What is Credit Score?

A Credit Score is a number between 300 and 850 based on a statistical analysis of an individual’s credit activity. It is used to represent the credit worthiness of an individual. How likely that the individual will pay his or her debts. A credit score is based on their credit report information which is typically sourced from credit bureaus and credit reference agencies, typically from the three major credit bureaus.

What is Credit Score used for?

Lending institutions, such as banks, finance companies, mortgage lenders, and credit card companies, use an individual’s Credit Score to evaluate the potential risk posed by lending money to that individual. Lenders use Credit Scores to determine who qualifies for a loan, at what interest rate the loan is issued, and what credit limit is determined.

The use of credit scoring prior to granting credit is a trusted system throughout the industry. Credit scoring is not limited to banks, however. Organizations, such as mobile phone companies and government departments employ the same techniques.

Basically, banks and other lending institutions use Credit Scores as factors in their lending decisions. Whether credit is denied or approved, what interest is charged, what income level and asset verification is required is all based on an individual’s credit score.

Major Credit Scores

The most widely known score in the United States is FICO, which is most widely used in the mortgage industry. FICO is an acronym for Fair Isaac Corporation, the company that provides the most well-known and most widely used credit scoring system in the United States. While the other credit scores are NextGen, VantageScore, the CE Score, etc.

The FICO score is calculated by applying statistical methods, developed by Fair Isaac, to information in one’s credit file and is primarily used in the consumer banking and credit industry. FICO scores show how likely it is that a borrower will default. No public information is available to determine what the scores mean in terms of statistics. A separate score, BNI, is used to indicate likelihood of bankruptcy.

The FICO score actually uses slightly different scoring methods to rate a consumer’s suitability for three different types of credit; mortgages, auto loans, and consumer credit. Each reflects the different credit risks of these various types of lending. It is not unusual for these scores to differ by as much 50 points or more for the same borrower.

Additional Credit Scoring Systems

There are three major credit reporting agencies in the United States. Although often times inaccurately referred to as “credit bureaus”, these agencies; Equifax, Experian and TransUnion, also calculate their own credit scores. These additional scores differ depending on what they are meant to predict, what statistical methods used to determine a score, and what information is used and how it is weighted.

These additional Credit Scoring Systems are numerous and are agency specific. For example, Beacon, Beacon 5.0, Beacon 96, and Pinnacle scores are available only from Equifax. Empirica, Empirica Auto 95, Precision Score, and Precision 03 are available only from TransUnion, and, Fair Isaac Risk Score at Experian.

These various Credit Scores are developed for the different agencies by Fair Isaac, each differs and are periodically updated to reflect current consumer repayment behavior habits. The NextGen Score is a scoring model designed for consumers.

In an effort to make credit scoring more consistent across the board, in 2006 the big three credit reporting agencies introduced Vantage Score. Vantage Score uses a different number range from the FICO score. It ranges from 501 to 990 and also assigns letter grades from A to F to specific ranges of scores.

A consumer’s Vantage Score may differ from agency to agency, but the difference would be entirely due to differences in the information reported to the various agencies, not due to differences in scoring systems. Since FICO is still widely used by lenders, the agencies continue to offer FICO scores (or their closest equivalent) as well.

Most credit scores use a multiple-scorecard design. Each version may use individual scorecards, and an individual potential borrower is typically compared with other previous borrowers. In other words, a borrower with one 30-day late payment will be scored against a population with some similar delinquency. A borrower with two 30-day late payments will be scored against a population with like credit faults. The individual is then graded according to which variables indicate a risk within that group.

Nearly all large banks also build and use their own systems for credit scoring purposes, and are often times in conjunction with outside scoring formulas.

Credit Score Regulation

The systems used to generate credit scores are subject to federal regulations. The Federal Reserve Board’s Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring system from considering any “prohibited basis” such as race, color, religion, national origin, sex, or marital status. It also stipulates that credit scoring systems must be “empirically derived” and “statistically sound”.

In addition, if an adverse action, a denial of a credit application is taken as a result of the credit score then the specific reasons for the denial must be provided to the individual denied. The statement “credit score not high enough” is insufficient. The reasons for denial must be specific; “too many delinquencies 60 days or greater” and such.

Credit Score Formula

Credit scores are designed to measure the risk of default by taking into account various factors in a person’s financial history. Although the exact formulas for calculating credit scores are closely guarded secrets, the Fair Isaac Corporation has disclosed the following components and the approximate weighted contribution of each:

• 35% punctuality of payment in the past (30 Days Past Due)
• 30% the amount of debt, expressed as the ratio of current revolving debt to total available revolving credit
• 15% length of credit history
• 10% types of credit used
• 10% recent search for credit and/or amount of credit obtained recently

These percentages offer a limited guidance in understanding a credit score. For example, the 10% of the score allocated to “types of credit used” is undefined, leaving consumers unaware what type of credit mix to pursue. “Length of credit history” is also a murky concept; it consists of multiple factors two being the oldest account open and the average length of time an account has been open.

Interestingly, although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the very vague pie chart provided by Fair Isaac.

A FICO score generally has a max of 850 and a minimum of 300. It exhibits a left-skewed distribution with a median around 723. The performance of the scores is monitored and the scores are periodically aligned so that a lender normally does not need to be concerned about which score card was employed.

Because the three major credit agencies have their own, independent databases, each of us actually has three credit scores for any given scoring system. As these databases are independent of each other, they may contain entirely different data. Many lenders will check an applicant’s score from each bureau and use the median score to determine the applicant’s credit worthiness.

How to Get Credit Score Report

As a result of the FACT Act (Fair and Accurate Credit Transactions Act), each legal U.S. resident is entitled to one free copy of his or her credit report from each credit reporting agency once every twelve months. To guard against inaccurate information or fraud more often than yearly, one can request a report from a different credit reporting agencies available on the net.

This information is available from a number of websites across the net that offer a free credit report and use of their services for 30 days. After which, there is a monthly fee involved. The fee is nominal compared to the necessity of protecting your credit in today’s highly technological society where identity theft is becoming more prevalent.

In a time where identity theft and credit fraud in on the rise, the fee these firms charge seems like a small amount to pay to protect your credit and your good name.

Having a good Credit Score is becoming more and more common in our society. For example, credit scores are often used in determining prices for auto and homeowner insurance. Recently, some of the agencies that generate credit scores have also been generating more specialized insurance scores, which insurance companies then use to rate the quality of potential customers. These scores are unavailable to consumers.

Many employers reserve the right to do a credit check of job applicants; in the same manner they reserve the right to drug test potential employees. The fact is that your Credit Score is important.

For the most part, it has a lot to do with what the Federal Reserve says it should be. It is especially determined on how the way the economy is moving. Should the economy be doing well, interest rates tend to go up to help increase profitability and allow your savings dollar to do more. Likewise, when the economy is doing poorly, it is necessary for the interest rates to fall slightly to help increase affordability for opening new businesses and purchasing homes. This will then strengthen the economy in the long run.

Despite interest rates are under Government’s control and country’s economy in general, there are many ways in which you can do well with interest rates. One of the most important things that the average consumer can do to have a lower interest rate that will affect them is to simply shop around. You should consider looking not only at your bank and those in your area but also (and especially) at the banks and lending institutions on the web. You can truly save money by shopping around.

Having a good credit history also helps considerably to get a low interest rate for your credit. While this is not something that you can instantly fix, it is something worth working for. Improving credit by lowering debt and making payments on time helps to increase your credit score. This is very important when it comes to banks and lending institutions in determining whether or not you are a good risk to take. Get expert advice to lower interest rates and improve your credit score here.

After all, being smart about interest rates is important to living a profitable life.

For some people, it is almost impossible to get by without a credit card, on the other hand, there are millions of American families that have no bank account and no credit card. They often pay their bills either in cash or by money orders. For these people, a prepaid debit card may be the answer to start with plastic money.

A prepaid debit card looks just like a regular credit card and normally carries a credit card logo such as Visa or MasterCard. Retailers accept these just like any other card. The difference is at the time you use the card, it is instantaneously deducted from your funds on deposit with your bank.

Advantages of a prepaid debit card are:

• It is safer and efficient than carrying cash;
• It is accepted throughout the world where the credit card logo is displayed;
• you can use it to pay bills, get cast at ATMs and shop online;
• You can also keep track of your funds for free on the Internet; and
• Prepaid debit card offers can include rewards programs and overdraft safety.

It is easier to get a prepaid debit card than apply for a credit card, especially with an easy online application. The approval is guaranteed as there is no credit check and no employment is required. After applying for a prepaid debit card, you can receive your card in few days. One of the recommended card companies that accept online application is Vision Premier Prepaid Visa. This company offer low cost card maintenance with its features: Free Direct Deposit to add cash and low weekly fee’s or free with Direct Deposit. You can visit the application site here – Visa Prepaid Card – for more information.

Nowadays, more people spent money using prepaid plastic cards, including gift cards and renewable debit cards. To those who don’t want to worry about owing money or paying a bill, and others who want to avoid debt and rebuild low credit score, using a prepaid debit card may be the good decision.

Although specific terms and conditions vary between each credit card issuer, the procedure on earning the cash rewards is pretty much the same. Generally, a card holder earns a corresponding point for every dollar he spent using his credit card. Some credit card issuers give 2 points or double points for every dollar but in most cases, 1 point is given for each dollar amount charged on the card. The points are converted to cash or money points, thus their name- cash back credit cards.

You can use these cash points you earn to make new purchases or pay bills using your credit card. Some credit card companies would require the holder to spend his reward from a specific shop while others give the flexibility to use your cash rewards from any store you want. While some cash back card companies impose a maximum amount of cash points that the card holder can earn. After reaching this limit, the card holder may stop qualifying for more points.

There is also a different type of cash back credit cards that the credit card company applies cash reward earnings program with percentage of spending amount that usually deducted on the following month bills. Certain terms, conditions and limitations may apply for this type of cash back credit cards. The percentage ranges from 0.5% to 5% and usually depending on the total spending amount.

The best cash back credit cards however do not impose restrictions on the amount of rewards you can earn. As long as you are using credit card on your payments, you continuously earn points on your account. You can earn as much cash as you want as long as you are an active member of the reward program.

Cash back credit card companies are all competing for attention and in order to get more clients, these companies promise only the best. Or course, not everyone deserves your trust. For this reason, caution is advised for everyone who plans on applying for a reward credit card. You still have to consider three most important elements of credit cards when apply for a cash back credit card, as follows:

• Interest Rate

Most reward credit cards are accompanied with unreasonably high interest rates but if you do your research, you can find one that offers a good deal.

• Annual Fees

You have to find out whether your cash back cards require an annual fee. If the cash back card you choose requires an annual fee, you’ll want to make sure that the cost does not outweigh your potential to earn rewards. If you’ll be paying for an expensive annual fee each year, then can you still say that you are being rewarded? Or would you end up paying more than what you get back?

• How To Earn Rewards

Before deciding the card you will apply, it is important to read thorough all the terms and conditions for earning rewards or cash points in case of hidden limitations. Feel free to ask the customer service for unclear information.

Always bear in mind that a cash back credit card will only work if you keep up with your payments religiously. Never carry over your balance for the next billing cycle if you do not want to suffer paying for an expensive interest rate. Make it a point to pay off your balance in full each month so make sure that you will be rewarded.

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Have you ever wondered where your money goes every month? Have you ever been in a situation where you couldn’t afford to do things because your financial obligations are holding you back? If you are wondering the similar questions, perhaps you should take a look at your financial situation and assess your personal finance practices.

There are two categories of people in practicing their personal finance:

• Good personal finance management – those who spends within their income, plan for the future and solve financial problems as they arise.

• Poor personal finance management – those who pay more, does without and falls behind.

If you find yourself in the second category, you can do something about it. You can learn to take charge of your finances by planning your personal finances.

Planning your personal finances does not always come naturally, and even if you are just beginning to take your financial matters seriously, then you likely need a few personal finance tips.

• Evaluate your current financial situation.

One of the most important goals for most people is financial independence. Collect accurate information about your personal financial situation. Calculate your net worth which includes the real estate, saving and retirement accounts, and all other assets. This will help you decide how much money you can set aside for meeting future needs and goals.

• A basic personal finance tip is to make a budget.

A personal finance budget is information made up of your income and expenses and the more accurate this information is, the more likely you are be able to meet your goals and realize your dreams. A personal finance budget should be made for at most one year at a time and include a list of your monthly expenses.

• All expenses must be included.

To be sure of that go through all your paid bills, check register and credit card receipts to find expenditures that recur every month and expenditures that happen less frequently. Personal finance budgeting requires some small sacrifices. To be able to make good personal financial decisions and set priorities, you must know where your money is actually going. Start your budget and accomplish your goals.

• Get an electronic bill pay.

This is a very convenient way to pay your bills. You pay them electronically, by direct withdrawal from your bank account. The transaction is processed immediately. You can even link your bill pay service to your personal finance budget, so that your expenditures are automatically entered in the appropriate category. Personal financial management can be really easy.

• Make an investment and finance plan.

After the fundamental state of your personal financial security has been established, it is time to make the more prosperous part of your personal financial life. You need to make a personal finance plan of what you really want in life that money can buy. Your personal financial plan can be as simple or as detailed as you want it to be. Find out how to finally start to implement this plan and get the money to finance it. This is the long term part of your financial. This journey is the most interesting and exciting part of personal financing you can lead you to financial freedom.

By following these simple personal finance tips, you can prepare for a secure personal financial future. When you take control with your money, you do not have to worry about debt taking control of you.

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Most of the credit cards come with almost the same features and offer more or less the same rate of interest. When the rate of interest is more or less the same, one should look for incentives offered by the various card companies in order to get the best credit card. You can opt for the best credit card depending on incentives and rewards they offer. For instance you get reward points for every purchase that you make from the credit card and these points are redeemable from certain stores and outlets.

Making a Decision About The Best Credit Cards

Your starting point when looking for the best cards should be an evaluation of how you best intend to use your credit cards, as the best credit cards for you will vary with personal circumstances. For instance, if you want to use your credit cards as a convenient replacement for cash / debit cards when shopping, and your best intention is to pay off your credit balance every month, then the best cards are those that offer the best / longest interest-free period on purchases, and are available without an annual fee. On the other hand, if you are making a large purchase where the best part of your credit balance is to be carried over for several months then credit cards with a high personal limit and low APR (Annual Percentage Rate) are going to be the best.

Many people choose to carry several credit cards so they can move their debt around to the best of their ability without incurring substantial interest payments. The best cards for this purpose are those that provide 0% interest on balance transfers. The best credit companies will offer this for a limited introductory period, after which they will begin charging interest on the balance. The best way to further extend interest-free credit for a card debt is to open new credit cards that offer 0% on balance transfers when the introductory offer on your best credit cards expire.

Credit Card Categories

Basically, there are three main categories of cards where you fall on the scale depends upon your credit history and types of service.

• Secured card – you need a secured card if you are in the process of trying to rebuild your credit.

• Regular card – if you use your card regularly and do not pay your balance in full every month.

• Reward or rebate card – While reward cards generally have great perks, the higher interest rates that they normally charge can be costly if you do not pay your balance in full every month.

Additional Benefits

Out of the above three main credit card categories, then there are cash back incentives. This definitely is a strong criterion for the best credit card. According to this scheme, you get a percentage of cash back at every purchase that you make. You can also convert your redeemable points into discount for various airline flights. Most of the buyers make the mistake of thinking that the reward schemes are mostly similar whereas the difference in schemes offered by different card companies is extensive. So first of all do your research about different reward schemes and then choose the best credit card.

Nowadays banks have started offering balance transfer credit cards, which are becoming increasingly popular for people deciding on the best credit card for them. Balance transfer cards allow you to consolidate you debt onto one card, thus helping you save on interest payment, hence recommended by experts as the best credit card for debtors.

Besides low interest rates, special balance transfer deals and the best personal credit limits, the best credit cards companies also provide a plethora of add-on services designed to be the best and attract us to sign up. Credit cards supporting a charity or prestige credit cards that provide discounted membership to associations such as vehicle breakdown services are popular, although they may not be the best cards for your circumstances. Many of the credit card companies also offer the low-cost payment protection cover on their cards to protect you in the event that the minimum payment cannot be met because of redundancy or ill health. Some of the best credit cards also allow you to service your credit cards account online.

Getting the best credit card would not be a difficult task when loaded with the right information. So research about the incentives and other schemes and then only go for choosing the right credit card. It might take a little time but at least you can be sure that it is the best credit card.

What are the benefits of a prepaid credit card?

You can’t go over your limit using it. There is no such thing as over drafting from an account. When the account is empty, you simply cannot use the card. You have to refill it before any more purchases can be made. This is very good for people who have poor credit history or impulsive spending habits. It can help people avoid debt and be a good first step in rebuilding a low credit score.

These cards are good for teenagers whose parents may want a middle step before getting a full service card for their children. Parents can fill the card with an allowance (or teens can put summer job paychecks into the card) whenever they want to, and junior gets to enjoy the freedom and security of credit card spending. Purchases can also be monitored with this system, which can help a teen increase his financial savvy. By seeing exactly where his or her money is going, they will be more likely to develop good habits they can keep throughout their adult life. An added bonus is that these cards frequently look the same as full-service cards, which enables teenager to keep their pride intact when they go out with their friends.

Pre-paid credit cards are also being used for specific situations. Most prevalent is the Visa Gift Card, which can be bought in any denomination and given as a gift. Recipients can spend the money anywhere, any way they wish. Another specific application is Visa’s Travel Money Card. It can be loaded directly from an ATM with funds from a checking or savings account, and then carried in place of cash or travelers checks. It is also covered under Visa’s Zero Liability Plan, which protects it against fraudulent purchases, card theft, and identity theft.

A third application that is growing in popularity is the payroll card. The payroll card is a great way for companies to reduce payroll costs and help the environment. A payroll card can be given to every employee of a business and then at the end of the pay period employees receive a direct deposit of the funds they have earned. This is available immediately upon deposit, which saves the employee the time it would take to go to the bank, wait in line, pay a cashing fee, etc. It also saves the company the time and money it takes to print and mail paychecks. Employees who may not have a bank account can take advantage of the system as well. Since all funds are deposited into the card account, there is no need for separate checking or savings accounts.

However, there are a few downsides to the prepaid card:

• Most cards require a start-up fee, and while for many companies this fee is minimal, some of them are substantial.

• Some businesses do not accept automatic payments from prepaid cards. It can be a significant setback for some consumer, although this is a minimal annoyance for most consumers.

All conditions apply like a normal credit account when it comes to selecting a prepaid card. It is best to research your options and make a right decision on the best card to meet your individual needs.

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• Statement date – The date that the bill was printed.

• Payment due date – this is the day that the cardholder must pay any outstanding balance. Payments made after the said date will be credited, but will also be fined a lateness fee.

• Total amount due – It consist of the unpaid amount from the previous month, as well as purchases, payments and interest charges for the current month. When the cardholder pays this amount on or before the payment due date, no interest charges will be imposed.

• Minimum amount due – this is a smaller fraction of the total amount due. To maintain a good standing with the card company, pay at least this amount, if you cannot afford to pay the total amount due.

• Financial charge – the fee for the remaining unpaid balance on the next bill including the new purchases using that credit card if you do not pay the total amount due. This fee or also called interest is calculated based on the interest rate of the card and daily or monthly money balance. Most banks use the daily compounding method for calculating their finance charges.

• Late charges – Paying or not, after the payment due date, is penalized with late charges. Avoid this as much as possible as this is almost 2X the interest rate of the finance charge. Consistently missing payment may lead to cancellation of the card and a bad credit standing.

You now understand the information on your monthly bill, and are ready to settle your credit card charges smartly by following these simple tips:

• Always pay the total amount due. Paying only the minimum amount due means being charged for a high interest rate on the unpaid amount.

• If you cannot pay the total amount due, pay as much as you can above the minimum amount due. This strategy aims to reduce the finance charges that you have to pay for settling partially.

• Do partial payments as early as possible (as soon as you receive the billing). Finance charges are based on the unsettled amount and the time it remains unsettled, so the shorter it is, the lower it will be for finance charges.

• Some card companies reward loyal cardholders by accumulating points for their spending. Check if reward points can be credited back as payment.

There are many ways to pay your card bill, from a traditional way of waiting in line to the faster way of paying electronically through your computer, cash machine or mobile phone. With all these conveniences at hand, it is quite unforgivable to miss your payment due date.

Above all, paying the total amount due on time is the smartest way to handle your credit card payment.

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You can start with an entry of your current credit card balance and interest rate, then you could find out the duration you would require repaying the credit given your month payment ability. The other hand, you can do reversely by providing your payoff goal period to calculate the monthly payment you have to pay to achieve that goal period. This way a credit card payoff calculator helps in chalking out a plan for managing your credit card balances.

You can use the credit card payoff calculator provided by Google doc for free. It is very easy and simple to use and you can save the document for future reference. This credit card payoff calculator allows you to calculate either months to payoff or monthly payment.

The followings are variables you may enter in a credit card payoff calculator:

• current balance, the monthly payment that you are making currently
• rate of interest, yearly interest rate charged by the credit card company
• monthly payment – if you want to set the money you will pay monthly and want to know how long is your payoff duration (Option A).
• payoff goal (in months), the duration within which you possibly would like your credit card balance to be repaid (Option B)

Once these data are fed in white spaces, the calculator calculates the number of months that you would require to repay the balance if continued at the current rate and total interest (Option A) and also calculates the amount that you may have to pay every month and the total interest to meet your payoff goal (Option B).

Find below the credit card payoff calculator from Google Docs that you can use for free. Open account in Google or use your existing Google account to start using the template.

Title:	Credit Card PayOff Calculator
Description:	Using this template to calculate either months to payoff or monthly payment of your credit card.

The best way to get a better deal while opting for a credit card is to figure out the cost a given card could give you. Though one has innumerable number of offers from credit card companies, with each providing better offers than the other, the credit card payoff calculator can help in calculating and analyzing the true cost and helps in comparing the credit card rate of different companies and you could choose the one that best suits your needs.

In summary, the credit card pay off calculator is a program that will help you determine the duration that you would take to repay the debts on your credit card based on the figures you supply. Thereafter, you could show the information to a professional counselor who could help you with suggestions to repay the debt in lesser time and smaller cost. Through a credit card payoff calculator, you could get your credit card interest rates reduced considerably and ultimately it could help one get out of credit card debt in a shorter time. This credit card calculator works with minimum resources with no additional software and works like windows calculator, hence we recommend you to make use of it in controlling your credit balance.

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Credit rewards are carrots dangled by credit card companies. Before you are caught by the enticement evaluate your monthly earnings, expenditure, as well as loans. Do not invite a financial hurricane if you are not in a position to pay all your bills every month.  Interest rates on reward cards can be at least 2-3% higher than other cards.

There are tips you must know when you deal with credit rewards program:-

• If you love travel then choose to treat reward points as frequent flier miles. Check out the options your credit card offers and estimate the good value for money you get by comparing annual fees you have to pay versus free ticket you may get with your flying frequency.

• Many cards offer a cash rebate. The enticement carries hidden a higher interest rate and if you are not in a position to settle your bill immediately you will spend much more than you earn on the rebate.

• Use a card that offers a large number of options. Then you have the luxury of selecting from a huge variety of merchandise.

• Be clever use the reward points quickly before the card company downgrades the points gathered by you.

• Check whether your reward points can be set off against the annual fees payable by you. If you have a no fee card then choose rewards that are of use to you like gasoline, travel assistance, retirement incentives, flier miles, or cash back. Do considerable research and choose a scheme that works for you.

• Use the card that offers you a reward steadily but be sure you can settle the bills every month otherwise, the interest you pay will negate the rewards earned.

• Use the rewards card to pay for groceries and utilities every month. It is a necessary expenditure which can earn valuable reward points.

• If you have a mortgage payment to make and the bank accepts credit cards then pay with you credit card and earn the reward points. However the outstanding must be settled immediately.

• Always be well informed check consumer reviews about the cards you hold.

The more you use your credit card by using the card to pay for utilities, groceries, prescriptions, mortgages, the more you can earn more points in a year. However, you have to bear in mind that even though you have been forced to use your credit card often to reap good value of your credit rewards program, you still have to manage your money wisely and never spend more than you can afford.