You have your high school diploma. Now what’s next?

You got your diploma, went to grad night, and stayed out until morning. What are your plans? You may have plans for college locally or away. You may have a job lined up for the summer. That’s what’s next for you, but what’s next for your money?

1. Have you opened a checking account? Was it at a bank or a credit union? If you opened your account at a commercial bank, you must enjoy paying fees to the bank. If you don’t enjoy paying fees to a bank, you can open your checking at a credit union and keep more of your money. It is not that credit unions don’t charge any fees, they just charge fewer of them than the banks do. Are you required to have a minimum balance in your bank account to avoid monthly service charges? Are you required to have direct deposit for a free checking account? If you don’t maintain these things, how much is the monthly charge? $10? $15?

Generally, at credit unions that is not the case. Most credit unions often offer checking accounts that are free of fees. There are no monthly service charges or minimum balance requirements. Direct Deposit is encouraged but not a requirement for a free account. Credit unions believe it is better for their members to keep their money than to take it from them in the form of banking fees.

2. Are you working? Then you should be saving money. Save what you can afford. If you have a car, you will thank yourself for saving some money. Cars don’t take care of themselves. Tires will go flat, batteries will go dead, hoses will spring leaks, and belts will break, all costing you money. Put some money away for that inevitable day when something goes wrong with the car. Just to tow your car five miles may cost you $100! Do you have $100 in your savings today? If not, you should have that as a minimum start amount and keep saving.

While we are working on savings, let’s talk about an emergency fund. As time goes by, an emergency fund will be important to you. A general rule of thumb for an emergency fund is six months worth of income. The emergency fund exists to fill gaps in your budget when unexpected expenses arise. Not just for fixing your car, but for emergencies such as getting transportation to visit sick family members, or your own emergency medical bills, or paying for your insurance deductible after a car accident are just some examples of good uses for your emergency fund. That emergency fund exists in case we find ourselves unemployed. That six months income in the fund may be what we need to bridge our income gap between jobs! So what’s the best way to save? Try allocating a portion of your check into a savings account as part of an automatic deposit or transfer. Think about it. If you get paid twice a month, that’s 26 checks in a year, if you only took $10 per check and had it automatically deposited into your savings, that’s $260. Now what if you doubled that to $20 per check? That’s $520 you’ve saved! And since it’s being automatically deposited, you probably won’t even notice it coming out of your check.

3. Do you have credit? Pay your bills on time so you don’t incur any bad credit and to help build strong credit. An unpaid bill can become a collection and hurt your chances to access credit. A cosigner can be very helpful in accessing credit such as a car loan or credit card. The cosigner is on the loan with you so they would suffer if you fail to pay on time. The cosigner is essentially putting their good credit at risk to help you. This should be treated with great respect. You must stay on top of any credit commitments made with a cosigner.

Are you more independent? Don’t want a cosigner? Perhaps a secure Visa or Master Card is in your future. Meriwest Credit Union (as well as many other CU’s) offers a secure Visa card that can be started for as little as $300. Send a $300 check with your application and, if approved, your will receive a $300 Visa credit card. Want a higher credit limit? Increase your security deposit. Your incentive is that if you don’t manage the card well you are putting your savings at risk. If the card is not paid on time, it could be closed and paid off with your secured savings. You would receive whatever is left after pay off. Be aware that these cards usually have an annual fee as well.

Whether you initiate credit with a cosigner or through the secured route, it will take some time to get yourself established. Rome was not built in a day and we don’t build a credit history in three months! Check CreditKarma.com to see your credit score and watch it grow as you manage your credit.

4. Do you have a car? Do you have adequate car insurance? There are a lot of car insurance companies that advertise very low rates and for good reason! They mainly quote the cost of the California Minimum Insurance. What are those minimums?

$15,000 for injury/death to one person.

$30,000 for injury/death to more than one person.

$5,000 for damage to property.

Let’s say you bought this exact amount of insurance. It is very inexpensive. Why? You have very little insurance. Let’s suppose you hit a new Mercedes Benz E-Class sedan from behind and the owner gets a neck injury like whiplash. If the car is totaled, it will cost you over $50,000 to replace it. How much do you suppose the hospital bills would be for whiplash? $100,000? $250,000? Whoa! More than that? Yep.

In this case, your insurance company will give the victim $5,000 for the damage to their car and $30,000 for the hospital stay. You are on the hook for the rest of it and it could be in the hundreds of thousands of dollars. If you don’t have hundreds of thousands of dollars in your emergency fund, you might want to budget for adequate insurance. It may cost you more than the super cheap minimum insurance, but it will help you sleep at night knowing you are not at risk of filing bankruptcy for a car accident.

These four things, opening a checking account, starting your savings, establishing your credit and properly insuring your car can make your financial life so much easier and put you ahead of the game. Many college graduates are not ready for their lives financially when they leave college. If you start your post high school planning with these four simple ideas, you can build a financial foundation that will serve you and your future family for the rest of your days.

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All About Business Credit Cards
On Wednesday May 14th at 10 am PDT the Credit Union Guy, Meriwest CU's Community Relations Manager, Greg Meyer, will take part in a Google+ Hangout with the team at Credit Cards.com to talk about understanding Business Credit Cards. It's fifteen minutes that will bring you up to date on the differences and the proper uses of a business card. Here is the link to watch: http://bit.ly/1i20MX4 .

Free Credit and Identity Theft Workshops

Preventing Identity Theft
Wednesday, May 21, 2014 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

Identity theft is on the rise. After the Target Store breach, what more can we expect and how do we protect our hard earned money from these thieves? We share some answers with you.

Credit Myths & Credit Repair
Wednesday, May 28, 2014 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

Do you know all there is to know about credit? We review the top ten myths of credit and explain how paying bills, collections, credit inquiries, and divorce can effect your credit standing.

Zombie Debt

Even Zombies say, "Zombie debt bad!"

Zombies are more popular now than at any time I can remember. There are new zombie movies coming out, zombie games, zombie parties, and even self-defense products for the upcoming zombie apocalypse.  There is one more Zombie Threat you must protect yourself from, ZOMBIE DEBT!

Zombie Debt is a collection that has been “termed” off your report. In other words, it has reached its seven year expiration and been removed automatically from your credit report. Then collectors try to call and collect on “Dead Debts” or “Zombie Debts.” It is as if the seven plus year old debt has risen from the grave and come back to haunt us. Imagine your old debts doing the slow zombie shuffle to your door yelling, “Pay me, pay me!”

Zombie Debt Collecting is becoming more common. This is particularly true with people who don’t track their finances well and don’t follow their credit report. Bill collectors are taking advantage of their naiveté and making threats about legal actions if payments don’t start right away. These tactics are working in the lower income communities. Typically they are going after old credit card debt.

Consumers need to know their rights in regards to credit reporting. I present a workshop in the community and at my credit union titled, “The Myths of Credit.” The presentation goes over the top ten myths of credit and an emphasis is put on managing and understanding collections. Too many people don’t understand that a collection can only be collectable for seven years and not beyond that. However, these collection agents continue to attempt to collect debts that are well beyond the seven year period. Also, once families go into an agreement with the collector on a Zombie debt, they need to stick to it and make their payments as the collection agent could now make this a new collection for nonpayment due to the payment agreement/promissory note the consumer might sign.

How should a person handle collection calls and avoid Zombie Collections? Regrettably, it is not as simple as shooting a zombie in the head and ending the threat.

Before a collector calls:

1.       Access your credit report through AnnualCreditReport.com. You can access all three bureaus’ reports here. You will never be in the dark about your credit status. You will always know when a collection has gone on to your report and when it expires. This is a free service.

2.       Sign up for CreditKarma.com. They will notify you of any changes in your score and provide the info for those changes; such as a collector “re-aging” a collection or putting an old expired collection back on your report with a new date to make it appear current. This is also  a free service.

When a collector calls:   

1. Don’t admit to anything. Don’t agree to payments. Your agreement to making payments  or even acknowledging the debt could provide the company the legal right to collect the debt and may reinstate a dead debt and make it a real Zombie!
2.   Make them identify themselves and the details of the debt they are collecting; dollar amounts and the date the collection became active on your credit report (AKA First date of delinquency: The legal term for the first day a debt goes on your credit report). This date can clue you into whether they are collecting on a Zombie debt.
3.  Don’t fall for the traps. Agencies will sometimes “re-age” the debt, (reporting the debt to the credit bureau as if it’s new). They might promise to wipe off the “red checkmark” on a credit report, of sometimes do a “bait and switch” where they tack on the balance of a zombie debt to a new credit card offer. 
4.  Ask them to validate the date and amounts of the collection and send them to you in writing. This should also include asking them for the credit card agreement you signed. Double check the statute of limitations in your state. Generally, seven years is the accepted period of collection. If the debt was discharged thru a bankruptcy they cannot collect it.
5.  If you have determined that you are not responsible for the debt due to age of the debt or other written agreements such as settled or paid in full, write a letter to the collection agency and inform them that you will not pay the debt and share the reason for it as well as any copies of evidence you have showing the debt is no longer collectible.
6.  Collectors often like to threaten payees with court. “If you don’t pay this, we will take you to court!” With most modest credit card debts it is just not economically feasible to hire attorneys to go after the payees. This is a common threat with Zombie debt. If your debt is expired and the collector makes this threat, it is an empty threat with nothing to back it up. No one is going to spend big money ($500 per hour!) to hire an attorney and pay for court costs to collect small expired debts.  
7.  Check your credit report annually. Review it and compare it to the previous year’s report and determine that all items on the report are current and valid.

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Save The Date!
Meriwest Spring Pre-Owned Car Sale
Sat-Sun: April 12th and 13th
Chesbro Financial Center, San Jose, CA

Sale Hours:

• Saturday, April 12th:
  9:00 a.m. - 6:00 p.m.
• Sunday, April 13th:
  10:00 a.m. - 5:00 p.m.

Event Location:

Chesbro Financial Center
5615 Chesbro Avenue
San Jose, CA 95123

Take advantage of this special event!

• Low auto loan rates
• Huge selection of over 200 quality vehicles
• Up to 100% financing available for qualified buyers*
• Fast and friendly service
• Trade-ins welcome
• Plus PRIZES and more!

Learn More

Going from Bad to Worse – Collections are a Curse!

What do you know about collections? I get a lot of questions like: How long can they stay on my credit report? What effect do they have on my credit score? What’s the best way for me to pay them off and get them out of my life? 

Do you wonder about these things? A lot of folks do. Every day I get questions from our members about collections and how they affect their credit. Let’s see if I can give you some answers!

A collection takes place after we have been delinquent on a payment. That payment can be on a utility, a loan or a payment for other services where you may be billed later like a carpet cleaning. Technically, you can be late up to 89 days on your utilities like your water bill, heating bill, or even your phone or cellphone bill, even that invoice from the carpet cleaner. So long as you pay it by the 89^th day, no one at the credit bureau needs to know about it. Sure, the water company might charge a late fee or the cellphone provider might temporarily cancel your internet service, but it will not appear on your credit report and cost you a reduction in your credit or “FICO” score.

But, if you allow that bill to go unpaid that additional day so that is it 90 days late, your credit score will suffer. As a general rule, most businesses turn unpaid debt that is 90 days old to their internal collection departments or they may sell unpaid debt to a collection agency for further collection. What that means to you is a severe beating of your credit score. If you had an excellent score, it is now just okay. If you had a good score, your score has dropped significantly. An unpaid collection on your credit has the same power on your score the first day as it does seven years later when it expires and drops off your report! Unpaid collections drag your score down and prevent you from accessing future credit on good terms and rates.

My debt went 90 days delinquent and now a guy named Ralph is calling me from the collection agency. What can I do to stop this? You have a right to privacy and can write them a letter requesting they stop calling you. That’s the law and it works! Write the letter telling them to stop calling you and send it certified mail to the collection agency. Then, they can only call you to tell you they will stop calling or if they decide to take further legal action. Otherwise, all phone contact stops. Remember to keep a copy of your letter!

However, the best recommendation is to pay it and get it out of your life. This sort of debt is not your friend. Once you pay a collection, it changes from an upaid, also known as an open collection, to a paid or closed collection. Immediately upon paying it, your credit score will bump up a bit. As time goes by and the debt is 24 months, 36 months, and further into your past, you will see your score improve. With the collection’s status changing from an open/unpaid collection to a closed/paid collection on your credit report; it will still be a negative item, but much, much less than a collection that is unpaid. It will remain on your report for the balance of the seven years after you have paid it; i.e. if you pay it after two years, it will show as a paid collection for the five remaining years. 

With older collections some agencies may be inclined to provide you a fairly steep discount to pay them. Collection agencies buy your debt at a discount. You just have to ask for a lower pay off amount and start negotiating with the representative. If you decide on an amount, get it in writing and attach your check to it when you pay it. Then you have a contract with the agency. Do not send any money until you get your agreement in writing. 

Also, good debt offsets bad debt. This means that if you have other credit obligations besides that one debt that went bad, each time you make a payment on them you will improve your credit position. On time payments and keeping your debt balances low and under control are the keys to improving your credit score.

  

Questions? Ask the Your Credit Union Guy, Greg Meyer at gmeyer@meriwest.com

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 Our next Credit Myths Financial Workshop will take place this Wednesday Sept. 25th at our Main Office at 6:30pm. If you wish to join us, please contact me at gmeyer@meriwest.com or 408-365-6328 to reserve a spot. Don't be shy. We have space! 

Our October Workshops will be held at our Sunnyvale Financial Center on El Camino @ Fair Oaks in Sunnyvale. 

Auto Financing 101 

October 16th - 6:30pm to 7:30pm

Learn how to plan for, research, and negotiate your deal and financing for your next car. Be a step ahead of the car dealer. Take this class! 

Credit Myths

October 23rd - 6:30pm to 7:30pm

What are the top ten myths of credit? We will tell you and reveal the truth behind these myths. 

Both will be held at our office at 563 E. El Camino Real, Sunnyvale CA

Please RSVP with me at gmeyer@meriwest.com or 408-365-6328 to reserve your spot.

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. 

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.

Managing Holiday Credit Card Debt

Imagine yourself at a department store. You are approaching the check out. How are you going to pay for this purchase? Are you using your debit card because you planned your holiday spending? Or are you using your credit cards because your only plan is to spend and eventually pay it back?

When it comes down to holiday spending, we have a choice.

Choice #1: We can go into the holidays financially blind and spend to our heart’s content and put our heads in the sand and deal with it in the New Year. This is the way a lot of people approach the holidays and they pay for it monetarily and emotionally. Not only that, but their credit scores take a hit as their credit card balances rise. Their monthly costs go up because the minimum payments on their cards increase due to larger balances. This reduces their spending power until they pay off some of that holiday debt!

Choice #2: Go into the holidays with a spending plan that let’s you buy thoughtful gifts for your family and friends but does not allow you to break the bank. That is really the best course of action. A plan is always better than winging it and winging it with money is never a good idea. To make this action effective, you have to save before the holidays come. Set up an automatic transfer from your checking to a savings account.

Next year in January, you may want to open a “Christmas or Holiday Club” account for your holiday savings if your bank or credit union still offers that. The old club accounts had money automatically transferred from your checking account and was cashed in before the holidays and paid out to the accountholder to pay for gifts. Lacking a “Christmas Club” type of account? Open a savings especially for your holiday spending and set up an automatic transfer from your checking account each month. The automatic transfer happens without any action on your part. Just remember to enter it in your check register or monitor your online banking so you don’t overdraw your checking. When the holidays are here, draw the funds from your savings and spend it to your heart’s content.

If you must use credit to pay for your gift giving, let’s consider some things that might save us some money. Let’s assume you plan to pay this newly incurred balance off in six months. How much do you plan to spend on gifts? That’s the starting point. Take that amount and divide it by six and add that to your current monthly payment on that card. Can you afford that payment monthly for the next six months? Then you may have the right amount to spend on gifts. Is it too high? You need to adjust your spending plan, not your time horizon for pay off! Remember, extending the pay off time for any balance adds more interest to your debt. Paying interest is like renting money. Who benefits when you pay interest? Certainly not me or you. The bank does! If this sounds like a good idea, you use way too much credit and need an intervention!

But, if you really like making that monthly payment and the cost is no object for you, then you might be more inclined to take Choice #1.

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Our next financial education workshop will be “Real World Budgets for Teens” and will be presented at our Chesbro Main Office on January 16^th at 6:30pm. Real World Budgets takes a teen and their parents thru a post college simulation of managing money, a job, and the payments that come with independence. I hope you can join us.

Please RSVP with Greg Meyer at gmeyer@meriwest.com or 408-365-6328.

Click here for a list of all of our financial education offerings.

Check us out on Facebook! WWW.Facebook.com/MeriwestCreditUnion

Alternative Credit Scores

Over 70 million adults in the U.S. do not have a credit score or have a very limited credit history. Individuals and families living with limited credit files are forced to take advantage of alternative financial sources to cash their checks or get temporary short term loans aka Pay Day Loans. Users of alternative financial sources generally pay very high costs in relation to the usual transactions you might perform at your credit union. Cashing a paycheck could cost $3 - $15. A two week $200 payday loan could cost as much as $45 if paid on time. If the loan cannot be paid off right away, it has to be renewed. In California, that means the loan principle and interest has to be paid and a new loan created. How many times will a person have to pay $45 to maintain and renew the loan until they can afford to pay it off completely?

Several companies have created alternative credit scoring products based on the analysis of non-traditional data, including rental and bill payment history, insurance payments, debit-card use and public records. They are trying to use this data to predict the payment history of people who don’t have access to traditional credit products that can be tracked through a FICO score.

That is basically what a credit reporting bureau does for people with their credit. It reports the usage of the various forms of credit a person has and tracks the payments made and balances carried. Through a computer algorithm it creates a number that can predict, with fair certainty, the future payment history of an applicant. Those with FICO scores over 740 are more likely to make their payments on time and manage their outstanding balances better than someone with a score of less than 740.

Why do some people want to use alternative credit data? There is a profit motive as vendors can sell more products and services if there is a universe of more qualified buyers. It could also help families struggling with traditional credit by showing their propensity to pay their rent, utility bills, auto insurance, and other regular payments. By using alternative data, lenders stand to reach a large group of potential borrowers about whom they currently have little or no information. For these consumers, alternative credit scores strengthen lenders’ ability to:

-         Reliably rank order risk;

-         Efficiently evaluate applicants for credit or design offers for credit;

-         Increase approval rates while controlling for acceptable levels of risk

Meriwest works exclusively with Experian Credit Bureau. Experian offers various forms of credit reports. We use three specifically:

-         For all auto lending, direct lending to our members and through the Credit Union Direct Lending (CUDL) Network we use the FICO Auto 2 score. This is provided by Experian, and is a variation of the basic FICO score – more heavily weighted to the existence and performance on previous auto loans compared to the traditional FICO score.  This is similar to the “Auto Industry Option Scores” listed below.

-         For our other consumer loans, we use a custom score from Experian called a “Fast Start” score.  It is based on credit and personal characteristics such as their time on the job, how long they have been a member, and other data.

-         We also look at the Experian BK (Bankruptcy) score.  This is a predictor of the applicants likelihood of filing (or needing to file) bankruptcy, and is used as a risk measurement in our analysis.

We don’t use alternative scores, but do tend to look at our borrowers differently than a traditional bank. In a traditional commercial bank, credit score lending is King. If they are looking for a FICO score of 740 or above and that’s where you score, your application has a preliminary approval pending review of debt and income. If your FICO Score comes in less than 740, your application will be declined due to credit. They will take no further action on your behalf outside of sending you the decline letter.

Credit unions, in general, take a more holistic view of their borrowers. Sure, the FICO score is an important part of the loan qualification. Credit Unions would like to see a 740 FICO Score just like the big banks. But if you miss the score by this much (thumb and forefinger showing an inch), you may still qualify for a loan at a credit union. Why? They look at the whole person, not just their credit score. They look at how long you have been employed in the same business or the same employer. How long have you lived in the area? Or at the same home? How long have you been a member of the Credit Union? Have you borrowed from them before? All of these questions go into making the credit decisions. I am not saying that everyone with a less than 740 FICO Score gets a loan. But, if someone misses the target score by ten or twenty points, it is not the end of the loan. Credit Unions can take these questions into consideration and possibly make the loan for them at a slightly higher rate. This is called, Risk Based Pricing. If there is increased risk in lending to someone, say a 720 vs. a 740 FICO Score, we can price our interest rate a little higher accordingly to offset the risk.

Here is a run down of the more common credit scores and alternatives to credit scores:

FICO Score: Created by the Fair Isaac Corporation, FICO is the best-known credit scoring system in the United States. It is a way of measuring an individual's creditworthiness. A FICO score is a quantification of a variety of factors in an individual's background, including a history of default, the current amount of debt, and the length of time that the individual has made purchases on credit. A FICO score ranges between 300 and 850. The higher the score, the more likely that individual will pay their bills in a timely manner.

Vantage Score: A consumer credit rating product developed by three credit rating agencies - Equifax, TransUnion and Experian - as an alternative to the FICO Score. VantageScore uses a different rating scale (501 to 990) than FICO (300 to 850), and is branded as a score that provides lending institutions and banks information related to sub-prime financing. The score is calculated through a weighted average of a consumer's available credit, recent credit, payment history, credit utilization, depth of credit and credit balances.

Auto Industry Option Scores: Auto lenders are unlike other kinds of creditors. Many other creditors look at the entire credit picture to make a decision. However, some auto lenders base their decision solely on how previous auto loans were managed. So, even if your credit scores are bad, if you never missed a car or truck payment or sent one in late, your Auto Industry scores will most likely be higher than the standard FICO scores.

Veritas (by Digital Risk): Most recent alternative; used for home mortgage credit analysis. It Integrates borrower credit characteristics with property and local real estate market data along with proprietary behavioral prediction models. 

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Our next Credit Myths workshop is this Wednesday the 5th of December

Credit Myths and Repair

6:30pm    Wednesday    December 5th 

Meriwest Credit Union Main Office

5615 Chesbro Ave, San Jose CA 95123

Click here to RSVP!

Moving and Credit

There are some things that can happen to our credit when we move and it can be very troubling. Lost or misplaced statements may mean missed bills. On utilities it is not so bad as we typically have a couple of months to pay our cable or water bill. However, our credit runs on a 30 day cycle and missing a payment on a Visa card can hurt our FICO score pretty dramatically. There are some tips below for getting your mail forwarded properly.

  

When we move, we buy a new home and may go to multiple lenders to access a loan at good terms or we may have multiple inquiries for rental housing. Typically, those multiple inquiries from home lenders will be treated as one inquiry for our scoring. They will appear as multiple inquiries on our credit report and will remain there for two years but only have an effect on our score for one year. Inquiries comprise only about 10% of our total FICO score.

Another thing we do when we move is close accounts. A bank may be a regional bank, but its Visa or Mastercard is accepted worldwide. There is seldom a need to close a VISA or M/C unless the terms are unfavorable. Closing these cards reduces one’s credit score and your borrowing capacity; sometimes eliminating years of experience from a record. Be selective and careful when considering closing a credit card. Consider closing a card if a card has a small line of credit or is related to a regional or specialty store that is not available in your new town.

Clean up your old records before you move. This is a good time to shred old records and prevent ID thieves from getting their hands on them.

Here are some mail forwarding tips:

Before you move:

1. File your forwarding address with the post office at least two weeks before you move. Not only does this get your bills and statements sent on to your new home it prevents identity theft. Old statements in a mailbox are like candy to an ID thief. The post office will mail a letter to your old address to verify this change.
2.  While you are at the post office, get a change of address kit from them. Sit down at home that night and send a change of address to every company that sends you a statement or a bill. Some statements only come quarterly so be sure to check. Make sure you have the effective date of your move correctly entered. With some bills, creditors and financial institutions, you may be able to change your address online or over the phone. Note on your list who you called and to whom you sent a notice.
3. During your move: Ask a neighbor, landlord, or friend to check your mailbox to ensure the forwarding and address changes went thru and pick up any mail that does not get forwarded.
4. After your move: Contact the new tenants or homeowners and provide them with you contact data in case any of your mail fails to get forwarded in the future. 

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Our next financial workshops are:
Oct. 17th  - 6:30pm
Real World Budgets for Teens and College Students
Sunnyvale Financial Center at Fair Oaks and El Camino Real in Sunnyvale. 
RSVP with Gmeyer@meriwest.com


Oct. 24th  - 6:30pm
Credit Myths and Repair
Sunnyvale Financial Center at Fair Oaks and El Camino Real in Sunnyvale. 
RSVP with Gmeyer@meriwest.com

The Costs of Bad Credit Part 2

The cost of bad credit can be very high; provided a credit issuer will give you credit. Last week, we looked at the costs of incurring bad credit such as late fees and higher rates. This week we will take a look at who may lend to a risky borrower and the extended cost of bad credit.

A credit score indicates to the lender the likelihood of a loan being repaid. The higher the FICO score, the more likely a loan will be repaid. Often times, those with low scores are offered a higher (AKA sub-prime) rate for car, home, and other credit purchases. It would not be unusual for someone with a low rating to be offered a 10-14% or higher interest rate on a used car loan when the prevailing rates for someone with a good credit rating would be about 7% or less. That was prior to the recent recession. Lenders are much more conscious of the defaults in subprime loans that have occurred over the past 5 years. Many have stepped away from the subprime market completely. Thus, for many lenders, either you qualify for a loan or you don’t. The subprime loan is no longer an option for many traditional lenders or many borrowers.

There are still some institutions that will lend to people with slightly less than perfect credit; they are known as credit unions. Why? Because credit unions take a more holistic approach to lending to their members. The FICO Score is important, but is not the only factor considered when lending. A credit union may require a higher down payment of subprime borrowers and/or ask them to pay a slightly higher interest rate. They will look at the applicant’s employment; how long have they worked for the same company? How long have they lived in the same home or neighborhood? How has the member managed their credit over the past 24 months? The answers to these questions may increase or decrease the interest rate or down payment.

As an example, let’s say a FICO score of equal to or greater than 740 is the target score for the institution and someone in that score range will get a rate of 2.99% for a new car loan with zero down. In this case, if someone misses the target by a bit, say the member comes in at 680, the credit union would likely make the loan with a somewhat higher rate than the base rate to help the member. Instead of 2.99%, perhaps the loan would be for 5.50%.

In this case, a car loan of $15,000 applied for a borrower with a 740 score and a borrower with a 680 score, there is a 2.51% difference in the loan rate (2.99% APR vs. 5.50% APR). The borrower with the 740 score will pay only $934 in interest over a 4 year period where the borrower with the lower score might pay as much as $1,745; a difference of $811 over the four year loan term. The borrower may not only be required to pay a higher interest rate, they may have to come up with money for an additional down payment. Subprime borrowers are often called upon to have a higher equity in their security than those with preferred rates. That is an additional cost to the subprime borrower. That is money that has to come out of savings leaving the borrower with reduced liquidity. Another cost is the loss of earned interest on the money used for the down payment. Let’s say the borrower has to put up an additional $3,000 in order to qualify for the loan, $3,000 in a savings account at 1% APY for 4 years would have earned $125. That’s better than spending an additional $800 in interest expenses.

Avoid these increased costs by managing your credit correctly.

• Pay your bills on time and pay more than the minimum when possible.
• Pay down outstanding balances.
• Avoid using your entire credit available limit
• Only apply for credit when you want it. Don’t apply for a card just to get a discount!
• Read your credit contracts. Don’t get caught in a consumer trap. 

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Are you planning on buying a home? This is one of the great times to purchase one. Loan rates are low and home prices are starting to rise!  If you are ready to buy, visit our next Homebuyer's Seminar here at the Meriwest Credit Union main office on Sept. 8th. Get all the details you need to finance your home purchase! 

Curious about rates? Here are some links to our current interest rates on consumer and home loans:

Auto Loans - New and Used

Home Loans

Equity Lines of Credit