Tag Archives: credit score

Knowing Your Score and Looking for Savings

All right here’s a little questionnaire for you:

  • Do you drive across town to fill up gas at the station with the lowest price?
  • Do you clip coupons to save on groceries?
  • Do you check your credit reports on a regular basis for errors and do you know your credit score?
  • Do/did you shop around for a mortgage with the lower APR and did you compare apples to apples when you did the comparison?  Did you look at the fees involved?
  • When buying a car, do you buy new or used?  Do you pay for it in full or get a loan?  If you get a loan, do you negotiate the cost of the car separate from loan discussions and do you shop around for a loan?

My point with the above questions is that I think that many to most people think about the first two bullets and some to most people don’t think about the last three.  However, the last three bullets could save you far more money than the first two bullets. 

I wrote about how your credit score is calculated in a previous post.  You credit score is one of your most important assets.  It can affect the rates you get on loans, the cost of your car insurance, whether you get an apartment and/or job, and many others.  Ben Schlappig wrote a great article about credit scores in his TravelSort column.  No credit card sign up bonus is worth ruining your credit over.

I’m going to steal a picture from Ben’s column to illustrate a point.  He had an example of how your credit score may affect the interest rate you receive for your mortgage.

Now you may be saying, what’s the big deal about a 0.2% difference between the ranges?  On a $300,000 mortgage, if your credit score is in the 700-759 range, instead of the 760-850 range, you would end up paying approximately $12,000 more over the life of the loan.  And if your credit score was in the 680-699 range, instead of the 760-850 range, you would end up paying approximately $25,000 more over the life of the loan.

When looking at loans of any kind, make sure you shop around.  And if nothing else, make sure you know your credit score and try to keep it as high as possible.  It could save you a ton of money in the long run – money you could use to take fabulous vacations.

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Free Credit Score Web Sites

Your credit score can affect your life in so many ways – from your ability to obtain credit to your insurance rates to possibly your ability to get a job.  It’s important to know the factors that affect your score.  And it’s important to know your credit score.  There are 3 credit scoring agencies that companies use when determining if you are a good credit risk – Experian, TransUnion, and Equifax.  You are entitled to get a free credit report from each agency on a yearly basis.  You can get that from the Annual Credit Report web site.  It’s a good idea to check all 3 agencies.  You want to make sure that the information on the report is correct.

The annual credit reports do not give you your credit score; they only show you the accounts and inquiries for your credit.  However, there are sites where you can get your credit score for free.  These sites are do not charge anything; they are not a trial period service.  They try to sell you financial products based on your credit.  Some people do not like the sites for that reason.  Others do not like them because some of them require you to give your social security number to get your score and they worry about how well these companies will secure that.

Credit Karma – (requires social security number input) This site gives you your TransUnion credit score.  They also give you a credit score report card which gives you a letter grade for each aspect of your credit score.  That will show you which areas are negatively affecting your score so you can work to improve it.  It also has a credit simulator that allows you to make changes to your credit report to see how it affects your credit score.

Credit Sesame – (requires social security number input) This site gives you your Experian credit score.  It allows you to set up credit goals and gives advice on those goals.  I don’t necessarily agree with the advice that they gave me.  I found it a bit misleading saying that I’d save money by switching our 30-year fixed mortgage to a 40-year fixed mortgage with a higher rate.  They claimed we’d save money every month because of a lower monthly payment.  However, from what I could see, they didn’t factor in that we’d be paying for 10 more years.  However, I do like that you get your credit score for free each month.

Quizzle – (does not require a social security number to be input)  This site gives you your Experian credit score and credit report.  This site has information about your home and what houses in your neighborhood have sold for.  It also has information about saving, such as how much you should have in a rainy day fund based on your salary.  It will give you a credit score the first time you log in.  If you want it updated, you will need to pay a one-time charge each time or sign up for a monthly service ($7/month).

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Credit Score Basics

If you’re going to play the credit card sign-up bonus game, you should understand how your credit score is calculated.  The actual calculation is proprietary, but there are general guidelines.  The credit score most institutions used is the FICO score which was developed by the Fair Isaacs Corporation.

Main Factors

  • Payment History (35%) – Are you paying your bills?  Are you paying them on time?  Financial institutions want to know if you’re going to pay them back.  They will look at your payment history to determine the likelihood of you paying them back (recent history being the most important).  Late payments will cause your score to go down.  Debts that went into collections are worse and bankruptcy is the worst.
  • Amount Owed (30%) – How much debt are you carrying and how close to your limits are you?  Your score won’t necessarily be lower if you have a lot of debt.  They are looking at ratios here.  How much of your available credit are you using?  If you’re carrying close to your limit, you are considered riskier and your score will be affected.
  • Length of Credit History (15%) – A long length of credit history gives financial institutions more information about how likely you are to pay.  This is why on a lot of blogs they will tell you to keep open some cards to let them age.  If you have a non-fee card that you’ve had for a long time, it is a good idea to keep that account open so your length of credit history remains high.
  • New Credit (10%) – This is definitely one aspect of the score that will be affected in some way by the credit card game.  Financial institutions are looking at how much new credit you’ve been applying for.  You’ll hear people use the term “hard pull” – that’s the term used for when a financial institution pulls your credit score.  (It’s different than if you were looking at your credit report.  If you’re looking at your credit report, your score is not affected.)  This is the part of the score that looks at hard pulls.
  • Types of Credit Used (10%) – Financial institutions want to see that you can juggle different kinds of credit – revolving, installment, etc.

Part of the reason I don’t think my credit score has been affected so much by the credit card game is that I didn’t have a lot of credit cards (really only 2) before I started.  So I would charge nearly all of my purchases on one card and I didn’t have a lot of available credit.  As a result, my percentage of available credit being used was higher than it is now.  I now have more available credit, so the percentage I am using is low.  Also I have never missed a payment, so I’ve never had anything go to a collections agency.  And I have never declared bankruptcy.

You’ll need to assess your situation to see if this is a good option for you to get inexpensive travel.

If you do want to use credit card sign-up bonuses as a means to travel, there are a few great options out there right now:

  • British Airways (Chase) – 100k sign-up bonus – 50k after first purchase, 50k after $2,500 spend within 3 months
  • American Airlines (Citicard) – Visa link, Amex link, Business Visa link 75k sign-up bonus after $1,500 spend within 6 months, no annual fee the first year.  Technically this offer has expired.  However, the link for the offer still works and people have reported success on Flyertalk.
  • Continental (Chase) – 50k sign-up bonus after first purchase, no annual fee the first year.  This card is great because it will be going away with the merger with United, so you have a limited time to get the card.
  • Hyatt (Chase) – 2 free nights at any Hyatt after first purchase, $75 annual fee (not waived the first year).
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