FICO Credit Scores: What Do They Mean

FICO credit scores remain a source of confusion to the average American consumer. Surveys have indicated that most of our countrymen know little more than that a number between three hundred and eight hundred shall impact future lending opportunities. In actuality, however, the process by which your FICO credit score are calculated remains - if not, technically, simple - relatively easy to understand, at least in the abstract.

Still, if you're already struggling under the yoke of ever enlarging credit card debt and prone to feeling battered about by outsized forces beyond your control, a lack of comprehension regarding the famously circuitous FICO credit scoring system can often add to the overall despair. However, even though elements of the FICO credit rating may take a bit of time for newcomers to the world of debt analysis to fully appreciate, the ability to change credit scores for the better remains within the power of most every consumer given sufficient time and discipline.

Your credit rating is an important tool for lenders to determine your eligibility for a loan, as well the interest rate assigned. Those with the best credit ratings receive the best credit opportunities at the lowest rates. In general, lenders will look at the past two years of your credit history, but negative actions like late payments remain in your credit report for seven years. It is important to note that there is a difference between a credit report and a credit score. A credit report is a record of your credit activity; a credit score is a number calculated according to your credit history. Whether or not you have a sterling credit rating, there are a number a number of things you can do to improve both.

1) Limit credit card applications

Though it is advisable to maintain healthy credit activity (the average consumer has eleven credit obligations, four of which are loans such as auto or student loans), it is detrimental to your credit score whenever a lender requests a copy. Each time you apply for a credit, your credit score will be looked into.

2) Pay bills on time

A consistent record pf paying the credit card bill on time or early will raise your credit score. If you are 30 days late in making a payment, it will drop your credit score by as much as a hundred points. Arranging with your bank to have your bills made by automatic payment can help reduce this risk.

3) Manage the number of accounts

It is to your benefit to maintain accounts with long histories, but keeping too many credit accounts open that you don't use increases your risk of identity theft.

4) Keep balances low

It is advisable to spend only thirty percent of your available credit limit; maxed out credit cards can lower your credit score. Try to distribute spending amongst all cards.

Your credit rating is a direct and accurate reflection of your money management habits. Actively raising your credit rating will save you a great deal of money in the long run. Just as importantly, employers and landlords are looking at these scores when choosing candidates. Keeping up and maintaining the numbers can only have a positive impact on your financial future.

Liberate Yourself From Debt: Debt Consolidation

How does it work?

It's all too common a story for a growing number of Americans. Credit card debts spiral helplessly, ordinary consumers find themselves overwhelmed by the crushing debt load, and, almost before they know it, their finances are out of control. Money management is so important to overall life satisfaction, but the ease and availability of credit cards have combined to destroy the financial stability of too many families. Those borrowers who've realized they can no longer right their debt situations alone MUST seek debt consolidation assistance. In this article, we explain the basics of debt consolidation and what every debtor should know, but, make no mistake, this is only a very brief view of a very difficult subject. Every debtor considering help should search out a nearby debt consolidation professional for a consultation.

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Debt to Income Ratio By The Numbers

Debt To Income ratios - the prized DTI ratio that influences credit analysts as much as FICO scores for large debts - look at what percentage of gross monthly earnings is taken up by monthly minimum debt payments. Sounds easy to figure out, but borrowers should consider DTI just a nickname for a more complex (and, depending on the lender, greatly varying) series of calculations. For some creditors, taxes and insurance payments and certain types of utilities could be included within the debt side of the equation; others purely highlight the revolving debt. To make things simpler, let's just separate the two sorts of DTI ratios that lenders generally discuss.

Debt To Income Ratios from the front and back



There are two primary types of Debt To Income that credit analysts and underwriters utilize when examining borrowers' prospects - typically, they're expressed as 'the front ratio' and 'the back ratio'. The front ratio generally concerns how much of an individual's earnings are used for shelter whether mortgage payments (including interest payments as well as minimum monthly portion of the mortgage 'principal', homeowner taxes, and all necessary insurance premiums) or rent. The so-called back ratio looks at the portion of earnings earmarked to monthly minimum debt payments (this can include the mortgage used in the front ratio) from credit card accounts, auto loans, credit lines, student loans, judgments from criminal penalties, child or familial support and other such obligations. There are a thousand different ways to calculate debt to income ratio depending on the lender and the sort of loan in question, but understanding the 'front' and 'back' should at least give applicants some idea of what the creditors will be considering.

What Credit Scores Mean the Simple Definition

Whatever one may feel about their accuracy, there’s no denying the usefulness of credit scores: also known as FICO scores, named after the Fair Isaacs Corporation’s method of calculating the ability to repay debts. Certainly, the heads of loan companies have no doubts about the importance of credit scores. According to leading debt analysts (and the mathematicians employed by the Fair Isaacs Corporation), the FICO credit scores will extract in numerical form the odds of debt worthiness, employing a specific equation drawn up for the purpose. The credit score numbers are constructed to allow lending companies a speedy and essentially verifiable prophecy of the chances that money will be paid back. Remember, FICO credit scores would not have gained so much value so quickly if the heads of corporations did not truly believe that the numbers obtained by using the Fair Isaacs protocol had lasting import.

As unfair as parts of the FICO credit scoring system may seem to modern day consumers, this sort of credit rating was actually considered fairly progressive just two generations ago. Since the FICO credit scores do not look at the amount of money that someone may earn or how much they have in the bank, rendering everything along the same numerical lines has made the process of applying for loans substantially more democratic across the board. Furthermore, since almost everything depends upon the three digits immediately calculated by the FICO credit scoring matrix, it’s also made everything run that much more efficiently. The popularity of FICO credit ratings as a pillar of loan approval has enabled many more Americans to garner acceptance for home mortgages, for example, than would otherwise have been deemed permissible.

New Debt Relief Bill Passes What Does it Mean?

Recent legislation has been passed regarding the debt relief industry. Starting October for profit debt relief companies can no longer charge up front fees in order for a consumer to enroll. This comes after harsh scrutiny of the debt relief industry and the various debt relief scams. Debt elimination companies can only collect fees from consumers after the debt settlement process has begun.

Many wonder if this will put the debt relief industry out of business. This is not necessarily true. While it is true a lot of for profit companies will go out of business there are many legitimate debt relief companies that will still prosper. The law was made to protect consumers not put the debt relief industry out of business. It will help the overall debt settlement industry have better negotiation \practices and ensure they are successfully eliminating debt on their customer's behalf.

This does not mean consumers in debt will be safe from all debt relief scams. They should still show caution when choosing a debt relief company and check the various credentials available.

For right now the debt relief industry isn't going anywhere

Declining American Credit Card Debt Totals

For more than thirty years, the credit card debt bill for all Americans has gone in only one direction: up and up and up. Indeed, most commentators on economic conditions have warned that the financial strength of the United States will inevitably suffer as a result since other nations examine the solvency of our citizens as an indicator of the health of the overall economy. Still, regardless of such very real concerns, our countrymen and women continued spending and attracting credit card debt like there was no tomorrow. Monetary analysts had reason to worry that such reckless and unchecked purchasing habits would continue to expand the unsecured revolving credit card debt loads at the same rate of the past decade until the nation’s credit ratings hit bottom and our financial system collapsed.

Well, looking at the credit card debt figures for 2009, it appears that the wavering faith in the ability of United States households to alter their more destructive behaviors has been misplaced. All of sudden, without clear cause – and during the relatively flat economic growth that followed the recession, at that – the total amount of the unsecured credit card debt sums owed to creditors fell sharply. Headlines trumpeted a decline of more than ten percent, and, even though such calculations include corporate write offs, consumer actions accounted for a surprising percentage of the credit card debt drop.

Whenever economists talk about the money owed to credit cards, they’re essentially adding together all of the individual balances owed to unsecured lenders who must regularly report their holdings to agents of the United States government. As people pay back the money borrowed, the balances will go down, of course, but the credit card debt totals will also show signs of decrease whenever the lenders charge off unpaid accounts in order to gain the tax benefits. The Internal Revenue Service quietly encourages corporations – so long as they are otherwise running a sizeable profit – to formally discharge their credit card debt holdings.

Once a company announces to the government that they have reason to believe that a consumer has no ability or intention of every satisfying their legally held credit card debt accounts, they can then deduct the amount of the debts from the gross earnings and thereby be liable for a significantly smaller amount of taxes. With that understood, what’s so remarkable about this recent decline in the overall credit card debt has been the relatively minimal charge off totals. From January to April of 2009, fewer than eighteen billion of the sixty five billion dollar reduction in unsecured burdens were even partially the consequence of credit card debt charge offs through corporations.

Writing off credit card debt accounts that do, after all, still exist and had only temporarily disappeared thanks to creative accounting practices might lower the credit card debt bills for the United States on paper, but the artificial elimination of delinquent loans actually suggests a greater problem. In fact, once the loans have been charged off, the borrowers are that much closer to an eventual credit repair and the restored FICO scores sufficient to take out even more credit card debt. The same holds true for equity mortgage loans or any similar consolidation program that switches unsecured debt from revolving credit lines to a lien on tangible property. Second mortgages and credit lines are considerably more difficult to obtain following the recessionary decline in property values, but the most successful companies can still manage to technically erase credit card debt by transferring the balances to the title of a residence should enough equity still exist. It counts as an erasure of credit card debt accounts, but it could lead to additional deficit spending once the balances return to zero.

The Three Keys to Protecting Credit Scores after the Death of a Spouse

Dealing with economic concerns following the loss of a husband or wife will inevitably be difficult. Faced with overwhelming sorrow, the spouse left behind to take care of the household bills will have sufficient trouble just keeping up with the monetary needs of the domestic budget beyond the greater worries about credit scores over the forthcoming days. Hard enough just to wrangle with the intricacies of credit bureaus and FICO scores during the best of times, but crafting a new credit persona absent the help of a life partner could seem unimaginably nerve wracking. Still, as you’ll likely hear too often in the days after your spouse has passed away, life truly must go on, and there are some crucial actions that must be taken during this time of mourning.

Protecting the identity of the deceased, though this may well appear to be the least of the family’s worries, has actually a newfound importance since scavengers of financial detritus and credit offerings will immediately leap upon death notices to further their malevolent plans. Obituary notices, sadly enough, have been the entrance point toward criminal actions for a new breed of credit scavengers, and the surviving spouse must do what they can to shield their husband or wife’s financial legacy from thievery.

For so many spouses surviving the death of the family bread winner, the trick will be not just preventing household accounts from falling into the hands of financial predators but also establishing a new credit portfolio essentially from scratch. So many older men and women realize only too late that they had left the details of the domestic budget to their partners and failed to earn any proper credit history of their own.

There are a number of different acts that have to be initiated from virtually the morning after the funeral proceedings have finished, and, below, we’ve singled out some of the most important steps each surviving spouse should follow for the security – and, in some cases, the origination – of the family credit rating.

1.) Even during the days of mourning just after the death of a loved one, the spouse (or whomever has been put in charge of the household affairs) must take the initiative to contact the credit reporting agencies in popular usage around the United States of America: Experian, Equifax, and TransUnion. Ideally, this will be a formal request with some paper trail for protection of assets in the event of identity theft.

2.) As a vital action, every credit card and revolving debt account must be individually contacted whether through telephone, internet, or the old fashioned postal system. Once again, however, it’s in the best interest of all involved that there be some documentation of the notification, meaning that a traditional typed and mailed piece of correspondence may be most suitable (for that matter, many of the creditors shall demand that the official death certificate be Xeroxed).

3.) For any credit lines jointly held by both spouses, there still needs to be the same attention paid to alerting the lender representatives about the tragic circumstances, but, unfortunately, in most cases, the surviving wife or husband will still have to make payments from then on until the account is fully satisfied. Generally, at the time that the credit card company changes the formal record of obligation, the newly responsibly party could ask for the spending limit and interest rates to be re-priced, but, with lessened income available, the resulting terms could well be worse than they were originally.