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What the New Lower Federal Interest Rate Means

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What the New Lower Federal Interest Rate Means

Interest rates are going down. The Federal Reserve has reduced its federal interest rate by 0.25%. The overnight lending rate is the basis for lending between banks and affects the rates offered to consumers for various loans. The last rate cut was almost twelve years ago after the real estate bubble burst in 2008. Conversely, rates have been raised nine times in nearly four years.

What is the Federal Reserve?

The Federal Reserve, or the Fed, was created in 1913 to stabilize the financial system in the United States. It’s also known as the central bank of the US and one of the most powerful financial institutions in the world. The Fed controls the monetary policy for the US. Its mandate, set by Congress, is “maximum sustainable employment, stable prices, and moderate long-term interest rates.” The Fed uses increasing and decreasing interest rates to combat the effects of inflation and stimulate the economy.

Reasons for the Decreased Federal Interest Rate

This latest reduction is said to mitigate global risk amid worsening relationships and trade concerns. The stock market and the current administration wanted a more significant decrease of 0.50%. The stock market reacted negatively to the news since lower rates present a weak economy. The S&P 500 decreased over 1%, to its lowest point in the last two months.

The Fed Chairman, Jerome Powell, alluded to the possibility of more cuts. However, there are no long-term cuts planned. The rate decrease was to prepare for future economic uncertainties. The administration is not particularly happy with the initial reduction and blames Mr. Powell’s policy decisions for slow economic growth. However, unemployment has been low for quite some time, and inflation has been steady. Conservative decreases as a preventative measure may contribute to more prolonged results.

What It Means When Interest Rates are Low

Federal interest rates affect how much it costs to borrow debt. Consumers are more likely to make big purchases when rates are lower. The hope is that lower rates will decrease spending on debt and increase consumer spending elsewhere. Lower rates also incentivize businesses to take out loans for expansion, equipment, and other enterprising efforts. Rates usually are reduced when the economy is in a recession, so this an unusual situation. The economy is strong, yet the Fed decreased the rate. The Fed previously reduced the rate to combat recession in 2003. The rate was 1.25% then. The current rate range is 2 to 2.25%

If you’re looking to finance a property, a car, or business expenses, now may be the time to strike. Also, now be a great time to refinance. If you took out a loan within the last four year, when the rates were increasing, the lower rates might be especially appealing. You may see a significant reduction in your monthly payments or total interest paid over the life of your loan. However, don’t feel pressured to accrue unnecessary debt because rates are low. The economy and markets are cyclical. Stick to your goals and financial plan.

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Are You Owed Money From The Equifax Breach?

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Equifax breach

It was two years ago when Equifax announced hackers had gotten ahold of more than 147 million people’s personal information. While the Equifax breach itself is nothing new, this week the major credit bureau announced a settlement of $700 million. Individuals could get up to $20,000 each.

About The Equifax Breach

As mentioned above, nearly half of United States citizens had their information stolen in the breach. Equifax reported this data collected included birth dates, names, and around 146 million Social Security numbers.

After two years, Equifax has come to a settlement of $700 million. Immediately, the company will pay $300 million into the consumer fund. Additionally, funding for reimbursement will be paid out-of-pocket.

Consumers can receive up to $20,000 in reimbursement for documented loses traced back to the Equifax breach. These costs may include time spent monitoring your credit score, hiring attorneys, or the cost of freezing and unfreezing your credit. Documentation will be required to prove these loses and preventative measures and consumers will be paid accordingly.

Why It Happened

Equifax CEO Mark Begor was quoted saying the settlement is the largest ever. “It reflects, from our perspective, the seriousness in which we took this matter,” he said. The company still denies any wrongdoing in the matter. It also plans to invest $1.25 billion into bettering its security.

According to Equifax, there have been no instances of identity theft that stemmed from the stolen data from the company in September 2017. There is an attorney out to prove otherwise though. Pennsylvania Attorney General Josh Shapiro stated some individuals had their identity stolen, but he was unable to quote any specific numbers. His office also reported receiving more consumer complaints during the period following the breach.

“This breach happened because Equifax was more interested in profits than in infrastructure to protect our data.,” said Shapiro. Before you get ahead of yourself, submitting a claim won’t always get you paid. Not everyone is owed money from Equifax.

Are You Owed Money?

Equifax plans to set up free credit monitoring for consumers and, for some, individual cash payments will be made.

Many people froze their credit after receiving the news, which impacts your ability to do some things financially (if anyone needs to pull your credit). Consumers affected by the Equifax breach will receive up to 10 years of free credit monitoring and identity protection. If individuals impacted by the breach already have a credit monitoring service, they are entitled to a $125 payment.

After the breach, many people spent more time looking at their credit report than they did before. Anyone who spent time taking preventative steps against identity theft or dealing with identity theft in any way can get up to $500. You must be able to prove you have spent time doing this to receive that payment. However, ten hours ($250) can be self-certified and requires no documentation. If you want the full $500, you will need bank and credit statements.

When Will The Claims Process Begin?

Once the settlement Equifax announced has been approved by a judge, the claims process will begin. This will likely take a number of months. The company expects a decision will be reached by the end of the year.

Are You Getting Money?

Four emails will be sent to class members that may be entitled to reimbursement through the settlement. Equifax also plans to put social media and advertising action behind educating consumers about the settlement as well.

It has already created a website pertaining to the breach where you can get information. On the website, you can enter your name and see if you are included in the class action lawsuit. If you’d prefer, you can also call the toll-free number Equifax set up for people with questions about the settlement. The number is  1 (833) 759-2982.

Photo: Flickr: GotCredit

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What is UltraFICO?

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ultrafico

FICO credit scores range from 300 to 850. With higher scores typically allowing borrowers to get lower interest rates and qualify for credit with greater ease. In the United States, the average FICO credit score is around 695. This still falls into the “good” range. Still, many people struggle to raise their score out of the poor and fair ranges. Leaving them stuck with subprime borrowing options. However, the launch of a new FICO scoring model – the UltraFICO – is giving consumers the ability to boost their credit by factoring in new financial activities.

What is UltraFICO?

Unlike a traditional FICO score that relies on information provided to the credit bureaus by lenders. The UltraFICO uses an opt in model. Consumers have the option to include data from a variety of accounts.  These include checking, savings, and money market accounts.

After opting in and providing banking details, UltraFICO reviews the accounts to learn more about a consumer’s financial activities. The calculation considers not just the person’s history with lenders.  It also factors in the amount in savings, the age of each bank account, and how actively the person uses their accounts.

Essentially, UltraFICO considers a consumer’s cash-handling activities. Those who keep a healthy balance in their savings account, keep their accounts open for long periods, avoid overdrafts, and regularly pay bills that aren’t factored into a traditional FICO (like utility payments and rent). These factors may be able to boost their FICO score by signing up for UltraFICO.

However, it’s important to note that UltraFICO is still in the pilot phase. Not many lenders are involved in the trial program. There is also no guarantee that the UltraFICO will become a widely accepted approach to evaluating creditworthiness in the eyes of lenders.

Consumers That Can Benefit from UltraFICO

The UltraFICO model primarily benefits two kinds of consumers. First, people with “thin” files – usually those with very little credit history – could see their scores rise by signing up for UltraFICO. By allowing daily banking activities to factor into their scores, these consumers essentially give the model access to more information that could determine their creditworthiness.

The second group that could benefit are those who are struggling with a low credit score. If a consumers activity as a borrower has some blemishes. For example, late payments or an account in collections, the UltraFICO could use the additional data to offset some of the credit score damage.

If your score is in the low 600s or lower, the UltraFICO model could be beneficial, allowing you to work your way up into the “good” range faster. However, that doesn’t mean UltraFICO will make a big difference for everyone in that category. For example, those who regularly overdraft or have less than $400 in savings on average might not see a credit score boost.

Consumers That Won’t Benefit Much from UltraFICO

Along with consumers who don’t have a great banking history, people who already have good to excellent credit may not benefit much from the UltraFICO model. Usually, getting access to credit isn’t much of a challenge in these categories.

Plus, these borrowers usually qualify for competitive interest rates already. While those with excellent credit do the best when it comes to financing terms, the UltraFICO model might not cause a substantial credit score increase for those who already have scores above 670. As a result, borrowers in the good to excellent score ranges might not experience much of a benefit.

The only exception may be consumers who have scores that are just under the number for getting into a higher category. For example, if you have a credit score of 735, which is on the high end of the “good” category,” the UltraFICO scoring model might get you above 740, putting you into the “very good” category instead.

The Drawback of Signing Up for UltraFICO

While the ability to boost your FICO score using the UltraFICO model is enticing, there is one drawback to consider. In order to include bank account activity in your score, you have to give the program access to a substantial amount of personal data.

Along with connecting the bank accounts to the program, which requires entering your username and password, you also hand over transaction records. Many people classify these kinds of details as sensitive, and you have to trust the data is protected adequately.

Ultimately, the UltraFICO has the potential to help borrowers with limited credit histories or poor to fair credit. Just make sure you are comfortable with handing over your banking data before you choose to sign up.

Do you participate in UltraFICO? Did you find it beneficial? Share your thoughts in the comments below.

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Credit Score Misconceptions: Do You Know These 7 Things That Most Consumers Don’t?

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credit score misconception

There are a surprising number of credit score misconceptions out there. We all have some familiarity with certain credit score facts like what a credit score is and that we should have a higher number to get good loans. In recent years, most of us have even become more aware of our score, thanks to an increasing number of tools allowing us to access that information. Nevertheless, recent research indicates that most people have no clue about the details of their credit score.

What is a Credit Score?

Your credit score is a three-digit number. It represents your history of loans and repayment. Therefore, it’s the number that most lenders use to determine whether or not to lend money to you.

If you have a good credit score, then you’re more likely able to borrow money. Moreover, you’ll get better rates. The worse your credit score, the harder it is to get a loan, and the more you’ll pay in interest when you do find a lender.

Your credit score is based on a variety of factors, including:

  • The length of your credit history
  • Your on-time payments vs. late payments
  • The types of loans that you have
  • The amount of money that you owe on those loans
  • How much credit you have

There are actually many different credit scores – more than you might think as you’ll discover below. But for the most part, you get a three-digit number that’s between 300 and 850. The higher it is, the better your credit.

If that’s all that you know about credit scores, then you’re in the same position as many people. But if you think that you know more then you might want to check out the following seven credit score misconceptions. Your information might be incorrect.

Credit Score Misconceptions

Credit Card Insider recently published the results of a 1000+ person survey about credit scores. The results indicate that there are a lot of credit card misconceptions out there. People think that they know things about credit scores and may be surprised to learn just how wrong they are.

1. There Are Hundreds of Different Credit Scores

If someone asked me how many credit scores I have, I’d probably say three. Like many Americans, I’ve been well-trained to think immediately of “the big 3” credit reporting agencies: Experian, Equifax, and TransUnion. I’m not alone in this belief. Nearly half of those surveyed thought that we each have three credit scores. Another 30 percent thought it was less than that – either 1 or 2 credit scores.

However, we actually each have hundreds of different credit scores. There are both big and small credit scoring agencies out there. There are different tools used to calculate credit scores: FICO and VantageScore are the primary methods. Although your scores should be similar across all tools, they can differ some from one to the next.

2. Your Income Doesn’t Impact Your Credit Score

Almost 60 percent of people surveyed believe that your income impacts your credit score. However, that’s not the case. The reason people get confused about this is that income does play into whether or not a lender will offer you a loan. After all, if you don’t earn enough money to repay your loan, then it’s a huge risk for them to lend you that money. Therefore, the lender will look at your income as well as your credit score and other factors.

However, the score itself doesn’t take your income into direct consideration. If you have no income at all but use a credit card that someone else pays off for you, then you might have a great credit score. If you have a seven-figure income but lots of late payments, then you might have a terrible credit score. The only way that income matters is that of course, it’s easier to make on-time payments in full if you have a steady, good income. But the amount of your income itself is irrelevant to your credit score.

3. Applying for New Cards Does Affect Your Credit Score

I was surprised to learn that more than one-quarter of respondents didn’t know this. When you apply for a credit card, the institution you’re applying to makes a hard inquiry on your credit report. That decreases your credit score. The decrease is minimal and doesn’t last long in terms of your credit history. However, if you’re teetering on the edge between a “fair” and “good” score (or any two scores) or you are working hard to build your credit then you might want to avoid applying for new cards for a while.

4. Your Debit Card Doesn’t Help Your Credit Score

Your credit score is a reflection of your credit history. Remember: your debit card is basically cash. It doesn’t count towards your credit history. Therefore, if you use your debit card to pay for things, then you’re not building your credit. If you want to improve your credit score, then you need to use your credit card (and pay it off on time). Even if you select “credit” at checkout, your debit card is still a debit card, and it doesn’t change your credit score.

5. Closing Accounts is Not Good for Your Score

More than one-quarter of people surveyed thought that canceling a credit card would improve their credit score. I’m guessing that the thinking behind this is as follows:

  • If I cancel my account, then I can’t use the credit card.
  • If I don’t use the credit card, then I can’t accrue more debt.
  • Moreover, I won’t potentially make late payments because I won’t owe anything.
  • Therefore, it’s better for my credit to cancel the card.

It’s certainly true that having no card is better than having a card you run up a high balance on and then pay late. However, canceling the card altogether isn’t your best course of action. It can decrease your credit score. Instead, just put those cards out of reach, avoiding the problems without compromising your credit.

Notably, if you don’t use your card for a long period of time, then the credit card company might cancel it or reduce your available credit. This isn’t great for you either. Therefore, you should pull the card out periodically, charge something inexpensive on it, and immediately pay it off.

6. No Debt Isn’t Necessarily the Same as a Good Credit Score

One of the keys to maintaining a high credit score is to utilize your credit regularly. You have to use it, but then pay it off quickly. You do want to keep your overall debt low. The ratio of your debt to your available credit is one factor in your credit score. However, having zero debt doesn’t necessarily mean that you’ll have a good credit score.

Consider this: if you’ve never had any debt before then you don’t have a credit history at all. Therefore, you can’t have good credit. This is what teenagers face when they first try to get loans. So, although more than one-quarter of people surveyed assumed that having no debt means you’ll have a good credit score, that’s not necessarily true. It may be true, but it may not be. There are other factors to consider.

7. Your Credit Score is Not On Your Credit Report

More than three-quarters of people surveyed believed that if they ordered their credit report today, then they would see their credit score. They would be surprised once they got that report, then. Your credit score is based on the information in your credit report(s). However, you won’t find the score itself anywhere on your credit report. These are two related, but entirely separate, things. You can get your credit score from a variety of different places, often for free, but you can’t get it from your credit report.

How did you fare? Did you know the right answer to these seven credit score misconceptions?

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Don’t Use a Balance Transfer to Pay Off a Personal Loan: Here’s Why

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balance transfer to payoff loan

If you are struggling to pay off your debt, landing a lower interest rate on what you owe can make a big difference. Usually, balance transfer rates on credit cards can look very attractive. Plus, they might even be lower than what you have on your current personal loan. However, using a balance transfer to pay off a personal loan isn’t typically a great idea. There are risks with that approach, and terms might not remain favorable over time. If you are wondering why you shouldn’t use a balance transfer to pay off a personal loan, here’s a look at why it’s a bad idea.

That Introductory Rate Won’t Last Forever

In the vast majority of cases, balance transfer introductory interest rates don’t last indefinitely. You may have access to the promotional rate for just six months, 12 months, or 18 months, which isn’t a lot of time.

After the introductory balance transfer rate expires, you are stuck with the credit cards regularly interest rate, which is commonly much higher than the rate you’d have on a personal loan. The average credit card interest rate falls near 17 percent.

If your personal loan interest rate is lower than your credit card interest rate after the promotional rate expires, you could find yourself paying more in interest as you pay down the balance or hit with a higher payment down the road. Most credit card payments are a percentage of your balance along with the interest charges. When the interest rate kicks in, your monthly payment will almost certainly go up, and this can have a major impact on your budget.

By sticking with your personal loan, you get a level of predictability. Personal loans tend to have fixed payments over the life of the loan, so you know exactly what you’ll need to pay each month until the debt is gone. Plus, personal loans are finite. You know how many payments are left and when the last one happens, giving you a precise date as to when you’ll clear the debt.

Balance Transfer Fees

Balance transfers come with fees, usually 3 to 5 percent of the amount of the balance you are transferring. The exact amount varies from one bank or credit union to the next.

This fee isn’t spread out over time. Instead, it is added to the balance you owe the moment the balance transfer goes through. As a result, you significantly increase your debt immediately, and that isn’t always a smart move.

If you stick with your personal loan, you aren’t accruing any more debt. Any fees associated with the loan are already part of your balance, barring particular (and somewhat rare) exceptions, such as early payoff penalties that a limited number of lenders levy.

Credit Score Impact

Paying off a personal loan with a balance transfer impacts your credit score. First, once the balance transfer fee goes onto your account, your debt load increases. This can negatively affect your credit score.

Second, when you pay off the personal loan, that account usually closes. As a result, the average age of your credit accounts shifts. If the balance transfer credit card is a new account, your average account age will likely go down, negatively impacting your credit score.

Finally, moving a personal loan debt to a credit card also hurts your debt-to-credit ratio. That ratio is a reflection of the amount you owe on your credit cards as compared to your credit limit. The higher the percentage of your available credit limit that you use, the worst that ratio is in the eyes of the credit bureaus. As a result, your credit score can take a pretty big tumble depending on the amount of debt you transfer.

While the exact impact on your credit score will depend on your unique situation, it is important to understand that it could be both noticeable and negative. If you may need to open another credit account in the relatively near future, doing a balance transfer to pay off your personal loan could make that harder, not easier.

Qualifying Isn’t Always Easy

If you don’t have a balance transfer credit card and were considering opening one to address your personal loan debt, it’s essential to understand that this isn’t a guaranteed option. Many balance transfer cards require borrowers to have at least “good” credit, usually with scores of at least 680 or 700. Some won’t approve anyone with less than “excellent” credit scores, typically around 750 or higher.

Even if you can get a balance transfer card with fair credit, the terms usually don’t work in your favor. The promotional interest rate may only be available for six months. Plus, the credit card’s regular interest rate after that will apply, and it’s commonly pretty high.

Additionally, opening a new card also impacts your credit score. You’ll have a “hard pull” on your credit report (too many of which can hurt your score), a lower average account age, an adjustment to your total available credit, and more shifts that all cause your credit score to change.

Risky Move

Ultimately, using a balance transfer to pay off your personal loan can be a very risky move. Unless you can guarantee that you can pay off the entire balance (including the balance transfer fee) before the promotional rate expires, it typically isn’t worth pursuing. And, even then, there is always an impact on your credit report, and your score might go down. If you can’t ride out a period with a lower score, then this approach isn’t right for you even if you can pay off the balance during the promotional period.

Instead, do your best to pay off your personal loan quickly. If you aren’t dealing with a potential early payoff penalty, you can save yourself a ton by making additional payments and working diligently to rid yourself of that debt while leaving it where it is, all while preserving your credit score.

Have you ever used a balance transfer to pay off a personal loan? Do you think it was a mistake? Share your thoughts in the comments below.

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1 in 4 Cancer Survivors Face Financial Hardship

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Cancer survivors

One-fourth of cancer survivors under the age of 65 are drowning in medical debt and one-third of them say they’ve stressed about medical expenses at some point in the past. According to the latest Morbidity and Mortality Report, cancer survivors also typically have higher annual out-of-pocket spending for healthcare than those who have never had cancer.

Financial Hardship Hits Survivors Hard

There are approximately 16.9 million cancer survivors living in the United States. The report, which is published each year by the U.S. Centers for Disease Control and Prevention, found financial hardship hits survivors harder than you’d think.

“The population of cancer survivors is growing and many struggle to pay for costs of medical care,” said Donatus Ekwueme, a senior health economist at the CDC. “As a result, some survivors are worried about paying and have problems paying for medical care, and some are even forced to file for bankruptcy.”

The financial burden is only expected to continue to increase in the coming years. Because the number of people diagnosed will increase, so will the financial hardship.

Cancer Survivors Pay Out of Pocket

To construct the report, the CDC, the American Cancer Society, and the National Cancer Institute analyzed data about the out-of-pocket expenses and financial hardships of cancer survivors in the U.S. Those involved in the data analyzed were between the ages of 18 and 64 between 2011 and 2016.

For the average survivor, out-of-pocket spending each year for healthcare was about $1,000. The average American without a history of cancer spends just $622. On top of that, 25.3 percent reported material hardship associated with their diagnosis.

Material hardship, in this case, means ever having to borrow, rack up debt, or file for bankruptcy, as a result of medical costs. Additionally, more than 34 percent report suffering from psychological financial hardship. This means many of them worried about the ability to pay their medical bills and get the treatment they needed.

One-quarter of the individuals involved in the observations also reported struggling and even failing, to pay their medical bills.

More Likely to Seek Follow Up Care

Of course, the care for cancer patients during treatment is exorbitant. However, it also seems cancer patients’ cost of care doesn’t end when they go into remission. Most cancer survivors are more likely to go to the doctor on a regular basis.

In that respect, cancer “seems to be the gift that keeps on giving,” said Dr. Rachel Adams Greenup, a breast cancer surgeon at Duke University.

Greenup, who was involved in the study pointed out, “Cancer survivors, even if they’re cured, they interface with the health care system more frequently — and so it is more costly to them and to the health care system than someone who’s never had cancer. It’s devastating to these patients.”

How Much Cancer Costs

Depending on your diagnosis, treatment could cost between $5,000 (minor skin cancer) to $108,000 (brain cancer). And those figures are only for the first year of treatment. Not to mention, the indirect medical costs like needing the assistance of specialists or complications with their medication.

The cancer survivor’s family takes on a good bit of these medical costs as well. Families are twice as likely to have more than 20 percent of their income taken up with out-of-pocket medical costs.

Insurance vs. No Insurance

Some cancer patients are without insurance. If they are diagnosed without coverage, it can absolutely ruin them financially. Although they spend less altogether, a greater portion of their families’ income than individuals with insurance.

Even survivors who carry insurance reported borrowing money, accruing debt, inability to pay their medical bills, and even filing for bankruptcy.

How to Help

This year, it is predicted that nearly 1.8 million Americans will be diagnosed with cancer. So, how do we help guard cancer survivors from financial hardship?

First, the authors of the report suggest that making health care more affordable will help improve the long-term survival of those who have survived cancer.

Another way to help prevent such tremendous hardship is educating patients by discussing costs before they begin treatments. Doctors play a huge role in providing guidance regarding out-of-pocket expenses with their patients.

It isn’t really surprising that cancer patients face financial hardships. As Dr. Georges Benjamin pointed out, there are other factors to consider as well. “The other thing we know is there is a correlation between health care costs and people’s mental health,” he said. The inability to pay health care bills can increase risk of sadness and depression.

All in all, the best way to cure the financial hardships of those diagnosed with cancer is early detection and prevention. Early detection will lead to easier, less costly treatment and ease the financial burden of the terrible disease.

It should be noted there were some limitations in the CDC report. All data was self-reported. No information was gathered about the stage or types of cancer. 

Readers, what do you think about the financial hardships faced by cancer survivors? 

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