While everyone says you should check your credit score, what you should be checking are your scores. In fact, you have more than one. That’s because lenders, creditors, and the three national credit-reporting agencies—Equifax, Experian, and TransUnion—all have their own particular methods and formulas for calculating what kind of a credit risk you are.
The most widely-used rating is the FICO score. Many people think the term “FICO score” is just another way of saying credit score (sort of the way people call all adhesive bandages Band-Aids and all facial tissues Kleenex). It’s not. While FICO is the oldest and most popular credit-scoring system, the Big Three credit-reporting agencies have their own rating system (Equifax, Experian, and TransUnion).
That said, the credit-reporting agencies all base their individual scoring systems on mathematical models developed by Fair Isaac. So while your FICO score may differ slightly from the scores calculated by the credit-rating agencies, it’s not likely to be wildly different. In other words, if you have a great FICO score, chances are your credit score from the three credit bureaus will be pretty good too. The opposite is also true: bad FICO score, bad score from the bureaus.
WHAT GOES INTO YOUR CREDIT SCORE
So how do the credit-rating companies decide what credit score to assign you? What they do is take your credit history based on your credit reports and run it through a complicated series of calculations. In the case of FICO, the result is a number somewhere between 300 and 850. This is your FICO score. Anything over 720 is considered good. Score 740 or higher and most lenders will give you their best deals.
On its website, Fair Isaac spells out how it weighs the various factors that go into calculating your score. They are, in order of importance:
35% of your score: Payment History.Do you always pay your bills on time or do you have delinquencies? Any bankruptcies, liens, judgments, garnishments, etc., on your record? PAY ATTENTION TO THIS! Simply paying your bills on time impacts more than a third of your score.
30%: Amounts Owed. How much do you owe? What kinds of debt do you have? What proportion of your total credit limit is being used? Most experts agree that a credit utilization of more than 30% will hurt your score. So if your Visa card has a credit limit of, say, $5,000, you’ll want to avoid carrying a balance of more than $1,500 at any one time. According to FICO, more than half of all credit card users manage to do this. On the other hand, one in seven are using more than 80% of their available credit.
15%: Length of Credit History. How long since you opened your first credit account? How old is your oldest active account? (The average is 14 years; the longer your history, the better.) This is why you should no longer close old accounts you don’t use—and why when you are asked to “opt out” now by credit card companies you should still keep the accounts open even after you have paid them off.
10%: New Credit. How many accounts have you opened recently? How many recent inquiries by potential lenders? A lot of new activity makes the credit-rating agencies nervous.
10%: Types of Credit Used. How many different kinds of active credit accounts do you have? A varied mix of credit—e.g., credit cards, installment loans, mortgages, retail accounts, etc.—is a plus; too much of one type is a minus. According to FICO, the average consumer has 13 active credit accounts at any given time—nine of them for credit cards and four for installment loans.
The reality is, your credit score is your financial GPA, and you need to know where you stand in the eyes of the creditors. To get your scores and explore how you can work on your financial health click HERE!
I just wanted to let you know what I’m up to this week and tell you about some of my upcoming speaking engagements! If you’re in the area, I hope to see you there!
Who:Chrysalis 2011 – Inspired Financial Health Event
An educational evening including opportunities to learn from local financial professionals in a variety of small group seminars! Where: Wells Fargo Jordon Creek Campus
800 South Jordon Creek Parkway, West Des Moines, IA When: November 8th 2011 5:30pm – Reception and Small-Group Seminars 7:30pm – (My speech begins) Inspired to Live Rich – Financially For more info and to purchase tickets: Click HERE or call 515-255-1853.
Who:Nation Association of Realtors (NAR) – 2011 Realtor Conference and Expo Every fall, real estate professionals from across the U.S. and around the world come together for the annual REALTORS® Conference & Expo. This annual four-day event includes more than 100 education sessions, featuring nationally-recognized speakers, trainers, and industry experts, who discuss timely topics and critical issues of value to REALTORS® Where: Anaheim/Orange County Convention Center
800 W. Katella Avenue, Anaheim, CA When: Wednesday, November 9th – Monday, November 14th *NOTE: I will be speaking on November 12th – at 9:00am on the topic of Building Business in 2011 – How To Serve More Homebuyers. For more info and to purchase tickets: Click HERE or call 800-650-6893.
He popped the question but now it’s time to ask a few questions of your own. Even though fighting about money is the number one cause of divorce in America, many couples spend more time thinking about where to hold their wedding and which flowers to purchase than they do thinking about their financial lives together. With so many marriages torn apart because of finances, I created five crucial questions every bride and groom must ask (and answer) before they say “I do.”
What is your partner’s credit history?
The smallest mistake can cause big trouble for your financial future as a couple when it comes to your credit score. That one credit card with a $500 balance that your partner forgot to pay since college can seriously damage your credit history once you become legally married.
Do we need to sign a pre-nuptial agreement?
Not signing a pre-nuptial agreement can be one of the biggest mistakes a couple makes before they tie the knot. If one of you has significantly more assets than the other, it is crucial that you protect yourself against the legal repercussions of divorce, no matter how unlikely the prospect may seem at the time.
Is your partner currently saving any money?
The time to find out if your fiancé is financially clueless is before you get married. Ask them if they are putting any money away. Find out if they’ve ever taken a finance class or read a book on investing. This is a great way to suggest that the two of you take an investment class together. Couples that learn together… stay together.
How did your partner’s parents handle their money?
This is one of the most overlooked issues with couples today. How your partner’s parents handled money in their marriage can give you a pretty good inclination of how your partner will handle money in your marriage. If their parents were constantly relying on credit cards, for example, there’s a good chance that they have inherited this bad financial behavior as well.
What are your partner’s plans and dreams for retirement?
Don’t wait till you are both in your sixties and your spouse informs you that they plan to retire to the Carolina coast to go fishing every day, when you thought the plan was to go to Europe. Make sure you take the time to talk about your dreams for the future, and that you have the same plan for your retirement accounts.
You need to know exactly who you are marrying before you say “I do,” especially when it comes to their financial life. If you want to learn more about couples and money and how you can effectively communicate in your relationship make sure to listen to my interview from the teleseminar entitled “The Art of Love.” You will have 24 hours to access the interview for FREE so SIGN UP NOW! My interview will be airing at 6pm EST on Sunday, November 6th, 2011 – you won’t want to miss it!
For all of those who missed me on NBC’s Today Show – Money 911 this morning make sure to check out the segment now! Today we discussed 401ks, the best online budgeting websites, and student loans. Enjoy!
Recently, I had the opportunity to be interviewed for a FREE teleseries entitled The Art of Love. This online event will be from November 1 - 11th and will be featuring 21 leading experts when it comes to relationships. One of the best parts of Ther Art of Love is you can participate from the comfort of your home! Just CLICK HERE to sign up!
As some of you may know one of the top causes for divorce isn’t sex or religion or problems with the in-laws. It’s fighting over money.
Having written a New York Times bestselling book on the subject (Smart Couples Finish Rich) and toured the country doing couples seminars, I can tell you from firsthand experience that working on your money together significantly improves the chances not only of your succeeding financially but you staying together happily with your current or future partner.
On November 6th at 6pEST I will be sharing my top tips and strategies on how to successfully manage your money in a relationship. This is knowledge that I have acquired from over a decade of working with couples and it’s part of a complimentary tele-series entitled The Art Of Love .
During this special hour long interview you will learn:
How to communicate successfully if you’re married to your financial opposite.
How to determine you values and goals together as a team.
What the true purpose of money is in your life.
My thoughts on separate bank accounts in your relationship.
How I successfully teach my kids about money and how you can too.
And so much more!
If you’re in a relationship or plan on being in a relationship, this is a MUST LISTEN! The interview will only be available for 24 hours on November 6th, 2011 starting at 6pEST so sign up now!
Futhermore, once you’re registered you will not only gain access to my interview but also have access to 21 other leading experts in love, sex and marriage! The Art Of Love 11 day online summit starts November 1, 2011. If you want to learn more about FREE the The Art of Love teleseries CLICK HERE.
Have you ever walked away from a fight with your spouse or significant other? You’re absolutely fuming and your head is spinning. Finally, you calm down and realize you have no idea what you were actually fighting about? The fact is that couples fight an average of 4 times a month and oftentimes, they’re fighting about money and they don’t even know it!
One of the top mistakes a couple can make when it comes to love and money is to fight over “stuff” instead of the real money problem. Let me give you an example from my personal life to explain better.
The Fight:
The biggest fight I ever had with my wife over money started with nothing more than a new pair of shoes. She came home, showed me the new black shoes she bought on sale—and I proceeded to lose it.
“New shoes? How could you need new shoes?” I exclaimed. I then proceeded to pull out all of her black shoes and count them, one-by-one.
My wife in turn dashed over to my “tech toy drawer” and pulled out three old cells phones, three old Palm Pilots, and various other gadgets that were collecting dust.
“Who needs all this stuff?” she argued. “You are ridiculous, wasting all of our money on the latest, greatest gadget.”
Before I knew it, our fight was over items in the house, our purchases, and “stuff” that had nothing to do with the real problem….we were not saving enough money. We both knew it, but we continued to spend our money on completely unnecessary purchases, when we could have been saving more for our future.
The Solution:
Fortunately, I was able to pull back from this argument and ask my wife if we could sit down and calmly discuss my real money concern with her.
I explained to her how important it is that we “pay ourselves first”—and we agreed to a goal together. Our goal was large (to pay ourselves first 20% of our gross income), but we agreed that if we could achieve that goal we wouldn’t fight about the little ways we were spending money.
The result of our discussion was that we put our savings and finances on auto pilot—having our paychecks automatically deposited first into our savings account from our 401k plans, then into our emergency account and our dream account. We also set it up so all of our monthly bills were paid automatically. After this—the fights stopped! Most importantly we built real wealth, together as a team.Talking about your goals and automating your finances can have a life changing effect on your relationship and on your financial security. Remember, a couple who plan their finances together stay together.
Live Rich,
David Bach
P.S. Make sure to share you thoughts and comments below, I love to hear your feedback and stories!
If you missed me on NBC’s Today Show – Money 911 segment this morning make sure to check it out now! Today, I discussed Credit Unions and how they could be the right choice for you when it comes to avoiding all the recent emerging bank fees.
Last week, I asked my Facebook community (www.facebook.com/davidbach) what their number one goal was, instructing them to make it public and get it done!
Tons of you posted your goals on my Facebook wall ranging everywhere from getting back in shape to saving more money to relocating to a new state! To help you on your journey here are my 6 tips to achieve your goals. Enjoy!
1) Make your goals specific, detailed, and with a deadline. In order to achieve a goal, you must know precisely what it is you’re after. You want to take those vague ideas and thoughts about what sort of life you see for yourself and turn them into something concrete. Say one of your values in life is “Family.” You want to spend more quality time together and your goal is to have a vacation house where you can congregate. But don’t just write down your goal as “own a vacation house.” Ask yourself specific questions like: Where would I want this vacation home to be located? How much would it cost? What steps would I have to take to make this happen? When can I take action and begin working towards my goal? What’s a realistic time frame? If you answer these questions you turn your goal onto specific, detailed plans of action.
2) Put your goals in writing. I know it’s a cliché, but it also happens to be true. Studies have shown that the process of writing down your goals on paper does something to you subconsciously that helps make those goals more specific and real to you. When you write down your goals, you make the goals important.
3) Start taking action towards your goals within 48 hours. Writing down your goals is great, but it’s not enough. You MUST take action, the quicker the better. If you don’t get moving towards your goal now, you may never get moving at all. So, to help get you started, I ask that you write down your 48 hour action step for your goal. This step can be anything. All that matters is that you do something to bring yourself closer to your goal. For example, if your goal is a vacation home, you could go on the internet and start researching the housing market in your ideal destination. Remember, what you do in that first 48 hours is not as important as the fact that you do something. Because this action creates positive momentum that will help you carry your goal through to reality.
4) Enlist help. There is a huge myth out there that I would like to bust: the myth of the “self-made” person. There’s no such thing. No one ever reaches an important goal without some sort of help from some other person. It’s part of being human. So, when it comes to achieving your goals, stop and think for a second. Who can you turn to for help in achieving your goals? Consider your family members, friends, people you work or socialize with, or people with a specific area of expertise related to your goal. Include these people when writing down your goals.
5) Get a rough idea of how much it will cost to achieve your goals. You may come to find that some of you goals may have nothing to do with money, while others are all about money. Some goals will take almost no time to save for, and others may take a lot of time and investing to reach. Since it’s important to know which is which, you will need to estimate how much money you will need for your goal. So ask yourself: What is this goal going to cost? How much do I need to start putting aside each week or month to help me get there? Knowing the answer to these questions will enable you to do two things: (1) understand how realistic or (unrealistic) your goals may be, and (2) get you started on a systematic savings and investment plan to accumulate the money you are going to need to achieve your goals.
6) Make sure your goals match the values you share with your partner or family. Don’t keep your goals to yourself. If you have a partner or family, it’s important to make sure your goals reflect what they want too. By discussing your values and dreams with the people in your life, you help create your future together. In fact, you can work on a family list of goals that you all want to accomplish jointly.
It’s time to get started! Go get busy. And don’t forget to share your progress with me on Facebook!
SANDY LAPP, of INVERNESS, FLORIDA—Congratulations!
As you all hopefully know by now, to help consumers jump start their debt repayment plans, I partnered with credit reporting agency Equifax (NYSE: EFX) to create the Debt Free Challenge. Our goal was to inspire one million people to pledge to pay down $1 billion of debt – and be entered to win $10,000 to put towards their debt reduction goal!
Finally, I am happy to announce that the winner of the debt busting $10,000 is Sandy Lapp and her family from Inverness, Florida. Hear Sandy’s thoughts on winning and find out what she is doing with her newfound money!
David: Can you start by telling me a little about yourself…
Sandy: I am a 31 year old mom of four, Anthony is 9, Samantha is 7, Benjamin is 6, and Caleb is 3. I have been married for 12 years to my husband Tim and we live in a small town in Florida.
David: Wow, you sound busy! So, how does it feel to win $10,000 from Equifax’s Debt Free Challenge?
Sandy: It feels absolutely amazing to be the winner of the $10,000 from Equifax’s Debt Free Challenge! I got an email with the news and immediately called Tim to tell him!
David: Tell me how you felt when you found out you won the $10,000?
Sandy: We were both in shock and extremely excited. I had seen an ad for the challenge online a few weeks before the sweepstakes ended and entered, not really thinking we would win, but hoping. My husband makes right at $30K a year working in the construction industry and with our large family, we tend to live paycheck to paycheck.
David: How has this $10,000 prize affected your life so far? Has it let you do things that you never thought were possible before?
Sandy: When we received the $10,000 prize, we chose to pay off most of our debt, including our car payment. We put $2500 of it into a savings account and we were able to take our family on a vacation without worrying about how much money we had in the bank. This money has given us the sense of relief that we don’t have so much debt hanging over our heads and has helped us start a savings account.
David: Is there anything else you would like to add?
Sandy: We are extremely grateful to you and to Equifax for running the Debt Free Challenge and appreciate the chance it gave our family to pay down our debt and be more financially secure. Thank you so very much!
The Lapp Family!
If you want help paying down your debt, systematically and automatically saving you time and money in the process make sure to begin your FREE 30 day trial of Debt Wise – a revolutionary online debt reduction tool!
Also, I recommend you pick up a copy of my latest New York Times Bestseller, Debt Free For Life. In it you will learn new ideas and tools that will help you become smarter with your money and your debt. You will discover:
In what order to pay your debt down, so you can pay it off faster
A simple legal right you have to walk away from the old debt
How to cut years off your debt repayments—and save thousands of dollars
How to find out what your credit score is—and how to protect and improve it—fast!
A 9 step way to pay down that student loan and sleep well again at night
The truth and hype about debt settlement, and whether it is right for you
How to lower your interest rates and pay down your credit cards—in record time
How to get free “nonprofit” credit counseling services to guide you out of debt
Where to go to find hundreds, even thousands of dollars in free money in less than an hour
An exciting new Debt Wise program that works automatically to help you get out of debt
Congratulations again to Sandy on winning the debt-busting $10,000 from the Debt Free Challenge!
