Credit Score and Credit Reports
A credit score is a number used to predict weather a borrower will pay back the loan
Different credit companies use different ways to rank
FICO is the most commonly used and has a range of 300-850 for ranking
300-619 is bad
620-660 is fair
661-720 is good
721-850 is excellent
Sometimes if you want the best possible mortgage or loan terms you need a credit score above 760
A better credit score will get you better loans for cars or homes which will end up costing you less in the long term. Additionally, Insurance companies charge better rates for better credit scores because you are less likely to file claims
Others who check and use credit scores include
How is a Credit Score Calculated?
35% of FICO Score is based on payment history
If you are 30 days late, 60 days late, 90 days late, etc.
Late payments last 7 years on your record
Bankruptcy lasts 10 years
30% is how close you get to credit limit on card (for instance using $1,000 out of a $10,000 limit versus if you spend $9,900 out of that same $10,000 limit) the closer to your credit limit the lower your score will be
15% is the length of your credit history, the longer you’ve had a good history the better it will be (you can still have a good credit score with a brief history)
10% is from if you recently applied for or got new credit accounts (new credit cards or loans) Multiple credit score inquiries will lower your credit rating because they assume you are applying for a lot of credit due to financial hardship. If you’re shopping for a mortgage or an auto loan, and want to have minimal impact on your credit score, get all your quotes during a one- to two week period because the FICO scoring model treats these as a single inquiry about your credit rating
10% is other factors like if you have a typical mix of credit cards and auto loans or mortgages, this is generally the least influential part of your credit score
Credit scores are not allowed to consider:
Income (yes even people with low income can have high credit score), Race, national origion, color, religion, sex, marital status, or weather you recieved public assistance
Credit reports
Used by credit company to determine your credit score, you should regularly check this to make sure there are no errors. To get a copy of your credit report from one of the three national credit reporting companies go to AnnualCreditReport.com or call 1-877-322-8228 You can get one free report every year from each company (Equifax, Experian, TransUnion)
Read it through thoroughly and make sure it is accurate, check for
All loans and credit cards you’ve had over the past 7 years
Whether or not you’ve paid off loans
Whether you pay bills on time
Whether you’ve been sued (for a debt)
Whether you’ve declared bankruptcy
Whether you’ve had debt turned over to a debt collection agency
If anything is on here is negative but accurate there is not much you can do but if you see an error you should report it. Sometimes a credit agency will think you still owe a debt that you paid off, or sometimes they will put something on your credit report that belongs to someone with the same name as you.
There are six special situations when you should check your credit report
A lot of companies will give plenty of credit cards and card maximums to new college students or young adults because they don’t know how to manage credit so be careful what you sign yourself up for.
Notes on Loans (for college)
Subsidised loans are loans that the government pays interest during and 6 months after college
Unsubsidised loans accrue interest but you do not have to pay it and it is not added until after graduation but then it all is put onto the principle and you have to start paying it all off
Other forms of credit
Borrowing is so you can Consume today and pay later, but remember the happiness lesson: Pay today, and consume later to maximize your happiness per money spent.
An interesting note on credit cards:
As long as you make the minimum payment you never actually have to pay off a credit card debt in full because you will keep purchasing from it and adding to what you owe. However, if you take a one time amount of debt and do only the minimum payment, eventually you will pay it off.
Personal bankruptcy
The purpose of this is to allow honest but unlucky people the opportunity for a fresh start. You should always talk to a personal bankruptcy lawyer in your specific state
Terms to know
Chapter 7 - liquidation bankrupcy
Usually assets are sent to some group to sell and pay off unsecured debt
Chapter 13 is a repayment plan so you keep your income but have to pay to a trustee for 3-5 years. This gives opportunity to “Cure defaults” so you have the chance to make up to creditors missed payments. If you have a house and/or a car you might want to go with this one so you can keep those things.
Make sure to TALK TO A LAWYER IN YOUR SPECIFIC STATE for the best option in your case, if this ever comes up (hopefully you never find yourself in this situation)
About 70% of personal bankrupcy filings are chapter 7 and can be sorted out in a few months
These resources have helpful Q&A and links to important resources like where to find lawers or pro-bono representatives
UScourt.gov
Bankrupcyresourcces.org from the american bankrupcy institute
Main catalysts for bankruptcy
Credit Scores and Credit Cards
If you have lower end credit and need a 30 year home loan for 100,000 it could cost over 200K (up to 70K more than the 159K with interest you’d pay if you had the 760-850 ranking)
Basically once you’re done with school when real adulting happens you stop caring about the GPA number and start caring about the credit score and paycheck size numbers.
A credit score is a number used to predict weather a borrower will pay back the loan
Different credit companies use different ways to rank
FICO is the most commonly used and has a range of 300-850 for ranking
300-619 is bad
620-660 is fair
661-720 is good
721-850 is excellent
Sometimes if you want the best possible mortgage or loan terms you need a credit score above 760
A better credit score will get you better loans for cars or homes which will end up costing you less in the long term. Additionally, Insurance companies charge better rates for better credit scores because you are less likely to file claims
Others who check and use credit scores include
- Lenders
- Landlords (before renting you an apartment)
- Insurance companies
- Utility companies
- Cell phone companies
- Any company that sells services before you pay, if you have a low score they may require a deposit
- Employers (especially retail)
How is a Credit Score Calculated?
35% of FICO Score is based on payment history
If you are 30 days late, 60 days late, 90 days late, etc.
Late payments last 7 years on your record
Bankruptcy lasts 10 years
30% is how close you get to credit limit on card (for instance using $1,000 out of a $10,000 limit versus if you spend $9,900 out of that same $10,000 limit) the closer to your credit limit the lower your score will be
15% is the length of your credit history, the longer you’ve had a good history the better it will be (you can still have a good credit score with a brief history)
10% is from if you recently applied for or got new credit accounts (new credit cards or loans) Multiple credit score inquiries will lower your credit rating because they assume you are applying for a lot of credit due to financial hardship. If you’re shopping for a mortgage or an auto loan, and want to have minimal impact on your credit score, get all your quotes during a one- to two week period because the FICO scoring model treats these as a single inquiry about your credit rating
10% is other factors like if you have a typical mix of credit cards and auto loans or mortgages, this is generally the least influential part of your credit score
Credit scores are not allowed to consider:
Income (yes even people with low income can have high credit score), Race, national origion, color, religion, sex, marital status, or weather you recieved public assistance
Credit reports
Used by credit company to determine your credit score, you should regularly check this to make sure there are no errors. To get a copy of your credit report from one of the three national credit reporting companies go to AnnualCreditReport.com or call 1-877-322-8228 You can get one free report every year from each company (Equifax, Experian, TransUnion)
Read it through thoroughly and make sure it is accurate, check for
All loans and credit cards you’ve had over the past 7 years
Whether or not you’ve paid off loans
Whether you pay bills on time
Whether you’ve been sued (for a debt)
Whether you’ve declared bankruptcy
Whether you’ve had debt turned over to a debt collection agency
If anything is on here is negative but accurate there is not much you can do but if you see an error you should report it. Sometimes a credit agency will think you still owe a debt that you paid off, or sometimes they will put something on your credit report that belongs to someone with the same name as you.
There are six special situations when you should check your credit report
- When you are applying for a special loan for a mortgage
- When you are separating from a spouse and want their name off your finances (contact the group you have a joint account with and close the account, it is important to check that the report says it is “closed by the consumer” and not “closed by the creditor” because that looks bad)
- If you’ve paid off a court ordered judgment against you for money owed
- If you’ve had a dispute with a store and refused to pay a bill you can ask that a written explanation of the issue be included (but have to make sure it is removed if the dispute is resolved or if 7 years passes)
- If you’ve been turned down for a job, a rental, insurance, or credit because of information in your credit report (the non-employer is legally obligated to tell who where they got your credit report and you are legally entitled, within 60 days, to a free credit report from that place they got it)
- If you’ve had a dispute with a lender over whether a bill has been paid and the dispute is resolved, check to make sure that bill is no longer on your report
A lot of companies will give plenty of credit cards and card maximums to new college students or young adults because they don’t know how to manage credit so be careful what you sign yourself up for.
Notes on Loans (for college)
Subsidised loans are loans that the government pays interest during and 6 months after college
Unsubsidised loans accrue interest but you do not have to pay it and it is not added until after graduation but then it all is put onto the principle and you have to start paying it all off
Other forms of credit
Borrowing is so you can Consume today and pay later, but remember the happiness lesson: Pay today, and consume later to maximize your happiness per money spent.
An interesting note on credit cards:
As long as you make the minimum payment you never actually have to pay off a credit card debt in full because you will keep purchasing from it and adding to what you owe. However, if you take a one time amount of debt and do only the minimum payment, eventually you will pay it off.
Personal bankruptcy
The purpose of this is to allow honest but unlucky people the opportunity for a fresh start. You should always talk to a personal bankruptcy lawyer in your specific state
Terms to know
- The Automatic Stay means when bankruptcy is filed, all collection activity must stop from lawyers, debtors, etc.
- Discharge is a release of personal liability on debt (the goal of bankrupcy)
- Secured debt is a loan that is backed by some sort of collateral (like they have a right to some asset you own, mortgages, home equity loans, car loans, etc. are secured because they can take back your house, car, etc.)
- Unsecured debt is debt for which there is no collateral (credit cards, medical bills, etc.) bankrupcy does a lot more for you on this because that can go away without them taking back what you paid for (food, health, etc.)
Chapter 7 - liquidation bankrupcy
Usually assets are sent to some group to sell and pay off unsecured debt
Chapter 13 is a repayment plan so you keep your income but have to pay to a trustee for 3-5 years. This gives opportunity to “Cure defaults” so you have the chance to make up to creditors missed payments. If you have a house and/or a car you might want to go with this one so you can keep those things.
Make sure to TALK TO A LAWYER IN YOUR SPECIFIC STATE for the best option in your case, if this ever comes up (hopefully you never find yourself in this situation)
About 70% of personal bankrupcy filings are chapter 7 and can be sorted out in a few months
These resources have helpful Q&A and links to important resources like where to find lawers or pro-bono representatives
UScourt.gov
Bankrupcyresourcces.org from the american bankrupcy institute
Main catalysts for bankruptcy
- Major illness (medical bills)
- Divorce
- Job loss (it may take 8 months to find a job and not the 1-2 you may have savings for, and since people may be slow to cut their spending this could become a big issue)
Credit Scores and Credit Cards
If you have lower end credit and need a 30 year home loan for 100,000 it could cost over 200K (up to 70K more than the 159K with interest you’d pay if you had the 760-850 ranking)
Basically once you’re done with school when real adulting happens you stop caring about the GPA number and start caring about the credit score and paycheck size numbers.
