FICO Opens Access to Free Credit Scores, Helpful or Not?

FICO, a company that develops the FICO Score, "the standard measure of consumer credit risk in the United States" has announced a new program, the "Open Access for Credit and Financial Counseling" which will allow credit and housing counselors to give their clients' their individual credit score for free. These credit and housing counselors currently buy the client's credit report/score from the credit reporting agencies (CRA) and under their agreements with the CRA have been allowed to use the information to counsel their clients on how to improve their credit, but not to give the client the actual score. Since most lenders use some version of a credit score to determine the terms of any loan and since credit scores from the CRA's are not free to consumers, this is a step in the right direction.

However, I am concerned about what data is used to credit these scores. Many types of businesses do not report to the CRAs resulting in many individuals having difficulty in generating a credit score healthy enough to get a loan, or favorable terms with one.  According to a recent Washington Post Article, "A new kind of credit score for those with no credit", FICO is developing a new score to help people who have had difficulty in the past in having enough data to create a score. Information from utility companies will be added to this new score. That seems fair and helpful. Information on an individual's property and how long they have lived at this address, or how often they have moved around, will also be included. The argument is that the longer a person has lived at one address shows signs of stability. I disagree and think this will harm the credit score for young adults and the low-moderate income individuals. Data collected on how we handle credit and payments on our obligations makes sense to be the data used to assess risk for future loans. How often I move does not. 

President's Day Sales-Are The Prices Really Lower?

Retailers are very good at marketing and creating that sense of urgency for us to buy now. "Best Sale Ever" "Lowest Price of the Year" and "President's Day-80% off" are all slogans thrown out to grab us out of our homes to snag the amazing deals. Then there are the multiple stores who give out discount coupons to their credit card holders to entice them to save an additional 20%. In theory shouldn't that reduce the price to $0 (80% off plus 20%-I know, way too simple math)? While it is generally true that good deals on bedding and winter clothes are available during the President Day Holiday, consumers need to know how to do the ancient art of comparison shopping, defined by Dictionary.com as: "to compare prices and quality of merchandise in (competing stores) to determine the best value." I was recently in a major department store, one of the ones where you don't go in without a coupon, shopping for suits with my son. We selected the items we wanted, basing the price on the coupon I had for 20% off and went to check out. However, in my urgency to get these deals advertised on the coupon, I neglected to see that the effective date for the coupon was the following weekend. In spite of disappointing my son, I apologized and turned to put the items away. Coming back next weekend was annoying but worth the 20% discount. To my amazement, the salesclerk laughed and said that the items actually cost less on that day versus next weekend. We bought the items for the price we wanted and left. So much for the coupon being valuable. I couldn't help but wonder if they mark the prices up for the days that coupons are in effect? The point is, regardless of retailers' sensational marketing, capitalizing on holidays and deep discount coupons, consumers need to compare prices and quality to get the best item for the best price.

Plan Now to Save Your Refund!

"Mental Accounting" is a very cool economic concept, created by Richard Thaler, which basically says that we tend to put our current, and future, money into certain "buckets" or accounts. Once we put money in these mental accounts, we tend not to take them out. For example, we know what paycheck our mortgage or rent comes out of and we don't take from that money. Similarly, and sometimes to our detriment, we put money into grocery or clothing categories. Even if the electric bill went up this month, we have a hard time reallocating money from the grocery or clothing accounts to cover the higher electric bill.

Many of us start planning in November for whatever holiday we celebrate and thinking of the gifts we would like to buy friends and family. If we haven't been saving for these expenses throughout the year, we buy them anyway knowing that there's a tax refund coming early next year. We have already put that refund into a mental account to pay for holiday bills.

I'd like to propose a different idea. Start now in November and put at least half of that expected refund into a mental account for savings. It's the one time in a year where a chunk of money comes our way and having some put away for an emergency will result in a lot less stress when that emergency, invariably, comes our way. Take a look at your holiday expenses and find creative ways to reduce them so you don't wake up in January with a "hangover" of bills and regret.

Using the "Mental Accounting" concept can help us change our financial decisions to help us reach our financial goals and stress less over money.

"Free" Credit Scores Aren't Always Free

Hopefully you know that you can get a free credit report from each of the three large credit reporting agencies for free under federal law. If you live in Maryland, you can also get a free credit report from each bureau under Maryland law. But you may not know that credit scores are not free under federal law. However, you've probably seen the ads that offer to give  you your credit score for free. Be careful, most of the sites that offer this are credit monitoring services which charge you a monthly fee for various services around protecting your credit. Watch this video from the Federal Trade Commission on free credit reports that are not free. Other sites give you a credit score from one bureau, not a combined score, and are riddled with advertisements and "personal offers" for credit cards or loans from their paid sponsors. Always find out how such a website or company is funded and what they do with your personal information that you enter to get your "free" score. One option to consider is using the FICO Score Estimator and Calculator. You do not enter in any personal data like your social security number. You answer questions about your use of credit and it estimates a score for you. It's pretty close to what you would get from private sites and you aren't allowing anyone to use/sell/trade your personal information.

Hurricane Season Doesn't Have to Wipe You Out

Hurricane Season for those of us on the east coast and around the gulf states in the United States runs from June 1st to November 30th. We've already seen one so far this year and while we were fortunate that it didn't cause widespread damage, it does serve as an alert to us to be prepared in the event of a major hurricane. Some items on the check list are:

• Have food on hand that you can eat without much preparation and extra water for drinking/washing hands. 
• Fill up bath tubs for water to flush toilets.
• Ensure you have safe ways of having light such as battery lanterns or flashlights, not candles. 
• Trim your trees so that branches will be less of a hazard during a storm. 
• Consider buying a crank emergency radio that also charges cell phones.
• If you have a generator, make sure you have gas on hand before the storm, properly stored and that the wiring for the generator has been installed/inspected by a licensed electrician.  
• If you have a pet, have extra food and water for them. Make a plan for how they will go to the bathroom during the storm when they can not go outside. 
• Once a storm is heading your way, be sure to move outside items that could be blown into your windows, house, car etc by the heavy winds. 
• Identify a room with fewer windows to hang out in during the storm in case of debris breaking through a window. 
• Turn off any propane tanks.
• Know food safety tips for eating food from a refrigerator which has experienced lack of power.

Being prepared for a hurricane will help you minimize the damage and effect of the storm on you and your family. Check out more tips on the Federal Gov't website, www.ready.gov