Get smart with your money
People who care about their credit scores tend to obsess about some things they probably shouldn’t, such as the possibility they might have too much credit.
Let’s bust that myth right upfront: The leading credit scoring formulas, FICO and VantageScore, don’t punish people for having too many accounts. And right now, having access to credit could be a lifeline.
In my latest for the Associated Press, find out why it’s not how many cards you have, but how you use them.
Dear Liz: I have three financial providers that supply regular, free credit scores: my bank and two credit card issuers. My credit score from the bank is always a “perfect score” while the two card companies are consistently 17 points lower, both exactly the same for two years now. I always pay off most or all of the outstanding balance on time or early. Any clue as to why there is this consistent difference?
Answer: The companies probably are using different credit scoring formulas or different credit bureaus, or both.
You don’t have one credit score. You have many. FICO is the dominant scoring formula, but lenders also use VantageScores and the credit bureaus sometimes provide their own, proprietary scores.
The formulas have been updated over the years. The FICO 8 is the most commonly used score, but the FICO 9 is the latest version and FICO 10 will be introduced this summer. Some scoring formulas are modified to suit different industries, such as auto lending or credit cards, plus each score is calculated from data at one of the three credit bureaus.
So one institution may provide its customers a FICO Score 9 from Experian, another might offer a FICO 8 Bankcard score from Equifax and a third might give you a VantageScore 3.0 from TransUnion. Even if all three were using the same type of score, they probably would use different credit bureaus, or vice versa. To make things even more confusing, your credit scores are constantly changing as your credit bureau information changes.
Furthermore, you typically can’t predict which score or scores a lender will use to evaluate your application for credit. Rather than worry about which number is “right” — they all are — use the free scores as a general indicator of your credit health.
Today’s top story: Options for undergrad, grad, veteran and international students when colleges say stay home. Also in the news: Which airlines have handled COVID-19 the best, is it OK to never have a credit card, and where to put your money when interest rates are falling.
When Colleges Say Stay Home: Options for Undergrad, Grad, Veteran and International Students
You can expect a decrease in costs.
Which Airlines Have Handled COVID-19 the Best?
Grades on flexible policies and health and safety measures.
Is it OK to never have a credit card?
Other ways to establish credit.
Where to Put Your Money When Interest Rates Are Falling
Consider an online savings account.
Today’s top story: 3 ways to skip your bank’s long phone lines. Also in the news: Keeping your credit in shape, even if you don’t have debt and don’t plan to borrow, 25 ways to save yourself from your debt disaster, and how to set up a 60/40 budget.
3 Ways to Skip Your Bank’s Long Phone Lines
When phone wait times are long, try to reach your bank via live chat, Twitter or message instead.
Keep your credit in shape, even if you don’t have debt and don’t plan to borrow
Good credit is important year-round.
25 Ways To Save Yourself From Your Debt Disaster
Climbing out of the debt hole.
How to Set Up a 60/40 Budget
Focus on two buckets.
Today’s top story: Credit cards that help authorized users build credit. Also in the news: Taking control with advance medical directives, why you don’t need 20% down to buy a home, and why wealthy college students are getting more financial aid.
Which Credit Cards Help Authorized Users Build Credit?
Building your credit with a little help.
Take Control Now With Advance Medical Directives
Creating a living will and other advance directive documents may be easier, and cheaper, than you think.
Why You Don’t Need 20% Down to Buy a Home
Many lenders don’t require 20% down. But read the fine print.
Why do wealthy college students get more financial aid?
Rich students are getting more scholarship aid.
Today’s top story: Can a personal loan help during a crisis? 5 questions to ask. Also in the news: Citi Premier will become less valuable for travelers, how parents can help Gen Z prepare their credit for graduation, and how to protect your credit during the Coronavirus shutdown.
Can a Personal Loan Help During a Crisis? 5 Questions to Ask
What to ask and alternatives to consider.
Citi Premier Will Become Less Valuable for Travelers
Major changes are coming.
How Parents Can Help Gen Z Prepare Their Credit For Graduation
Using the time at home to educate the new grads.
How to Protect Your Credit During the Coronavirus Shutdown
Important measures to take.
Dear Liz: I had to move to assisted living due to a stroke. I no longer need my car — or the car payment. Can I simply stop paying and let it be repossessed? There are about 18 months to go before it’s paid off. I don’t need great credit anymore and our current expenses exceed our income.
Answer: If you’re that close to paying off the loan, then you probably have a good chunk of equity. It would be a shame to lose any of that value to the costs of repossession.
Typically repossessed cars are sold at auction, often for less than their resale value. The proceeds, minus the expenses of repossessing and preparing the car, are applied to your loan. You’d only get what’s left over. (If what’s left over is less than what you owe, the amount is added to your debt.)
This bad financial outcome is on top of the damage done to your credit, which can be substantial. Even if you think it unlikely you’ll need credit again, you don’t know for sure that you won’t.
If you have the option of selling the car to a private party or dealer — or asking a trusted friend or relative to help you do so — that’s usually a much better way to go than letting the vehicle be repossessed.
Dear Liz: I have little credit history and my Experian credit score is about 620. My wife has no credit history. We are in the process of increasing our creditworthiness. I have an unsecured credit card from my credit union. She will be getting a secured credit card. We will use these lightly and regularly, paying them off each month. Does using my credit card to pay a utility bill each month work for building credit?
Answer: Absolutely. As long as your credit cards report to all three credit bureaus, your on-time payments will build your scores.
To make things easier, you could set up a recurring charge and automatic payment. Utilities typically allow customers to pay their bills automatically with credit cards, and credit cards usually offer the option of paying automatically each month. You’re normally given three options: paying only the minimum, paying in full or paying a set dollar amount.
Recurring charges ensure your card shows regular activity, while automatic payment should eliminate the risk of missing a payment. A single skipped payment could be a significant blow to your credit scores.
Another option to consider is a credit builder loan, which many credit unions and community banks offer. Typically, the amount you borrow is placed into a savings account or certificate of deposit while you make payments.
When you’ve paid the loan in full, usually after 12 months, you claim the cash. The payments help build your credit, and the cash could be the start of an emergency fund.
Today’s top story: Smart ways to establish credit in 2020. Also in the news: 3 strategies to recover from holiday overshopping, the pros and cons of merging money when married, and how to downgrade your Chase card without losing your points.
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Does Marriage Have to Mean Merging Money?
A look at the pros and cons.
How to Downgrade Your Chase Credit Card Without Losing Your Points
A change in annual fee has customers thinking twice.
Today’s top story: How to take charge of your credit this year. Also in the news: Several Chase cards will earn more rewards of Lyft rides, 6 inspired ideas for traveling smarter this year, and how much you need to save every month to earn $50K a year in interest for retirement.
How to Take Charge of Your Credit This Year
Take a crash course in credit.
Several Chase Cards Will Earn More Rewards on Lyft Rides
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6 inspired ideas for traveling smarter this year
Rethinking old travel habits.
How much you need to save every month to earn $50,000 a year in interest alone for retirement
Crunching the numbers.