5 Tips to Understanding What Affects Your Credit Score

You probably already know that not paying a bill can adversely affect your credit score, but do you know by about how much? Do you know what effect opening up a retailer charge card just to get 10% off on your purchase can have on your credit score? These are some things you should be aware of. Here are 5 tips that will help you understand how certain decisions can affect your credit score and what you can do to maximize your score.

Pay Your Bills on Time. Even if you can only make minimum payments, that’s better than being late with a bill because late payments of 30 days or more can drop your FICO score by 50 points or more. If you suffer from “Financial Deficit Disorder” and just can’t seem to get your bills paid on time, try setting up automatic bill pay.

Don’t Max Out Your Credit Cards. Since your credit score factors in your debt to credit ratio, try to keep your balances to no more than 30% of your available credit limit. For instance, if you have a card with a $10,000 credit line, make sure you don’t carry a balance of more than $3,000 on that card. If you can pay off your credit cards each month, that’s even better. But if you can’t, it’s better to spread out debt over a few cards, to maintain lower balances, rather than max out any one card.

Keep Older, Established Accounts Open. It feels good to pay off a credit card and finally get that statement showing a zero balance. However, if you pay off a creditor, don’t make the mistake of closing that account because 15% of your FICO score is based on the length of your credit history. The longer a credit history you have, the better it is for your score.

Avoid “Bad” Forms of Credit. I’m sure you’ve walked into a department store and been offered 10% off, or some other discount, just for opening up a credit card with that retailer, right? Did you take the bait? If so, realize that you might have hurt your credit score. Here’s why. The FICO scoring model rates some forms of credit more favorably than others. For instance, the presence of a mortgage on your credit report will help your score, but too many consumer finance cards (i.e., the cards issued by department stores and retailers) can hurt it. For this reason, do yourself a favor and say “No” to those credit card offers from stores you patronize. Just use a major credit card — like a Visa, MasterCard, American Express, or Discover Card — if you need to use credit to make your purchases.

Only Apply for Credit When You Truly Need It. Just because you get a pre-approved offer in the mail, or some telemarketer calls you to solicit for a credit card, doesn’t mean you should accept it. You should only seek out credit when you absolutely need it because taking on too much new credit – or even just applying for it – will lower your credit score. Each time you apply for a loan, whether it is a credit card, an auto loan, a mortgage, or a student loan, the lender pulls your credit report and generates an “inquiry” on your credit file. That inquiry remains there for two years. A single inquiry can lower your FICO score by up as much as 35 points.

A longer version of this post appeared yesterday on Gwyneth Paltrow’s blog, as “Top 10 Tips for Saving Money and Investing Wisely.” Read it and my other tips to her readers here.

Airfare: How Getting Bumped Saves You Money

Watching your flight take off without you because you were just bumped isn't all bad: With the right negotiating skills you can walk away with free travel.

Have you ever been at the airport waiting for your flight to board when the attendants announced that their are too many passengers booked and some will have to wait for another flight? Well, “getting bumped” to another flight may seem like a bummer, but it is a great way to save on airfare — minus the inconvenience.

Getting bumped happens because airlines allow overbooking for flights, counting on no shows so that they can still take off at full, or near-full capacity. However, if more passengers check-in than they had anticipated, the airline has to ask if their are any volunteers to wait for the next available flight. If there are not enough volunteers, then they will start bumping passengers themselves.

Freebies for being bumped
Here are some things passengers have been offered:

• free meal if the wait for the next flight or a delay is 2 hours or more
• a free hotel stay that night if the next available flight is for the next day
• admission to the VIP club
• discounted airfare for your next trip
• travel voucher giving you a free flight (note, this doesn’t always cover round-trip, so be prepared to purchase your one-way ticket back)
• a discount or refund on your current flight

The latter is particularly a good deal for passengers who do not fly that frequently or have a low likelihood of using that same airline for their next travels if they’re headed to a location the airline doesn’t cover. Also, some of the coupons or travel vouchers have expiration dates. If you don’t use them in time, it’s as if you were never compensated for your inconvenience.

Volunteer to be bumped
A way to save money on your flight and to negotiate better terms is to volunteer to be bumped. Here’s how to do it:

Call the airline the morning of your flight or the night before if it leaves early in the a.m. Ask the airline if the flight is overbooked. If they say yes, arrive at the terminal 90 minutes to 2 hours early for domestic flights and tell the ticket clerk that you are willing to be bumped should the need arise. Volunteers are taking in the order they volunteer, so that earlier you arrive at the airport the better your chances. You still can ask to be put on the volunteer list if you arrive later, but your chances of getting bumped decreases.

You can always back out from the list when the time comes and their airlines are not offering you the best freebie deal. Only take the bump if you’re happy with what you’re being offered. Also, only take the bump if your time is flexible. If you have a connecting flight or are trying to make it to a boat launch for a cruise, you’ll probably be better off if you hold on to your seat.

3 Smart Tips for Wallet-Friendly Vacations: Where to Go

Whether you’re wanting to take your first trip, second or third this summer, you do not have to let low funds get in the way of your taking a good, fun summer vacation. Although the often-hyped “staycation” is a great way to enjoy a vacation without necessarily spending so much since you’re staying close to home, there are other ways to take a low-cost vacation and still get away. Over the next few days I will post 3 tips for a wallet-friendly vacation if you need to know where to go, where to stay and what to do. Let’s start with “Where to Go“:

Being flexible in your vacation destinations and departure dates will allow you to take advantage of discount deals.

Where to Go
You’re dreaming of a European vacation, or perhaps an island cruise, or backpacking through the wilderness, but the airfare to your preferred destination is a bit steep for your pocketbook. You juggle the dates, hoping to find a better deal, but you’re just not finding one good enough in the narrow window that you have to take the vacation. You’re frustrated and thinking of canceling an away-vacation this year until you can save more money. Well, there are actually other options. Here’s one:

Tip: Be flexible with your location. Instead of letting the destination decide your trip by locking yourself into that dream locale, let the airfare be your guide. Know what it really is you want from the vacation. Is it the hike up a mountain, snorkeling along a coral reef, or enjoying the sea breeze and deck games on a cruise? Once you know, look for discount airfares and hotel rates to destinations that will give you those experiences.

You can check for last-minute deals directly at airline websites, through places such as:

• Priceline,
• kayak.com,
• vacationstogo.com,
• smartertravel.com or
• Airfarewatchdog.com

The latter recently listed round-trip flights from Chicago to Rio de Janeiro for $487 roundtrip, Atlanta to Honolulu for $276 roundtrip, and Phoenix to the Bahamas for $219 roundtrip.

Also, check Travelocity’s Low Fare Finder by clicking “my dates are flexible.” It’s a good way to check for lower prices between two cities if you don’t have firm travel dates.

6 Guidelines to Help You Maximize Your Credit Score

By Lynnette Khalfani-Cox, The Money Coach

Anyone living in today’s society knows that it can be a drag to be turned down for credit. It’s no fun when your application for a car loan, a student loan, a mortgage, or even just a credit card is denied.

Learn how to boost your credit standing by knowing the ins and outs of how your score is determined by Fair Isaac Corp., the company that calculates your FICO credit score.

Here are 6 guidelines to help you maximize your credit score:

1. Pay Your Bills on Time
Since the single-biggest component (35%) of your credit score is based on your payment track record, the best way to boost your credit score is to simply pay your bills on time. Not some of them; all of them. Even if you can only make minimum payments, that’s better than being late with a bill because late payments of 30 days or longer can drop your FICO score by 50 points or more.

2. Don’t Max Out Your Credit Cards
Some people mistakenly think that simply paying their bills on time each month will give them a stellar credit rating, but that’s not true. Your FICO score also considers how much credit you use on a regular basis.

Having a lot of debt signals that you are a potential risk for getting into financial trouble and not paying bills on time. If your credit cards are at or near their limits, you can raise your credit score by knocking down your balances.

In general, try to keep your balances to no more than 25% of your available credit limit. For instance, if you have a card with a $10,000 credit line, make sure you don’t carry a balance of more than $2,500 on that card. If you can pay off your credit cards each month, that’s even better. But if you can’t, it’s better to spread out debt over a few cards, to maintain lower balances, rather than max out any one card.

3. Get financial help with debt
Having lots of credit card debt lowers your credit score. So if you’re struggling to pay off debt or are living paycheck to paycheck, consider getting help from a trustworthy credit counseling agency.

One reputable resource is the National Foundation for Debt Management, a non-profit agency that negotiates with creditors, gets your interest rates lowered, and creates a plan to quickly get you out of debt.

For speedy help, contact NFDM at: http://enroll.nfdm.org/ or call them toll-free at 866-409-6336, and a HUD-approved credit counselor from NFDM will get back to you within 24-48 hours for a free, no-obligation assessment of your situation.

4. Keep Older, Established Accounts Open
It feels good to pay off a credit card and finally get that statement showing a zero balance. However, if you pay off a creditor, don’t make the mistake of closing that account because 15% of your FICO score is based on the length of your credit history. The longer a credit history you have, the better it is for your score.

5. Avoid “Bad” Forms of Credit
You’ve probably walked into a department store and been offered 10% off, or some other discount, just for opening up a credit card with that retailer, right? Did you take the bait? If so, realize that you might have hurt your credit score. Here’s why:

The FICO scoring model rates some forms of credit more favorably than others. For instance, the presence of a mortgage on your credit report will help your score, but too many consumer finance cards (i.e., the cards issued by department stores and retailers) can hurt it. For this reason, do yourself a favor and say “No” to those credit card offers from stores you patronize. Just use a major credit card, such as a Visa, MasterCard, American Express, or Discover Card, if you need to use credit to make your purchases.

6. Only Apply for Credit When You Truly Need It
Just because you get a pre-approved offer in the mail, or some telemarketer calls you to solicit for a credit card, doesn’t mean you should accept it.

You should only seek out credit when you absolutely need it because taking on too much new credit – or even just applying for it – will lower your credit score. Each time you apply for a loan, whether it is a credit card, an auto loan, a mortgage, or a student loan, the lender pulls your credit report and generates an “inquiry” on your credit file. That inquiry remains there for two years. One inquiry can drop your score as much as 35 points.

Also, beware that you may sometimes generate an inquiry without even knowing it! That happened to me, when I recently rented a car with Avis, using my debit card. Rental car companies frequently run your credit report if you use a debit card instead of a credit card. That single inquiry lowered my FICO score by 16 points.