SPENDonLIFE

Weekly Grab Bag - The Fourth of July Edition!

Carrie Davis — Thu, 02 Jul 2009 09:57:34 -0500

Welcome to the Fourth of July edition of the SPENDonLIFE weekly grab bag! Check out some of the latest happenings in the world of credit, all related to Uncle Sam of course. And enjoy your Independence Day weekend!

Uncle Sam has a 645 FICO

What would happen if Uncle Sam walked into a bank and applied for a loan? Well, first, he would need his credit score calculated based on the factors that all the rest of us are judged by. CreditLoan.com did exactly that, and, surprisingly, the number isn't as bad as I would have thought. The US government's level of debt is astronomical, of course, but that's tempered by its ability to pay off debts by simply printing more money. Gotta love good ol' inflation.

How to celebrate the Fourth, frugally of course

The Debt-Free Scholar offers five fun ways to show your patriotism without breaking the bank this weekend. In fact, these decorating ideas can be used year after year, so they're really just a one-time investment. High-five Uncle Sam!

The US savings rate reaches a 15-year high at 6.9%!

The latest Commerce Department reports show that we’re saving more than ever (well, more than ever since 1993, that is). Free from Broke discusses the pros and cons of this impressive all-American savings comeback.

New government bill aims to cap interest rates

Some US politicians up on Capitol Hill are pushing for further credit regulation beyond the recently passed CARD Act. Senate bill S. 582, known as the Interest Rate Reduction Act, would extend interest rate caps to protect credit union members from "loan sharking" practices and excessive fees. Denise Richardson of Give Me Back My Credit explains how you can support this legislation, and what else you can do to protect yourself from interest rate spikes.

Yikes! Is our country a ticking time bomb?

USDebtClock.org sure makes it out to be. My eyes start to cross as I see the rapidity with which our nation’s debt levels are rising. The clock was designed to clearly show the "balance sheet" of the United States of America and is continuously updated with the most accurate debt information available. As its creators say, "America is a proud country with a long history of overcoming insurmountable problems. The debt crisis that the Government and individuals face is the most pressing issue of our time. We must begin to confront this challenge head on and not squander away the future financial health of the nation." United we stand!

Google Clarifies its Use of FICO Credit Scores

Carrie Davis — Wed, 01 Jul 2009 09:57:42 -0500

Yesterday we posted about Google's recent ability to determine users' credit scores based on which websites they visit. There weren't a lot of specifics available how exactly this worked or how the information would be used, so we were happy to get Googler Sandra's clarification on it. Here's what she says:

"Google is not – and the research company Compete is not – estimating individual credit scores, and Google is absolutely not in the credit scoring business (nor is Google scoring consumer credit at all).

* Google has not seen, and will not see, individual FICO scores.

* The methodology of the research was as follows:

Compete conducted a clickstream analysis on their opt-in panel of 2 million US online consumers, to associate FICO score categories – not individual scores – with sites in the Google Content Network.
The analysis took a look at the online behavior of Compete's opt-in panelists who shopped for or applied for a credit card online between January and March 2009, for the 30 days prior to the application and/or research.
Compete segmented panelists by credit score into one of three FICO score bands – Super Prime (720 and above), Prime (600 to 719), and Sub-Prime (below 600).
Individual scores and personally identifiable information were not used by Compete, nor were they received by Google. Google provided Compete with a list of all sites in the Google Content Network.
Compete compared how panelists in each FICO band searched and where the panelists spent time on the GCN, and ranked each GCN site based on its ability to reach consumers in particular FICO score bands.
Google received information about the scoring of the GCN sites from Compete.
The planning tool is essentially a list of sites scored based on the specific demographic they best reach; the scoring is calculated from aggregate, anonymous data – culled from opt-in panel participants – by Compete.

And just to reiterate: There are no plans for Google to use FICO-related targeting for any of its products or offerings, and we don't collect or serve ads based on personal information without user permission."

Is Google the New Credit Bureau on the Block?

Carrie Davis — Tue, 30 Jun 2009 14:54:32 -0500

Google is now determining my credit score.

But unlike lenders, credit bureaus, and FICO, the internet behemoth isn't basing my score on my payment history or level of debt. It's basing in on the websites I visit and the terms I search for.

By tracking my internet behavior, Google says it can clump me into the Super Prime (720 and above), Prime (600 to 719), or Sub-Prime (below 600) credit score group.

And the survey says...

Google, the largest search engine and ad-space broker on the internet, has partnered up with Compete, an analytics company. Together, they've studied the web behavior of two million people who have volunteered their credit scores. (Why you would ever volunteer your credit score information in the name of market research is beyond me.) In any case, Google claims it can use this behavioral research to identify web users with good, mediocre, and poor credit.

In fact, Google's senior industry marketing manager Masha Korsunsky asserts that Google can now target 70% of credit card applicants who have a high FICO credit score, 87% of those applying for mortgages who have a high FICO, and 90% of small business site visitors who have a high FICO.

Based on the new research, Google now claims with a scary degree of certainty that over 50% of people who shop for credit cards online have a FICO score of at least 720. This Super Prime segment of the population apparently takes its time shopping for credit, often performing more than five searches with terms like "best credit cards," "low rates," and "travel rewards." Those with FICO scores below 600, on the other hand, are hastier in their credit card searches (presumably because they are more credit-hungry).

Does internet behavior really signify a credit score?

Personally, I don't buy it. Google may have done a ton of research tracking two million people, but it scares me to think they are estimating my credit score--and communicating it to marketers--based on my internet behavior alone. I just don't think that's a fair or accurate measure.

This practice seems to me no better than a carnival trick in which a "psychic" says she can guess your age. Sure, my physical appearance offers plenty of clues, but what proof does she have? Absolutely none. Even if my shirt says "It took me 60 years to look this good," the guesser hasn't seen my birth certificate. Nor does she know if I'm exactly 60, or perhaps a more seasoned 65. And if she does guess my exact age, I'd chalk it up to luck.

And the guess Google has to make is even easier. There are only three credit score buckets in which to dump us: Below 600, between 600 and 719, or above 720.

Google might guess right, and our internet behavior might even provide clues, but that doesn't mean there is a direct link between our internet behavior and our credit scores. Google shouldn't be assuming our credit scores based on internet behavior. A search engine simply has no business being in the credit scoring business. Just because it has commissioned a huge amount of behavioral research doesn't mean it is now the fourth credit bureau on the block. (Now, if it was to partner with an existing credit bureau, then we'd all be in trouble. But thankfully that hasn't happened...yet.)

How will marketers use this information?

It's not clear exactly how Google is going to capitalize on this new credit score research. It will most likely overlay these credit score assumptions about us into its ad network, selling advertisers on the idea that they can now reach consumers within certain credit score ranges.

But before marketers get too eager about being able to target a demographic based on credit score, they should remember that plenty of wealthy people out there have horrible credit history, and plenty of poor people have 700+ scores.

Nevertheless, if Google deems you to be in the Super Prime crowd, don't be surprised if you start seeing more text and display ads for luxury products and platinum credit cards. And if you're in the Sub-Prime category? Well, you should probably beware of an increased number of get-rich-quick schemes, high-interest credit cards, and other sketchy opportunities. Many companies out there are incredibly eager to advertise to those in financially desperate situations. And Google has just provided one more way for them to do that.

Read Google's response to this post here.

Here, Piggy Piggy! Credit Score Butcher Chart

Ryan Smith — Mon, 29 Jun 2009 09:31:42 -0500

Copy the code below to put this image on your website
<div style="width:600px; text-align:center"><img src="http://www.spendonlife.com/sites/spendonlife.com/files/img/illo_credit-score-butcher-chart.gif" alt="SpendOnLife.com Credit Score Butcher Chart" width="600" height="1330" /><br /><p style="font-family:Arial, Helvetica, sans-serif; font-size:small; margin:0; padding:0;">InfoGaphic by <a href="http://www.spendonlife.com/blog">SpendOnLife.com</a></p><br /></div>

We're always thinking up new ways to explain credit to our readers in fun and interesting ways. Hence our latest effort: the Credit Score Butcher Chart, for all you ham lovers out there. This tongue-in-cheek chart compares the five factors used to calculate your credit score to the five main parts of the pig. We hope you get a kick out of it...Let us know what you think!

Friday Grab Bag - 6/26/2009

Carrie Davis — Fri, 26 Jun 2009 11:29:23 -0500

It's Friday again, and that means it's time for the weekly SPENDonLIFE grab bag post. Here we share some of the week's more interesting tidbits from the world of credit and identity theft. Enjoy!

Jar o' Shredded Credit

Not the Jet Set, through its Financial Peace University course, is encouraging heavily debt-saddled peeps to give up their credit cards to the almighty glass jar. For those without the discipline to keep their credit cards in their wallets, we at SPENDonLIFE agree that shredding is the way to go. Just remember that calling your credit card company to cancel your account can hurt your credit score. Reducing the amount of credit available to you reduces your utilization rate and stunts the length of your credit history. So cut up all you like, just don't cancel.

How much house can $10,000 buy?

Jim at Bargaineering showcases what $10,000 can get you in five different cities, from Baltimore to Las Vegas. Sure, most of us would never ever want to step foot in these homes, much less live in them, but it's still interesting to check out. And the one in Detroit doesn't look so bad...

Recession Toolbox

FiscalFizzle has rounded up 22 posts from its archives, and all offer help during these difficult economic times. Whether you need ideas for cheap dates, ways to make your brown bag a little tastier, or just some quotes to stay positive after a layoff, Fiscal Fizzle's got your covered. Take this little nugget, for example: "When the winds of change blow, some people build shelters, and some build windmills." – Chinese proverb

Freeganism takes frugal living to the extreme

Everyone is talking about ways to be frugal these days. But apparently being frugal doesn't hold a candle to being Freegan, a lifestyle that's been around since the mid-90s. Matt at MyFinancialRecovery talks about how these so-called Freegans take frugality to the next level: They dumpster-dive for food. Freegans profess an anti-consumerist, anti-waste lifestyle, and make it clear that they don't forage for food out of need, but rather to make a political statement. What do you think? Crazy activists or fearless leaders fighting against a wasteful, capitalist culture?

Turn life's tough decisions over to Hunch.com

I just heard about a new website - Hunch.com. It's like the internet's answer to the magic 8-ball. Hunch first asks a bunch of non-personal--though incredibly scientific and important--questions to get to know you (for instance, “Do you think alien abductions are real or fake?”). Based on your particular personality and worldview, Hunch then makes decisions for you about almost anything, including which credit card to apply for. Of course, Hunch is all in good fun, but that doesn't mean it can't point you in the right direction.

My Credit Journey - Finally, a Mortgage!

Tiffany Garden — Thu, 25 Jun 2009 11:21:58 -0500

This is the third installment in Tiffany Garden's Credit Journey series, in which she talks about taking her credit score from rock bottom to mortgage ready. Read Part I here and Part II here.

I did not expect to be thinking about a mortgage so soon, but when you live in a house as small and filled with people as I do, changing your living situation is pretty much first and foremost on one’s mind. And due to the number of pets we have, renting really wasn't an option.

So after buying my car, I started looking into what I'd need to do to get a mortgage. The first thing that had me cursing was the fact that I couldn't ride the wave of my boyfriend’s 700 credit score, since I'm the primary wage earner. That was a bit of a kicker.

Then came the mortgage crisis

Because I had a lower income year as I was ramping up my business (I'm self-employed), I was looking into a stated-income loan based on the last six months of my income. That would have gotten me a mortgage with a comfortable DTI (debt-to-income ratio), and I would have been able to move into a new house fairly quickly.

Then the mortgage crisis happened, and stated-income loans went out the window (along with other options that made it a bit easier for self-employed borrowers). I said a lot of not-so-nice words that were mostly four-letter in nature, and then went on to Plan B.

Plan B required me to wait another six months, and then go the traditional two year's income average route. I was still hampered a bit by the lower income year, but not so much that I couldn't get a house within my price range.

A blessing in disguise

I watched as house prices dropped like a rock, and the interest rates followed them down. Although I was annoyed at the wait (because I am really not a patient person by nature), it has ended up benefiting me financially. Since a stated-income loan was out of the question, and a conventional loan was just barely beyond my reach, I put my eyes on the FHA loan.

The FHA loan is a government-backed loan that tends to have a slightly higher interest rate than a conventional one (along with higher closing costs), but it accepts credit scores as low as 620 without rate increases.

My down payment

The other big advantage to the FHA loan is that it allows the borrower to put down as little as 3.5%. I could certainly do a much higher down payment. But if there's one thing I've learned over the years of struggling with my credit, is that it's better to have a safety net at first because you’ll probably need it later. Not putting as much money down will cost me more in the long term, but it will also save me from having to put home repairs on my credit card (like if the furnace spontaneously explodes, which would be just my luck).

House hunting

At this point, I've been through automated underwriting which went through without a hitch (color me surprised). Now I'm just trying to find the home of my dreams. There are plenty of nicely affordable houses in my area, but finding just the right layout and features is taking more footwork than I expected.

Given that only a few short years ago my credit score was in the 400s, I'm amazed beyond belief that I'm actually at the point that I can own my own home. What a journey it's been...Now if only I could just get a credit limit higher than $1600 on a card!

This guest post was contributed by Tiffany Garden. Tiffany is a freelance writer who has a love / hate relationship with credit, and isn't afraid to say so.

SpendOnLife Launches Twinancial to Aggregate All Personal Finance Tweets

Ryan Smith — Wed, 24 Jun 2009 14:20:03 -0500

It seems like everyone is Twittering these days and we at SpendOnLife are no different. In fact, we encourage you to give us a follow @SpendOnLife and join in on the conversation.

If you’re like us, you sometimes find Twitter a little overwhelming. So many people are talking about credit and personal finance (the topics that we at hold closest to our hearts here at SpendOnLife). But it’s not just the authorities within the community that are having these discussions. It’s everyone.

The amazing thing about Twitter is you can use it for so many things, including helping those that have personal finance on their minds but may not know where to look for answers. The problem is, how do you find and connect with those people?

The answer for us was to build an internal tool called Twinancial (Get it? Twitter + Financial = Twinancial?) We knew we wanted to do three things:

#1: Assist people who had personal finance questions and concerns.

#2: Find like-minded tweeps.

#3: Connect with the community as a whole.

After using this tool internally for a period of time it became apparent that others might find it useful. So with that said, we have decided to release Twinancial as a public beta. Our hope is that the community will benefit from this and we can make substantial improvements to the current tool. Twinancial is and always will be free to use and requires no membership signup.

So what exactly is Twinancial you ask?

Tweet Stream

The tweet stream you see on each page is a current listing of tweets organized by category and terms. Twinancial monitors Twitter for individual words and phrases and then categorizes each of them. You can select a category to browse from the right hand navigation or you can select an individual term from the term cloud. This way you can monitor a specific term or a whole category without having to follow everyone on Twitter and sift through hundreds of thousands of tweets.

RSS Feeds

If you have certain terms or categories that you want to follow on a regular basis the RSS feeds are a lifesaver. Each category and term has its own feed which you can subscribe to. The subscription links are located in the top right navigation bar of each individual category or term page. This should help you to more easily integrate Twitter into your daily reading.

Top Users & Links

The Top User section is based on the volume of relevant tweets that a user makes. The Top Links is based on the number of times those links are used in the tweets we aggregate.

So there you have it. As we mentioned, this is definitely a beta so please let us know if you find any bugs. Also, what you would like to see changed to make the tool more useful to you? Are there features you want to see? Terms you want monitored? And don’t forget to let us know how you are using the tool. There are probably plenty of uses for it that we haven’t thought of yet. You can leave your feedback below or email

Lastly, we are considering releasing the code as open source so that other people and communities can take advantage. If you would be willing to contribute to such an open source tool, let us know. The more interest we have, the more likely it is to happen.

Building a Credit History

LaToya Irby — Wed, 24 Jun 2009 12:31:29 -0500

A lot of people just starting out with credit don’t have a clue how to build a solid credit history. People rebuilding a bad credit history are slightly better off, knowing more about what not to do. People rebuilding a bad credit history are slightly better off, knowing more about what not to do. Start here to learn how you can build a good credit history.

Get some credit

You can’t build credit without some type of credit account. In fact, the FICO scoring system can’t give you a credit score unless your credit report includes at least one account that’s six months and has been used within the past six months. If you don’t already have a credit card try getting one from the bank where you have your savings or checking account. Retail credit cards, though they have higher interest rates, are often easier to be approved for, especially if you’re new to credit or trying to rebuild credit. A final option is to get a secured credit card which requires you to make a deposit against the credit limit.

Make small, affordable charges

Once you have a credit card, start using it. If you just leave your credit card in your wallet, the issuer might close it because of inactivity. When you use your credit card, avoid maxing it out because that can actually hurt your credit score. Instead, make small charges that you can afford to pay in full by the time your billing statement comes.

Pay your bills on time

Payment history is the most important part of building a positive credit history. Late payments damage your credit score and make it harder to get credit cards and loans in the future. Make sure you keep up with your payment amount and due date so your payments are received on time. In fact, it’s a good idea to send your payment a few days in advance of the due date to be sure your credit card issuer gets it on time.

Keep new applications to a minimum

When you’re building or rebuilding credit, it’s best to limit your applications for new credit. Each new application for credit puts a small ding to your credit score and makes new lenders think twice about giving you credit. That’s because too many credit applications can make you look desperate or irresponsible or both.

You can gauge your credit progress by checking your credit report at least once a year for free at www.annualcreditreport.com.

My Credit Journey - Moving On Up

Tiffany Garden — Wed, 24 Jun 2009 12:28:48 -0500

This is the second installment in Tiffany Garden's Credit Journey series, in which she talks about taking her credit score from rock bottom to mortgage ready. Read Part I here.

Months of ignoring my student loan bills had taken its toll on my credit report. The cold bucket of credit reality had been poured over me, and I spent the better part of a year trying to straighten up my score.

My business, though, couldn't have been doing better, and I wanted to celebrate by investing in something for myself that I had needed for quite some time — a car. Shiny new wheels would be the perfect way to celebrate the fact that I had gotten my credit score up to 630.

My credit file was as close to perfect as you could ask for at a car dealership. I was putting a hefty chunk down on one of their premium sports cars (I couldn’t help myself!). It was plenty marked up, but I had a low DTI (debt-to-income ratio), and my income had been steadily increasing since the inception of my business.

From the 400s to the 600s

So I had four tradelines — my credit card, my car loan, and my two student loans. All had fairly solid (though short) payment histories attached to them. I also still had a collections account (listed as paid) included on my report. Nevertheless, my score was moving on up into the mid 600s. Given that just two years prior I was in the 400s, you can see why I was happy with my progress.

At this point, I wanted to really start pushing my score up as high as I could (I was becoming somewhat credit-score obsessed!). I started to read about the various methods one could use in order to really boost their score, like utilization and diversification.

Utilization

Utilization (often called your debt-to-credit ratio) was an easy one for me. I didn't (and still don't, actually) have that much of a limit on my card, so it's not like I was using it all that often anyway. Just enough so that it continued to be considered an active card in the eyes of the credit reporting agencies. Therefore, I had a really low debt-to-credit ratio.

Later on when my credit card limits increased, utilization became more of an issue. I started to see how a low card utilization helped my score when I went from using 90% of my available limit to 30%. What I'm doing right now with my cards is keeping one at a 5-10% utilization, while the others stay cleared. I just cycle through the cards in this way so that they all stay active — it seems to have helped me get my current score of 670.

Diversification

Diversification, another credit score factor, was a bit of a problem for me. Basically, it means having different types of tradelines on your credit report. It’s said that having a good mix of various types of credit helps boost your score.

I did have revolving and installment debt represented by my credit card and my car and student loans. But I wanted retail credit represented on my credit profile, too. Unfortunately, I had a bit of an issue when it came to trying to get a store card. I mean, I even got denied for Walmart credit. Seriously, Walmart? I was convinced at this point that the credit world just hated me, but I finally managed to grab a Target card.

The exact right mix of account types remains a bit of a mystery. Honestly, I didn't really see my credit score go up that much after obtaining what I thought to be a good blend of revolving and installment loans. For this reason, I don't think diversification is something you should worry about when trying to raise your credit score. Rather, focus on making your payments on time, keep your utilization rate low, and don't go crazy applying for a lot of new credit cards or loans at once (too many applications in a short time period can hurt your score).

Now the only other type of credit I didn't have on my report was a mortgage, but that’s a story for another day.

_______________

This guest post was contributed by Tiffany Garden. Tiffany is a freelance writer who has a love / hate relationship with credit, and isn't afraid to say so.

Obscure Credit Score Facts from Liz Pulliam Weston

Carrie Davis — Tue, 23 Jun 2009 13:59:21 -0500

I listened in yesterday to The Personal Finance Hour, a radio show hosted each Monday by J.D. at Get Rich Slowly and Jim at Bargaineering. This week's episode featured Liz Pulliam Weston, author of Your Credit Score: Your Money and What's at Stake.

Liz covered many of the points that regular Spend On Life readers will already be familiar with, like the 5 main factors that make up a credit score. But there were plenty of other interesting tidbits that went beyond the basics. You can listen to the 60-minute show (I've embedded it above), or simply scan the list of the points I found most interesting (below):

Your utilization rate really only matters when it comes to your revolving accounts (i.e. credit cards), not your installment loans (i.e. car and home loans). Credit card utilization rate makes up 30% of your score, so it's important to calculate yours to see if it needs tweaking.
You won't see a huge jump in your credit score after paying off your mortgage or auto loan. But you will see a big difference in your score after paying off a credit card. This is because credit scores put more weight on how you use your revolving —not your installment —accounts. Though a former FICO exec did call into the show and say that those with excellent credit scores often had several paid-off installment loans under their belts.
Liz has heard anecdotally that being 30 days late on a credit card payment can lower your score by 100 points. Ouch!
After forgetting to return a library book, Liz ended up with a $45 collection account on her credit report. She says that this addition to her credit report dropped her score by 60 points. She disputed the collection account, claiming it wasn't hers. The bureau didn't bother verifying her claim, and simply dropped it from her report. Her score went back up in a couple of months.
If you're building credit from the ground up and don't qualify yet for a unsecured credit card, try getting a secured card. Just make sure that it reports to all three bureaus, and that after a certain number of on-time payments, it converts to a regular credit card.
The optimal number of credit cards to have remains a mystery. Having a lot of cards isn't a bad thing, if you use them properly. If you have only two or three cards, make sure they are with different companies to help protect yourself against across-the-board slashed limits or hiked interest rates.
Business credit cards do sometimes show up on your personal credit report, so if possible, try to make the payments on it yourself to remain in control.
According to Liz, 1/3 of all employers now pull potential employees' credit reports, mainly to judge their likelihood of stealing from the company based on their personal financial situation.
Most people that declare bankruptcy declare it about two years too late. Liz was working with an elderly couple who faced financial difficulties. The couple drained their retirement accounts trying to avoid bankruptcy, only to end up declaring it anyway. Now, they're credit score is ruined and they don't have any retirement funds. Liz points out that many retirement assets are protected from bankruptcy, so if bankruptcy appears imminent or seems to be your only option, don't try to stop it using a 401k or IRA. Rather, declare bankruptcy before draining those funds, so at least you won't have lost everything.