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Part 3 – Credit Scores Broken Down – Age of Credit – Credit Absolute, How Credit Scores Work

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The 3rd part of the “How Credit Scores Work” series, Derick Vogel explains Age of Credit and its part in your total credit score.

As Derick explains in the video, age of credit, as part of your credit score, makes up about 15% of your total score, which comes out to 82.5 points. It is also probably the simplest of factors that make up your total score as it’s fairly straightforward. Basically, the “age of credit” factor is based on when your credit report starts – or, the age of your credit report.

For instance, if the first time you ever used credit – such as your first credit card – was in 2000, the age of your credit would be about 19 years, at the time of this article being posted. That seems simple enough, right? Well, it is, however, it is still important to understand how you could potentially influence the age of your credit.

How Your “Age of Credit” Could Change

A credit factor such as “age of credit” doesn’t seem like something that could ever change. It’s based simply off the oldest of your credit accounts. But let’s consider an example scenario that could change your “age of credit”.

Say, for example, your first credit account is a credit card that you opened in the year 2000. You used that credit card for a few years with some positive payments but also have a few late payments and, perhaps, you even default on the card. Years later you are working on repairing your credit and decide to try and dispute the record of that card – given that it has some late payments and that you defaulted on the card which are negative items on your credit report.

Let’s say that you were able to successfully dispute those negative items from your first card which, in turn, removed the record of that card from your credit report. Now, let’s also say that after you had that card you didn’t open another line of credit or get a new credit card until 2015. Once you’ve successfully disputed your first card, hoping to improve your credit by removing a negative item, your “age of credit” would now only go back to 2015 rather than 2000. This would take 15 years off the age of your credit.

Now, remember, “age of credit” is worth 82.5 points of your total score so, by removing that first credit card from your report you could drastically affect your score. Despite removing a negative item, you could end up reducing your score rather than improving it. That’s why it’s important to understand every aspect of your credit report rather than just trying to go in and dispute any and all negative items.

If you’re not sure how you should approach repairing your credit or have any questions, please give us a call today!

 

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Will The COVID-19 Pandemic Affect My Credit Score?

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As the COVID-19 pandemic rages on, people are starting to get more concerned about their credit. Many people are out of work and reliant on government assistance to make ends meet. Debts have been postponed and you might be concerned that not paying them is hurting your credit. Read out this blog to know covid-19 affect on credit score.

We want to go over how the COVID-19 pandemic, and situations resulting from it, can affect your credit score.

One Very Important Notice: Free Credit Report

This pandemic has been scary for everyone, and the credit bureaus have agreed to help. By going to https://annualcreditreport.com, you can access your credit report from any of the three bureaus at any time. They’ve lifted the “once per year” restriction just for 2020. Get your credit report and see what’s on it!

How The COVID-19 Pandemic Affects Your Credit Score

Mortgage Forbearance

Federally backed mortgages are in forbearance until at least December 31, 2020. For this reason, people who are unable to pay their mortgages are allowed to do so without their mortgage going into default.

If you pay down your mortgage during this forbearance, this will improve your credit score. However, if you’re not paying your mortgage, your credit score will be affected slightly. Your loan won’t go into default and your home won’t be foreclosed upon, but your mortgage balance will go up due to the fact that interest continues to accrue.

Federal Mortgage Forbearance During COVID-19

We highly recommend that homeowners who are able to pay their mortgage during their period continue to do so, as this will put them in a much better financial position going forward. Keep reading this blog on know covid-19 impact on credit score.

Student Loan Forgiveness

If you aren’t paying your federal student loans due to the student loan forgiveness announced in the CARES act, then your credit score will not be affected. No interest is accruing, so your balance is not increasing. No payments are required, either, so this can’t affect your score either.

Student Loan Forgiveness Due To COVID-19

Private student loans, however, have their own requirements for forgiveness, and if you haven’t asked for forgiveness, it has not been automatically granted. What you can do is ask to put your loans in forbearance or deferment, depending on your situation. Not paying your loans while they’re in forbearance will not affect your credit score, unless interest is accruing. In that case, your credit score may be slightly affected due to your balance going up. Keep reading this blog on know covid-19 impact on credit score.

Credit Card Payments

Credit card payments have not been forgiven during the COVID-19 pandemic. People are still required to pay what they’re owed, and they’re still being charged interest on the cards.

You may be able to negotiate lower payments with your credit card issuer, however it’s still highly recommended to pay the minimum payments. Otherwise, your credit score will likely be affected.

Unemployment Assistance & Stimulus Benefits

For some reason, there have been people who are concerned that having to take on unemployment assistance might hurt their credit score. This is completely false! Taking unemployment assistance, no matter when you take it, does not and cannot affect your credit score.

Not only that, cashing your stimulus check will not hurt your credit score, either.

With that being said, you may be asked to pay back some of your stimulus or unemployment benefits if the government finds that it was awarded to you in error. If you do not pay these back on time (and with the interest charged to you), your credit score can be affected.

If you are not asked to pay back unemployment benefits, though, taking them will not hurt your credit score!

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Will The COVID-19 Pandemic Affect My Credit Score?

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Will The COVID-19 Pandemic Affect My Credit Score?

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As the COVID-19 pandemic rages on, people are starting to get more concerned about their credit. Read more on will COVID-19 pandemic affect my credit score?

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Jason M. Kaplan, Esq.

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The Credit Pros

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Credit Repair

Beginner’s Guide on How To Save Money

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It may seem hard to justify saving money when you have a low income and high amounts of debt. But there are plenty of good reasons to have a growing savings account, even if you’re putting most of your excess cash into debt repayment.

You Need A Rainy Day Fund

Life happens. Your car breaks down. Your dishwasher ends up needing replacement. You have a medical emergency. A close family member passes away and you need to help cover funeral costs. These things happen to everyone and it would be silly not to plan for them.

We recommend having around $3,000 saved in case of emergency. This money would not be touched at all, and only used if you’re in a situation that you cannot pay for with your job income.

You Want To Have Runway

Runway is a term used to describe the amount of time someone can be without income before they have to resort to taking out debt.

We recommend building up your runway to the point where you have a full year’s worth of expenses saved up.

Once you have 12 months of expenses saved up, you’re much more free to take risks such as going back to school, switching to a higher paying (or more fulfilling) career, starting a business, or investing in real estate.

You might think that it will take years for you to save up this amount of money, and that’s true. But we recommend saving up for this anyway, even if you have debt to pay back.

We’re also going to talk about how you can cut down expenses in such a way that makes this goal a much more manageable one. It’s a lot easier to save $24,000 than $36,000, for example.

How To Save Money

Here are the easy ways to save money:

Look at your income and expenses.

Take a look at all usable sources of income. Only include what you can consider to be income. This includes:

  • Your job income (W-2)
  • Pensions, military benefits
  • Side hustle income
  • Business income
  • Investment income that isn’t being reinvested

If you have unpredictable income (for example, if you’re a freelancer or business owner), you will need to take an average of the last 3-6 months and do budgeting quarterly. The result is that you end up saving money every quarter, piling it up in advance.

Break your expenses down.

Categorize each of your expenses based on what they’re for. Your biggest expenses are likely your rent/mortgage, transportation costs, and debt repayment.

Here are some expense categories you can use:

  • Rent/mortgage
  • Transportation
  • Utilities
  • Groceries and necessities
  • Entertainment (include takeout and restaurants here)
  • Childcare & children’s activities
  • Other expenses

How you categorize your expenses is up to you. Then, you need to take an honest look at your spending. Look at your bank and credit card statements and get the real numbers! Don’t estimate. We recommend using a tool such as YNAB or Mint in order to track how you actually spend your money.

You may notice that we excluded debt repayment. For debt repayment, we recommend snowballing your debt and paying low amounts on the rest of the debt. You’ll need to use a calculator to figure out how much you’re paying every month using this strategy. Learn more about snowballing your debt!

Decide which expenses are the most important.

Take some time to think about this, because even though you want to have all of the benefits of what you currently pay for, not all of them are worth keeping.

For example, you might have an unlimited data plan when your data usage (which you can check on your phone) indicates that you only need a few GB.

Rank your expenses from most to least important. The least important ones will eventually be cut out to support your savings goals!

Cut out any expenses deemed unnecessary.

You decide how you live your life, and you need to choose which expenses you can live without in order to achieve your financial goals.

For example, you might be spending less on groceries and more on takeout. This might seem like it’s saving you time, but it’s actually costing you a fair bit. However, this may not be an unnecessary expense if you find yourself unable to cook your own meals.

Subscriptions are one of the biggest sources of budget burn. There might be a few subscriptions that you use regularly, but most subscriptions provide only a small amount of benefit for a high annual cost. $10/month ends up being $120/year, which could have done into your savings.

Look for any other opportunity to reduce your expenses.

It’s likely that you haven’t made the best financial decisions in the past. That’s okay: many of those can be corrected. For example, if you have an expensive car note, you may be able to sell that car, purchase one for less, and pay down the rest of your car note. This could save you thousands of dollars.

Or, you might find that you’re paying a great deal of money on your mortgage. You may be able to refinance. We have another article on refinancing your debt: check it out for more info!

Decide how much you will save.

Essentially, whatever is remaining after your expenses, debt repayment, and investments should go into a savings account. Your savings accounts should be categorized as such:

  • Rainy Day Fund (put up $3,000-$5,000 in this fund)
  • Runway Fund (put up to 12 months expenses in this fund)
  • Large Purchase Goals
    • Our recommendation is to focus on these things, in this order. If you don’t have $3,000 for a rainy day, or if you recently spent your rainy day fund, you need to put money in that fund before you put money elsewhere!

      How much you save and how much you invest will depend on your own personal preferences. We recommend maxing out your 401(k) plan and taking advantage of employer matching.

      Keep in mind: someone WITH debt should not be saving as much of their income as someone without debt! If you have debt, you should be putting your money into paying it off, as that will save you the most money in the long run due to accruing interest!

      Summary

      Beginner’s Guide on How To Save Money

      Article Name

      Beginner’s Guide on How To Save Money

      Description

      The beginners guide on how to save money teaches top ways starts from looking at your income and expenses and much more. Read out the complete guide here.

      Author

      Jason M. Kaplan, Esq.

      Publisher Name

      The Credit Pros

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Credit Repair

How To Get Your Annual Credit Report for 2020

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One of the most important aspects of financial discipline is to understand your credit history. If you understand what’s on your credit report, you can see what information lenders are using to determine whether or not you qualify for loans. You can also see what they’re using to determine your credit score. Keep reading this blog on how to get your annual credit report for 2020 in free.

Certain items on your credit report may be hurting your credit score. However, it’s possible that those items aren’t supposed to be there. There are laws surrounding what credit bureaus can legally keep on your credit scores. Despite this, mistakes do get made sometimes.

You also may be a victim of fraud, but you might not know it. Some fraudulent items can exist on your credit report and hurt your credit score, even if they’re clearly evidence of identity theft or some other crime.

The good news is, you don’t have to be left in the dark about your credit. The US government guarantees every US citizen the right to a copy of their credit report once every year. Best of all, the US government mandates that the credit bureaus provide this report for free.

So how do you get your free annual credit report for 2020? Let’s discuss.

What Is A Credit Report?

Your credit report is an annotated history of your debts. It’s used by lenders to see your overall credit history.

What Information Does A Credit Report Contain?

Your credit report contains information going back up to 7 years for most things, 10 years for other things, and past that for a select few items like tax liens.

It contains a history of payments made on your debts, including but not limited to: credit cards, car loans, mortgage, student loans, and lines of credit. It also contains a history of balances held on those items.

Your credit report also contains information about past due payments, items in default, items in collections, and bankruptcies. This information is highly useful for lenders and employers who don’t wish to rely on just a credit score.

What Is Your Credit Report Used For?

Items on your credit report are used to calculate your credit score. Your credit score is a three digit number between 300 and 850 that gives lenders a general idea of how creditworthy you are.

However, lenders don’t just want to see your credit score. They also want other info, such as your income, your total debt balances, and your debt payment obligations. Although your income isn’t included in your credit report, the other items are. For this reason, lenders don’t just want to look at the credit score: they want to see the whole picture.

To learn more about your credit score, read our article on the quick & dirty guide to your credit score!

How Do You Get A Free Annual Credit Report for 2020?

It’s very easy to get your free annual credit report for 2020. All you have to do is go to the Free Annual Credit Report website, located at https://annualcreditreport.com. This domain is owned by the US Government, and is the only place that you should go in order to get your free credit report.

To get your free credit report, go to that website and follow the instructions. You can get a credit report from each of the three bureaus, for a total of three credit reports per year.

IMPORTANT NOTE: You can get free weekly credit reports from each of the three credit bureaus until April 2021, for COVID-19 assistance. This way, you can get more than three credit reports this year for free.

Summary

How To Get Your Annual Credit Report for 2020

Article Name

How To Get Your Annual Credit Report for 2020

Description

Your credit report is an annotated history of your debts. So how do you get your free annual credit report for 2020? Let’s discuss.

Author

Jason M. Kaplan, Esq.

Publisher Name

The Credit Pros

Publisher Logo

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