More than Money (and Great Credit Scores)

When I was in college I defined my success by grades.  When I entered the working world I largely defined my success largely by my job and my finances. I used to love my work (electrical engineering/computer science) but after several years I found I had a high-paying but unsatisfying job.

I went back to school and earned a Master’s Degree in finance.  I earned a 4.o and really enjoyed returning to college.  After graduating, I was honored to be offered an adjunct professorship in Finance.  The pros of this job are satisfaction, autonomy, and the opportunity to help students learn complex tops.  The cons are underemployment and relatively low pay and no benefits.

So my three-legged stool of financial success is off balance: I still have great retirement savings, a great credit score, and mediocre earnings. This has shaken my self esteem.  Even though teaching at a major university is a cool and prestigious job, frankly I miss the money.  My wife and are or doing OK financially, she has here own company with its ups and downs, and we also have a rental property that provides some additional income.

We have no debt except for a mortgage.  If it wasn’t for the mortgage, I’d feel a  lot more comfortable. I used to own my own home (before I got married), but my wife wanted a better home.  That gave us a new mortgage. Bummer.

My wife and I are learning to be more frugal.  For me this a slow, tough adjustment.  Since my work is currently part-time, I also have to find inexpensive ways to occupy my free time (like blogging:).

The really tough adjustment is adjusting to underemployment.  I do important work and am trying to convince myself to value that more strongly.  My wife and I have a loving marriage, and that is something to be proud of — it takes work!  I have been working on my diet and exercise, and am much healthier than in my old engineering job — the benefits of more free time.

My learning is that defining yourself mostly by money and finances is a bad idea.  We humans are so much more than our jobs. We can be good spouses, loving pet owners, dreamers, experimenters, hobbyists, friends, and many other things.  My view has been too narrow, but I’m working on it.  There is so much more to life than jobs and money!

 

 

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From Good to Excellent Credit Score?

It’s done! My wife and I are now debt free, except for our mortgage. We paid off all of our credit card debt today.

The reason we kept our credit card debt around is because we had zero-percent-interest balance transfers. The reason we are paying our full balances now is because the “teaser” interest rates are expiring. One of my financial goals is to never pay interest on a credit card!  I consider paying 18% interest to be financial insanity — something to be avoided by careful planning and financial discipline.

Now begins a waiting game to see what affect eliminating our credit card balances has on our credit scores. It will probably take 2-3 weeks for our new zero balances to get reported to the credit reporting agencies.

I do weekly credit score monitoring and my estimated credit score is 752.  The credit monitoring sites I use also have credit score simulators. One predicts my score will improve to 805, the other expects no change. I suspect that my credit score will bump up to 765 or so. Either way I’m betting my wife’s credit score will continue to jump ahead of mine. The credit rating agencies and credit rating algorithms seem to just like her better for some reason… even though our credit reports are very similar.

According to some sites 740 is already an excellent credit score, while others say 750, and a handful say 770. Because I’m a bit of a perfectionist I’m trying to achieve a credit score of at least 770.

Credit and Mortgages

I went several years living in a modest house with no mortgage. It is amazing how rich you feel when you have no rent and no mortgage! My credit score went down moderately; I seems that credit scoring agencies prefer you to have a mortgage in the mix.

Then I got married, and my wife wanted a nicer house. Boom, a new bigger house and a new mortgage.  I won’t whine too much. The new house is more comfortable and easier to maintain. And the 3% interest rate on the mortgage is hard to beat.

It was an act of will to do all of the financial transactions to get “debt free.” I was was easy to procrastinate and hard to see thousands of dollars “vanish” with a few key strokes and mouse clicks. In exchange for the vanishing money is vanishing debt. The trick now is to stay “debt free.” That will be a joint effort for my wife and me.  I’m pretty sure we can do it.

The Good Credit Spiral

Good Credit Takes Time

The single fastest way to good credit is to pay down your credit card balances to almost zero. If you owe a lot, this can take time, but even reducing your balance a little bit each month will cause your credit score to rise.

The goal is to keep using your cards responsibly to buy things like gas and groceries. Once you have your balances down to roughly zero, start paying your balances in full each month. This is a great place to be because you are now not paying any interest!  This is a great feeling.

Great Credit Takes Good Credit Plus Time

One of the cool things about a good credit score is that it can lead to a great credit score.  With a good credit score your are more likely to be approved for credit limit increases you request. When your credit limits are increased, so is your “total credit limit”… the sum of the limits of all of your credit cards. This in turn lowers your total credit utilization, which helps boost your credit score. I call this cycle the good credit spiral.

More Available Credit is a Good Thing: Just Don’t Overuse it!

One funny thing about credit is that the less you use it, the more credit card companies are willing to offer more credit to you. Regardless of your situation try to keep your total credit card utilization below 30%, and preferably below 20%.

Credit Improvement Lessons

I’ve learned many things during my credit improvement journey that I would like to share.  By reading this blog post I hope that knowledge will help you on your credit improvement journey.

• For couples, the path to better credit can and should be a shared adventure
• Discussions with you partner can be challenging! (But worth it.)
• There are no quick fixes, except, perhaps for one
• It feels liberating to get reduce your debt burden

My newest learning are largely about the emotions of finance. Whether you are in a relationship or not, money, credit, debt, personal finance, and even wealth management is an emotional process.

When it comes to finance I am extremely logical, almost like a Vulcan.  My wife’s financial personality is more emotional, perhaps like a Romulan’s.  If you don’t relate to the Star Trek references, perhaps you can relate to “Men Are from Mars, Women Are from Venus.”  I’m not saying that all men are less emotional about money, or that all women are more so.  I have seen couples where the roles are reversed.

Either way, it is rare that a couple has little emotion about money.  We all have our hangups, and some are financial.

Now, if you are currently single, I can relate too.  When I was single, I had impeccable credit and finances. I was also lonely.  I went on occasional dates, and I turned off some first dates when I picked them up in my 15-year old Saturn.  I could have afforded a brand new car, but I was too young for that to be in my financial best interest.  Believe me, you are better off without someone who complains about your car being too old!

When I finally met the right woman, my finances remained impeccable, but hers were different.  I would say that about half of our fights over the years have been about money, and that ratio became higher after we got married. My number one lesson about money and love is:

Talking about money is important, listening about money is doubly so. Knowing when to talk, when to listen, and when to postpone the money conversations is critical. Patience is better than pushiness. Your partner is likely listening — it may just take them a few days to process what you are saying.

I realize this post has focused on money and relationships.  When you are single, financial strength leads to self confidence, which leads to not being single (however be choosy… pick someone kind and mostly compatible). When you are in a relationship, realize that talking about money means listening.  If you communicate with patience and honesty you will have fewer arguments and better finances!

I realize I left a teaser at the top. What is the one quick way to improve your credit score?  Simple: pay down your balances, if you can. (And avoid increasing them with dogged determination).

10 Months to Better Credit

My Credit Improvement Journey

The credit journey I began ten months ago has now fully paid off; I now have:

• A higher credit score, 749, than when I started (747)
• About 3 times the total available credit
• 3 new credit cards with top-notch benefits
  • A total of $400 cash in signing benefits
  • 2% cash back on all purchases
  • 5% cash back on rotating categories
  • 15 months of interest-free balance transfer

Ouch! The Lowest Score Matters Most!

My wife has recently joined me on this credit journey. We are joining forces because we want to do a cash-out refinance of our mortgage to do some home improvements.

It turns out that when a married couple applies together to refinance a mortgage it is the lower partner’s score that impacts approval and rates. Specifically, the mortgage lender pulls three credit scores for each partner from Experian, Equifax, and TransUnion.  It then determines the middle credit score for each partner. Finally, the bank (or credit union) uses the lower of the two middle credit scores.

Late Payments can Hurt Both Partners

Due to a auto-pay mix up, I have two late payments just over 3 years ago on a credit card solely under my name. Strangely, this card started showing up on my wife’s credit report about 5 months ago. I called a credit agency and they claimed that this is perfectly legal for them to do!  They can put negative credit items from one spouse onto the other spouse’s credit report.  (They don’t tend to use positive credit information this way.)

The mix-up was my fault. I am now much more diligent in keeping up with my credit cards! It sucks that my mistake pulled down my wife’s score.  When the credit card showed up on her report her score dropped about 30 points.  The timing strongly suggests that the score drop and the inclusion of this credit card are related.

Credit Prep for a Mortgage Refi

In order to qualify for the best mortgage rates and terms possible our goal is to boost our lowest credit score (between us) to about 750.  750 gives us a little wiggle room to make sure the credit score that the lender uses is 740+.  Keep in mind that the credit scores you receive are not the same as the ones the lenders get.  That is why the 10-point safety margin is useful

We want to do our mortgage refinancing while mortgage rates are still very low. The easiest quickest way to pull up my wife’s credit score is to pay down more of her credit card debt — even if it is interest-free at present.

We are both self-employed now, so we face an uphill challenge with our goal of refinancing our mortgage.  Working together we hope to meet this challenge by having solid credit scores.

What’s a Good Credit Score (or Great Credit Score)?

The answer depends on for what purpose you’re hoping to use your credit score(s).  However, my short answer is:

• Good Credit: 700-739
• Great Credit: 740+

I’m basing this short answer on mortgage rates. A FICO score of 740+ should be high enough to get the best mortgage rate from virtually lender. A FICO score of 700-739 is sufficiently high to qualify for most mortgages but at likely a slightly higher rate (+1/8 %).

Your credit score is only one of several important variables that factor into a mortgage qualification decision.  Other factors include income, amount borrowed, appraised home value, and credit history details (from your credit report).

For credit cards a score of 720+ is a high enough score to qualify for all but the most selective credit cards. Credit card company each have their own proprietary risk measures that go beyond just credit score.

One thing I have learned is that if you have a big total limit from on credit card issuing bank, you will have a harder time of getting more total credit from that bank.  The issuing banks care about how much risk they are exposed to.

So, if your are trying to grow your total available credit in general it is best to do a little bit of homework as to what is the issuing bank.  If you already have 3 credit cards from Bank of America, applying for a 4th from them is probably not your best option.  Instead look for a card issued by another bank, say, US Bank, or Capital One.

Credit Score Challenge

My previous several posts have described a credit card experiment I started last August — about 8 months ago.  During 2014 I went from 2 cards to 5 and tripled my available credit.  Instead of paying off about $12,000 in business debt, I transferred it to a card with zero-transfer fee and an introductory rate of 0% for 15 months.

On thing I learned is that the credit-score simulators I used were pretty inaccurate. My score dipped, but over 8 months has recovered all but 10 points.  It tends to keep ticking up about 2 points per month — presumably because my “age of credit history” — the average age of my credit cards, really — gets a month older each month (obviously).

I have all of my cards on auto pay.  I have all but my “balance transfer” card set to pay the full balance every month.  Thus I never pay interest or finance charges.  For the “balance transfer” card, I have auto-pay set up to pay the minimum statement balance. On this card there is 0% APR on balance transfers until September. This card just sits in a drawer.  I will pay it off in full in September.  Until then I will continue to enjoy 0% interest.

I’ve benefited by my choice of cards.  It may be a small thing, but 1.5% cash back adds up after a while.  And 5% cash back on “rotating categories” can be nice depending on the categories.  I almost always simply apply the cash back rewards to my current balance.  Logging on to check my cash back is also a good incentive to review my cards for any suspicious charges.

I also have credit monitoring that double-checks for charges or other activity that may indicate “identity theft”, or simply errors like being double-charged for a purchase. Personal diligence is the first line of defense against ID theft, and anything like cash-back rewards that makes it fun to log into your account means you have a better chance of catching ID theft early.

I’ve read that credit card fraud often starts with small charges.  The criminal is just checking to see if you are vigilant or lazy in your credit monitoring.  If you catch these small charges quickly and get them reversed/cancelled you are likely avoiding big fraudulent charges later.

I hope you found these credit score articles useful.  Best of luck in your credit score journey.  And please feel free to shared your credit stories (or questions) by leaving a comment.

Credit Card Experiments, Continued

Quick Credit Score Update

Both credit score predictors were wrong.  One predicted a small drop (about 3 points) the other a small gain (again, about 3 points).  Instead my score dropped from 735 to 724 — 11 points.  However, two months later, it bounced back to 733, roughly what I expected.

I anticipate, that with continued paying of my full balance due every month, except on my one zero-interest, balance-transfer card, that my scores will gradually increase.  I will provide occasional updates as developments occur.

 

Experiment: Improve my Credit Score to 769 or Higher

I have added my latest and last credit card this year. According to the handy credit simulator at Credit Karma this new card should increase my credit score by 3 points, from 735 to 738. According to another credit simulator this new card will lower my credit score by 3 points to 732. What I take away from this is that this should be my last new card for a while.

I’ve learned that stopping getting new cards and letting them grow is called “gardening”… FICOforums Guarden Club.  I intend to start “gardening” for at least a year and let my “average age of open cards” grow.

It take a surprisingly long time of 4-6 weeks for a new cards to show up on ones credit report.  So I’ve have to wait to see which credit simulator is more correct.  The question… will my credit score go up, down, or stay the same when my newest card is reported? Let’s see how I’m doing in terms of goals:

Credit Score and Credit Card Goals and Results

Achieved:

• ✓ Get 3 new cards without hurting my score much. (Score is down only 6 points)
• ✓ Get new cards with complementary and useful features.
  • Slate (Chase): 15-months zero interest, zero cost to transfer balances (during intro period). [No annual fee]
  • Quicksilver (Capital One): 1.5% Cash-back on any and all purchases. $100 “signing” bonus. [No annual fee]
  • Chase Freedom (Chase): 5% Cash-back on rotating categories. $200 “signing” bonus. [No annual fee]
• ✓ Secure total limits greater than $50K.  Current limits total $61,700.

Close to Reaching:

• Part I of Utilization (ratio of debt to total credit limit).  Get below 20%.
  • Currently at 20%, but not below
  • Since newest card has not been included in credit report, TransUnion still thinks my utilization is at 24%
• Part I of “Delinquency”/Payment History:  Go from 2 “30-days late” entries down to 1.
  • Currently at 98% payments on time
  • 2 months until oldest delinquency expires
  • On-time payments will increase to 99%

     Will likely take over 6-months to achieve:

• Part II of Utilization.  Get below 10%.
  • My Slate card has about $12K of debt, but the APR is 0% until September 2015.  I will likely make minimum payments until August when I will pay in full.
• Part II of “Deliquency”/Payment History: Have zero late entries.
  • Will take time.  Last negative entry should expire in April.
• Part I: High Credit Scores: Earn a score of 769 or higher.
  • I’m at 735
  • One estimator says, if I follow my plan, I will hit 745 in about one month… still a ways to go

      Will likely take a year or more to achieve:

• Part II: High Credit Scores: Earn a score of 785+
• Beat my wife’s credit score (currently 783, but will probably go up!)
• Secure total limits greater than $100,000
  • Preferably by requesting/earning higher limits on existing cards

The first credit goals, which I’ve achieved, show that my initial credit plan was achievable given my starting circumstances of good credit. The second and third groups of credit goals are reasonable goals for attaining excellent credit. Finally, the last group of credit goals constitute vanity goals.

The vanity credit goals are will have virtually no practical use since any credit score above 769 is unlikely to make any difference in getting the best rates, best cards, best mortgages, etc.  The only practical consideration is that a 785+ score may provide a small margin of safety against falling below 769 — however that margin would likely evaporate for even one 30+ day late payment.  So, really, the vanity goals are there just for fun.  And I maintain that having fun is a perfectly good goal!

The Credit Score Game Continues

In the last post I wrote about how my wife’s credit score (783) was significantly higher than mine (747).  That just won’t do — I embarked on a credit-score-improvement quest that includes research and experimentation.

The experiment is already paying off in unexpected ways.  I got a $100 bonus and began using a 1.5% cash-back Quicksilver card as my day-to-day card.  This a small upgrade from my 1% cash-back card.  I also convinced my wife to get a Citi Double Cash Back card for most of our recurring monthly expenses that ends up saving us 2%.

I learned more taking with my brother about his credit card management techniques.  It turns out that he and his wife are pretty expert at credit-card savings.  He has various 5% cash-back category cards he uses to buy groceries and gas.  They also have 2% cash-back cards for non-category purchases.  He also uses a neat trick to stretch the 5% grocery purchases further… buying pre-paid gift cards at grocery stores for, say,  Home Depot or Target — effectively getting 5% off of purchases there too!  Financial savvy definitely runs in the family.

Let’s not forget mileage cards too.  My United MileagePlus Explorer Card is the only card I have with an annual fee ($95).  I fly often enough on United that it is worth it to me.  And recently between my wife and I we recently bought 5 tickets with United miles for myself and some family members  (Tip:  if you want to help someone buy a ticket with your miles, don’t pay to transfer your miles to them… instead simply buy the ticket for them with your miles!)

The Credit-Card/Credit-Score Experiment

As expected, getting two new cards temporarily lowered my credit score — from 747 to 728. However, it recovered a bit… to 735. So what did I do… get one last new card… The Chase Freedom Card with a $200 (20,000 point) bonus.

I decided to get a %5 cash-back “rotating-category card.”  It was the $200 bonus that caused me to chose this this particular one. The criteria for collecting the bonus is pretty simple: charge $500 of purchases in the first 3 months.  I view this as purchasing $500 worth of stuff that I would have bought anyhow — Christmas gifts and such — for only $300.

This third new card will probably cause another temporary downward blip on my credit score. What’s important about this last card is that it brings my total credit card limit (amongst all active credit cards) to $61,700.  This means that the debt (see previous post) of approximately $12,000 will get below the critical level of 20% of utilization of available total credit… which should help my credit score in the mid to long term.  In the meantime I am “floating” $12,000 in debt for free at 0% interest for 15 months.

What Next: A Credit-Score Challenge?

My personal challenge is “no more new cards until 2016.”  I’ve had my fun getting 3 new cards that I believe will 1) help my improve my credit score in the long-run, and 2) help me save money (via cash-back programs) on purchases.

Onc challenge will be in keeping some activity on all of my open cards, and earning maximum cash-back while resisting the temptation to overspend just because there is a small reward.  I hope to have a zero balance before the teaser 0% APR rises to some ridiculous level (of, say, 19%).  I will keep you updated here.