My Credit Application Was Denied ... Why?

'Tis the season that a lot of people apply for store credit cards and other forms of credit.... and get denied.

Some have no clue why and simply feel their credit sucks and ponder on where to begin to fix it.  Or conversely, 'My credit is great what is wrong with THEM?'

The answer can be found in the reason codes.  In your denial letter they'll state which credit bureau they pulled your credit information from and the reasons why your credit application was denied.  

The reason listed first is the #1 reason why you were denied credit; followed by other factors that led to the denial as well.  According to FICO, this is to inform us of what we need to do in order to improve our credit over time.

Some common reasons could be: too many inquiries, not enough revolving accounts, serious delinquency and derogatory public record or collection filed, amount past due on accounts, too many accounts with balances, etc.

For example, credit score 500
Reason codes: 40 27 24

Your credit score is 500.  The numbers behind the credit score are:

40 Derogatory public record or collection filed
27 Too few accounts currently paid as agreed
24 No recent revolving balances

This is telling you the reason you are receiving this score is because #1 you have a derogatory public record or collection filed (affecting your score the most), #2 you have more accounts reporting negatively (late payments, etc) than you do reporting positively as Paid As Agreed/In Full; #3 you have no recent open-ended accounts (credit cards, lines of credit).

The reason codes basically explain the factors supporting your score; not why it's so low.  All credit scores have reason codes behind them - from 300-850; it simply lets us and the creditors know the reason why our score didn't get the most points available.  There are usually 3-4 reason codes behind your score that again, tell the lender why your credit information didn't get a higher score.  We as consumers don't automatically get this information, it is relayed to us by the creditor as an educational tool.

Both FICO and VANTAGE have reason codes.  Vantage has a pretty cool website called ReasonCode.org where you can enter your reason codes to find out why your score isn't better. FICOs are typically available with a Google search but I'll warn you there are over 100 depending on the model and credit bureau - they never make it easy do they? :)

Hope this helps!

10 Money Management Tips for College Students

The college years can be the best of times and the worst of times.  It's awesome to finally be on your own, making new friends, getting the education to embark in a career; and to party freely without the supervision of your parents J.  It can be the worst of times as you see your bank account getting smaller, having to manage your financial aid funds, your personal funds and your school work all at the same time.

So, how can you manage your money better as a college student?

ONE:  Whenever you notice you have more month than money it’s always best to track your spending.  Where is my money going?  The easiest and cheapest way is to take a notebook out and start listing everything you’re spending money on; and I mean everything. From every day necessities to small splurges that can often go unnoticed such as coffee, snacks and liquor/cigarettes.  If you have a bank account go ahead and pull past bank statements and see what you've been spending on outside of basic necessities; eating out? Cable? Internet? Expensive cell phone package?  Some budgeting templates can be found under my 'Credit Building' tab.

TWO:  Create a budget. Just as you have an outline of what you must do to graduate in your degree of choice, you also need an outline of how to manage the money that is coming in on a monthly basis.  It should include the total amount of money coming in from all sources – scholarship, part time job, parents, etc; as well as an ‘outline’ on what you should be spending it on.  Necessities come first of course; followed by ‘extras’.  The #1 rule of budgeting is to ensure you always have more income than expenses. So, if you notice those ‘extras’ that you've listed in Step #1, are cutting into your income; you have 2 options:

THREE:  Start cutting.  This is the perfect time in your life to learn how to separate ‘wants’ from ‘needs’.  No matter what stage you are in life, there will always be something you cannot afford; it’s best to learn that lesson now.  This is not to say you cannot have fun; by all means enjoy your college years!  But, do so by eliminating unnecessary expenses that hinder you from truly making this time of your life enjoyable; namely from being broke J.  The key is to save and then splurge. Cutting expenses doesn't always have to involve eliminating; for example: 

• Prior to buying books for the class, wait until you get the syllabus to see if you really need the book.
• Find someone that has just taken the class and do a book exchange. 
• If you’re purchasing your books; rent them instead. 
• Evaluate your meal plan; does it fit your needs or did you get a bigger plan than what you are actually consuming – meaning you’re wasting money each month. 
• Use that Student ID!  There are discounts for students everywhere you go – the movies, the bus, car insurance, health insurance, restaurants, airfare, train, etc  – you name it; make sure you ask before you spend.  Identify the places that will allow you to get more bang for your college buck. If they don’t discount; patronize a business that does. 
• Leave your car at home.  Campus life is all about walk ability; and public transportation is pretty rampant.  Why add on car insurance, gas and maintenance to an already strained budget; you’ll be able to get around just fine. 
• Take advantage of free college events.  Colleges and universities are known to hold a variety of free social events, some even come with free food! 

FOUR:  Earn more money.  This is an option if your schedule permits.  I’d think carefully about this one, as your ability to meet your educational requirements is way more important than ‘living large’.  If it’s necessary to take on a part time job just to meet basic needs, then please make sure it’s one that will accommodate your school schedule.  A campus position is a good place to start. And if you do find a position off campus, see if they offer tuition assistance as one of their benefits; every little bit helps!

FIVE:  Develop a Money Mindset.  This means that once you know what you make, how much your expenses are, you've cut some of your ‘extras’ and/or have taken on a part time job; your mindset should switch from spending ALL of your money left over after expenses, to starting to establish a savings, making sure all of your bills are paid on time.  If you don’t have a bank account, this is the perfect time to open one and actually learn how to balance your account.  Establishing a money mindset is all about being aware of your InCOME in comparison to your OutGO, and making the necessary changes to retain as much of your InCOME as possible.

SIX:  Use credit cards wisely.  Most suggest to avoid credit cards completely, but college is the perfect time to start building credit.  Remember, however, that your credit card is not there to support your lifestyle or extend your income.  Use it for emergencies only and only spend what you can pay back right away or at the very least in 3 months.  Make sure you select the right card; you want one that does not have an annual fee and a relatively low interest rate.  Going back to Step 5; before swiping your card your Money Mindset should kick in and ask:  “Is this truly an emergency?” “Would I go to a bank and borrow money to pay for this?” “How can I plan for this type of expense/emergency in the future?”  The best place to go to find a student loan credit card is www.bankrate.com.  If you’re turned down for an unsecured credit card; check out your bank’s secured credit card option, this is when you have to put down a security deposit that equals the amount of the credit you’ll be extended.  If you’re using a credit union, they’ll often approve you based on the amount you have in your savings account.  NEVER use the cash advance option with your credit cards. The interest rates are horrible and you may be charged an additional fee as well.

SEVEN:  Only borrow what you need.  Discuss your financial aid with your F.A. officer so that you’re aware of any scholarships or grants you may be eligible for.  Find out what type of aid you are receiving – free or those that have to be paid back – and what requirements are needed to keep receiving those free aid funds; find out what interest rates are tied the loan portion of your financial aid.  Find out how close you are to your aggregate loan limits to ensure you have enough money available to complete your degree, declining your ‘refund’ check so that those funds are available to you in the future.  Do everything possible to learn your loan obligations.

EIGHT:  Now that you have everything mapped out, the next step is to automate it.  There are some great apps that allow you to stay within your budget, track your spending, and alert you when your bank accounts are nearing a $0 balance;

• My favorite one happens to be YNAB (You Need A Budget). It works on both your desktop and your mobile device, which can be synced together and is super easy to use.  They offer live classes on everything from creating and sticking to a budget, how to properly use your credit cards, and more! (Note: it’s not free at $60 for the desktop software). 
• My next favorite is Mint.com/Mint Bills; it’s free!  One of my favorite features on Mint.com is Cash vs Credit. It lets you compare your credit card balances to the amount of cash you have to pay them off; how cool is that?! Mint Bills is a payment and bill tracker app that alerts you when bills are due, when they have been paid and if they are past due. It allows you to make payments via the app as well; used together with Mint.com they’re a powerhouse. 
• For assistance with finding the cheapest textbooks around, check out TextbookMe.  It allows you to search for your textbooks at various retailers to find the cheapest price out there. So, if book swapping or book renting is not an option this definitely comes in handy. 
• For assistance in paying off your student loans I have two options:  Debt Payoff Planner (Android) or Tuition.io.  Debt Payoff Planner is for any type of debt and assists in helping to find the best method to pay off your debts; providing the dates the debt will be paid off based on your monthly payment amounts.  Tuition.io is specifically for organizing your student loan debt.  It allows you to view all of your loans – both federal and private – in one place; view your balance and payment history, determine alternative repayment options that may be available to you and providing the pros and cons of each.

NINE:  Monitor for continued success!  Very rarely do our income and expenses remain the same month after month; year after year, especially on a college budget. Monitor your budget often, especially when unexpected money is received or unexpected expenses arise to make sure your dollars are working in your behalf.

TEN:  Ask for help!  There are tons of free resources available from your parents, the financial aid administrator, your resident adviser, your local member of the National Association of Credit Counselors (nacc.org) If you find yourself in financial duress, reach out and speak with someone.

Hope this helps!  If you have any specific questions on budgeting during your college years; feel free to contact me.

4 Alternatives to Debt Consolidation

HAPPY FRIDAY!

It is a beautiful afternoon here in Chicago, we've gotten our first sticking snow (sticks to the ground) today and it is cold!

I was asked about how to consolidate loan/credit card debt on your own this morning, so here you go!

Debt Consolidation is when you get a new loan (or line of credit) to pay off your credit card(s) or some other debt. The benefit is that you have one debt to pay each month and it's usually at a better interest rate. There's also a benefit credit-wise. If you have used more than 50% of your credit limit, your credit score is taking a major hit. By switching the type of credit from a 'revolving' line of credit to an 'installment' credit, you are getting your debt utilization back, which is 30% of your credit score.

Here are some ways to consolidate debt on your own:

1. Obtain a new card and transfer the balance. Example:

A client of mine had a 643 credit score. Two of her cards were almost maxed out and the interest rates on them are 16.99 and 24.99. She spoke to her current credit card provider to see if she qualified for another card and they gave her 2 options - one of which was a 12.99% credit card with 0% interest until 2015, 0% on balance transfers until the end of 2015 and the credit limit was higher. She was able to transfer the balance of the 24.99% card over to the new card, saving money, interest and her credit rating. The other card? She decided to just put more money towards it each month so that she can quickly pay it off.

2. Another Option is a personal loan or Home Equity Line of Credit (HELOC).

Obviously the HELOC only applies if you own real estate. I'm not a fan of using the equity in your home to do anything other than make other investments that will bring in a better rate of return. 

Some of my clients have had success with personal loans via their personal bank or credit union and I am a fan of this, especially with credit unions. Honestly this is the longest option because the process from application to funding can be in excess of 30 days. However, the attractive interest rates and the opportunity to strengthen the relationship with your bank makes it a strong option.

3. Peer to Peer lending. This is the 2nd quickest and a very viable choice if obtaining a new credit card is not an option. Again, I'll provide an example:

My client has 3 credit cards at interest rates of 13.99, 24.99 and 22.99. She got a peer to peer loan from Prosper and was able to get a $10,000 loan to pay off all of her credit cards at a 13.75% interest rate. See the benefit? One loan. One monthly payment. Lower interest rate. Other peer too peer companies include Springleaf and LendingClub. Another plus is that the application to funding process can be less than 10 days.

4. A more labor intensive but FREE option is to create your own DIY Debt Pay Off Plan. The other options above require credit approval and have merely allowed you to move your debt from one place to another in order to pay lower money on interest rates and to create an ease of monthly payment. But, the debt itself is still there. At the end of the day, if you are still in debt and you still owe the debt whether you use a HELOC, a peer to peer loan or a balance transfer. So, let's discuss actually paying it off.

~First you'd need to list all of your creditors along with their interest rates, balance, minimum amount due.
~Next negotiate with your creditors on lowering the interest rates, which will save you money over all. I would like to tell you that all of them will lower your rate but that would be completely misleading. Depending on your payment history, the longevity of your relationship as well as other factors, you're looking at a 20-60% chance of getting your rates lowered. 

~Now you need to create a Pay Off Plan. If paying more than the minimum monthly payment seems daunting, you need to stop here, create a budget and find some things to cut in order to put more money towards your debt (switch cable for Netflix, HULU or some other company, downgrade cell phone package, increase your insurance deductible, etc). 

~Next decide which method of payment you'll use. Some advise starting with your higher interest rate debt first and working your way down to the lowest one. Others advise starting with the lower debt first and working your way up to the debts with a higher balance. Honestly it's up to you. I've noticed that the higher interest rate cards typically have the lowest balance anyway; but do what is going to keep you motivated. For me, it's seeing something eventually get paid off and crossing it off of my account list; thus I went with starting with the lowest balanced cards first. The key to either strategy is making sure you use the funds from the paid off card to add to the next card on the list. For example, let's say you have 3 credit cards:

Visa $3000, 13%, $25 minimum monthly payment required, the amount you budgeted to pay per month is $125
Visa $5000, 10%, $50 minimum monthly payment, the amount you budgeted to pay per month is $50
Master Card $8000, 7%, $75 minimum monthly payment, the amount you budgeted to pay per month is $75

Once you pay off the $3000 Visa you put that entire $125 payment amount towards the $5000 Visa, increasing your minimum payment you make to $175. Get it?! So, whether you start with the lowest balance or the highest interest rate, 'snowball' the payments to get out of debt faster.

I have both a budget template and a dept pay off template listed here. If you'd like a customized debt elimination plan that will allow you to factor in all of your debts - car, home, credit cards, etc - contact me about our DebtZero program.

Here's to being Debt Free!!!

Where Should I Pull My Credit Report From?

People ask me this all the time. I can honestly say the most accurate ones come directly from the three (3) credit bureaus. Another option is the one that the credit bureaus support in which you get 1 free one a year: www.annualcreditreport.com.

If you want a score, the most accurate scores will be the FICO score at www.myfico.com (no it's not free).

Any other score is either a Vantage score (another scoring company started by the 3 major credit bureaus) or a consumer educational score.

Then there are the 'others'.

Since the Equifax report on Annual Credit Report is always 40+ pages (waaaay too long) I always recommend getting an Equifax report at www.quizzle.com instead - its FREE!

There are other free sites such as CreditKarma.com, which offers great tools and provides you with your Transunion and Equifax reports with Vantage Scores but honestly, the data is not always accurate.

Next are the credit monitoring websites that offer a free report(s) and a version of a credit score (there are several). It's either free or $1 for a limited time (7 days to 30 days) and then you have to cancel or be charged anywhere from $12.95 - 29.95/mth.

The ones I've had the most success with are:

1. Credit Score Pro:  They offer all 3 credit reports for $1 and the monitoring service is free for 7 days.

2. Credit Check Total:  Same info as above and the same score, - PLUS score created by Experian - the advantage of this one is that if you call and cancel before the 7 day limit they'll reduce the monthly fee as low as $12.95. They offer all 3 credit reports for $1 and the monitoring service is free for 7 days.

3. Identity Guard:  Free for 30 days, reports are ok but not as good as credit score pro and credit check total

4. Privacy Guard:  Similar to Identity Guard, I actually like their reports little a better BUT it's not free for 30 days. Their offer is $1 for 14 days.

5. My IQ Report:  I like the easy to read reports given, data is average they don't have a free or $1 for limited time offer, it's just $16.95 per month.

Hope this helps!

It's The Most Wonderful Time of The Year... For Credit Repair!

Holidays are such a pleasant time: extra days off, time well spent with family and friends, and great food!

Being that we take off so much time from our jobs, companies find the holiday season challenging as far as ensuring coverage for work duties.

The same can be said of creditors, debt collectors, courthouses and credit bureaus.  Therefore:

THE HOLIDAY SEASON IS A GREAT TIME FOR CREDIT REPAIR!!!

Many wait until after the holidays, but this is a big no-no.  The big 3 credit reporting agencies - Experian, Equifax & Transunion - will be working hard to meet work demands and to meet deadlines, particularly the 30 day deadlines associated with credit report disputes.  By starting your dispute now, you'll have an advantage as credit bureaus will be understaffed and focused more so on holiday activities.  

Another reason the holiday season is such a great time to start repairing your credit is thanks to the credit card companies.  Have you reviewed your junk mail lately?  I guarantee you've seen an increase in credit card offers as many are providing holiday specials with eased credit guidelines.  This means increased credit applications that require more credit checks.  To add, credit card companies, creditors, debt collectors and specialty consumer reporting companies are understaffed as well so that chances of them responding in a timely fashion is reduced is greatly reduced.  

This is why more deletions occur from credit reports this time of year than any other time.  So, from the end of November until the 2nd of January, dispute away!  Take advantage of the fact that credit bureaus have issues with productivity due to their staffing being cut as much as 40%. This is the ONLY time I would advise sending in a dispute letter for EACH item that you want removed.

If you need assistance, please do not hesitate to contact me!