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Credit Scores Make No Sense

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I spend a lot of time talking about whether or not the free credit scores from CreditKarma, or the WalletHub free credit scores, or the credit scores from Credit Sesame are “real credit scores” or not. The reality is that most of the time, it doesn’t actually matter. If it’s a Tuesday afternoon and you are sitting on your porch with a cold one, it is irrelevant whether your credit score is 714 or 723 or 815. The only time it matters, is when you are actually getting a loan. An interesting situation this weekend has shown me that even those real credit scores aren’t really real. Real Credit Scores When most people talk about a “real” credit score, they mean a FICO score. Most lenders rely upon FICO scores to make a decision about lending or what interest rate you get. The catch is that there are numerous kinds of FICO scores ranging from those used to judge creditworthiness for credit cards, a different one for car loans, and another still for mortgages. Beyond that, there are three major credit bureaus and all three of them can yield a different score depending upon what has been reported to each company. In …

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Real Credit Score or Fake Credit Score

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After investigating is CreditKarma.com legit or not, we got a lot of questions about credit scores and credit reports. Hopefully, this can help clear up some of the most common credit score misconceptions. Update: A Credit Karma tax review is here looking at the new free tax returns offering by CreditKarma.com. Update: Now CreditKarma.com offers free credit report monitoring. Check out the Credit Karma review of free credit monitoring service. Credit scores are confusing to many people. This is not the result of ignorance or being naive. Credit scores are not consumer products. They were (are) meant to be used by financial institutions. These lenders are the ones who pay for the credit scores. Banks and lenders are credit score customers, not the people who are being scored. Credit scores are not a free, open system. Rather, they are a product, sold by Fair Issac. They charge money for each credit score calculated. Fair Issac’s customers are banks, mortgage companies, and other lenders, not you. In fact, a quick look around the Fair Issac website should show you that this is not a company concerned about selling products or services to individuals as customers. Fair Issac has a separate website …

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Are You Paying for College Wrong?

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There is an article floating around on Marketwatch titled Parents You’re Paying for College Wrong. This kind of article is one of the reasons I write Finance Gourmet. After being a Financial Planner in Denver for several years (and, yes, I was a Certified Financial Planner), I saw a lot of different financial situations from a lot of different people. I realized two things: Too often useful information gets bogged down and confusing because it spends so much time covering small, infrequent, exceptions to the rule. On the other hand, useful information is often harmful because it glosses over all of the possibilities in favor of hard and fast statements that aren’t necessarily accurate for everyone. If those to reasons seem a bit contradictory, then you understand why writing personal financial advice can be tricky. How To Pay for College The Wrong Way According to the article on Marketwatch, a lot of parents are “paying for college in ways that experts say aren’t smart.” Fair enough, that’s probably true. However, the way the article goes on to explain what is “smart,” makes it sound like you are a fool for doing certain things that are not foolish whatsoever. The important thing …

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Payday Loans Scam

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Payday loans are a bad deal for borrowers. The negatives that are inherent to this type of loan are quickly exacerbated by people making poor choices, or just as often people with no choices. Payday loans are named for the way this lending method got its start. Originally, the way a payday loan worked, was that you borrowed month, until payday and then you paid the loan back. The idea was that this could be bridge to your next paycheck if you had unexpected expenses or other issues that busted your budget and left you no options. In the years since this type of loan has morphed into no-win situation for people with no other options. Why Take a Payday Loan To understand how a payday loan works, and how they cause such so many problems, it is instructive to look at just how people use payday loans, and why. As is often the case, and example can be particularly instructive. Let’s consider James. James gets paid once a month. On May 15th, his car has trouble. The mechanic says it will cost $300 to get it repaired, but James does not have $300 in his checking account and he …

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Is Paying Off Debt Better Than Investing?

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As a former financial planner I know that not all finance is just about the math. The truth is that earning money, spending money, and saving money is a highly emotional thing. While it is fine to suggest that people eliminate emotion when dealing with money, that’s a little bit like telling people to eliminate hunger when dealing with dieting, it just won’t work in the long run. Is It Better to Save Money or Pay Off Debt? One of the things that gets thrown around like a solid, no-exceptions, rocket science idea from time to time is the concept of paying off debt as a high, guaranteed return. The theory goes a little something like this: If you pay off a credit card with an 18 percent interest rate, then that is like getting a guaranteed 18% return on your investment. Obviously, a sure thing 18 percent return is probably the best possible investment in the world from a risk/return perspective. But, is it really that simple? Mathematically, paying off higher interest debt is always the right move. However, that isn’t necessarily always the best move for real life, particularly if your finances are not in very good shape …

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