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The Dangers of Avoiding Credit
My 25-year-old coworker thought she had done everything right when it came to protecting her credit. She paid off her student loans early. When she does use a credit card, she pays it off in full each month. And she’s never been late on a monthly bill. Her credit score was over 750, which is considered excellent.
Despite that stellar record, multiple lenders turned her down for a mortgage earlier this year. The reason, they told her, was that her credit record was simply too light. Since she had paid off her student loans and didn’t use much credit elsewhere, they had no way of knowing whether or not she would be responsible with a mortgage. In other words, she was being penalized for living a relatively debt-free life. To make matters worse, one of the lenders told her that because she was shopping around so much for a loan, the multiple inquires into her credit report were starting to negatively impact her score.
Her experience gets at one of the great weaknesses of our credit reporting system: In order to borrow money, you have to have already borrowed money. That’s the only way you can demonstrate that you are “credit-worthy,” as the credit reporting bureaus put it. To get to the bottom of this conundrum, I spoke with Rod Griffin, public education director for Experian, one of the big credit reporting bureaus. Here are two truths and four myths about credit reports:
Truth: Having little experience with credit can make it hard to take on a mortgage.
The first thing lenders look for when assessing whether or not they want to give someone a mortgage is their credit history, says Griffin. That means you need to have open, active credit accounts in your name in order to demonstrate that you can handle credit.
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6 Ways You might be Hurting Your Credit Score
If you've been trying to boost your credit score—which is a good idea, since people with higher scores tend to pay lower interest rates on loans—you might be going about it all wrong. It turns out that many people don't know just what helps, and hurts, their credit scores. Here are six ways you might be accidentally damaging your score:
1. Avoiding credit altogether. While living a debt-free life sounds like a good idea, it can actually make it harder to take out a loan when you want to. That's because lenders look for experience with managing debt—they want to see that you can make consistent, on-time payments each month—before deciding whether or not to issue you any more of it.
2. Comparison shopping. While checking around for the best price is a savvy move in theory, in practice, it can ding your score. When you call different lenders to check on mortgage rates or auto loans and they issue you a quote, they first check your credit history with the credit bureaus. That can look like you're preparing to take on too much debt, which concerns lenders. While the impact isn't huge, it can hurt people with limited credit histories more, because they don't have much experience to balance out the negative impact from the credit checks.
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Does the Nigerian prince exist?
The quick answer is that Nigeria is a federal republic and not a kingdom. There are no princes whose funds are frozen and need help from an American stranger.
A few years ago, I had a friend who shared a story of a struggling prince in a far away land whose money was frozen. The prince had no one else to turn to for help. She was chosen. My friend corresponded with the prince’s lawyer through email and she was convinced she had won the lottery. She even excused the bad grammar in the email indicating English wasn’t their first language.
If you’ve read these emails you might be familiar with the story of a prince or benefactor of a large estate that needs help to pay for tax liens. Payment of these liens would free up the millions that were frozen. There are variations to this story.
My friend wasn’t going to receive a multi-million dollar payout immediately. The lawyer needed her help by clearing a smaller check. She would receive a cashier’s check for the amount of $5,000 and was asked to Western Union $2,000 back leaving her a hefty commission of $3,000 for her troubles.
My friend did as she was instructed and deposited the check. The check was cleared as a courtesy. [Keep in mind that check deposit holds vary per institution policy and government regulations. If you have a good relationship with your credit union or bank, chances are they'll make the check amount available to you in good faith. But that doesn't mean the check has cleared the bank its been drawn on.]
READ MORE: http://blog.phroogal.com/does-the-nigerian-prince-exist/#.Uh5L6q3D8m5
Congress OKs cheaper student loans - CNN MONEY
The House on approved a bipartisan bill that ensures lower interest rates on loans for students heading to college this fall.
Members of the House voted 392 to 31 to lower rates for undergraduates taking out government loans this school year to 3.86% -- cheaper than the 6.8% interest rate that kicked in on July 1. The new rates would be retroactive and apply to loans taken out after July 1.
The bill has been signed into law.
It has provisions for rates to go higher in coming years.
As House members debated the bill, many Republicans took credit for the deal. They noted that the Senate version wasn't much different from their own student loan bill, which linked rates to the bond markets.
"My colleagues and I have been fighting for months for a long-term market-based solution that will serve students and taxpayers, and the legislation before us today will do just that," said Minnesota Republican John Kline, who runs the House education panel.
The new rule doesn't apply to loans that students get from private lenders. It only affects Stafford loans, which are made by the U.S. government to help finance a college education.
On July 1, the interest rate on subsidized Stafford loans doubled from 3.4% to 6.8%, affecting 7.4 million students. The subsidized loans are based on financial need and account for about 26% of all federal student loans, according to the Congressional Budget Office.
Unsubsidized loans and graduate loans were already paying 6.8% interest rates.
READ MORE: http://www.money.cnn.com/2013/07/31/pf/college/student-loan-house/index.html
Debt-Free or Skinny? Survey Answers Which We'd Rather Be
Americans are notoriously body-conscious. We're also money-conscious. But does our obsession with weight and looks trump our concern about our personal finances?
A new survey by Credit Karma, a financial tracking and educational site, and Harris Interactive found that yes, Americans are more concerned about their waistlines than our bottom lines.
The most startling fact to come out of the June 2013 survey is that 72 percent of the 2,021 respondents said they would rather live with their current debt than gain 25 pounds and be completely debt-free. Only 28 percent said they would be willing to gain that much weight to get out of debt.
In a similar vein, 43 percent of those surveyed agreed with the statement: "How much I weigh is more important than how much debt I have."
And if you think that it's women care more than men about their weight, you'll be surprised to learn that men were more likely to agree with that statement (49 percent) than women (38 percent).
Among those surveyed, 74 percent said they have some debt and 46 percent said they have credit card debt. The mean amount of credit card debt for the group was $5,900.
Some of the other findings of the survey include:
•64 percent of those surveyed think about their physical appearance more than their debt.
•35 percent worry more about how they look than the debt they're in.
•70 percent said they care more about their physical health than their financial health.
But interestingly, when the cases got more extreme, the positions flipped. Given the choice between being obese and debt-free or their ideal weight but facing bankruptcy, 62 percent chose the option of being obese, while 38 percent would rather face bankruptcy.
READ MORE: http://www.dailyfinance.com/2013/08/05/debt-free-or-skinny-survey-americans-prefer/
My 25-year-old coworker thought she had done everything right when it came to protecting her credit. She paid off her student loans early. When she does use a credit card, she pays it off in full each month. And she’s never been late on a monthly bill. Her credit score was over 750, which is considered excellent.
