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Succes Online Financial Education Newsletter

 

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Credit scoring: What you need to know now

MMI Community Manager

By Kim McGrigg, MMI Community Manager

I just finished reading the Consumer Financial Protection Bureau report on credit scores.  This report was published on July 19, 2011, to meet a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Dodd-Frank Act also made amendments to the Fair Credit Reporting Act related to credit scoring that became effective on July 21, 2011.  While there is a lot of information to digest in the report and the Acts, following are some takeaways regarding credit scores that you need to know now.

  • There's more than one type of credit scoreGeneric scores are used to predict behavior for a wide range of credit products.  Industry scores are specific to one type of credit, such as vehicle loans.  Some lenders create their own custom scores and consumers might receive what is called an educational score.
  • There are many scoring models for each type of score. There are many different scoring models used by lenders.  Even FICO, responsible for 90 percent of generic credit scores in 2010, has numerous scoring models.  This means that the score you see may not be the same score that a lender sees.
  • Credit scores aren't the only factor considered by lenders.  Other factors that may be considered include your income and employment history. The Equal Credit Opportunity Act (ECOA) prohibits lenders from considering factors like race, gender, and nationality.
  • The definition of "good" credit changes.  While most people consider a score of 680 or more to be "good," the definition of "good" changes over time and can vary from lender to lender. Furthermore, not all scoring models use the same scale as FICO (350 to 800).  
  • You may be entitled to a free credit score.  Starting on July 21, 2011, consumers will be provided with credit scores when they: (1) are granted credit with less favorable loan terms than other consumers; (2) apply for a mortgage; or (3) are subject to an adverse action such as having an account closed.
  • You are entitled to a free credit report. In accordance with the Fair and Accurate Credit Transactions Act (FACT Act), consumers are entitled to receive one free credit report every 12 months from each of the three major credit bureaus. This has been true since 2003. When you obtain a free report from the central source, the FCRA mandates that you be given the option to purchase a credit score calculated using the credit report.

      Consumers may find it frustrating that they receive a score that is different than the one used by lenders.  In fact, the Consumer Financial Protection Bureau's report identifies some potential harms that may result from this, particularly if the consumer believes that they are more or less creditworthy than the lender believes them to be. 

      The best thing a consumer can do is to stop focusing on a specific score, but instead concentrate on using credit responsibly and to understand the major factors that contribute to a credit score. These factors include payment history, length of credit history, new accounts, types of accounts held, available credit, and credit utilization.

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    Seven hot ways to stay cool this summer

     

    The only thing more jarring than walking outside with a triple-digit heat index is receiving the triple-digit energy bill in the mail. While most people might consider themselves fairly conservative with the thermostat, an unexpectedly bloated energy bill brings the realization that they haven’t been as vigilant as they should be.

    Nevertheless, there are a number of ways to stay cool for the remainder of the summer without having to blast the AC.

    The following tips are some of the most creative – and frugal – ways to stay cool:

    • Eat spicy food. Have you ever wondered why the countries with some of the warmest climates have the spiciest foods? Spicy foods increase perspiration without raising your body temperature. The sweat actually cools your body as it evaporates – it’s your body’s natural cooling system!
    • Keep your pulse points cool. One interesting tip recommends freezing plastic jelly bracelets and then wearing them to keep your pulse points cold. If you don’t have anything like that handy, you can also use a wet cloth or bandana. Place these on your wrists or around your neck and leave it there for about five minutes.
    • Take a hot shower. While this may sound entirely unappealing when it’s already hot and steamy outside, taking a warm shower will actually make you feel cooler when you get out. Keeping your hair wet will also help keep you cool as the water evaporates.
    • Use fans wisely. If you have floor fans, place a bowl of ice behind the fan so that it circulates cool air. You can also place a fan so that it’s facing outward in the window or doorway of a hot area of your house so that it’s pulling the hot air out of the room.
    • Don’t eat big meals. Eating small amounts of food will keep you cooler and more comfortable. Keep cold snacks on hand. One favorite – and tasty – activity is to make frozen grapes. Simply rinse off the clusters with water and put them in the freezer. In a few hours you’ll have a fun, healthy treat everyone will love.
    • Keep cool with cucumbers. Slice a piece of cold cucumber from the fridge and place it in the middle of your forehead. The astringency of the cucumber is refreshing for your skin – especially your eyelids.
    • Add a hint of mint. In the same fashion as cucumbers, minty or menthol products refresh the skin and leave a nice cooling sensation. Use a body powder with mint to stay cool and dry. You can even apply a menthol product you would typically use when you are congested – such as Vicks VapoRub – to cool your skin. Place a little bit on your chest or even your forehead.

    There are a lot of fun, frugal ways to stay cool this summer. If all else fails, there are plenty of free, public places you can escape to, such as the library or a community pool.


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    About Money Management International

    Money Management International (MMI) is a nonprofit, full-service credit counseling agency, providing confidential financial guidance, financial education, counseling, and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan, and repay debts. Counseling is available by appointment in branch offices and 24 hours a day, 7 days a week by telephone and Internet. Services are available in English or Spanish. To learn more, call
    866.530.9869 or visit MoneyManagement.org.

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