Toss Out Debt: Finding Your Own Credit Score

How To Find Your Credit Score

You would think that finding out your credit score is easy. In a way it is, but only because you've done my research and you won’t have to spend time surfing websites looking for the ever elusive credit number. It would seem logical to have your credit score appear right on your credit report, but that’s just not the way it is.

There was a time when your credit score was a big secret known only to financial companies and banks. With the FACT Act, legislators decided that it was important for individuals to know not only what their personal credit scores are but how they are calculated and how to improve them.

The main company who calculates your credit score is the Field, Isaac Company commonly known as FICO. They invented the concept of the FICO scores so they are the ones who are known as experts in the industry. Before we go into finding your score, let’s look at a few facts about the FICO score.

• FICO scores are your credit rating
•  They range from 300-850, higher is better
• Most lenders base their approval on them
• Higher scores mean lower interest rates

FICO scores are calculated based on your rating in five general categories:

1. Payment history - 35%
2. Amounts owed - 30%
3. Length of credit history - 15%
4. New credit - 10%

• Types of credit used - 10%
• Field, Isaac Company is the inventor of the FICO score
• They have the only website offering all 3 of your FICO scores
• The median FICO score in the U.S. is 723

Essentially, your credit score is simply a snapshot of your credit use -- it's the Cliffs Notes version of seven years of your borrowing history. In many lending situations, the lender bases its decision almost solely on your credit score. Consider your credit score the overall GPA of your borrowing history.

Now, here’s the bad news. If you want to know your actual credit score, you will usually have to purchase it. This can be done in a few ways.

You can get it from one of the three major credit reporting companies: Equifax, Experian, and TransUnion. The fee isn’t a huge one – usually around $15 or $20. However, if you’re serious about growing your credit score, it’s well worth the money to be financially responsible in the end.

You can also go to www.myfico.com and get your FICO score directly from them. They will offer you a free 30 day trial membership which will get your credit score right now and then, if you wish to continue the membership, it will update the score as it rises (or, heaven forbid lowers).

If you are applying for a mortgage, here’s a little good news for you. You can find out your credit score for free! The mortgage company will base their decision and interest rate on what your credit score number is, so just ask and they’ll tell you!

Interpret Your Score

FICO scores range between 300 and 850. Here’s what those scores mean:

•  Over 750 – you have excellent credit and will be able obtain credit easily
•  720 or more – you still have very good credit and will be able to obtain credit easily
•  660 to 720 – this is an acceptable credit. You can still get loans, but you may pay a higher interest rate
•  620 to 660 – creditors are going to be uncertain about lending you money
•  Less than 620 – you have poor credit history and will probably not be able to obtain credit on your own.

Knowing the above information makes it obvious that if you need or want to get credit for something, the higher your score is, the better your chances are to not only get credit but get it at a handsome interest rate. If you are in the 660 to 620 range, you may still get a loan, but the interest rate is likely to be higher.

***Note: This article is from a website that was recently merged into this site and may not represent the views of the sites owner. ***


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Christmas Letter

Hello to my Family, Friends and readers of my financial blog (DebtFree4ever.NET) -

Here we are at Christmas for another year. 2009 is almost over and has been a blessed year in many ways. In others not so much. So as is tradition, lets take a look back at the past year. It has been an interesting and bumpy ride. However, thanks to the some good fortune (and perhaps God's rich blessing) I have made great strides in my financial life.

For example, I only have $800 left to pay on the car that has been the hardest thing for me to pay off. Soon though, it will be 100% paid off and I expect to make 2010 the year that I am able to call the Dave Ramsey Show and yell I'm debt free. Actually, maybe I should say we.

That's because 2009 was terrific in another way. I met the most wonderful and beautiful woman this past year. After a year of flirting and several months of dating, she and I were engaged on October 3, at the local hockey game, as thousands watched and listened to me stutter out my question, "will you marry me." She of course said yes and we have now set the date and made the reservation for the the location of the wedding and reception. I am hoping to be able to video tape the wedding and post it on the blog for those that are unable to attend.

Speaking of the blog, DebtFree4ever.net is holding steady and is currently working on a merger, TossOutDebt.com is expected bring a reported 142 new unique visitors to the blog, once the merger is complete.

In addition to this, I launched a new sister site (PrinceOfThrift.com) that allows you to print off your monthly budget forms. Not to mention the form to request (in writing) your free annual credit report.

Merry Christmas!

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Toss Out Debt: Understanding Your Current Debt Position

Current Debt Position





Do you realize that if you owe $5,600 on a credit card with a 18% interest rate, and you only make $100 payment each month that you will owe on this account for 124 months and pay a total of $6,708.54 in principle and and paying % 54.5031 of interest for the payment?






Real examples are usually the best tool to demonstrate a theory.
Let’s take few examples:
You have 3 debts:

Home Loan

Credit Card

Car Loan

Analysing Your Debt Position



Home loan has an amount of $36.000 with %14 of interest rate, $3500 for the credit card with %18 of interest and $21.000 for the car loan with %10 of interest.



Most people unfortunately, do not summarize their debts correctly. They simply follow the debt period/time and payoff their debts without having a clear status of what is really happening behind the scene.

This resource is not written to simply explain theories; you will learn how to calculate your debts and how to recreate a payment plan to avoid huge interest rates and hence cutting down your debts and/or becoming debt free.

As an excercise, bring out your calculator, have a paper and pen ready and follow these examples to see how drastically you can cut down your interests and save time and money!

Let’s summarize these debts:

Let’s
summarize these debts:

	Home Loan	Credit Card	Car Loan
Amount:	$36,000	$3,500	$21,000
Interest:	14%	18%	10%
Monthly	$500	$100	$250

-   
12.8%
is the interest rate we are paying. (Weighted average for 14%, 18% and
10%)

-   
$850
is your current monthly payment. ($500 + $100 + $250)

Summary for your current debts:

$60.500 is the total amount of the debts we have. ($36.000 + $3500 + $21.000)

12.8% is the interest rate we are paying. (Weighted average for 14%, 18% and 10%)

$850 is your current monthly payment. ($500 + $100 + $250)

$647.50 is the amount of interest you are paying each month. ($60.500 x 12.842% / 12)

76.1% is the percent of your monthly payments on all your debts.

If you continue to make the current minimum payments on all your debts, you will be in debt for:

13 years and 2 months

During this time you will pay a total of $59,766.10 in interest which is 98.7% of your current debt!

Can you imagine this huge number! 98.7% of interest!!!

This is the current debt status; this is the nightmare if you do not follow a debt free plan. Shocking numbers!

Name	Amount	Interest	Payment	Interest Paid	% of interest
Home Loan	$36,000	%14	$500	$42,996.48	119%
Credit Card	$3,500	%18	$100	$1500.05	43%
Car Loan	$21,000	%10	$250	$15,269.57	73%

Your Home loan needs 13 years and 2 months to be paid off

Your Car loan needs 12 years and 2 months to be paid off.

Your Credit card needs 4 years and 3 months to be paid off.

Total: $60.500

Interest: $59.766.10

Can you imagine paying interest approximately the same amount of owe? Unbelievable!

You will be paying for this $120.266, by simply recreating a repayment plan (following steps of Chapter 5), you will save this money! And save time too! And make life easier and let the dream come true!

If you were to pay off your debts by paying either the minimum amount or the payment amount of a 15 year amortization, you would have to pay a total of $59,766.10 in interest and would not pay off your debts for 13 years and 2 months.

***Note: This article is from a website that was recently merged into this site and may not represent the views of the sites owner. ***

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Your Credit And FICO

What is FICO

Back in the 1960’s, a company called Fair Isaac devised a unique system to determine the credit worthiness of people who apply for loans. Through a complicated mathematical computation (too complicated for us), they were able to study a person’s credit history and assign them a number that would represent how likely it was that they would be able to repay a loan they were applying for.

Fair Isaac sparked a revolution by pioneering credit risk scoring for the financial services industry. This new approach to lending enabled financial institutions to improve their business performance and expand consumers’ access to credit. Today Fair Isaac’s FICO score is widely recognized as the industry standard for lenders.

The FICO score condenses a borrower’s credit history into a single number based on past credit history. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. The real truth is that even if we did know, we probably couldn’t calculate it ourselves anyway. Unless, of course, you happen to be a mathematical genius!

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit.

Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.

Credit scores analyze a borrower's credit history considering numerous factors such as:

Late payments

The amount of time credit has been established

The amount of credit used versus the amount of credit available

Length of time at present residence

Negative credit information such as bankruptcies, charge-offs, collections, etc.

There are really three FICO scores computed by data provided by each of the three bureaus––Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may just use the middle score.

Fair Isaac has become so important in the financial industry that their word on your credit has become basically the final word. Why would banks and creditors place so much credibility into one company? The answer is simply because of their proven track record.

The FICO score has proven to be not only an accurate and amazingly consistent way of showing a person’s credit reliability, but it has also saved companies millions of dollars in credit write-offs due to bad lending decisions. A study of loans that were granted and/or denied simply due to the FICO scores shows that Fair Isaac has been right over 80 percent of the time.

Of course, that required taking some chance on the part of many creditors, but they were willing to take the risk. After all, this was ground-breaking. Determining credit worthiness through a simple three-digit number. Many companies jumped “on the bandwagon” just to show that Fair Isaac had the right idea.

Financial Credit Matters

Fast forward to the twenty-first century and you will find that FICO has become the definitive guide when it comes to financial and credit matters. They have proven their reliability and their worthiness just through trial and error.

Unfortunately, the problem is that finding your FICO score isn’t as easy as you think. The truth is that it’s not even shown on your credit report like you would think. In fact, for years and years, your credit score was a securely kept secret number that was elusive to the average person.

***Note: This article is from a website that was recently merged into this site and may not represent the views of the sites owner. ***

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Toss Out Debt: Strategies For Getting Out Of Debt

Get Out Of Debt Fast

The secret to repaying debts quickly and saving on interest charges is to continue to pay the same amount each month until all debts are repaid. As one debt is paid off, apply that payment amount to another debt.

To move forward with the same example, the current monthly payment is $850. If you pay an additional $180 each month that means $1030 of total monthly payment, your debts will be repaid in 7 years and 10 months and you will avoid $23.617 in interest charges.

As you noticed, by simply allocating $180 you save $23.617 meaning if you allocate more monthly payments you will save more and more!



Debt Reduction Plan

If you follow your Debt Free/Reduction Plan, you will save $23,617.86 in interest which is equivalent to 39.5% and have your debts paid off in 7 years and 10 months and not 13 years and 2 months.

There is a very important note to take in consideration. If for example you have a debt of $5600 with 3% of interest, you will not pay 3% each month, this amount decrease accordantly. The following table will explain step by step how to calculate the monthly interest rate.

Debts to pay:

Amount: $5600

Monthly Payment: $680

Interest rate: 3%

Month	Balance	Monthly Payment	Interest*	How to calculate new balance
January	$5600	$680	$14	($5600-$680) + $14= $4934
The new balance for the next month is $4934
February	$4934	$680	$12.34	($4934-$680) + $12.34 = $4266.34
The new balance for the next month is $4266.34
March	$4266.34	$680	$10.67	($4266.34-$680) + $10.67= $3597.01
The new balance for the next month is $3597.01
April	$3597.01	$680	$8.99	($3597.01 – $680) + $8.99= $2926
The new balance for the next month is $2926
May	$2926	$680	$7.32	($2926 – $680) + $7.32 = $2253.32
The new balance for the next month is $2253.32
June	$2253.32	$680	$5.63	($2253.32 – $680) + $5.63 = $1578.95
The new balance for the next month is $1578.95
July	$1578.95	$680	$3.95	($1578.95 – $680) +$3.95 = $902.90
The new balance for the next month is $902.90
August	$902.90	$680	$2.26	($902.90 – $680) + $2.26 = $225.16
The new balance for the next month is $225.16
September	$225.16	$680	$0.56

* Interest calculation

$5600 x 3% = $168/12 months = $14 as interest for the 1st month

$4934 (new balance) x 3% = $148.08/12 months = $12.34 as interest for the 2nd month

$4266.34 x 3% = $127.99/12 months = $10.67 as interest for the 3rd month

$3597.01 x 3% = $107.91/12 months = $8.99 as interest for the 4th month

$2926 x 3% = $87.78/12 months = $7.32 as interest for the 5th month

$2253.32 x 3% = $67.60/12 months = $5.63 as interest for the 6th month

$1578.95 x 3% = $47.37/12 months = $3.95 as interest for the 7th month

$902.90 x 3% = $27.09/12 months = $2.26 as interest for the 8th month

$225.16 x 3% = $6.76/12 months = $0.56 as interest for the last month

So each month the interest decreases depending on the new balance.

Now that you have completed these examples, you will be able to easily calculate and manage your debts and know exactly how much you will pay and the time to payoff all your debts and the most important how to re-create a debt reduction plan and save money and time!




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Toss Out Debt: Why People Get Into The Debt Trap

Debt Pitfalls

Let’s take a simple example - you do not have enough money and you want to live, you need food, clothes… this is life! A change in your financial situation can result in serious repercussions,job loss, health problems and inability to pay for medical treatment to name a few.

There are several reasons to get into debt. But most people do not use debts to their advantage.

Debt Traps

People suffer a lot due to debt problems mainly because it is so easy to borrow. Also people are sometimes fooled. For example some credit cards do not charge an interest for a limited time but when that period is over, logically speaking you end up paying double the applicable rate.

Another common reason about falling into debt is that people, especially the young, pretend or believe that they are managing their debts in a good way by paying the minimum amount every month without recognizing that paying the minimum adds years and years to pay off a small amount that can otherwise be paid in a few months.

***Note: This article is from a website that was recently merged into this site and may not represent the views of the sites owner. ***
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Welcome TossOutDebt.com Readers

We recently merged with another personal finance site called TossOutDebt.com and this morning we can officially announce that the merger is complete. With that the reported 142 unique visitors (a month) will now be arriving here at DebtFree4ever.net.

The site had several articles, that will be integrated into our site over the next week. Not all the articles line up with our beliefs and thoughts. However, they will be noted as coming from the other blog and will have a disclaimer.

With the new readership, we hope to see more comments and more interaction. So again I would like to welcome all the readers from TossOutDebt.com.

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