JoeTaxpayer

Last September I wrote a post titled “Zero Interest Redux” in which I discussed the impact to one’s FICO score and how borrowing large sums off a credit card at zero interest can hurt your score in the short run. In May, I posted “Free FICO Score” about my discovery that WAMU (Washington Mutual) offered free access to your FICO score if you are a credit card holder.

The access to the report has been a bit sporadic. I was able to pull a number in April, but then no access till July when I received my warning email that my score “had changed more than 20 points.” Fair enough. The April score was 746. Since then I pulled one more $30,000 zero interest loan, and put it against my mortgage. The zero interest deal was for 24 months, and we’ll be able to pay it in full when it comes due. I also added a credit card which offered higher airline miles, a CitiBank Amex card, in addition the CitiBank Visa we had. So I went to the WAMU site, and much to my surprise, my score was up to 773. Even so, it offered suggestions as to how to raise it further;

1. The proportion of balances to credit limits on your revolving/charge accounts is too high
Analysis of consumer credit behavior repeatedly finds that owing a substantial balance on revolving/charge accounts (Visa, MasterCard, Discover, American Express, Diners Club, department store cards, etc.) relative to the amount of revolving/charge credit available to you represents increased risk.

2. The time since your most recent account opening is very recent
Research shows that consumers who have recently opened new credit accounts are slightly more likely to miss payments than those who have not. This is not an especially strong risk factor, and therefore usually means a difference of no more than a few points in a consumer’s FICO score.

That first one is interesting, they go on to suggest “Bear in mind that even if you pay off your credit cards in full each and every month, your credit bureau report may show the last billing statement balance on those accounts” Which means that giving up the float (the time from when the bill is cut to the time it’s due) or some portion of it, will help your score further. Let’s look at the math on that. If you are earning (or paying) 5% as the cost of capital, $1000 will cost you $2.75 for a 20 day float. If your credit card bill is $3000 each month, that’s about $8.25/mo to improve your FICO score. To be clear, this suggests that you make a payment before the bill is cut, so whatever you spent over the month does not show as a balance due.

The alternative to this would be to contact the issuing bank and request a credit line increase, or to use multiple cards, keeping the maximum balance on any one card below about 30% of its credit line.

Joe

written by JOE \\ tags: Credit, credit card, credit cards, department store cards, fico, free fico score, interest, irs, loan, Mortgage

In a simulcast of publishing both here, and my main web page, where I publish a monthly article, I am happy to offer my List of Lists;

Ever since 1977’s “Book of Lists“, our fascination with lists and sets of rules has grown. David Letterman’s Top Ten List has been going on for decades with no end in sight. These are Rules of Money that I’ve saved over the past few years, enough to post my favorite “List of Lists”. If I missed one of your favorites, please leave a comment and I will add it.

• 25 Rules to Grow Rich By
• 9 money rules to live by
• 16 favorite money rules of thumb
• 5 money rules to live by
• Jim Cramer’s 25 Rules of Investing
• Charlie Munger’s 10 Rules for Investment Success
• The 10 Most-Hated Money Saving Tips
• Eight Secrets of Financial Happiness
• 10 Reasons You are Not Rich
• 20 timeless money rules
• Dilbert’s “Unified Theory of Everything Financial”
• 50 Tips to Help Establish Your Emergency Fund
• Ten Things You Need to Know About Money
• Seven Reasons to Welcome a Recession
• 15 ways to improve your credit score
• 50 Ways To Raise Your FICO Credit Score

Take your time, enjoy the list, and send me your thoughts.
Joe

written by JOE \\ tags: 20 timeless money rules, book of lists, charlie munger, Credit, david letterman, emergency fund, fico, fico credit score, Investing, investment, investment success, jim cramer, money, recession, rich, saving, TIPS, top ten list

I wrote about a zero interest credit card offer I accepted, and received some feedback and a couple questions from a reader:

Besides possibly affecting your credit score (by having too much available credit), presumably you’ll want to cancel the account(s) at some point… right?

I’ve read canceling too many accounts in too short a time period also negatively impacts your credit score.

Then there’s the impact on your score from new repeated credit inquiries, etc.

Indeed the answer to the above is yes, mostly. Let’s look at what impacts your FICO score;

By the way, the above is from a PBS special, “Secret History of the Credit Card.” Mrs. Taxpayer is still kidding me how a show with such a title can get my interest.

FICO formulas are still a bit of a secret, but the above is a good start. As I’ve read more about each of these criteria, I understand that ‘amounts owed’ are a ‘percent available credit used’ more than total dollars. So accepting a new card and instantly using the entire line may have a bit of an impact, but this is where unused credit on other cards actually helps bring down the total percent used. Of course, applying for too many cards in a short timespan also will impact your score. Canceling cards can hurt you in two ways, raising the ‘percent credit used’, and reducing average age of accounts, so you are correct, these are concerns.

Now assuming all that doesn’t scare one away from accepting free money, what about the tax impact on the earnings you’ll receive? Once you subtract the income tax, the $50 transfer fee, and the temporary possible credit score damage, do you think it’s still worth it?

As I posted, I will gross $450 in profit. With median (household) income at $48K or just over $24 an hour, I do think it’s worth it. I dropped off the cash advance check along with other business I had, so no wasted time there. I set up 5 payments of $200 on my automatic bill pay through my bank, and marked my calendar to make that last payment in full. Maybe 15 minutes effort. I’m not planning to spend time scouting out these deals, but I won’t turn them away. I am 45 years old and remember when $450 was the pay for 150 hours of work. Would I do this to gain $50? No. $250? Sure.

To wrap up, I’ll say that if you are in the market for a mortgage, you’ll want to check your credit report and be very careful not to do anything that might hurt your chance of getting the best rate you can. I wouldn’t want to trash my credit rating, but I can afford a small hit. My fixed mortgage was closed at the bottom of the last cycle and so I doubt a refinance is in my near future. Thank-you JAL for reading my blog, and being the first to comment on one of my posts. I hope I answered the questions you raised.

Edit - I recently found an article “Five Mistakes That Hurt Your Credit Score” by Jeffrey Strain of TheStreet.com which adds to the thoughts I presented here.
JOE

written by JOE \\ tags: Credit, fico, interest, loan, money, wealth

You can go to annualcreditreport.com and request to view your credit report from each of the three nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Since each one permits you you view your report annually, you are able to view a different one every four months. I’ve not seen the value in paying for ‘credit protection’ since your credit cards’ liability limits you to $50 so long as you repost a card stolen soon after you are aware it’s missing. Even those protection services cannot save you the time it will take to get your life in order if you are the victim of true identity theft.
JOE

written by JOE \\ tags: annualcreditreport.com, Credit, Equifax, Experian, fico, identity theft, lend, loan, TransUnion