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Credit

At some point in your life, you’ve talked about your credit score. In fact, you’ve probably talked about it many, many times. What it is, how to improve it, how much you paid to get it… But what if I told you that “it” is really just one of dozens of potential scores out there, all based on your credit history?

That’s right: you don’t have just one credit score.

The variance in your score can depend on when you acquire your score, who you choose to calculate your score, and even what you want to do with your score (get an auto loan or bankcard, for example). Some lenders may use a standard scoring model, but alter the formula to suit their lending needs. Others may even take two or more scores and create an average. So you see, the results are almost endless.

Why Do You Have a Credit Score Anyway?

Credit scores are used by lenders as a way to determine your creditworthiness. Essentially, they want to know: how likely are you to pay back your debts, if they were to lend you some money in the form of a mortgage, car loan, or line of credit?

Resource: How to Get Your Credit Score for Free

This is calculated using a number of historical predictors. How long have you held lines of credit? Have you ever paid late and, if so, just how late were you? How much available credit have other lenders given you and, of that, how much have you already used up? How often do you apply for new credit?

While these may not be completely perfect ways of deciding whether you’ll pay your debts in a timely fashion, most lenders seem to think that they’re a good place to start.

Different lenders look at different scoring models, depending on what they deem to be the most important determining factor. Since each scoring model is weighted differently and has a unique range, they can all tell a different story.

The Main Scores

While there are dozens of credit scores that could be created based on your unique credit history, there are a couple main players in the game. These are FICO® and VantageScore.

FICO®, short for the Fair Isaac Corporation, has been the most trusted name in credit scoring for almost three decades. They have released nine different scoring versions thus far, as well as industry-specific scoring models such as Auto and Bankcard. Their FICO® 8 formula is by far the most popular and most utilized version around. They have released a newer version, the FICO® Score 9. However, the vast majority of lenders still seem to prefer the version 8, at least for the time being.

The other big fish in the credit score pond is VantageScore.  They have released three versions to date, currently on VantageScore 3.0.  As with FICO®, they also offer industry-specific scoring formulas and, as with FICO® again, lenders may choose to utilize their earlier models when calculating your credit score.

The Small Fish

As mentioned, each of the two companies above also offer industry-specific models, in addition to their basic scoring calculations. VantageScore and FICO® have special calculations for things like auto loans or if you’re seeking a new bank credit card, which are different from their standard models.

Learn More: Manage Your Finances with Personal Capital

You also have unique calculations that are created by each of the three credit reporting bureaus: Experian, Equifax, and TransUnion. Since some lenders will only report credit-related items (such as late payments, inquiries, and collections) to one or two bureaus, your history can vary greatly between the three. Your report — and therefore, your score — may be entirely different between each of the bureaus, simply because your lenders are reporting selectively.

This is also why it is important to obtain all three credit reports at least once a year (this is free!). That way, you can ensure that there are no errors being reporting to one of the bureaus, which you may have missed if you only chose to get one of the other bureaus’ reports.

Why Are They So Different?

What makes all of these scores so very different from one another, even if they receive the same information? Well, it all comes down to what they deem to be most important.

Take the FICO 8 compared with the newer FICO Score 9, for example. Even though the FICO 8 is expected to remain the most popular model for at least a while longer, the FICO 9 would actually benefit most consumers more.

This is because the FICO 9 takes into consideration things that are issues among Americans today. For example, student loan debt combined with rising housing costs and a tough job economy mean that we have more adults renting homes than ever. So, on the new FICO® scoring model, it will take into account rental payment history (if your landlord chooses to report it).

We also live in a time when 26% of Americans say they’ve had trouble paying medical bills in the past year, to the extent of being detrimental to their personal finances. If a patient cannot pay an unexpected medical charge right away, these bills will often get sent to collections. Even if they end up paying this bill soon thereafter, it will still remain on their credit history as a negative report – for seven years!

Related: The Correct Way to Pay Off Personal Debt

Well, the new FICO® takes this into account. It prefers to take the common sense view that medical bills are rarely planned. Even if a person is late to pay them off, it probably doesn’t indicate that they are not creditworthy. Hospital bills can be sudden and unavoidable – a heart attack is very different from an unpaid Best Buy credit card or a repossessed convertible.  So, the FICO 9 actually does not factor any paid collection accounts into its scoring model.

The Difference Between Bad Credit and Good Credit

We all know the general rule: bad credit = higher interest rates, secured credit cards, denied lines of credit, etc. Meanwhile, good credit = low (or 0%) interest rates, credit limits out the wazoo, credit cards with excellent perks. Obviously, the goal should be to improve your credit as much as possible.

So, what exactly qualifies as “good” or “bad” credit? Well, that depends on exactly which scoring model you use, but there is a general range. Since FICO is the most widely referenced credit score out there, it makes for a good standard.

The FICO score ranges anywhere from 300 to 850, with the lower scores being the worst. Where you fall in that range will be determined by your open accounts, debts, and payment histories, among others. It will also depend on whether your lender pulls the FICO version 8 or 9. Either way, your score will be classified as Bad, Poor, Fair, Good, and Excellent. While the guideline below exists, keep in mine that some lenders may even set their own ranges, and decide what they deem to be “good” or “bad” credit. But in general:

fico

As mentioned above, this is the range for basic FICO scores (300 to 850). But some of the other companies out there choose to alter this range slightly in either direction. Even FICO has a different score range for its industry-specific models, which extends from 250 to 900. This can affect how different scores are actually categorized (bad, good, etc.), so keep that in mind when pulling your own. Here are a few of the more common calculation ranges:

ranges

How Do I Watch My Score?

As I’ve mentioned, choosing different companies will result in a different credit score. This is why, if you’re looking to watch your score over time, you should pick one or two scores. Then, only track those. Don’t compare between other models, just simply track the one (or two) that you pick. (Personally, I prefer tracking my free score through Credit Sesame, as well as one directly from Equifax.)

You have the issue of each model using a slightly different calculation. The possibility of each credit bureau receiving slightly different information, from which they base their score. Oh, and lenders creating their own unique calculations or simply averaging scores.

On top of that, though, your score can also fluctuate depending on when you check it. Since credit utilization is a nice chunk of each scoring model, the score calculated can be different based on where in your credit card cycle you may be.

Do you rack up the charges each month to earn cash back rewards, but pay it off in full after each billing cycle? If so, you’re still being smart about your credit. However, if you check your credit score at a time when you’re using maybe 70 or 80% of your credit limit (right before a billing cycle closes), it will be much different than if you check it right after paying a statement balance in full (with a 0% utilization).

In Summary

So, now you know that when you talk about your “credit score,” you actually mean any one of dozens of potential scores, all based on your credit history. While you can’t track every credit score that’s out there, you can pick one or two. Then, track and keep a close eye on them over time. This will be a good barometer for you as to how your credit is doing as you go along.

Ouch… 10 Purchases That Can Actually Harm Your Credit

You also can’t choose which of these numerous score options a lender will pull. So, your best bet is to try to improve your credit in as many ways as possible. Pay your bills on time, try to use less than 30% of your available credit, don’t hold balances on credit cards, increase your credit limits, and be cognizant of the number of inquiries you receive in a given year.

That way, no matter which score you — or your lender — choose to pull, you’ll be good to go!

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Getting your first credit card is a significant financial milestone. Maybe you’re a college student jumping into personal finance for the first time. Or maybe you’ve just never had a reason to get a credit card before. Regardless, you may be overwhelmed with all the options that are out there.

When it comes to getting your first credit card, I recommend first looking at your spending habits. Then, choose a card that offers the most rewards based on those spending habits. Here are three recommendations for first credit cards: one for general cash back, one for travel rewards, and one for gas rewards. I also discuss secured credit cards and student credit cards for your reference.

First Cash Back Credit Card: Discover it®

Discover it® is a no-fee card that offers plenty of attractive perks. It’s an excellent choice for your first credit card if you’re looking to maximize your cash back rewards right off the bat.

You’ll earn 1% cash back on all credit card purchases and 5% cash back on new bonus categories each quarter. Currently, through December, the bonus categories are for purchases at Amazon.com, select department stores, and Sam’s Club — perfect for holiday shopping! What’s more is that new cardholders will get a “dollar-for-dollar match of all the cash back you’ve earned at the end of your first year.” This makes it the perfect time to sign up for Discover it if you’re looking for your first cash back credit card.

discover-q1

Other perks include the ability to view your FICO®  score for free each month on your statements. You’ll also have the ability to immediately freeze your account with an on/off switch (online or via the mobile app), should you suspect fraud.

Resource: How to Get Your Credit Report for Free

There’s no annual fee, no fee for your first late payment, no overlimit fee, and no foreign transaction fee. You’ll also pay no interest on purchases made during the first 12 months after opening this credit card.

Learn more about Discover it® in our review of the card.

First Travel Rewards Credit Card: Capital One® Venture® Rewards

The Capital One® Venture® Rewards card is an excellent choice for first-time cardholders who plan to travel a lot. You’ll earn 2 miles for every dollar you spend, regardless of category. One hundred miles is equal to $1 in travel rewards. There’s also a one-time bonus of 40,000 miles (equal to $400 in travel rewards) once you spend $3,000 on the credit card within the first three months of opening it.

In addition to having no foreign transaction fees, this credit card also offers the many perks that come with being a Visa Signature card. These include:

  • Complimentary travel upgrades
  • Complimentary concierge service
  • 24-hour travel assistance services
  • Special access to premier sporting events and concerts
  • Shopping discounts at select online merchants
  • Extended warranty on purchases

There’s an annual fee of $59, which is waived the first year. If you use this card often and take advantage of all the travel rewards, it should easily make up for the annual fee.

The Capital ® Venture® Rewards card is great for young adventurers looking to get the most perks to accompany their travel experiences.

Best First Gas Rewards Credit Card: Barclay Rewards MasterCard®

If you’re a frequent driver, you may be looking for a credit card that offers good gas rewards. The Barclay Rewards MasterCard® is the perfect credit card in this instance. You’ll receive two points for every dollar spent on gas, utility, and grocery store purchases (excluding Target and Walmart). Plus, you’ll receive one point for every dollar spent on everything else.

There’s no limit on the amount of points you earn, and they never expire. You can redeem your points to your bank account, as statement credit, in the form of gift cards, or as cash. There’s also no annual fee.

Another perk of the Barclay Rewards MasterCard® is that you’ll get online access to view your FICO®  score for free. This comes in handy for monitoring your activity, especially if you’re new to building a credit history

If you’re looking for a card that offers general rewards and a higher rewards rate for gas purchases, the Barclay Rewards MasterCard is a good choice for your first credit card.

A Note About Secured Credit Cards

Secured credit cards require you to put down a refundable deposit as collateral. This deposit becomes the credit line for your card. Secured credit cards can help you establish or rebuild your credit history, and are useful if you have no credit or bad credit.

If you’ve been paying off a loan in your name or otherwise have some credit history, you may not need to get a secured credit card before applying for a regular credit card. Regular credit cards tend to offer more attractive perks than secured credit cards.

A Note About Student Credit Cards

Student credit cards are a great option for young people to get their feet wet with credit. I got my first credit card while I was in college and still have that credit card to this day. It’s a Wells Fargo cash back credit card.

Related: Best Credit Cards for College Students

Most credit card issuers offer at least one student credit card. These credit cards are often comparable to their other rewards credit cards but come with a low initial limit. As you establish your creditworthiness by making on-time payments, you’ll likely see your limit increase over time. If you’re in college, I highly recommend starting to build your credit now by getting a student credit card.

Final Thoughts

Getting your first credit card is an exciting time and the process shouldn’t be taken lightly. Which credit card you choose as your first can have a huge impact on your finances. If you choose correctly based on your spending habits, you can reap some great benefits such as travel rewards or cash back.

Once you receive your first credit card, remember to use it wisely. Only make purchases that you can afford to pay in full when the bill comes. Try to keep your credit utilization ratio low by not using more 30% of your credit card balance at any given time. Above all, enjoy the many perks that come with being a cardholder.

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Many consumers know that they can get a free annual credit report from each of the three credit reporting bureaus: Equifax, Experian, and TransUnion. But this report only shows your credit report, not your actual credit score.

When you go to get your free annual credit report, the credit bureau will likely ask if you want your numerical credit score.There will almost always be a fee involved with providing this to you.

It is useful to know this number, especially if you’re trying to increase it or plan to apply for credit. But did you know that you don’t actually have to pay for your credit score? There are a number of options out there to snag your credit score for free. Here are our eight favorites:

1. Credit Karma

This website specializes in providing consumers with a free credit score, updated monthly. Credit Karma is one of the more valuable options on this list. Most free credit score options are based on a credit file from just one of the three major reporting bureaus. Credit Karma offers scores based on both your TransUnion and your Equifax reports.

The free dashboard will tell you if your scores have changed recently. It will also over the factors that influence your credit score, including your payment history, credit card utilization, and more.

Unlike many of the free credit scores named here, Credit Karma’s will give you access to your credit report details, including current credit card balances, derogatory information, and more.

Credit Karma is also helpful if you’re shopping for a credit card, as it will recommend cards based on your current credit score.

2. Credit Sesame

Answer a few basic questions, and Credit Sesame will give you access to your TransUnion credit score for free. If you’d like to have all three credit bureau scores, you can pay $15.95 per month. You can also opt to pay $19.95 per month for access to all three bureau scores, along with credit monitoring and ID protection.

One interesting feature of Credit Sesame is its borrowing power estimate. It tells you how to apply for different credit cards that it recommends, as well as loans to borrow funds you may need.

Credit Sesame grades you on each aspect of your credit score, including payment history, credit usage, and account mix. It’ll give you details on problems in each of these areas, as well as ideas for how to improve your credit score.

3. Quizzle

Quizzle’s score is based on the VantageScore model, which may look different from models based on the FICO scoring model. It’s still an accurate representation of your creditworthiness, though it may not be exactly what your lenders see if they prefer to pull a FICO score.

Like the other options here, Quizzle’s score offers a variety of tools. It includes a credit summary that shows all of your different accounts and their balances. It also offers a complete overview, including credit utilization, available credit, length of credit history, and average age of accounts.

Quizzle’s “trending” feature allows you to track your progress in a variety of areas related to your credit score, including your actual score, available credit, balances, and more. This can help you see how you’re progressing with raising your credit score month over month.

4. Discover Scorecard

Even if you’re not a Discover customer, you can sign up for a free Scorecard account. This option will provide you with your Experian FICO score. You’ll get your actual numerical score, as well as a grade that compares your score to the rest of the U.S.

Discover’s Scorecard will give you access to the various aspects of your score, including your open accounts, length of credit history, credit utilization, and missed payments. It’ll tell you what’s helping and what, if anything, is hurting your score.

5. LendingTree

Sign up for an account with LendingTree, and you’ll get access to your free credit score from TransUnion. Similar to the other services, LendingTree will track your score over time, and will grade each aspect of your score. This includes negative marks on the report and your available credit. It’ll also give you specific ways to improve your credit.

Besides giving you recommendations for credit cards that fit your score, LendingTree will give you offers for personal loans and refinancing options.

6. Credit.com

This service is interesting because credit.com will show you both your FICO score and your VantageScore 3.0. This way, you can get some perspective on how they’re different. It’ll give you grades on the various areas of your credit score, including how you stack up to the average American.

Credit.com will also create a customized plan for you to reach a higher credit score, and it’ll estimate how high your score could go if you followed the plan. For instance, your plan might tell you to have no late payments for a certain number of months and pay off an extra $X in debt each month. Then, it’ll tell you approximately how high your credit score should be at the end of that period.

7. Your Credit Card Company

More credit card companies are now jumping on the free credit score bandwagon. Your statement or online account may come with access to a free credit score. Some card companies, like Capital One, even offer a credit simulator tool, where you can “try out” different credit decisions to see how they could impact your score.

Credit card companies currently offering their customers free credit scores include Discover, Citi, Chase, Bank of America, Barclaycard, Commerce Bank, American Express, Capital One, First Bankcard, USAA Bank, US Bank, and the Walmart Credit Card.

8. Apply for Credit

As of 2011, lenders are required to provide customers or potential customers with a copy of the credit score the lender used, even if the customer is rejected for the loan or line of credit.

Applying for credit can ding your score. If you’re going to do it anyway, be sure the lender provides you with a copy of the score used.

Keeping track of your own credit score through your credit card company or these free methods will not harm your score, and may even help you bring it up more quickly. The only option listed here that will impact your score is applying for credit. So before you do that, use a free option to pull your credit score. That way, you’re more likely to apply only for credit for which you’re likely to be approved.

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If travel is in your plans, you may want to know about this offer from American Express. It’s the Starwood Preferred Guest Credit Card, and it offers 25,000 bonus points when you make $3,000 in purchases in the first three months after opening your account.

You can redeem those points for free nights when it works for you because there are no blackout dates at over 1,200 Starwood hotels and resorts in almost 100 countries. (Some hotels may have mandatory service charges and resort charges.) For international travelers, though, it’s a big plus that there are no foreign transaction fees. You can stay connected with free in-room premium Internet access, but booking requirements apply. Other perks give you access to discounts and presale tickets for live events as well.

After the introductory period, your travel and everyday purchases continue to help you earn travel rewards too. You can get up to 5 points for every dollar you spend at Starwood hotels and 1 point on all other purchases. The offer includes a $0 introductory annual fee for the first year and goes to $95 per year after that. Terms and conditions apply.

This card was voted one of the best travel credit cards in CardRating’s Editor’s Choice Awards: Best Credit Cards for 2016 article. (CardRatings.com is one of our partner sites. Here is CardRating’s full review.)

Another travel reward card offer

The Chase Sapphire Preferred Card was also honored in the CardRating.com Editor’s Choice Awards article for its introductory offer – 50,000 bonus points when you spend $4,000 on purchases within the first three months of opening your account. (That translates to $625 in travel rewards.)

With the Chase Sapphire Preferred Card, you earn two times the points on travel and dining. You earn one point for each dollar spent on all other purchases.

It seems that turning your everyday purchases into better travel experiences is getting easier – and there are a number of options to choose from to boot. Happy trails!

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The Best Cash Back Credit Cards of 2017

by Luke Landes

Cash back credit cards can help consumers practice responsible spending while earning a little extra for their efforts when used properly. The days of earning 5 percent cash back on all credit card purchases may be just a memory, but the smart use of credit cards can still be profitable for diligent consumers. You may […]

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Balance Transfer Cards for Fair, Average or Excellent Credit

by Richard Barrington

[Editorial note: This offer was last updated on July 13, 2016.] Are you still wrestling down holiday debt? Zero-interest balance transfer credit card offers can help you meet this challenge, but only if you know what to look for. Otherwise, you will end up paying interest anyway, which is exactly what the credit card companies […]

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Hurry While Discover’s® Double Miles Deal Lasts

by Curtis Arnold

Whether you’re planning a very special trip next year or just travel a lot, there’s currently a limited-time offer you really ought to think seriously about. The Discover it® Miles-Double Miles your first year card is effectively offering double miles for the first year after new cardholders (but not existing ones) open their accounts. Here’s […]

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5 Reasons Why New Chip Credit Cards Won’t Reduce Fraud

by Luke Landes
Chip-Embedded Credit Cards

Banks in the United States are undergoing a major transformation in credit card technology, a process similar to the one Europe successfully completed several years ago. Despite the technological advances in mobile payment that have already rendered plastic cards obsolete, the financial industry wants to replace every magnetic stripe credit card in every wallet. When […]

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Three Overlooked Tools for Repairing Credit

by Luke Landes
Sue the creditor

This is a guest article by Neal Frankle. Neal is a Certified Financial Planner® in Los Angeles. He is also the senior editor for WealthPilgrim.com, MCMHA.org and CreditPilgrim.com. Your credit report is like a financial passport. If it’s clean you’ll find the doors to the financial world wide open. Your credit journey will be carefree […]

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5 Questions Before Applying for a New Credit Card

by Luke Landes

Since the credit crunch in the midst of the latest recession, credit card solicitations have seen a significant increase. Unless you’ve opted out, and good luck with that, you’re probably getting junk mail from credit card issuers with invitations to apply for the latest credit card offers. Don’t get too excited, especially if you have […]

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