Credit Made Simple For the Amateur Consumer

Credit Made Simple Pixel 1024x681 Credit Made Simple For the Amateur Consumer

The following post comes from my Free Better Credit Blueprint Video Lecture Series available on the Udemy Platform

One of the first things you need to know is that a credit score and a credit report are two entirely separate things. Your credit report is raw data, while your credit score is what a lender makes of that raw data using one of dozens of credit scoring models that we, as Amateur Consumers, are really clueless about.

Unfortunately, a lot of you reading this post or viewing the video don’t even know that a credit score is a number that reflects your credit worthiness… at a given point in time.  It’s not just sitting there in some computer with a number already assigned to it.  It just doesn’t work that way.  Your credit score is based on the information contained in your personal credit report at the time that your credit report is pulled.

Different Scoring Models

To determine a credit score from your credit report, lenders use credit scoring models. As I say in earlier videos, there are dozens of these, but FICO is by far the most common and for sure you’ve probably heard the term Fico Score.

Different scoring models stress different aspects of your credit history. For example, one model might tell a bank how likely you are to default on a mortgage while another scoring model might tell how likely you are to let your credit card payments go 90 days late. Depending on what bank you apply for credit with, what type of loan you’re getting, and what model they use, you’ll wind up with different credit score from each one.

Not Just One Credit Score

What this means is that your credit score will change depending on what model is being used to generate it.  In other words, you don’t have just one stable credit score, but rather a range of scores depending on the information contained in your credit report by Experian, Equifax, and TransUnion.  The difference can be as much as 50 points and I’ve personally seen reports that differed by 100 points!

And yes; that is most definitely a wide enough range to push you up or down on a lenders interest rate scale or to just flat out get you denied. So now that you know this fact, think your credit report and credit scores are worth keeping an eye on?  You better believe it!

Building a Credit File

A lot of the information that I personally have learned throughout the years about credit reporting came from researching and reviewing numerous court proceedings, depositions, and testimony.  One of these court cases I reviewed was from January 2005 in the court case of Kirkpatrick vs. Equifax.

In this court case, Equifax Vice President Phyllis Dorman said that when “building a file” after receiving data from a creditor, or when deciding what data to include on a credit report that will be disclosed to a creditor, the first factor considered by the Equifax system was geographic region.

Then its “matching algorithm,” which is known as L90, relies on 13 matching elements. Two of the elements that constitute a distinct category are: (1) exact Social Security number (SSN) and (2) partial SSN (meaning that most, but not all digits are the same).  The remaining elements are (3) last name, (4) first name, (5) middle name, (6) suffix, (7) age, (8) gender, (9) street number, (10) street name, (11) apartment number, (12) City, state and zip, and (13) trade account number.

Credit Attributes

The summary variables that are generated from the raw data are referred to variously as “credit attributes,” “credit variables,” or “roll-ups.” Each of the CRAs has hundreds of attributes that have been created at various times for various purposes, but a typical scoring algorithm uses far fewer.  The primary factors that affect credit scores include:

• payment history, including late payments and collection items;

• balances, available credit, and the percentage of existing credit lines being utilized;

• negative public records such as bankruptcy, judgments, and liens;

• length of the credit history and the mix of credit types; and

• evidence of taking on new debt, such as new accounts or inquiries.

“Generic” Scores and “Industry” Scores

When credit scores are designed and sold to predict payment behavior on a wide range of credit products, they are referred to as “generic” scores. When they are designed to predict performance on a specific type of credit, such as automobile loans, they are referred to as “industry” scores. Some lenders, especially larger lenders, receive credit reports from a CRA and calculate scores themselves using models developed to predict the performance of their own customers and these scores are called “custom” scores.

Now be truthful with yourselves; how many of you reading this post or whom have watched the video knew all or any of what I just went over?   The simple fact is, not only is credit misused but it’s misunderstood by millions of people who don’t know or understand the credit system that they are participating in on a daily basis.

It’s almost like a foreign language to them and some people find the topic confusing or too intimidating to understand but again, you have to get over your fears and challenge yourself to be a better- more informed consumer for the betterment you and your family!

Amateur Consumers vs Credit Professionals

Remember, at the end of the day, we are all amateur consumers.  The banks, creditors, and the credit bureaus? They are all professionals!  The more you learn, like you’re doing by reading this post or watching the Free Better Credit Blueprint Video Lecture Series, the better you will manage your credit and finances moving forward.

Now, I’ve talked to hundreds of people that truly believed that after going through  financially devastating events like bankruptcy, foreclosure, or divorce to name a few, that they were powerless to recover their credit; almost as if their credit controls them, when in fact; nothing could be further from the truth.

Without a doubt, these events will hurt your credit and no one knows that better than me, but you need to understand how credit works so you can make it work for you – that’s the key so please… don’t be a mindless consumer.  Credit is a powerful tool that you can use in your financial life and affects you more than you know beyond having purchasing power.

Knowledge is Power

However again, if you don’t understand the world of credit you participate in every single day, then in fact, you are powerless!  You need to know, at the very least, the credit basics and you need to figure  meaning how to stay out of debt, manage your credit, and then create a new mindset or as I call it; a new “money consciousness” in order to be successful in life!

And for the record; I haven’t used credit in over 2 years which is why I say it affects you in more ways than being a consumer looking to perhaps – make a purchase… you shouldn’t make!

If you haven’t already done so, please read my 4 New Year’s Resolutions That Will Ensure Your Financial Success in 2013 !  So what about you?  Are you setting out to create a new “money consciousness” for 2013?  How much of the information I covered in this post did you even know about?  I’d love to hear your thoughts and comments icon smile Credit Made Simple For the Amateur Consumer


4 New Year’s Resolutions That Will Ensure Your Financial Success in 2013

New Years Eve 2012 4 New Year’s Resolutions That Will Ensure Your Financial Success in 2013

Well, it’s almost that time again when we reflect back on another year gone by and determine with a renewed vigor that things just have to change; this will be the year it all changes!  You’ve been there, right?  You say to yourself; this will be the year you will lose those extra 10 or 20 pounds, or this will be the year you get to the gym and regain that form of years ago, or you swear this is the year you’re paying off those damn credit cards!

So how many of you have had a New Year’s Eve resolution go something like this:  Excited and energized, you believe this is the year you finally follow through. But instead, by the time February or March rolls around and you are a couple of months into a new year, you have already quit!  Has this ever happened to you? I’ve been down that road a time or two! icon smile 4 New Year’s Resolutions That Will Ensure Your Financial Success in 2013

So the next question we all have to ask ourselves is; why?  Why do we continue to make resolutions every single year even though in the back of our minds, we already know we probably won’t follow through anyway?

Why We Continue to Make Resolutions Year After Year

I was watching my son play a new game on Wii the day after Christmas and he kept restarting the game.  When I asked him why, he said he kept messing up and wanted to start over.  If only life were that simple, huh?  Without a doubt, psychologically speaking, the beginning of a new year offers us all the ability to hit the “reset” button.  In essence, giving us a fresh start; or so we think!

Dr. Maxwell Maltz, author of the classic Psycho-Cybernetics, said that human beings have a built-in goal seeking “success mechanism” that is part of the subconscious mind.  This success mechanism is constantly searching for ways to help us reach our targets and find answers to our problems. According to Maltz, we work and feel better when our success mechanism is fully engaged going after clear targets.  Sounds like the definition of a New Year’s Eve resolution, right?

According to Dr. Maxwell Maltz, all we have to do to use this mechanism is to give it a target. The New Year’s Eve resolution is the “success mechanism” we set for ourselves every year and January 1st becomes the target date we fully engage!

Substitute the Word “Commitment” for “Resolution”

I think we can all agree the fact that we keep making resolutions every year, even though our past history shows we don’t always follow through, means that we intrinsically have hope and a belief in our ability to change.   But now it’s time for you to stop hoping and start accomplishing by substituting the word “commitment” for the word “resolution”!

This year, take a moment to truly reflect on your entire life over the last several years.  Would you like to live a life with more savings and no debt, better health and less stress, more time and less clutter, and with more joy minus the obligations?  If you said yes, then here are 4 New Year’s “Commitments” that will change your life and ensure financial success in 2013:

1. Eliminate Debt Entirely:  Now that the holidays are over, the bills are coming due! But piling up new debt on top of what you already have is not only stupid, it should also serve as a huge red flag that you are living well beyond your means!  You can eliminate debt with these 3 simple steps if you commit to doing it:

  1. Stop Acquiring New Debt
  2. Establish an Emergency Fund
  3. Attack Your Existing Debt

Read more about how to eliminate debt here

2. Strive for Financial Independence:  We probably all have a different idea of what financial independence looks like.  For me, this is what financial independence looks like;

  1. Being Debt-Free
  2. Not Using Credit
  3. Saving Money as Priority #1

I haven’t used credit in over 2 years so one of my New Year’s Eve “Commitments” is to stock away as much cash as possible!

3.  Make More Money:  I could make an argument for this being commitment number one since without it, the other steps are nearly impossible to accomplish.  Making more money could mean supplementing your income or finding a better paying job.  It could mean starting a side business or having a partner or stay at home parent find a part-time job.  Whatever your definition, the idea is to generate more revenue in order to achieve financial independence!

4.  Take the “Consumer” out of Consumerism:  Stop buying crap!  Can this be any simpler?  The next time you find yourself making a purchase, ask yourself these 3 questions:

  1. What are the reasons I am buying this; is it a need…or a want?  If it’s a need, defined as you cannot physically live without it in order to have a safe and secure life, then go directly to question #2.  If it’s a want, move along!  In fact, for the entire 2013, why not commit to not making any purchases that are defined as a want? (seriously; give it a try)
  2. Is there another way to obtain the results or desired outcome that purchasing this need satisfies without actually making a purchase?  Think re-purposing something not being used or headed for the trash-bin or asking friends or neighbors if they have something they are throwing away that you could use.  The idea is to find alternatives that will save you money, prevent you from spending, and helping you accomplish your New Year’s Commitments!

And… if you absolutely have to make a purchase; can it be bought second hand?  Here’s the Amish motto: “Use it up, wear it out, make do or do without.”  Lorilee Craker, author of the book “Money Secrets of the Amish: Finding True Abundance in Simplicity, Sharing and Saving” says in an article written by Gregory Karp of the Chicago Tribune News that many Amish enjoy their frugality and many seem to benefit from an inner peace that other Americans will never find as they attempt to keep up with the Joneses.

“They’re not stressed out like we are. They’re not wondering; how am I going to make my car payment?’” she said. “They’re secure. They sleep peacefully because they know there’s money in the bank.”

Here’s the bottom line my fellow Amateur Consumers: if you are still making New Year’s Eve Resolutions this year, then remember to remove the R and the E and then commit to finding a S-O-L-U-T-I-O-N to what ails your credit and financial life!

May 2013 be the year you embrace frugality, kick debt in the ass, and find an inner peace!  Happy New Year’s everyone! icon smile 4 New Year’s Resolutions That Will Ensure Your Financial Success in 2013

5 Things I’m Grateful for After Sandy Hook Elementary Tragedy

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Almost a week has passed since that awful morning in Newtown Connecticut where 20 beautiful children and 7 wonderful adults had their lives taken from them without warning or reason.  Not a day has passed that Kelly and I, as parents, have not thought about what the parents who lost their children in that massacre that fateful day must be going through.  The Emotional roller-coaster they must be on; second to second, minute to minute, hour to hour, day to day.

As I stare at my two children feeling so thankful they have just made it home from yet another school day so that mommy and daddy can hold them tight and tell them how much we love them, we do so with heavy hearts given the many who are not as fortunate because of Adam Lanza.  And as the debate rages about how an event so horrific can be prevented from happening ever again, I thought I would share with you some things I am grateful for today:

1.  I am Grateful for Those We Entrust Our Children to During the School Day

Lauryn is a second grader and Luka is a Kindergartener at Maplewood Elementary.  It is not lost on Kelly and I that our children are of the same ages as those that perished at Sandy Hook Elementary.  We are grateful for the staff and administrators at Maplewood and not only trust them with our children, but believe without a shadow of a doubt, they would have acted as heroically as many of the staff and administrators did on that fateful day in Newtown, Connecticut.

Thank you Maplewood Elementary Staff and Administrators!

2. I am Grateful America Does Not Want Yet Another Massacre to Pass Us By Without a Response

This is not about the President, this is about leadership!  When I watched the president as he spoke to a prayer vigil in Newton, Connecticut on Sunday in honor of the victims of the massacre at Sandy Hook Elementary School, the following sentences stuck out in my mind;

“We can’t tolerate this anymore. These tragedies must end. And to end them, we must change. We will be told that the causes of such violence are complex, and that is true. No single law — no set of laws can eliminate evil from the world, or prevent every senseless act of violence in our society.

But that can’t be an excuse for inaction. Surely, we can do better than this. If there is even one step we can take to save another child, or another parent, or another town, from the grief that has visited Tucson, and Aurora, and Oak Creek, and Newtown, and communities from Columbine to Blacksburg before that — then surely we have an obligation to try” 

Thank you national consciousness for awakening!

3. I am Grateful I get to Wake My Children Up For Another Day Of School

I don’t know how you feel about getting your children up for school in the morning, but for me personally, it’s a treat!  When I wake my son up, I usually tickle him and whisper in his ear how much I love him.  The next thing he does is smile without ever opening his eyes and that is the most amazing thing to see!

My daughter; she’s not really a morning person so I have to sing to her to make sure the day starts out right :).  Over the years I have sung “You are my sunshine”, “Nothing on You” and now I am singing one of my favorites “Lovely Day” by Bill Withers.

Thank You God for every day I get the opportunity to complete this ritual!

4. I am Grateful For Every Day I Get to Pick My Children Up From School

Ever since the tragedy at Sandy Hook, I feel both fortunate and guilty, when I walk to pick my children up and see them full of boundless energy; ready to bounce off the walls when they get home.  How many of you, how many of us, take something as simple and mundane as this for granted after what just happened at Sandy Hook Elementary?  I know I don’t’!

How many of those parents would give their very own lives so that their children would have an opportunity to experience everything we did as children and young adults culminating with a high school graduation and prom?  God please let those families find some comfort and let those souls that perished on that fateful day rest in peace!

Thank you God for allowing me to be here today to pick my children up; same as every other day!

5. I am Grateful to be Heading Into Another Holiday With My Family Intact

The holiday season is always a wonderful time for reflection on the year that has passed and as I look back, I find myself overwhelmed with gratitude.  But I also find myself feeling guilty.  I feel guilty because I hurt deeply inside for those parents who will not see the smile on their children’s faces as they open their presents.

I also feel helpless because I know there is nothing I can do to ease the emotional pain and suffering these parents, siblings, and loved ones are feeling right now when they should be celebrating God, love, and family during this holiday season!

The only thing I can do is try to start the conversation and activate myself, as well as implore others, into not letting this tragedy pass us by without the response this country needs… and those victims and their family deserve!

What about you; what are you grateful for this holiday season?  Has this tragedy made you look at your daily life and your family any differently?  If you liked this post, please share it with your friends so they can participate in the conversation icon smile 5 Things I’m Grateful for After Sandy Hook Elementary Tragedy

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