Pens, check. Calculator, check. Notebook, check. Credit card? As kids head back into the classroom, parents of teens may find themselves wrestling with a far-from-academic question: Should you let your son or daughter have a credit card? Thanks to the CARD Act, the question is now more in your hands than ever before.

Lisa Goell Sinicki, owner of a public-relations company in Peaks Island, Maine., says she added her 16-year-old daughter as an authorized user on one of her credit cards early this year so her teen would have a way to buy essentials while spending a semester away from home. The new privilege came with a discussion about responsible spending and the pitfalls of plastic.

“We basically told her if she spent on anything that she didn’t have permission for, we were going to take the card away,” Sinicki told WalletPop in a phone interview. When her daughter succumbed to temptation and spent $500 on clothes, Sinicki didn’t take away the card, but she told her daughter she’d have to find a job over the summer to pay it off. (Sinicki says she paid the bill and let her daughter pay back the initial charges, rather than making the teen also pay for the interest charges that would accrue over a period of months.)

“She also saw how it feels to be working really hard and giving away two-thirds of your money to pay a bill,” Sinicki says. What she characterizes as a minor abuse of the card turned into a valuable lesson for her teen about the consequences of overspending. “We see this as sort of practice for when she goes to college and gets a card on her own,” says Sinicki, adding that her daughter hasn’t bought anything without permission since the incident.

Other parents to whom WalletPop spoke expressed similar ideas: By giving teens a card while they’re still under the watchful eye of Mom and Dad, any poor habits can be caught early and nipped in the bud before they spiral out of control. “Kids are going to be kids, and once they had the cards, they realized how easy it was to swipe it,” says Rory Rowland, a professional speaker and consultant in Independence. Mo. Starting when his oldest son turned 16 a decade ago, Rowland co-signed cards for his kids, requesting a low limit of $500 from the bank.

Rowland says the temptation to swipe was too much for one son, who treated a group of friends to lunch during the last week of school. When confronted, Rowland says the teen was “sheepish,” the thrill gone once his father told him he’d have to pay for that lunch out of his savings when the bill came. Still, Rowland says the experience was a good one.

“I’d rather them make the mistakes under my watch,” says Rowland. “I didn’t want my kids not to have a card, get into their 20s and then destroy their credit by overspending.”

So what’s the best way to go about introducing your teen to both the convenience and the caveats of credit cards? The CARD Act implemented some consumer protections that prevent issuers from marketing on college campuses and issuing cards willy-nilly, says Barry Paperno, consumer operations manager for MyFICO.com. Companies are now prohibited from marketing on or in within 1,000 feet of a college campus, and they can’t use giveaways like T-shirts or water bottles to coax freshmen into signing up for an account. For consumers under the age of 21, getting a card is no longer as simple as just filling out the form. If a teen or college student doesn’t have a job, they’ll have to get an adult co-signer to get a card in their name. If they don’t want Mom or Dad on the account, they have to have a job and provide details about their income.

In other words, parents get a little bit of breathing room, but it’s not foolproof, cautions Paperno. The law doesn’t require that card companies actually verify income stated by a teen, and the rule requiring a credit limit in line with a teen’s income only stipulates that the cardholder be able to make the minimum payment. “You can get into plenty of trouble and still be able to make the minimum monthly payment,” Paperno points out.

As a parent, what are your options? If you don’t have a solid credit history or aren’t in a position to help out your teen monetarily, he or she can get a secured card. These cards require you to put up your own money as a deposit, and they do charge fees, but they’re reported to the credit bureaus just like any other credit card, which makes them a useful tool for building credit. While they have their flaws, they’re good “training wheels” for a teen who might not have the fiscal discipline for a conventional credit card.

If your teen is responsible and if you’re financially stable enough to help them out if they do slip up, you have two options, says Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling. You can open a joint credit card on which you and your teen are both account holders, or you can add him or her to one of your existing accounts as an authorized user.

“I recommend to parents not to open a new card and co-sign but to add their child as an authorized user,” says Cunningham. “That way, you’re in charge. You can monitor the account at any time, and you can take away the privilege if you need to.”

Whichever route you choose, it’s important to talk to your teen in detail before handing over the plastic. Cunningham recommends drawing up an actual contract with a monthly spending limit, appropriate categories of spending, and possibly even limits on categories in which you think your teen might be tempted to spend more than you think they should (clothing, music downloads and so on). Spell out who pays the bill and if the teen will be responsible for their discretionary purchases.

Also spell out the consequences if they fail. Do you want to be a one-strike-you’re-out parent or a more lenient one? Cunningham points out that a young adult who goes out into the world with a so-called “thick” credit file (three or more open accounts) is better off than having no credit history, so you might want to consider the option of taking the card away for a period of time without actually closing the account.

What about who pays for any spending lapses? Do you bail them out or not? Dorothy Guzek, group manager and financial counselor at Farmington Hills, Mich.-based nonprofit debt-counseling organization GreenPath Debt Solutions, says this decision should be based on your teen’s maturity level and the nature of the infraction. (A one-time movie ticket purchase is very different from a month’s worth of pizza dinners.) It should certainly be discussed beforehand, and Guzek says it should not be a recurring action. “Bailing them out time after time won’t teach them to become financially independent,” she says.

The most important thing is to maintain a dialogue with your teens about their use of credit cards, Guzek believes. “I feel that parents should have this talk early. It really needs to happen before they leave the house for college or to move to their own place,” she says. “They need to monitor what’s going on. Once it gets out of control, it might be difficult to mentor the child about good spending habits.”

Guzek says she sees many young adults in her office, deeply in debt, who say they were never taught how to use a credit card wisely. She urges parents to start their kids off on the right foot by displaying good credit-management habits themselves.

“Young adults watch their parents, and they can pick up good habits and bad habits,” she says. “That’s something even an eight-year-old is learning.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

#1: Closing an account
People often decide to close a credit card account for one of two reasons. One, they think they have too many cards and that closing one will increase their score. Two, their credit limit has been decreased and they decide the card is no longer useful to them. But whatever your reasons are, closing an account can lower your score.

“There’s a misconception that having too much available credit lowers your score. FICO scores don’t take this into consideration. But when you close an account, it can often raise your utilization rate and that can lower your score,” says Barry Paperno, Consumer Operations Manager for myFICO.com.

Your utilization rate is the ratio of your credit card balances to your credit limits. For instance, let’s say you have two cards and one has a zero balance and one has a $1,000 balance. If each card has a $2,000 limit, your total limit (across both cards) is $4,000. Your utilization rate is $1,000/$4,000 = .25, or 25%. Not fabulous, but not too bad.

Close the account with the zero balance and your utilization rate jumps to 50% ($1,000/$2,000). Obviously, the amount of the impact on your score will vary according to your individual circumstances, but since the utilization rate may account for almost 30% of your score, you’re FICO score will probably take a negative hit.
Trap #2: Maxing out your credit cards
Many consumers make the mistake of thinking that their credit limit is an invitation to spend until it’s gone. Now that you understand utilization rate, you probably now understand why maxing out your cards is a problem. Let’s look at our example from #1 again. If you max out your two cards, you’ll have a $4,000 balance with a $4,000 limit. It’s doesn’t take a math genius to quickly figure out that your utilization rate is now 100%.

Your FICO score will take a hit. How much? “It depends on a lot of variables, including what your FICO score was before you maxed out your cards,” says Paterno. myFICO.com recently did a comparison of how much a score drops when one individual has a FICO score of 680 and the other individual has a FICO score of 780. Maxing out credit cards was one the “missteps” they used in the comparison.

Results showed that the consumer with the 780 score experienced a 25-45 point drop and the score fell into the 735-755 range. The person with the 680 score saw only a 10-30 point drop and the score fell into the 650-670 range.

#3: Making late payments
One problem with making late payments is that, depending on the terms and conditions of your card, you might trigger the penalty APR. The other problem with a 30-day or more delinquency is that it can make your score drop like a rock. “Someone with a 780 score could experience a drop of 100 points or more with a 30-day delinquent payment. If your score is in the 680 range, expect to lose about 60-80 points,” says Paterno. Now, if this late payment stretches into collections, then expect a really big drop.

#4: Impulsively opening accounts to save 15%
This happens every holiday season, doesn’t it? Whether it’s a Labor Day sale or Black Friday, you’re standing in line in your favorite department store holding a lot of merchandise, and then the cashier tempts you with a “get 15% off if you open an account today” offer. When you open a new account, this results in a hard inquiry, which affects your score. But that’s only part of the problem.

“Typically, inquiries knock only about five points off your score. The bigger problem is opening an account with a high interest rate and putting yourself in a situation where you get behind on a payment,” says Paterno. If you’re on the bubble between having good credit and excellent credit, those five points can mean a lot. And of course, if you end up with late payments, matters deteriorate from there.

#5: Not understanding the importance of the length of credit history
This mistake often ties into the #1 mistake on this list. Sometimes when people close a card, they close one they’ve had a long time. The length of your credit history makes up 15% of your FICO score. Now, FICO scores are calculated based on the average length of time you’ve had your credit cards. The score considers both your current accounts and any closed accounts still included on your credit report. Credit bureaus typically keep account histories on your credit report for years after you close the account or pay off the loan. “If you close a card you’ve had for ten years, this can eventually bring down the average length of your credit history,” says Paterno.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

That magical date has finally arrived. As of August 15, banks now have to ask you whether you want to opt in or opt out of overdraft protection.

If you haven’t made a decision yet, no need to panic, the bank, or rather, the Federal Reserve, has made the choice for you: You’ll no longer have overdraft protection at your bank when you make purchases with your debit card. So if you end up going to get a burger at a fast food restaurant and you don’t have enough money in your account to pay for it, your card will be declined. In the past, you’d get the burger — and a $30-something fee.

This new rule applies to debit card purchases only. The bank can still automatically charge you an overdraft fee for non-sufficient funds on a check or an automatic withdrawal for, say, your car insurance.

If you’re still on the fence about overdraft protection on your credit card, it might be worthwhile to think about the pros and cons. And while I had a hard time coming up with any truly good reasons to opt in for overdraft protection, I’ll try to make an argument for doing it, just so you can look at the issue objectively.

Why you should think about getting overdraft protection:

While the stakes are pretty low that your opportunity to eat a burger might be sidelined because your card is declined, what if you’re somewhere far away from home, low on gas, and your debit card is declined? Then you could be in a pickle. Or what if your child was sick and you’re at the pharmacy in the middle of the night, and your card is declined? Again, not a situation you want to find yourself in.

The thing is, anybody — especially someone who works for a bank — can drum up some logical scenarios why overdraft protection sounds like a smart idea. I mean, you should always have a back-up plan, some insurance in case something goes wrong with your account, right? And that’s what overdraft protection is supposed to be. It’s a way of ensuring you won’t run out of money. But you have other options. For instance, there’s the obvious: putting money in a savings account — or even stuffing some petty cash into a shoebox and putting it way up high on a shelf, just in case you need it.

Why you should opt-out:

It can be easy to forget that if your overdraft protection kicks in and the bank allows you to make your purchase, you have run out of money, and now you’re taking out a loan from the bank. They’re fronting you the cash for that medicine or burger and then charging you something like $37.50 on top of it. And since you have to pay back the cost of the medicine or burger plus that $37.50 right away in order to use your debit card and avoid more fees, it’s not even a very good loan. I hate to say this, but most payday loan services have better terms.

“Let’s say you make a $100 purchase but are overdrawn,” says Jason Biro, the founder of the nonprofit Saving Your American Dream and author of the Saving Your American Dream: How to Secure a Safe Mortgage, Protect Your Home, and Improve Your Financial Future. “Your bank charges you $30. Essentially, you’re being charged 30% interest for this one transaction. In this particular case, if you really need the item, you’d be better off charging it to a credit card.”

And while not everyone has a credit card these days and some of the truly financially desperate are living paycheck to paycheck, I can completely understand why it might seem like a good idea to have that overdraft “protection.” But I know from experience that, especially if you wind up with several $37 fees at one time, overdraft protection just winds up making a bad situation much worse. Usually, you’re trading a short-term money problem for another, bigger money problem.

Overdraft protection protects the bank. I don’t think it does much to protect a customer. And for the record, yes, I have opted out.

Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, calls people who rely too much on overdraft protection “serial overdrafters.” According to Cunningham, these serial overdrafters “would defend their actions by saying that their purchases are legitimate, and they can’t be caught in a situation where they can’t buy groceries, medicine, etc. However, that begs the question of how people survived before overdraft protection existed.”

If you’re worried, Brio, who has opted out himself, points out that you can ask your bank to link your checking account to another account at your bank. That’s what he’s done. Then if you run out of money in your checking account, assuming you have some backup money in the other account, you’ll be protected. Some banks will still charge you an overdraft fee for using the money in your other account, but it’s a much lower fee, somewhere around $5 to $10.

If you’re still thinking that maybe you should opt in, look at it this way: “Many believe,” says Cunningham, “that the banks launched extensive campaigns to encourage people to opt in to overdraft protection, with those campaigns targeted at the very people who can least afford the fees.” If you’ve paid a lot in overdraft fees already and are strongly considering opting in, maybe that means your bank’s mind games have been successful at persuading you.

Obviously, when it comes to your money, you’re the one who has to decide what’s best for you — your bank can’t decide for you. Fortunately, that magical date I referred to isn’t really magical. It’s not like on August 15, everything is set in stone forever more. If you opt in and ask for overdraft protection and are later hammered with overdraft fees, see the light and regret your decision, you can always reverse it — and opt right back out.

Geoff Williams is a frequent contributor to WalletPop.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

Once you learn your credit score and commit to improving it, you can make big gains with simple behaviors.

Whether you graduated school last week or last decade, you still have a very important grade to worry about: your credit score. This magic number is essentially a measure of how financially reliable you are and helps determine whether you can get a credit card, car loan, mortgage or other credit product — and it affects the interest rate you’ll face on your debt.

A high score will get you better rates and big savings. The FICO (NYSE: FICO – News) score, the most widely used model, ranges from 300 to 850. If you hit 760 or higher, you’ll earn an average rate of 4.6% on a $300,000 30-year fixed-rate mortgage. Scores between 620 and 639, however, fetch a rate of 6.2%, on average. So those top marks could save you nearly $300 on monthly mortgage payments, or more than $3,500 a year.

The Challenges of Earning a Good Credit Score as a Young Adult

Earning a good score is less about your net worth and more about how you manage the money you have. In other words, there’s plenty you can do to alter your score, and the sooner you start working on it, the better.

Unfortunately, fewer candles on your birthday cake means fewer opportunities thus far to prove your creditworthiness. “It does take a certain amount of credit history to develop a high FICO score,” says Barry Paperno, consumer operations manager of MyFico.com. “Anybody who’s new to credit is going to have a little difficulty getting a loan, particularly with credit products that require a very high score.” In fact, according to a recent survey from FindLaw.com, a consumer legal Web site, 18- to 34-year-olds are more than twice as likely to be turned down for a loan as any other age group.

That’s bad news for my hubby and me. Like many young newlyweds, Dave and I are aspiring homeowners. And I worry that our credit scores — specifically mine, as we discussed in our first money talk — will keep us out of our dream house. We’ll have an especially tough time getting a good rate with today’s tightening credit standards. “What you could have gotten with a 740 in the past, you now need a 760,” says Paperno. “If you’re working your way slowly up the credit-score ladder, it’s going to take you a little longer.”

We’re still a couple years away from saving enough for a down payment, so we have plenty of time to boost our scores and improve our chances of earning the best mortgage rate.

The 2 Most Important Practices in Building a Strong Credit Score

To pump up your own score, I invite you to join me in focusing on the two fundamental practices that have a big effect on credit scores:

1) Pay your bills on time, every time. Payment history is the biggest factor in your scores, counting for 35% of your FICO score and 32% of your VantageScore. So paying your bills on time can be a big score booster.

Since first tracking my credit score three years ago, I’ve focused on paying every bill on time. Sure, I slipped up once or twice along the way, but my score now stands more than 130 points taller. As my dad always taught me, though, I can never rest on my laurels: According to MyFico.com’s simulator, if I miss even one payment in the coming months, my score could drop by nearly 100 points. “When you have a very limited amount of credit experience, the good and the negative tend to be more magnified,” says Paperno.

To ensure your payments are timely, sign up for reminders from your lender. If you use Mint.com — our favorite budgeting site — you can opt to get alerts via e-mail or text message for all your bills as the due dates approach.

2) Use available credit sparingly. The second biggest influence on your score is your credit-utilization ratio. Maxing out your cards is a big no-no, even if you pay them off every month. Since December, for example, when I had last checked my FICO score, I’ve paid special attention to limiting my new spending with an eye on my overall credit utilization at all times. That action alone already has hiked up my score by more than 50 points.

But you need to strike a balance. Locking up your cards and using no credit at all can also have a negative impact. “What’s important to show is that you use credit and you use it responsibly,” says Paperno, who recommends keeping a ratio in the single digits to get the best score. For example, FICO “High Achievers” — the goody-two-shoes with scores of 760 or more — use 7% of their available credit each month, on average.

Likewise, canceling a card — say, because credit-card companies are raising rates and imposing crazy fees, including extra charges for not even using your card (seriously) — may harm your score mainly because it would alter your credit-usage ratio.

For example, if you have two cards, each with a $1,000 limit, and you’ve charged $500 on one card and left the other card untouched, your ratio would be 25%. Closing the unused card would immediately bump your usage up to 50% and likely knock down your score.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

After Twelve years in business, Credit Bureau Experts has a good understanding of what helps fix problem credit reports. Over 70 percent of reports have some inaccuracy.

Credit Bureau Experts announces its expansion! After 12 years of helping consumers repair their credit records, Credit Bureau Experts has the need to expand. Due to high demand and increased awareness of the flaws in credit reporting, Credit Bureau Experts must expand its ability to support unprecedented growth. “This is especially gratifying since Credit Bureau Experts gets over 90% of its new business from referrals from both existing clients and former clients,” said David Harris of Credit Bureau Experts.

Credit repair is a legal right in the United States. Enlisting the right third party company to help isolate and fix inaccuracies in a credit report is very likely to speed repair and ensure it is done right. Any misstep can set the repair process back a long way.

People with inaccuracies in their credit profiles can find themselves without access to the funds they need to expand a business, get a student loan or buy a house or car. Since 1998 using proven, client-specific methods Credit Bureau Experts has enabled countless people to get out of seemingly hopeless situations.

“Our system works because it’s based on painstaking investigation and years of experience in our field,” said David Harris of Credit Bureau Experts. “Most companies use a completely automated system to keep down their costs and minimize the time they spend on each client, but that is a dangerous process. In fact, just relying on automated requests for your credit report can lower your credit score all by itself. We make the requests in a manner that will do no harm to a credit score,” Harris said.

Credit Bureau Experts employs dedicated professionals who are thoroughly trained, tested, monitored and retested to ensure they know exactly where to look for problems and how to fix them. They are experts at deciphering consumer’s credit reports to see just how errors are being reported and the most effective ways to correct them.

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Now here’s a real worry for the Federal Reserve. According to the Associated Press,25% of Americans have a credit score below 600.

A score below 600 automatically puts you in an unwanted category. If you happen to fall below 600, forget about buying a house. Lenders and landlords will look at your FICO score before renting and really don’t care what the reason is for the low score.

If a person declares bankruptcy, it will drive the score even lower. A low score may take as long as seven years to repair. Sometimes one late payment can affect a credit score.

Another big factor is the size of the credit line. When banks automatically cut credit lines for millions of customers, they automatically caused credit scores to plummet.

At the moment 620 is the magic number. You will will have free access to your credit score when the new financial reform bill becomes law. You can ask for a free credit report and a free credit score.

There are free debt management plans. The National Foundation for Credit Counseling can help people to space out their debt payments. There are also credit repair companies. However, you should be extremely careful. Many of these companies are scams. You can contact creditors on your own, but again, beware; your credit score will take a hit.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

Having super-high credit scores can make your financial life a breeze – helping you earn a VIP pass to the best interest rates and terms on credit cards, mortgages and loans of all kinds. A stellar credit rating can also help you land a job or a promotion, save money on insurance, and get approved for that apartment or condo you want to rent. Despite all these benefits, however, most people understand precious little about credit scores, how they work, and what can be done to improve them.

To help you get up to speed fast, here’s a quick primer on credit scores, based on eight common credit questions:

1. What exactly Is a FICO credit score? FICO scores get their name from Fair Isaac Corporation, the Minneapolis-based company that creates FICO scores. All FICO scores range from a low of 300 points to a high of 850 points. While there are various types of credit scores in the marketplace, FICO scores are the most popular, with more than 90% of top banks in America using FICO credit scores when checking a consumer’s credit history.

Your credit score serves two purposes. First, it summarizes how well you’ve handled past credit obligations by giving you a three-digit credit score, which is the equivalent of a financial grade. Additionally, your credit score tells prospective lenders how likely you are to repay (or default on) credit or a loan in the future. The higher your credit score, the more statistically likely you are to repay your bills on time. The lower your score, the more likely you are to pay late or default on a debt.

2. What’s considered a “good” credit score these days? Before the credit crunch, a credit score of 620 was high enough to get you approved for mortgages and most loans. Nowadays, many banks consider a FICO score of 700 and above to be a “good” credit score.

In my forthcoming book, Perfect Credit: 7 Steps to a Great Credit Rating, I offer the following guidelines:

If your FICO score is . . . Then your credit is:
760 – 850 Perfect
759 – 700 Good
699 – 650 Average
649 – 620 So-So
619 and below Poor

3. What does it mean if I’ve been told I have no credit score? What can I do about It? If you’ve heard that you have a “thin” credit file, “no credit file” or “no credit score,” it’s likely due to one of three causes:

You’ve never had any credit. This would be the case if you’ve never had a traditional credit account, such as a car loan or credit card. Or perhaps you opened one many years ago, but you’ve long since stopped using it and your entire credit history has been dormant for many years.
You just recently established credit. Another possibility: You may have actually had credit extended to you, but it was established so recently that the account isn’t yet being reported by your creditor or tracked by credit bureaus. According to the three major credit bureaus (TransUnion, Equifax and Experian), it can sometimes take as long as four to six months for newly opened accounts to be reported to the bureaus. In the meantime, try not to worry too much about it; those accounts should be reported soon.
Someone thinks you’re dead. No, seriously. The Social Security Administration supplies something called a “Master Death Index” to credit bureaus, other businesses and government agencies. If your Social Security number somehow winds up on that list, you’re presumed to be deceased. Obviously, that makes it pretty tough to get a Visa card.
If you suspect that one or more of your credit accounts may include a notation that references you as a person who is dead (perhaps because you’re linked on an account with someone else who recently passed away), contact the Social Security Administration at 800-772-1213 to fix the problem.

4. Why are my credit scores all different? You can have multiple credit scores for several reasons. For one thing, there may be differing information in each of the main credit files maintained on you by Equifax, Experian and TransUnion.

Another possibility: You may be looking at one type of credit score, like a FICO score, and someone else, such as an mortgage lender, is using a completely different credit score, or even a score based on a “tri-merged” credit report – one that looks at all three credit files together.

Other well-known credit scores, besides the FICO score, include the Experian PLUS score and the VantageScore. Experian’s PLUS score is very similar to the FICO score but has a different scale, ranging from 330 to 830 points. The VantageScore, which was jointly developed by Experian, Equifax and TransUnion, ranges from 501 to 990 points.

According to Barrett Burns, CEO of Vantage Solutions, the VantageScore differs from the FICO score in several key ways. For starters, the VantageScore captures a broader array of payment information about consumers, including how consistently consumers pay their utility bills and other non-traditional forms of credit. It’s also “more predictive,” Burns told me, because it relies on more recent consumer data and insights gleaned during the credit crunch, as opposed to FICO’s classic score model, which is based on older consumer data.

Burns said consumers can purchase a copy of their VantageScores from Experian and TransUnion, but not from Equifax, due to Equifax’s longstanding exclusive contract with Fair Isaac, creator of the FICO score.

When the VantageScore debuted a few years ago, most experts panned this type of score since lenders weren’t using them at all. Amid the credit crunch, however, VantageScores have grabbed a 6% market share. Some people attribute their growing popularity to criticisms of the FICO score, and whether it failed to accurately predict which consumers would default on their home loans during the mortgage meltdown. (Fair Isaac officials reject those criticisms).

In any event, even though the VantageScore’s 6% market share is small compared to the widespread use of FICO scores, it illustrates that banks are increasingly looking at alternative credit scoring models – so perhaps you should, too.

5. How are my credit scores calculated? Your credit scores are derived from the information contained in your Equifax, Experian and TransUnion reports. To calculate your FICO credit scores, officials from Fair Isaac look at the following categories from your credit bureau reports and weight them (assign them percentages) like this:

Payment History – 35%
Amount of Debt Owed – 30%
Length of Credit History – 15%
Mix of Credit – 10%
Inquiries or New Credit – 10%

As a side – but critical — note: In recent years, consumers could get three FICO scores, based on each of their credit reports from TransUnion, Equifax and Experian. As of February 2009, however, Fair Isaac stopped selling Experian-based FICO scores because of an ongoing lawsuit between the two companies. So currently, you can only purchase a copy of two of your FICO scores, one based on your TransUnion report, and the other based on your Equifax credit report.

Here’s the skinny on each category listed above:

Payment history: Having no late payments will net you the highest possible ranking in this category. But even if you slipped up in the past, the hit to your credit scores will depend on how long ago the late payment occurred and the severity of the missed payment. A delinquent payment that happened three years ago will have far less impact than one that happened three months ago. Similarly, a 30-day late payment won’t be as damaging as a payment missed for 60 days, which in turn won’t hurt you as much as a payment that’s 90 days late.

Amount of debt owed: When it comes to credit scoring, all debt is not created equally. The credit-scoring system most closely scrutinizes credit card debt, also known as “revolving” credit. So don’t worry about your mortgage debt, student loans or that car loan on your credit files – as long as you pay those bills on time. Focus instead on reducing or eliminating credit card debt.

Your goal is to have a low “credit utilization” rate – 25% or lower. That refers to the percent of credit card debt you’ve charged, compared with the amount of credit you have available. For example. let’s say you have two credit cards, each with a $5,000 credit limit, or $10,000 total. If you’ve charged $1,000 on each card, or $2,000 collectively, your credit utilization rate is 20%.

Length of credit history: Simply put, the longer your credit history, the better your credit rating. Therefore, even if you pay off some of your credit cards, don’t close those accounts, especially cards you’ve had for many years. Closing credit cards can backfire on you, by decreasing the length of your credit history and raising your credit utilization ratio.

Mix of credit: The credit-scoring world rewards you for showing that you can responsibly juggle multiple forms of credit. Consequently, you get brownie points for having a credit file that includes various types of credit, such as a mortgage loan, an installment loan (like a student loan or auto loan), and credit cards. Again, your main objective is to pay all these obligations in a timely fashion. If you do so, you’ll score major points in this category.

Inquiries or new credit: An inquiry is placed on your credit report any time you apply for a loan or credit – regardless of whether or not you get approved or accept that loan. Inquiries stay on your credit reports for two years. For the purpose of calculating your FICO scores, inquiries count against you for one year. The American Bankers Association (ABA) says a single inquiry can lower your credit score by up to 35 points. So skip those department store credit card offers; they just generate inquiries.

6. Does my age, race, gender, marital status or Income affect my credit rating? No. None of those factors are taken into consideration when your credit scores are determined. In fact, under federal law it is illegal for credit-scoring to take into account race, age, nationality, religion, sex, or marital status.

7. If I pull my credit reports or credit scores, will that hurt my credit? Not at all. It’s a common myth that pulling your own credit report or credit score will somehow lower your credit rating. But that’s just a terrible misconception. In reality, you can view your credit reports and pull your credit scores as often as you’d like – even monthly, weekly or daily if you so choose – without any impact on your credit scores.

Examining your own credit files is considered, in industry lingo, to be a “soft” pull. These consumer inquiries don’t affect your credit scores. By contrast, when you apply for credit or a loan, that’s deemed to be a “hard” pull, and “hard” inquiries are taken into account when your credit scores are computed. Those hard pulls can lower your credit scores — by as much as 35 points, as we pointed out earlier — but exactly how much depends on the number of total inquiries in your credit report within the past year, as well as all the other factors contributing to your overall score.

Unlike credit reports, which you can get at no charge at www.annualcreditreport.com, most credit scores aren’t free. You can visit Fair Isaac’s consumer website to get your FICO scores. They cost $15.95 each. An Experian PLUS score will cost you $14.50. VantageScores can be obtained directly from the credit bureaus. They cost $7.95 at Experian, $7.95 (or $9.95 online) at TransUnion.

One company that does offer completely free credit scores – without you having to sign up for credit monitoring or use a credit card at all – is CreditKarma.com.

“Ten years ago, consumers didn’t even know what a credit score was for the most part,” CreditKarma.com CEO Kenneth Lin told me when I interviewed him recently for Perfect Credit. “Today most people know what scores are, but I think there’s still a lot of ambiguity and confusion about how they work.”

That’s why CreditKarma.com provides the public with credit-education articles, a “Credit Simulator” and other online tools, along with a nifty Q&A section that lets users submit questions about their credit problems or issues they don’t understand. Launched in early 2008, CreditKarma.com now has well over 1 million registered users and has given away several million free credit scores.

“We have a very strong focus on credit education and transparency, which I think is lacking in the industry,” said Lin.

8. How can I improve my credit scores? The single best way to boost your credit scores is to consistently pay all your bills on time. You can also improve your credit rating by:

reducing credit card debt,
disputing mistakes in your credit reports,
adding positive information that may be missing to your credit files (such as loans that you paid off),
actively monitoring your credit reports, and
limiting inquiries by only applying for credit when necessary.

Mastering your credit isn’t rocket science. Just by remembering these basics, and putting the above-mentioned tips into action, you can dramatically raise your credit profile, and sidestep the numerous credit pitfalls that ensnare so many others who lack basic credit education.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

ASSOCIATED PRESS
NEW YORK — The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

“I don’t get paid for loan applications, I get paid for closings,” said Ritch Workman, a Melbourne, Fla., mortgage broker. “I have plenty of business, but I’m struggling to stay open.”

FICO’s latest analysis is based on consumer credit reports as of April. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

It can take several months before payment missteps actually drive down a credit score. Foreclosure alone can chop 150 points off an individual’s score.

On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. Their ranks now stand at 17.9 percent, which is notably above the historical average of 13 percent.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

WASHINGTON (AP) — Applications for home loans rose last week as consumers raced to refinance at the lowest rates in decades.

The Mortgage Bankers Associations said Wednesday that overall applications increased nearly 7 percent from a week earlier. While they have been increasing in recent weeks, they remain below early 2009 levels.

Applications to refinance home loans were up 9 percent to the highest level since May 2009. But new mortgages taken out to purchase homes fell 2 percent.

Those applications have fallen in eight out of the last nine weeks, after government tax credits that spurred home sales ended on April 30. Applications were 35 percent below last year’s levels.

The average rate for a 30-year fixed loan sank to 4.58 percent last week, according to Freddie Mac. That was the lowest since the mortgage company began keeping records in 1971.

Mortgage rates have fallen since mid-April. Investors, nervous about Europe’s debt crisis and the global economy, have shifted money into safe Treasury bonds. That has caused the yields on those bonds to fall. Long-term fixed mortgage rates tend to track those yields.

Applications to refinance loans made up 79 percent of total applications, the highest share of refinancing activity since April 2009.

The Mortgage Bankers Association’s survey covers more than 50 percent of all applications nationwide and has been conducted since 1990.

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com

An odd scene has been playing out lately in the offices of mortgage brokers and bankers around the country.

Mortgage rates have sunk to levels not seen in more than a half-century — a seductive 4.58 percent for an average 30-year fixed loan. Yet brokers and lenders report not a flood but a trickle of customers.

So what’s going on?

Call it a tale of the haves and have-nots.

The haves are those who stand to save money from refinancing and have the financial standing to do so. Since mortgage rates have been low for so long, most of them already have refinanced in the past 18 months. Doing so again wouldn’t be worth the cost for most.

The have-nots? Those are the millions of Americans pummeled by the housing collapse. They have little or no home equity or no money for down payments. Or they lack the credit or steady income to get or refinance a mortgage.

The result is that brokers like Ginny Ferguson are filling their days doing something other than handling a stampede of customers buying homes or refinancing.

Ferguson, CEO of Heritage Valley Mortgage in Pleasanton Calif., has managed to stay busy: She’s archiving files, reviewing marketing plans and calling previous clients and agents to try to drum up business.

“Am I sitting around playing Solitaire on my computer? No,” she says.

The 4.58 percent average for a 30-year fixed-rate loan last week was the lowest on records that mortgage company Freddie Mac has kept since 1971. The last time rates were lower was the 1950s, when most long-term home loans lasted just 20 or 25 years.

Under normal circumstances, 4.58 percent would be irresistible. A decade ago, if you’d told David Christensen, owner of Mountain Lake Mortgage in Lakeside, Mont., that rates would drop this low, he wouldn’t have believed you. And if rates did somehow fall this far, he never thought he would lack for customers, as he does now.

Yet both have come true.

Christensen argues that mortgage lending standards have tightened so much since the financial crisis that many people with decent but not-stellar credit can’t qualify. Lenders are demanding stronger credit scores and higher down payments or home equity.

“The pendulum has swung too far the other way,” Christensen said. “It needs to come back to the middle.”

Overall lending has ticked up in recent weeks, driven by borrowers looking to refinance. But it remains only about half the level of early 2009.

Stricter lending rules aren’t the only factors behind the restrained demand. A tax credit for home buyers that helped lift home sales expired April 30. The result is that fewer people are taking out loans to buy homes.

And some borrowers who do have good credit and solid jobs are still being rejected for refinanced loans. It’s because their homes are worth less than they owe on their mortgage. They’re “under water,” in real estate parlance. About a quarter of American households with a mortgage are in this predicament.

Blame the housing bust. It shrank home values and depleted home equity.

Most people in the lending industry acknowledge that lending standards were far too lax during the boom. Yet these days, some brokers recall the boom times with a tinge of nostalgia. Buyers and refinancers were everywhere. And yet rates were higher than they are now.

In the summer of 2005, lending activity was about 30 percent more than it is today. And homebuyers and refinancers had to pay about a full percentage point more for a mortgage than today’s 4.58 percent.

“If the money was as easy as it was three or four years ago, I’d be the richest guy in town,” says Joe Bell, a mortgage broker and real estate agent in St. Petersburg, Fla.

Now?

“The phone rings a lot, but a lot of people can’t qualify.”

Part of the problem is that people have been able to receive mortgage rates under 5 percent at several points over the past 15 months. For them, spending thousands on fees to take out a new loan wouldn’t make sense.

For many of the homeowners who refinanced over the past two years, rates would need to drop to around 4 percent for refinancing to be financially worthwhile, said Patrick Cunningham of Home Savings and Trust Mortgage in Fairfax, Va.

“We’re turning down a number of people for every one person that we can get through,” Cunningham says. “That part is frustrating for us, certainly. I would say it’s even more frustrating for the consumer.”

The drop in rates this spring and summer has been a surprise. Mortgage rates had been expected to rise after the Federal Reserve ended its program to lower rates by buying up mortgage-backed securities.

At the start of April, rates started to rise. Good economic news had caused long-term U.S. Treasury bonds, a safe haven during the recession, to lose some appeal. As demand for Treasurys fell, their yields rose. And so did mortgage rates, which track the yields on long-term Treasurys.

But then several European countries fell into crisis over their debt burdens. Investors rushed back into the safety of Treasury bonds. That drove down Treasury yields — and mortgage rates.

The costs of refinancing are generally considered worthwhile for homeowners who can shave at least three-quarters of a percentage point off their rate and plan to stay in their homes for several years.

For mortgage lenders and brokers, refinancing clients are generally people with excellent credit, stable jobs and plenty of equity in their homes.

People like Chris O’Donnell, 43, of Centreville, Va.

He and his wife are on track to close their refinanced loan this month. They are pulling money out to buy a new heating and air conditioning system for a home they bought last year.

But they’re able to do so only because they had put down 50 percent of the purchase price when they bought the home. Few can afford to do that.

O’Donnell is shaving his mortgage rate by about half a percentage point to just over 4.6 percent. He’ll save about $100 a month on payments. But he notes the main reason he can do that is the economy’s feeble state.

“It’s good for us,” he said. “But it scares the heck out of me for the economy.”

If you need help with credit repair or wish to sign up for our credit repair services go to www.creditbureauexperts.com