Your Credit Score

I've mentioned the FICO Credit Score a few times in my previous posts, but I recently took a look at my credit score and thought it would be helpful to share with everyone what are some of the positive and negative factors that go into your score.  I'll list out the main ideas and then paste the details that came with my report below.

1. Always make your payments on time and never miss any if you can avoid it.  Make sure you don't miss consecutive payments which is often worse than missing a few stand-alone payments (separated by a few months).

2. Make sure you have a few accounts with access to credit, but avoid signing up for too many (or signing up for several in a short amount of time).  I'm not sure what too many is, but it is probably safe to say that double digits is pretty high (if you wake up one day with 10 or more cards).

3. Make sure your credit lines report your credit limit.  If you have a credit card but it doesn't report your credit limit, then it's hard for future lenders to gauge how much credit you have been trusted with in the past.

4.  Establish a credit history early, at least a few years before you plan on applying for loans.  Short payment histories are negative, since it doesn't provide very accurate or reliable information on your payment habits for lenders.  Below, it says shorter than 3 years is way too short and shorter than 7 years is risky.

5. Avoid running a high balance on your lines of credit.  Lenders will worry that you are living beyond your means.  Running a low balance frequently is the best for your score; running no balance may be negative since it doesn't provide additional information on your repayment habits.

6.  Avoid applying for credit before applying for credit.  When you need a loan, make sure you don't apply for credit cards the prior year since lenders worry that you may be trying to take on too many new accounts at once.

The Case for Generics

Everyone probably thinks of drugs when hearing generics versus brand names, but it certainly applies to other products.  When going down the pharmaceutical aisle, though, it is easy to see the discrepancy in price between generic drugs and brand name drugs, even though they are the same compounds in the same quantities.  Are brand name products really worth the price?

The answer really depends on your comfort with the company.  For some people, brand name products may be worth the extra price if that company has established a good reputation with the customer.  If you don't have confidence in the quality of a generic producer, it may make sense to pay for brand names.

Annual Credit Report

It is important to check your credit report at least on an annual basis.  Each year, you are allowed to view your credit report for free at https://www.annualcreditreport.com/cra/index.jsp.  Make sure that you take a look at your report regularly to see if anyone has been using your name to get credit.  A lot of banks offer credit protection services for a fee where they will monitor your credit report to alert you about identity theft.  These services also give you a look at your credit score in case you are curious.  A lot of them also include a one month free trial so that you can check it out and not get charged for that first month, but you have to remember to call them before the month ends or else they will bill you for the next month (and you need to give them a credit card when you sign up).  I personally don't use one at the moment, but I do check my report on an annual basis.  I believe the government recommends checking it semi-annually, or twice a year, although you would have to pay for the second view.  Identity theft is said to be a very serious issue.  Although I have never been a victim of it and I haven't heard of anyone becoming a victim of it, I would rather stay on the safe side and do the minimum by checking my credit report.

Size Does Matter

People often either underestimate or overestimate the power of bulk purchases.  On one hand, people buy things from vending machines individually, such as soda and chips, which often comes at a 100+% premium (they say it's for the convenience of not going to the store, but buying in bulk is even more convenient when you only have to walk to your pantry or closet instead of downstairs to your dorm vending machine).  On the other hand, some people buy more or cook more food than they can eat and sometimes the food they do have expires or goes bad, resulting in money in the trash.  It is important to know when to buy in bulk when you plan out your spending.