7 Credit Score Fallacies

To enhance your credit rating, you need to know the truth about the following fallacies.

The first fallacy states that credit scores have to be paid at all times. You can obtain your credit report for free but this does not take into account the credit score. Actually, you can get free credit score as well.

The second fallacy states that paying off debt from the past stays on your credit report for a longer period of time. Regardless of the date of payment, credit accounts, which include data of your poor financial behavior, stay on your credit report for seven years. On the other hand, accounts dismissed because of bankruptcy are recorded on your credit report for 10 years.

The third fallacy states that you can enhance your credit score by withdrawing credit cards. Canceling any account decreases your overall credit relative to your total debt. Your credit score falls when your debt-to-credit ratio or utilization ratio rises.

The fourth fallacy states that if you have no credit, you will not be able to avail of a credit card. Secured credit cards also allow you to make payments with just a small amount of deposit. You have to pick one that informs your payment history to the three national credit reporting organizations.

The fifth fallacy states that your credit score will decrease if you check your personal credit. Soft inquiry, or checking your personal credit file or credit score, does not reduce your credit score.

The sixth fallacy states that you can boost your credit score by paying an organization. One of the secrets to boost your credit score is to be educated about the factors affecting credit scores and enhance those factors.

The seventh fallacy states that you can improve your credit score if you pay a debt from the past for a smaller amount. This can increase your savings but the consequence is it will decrease your credit score. Instead of “paid in full”, it will appear “settled” in your credit report and this can draw away prospective creditors.

Credit Score Awareness

Unless people badly need a good credit score to pay for a brand new car, a dream house, or avail of a credit card, they usually do not pay much attention to their credit. Once rejected, they exert great effort in looking for the key to boost their credit score in a span of two days.

If you think that you can just cross out years of poor financial behavior from your credit file in a short period of two days, then you most likely believe that you can slim down by taking a diet capsule and lounging on the sofa. Sad to say, there are no simple means to having healthy well being or developing outstanding credit score.

Perhaps your reason for not paying attention to your credit is that you prefer cash than credit card transactions. That is not entirely a bad thing but getting bad credit is a hindrance to your investments.

Some consequences of a bad credit are higher insurance quotes, higher security deposits, lack of ability to rent an inexpensive apartment or house, denial of several government benefits, and rejection for employment.

In recent times, credit does not exclusively pertain to borrowing money. Credit files are also a means used by an increasing number of companies to assess relations with prospective or existing clients and staff.

In addition, if you are not aware of the content of your credit report, then you might not know that you have already become one of the victims of identity theft. Annualcreditreport.com offers free access to your credit report and you can check it from time to time. This allows you to capture that identity thief.

The secret to boosting your credit score is to be knowledgeable about the credit system. After a while, you will be able to discern how to increase or decrease your credit score.

Collingswood Remains at Junk Status; Moody Gives Chance for Upgrading

Moody gives hope this week to Collingswood’s bond credit rating to be improved. The agency has retained Collingswood’s Ba1 (junk status). However, from a “negative” rating, there is a moderate upward step for the borough’s credit rating to “uncertain.”, Moody said.

It is very difficult to loan money if the credit rating is poor.

Moody did a massive downgrading of Collingswood in September of 2011. Despite protests from the officials of borough, the rating was maintained up to November after performing a review. One important factor taken into account by Moody in giving the borough rating was the $28 million outstanding long term and general obligation debt. But Moody upgraded Collingswood’s rating after signing a settlement deal that it will refinance the $4.5 million debt linked to project which involved Lumberyard construction. Collingswood is the guarantor in this project according to Moody.

This unbudgeted refinancing settlement exceeds the fiscal 2011 unaudited year-end Fund balance amounting to $1.05 million. This unbudgeted payment also reflects 26% of expenditure which is to be added to the current debt service which is 14.4% of expenditures.

The fiscal budget of Collingswood for 2012 will be decided at the meeting of commissioners on April 2012. According to Moody’s report, the borough has several alternatives to meet LumberYard debt obligation. It can choose between lower risk but more costly option or more risk but cheaper option.

Collingswood should list the advantages and disadvantages of the different options and choose the best option to achieve its goal to pay back the $4.5 million financial obligation and to improve its rating. In other words if the financial obligation is paid in full, the reserves is increased and good market access with calculated risk, will improve the rating. On the contrary, if it fails to pay the debt the rating will further go down. Other factors that will cause the further downgrading are the decreasing tax base, insufficient financial reserves and ineffective market access.

Nokia’s Credit Rating Downgraded by Standard & Poor

The officials of Standard and Poor recently downgraded Nokia’s credit rating. The Finnish cell phone giant company was not able to guard its position in the market versust Apple, Samsung and HTC. This is the main reason why it was downgraded. Its rating was reduced from BBB to BBB minus. S&P said that if Nokia cannot stabilize its position in the market and if the cash holdings of the company keep on going down, then further downgrading may be imposed on the company in the next couple of years.

S&P officials further said that Nokia’s new rating also reflects its position in the telecommunications market’s smartphone category. But Nokia’s officials defended its position by saying that the downgrading does not impact their outlook about their financing expenses. They said that unlike other companies they are only sticking to their more conservative financial policy. The company’s robust balance sheet reflects that it has good cash flow.

Investors of Nokia appear not to be affected by the decrease in rating. The stocks of Nokia went up by around 0.4 percent despite the 0.05 percent drop on a Helsinski stock Exchange. But based on the figures, Nokia is having financial trouble. In 2010, Nokia made a profit of 1.8 billion Euros but in 2011, it did not perform that well. In 2012, the company lost 1.2 billion Euros.

Nokia is restructuring its organizational framework when its rating dropped. It is cancelling its Symbian product and Microsoft partnership to give way to a new merger with Lumia smart phone series. It has to compete with Apple, Blackberry and Samsung. This is why it needs to have new handsets to be able to compete. S&P however has yet to see the impact of Nokia’s partnership with Lumia phones.

The Positive Effect of The Increase in Consumers Debt Since 2008

CreditCards.com has published the following credit card statistics: About 51% of the population of U.S. owns at least two credit cards; the credit bureau has a record of 13 credit obligations on the average per consumer and with the oldest one recorded for 14 years. These statistics simply prove that the payments on consumers’ credit debt greatly affect their monthly spending.

In a sense the economic recession from 2008 up to the fourth quarter of 2011 has taught lessons to consumers to reduce their personal debts through wise spending during this period.

According to the Wall Street Journal, the Federal Reserve said that there was an increase by 0.25 % in household debt which includes credit cards, mortgages, vehicle loans and student loans in quarter four of 2011. This increase was the first one recorded since quarter two of 2008 prior to the collapse of Lehman Brothers which resulted to financial problems and recession. Economist attributes this small increase to the reduction in debt and consumers’ effort to save.

Another positive result is the increase by $1.2 trillion in the net worth of U.S. households. From October to December the total net worth is $ 58.5 trillion, the first increase that took place for two quarters.  The rise was the result of the 12% improvement in the Dow Jones Industrial Average. The disposable income of Americans improved allowing them to pay their debts. In terms of disposable income, at the close of 2010, debt fell from 118 % to 113 %. Though this is small, what is important is the positive shift.

The consumers’ confidence is improving because of all the positive results that are happening. But in order to sustain the improvement, they should continue to be wise in their spending to further cut debts.  Fed’s graph shows that since 2010, there has been a sharp decrease in the GDP percentage for financial businesses and households. It was flat for non-financial businesses and increased at the Federal government level.