The Sun's Financial Diary » Credit report

How One Missed Bill Becomes One Costly Mistake

David Dierking — Wed, 24 Apr 2013 13:58:22 +0000

I’m about to do something that I rarely do. Admit that I made a mistake. I’ve lamented before about how credit scores can be a notoriously fickle thing and can begin to drop rapidly if you start missing payments. With a slight bit of shame, I’m about to give you a personal case study in how a missed bill affected my credit score and how that in turn cost me a big wad of cash.

I have a credit score right around 800. All of my bills get paid in full and on time every month. Like most people, I sign up for automatic payment so it’s one less thing that I have to worry about. I have one credit card bill that currently doesn’t allow for automatic payment so I have to go online to pay the bill manually every month.

It turns out we didn’t have our e-mail address on file either so we didn’t get the benefit of an e-mail notice telling us that we had forgotten to pay our bill. Before I knew it, this bill was 60 days past due and the credit agency had been notified.

The timing of this was especially bad because we were applying for a mortgage refinance at the time. One of the first things that the bank did when we applied for the refinance was to pull our credit file so imagine our surprise when they came back and told us that our credit score was 730 – a full 70 point drop. The top reason given for the score was recent delinquent payment.

The 70 point drop in and of itself probably wouldn’t have bothered me that much had we not been in the process of applying for a loan where we needed a high credit score. At the rate we were applying (a 10 year fixed loan at a rate of 3.25%) with our prior credit score we were looking at a closing cost that we were quite comfortable with. But our old credit score was a thing of the past and with it went our expected closing costs. When the bank reran our application considering our updated credit score, we found that our closing costs would be about $700 more than we had originally estimated.

A 70 point drop in our credit score and an estimated $700 more in closing costs for our refinance. All because of one missed bill that was completely by accident. The funny thing is that the bill was for a credit card that we rarely use. I think the total bill was only somewhere around $100.

I think the lesson here is obvious. I need to pay closer attention to my bills. Automatic bill payment is a great thing but even with that I need to keep an eye on my bank account to make sure that the bills are getting paid. The ones that aren’t on automatic payment need to be monitored even closer so something doesn’t slip through the cracks again in the future. E-mail reminders, calendars or even post-it notes would help make sure I don’t miss another bill in the future (read more on how to improve your credit score)

Consider it a lesson learned.

Photo credit: Marcus Metropolis

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How One Missed Bill Becomes One Costly Mistake

M&T Bank Free FICO Credit Score

Sun — Wed, 30 Jan 2013 12:17:27 +0000

We all know how important an excellent credit score is these days. From getting a new credit card, applying for a home mortgage, to even landing on a job, your credit score and credit history could well decide whether you will be successful in getting what you want or not. Thus, it’s increasingly becoming critical to maintain a healthy credit. And keeping an eye on your credit score and the trend of the score will help in that regard.

How to Get Credit Scores for Free

There are many ways to obtain credit scores, some paid, some free. For example, if you are using free credit monitoring services from Credit Karma or Credit Sesame, then you can get not only get credit scores (TransUnion score from Credit Karma and Experian score from Credit Sesame) for free, but also real time credit monitoring without charge. Sure, those are FAKO scores not FICO score which is widely used by creditors, but still previous study has shown strong correlation between FAKO credit scores and FICO credit score. This means that even if you can only access FAKO scores, you can still derive FICO score from them to some extent, allowing you to assess your credit worthiness based on your FAKO scores.

If you are willing to pay, then myfico.com is the place to purchase the real FICO score (the three credit reporting agencies also offer their own version of FICO scores). Paying $7.95, you can make a one-time purchase of FICO score and at the price of $14.95, you can buy both the score and a credit report. If you are a first time user of myfico.com, you can even get the FICO score for free (see how to register and cancel the free trial service after getting the score). Speaking of free trails, if you are only interested in getting a score for once, then there are plenty of places where you can get free scores and credit reports during the free trial period of a credit monitoring service, which is typically one week. Read carefully the fine print about the length of the trial period because each service provider has different rules about the free trail and how to cancel it before signing up for the free trail.

M&T Bank Free FICO Score

The above free trail route may be a little bit of a hassle because you need to sign up then cancel in order to avoid any additional charges associated with the service that you don’t really want. If you don’t want to take that route, but still want to continuously receive FICO score for free or at a lower cost, then another route is to get a bank account from a bank that offers its customers FICO credit scores. One of those banks is M&T Bank. Through one of M&T Bank checking accounts, you can get credit score with a monthly subscription fee of $2.99 or for free, depending on the account you choose.

Currently, M&T Bank offers a total number of seven personal checking accounts, all of them allowing you to get your credit score as an add-on to the checking account. For Basic Banking, @College Checking, M&T Classic Checking with Interest, Free Checking, and MyChoice Checking, Credit Score is one of the five add-ons that will cost you $2.99 a month. The four custom add-ons are:

No M&T Fee at Other Banks’ ATMs
Refund of Other Banks’ ATM Fee
No Fee for Overdraft Protection Transfers
Free Standard Checks & Safe Deposit Box
Credit Score

If you upgrade the checking account to either MyChoice Plus Checking or MyChoice Premium Checking, then you are able to subscribe two (MyChoice Plus Checking) or four (MyChoice Premium Checking) for free. Of course, the free add-ons come with a higher requirement on maintaining the account, which will also charge a monthly fee if the conditions are not met. For MyChoice Plus, or Premium, Checking, the requirements for monthly fee waiver ($14.95 per month for Plus, $24.95 for Premium) and free add-ons are:

Average $2,500 ($7,500 for Premium) or more in account balance throughout the month, or
Combined balance of $5,000 ($25,000 for Premium) or more in M&T deposit accounts, loan, or investment accounts, or
Have a M&T Bank mortgage of $100,000 ($200,000 for Premium) or more.

In addition to the free add-ons, Plus and Premium Checking Account customers can also earn interests for the money they have in the account, but the interest rate is so low (0.01% APY), it doesn’t make much of a difference.

As you can see, the cost to have a true FICO score every month with M&T Bank is much lower than the price of direct purchase or monthly credit monitoring subscription. I may get one myself if I can find $2,500 to spare

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Credit Sesame Credit Monitoring Alerts

Sun — Tue, 22 Jan 2013 11:38:08 +0000

A few weeks ago, I talked about the free credit monitoring service from Credit Sesame when it was announced. I signed up for the service immediately when it became available because it is free (of course, you need to be a member of Credit Sesame, which is also free to join) and have been waiting for my credit alert since. At the time when I wrote the article, I thought that I could only view the alerts on the Credit Sesame website, which would make it less useful because I don’t think I will log into my account very often, not being able to receive alerts via email when events occurred. The reason for that impression is that I have been using a similar credit monitoring service from Credit Karma, which is almost identical to Credit Sesame, for a while now and I don’t think I have ever received an email alert.

Well, looks like I was wrong on Credit Sesame. Late last week, I did receive an email alert from Credit Sesame that contained two events that showed up in my credit report after I enrolled into the free monitoring service. Of course, as you can see from the screenshot below, the email doesn’t really contain a lot of details about those event. Rather they are just brief summaries of the event. To know more about exactly what happened, I still need to go to the website and find out.

And with the introduction of the new service, Credit Sesame has also redesigned its website to add a credit monitoring section, which is prominently displayed once logging into the account. For this part, I think Credit Sesame does a better job than its rival Credit Karma does. Even though I didn’t explicitly set up for email alert, I still received the notification one day after those events were posted in my credit history report. The email alert is On by default.

Actually, in addition to those events mentioned in my first post that will be monitored by Credit Sesame’s free service, there are a few alerts that can be set up. To configure these alerts manually, you will need to click the the little blue bell on the top right corner of the above screenshot, which will then lead to the page for additional alerts, though not a lot.

Since this was the first alert I received since the monitoring service was set up about a month ago, I don’t know how often the alerts are sent out, once a month or as they happen. From the fact that Credit Sesame only updates credit score once a month, I suspect that the credit monitoring alerts will also be available on a monthly basis. Update: I was informed by Credit Sesame that alerts are indeed sent in real-time, as soon as the events are reported.

Have you signed up to use the free Credit Sesame credit monitoring service yet? If so, what’s your experience? Do you think it is useful in monitoring and improving credit?

Original Post on www.thesunsfinancialdiary.com

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Credit Sesame Credit Monitoring Alerts

Free Experian Credit Monitoring from Credit Sesame Review

Sun — Wed, 19 Dec 2012 12:36:46 +0000

In case you didn’t know already, Credit Sesame just added another free service to its offering.

I have been a customer of Credit Sesame for several years already. Even though it offers a set of services, such as mortgage refinance (not that Credit Sesame will refinance your existing mortgage, but it will provide lender information with rates) and credit cards from various issuers, the only service I use is the free credit score. Since it is one of the FAKO scores, the absolute value of the score doesn’t really matter that much to me, but still I consider it as a valid tool to keep an eye on any dramatic change of my score. The Credit Sesame free credit score is useful to me in the sense that it shows me the trend of my score over time, not that it is the FICO score that most creditors use. Because the service is free of charge, I don’t many complaints about what I get from Credit Sesame, even though I would like to see my credit score gets updated a little more frequent than just once a month.

The new free service I am talking about today is credit monitoring from Experian, one of the leading credit agencies which also provides Credit Sesame users the free credit score. Like the credit score, Experian credit monitoring service is also absolutely free for Credit Sesame customers. However, it does require that you manually turn it on as by default the service is off. To activate the service, all you need to do is logging into your account (sign up for Credit Sesame is free if you don’t have an account already), and turning on the monitor under the My Monitoring tab (this is a new tab you will see once you logged in if you already have an account), all done with three mouse clicks.

As I mentioned about, the biggest complaint I have with Credit Sesame’s free credit score is that the score only gets updated once a month. As a result, it’s not possible, at least with the current Credit Sesame service, to detect any significant in real time (well, maybe not exactly in real time, but fairly quickly). And there’s a big difference between credit score check and credit monitoring. For credit monitoring, it looks for events in one’s credit report on a daily basis and alerts the user for any change that could affect his/her credit score. Events that are currently being monitored by Experian include:

Public records
Derogatory credit
Changes to your accounts
Security or fraud alerts
Address changes
Lost or stolen card notifications
New accounts opened
Credit inquiries
Balance changes
Credit limit changes
Credit usage changes
Credit score changes

While the free credit monitoring service will alert the user the occurrence of any of these events, the alerts are only available on Credit Sesame website, not sent via email or other means. This means that if you don’t log into your account every often, you won’t be able to notice these events even though they have already been recorded. I signed up for a similar service from Credit Karma a while ago, and I never got any email alert either. The good news is that the credit monitoring service has been integrated into Credit Sesame’s mobile app, so I don’t really have to use the website to see my alerts.

Of course, there are plenty of paid credit monitoring services out there if you choose to pay for it. For me, I like free stuff better

Original Post on www.thesunsfinancialdiary.com

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FICO Scores vs FAKO Scores: Differences and Correlations

Sun — Thu, 04 Oct 2012 12:07:27 +0000

If you are using one of the free credit score reporting services, such as those from Credit Karma and Credit Sesame, then you know what you get isn’t FICO scores that were developed by Fair Isaac Corporation and are by far the widely used scores by creditors in determining a borrower’s credit worthiness. Those, also commonly known as FAKO scores, are scores developed by three credit reporting agencies, Equifax, Experian, and TransUnion. There’s also a VantageScore that was jointly developed by the three agencies. While FAKO scores can be obtained for free, through such programs as Credit Karma and Credit Sesame, FICO scores, including various versions of FICO scores, are usually available for purchase from either FICO or the three agencies (it’s possible to get FICO score for free, but it usually involves a trial of products, credit score or credit monitoring service, that are not free).

I am using both Credit Karma (TransUnion TransRisk Score and VantageScore) and Credit Sesame (Experian Plus) as tools to monitor my credit scores for free. Knowing that I am only getting FAKO scores from these free services, I only use them for references, tracking the changes of scores rather than absolute numbers of the scores. But if these FAKO scores don’t mean too much in the real-world situations, such as when applying for a mortgage or getting a new credit card, why are they still being sold by the agencies? Does knowing one’s FAKO scores help him or her understand where he or she is in the FICO score? Is there any correlation between FICO scores and FAKO scores?

If you have these questions and want answers to them, there’s a good resource for you. The Consumer Financial Protection Bureau (CFPB) recently published a study on the differences between scores purchased by consumers from three credit reporting agencies (including both FICO and FAKO scores) and those scores sold to lenders by the same agencies, as well as differences between FAKO scores (called educational scores in the study, including Equifax Credit Score, Experian Plus Score and TransUnion TransRisk Score, I have written about credit score types and ranges before), FICO score and VantageSocre and the correlation among them. The published report also explains different types of credit scores and their corresponding score ranges.

I am still studying the report since it has a lot of good information, but there are a couple of charts in the report that I want to share with you first. The first one the relationship between FICO score and the risk of default, as shown above. Basically, what the study found is that “at the low end of the score range the risk of default is very high and the relationship between score and risk is fairly steep, while at the high of the score distribution, where risk is very low, the relationship is fairly flat”. For FICO score, the median is 714. If you are doing peer-to-peer lending using Lending Club, for example, you may want to pay a closer attention to the borrower’s score and see where it is in the default/score chart.

The second chart is score correlations among FICO, FAKO, and Vantage scores. As you can see from the table, even though we may not care too much about FAKO scores, there are actually strong correlations between FICO and FAKO as well as FICO and Vantage scores, 90% or more overall. This is particularly true for scores at the lower end, those scores below the median scores (FAKO scores median is 712 and VantageScore median is 750). What does it mean? Well, if a person has a low FAKO score, it’s very likely that the FICO of the same person will be as bad. On the other hand, if the person has a very high FAKO score, he or she may not have a FICO score that is as good as the FAKO score because for scores above the median, the correlation is weaker and the variation is greater. So don’t get too excited if you have a 990 VantageScore, as I do according to Credit Karma

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FICO Scores vs FAKO Scores: Differences and Correlations