Posted on 11/27/2011 7:20:54 PM PST by Graybeard58
Credit scores inspire anxiety in many consumers. We can't easily see them, and we don't always know what's lurking behind them. Perhaps that's why there seem to be so many myths and misperceptions about exactly what's in a credit score.
In a recent national survey by Visa Inc. that asked U.S. consumers what factors negatively affect a credit score, plenty of answers were flat-out wrong.
About 25 percent mistakenly thought where they live could hurt their credit score. Others said — erroneously — that their job, their ethnicity or even their age could affect a credit score.
The findings are "dismaying," said Jason Alderman, Visa's global financial education director. But, he added, they aren't altogether surprising.
"People are uncomfortable talking about money, so they perpetuate misinformation by not discussing it with friends, family or at work," Alderman said. "These (erroneous) ideas pop up ... but people don't talk about them, so the myths become solidified."
A credit score is that magical, somewhat mysterious, number that determines so much of your financial life — from what you'll pay on a car loan or mortgage to, in some cases, whether you'll get hired. Typically ranging from a low 300 to a perfect 850, the higher your score the better terms you'll get from lenders and creditors.
Gerri Detweiler, a personal finance expert for Credit.com in San Francisco, says people carry a lot of misinformation about credit scores.
One of the common myths is that getting credit counseling or taking a debt management class is as bad as filing for a Chapter 13 bankruptcy.
"Credit counseling used to be reported in a way that had a negative impact, but it's not true anymore," Detweiler said. Taking a debt management class has never affected your credit, she added.
Another myth: A short sale is better for your credit score than a foreclosure.
"That's not necessarily true. They're both very negative and, depending on how the lender reports them, can have a significant impact on credit scores."
But even the negative factors on a credit score eventually get dropped from your credit history. Things like Chapter 11 bankruptcies, foreclosures, late payments and other hits generally fall off after seven years. Also, the older a negative citation is, the less impact it'll have on your credit score. As credit score site MyFico.com notes, a 5-year-old debt collection will hurt far less than one that's 5 months old.
Credit scores are based on credit reports, the financial history on you as compiled by the nation's three credit reporting bureaus: Equifax, Experian and Trans Union. By law, every consumer is entitled to a free, annual credit report from each of the three bureaus. To request your copies, call (877) 322-8228 or go to AnnualCreditReport.com.
It's a good way to spot any errors that need correcting and to get a snapshot of how you look to lenders, whether it's for a car, a mortgage or a credit card.
According to Visa's survey, 42 percent of Americans don't regularly take a look at their credit score.
"If you don't know where you are on the map, you can't get to where you need to be," Alderman said.
Why does a credit score matter so much? Money. On a loan, a higher score can save you thousands of dollars. For instance, on a 30-year, fixed-rate mortgage for a $250,000 house, a buyer with a credit score below 640 will pay about $258,700 in interest, according to MyFico.com. The buyer with a credit score of 760 or higher will pay only $170,800 in interest over the life of the loan. That's a difference of almost $250 a month.
It's a given that the malingering economy makes it difficult to stay credit-healthy. "If you're struggling, it becomes a harder road to a better credit score. But that doesn't mean you should give up," said Alderman.
If you're having a hard time paying bills, call your creditors to let them know. Ask about getting the minimum monthly payment reduced or stretching out the payments.
This will get your credit history but not your FICO score. For this you have to go to myfico.com and pay for it. No one gives FICO scores for free, except: If you go for a loan and they pull your credit from a bureau, you can ask for a copy that has the FICO score. Bear in mind this is from one of the three bureaus. Most home lenders take the midscore of the three. Auto loans mostly use one bureau, Experian if memory serves, but it might be Equifax.
I should have added to make sure it the FICO score. This is the one the lenders use. Each bureau has their own “score” but it’s not used by lenders.
Considering that FICO and other credit scoring equations are not publicly exposed, no one knows what really affects a credit score. It seems silly that FICO claimed anyone with an 850 score, the highest score, would have no more than a 0.3% default rate for home mortgages, yet, the actual default rate has been 9%, or that paying off a credit account and closing it would actually decrease a credit score. FICO is a joke.
“(Of course Obama loves his country but Herman Cain loves mine.)”
Off topic, but that a GREAT tagline!
Renting a car with a debit card is not much different than using a credit card. With a debit card if you are at your credit limit, you might not be able to rent the car. With a debit card, you have to have enough money in the bank (with no interest payments in my life that is easy).
With both a debit card and credit card, the rental car company will tack on a “reasonable premium” to cover the rental period and potential overages such as fuel and damage to the vehicle.
On the debit card, there will usually be a hold of two weeks on the deposit.
You do have to check around. Not all rental counters accept them even at the same company so you are partially correct a credit card is easier.
Here is a run down off the internet.
■Hertz: You can reserve a car with a VISA/MC debit card and a hold will be placed for an “estimated amount of the rental charges plus a reasonable amount to cover any incidental charge.” No mention of what “reasonable amount” means though.
■Enterprise: Policies appear to vary from location to location so you’ll have to call the rental site for actual requirements.
■Budget: Again, like Enterprise, some locations accept them and some don’t. Under 25 can’t use a debit card though. The ones allow debit cards require a hold for the estimated charges plus the greater of 25% or $300 (or $500 in the Northeast and North Central regions).
■National, Alamo: These companies are both owned by Vanguard Car Rental USA Inc. so they have the same policy of allowing debit cards.
■Avis: They allow debit cards and they will put a hold for the estimated rental charges with a minimum of $500. If you don’t spend $500, the balance will be returned but may take up to two weeks!
■Dollar: They allow debit cards and will put a hold for the estimated amount of the rental plus 15% or a “minimum amount,” which isn’t specified. In that General Policies page, it’s section F. Credit Qualifications/requirement.
■Thrifty: Some locations will allow debit cards and may require a “debit card check and credit inquiry screening,” whatever that means. The debit card must also be a VISA/MC debit card, anything else isn’t accepted.
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