The five factors in your credit score

This was originally published on Monday, February 5, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Your credit report simply tracks your payment history. Your credit score, on the other hand, rates how well you handle your finances. Your credit score is based on five major factors that go into calculating your score.

Payment history. Accounts for 35 percent of your score. This factor will show lenders your accounts, past or current. This section also tells the bureau how well you meet your payment deadlines and if you are behind, how many days you are past due. It also reports if you have missed payments. This category also shows if your accounts have been turned over to a collection agency or if you have filed for bankruptcy.

Current amount owed. Accounts for 30 percent of your credit score. Recorded in this area are the number of credit accounts you have — credit cards, loans, mortgages or in-store credit cards. Your balance on each account is also noted. High balances or large amount of debt from many sources will lower your score. Also, having a lot of credit with no debt could have an adverse effect on your score. Usually small debts that are paid off in full will raise your score.

Length of credit history. Your credit history accounts for 15 percent of your score. This section concentrates on how long you have maintained your credit. For most creditors, time equals stability. Having a credit card but not using it can actually drop your score compared to carrying a balance on a few different accounts and paying them off on time.

Types of credit. This category is 10 percent of your score. Being more varied in the types of accounts you use will increase your score. A person who carries only one credit card may have a lower score than a person who shows that they can responsibly manage more than one account.

New credit inquires. This finalizes the last 10 percent of your score. There are two types of inquires that can be made: a soft inquiry; and a hard inquiry. A soft inquiry can be from a financial institution or potential creditor just wanting to look at your score, a perspective employer or you viewing your credit history. Soft inquires don’t affect your score. Hard inquires come from a financial institution that you have applied for a line of credit or loan, such as a car dealership. The increase in hard inquires lowers your score. Usually, if someone has opened a lot of accounts in a short time period, it may suggest potential financial troubles.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Credit score, report, history are different

This was originally published on Monday, January 22, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My New Year’s personal finance resolution is to start repairing my credit score. I have had some missed payments and other serious financial troubles. I know that there are certain areas that the credit institutions look at but I find it all a bit confusing. Could you help simplify how it works and what I can do to improve my score?

Answer: That is a great resolution. Your credit is important because it affects your ability to get low interest loans, your employment, your purchasing power and many other areas. Your credit is basically your reputation as a borrower. Credit agencies use information about your borrowing patterns and repayment history.

Your credit history is the foundation on how you are scored. Paying bills on time is the key to good credit. Paying late or defaulting on payments can severely damage your score and rebounding from it can take a while. Employers, utility agencies, and landlords often look at your credit history to see how financially responsible you are.

When looking at your credit, many use credit score, credit report and credit history interchangeably. These are three separate terms that are related to each other.

Credit score. This is a calculated value that specifies your creditworthiness. FICO, or Fair Isaac Corporation, has created a formula that’s the model most financial institutions use to determine your credit score. Your credit score can range from 300 to 850. There are 28 different FICO scores that are industry specific. The three credit bureaus often use these different scores and this is the reason you get a different score from each.

According to the myfico.com website here is what your FICO scores indicate:

  • 800 and up is an exceptional score and is well above the average U.S. consumers. It exhibits that you are an exceptional borrower and that you are not too far in debt and pay your bills in a timely manner.
  • 740-799 is very good. It is still above the average of most United States consumers and indicates that you are a dependable borrower.
  • 670-739 is good. In this category you are near or slightly above the average credit score which the FICO website states as 695. Most lenders consider this a score still trustworthy.
  • 580-669 is fair. If your score falls in this range you are below the average consumer score. Lenders still see some credit worthiness in you but will offer a higher interest rate.
  • 580 and below is poor. This range is far below the average consumer score and indicates to lenders that you are a very risky borrower. Many who fall in this category are often denied loans.

Credit report. This is the official record of your credit history that you receive from the three credit bureaus — Equifax, Trans Union and Experian. Lenders, utility companies, landlords and collection agencies send the credit bureaus information about your status with them.

You are entitled to a free credit report from each of the three credit reporting agencies once every 12 months. You can request all three reports at once, or space them out throughout the year, which is my recommendation. That way you can monitor your scores throughout the year. You can order your free credit reports at https://www.annualcreditreport.com.

Credit history. This is the unofficial record of your debt and repayments. Your credit history describes how you use money. It contains how many credit cards you have, how many loans do you have and if you pay your bills on time.

You have a credit history if you have a credit card or a loan from a financial institution. Without a credit history, it can be harder to get a job, an apartment, or even a credit card.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Was your Equifax data compromised?

This was originally published on Monday, October 3, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

On July 29, 2017, Equifax discovered that criminals exploited its website applications. Equifax is one of three national credit monitoring companies. According to Equifax, the breach occurred from mid-May through July 2017.

Equifax’s website states “Most of the consumer information accessed included names, Social Security numbers, birth dates, addresses, and in some instances, driver’s license numbers. In addition, credit card numbers for approximately 209,000 consumers and certain dispute documents, which included personal identifying information, for approximately 182,000 consumers were accessed. Equifax will send direct mail notices to consumers whose credit card numbers or dispute documents with personal identifying information were impacted. We have found no evidence of unauthorized access to Equifax’s core consumer or commercial credit reporting databases.”

If you want to know if your information has been compromised by Equifax’s breach go to http://www.equifaxsecurity2017.com. Since you will be using personal information, be sure you are on a secure computer with an encrypted network connection. Once on the site:

  • Click on the “Potential Impact” tab.
  • Enter your last name and the last six digits of your Social Security number.
  • a message will inform you whether you have been impacted.
  • along with the opportunity to investigate if your personal information was breached, Equifax is offering anyone with a Social Security number enrollment into TrustedID Premier till Nov. 21, 2017.

TrustedID Premier offers credit file monitoring and identity theft protection by:

  • monitoring your credit score on all three credit monitoring sites — Equifax, TransUnion and Experian — with automated alerts of key changes;
  • providing you copies of your Equifax credit report;
  • placmng a credit lock on your Equifax credit report to prevent access by third parties (there are a few exceptions);
  • monitoring your Social Security number by scanning internet sites where consumers’ personal information is suspected of being bought and sold; and
  • providing up to $1 million in ID theft insurance to help pay for certain out-of-pocket expenses in the event you are a victim of identity theft.

The Federal Trade Commission’s website, http://www.consumer.ftc.gov, suggests that you can also do the following to help protect yourself after a data breach:

  • Check your credit reports. Check reports from Equifax, Experian, and TransUnion for free by visiting http://www.annualcreditreport.com. Accounts or activity that you don’t recognize could indicate identity theft.
  • Consider placing a credit freeze on your files. A credit freeze makes it harder for someone to open a new account in your name. Keep in mind that a credit freeze won’t prevent a thief from making charges to your existing accounts.
  • Monitor your existing credit card and bank accounts.
  • Consider placing a fraud alert on your files. If you decide to put a credit freeze on your files, a fraud alert will warn creditors that you may be an identity theft victim and that they should verify that anyone seeking credit in your name really is you.
  • File your taxes early. Do it as soon as you have the tax information you need, before a scammer can.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Be familiar with credit score

This was originally published on Monday, October 31 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Halloween is a time to be spooked by zombies and witches. As we grow older, our fears become less of the supernatural and more of the actual. In the personal finance world, many fear the unknown such as their credit score.

Your credit score is your financial report card. It lets you know how well you are doing financially. Your credit score is a tool used to measure how reliable you are in repaying your debts. Your credit score is also known as your FICO score.

Fear stems from the unknown. If you take time and understand what and how your score is calculated perhaps it would be less scary.

There are three credit bureaus that keep track of your score: Equifax; Experian and TransUnion. The three bureaus usually have three different scores, because each company uses your information differently and not every credit issuer reports to every bureau.

There are five major factors that go into calculating your score.

  • Payment history is about 35 percent of your score. This factor will show lenders your accounts, past or current. This section also tells the bureau how well you meet your payment deadlines and if you are behind, how many days you are past due. It also reports if you have missed payments. This category also shows if your accounts have been turned over to a collection agency or if you have filed for bankruptcy.
  • Current amount owed will factor for about 30 percent of your credit score. Recorded in this area are the number of credit accounts you have such as credit cards, loans, mortgages or in-store credit cards. Your balance on each account is also noted. High balances or large amount of debt from many sources will lower your score. Also, having a lot of credit with no debt could have an adverse effect on your score. Usually small debts that are paid off in full will raise your score.
  • Length of credit history will calculate for about 15 percent of your score. This section concentrates on how long you have maintained your credit. For most creditors, time equals stability. Having a credit card but not using it can actually drop your score compared to carrying a balance on a few different accounts and paying them off on time.
  • Types of credit used will count towards 10 percent of your score. Being more varied in the types of accounts you use will increase your score. A person who carries only one credit card may have a lower score than a person who shows that they can responsibly manage more than one account.
  • New credit inquires accounts for the last 10 percent of your score. There are two types of inquires that can be made a soft inquiry and a hard inquiry. A soft inquiry can be from a financial institution or potential creditor just wanting to look at your score, a perspective employer or you viewing your credit history. Soft inquires don’t affect your score. Hard inquires come from a financial institution that you have applied for a line of credit or loan, such as a car dealership. The increase in hard inquires lowers your score. Usually, if someone has opened a lot of accounts in a short time period, it may suggest potential financial troubles.

Become familiar with your credit score. It’s a valuable tool that can keep you from being frightened of your financial well-being.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like him to cover, email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

No need to rewrite history to repair your credit rating

This was originally published on Monday, September 30, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Your credit report is used for more than just getting loans.

A good or bad credit score can determine many other things and many feel that the way you handle credit is the same way you handle responsibility.

Having a poor credit rating though is fixable. It may take some time, but it is definitely worth it.

If your identity has been stolen, there are certain steps to fixing your score.

I recently covered how to repair your credit if you find yourself in this predicament.

You can find past articles on the Money Matters blog atwww.moneymattersguam.wordpress.com. But what if your credit was due to late payments? Although you cannot rewrite history, the passing of time will eventually restore your good credit rating.

Also take these tips into consideration:

• Timely payments. It cannot be stressed enough how much this will start to increase your score. It will not happen immediately since missed payments stay on your report for seven years after making the payment. Decreasing your debt is important, but paying your creditors back in a timely fashion is better to improve your score. Stay on track by signing up for auto-pay or having an allotment made from your paycheck or banking account. You will be less tempted to spend it elsewhere.

• Do not over extend yourself. The last thing you want to do is start paying your credit with other credit.

By moving credit around, you are costing yourself more in interest fees. Do not agree to payments that are going to cause more financial hardships. If you are having trouble making payments, contact your financial institution. Revisit your monthly budget. If you can afford an extra payment every other month or $20 more a month, do it. It will add up and minimize the time and interest of the debt.

• New credit. Some believe that opening up a new credit card or loan can improve your score. Yes and no. Do not open up a new account just to have a better score, especially if that is going to create more bills that you will struggle to pay. Pay off the accounts that you have first, open a new account only if you can afford to pay off the balance or make the monthly payments.

• Old credit. If you have paid off a credit card, don’t close the account. Keep the account open and use it sparingly, and pay off the balance right away when you do use it. This account could also be used for dire emergencies.

• Bargain. Contact your creditors and ask to remodify a loan or settle a balance for less. The worse thing they can say is no, but if they can work something out, you will be glad you asked. If you make a deal, be sure to get it in writing, the same goes for the IRS. You may be able to remove a lien off your credit report if you enter into an agreement to repay back taxes.

Once you have worked hard to get your credit score healthy again, be very diligent and stay on top of your bills. Review your score occasionally to ensure that your efforts are making a difference. It is possible to repair your credit score, but it will take some time, new habits, patience and discipline.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Understand the impact of your credit score

This was originally published on Monday, September 23, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Knowing how your credit score is calculated is the first step in repairing your credit.

The second step is understanding your credit score and how it affects you. By understanding your score, you will know how it can rise and fall and take the appropriate actions to repairing it.

• What is not recorded on your score?

Your payment history, your account balances, the length of your history and the type of accounts you have. The information can be both positive and negative.

Many people feel that once you receive a poor score, it will follow you forever.

That is not true.

Depending on what type of negative information is on your report, it usually takes between seven to 10 years to clear.

Late payments, Chapter 13 bankruptcies, foreclosures, collections and public records will take about seven years to clear.

For a Chapter 7 bankruptcy, it takes ten years to clear your report. Unpaid taxes or tax liens can stay indefinitely. Older negative information does not impact your score as much as something that has happened more recently.

Being 30 days late on a payment can hurt your score by as much as 100 points and remain on your report for many years. That is why making timely payments is crucial.

• What is not recorded on your score?

Your age, sex, marital status and race aren’t reported on your score. How much you make, your occupation and employment history also aren’t recorded on your score and does not have any effect on it.

Although your balance on your credit cards or loans are reported on your score, the interest rates are not.

Likewise, child support, alimony and rental agreements aren’t considered on your score.

• What is a good credit score?

There are several different credit scores besides just the three credit bureaus and FICO. Even among these four scores the ranges vary.

Most lending institutions and the three credit bureaus use the FICO score model to calculate your credit score. The FICO score ranges from 300 to 850.

Most people have a credit FICO score between 650 and 750. A FICO score of 700 and higher is considered very good to excellent, 620 to 699 is considered fair to good, while a score below 620 is consider poor to bad.

• How my credit score affects me?

Having a good credit score can help you get a loan with lower interest rates. But it also can impact other aspects of your life.

It can affect future employment. Under the Fair Credit Reporting Act, future employers with your permission can look at your credit report to make hiring decisions.

If your job requires a security clearance, a poor credit score could have your clearance revoked or, worse yet, have your employer let you go.

Federal law also allows landlords to look at your credit report with your permission. Utility and cell phone companies also may take a look.

A low score might cause you to put a heftier deposit to acquire their services. Your credit score can interfere with home or car insurance. If your score is low, it could reflect that you aren’t a responsible person.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

 

After troubles, how can I fix my credit score?

This was originally published on Monday, September 16, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I recently went through some very tough financial troubles that ruined my credit score. I worked very hard to get out of it, but how can I start improving my score?

Answer: Many of us are feeling the rise of inflation and cost of living. Unfortunately, many of us find ourselves in some serious financial troubles including foreclosures and bankruptcy. It is important to remember that you are not rebuilding your credit score but rebuilding credit history and worthiness.

Before you can repair your credit score, it is important to understand how your score is calculated.

Your credit score, also known as your FICO score, is a tool used to measure how reliable you are in repaying your debts.

There are three credit bureaus and usually they have three different scores. That is because each company uses your information differently. Do not assume that the three bureaus have the same information, not every credit issuer reports to every bureau.

There are five major factors that go into calculating your score.

• Payment history. This is about 35 percent of your score. This factor will show lenders the accounts you had or currently have along with how well you meet your payment deadlines and/or how many days you are past due or have missed. This category also will show if your accounts have been turned over to a collection agency or if you have filed for bankruptcy.

• Current amount owed. This will factor for about 30 percent of your credit score. Recorded in this area are how many accounts you have such as credit cards, loans or in-store credit cards and your balance on each account. High balances or large amount of debt from many sources will lower your score. Also, having a lot of credit with no debt could also have an adverse effect on your score. Usually small debts that are paid off in full will raise your score.

• Length of credit history. This will calculate for about 15 percent of your score. This section concentrates on how long you have maintained credit. For most creditors, time equals stability. Having a credit card but not using it can hurt more than carrying a balance on many different accounts and paying them off on time.

• Types of credit used. This will count towards 10 percent of your score. Being more varied in the types of accounts you use will increase your score. A person who carries only one credit card may have a lower score than a person who shows that they can responsibly manage more than one account.

• New credit inquires. This accounts for the last 10 percent of your score. There are two types of inquires that can be made.

A soft inquiry can be from a financial institution or potential creditor just wanting to look at your score, your perspective employer, or from you viewing your credit history. Soft inquires do not affect your score.

Hard inquires come from a financial institution that you have applied for a line of credit or loan. The more hard inquires you get, the lower your score becomes. Usually, if someone has opened a lot of accounts in a short time period, it may suggest potential financial troubles.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at  moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.