM
May 20th - 10AM to 6PM
5615 Chesbro Ave, San Jose CA 95123

Get special dealer pricing and financing deals.

To get pre-approved for financing, call Meriwest Credit Union at 877-MERIWEST or online at Meriwest Credit Union Auto Loans.   

Upcoming event: Identity Theft

May 16^th @ Meriwest Credit Union

Chesbro Ave. Main Office-Please RSVP with Greg Meyer at gmeyer@meriwest.com

How do I Increase my FICO Score?

We all want a higher credit or FICO score. It helps to get additional credit, usually at better rates. How do we raise our personal FICO score? That’s a question I get every week in my workshops. Here are some of the best strategies for raising your FICO score:

• The two simplest strategies are making your payments on time and paying down any outstanding balances. Each time you make a payment on time your score goes up. Don’t let any credit debt get near 30 days late. Also, whenever a balance is paid down, especially on credit cards, your ratio of used vs. available credit goes down, thus, raising your FICO score. Keeping your cards’ outstanding balances at less than 30% of the available balances on each will maximize your FICO Score.

• Another tip is not to close old credit cards. If it does not have a balance, consider using the card for a small transaction once or twice a year and pay it off immediately. This will help your credit payment history and the lack of an outstanding balance on the card will improve your capacity to borrow. This relates directly to your ratio of used vs. available credit. The higher the amount of available credit, the higher your score.

• Two things happen when we close old cards, the history they built for us over the years goes away after a short time and the available balance is removed from our overall available credit, limiting our current borrowing capacity and reducing our FICO score. Close old credit cards at your own risk.

• Avoid too many new credit inquiries. If you are trying to increase your FICO score, avoid applying for new credit cards or loans too often, especially those at a department store. Each application you sign means a hit on your score. Multiple applications mean multiple hits. Many businesses will offer you a discount for applying for their particular card. Your credit score will benefit if you just say No!

• Another strategy is to move your revolving debt to installment debt; essentially going from a variable account to a fixed rate/fixed payment account. You would be changing your variable revolving credit account to a fixed payment personal loan. The highest scores include both revolving and installment debt. This is what takes place when someone does a bill consolidation, changing variable interest debt to fixed rate fixed payment debt.

• One of the easiest and most direct ways to raise your score and your credit history is to get a secured loan from a credit union that will report your loan payments to the credit bureau. These are often referred to as share loans. As you are borrowing your own money, a high FICO score is not required. Not all CU’s report to the credit bureau on these types of loans, so you have to shop for them. Essentially, one opens a savings account and takes out a loan on their money in the account. As they pay back their own money, they will build their credit score. This can also be done with a secured credit card account with your CU. Mismanage either of these programs and you will lose your deposit and possibly do damage to your credit score.

• Banks offer savings account loans but, generally, they will not report your payment history to the credit bureau as credit unions do.

Finally, the key, the thing that will make the biggest difference for you in building your credit score -  is Time! Utilize these strategies and be patient. Rome was not built in a day, neither is your credit score. Your personal history of proper credit usage is important so take the time to do things right and make your payments on time, pay down balances, and utilize your old cards as you should to maintain them. Proper maintenance of your credit over time will result in a nice fat credit file and a high score.

Tips to understanding your FICO score

http://www.myfico.com/downloads/files/myfico_uyfs_booklet.pdf

Auto Sale at Meriwest Credit Union – Main Office

May 19th - 9AM to 5PM
May 20th - 10AM to 6PM
5615 Chesbro Ave, San Jose CA 95123

Get special dealer pricing and financing deals.

To get pre-approved for financing, call Meriwest Credit Union at 877-MERIWEST or online at Meriwest Credit Union Auto Loans.