topic Re: Could use some advice in my young age. in Understanding FICO® Scoring

Could use some advice in my young age.

Anonymous — Fri, 29 Jan 2016 20:21:25 GMT

Hello! I'm new to the party. I found these forums while looking for a place to talk personal finance.

I was curious as to what a good FICO score should be for someone in their mid 20s. My parents didn't really teach me about finances and so I rang up some debt out of naivety.

Currently I float between 660-670 (current have 12K CC Debt [No missed payments yet], 26K Student Loan Debt).

After reading some Suze Orman and Dave Ramsey I have a plan of attack using debt snowball, but did I already screw myself up? How good/bad of a place am I in?

Re: Could use some advice in my young age.

Anonymous — Fri, 29 Jan 2016 21:06:57 GMT

First, welcome to the forum, and good job for taking charge of your financial future.

One thing I think is important to recognize is the distinction between financial health and what you might call credit health. There are a lot of people who have very high FICO scores, but I would not want their financial situation. Likewise, there are people who are financially very healthy, but they've never used much credit and don't have particularly high scores. They're just two different things.

That doesn't mean you can't have both. In fact, they often go hand in hand. But some of the advice you get here about building credit may be different from what you've been reading about becoming more financially healthy. The advice may be solid for building credit, but it may not always be the best thing for someone trying to break bad habits and learn good money management.

Right now your goal is to pay off that credit card as fast as you can. You can (and should) continue to use the card, but you should always pay more than you put on it (and as much more as you can afford). If you do just that (and don't make any mistakes with other things), your score will go up and you will be in much better financial shape, too.

Re: Could use some advice in my young age.

bdhu2001 — Fri, 29 Jan 2016 21:06:45 GMT

@Anonymous wrote:
Hello! I'm new to the party. I found these forums while looking for a place to talk personal finance.

I was curious as to what a good FICO score should be for someone in their mid 20s. My parents didn't really teach me about finances and so I rang up some debt out of naivety.

Currently I float between 660-670 (current have 12K CC Debt [No missed payments yet], 26K Student Loan Debt).

After reading some Suze Orman and Dave Ramsey I have a plan of attack using debt snowball, but did I already screw myself up? How good/bad of a place am I in?

If you don't have any missed payments, then you're fine. How many cards do you have the 12K spread across? As you make payments, your score will improve. I applaud the snowball method and have used it myself. If you want peace of mind, in the mean time, pay each card to less than 30% and then use the snowball method. Otherwise just use the snowball method.

Your score is most likely being held down due to balances on multiple accounts and high utilization on individual accounts. Work on those while you pursue the snowball method. Utilization has no memory so the once you pay your accounts down, your score will go up.

Re: Could use some advice in my young age.

Anonymous — Sat, 30 Jan 2016 02:06:03 GMT

Great comments thus far. Some thoughts on paying off debt:

Lenders and scoring models are now capable of seeing how much you owed and how much you paid on for each month -- not just the most recent month -- stretching back 24 months or so. They can do this for any particular credit card. FICO 8 (and all earlier FICO models) do not include in their scores these kind of historical CC data (sometimes called trended data). But individual lenders often have software that let them see this (since the history of your CC balances and payments have recently become part of your reports) and future scoring models will almost certainly take them into account.

This means that lenders and scoring models will be able to see whether you have in the past run up big balances which you then carried from month to month, perhaps making only the minimum payment on the card. People who often carry balances are called Revolvers. People who (by way of contrast) always pay in full the amount owed on the statement (PIF) are called Transactors. R's have been proven to be far more risky than T's, and therefore lenders may take that into account when they evaluate your credit.

But within the world of high-risk revolvers, there are certain kinds of behavior that are far more risky than others. In particular, if a person is only making the minimum payment on a card, that's associated with substantially higher risk than a revolver who is always paying more than the minimum AND who's balance for that card gets smaller every month.

I mention all this for two reasons. First is that it's pretty new stuff. Mortgage lenders will start making the R vs. T distinction in their credit decisions around July of this year, I believe. Second is that certain kinds of traditional CC debt management approaches, such as the Snowball Method, may be more less good given the new emphasis on trended data.

In particular, an essential part of the Snowball Method is making only the minimum payment of most of your cards (all but the one you are paying down). In the past (and even as recently as a year ago) that never had any impact on lenders evaluating your credit. Because in the past the credit reports themselves did not contain these kinds of historic data (all your balances and payments for the last 24 months). But now they do. It's conceivable that now, if a lender (or a future scoring model) sees that you were only making minimum payments on several cards, that could be considered risky.

All of which is a theoretical preamble to explain why I would slightly adjust our OP's strategy. If he wants to use the Snowball Method, fine. Just be sure that he tweaks the method a little bit so that he is paying at least $3 more than the minimum payment on every card -- and also make sure that the monthly balance on every card is going down a visible amount on each card. He'll be doing largely the same thing he's doing now, but if may also make certain kind of trended data analysis software happy -- or happier than it would be if it flagged multiple cards as "only pays the minimum."

Re: Could use some advice in my young age.

Anonymous — Sat, 30 Jan 2016 02:18:33 GMT

Fellow millennial here, another finance guru you may be interested in is Clark Howard. It sounds like you have a solid plan to attack your debt in place, then work on a emergency fund, and finally start saving for retirement. It is the best decision someone our age can ever make to start saving for retirement today! Do not ignore expenses when investing either, if you go with a good low cost brokerage it is hard to go wrong. Think Vanguard, Tiaa Cref, Fidelity, Schwabb…. Of course if you get a match at work be sure to pick that up too. You have already taken the biggest step by recognizing the need to attack debt, and have a solid FICO for that you should be commended.

As an aside I listen to financial podcasts I download through the app on my phone on my commute to work. I enjoy Clark Howard, Listen Money Matters, & Stacking Benjamin’s and learn so much from each one. They all have different formats and all entertain me more than listening to the radio, give them a shot if you want! Plus the sound quality is superb.

Re: Could use some advice in my young age.

iv — Sat, 30 Jan 2016 03:38:56 GMT

@Anonymous wrote:

Lenders and scoring models are now capable of seeing how much you owed and how much you paid on for each month -- not just the most recent month -- stretching back 24 months or so. They can do this for any particular credit card. FICO 8 (and all earlier FICO models) do not include in their scores these kind of historical CC data (sometimes called trended data). But individual lenders often have software that let them see this (since the history of your CC balances and payments have recently become part of your reports) and future scoring models will almost certainly take them into account.

Not really... at least not right now.

The spots on the report exist, but it's a mixed bag on which issuers actually report which data fields for credit cards.

(For auto loans/mortgages/etc these fields are fairly consistently filled.)

Based on my recent reports, and others that I have access to, most issuers do not report the Actual Amount Paid field for credit card accounts (some issuers did report in the past, and no longer do).

Of the Account Balance, Date Payment Received, Scheduled Payment Amount, and Actual Amount Paid fields:

Amex - only supplies Account Balance

BoA - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount

(BoA in the past had supplied Actual Amount Paid, but stopped.)

Chase - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount

(Chase in the past had supplied Actual Amount Paid, but stopped.)

Citi - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount

Discover - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount

Sync/Amazon - only supplies Account Balance, and Scheduled Payment Amount

Wells Fargo - actually supplies all four!

Scoring models will not be able to usefully incorporate trended payment data until the majority of issuers actually report it... and have done so for a reasonable amount of time.

Re: Could use some advice in my young age.

Anonymous — Sat, 30 Jan 2016 03:56:46 GMT

The most important thing in all of this - you have not missed any payments. Great Job!

The data points Credit Guy highlights are very useful in strategy and I agree wholeheartedly with his view. This is the future of Fico and you will be a big part of it. Eliminate any debt that cost you money, as soon as you can. Each case will vary but the basic math: pay 10-20+% on CC interest or collect <5% in savings. Keep one card reportng less than 9%, as your score grows work the CLIs and let your accounts age, adding the right ones for stability.

You are ahead of the game - just dont miss any payments and you will win

Good Luck!

Re: Could use some advice in my young age.

Anonymous — Sat, 30 Jan 2016 04:03:47 GMT

Yeah, good catch, iv! I thought about qualifying that sentence when I was writing it, but I figured it would be too confusing for people reading about the general idea for the first time.

I am not so sure that analytic models will need to wait until there is uniformity across all card issuers. In this article, for example, it mentions that Fannie Mae is requiring all mortgage lenders to be doing this starting in July of this year. And it suggests that many individual lenders are already using the R-T distinction:

http://www.frugaltravelguy.com/2015/11/are-you-a-transactor-or-a-revolver.html

This is just one article that came out in the months following the Oct 2015 annoucnement by Fannie Mae -- there were articles from Reuters, the New York Times, etc.

Re: Could use some advice in my young age.

thom02099 — Sat, 30 Jan 2016 06:31:58 GMT

Some good information in the responses so far.

One piece of advice, you can choose to heed it or ignore it...(actually, 2 pieces of advice)

Always remember -- Credit is not a competitive sport.

As someone new here, or to any forum, one can get caught up in the aura of constant credit applications. Don't be seduced. Establish a conservative plan and stick with it.

Second -- Time is your ally. You're young, you have a thin file. It will take some time to grow that file, but with a good plan, good management, and resolve to stick to it, you can be successful.

Re: Could use some advice in my young age.

Thomas_Thumb — Sat, 30 Jan 2016 14:09:04 GMT

@iv wrote:
@Anonymous wrote:

Lenders and scoring models are now capable of seeing how much you owed and how much you paid on for each month -- not just the most recent month -- stretching back 24 months or so. They can do this for any particular credit card. FICO 8 (and all earlier FICO models) do not include in their scores these kind of historical CC data (sometimes called trended data). But individual lenders often have software that let them see this (since the history of your CC balances and payments have recently become part of your reports) and future scoring models will almost certainly take them into account.
Not really... at least not right now.

The spots on the report exist, but it's a mixed bag on which issuers actually report which data fields for credit cards.
(For auto loans/mortgages/etc these fields are fairly consistently filled.)

Based on my recent reports, and others that I have access to, most issuers do not report the Actual Amount Paid field for credit card accounts (some issuers did report in the past, and no longer do).

Of the Account Balance, Date Payment Received, Scheduled Payment Amount, and Actual Amount Paid fields:

Amex - only supplies Account Balance
BoA - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount
(BoA in the past had supplied Actual Amount Paid, but stopped.)
Chase - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount
(Chase in the past had supplied Actual Amount Paid, but stopped.)
Citi - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount
Discover - only supplies Account Balance, Date Payment Received, and Scheduled Payment Amount
Sync/Amazon - only supplies Account Balance, and Scheduled Payment Amount
Wells Fargo - actually supplies all four!

Scoring models will not be able to usefully incorporate trended payment data until the majority of issuers actually report it... and have done so for a reasonable amount of time.

IV, Thanks for the info on payments.I had not been monitoring the reporting fields.

I checked my year end TU credit report and sure enough my pure play and co-branded credit cards from both BOA and CBNA dropped reporting amount paid 6/2015. Perhaps the transactor/revolver designation won't be making it to primetime in the foreseeable future.

Re: Could use some advice in my young age.

iv — Sat, 30 Jan 2016 17:41:26 GMT

@Anonymous wrote:
Yeah, good catch, iv! I thought about qualifying that sentence when I was writing it, but I figured it would be too confusing for people reading about the general idea for the first time.

I am not so sure that analytic models will need to wait until there is uniformity across all card issuers. In this article, for example, it mentions that Fannie Mae is requiring all mortgage lenders to be doing this starting in July of this year. And it suggests that many individual lenders are already using the R-T distinction:

http://www.frugaltravelguy.com/2015/11/are-you-a-transactor-or-a-revolver.html

This is just one article that came out in the months following the Oct 2015 annoucnement by Fannie Mae -- there were articles from Reuters, the New York Times, etc.

Oh, I'm familiar with the Fannie Mae announcement, and with the trended data products that the CRAs are selling to lenders...

But with almost no major lenders currently reporting "Actual Amount Paid" (just WF that I can see), the T/R data just isn't there to use!

Yes, the CRAs can and do (and have for years) use the long-term trends in reported balances - but while that gets you data on borrowers who are running up their credit lines, or those who are steadily paying down their credit lines - it does nothing to identify "transactors". You NEED Actual Amount Paid to do better than heuristic ID of those borrowers.

@Thomas_Thumb wrote:
IV, Thanks for the info on payments.I had not been monitoring the reporting fields.
I checked my year end TU credit report and sure enough my pure play and co-branded credit cards from both BOA and CBNA dropped reporting amount paid 6/2015. Perhaps the transactor/revolver designation won't be making it to primetime in the foreseeable future.

Yeah, it rather looks like the major banks (except for WF) have effectively decided to say a big NO to Fannie Mae's new requirement... Never having added the data is one thing, but actively stopping the reporting? That seems somewhat intentional. (Possibly due to the amount of commercially-sensitive information that other lenders can get from that data, for sniping customers from each other....)

And if Amex/BoA/Chase/Citi/Discover/Sync (and probably others) withhold that data... Fannie Mae isn't going to be able to get what it wants here.

Re: Could use some advice in my young age.

Anonymous — Thu, 28 Apr 2016 00:09:31 GMT

Thank you for all of the well wishes.

The last few months had me work on re-organizing my finances.

One blind spot I had was that I am not earning enough to offset both my student loans and my CC debts, so I had to swallow my pride and put a deferment on my loans to focus on the CC Debt. Doing that for now has freed up some money I can throw at my debts and cut down the UTIL to 60% for the cards that hold the debt in the next few months.

Next step involves contacting the respective cardholders and requesting an APR reduction on my cards. Don't know how that will go over just yet, but I need to show the lenders I am focused on paying my cards and most importantly NOT GETTING CHARGED OFF. I would like to think that they don't want the loss of business and would be reasonably accomodating, or they'll just take the tax write off and let me suffer. It could go either way. I hope someone here has some advice for that topic.

After that, living much more frugally and elimiating expenses that are wholly un-necessary. One such expenses that affects me badly is eating out(I forget to pack lunch constantly). It's a bad habit from college days that I desperately need to eliminate/reduce in my life and being around people my age, they tend to run up large dinner bills. Another bad habit is my "entertainment" wants, which trigger some bad spending impulse decisions. I need to learn how to budget for that and stop relying on "paying it off later".

Finally, once I get my UTIL to low 20s-single digits, I will rebuild my savings and go back to contributing to my IRA. I don't expect to have a 401K even thrown in my direction, so I figure i'm on my own for retirement.

Re: Could use some advice in my young age.

Appleman — Thu, 28 Apr 2016 02:30:49 GMT

Sounds like You Need A Budget or YNAB.com

Look over the site and see if it speaks to you. The big thing with any budget program is to ensure that you do not accumulate new debt. Also, YNAB can now download transactions from your bank making it also a good way to keep a close eye on balances.

The initial goal is to get one month ahead on expenses and stop living paycheck to paycheck. That often gives people some flexibility to get a good handle on paying things off.

You are by no means in an impossible situation, it will just take time and/or massive effort. Invest your time in reading all you can about paying off debt and try to remain focused on a goal (buying a house for instance).

The journey will not be a straight line, there will be ups and downs, you just want to direction to remain headed for paying off debt.

Good luck and welcome. And I think they called you a revolver......