Free Credit Scores At Credit Karma

Sorry about the infrequency of my posts recently. I haven’t been able to write as much as I have wanted lately, but hopefully I can carve out more time in the coming weeks.

Onto the post….

Credit Karma

I was at a conference last week learning about the ins and outs of credit scoring and someone mentioned a site where you can get FREE credit scores. The name of this site is Credit Karma.

Right now you are giving me your best “Sounds skeptical” face. I know we’ve all heard stories about websites that will give you a score for free, only to log on to the site and have to plug in credit card information. Why do they ask for credit card information? So they can automatically charge you $9.95 for a credit-monitoring service that doesn’t do much good. All of the sudden that free credit score doesn’t seem so free does it? That’s because it isn’t free, unless you go to Credit Karma.

Now you are probably asking, “How can they offer a free score when no one else does?”  The following is taken directly from Credit Karma’s FAQ page.

How can this be free when other services charge people?

Our free credit scores are sponsored by partners who share our vision that consumers should have free and regular access to their score.

Signing Up

So, how do you sign up for Credit Karma? It’s easy. Go to their home page, and click “Get Started Now.” Enter in all your personal data and viola, you have a score. When I signed up it took me less than five minutes.

What You Get

After signing up, you have access to your TransRisk score, your Auto Insurance Score, and your VantageScore (more about this coming soon). All scores were calculated from the information that is on your TransUnion credit report. Each score has a section about the history, your rating, and where you rank nationwide when compared with other consumers.

Credit Karma also contains a “Credit Report Card” section that gives you an overall grade, as well as grades in card utilization, percent of on-time payments, average age of open credit lines, total accounts, hard credit inquiries, derogatory marks, total debt, and debt to income ratio. By analyzing this section, you can see where you need to improve.

Credit Simulator

If you are trying to improve your credit, visiting the “Credit Simulator” section of Credit Karma is a must. You see how your credit would change if you were to:

  • Add a new credit card
  • Add a new loan
  • Add an inquiry
  • Increase your credit limit
  • Open a new card and transfer the balance
  • Close your oldest card
  • Increase or decrease your credit card balance
  • Pay off all credit cards
  • Have one past due payment
  • Have all accounts past due
  • Have a foreclosure, owe back child support, or a tax lien
  • Have a collection account

A credit simulator typically costs anywhere from $5 to $10, so offering this for free is an amazing service and one you should definitely take advantage of as you are building your credit history.

Why All The Love?

Free credit reports are one thing, but free scores, a free simulator, and detailed analysis is another. Credit Karma has put together an amazing tool for consumers. If you are planning on making a big purchase using credit in the near future, please visit Credit Karma and see where you stand. You won’t regret it?

Does anyone use Credit Karma? What has been your experience so far?

Mr. T

Are Credit Card Rewards Worth It?

A few days ago I was sitting around the table with my family and the topic of credit card rewards came up. I have always had mixed feelings toward this topic. Before reading and listening to Dave Ramsey, I thought they were great. Now I’m just not sure.

If I’m going to spend the money, why not get rewarded? Whether the reward comes as cash back, a gift card, or airline miles it sounds like a win-win proposition. The credit card company is paying me to spend money! This is awesome. Well, maybe it’s not so awesome. I’m going to attempt to dissect the good, the bad, and the ugly of credit card rewards.

The Good

Free money is awesome. The one credit card I still have (sorry Dave) offers 1% cash back on all transactions and up to 5% in some categories. I am able to redeem the rewards in a variety of ways. I can get a direct deposit to my checking account or I can receive gift card, often turning $40 in rewards into a $50 gift card to various restaurants and retail stores. It’s such a great feeling when I eventually spend enough to cash in my rewards. It’s like a free meal! I must say that cashing in our rewards takes awhile, as Mrs. T and I don’t use our credit card for much. We also pay the balance off (if there is one) in full each month.

The Bad

Numerous studies have been done that prove that when we use plastic, we spend more. Don’t believe me? Read this study done by those smarties over at MIT. When we use cash, it hurts. For good reasons, we don’t want to part with it. The odd thing is that swiping a card doesn’t register in our brains the same way as it does when we use cash. So when you think about it, the rewards are just making up for the extra money we spent because we used our credit card.

The Ugly

Do you want to know how many of those “free” airline miles go unclaimed each year? You won’t believe me, so check this article by Mint.com. Now that I have proof, I’ll give you the number: Seventy-five percent of the airline miles that we spent so hard for will go unclaimed. Can you believe that? Three-quarters of our rewards are not going to get used. Tell me that number doesn’t frustrate you.

The other ugly side of credit card rewards is the interest rate your friendly credit card company will charge if you don’t pay your balance in full. If your credit card charges a 10% interest rate on your balance, the cash back reward of 1% your getting starts to sound really small. It would just take one month of not paying the bill in full and those rewards start to cost a whole lot of money in the form of interest.

That’s the risk you play with credit cards. It takes just one slip up and you might find yourself in a really big mess. Would a company continually offer you something for nothing? Sounds silly right? But that is what you think you’re getting if you never pay any interest on your card.

What Now?

Like I said, I’m still not 100% sure where I stand on the credit card rewards issue. I just don’t think you should use a card specifically for the rewards. Over the long-haul, you’ll end up losing. Credit card companies are smarter than us. Let’s just agree on that. So eventually, something will happen, you won’t pay your bill, and one month of interest could potentially eliminate all those months of rewards.

What do you guys think? Are credit card rewards worth it? What’s your card paying in rewards?

I’ll leave you with an interesting video I found on YouTube while researching for this article.

Mr. T

How Closing Credit Cards Can Hurt Your Score

Wow! You just paid off your first credit card. Great feeling huh? It took you just over two years to pay back $500 worth of college textbooks and Starbucks. You make a promise to yourself that you will never use that card again. So, it makes sense to cancel the card right? Well, maybe, but maybe not.

First, let me say this. I am not a huge fan of debt . By not having any debt, you will be free to go on vacation, remodel  your bathroom, or buy a new TV without the feelings of guilt. I am not encouraging anyone to go in debt or stay in debt.

However, if you are getting ready to get a mortgage or auto loan, it may make sense to keep that credit card open. Say what? If you read this, you remember that 30% of your credit score is the amount of debt you have. Let’s say you have 3 credit cards, each one has a $1,000 limit. You just paid off Card 1. You owe $400 on Card 2 and $500 on Card 3. Remember, the goal is to keep your revolving balances below 30% of the limit. The limit on your 3 cards is $3,000, so you debt ratio is 30%. I got that number by adding your balances on both cards ($400 + $500) and dividing by the credit limit of $3,000. Now, if you were to close Card 1 after paying it off, your debt ratio would go up to 45%. Because you canceled Card 1, your credit limit went from $3,000 down to $2,000, but your balance remained $900 between Card 2 and Card 3. You are now over 30% and your score will take a hit.

If you think that you cannot keep the card without incurring more debt, then by all means, close the card. But, if you can tuck the card away, promise not to use it, and pay down the remaining cards, you will slowly see your score begin to rise. This will help you as you attempt to secure a mortgage with a favorable rate and terms.

One last note. As you close out cards, close your newest cards first. Length of credit history is 15% of your score, so the longer you have credit, the higher score you have.

Who has a suggestion for quickly paying down credit cards?

Mr. T

Learn About Craig And His List

Ahhhhh… You dropped your cell phone in the toilet. You brave the waters and fish it out, but the darn thing won’t turn on. Dollar signs are floating in your head as you run the numbers of what it’s going to cost you to replace the phone. Out of contract, most smart phones are in the $400+ range. Who wants to spend that much on a phone? That’s why you got the two-year contract, right? So you could get that awesome phone for $50. Most companies won’t let you renew and get a new phone unless you’ve been a customer for an extended period. So, what choice do you have? You NEED to be able to update your Facebook from the doctors office or Tweet how much fun you’re having at the Jonas’ Brothers’ concert. Craigslist to the rescue.

I know, I know, this site isn’t breaking news to anyone. We’ve all heard about craigslist and all the junk people are selling. However, I don’t think people are using this list to it’s full potential. Let’s take that story from above.  Too many people still go to their cell phone provider and angrily fork over the $400 for a brand new Droid X because they broke theirs. Please wait, you don’t have to do that. Recently I was able to purchase a gently used Motorola Cliq XT for $30 on craigslist. It is in great shape and is a HUGE upgrade from my previous phone. If I were to try to buy this phone brand new and out of contract from T-Mobile, I would have paid $330. Ouch! By using craigslist I saved $300. There’s a lot I could do with that money. If you haven’t started a retirement account yet, read this for an idea of what to do with the savings.

You do need to be careful while using craigslist. When I buy or sell anything on craigslist, I make sure I’m with at least one other person and that we are in a public place. You also need to make sure that what you’re buying is legit, and not a scam. If the deals sounds way too good to be true, do some research. Call or email the seller. Do a Google search on the add and see what pops up. For me, buying something on craigslist is not different than when I buy something new from Best Buy. I do the research and that’s what you should do here.

There are tons of other great things to buy on craigslist, but one other feature I’m not sure a ton of people use is the jobs section. You can find great leads on craigslist. The jobs you will find are going to be local as you pick the region you are searching. Recently, I was able to land a part-time job working 10 hours a week  by using craigslist.

What’s your greatest craigslist purchase? Please share you successes with the group.

Mr. T

Save Money: Take the Boring Challenge

Read this: Save Money: Take the Boring Challenge.

I’m going to TRY to give up going to the gas station during lunch and buying a pop. That $1 a few times a week could add up to major savings over the year.

Anyone else want to join? What could you give up?

How Long Will It Take You To Become A Millionaire?

Dr. Evil knows that $1,000,000 is some serious cash.

Your odds of winning the lottery are very slim. Your odds of being able to save enough to reach the $1,000,000 mark? Maybe not as far-fetched as you think.

DaveRamsey.com has a wonderfully useful investment calculator. How does it work?  I’m glad you asked.  First, put in how much you already have invested.  Next, enter what you expect your average rate of return to be. Dave says if you follow his investment principles, you can average 12% returns (click here to learn where he gets that number). Next, enter how much you will be contributing monthly and for how long. Tell the calculator how many years to project and bingo, you can see how much money you’ll have in the future. The calculator will tell you how much you contributed, how much interest you earned, and when you will hit the $1,000,000 mark. If you aren’t happy with the number you get, the calculator lets you see how much more you would have if you gave up things like pizza, restaurants, eating lunch out, and drinking coffee or soda. This is a great tool to use while you are walking down the investment path. It’s nice to know that your hard work will eventually pay off.

So, let’s say you are 30 years old and have $0 in investments. You may feel discouraged, but let’s go to the calculator and see where you could end up in 30 years if you invest wisely. If you can manage $300/month over 30 years and average 12%, you would have just over $1 Million at the end of those 30 years. Your total contributions were $108,000, and the rest was all interest. Pretty amazing right? You’re probably asking yourself where you are going to get an extra $300/month. The average car payment in America is well over $300/month.  Have you ever considered saving up and paying cash for you next car? If it mean you could retire with $1,000,000 would that help? Something to think about.

Do you have any investment tips for the rest of us?  Please share.

Mr. T

That’s Not My Account – How To Dispute Errors In Your Credit Report

If you don’t know how to access your credit report for free, click here. If you aren’t sure how to read your credit report, click here. Now that you understand how to get and read your report, let’s talk about disputing errors within your credit report.

The U.S. PIRG conducted a study in 2004 and found that nearly 8 out of 10 of credit reports had some kind of error and 1 out of 4 credit reports contained a serious error that resulted in someone being denied credit. That means the vast majority of credit reports contain errors.  That is why I advise you to pull your credit report at least once a year.  The earlier you find an error, the easier it will be to dispute.

Let’s say you have pulled your report and read it thoroughly.  You notice a credit card account that is not yours and it has been paid 60 days late several times.  Because you read “What Makes Up Your Credit Score?” you know that this is hurting your credit score. How do you go about getting this incorrect account off your report?  It’s not as hard as you think, and I’m going to walk you through it.

Step 1:  Tell the credit reporting agency (TransUnion, Equifax, and Experian) that the account is not yours and that you want it removed from your account.

Step 1 can be done several different ways.  All of the credit reporting agencies (CRAs) advise disputing errors online as it is the fastest way to get a response. If you cannot dispute the account online, you can send them a letter detailing why the account is inaccurate and what you expect them to do.  The FTC  lists a sample letter on their website which I will include at the bottom of this post.  TransUnion and Equifax have dispute forms you can find here and here.  I advise that you include the dispute forms with the letter, along with a copy of your credit report with the inaccurate accounts circled. Make sure you include the name of the creditor in your letter, as well as the account number. When mailing the CRAs documentation, always use copies.  Also, mail your documentation with “return receipt request” so you have proof of when the CRA received the information.  The date is important because they have 30 days to investigate the item. Keep all correspondance you get from the CRAs as you may need it later.

Once a decision has been made regarding your dispute, the CRA must let you know what they decided and if it resulted in a change, they must provide you with a free copy of your credit report (which does not count as your free copy from annualcreditreport.com). If the decision isn’t what you were hoping for, you can ask that the CRA include a personal statement with the account that creditors will see when they pull your report.

Step 2: Let the creditor know the account is not yours.

In additional to letting the CRAs know that the account is not yours, you may want to let the creditor reporting the information know.  You can find their information in the directory portion of the credit report.  Again, if mailing, include copies and mail “return receipt requested.”

Because this account was 60 days late several times, getting it removed from your report should help increase your score.  While there are no quick fixes for credit, disputing errors is one of the fastest ways to improve credit, especially if the inaccurate accounts contain derogatory information.

There you have it.  Now, go pull your report and check it for errors!

Mr. T

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Sample Letter from the FTC

Date
Your Name
Your Address, City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be removed (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name

Enclosures: (List what you are enclosing.)