Understanding Your Credit Score
Posted on June 24th, 2013
At first glance, credit scores can seem confusing and difficult to interpret. The commonly used FICO credit score, named after Fair Isaac Corporation, is based on a scale from 300 to 850 with the median FICO score falling in the 720-725 score range. But how are those scores calculated? FICO scores are comprised of five components: payment history, credit utilization, credit age, mix of credit and recent credit. The following are general guidelines for how each component is calculated and valued in an overall credit score.
Payment History (35%)
Payment History measures the timeliness in which various credit bills such as mortgages, credit card bills and auto loans are paid.
Bills paid on time can help improve credit score, while late bills can adversely affect credit score.
Credit Utilization (30%)
Credit utilization is the ratio of current debt to the prescribed limit of debt.
By limiting the amount of purchases paid with credit, the credit utilization ratio will drop, thus improving your score. Additionally paying off debts will lower the ratio and improve credit score.
Credit History (15%)
Credit history measures how long an individual has been with a certain credit company.
Longer credit histories improve credit score. Longer histories show the reliability of customers who pay their credit bills.
Credit Mix (10%)
Credit mix is determined by looking at the four different types of credit used: installment, revolving, consumer finance and mortgage. When determining credit score a more diversified credit mix tends to help improve credit score.
Installment credits – Have a fixed number of payments (i.e. student or automotive loans)
Revolving credits – Do not have a set number of payments (i.e. credit cards)
Consumer finance credit – Nontraditional loans (i.e. microfinances, pawns, or moneylending)
Mortgage credit – Used whenever a loan is secured through real property and a mortgage note.
Recent Credit (10%)
Recent credit measures how frequently an individual has looked for credit over a specific amount of time.
Generally, aggressive searches for credit or “rate shopping” can hurt credit scores.
While there is a rough formula for how credit scores are calculated, keep in mind that each credit score is case specific. For more information on credit scores or how to increase your credit score, please contact Skinner Law Firm LLC.
4 Causes of Personal Bankruptcy
Posted on June 7th, 2013
Skinner Law Firm is dedicated to providing you with solutions to the problems that lead to personal bankruptcy. Filing for bankruptcy can come with the stigmas of over-spending and poor financial planning, but we realize that this is not always the case. The following are four major causes that lead to personal bankruptcy filings and how to best avoid these situations.
1. Unforeseen Medical Expenses
A study from Harvard University stated that unforeseen medical expenses were the cause of 62% of bankruptcy filings in a given year. While you cannot always plan for these expenses, we encourage our customers to have a prepared financial budget and proper insurance. Insurance plans can be costly, but having sound coverage can be beneficial if unexpected medical expenses begin to add up.
Creating an emergency monetary fund is the best way to avoid this situation. These cash or liquid funds should be created to cover three months to a year of living expenses.
2. Shift in Income
Job loss, disability placement, divorce or death can shift a household’s income dynamic and put a person at risk of bankruptcy.
Creating an alternative plan to cover expenses ahead of time can help you avoid filing for bankruptcy.
3. Uncontrolled Spending
Uncontrolled spending still remains a major cause of bankruptcy filings. Skinner Law Firm encourages our clients create and maintain a budget so they are equipped to better manage their money in the future.
One of the best tips we can offer is to use cash for necessary purchases. Smaller charges for items such as groceries can quickly add up and be damaging to your bottom line.
4. Identity Protection
Protection against identity theft is critical in preventing bankruptcy filings. While banking or online shopping, make sure sites where you enter personal information begin with “https://” instead of the normal “http://.” The “s” should always make you think “security”.
Both paper and online identity theft still remain a national issue can be prevented by shredding old credit cards or documents with personal information