Credit Cards

New Credit Scoring System

March 15, 2006 By Jeffrey Strain Leave a Comment

VantageScore scoring system - Equifax, Experian and TransUnion Here’s a bit of interesting news. The big three credit reporting agencies (Equifax, Experian and TransUnion) have come up with a new scoring model that is uniform between the three companies. Up until now, each company had their own unique model for scoring an individual meaning that the scores were sometimes quite different. The new scoring system should be more consistent and objective than the three separate models each had before.

The new scoring system is called the “VantageScore” scoring system. If there are differences in the credit score for an individual, it is because the different reporting agencies may have differing data on the individual, but the way the data and interpreted is scored is consistent.

“VantageScore” has a range from 501 to 990 with scores of “A” (901 to 990) “B” (801 to 900) “C” (701 to 800) “D” (601 to 700) and “F” (501 to 600). For more information visit the Web sites of the three major credit bureaus. The score is currently only available to businesses, but will be available to individuals later this year.

It seems to me that this new scoring system will, over time, likely replace the individual scoring systems each of the credit reporting agencies currently has. From a business perspective, it makes more sense comparing the scores on a consistent criteria rather than various ones when the exact criteria aren’t known in the first place.

It should also give consumers some good hints on exactly how the credit scores are scored. If you look at your three reports and two are the same and once has an extra piece of data, you will be able to determine exactly how much that extra piece of data is worth due to the difference in score. Up until now, any difference could have simply been from a different scoring methodology. My prediction is that in time this new service will enable everyone to know more accurately how different pieces of your credit report affect their credit score.

Sunday Funnies – Credit Card Fraud

March 5, 2006 By Jeffrey Strain 2 Comments

While not trying to play down the the basic steps that people should take to prevent credit card fraud and identity theft, I think that this man may have some more important issues that should be of more concern than credit card fraud. Hope you’re having a wonderful day and this gives you a bit of a laugh!

Video may load a bit slow – if so, replay once it has fully loaded (27 seconds)

Bankruptcy Risk Score – The Credit Score You Don’t Know About

February 21, 2006 By Jeffrey Strain 5 Comments

It seems that most people are now aware that their credit score can have a large impact on the financial aspects of their lives. Many, however, have no idea that institutions checking their credit often use another score that is sometimes referred as the “hidden credit score” – your Bankruptcy Risk Score.

While your credit score is a score assessed to you based to a large extent on your history of obtaining credit and paying off debt, the Bankruptcy Risk Score measures how likely you are to file bankruptcy. The Bankruptcy Risk Score is exclusively for lenders provided by the credit reporting agencies and not available to individual consumers.

This bankruptcy score is supposedly a complex mix of your credit score plus your spending habits (yes, all that information of how you use your credit card, shopping cards and any other way they can assess what you buy with it is likely factored into this score). The credit agencies and those that use this report (and have contributed to creating it) have been reluctant to reveal exactly how the the model works and what it is based upon because they see it as proprietary information. They spent a lot of time and money developing it and if they explain it, they are giving away part of it’s value. Therefore little is said about this report (and why you have never likely heard of it before).

Bankruptcy Risk Score - little is still known about this hidden credit score

One of the credit bureaus (Experian) has said that it is considering making its Bankruptcy Risk Score available to consumers, but hasn’t made any commitment to when this might happen (or if it ever will). There have just been glimpses for the public that the score exists. For example, Experian revealed a study last July which ranked which states had consumers who were most likely to file for bankruptcy within the next year. Texas was number one on that list.

While the exact mechanics of what makes up the score are not publicly known, insiders say that the Bankruptcy Risk Score is scored the opposite of your credit score. Unlike your credit score where you want the highest score possible, your want the lowest possible score for your Bankruptcy Risk Score. Apparently this score goes from negative numbers to approximately 2000 (2000 being the worst high risk of bankruptcy level). Experts guess that many of the same things which improve your credit score such as paying your bills on time and not over applying for credit will also improve your Bankruptcy Risk Score.

Since information on this score is still fairly limited, it will pay to keep your eyes open for news about it – especially if you watch your credit card score closely.

Source: Saving Advice

Prosper.com – Applying For A Loan

February 17, 2006 By Guest Writer 12 Comments

I’d like to welcome Liz from Everyday Goddess as my first guest writer here. She has put together some excellent information about her experience of setting up and placing a Prosper.com loan request on auction (I also highly recommend her blog if you’re in need of getting away from personal finances for awhile). Enjoy:

As a personal blogger, I blog about my romantic life, my childhood traumas, my bad days and the band that’s playing downtown this Saturday. I’m sure a whole lot of it seems really, really intimate. But what’s truly the most intimate, what I find most difficult (read: terrifying) to blog about, is my finances.

See, I’m not in the best financial situation (read: debt-ridden). I struggle to make good choices and to learn from my mistakes. I have credit cards and loans and school debt. Sometimes, I screw up. Sometimes, I have a small financial success. And I blog about it because I’m betting that I’m not alone.

Sometimes, I blog about it because high-interest rate credit cards are evil. Oh, I’ve stood at the edge of the whirlpool. In fact, it’s still right over there.

The trick, of course, is lower interest rates. You know, those great rates all those financially solvent people get? They make it MUCH EASIER to actually pay off debt. Ever so slowly, I’ve been trying to roll all my debt into lower-interest rate loans.

Prosper.com a good place to consolidate credit card debt?

So I was particularly interested in prosper.com.

The premise being, individuals funding individuals. Adding a level of personal connection. Bypassing the corporate behemoths.

I decided to check it out, and I decided to give it a try. As a borrower, of course.

The first thing I did was extensively check out the site. It all seemed simple enough. Most important, I learned that the loans are all three-year loans. So you have to borrow an amount that you can afford to pay off within three years. I also did the basic site registration (just setting up a user name/password). And I learned that payments are made through automatic monthly deductions to your bank account. Cool.

Next, I explored the “groups” on Prosper. This is one of their basic concepts. That people will form groups, and overtime, groups will gain a good payback reputation and therefore earn lower interest rates. Also, groups will provide a personal connection which creates social pressure for people to pay back their debts.

That all makes sense, but I couldn’t really find a group. First of all, it’s not like I know anyone in any of the groups. Still, maybe if there was one for my school, or a professional organization that I belong to. But it’s new, so there’s not, and I’m not interested in forming my own either. Further, I thought, a good group leader would probably call me, and I didn’t want to talk to anyone! A group that just accepted me without contact – probably destined to not be a good group. This is also why I didn’t want to start a new group. Because to do it right, I would want to really talk to anyone before accepting them, and I don’t want to deal with that.

So, I decided to stick my toe in the water on my own. Onto the real registration I went. Social security number. Driver’s license. Income.

And before long, I had a big, fat “C” rating, and I was looking at my 27% debt-to-income ratio. “Wow. I totally suck,” I thought.

To make matters worse, my highest financial priority is to roll a debt that is currently at 10%. There’s an account opened long ago! See, it has an ex-boyfriend on it, and it’s not his debt. But because my situation is much worse than it was back then, any opportunities I’ve had are at higher rates. They’ve closed the account for me, but they won’t remove his name (read: his liability). So, I chip away at it every month. And I’ve got three more years to go.

I took my “C” rating, and my hefty ratio, and I decided to lead with that. I like to aim high.

Creating the listing was quite easy. I even went back and forth between the various steps a few times to change things. At first, I listed at 10%, but with the Prosper fee, it became more like 10.6%, so I went back and changed it to 9%, so that it’s closer to 10% in actual. You’re given the opportunity to add pictures, but I wasn’t sure how I felt about putting a picture of myself up with it, so I used a dragonfly graphic. (I did wonder if pretty girls get better rates!) Best of all, you get to write out your request and talk about what you need and why, etc. I thought about linking to my blog – kinda like, hey, you’ll know where I live – but, for this go ’round, I didn’t. Honestly, it was a bit of wanting to stay more anonymous on the site. Of course, then I went and blogged about it on my not-private blog. That’s personal bloggers for you!

So my dream listing is up. As of writing this, I have a nibble! And twelve days to go on my listing.

The site is brand new, and I really like that. Getting involved and jumping on and participating helps get it rolling. Plus, if I can get a loan at this early stage and start paying on it, as the site matures, I assume that my good payment habits will look good for me. I can build a history. Maybe join a group. And just like on ebay, I got my user name locked in. Yeah, baby!

Finally, it is my hope that someday I will turn the tide, and I will have the ability to be a lender on Prosper. Because it’s brand new, and already it feels more like people than behemoth.

Getting A Prosper Loan

February 15, 2006 By Jeffrey Strain 2 Comments

One of the things I would have liked to do is to both try and get a loan from Prosper and lend some money through Prosper just to be able to give a better account of how the system works, but unfortunately being in Japan at this time makes doing that a rather complicated issue. Today I noticed that Everyday Goddess set up a loan request at prosper and I’ll be interested to see how it turns out for her (her direct listing at prosper).

Use A Credit Card To Pay Taxes

February 13, 2006 By Jeffrey Strain 6 Comments

Don't use a credit card to pay for your taxes

If you ever had a doubt that credit card companies only had their best interest in mind, you can see it clearly in the recent escalation of credit card offers aimed to entice you to put your taxes on your credit card. This includes such cards as Chase offering double mileage on the United Mileage Plus SignatureVisa card and American Express offering a similar promotion on its Delta and Starwood credit cards.

While in most cases there is an opportunity to use a credit card to your advantage by gaining the reward the credit card offers and then paying off the balance before the due date so as not to incur any charges, paying your taxes by credit card comes with a 2.49% surcharge to third-party companies that process the transaction. This means that even if you pay off your credit card on time, you’re going to end up with a net loss even with the extra incentives from the promotions.

So why would credit cards be promoting the use of their cards to pay taxes owed? Those that owe usually owe a significant amount that hasn’t been allocated in their budget meaning that they will not be able to pay off the entire balance right away. That’s a great incentive to the credit card companies to get you to make the payment through their card.

Credit card companies also know that consumers are no long shy about putting their taxes on their credit card. Credit cards are already taking the lead as a payment method with more people using them than have the money electronically transferred from their bank accounts. The use of credit and debit cards to pay taxes increased 54% from 2004 to 2005, according to the IRS. Their use is predicted to increase even further this year.

In the end, it makes little financial sense for most people to use your credit card to pay for your taxes even with the bonus reward offers. You should definitely consider other payment options if you have a choice.