Category: CREDIT BLOG

I know how weird it might seem to some people that my credit emails and my blog are oftentimes about my personal life…
And while I know that people want (and desperately need) practical advise on how to deal with the confusing and critical world of credit scoring, I also know that ultimately, everything boils down to a person’s personal life.
In and of itself, a credit score is meaningless. More important than a three-digit number is how a person, or a family, uses it to enrich a life.
So with that said, thank you for allowing me to share yet another personal story—a story I believe has relevance in your own life.
My two oldest kids (Ava, who is six, and Dom, who is five) started school this year. And it just feels … so permanent. There’s no going back now. My babies are kids, and now, more than ever, we have to make sure that the culture inside our home is stronger than the culture outside our home.
We have had our share of trials as parents. We have four kids, and the oldest is six, so that brings its own set of challenges. The first few years of our life as a couple and then a young family were rocky. I had been in the mortgage industry, and all that took a nosedive in 2008 and 2009, right as our family was growing to include Ava and Dom.
Since then, we’ve had the normal problems any couple faces: Lily and I haven’t always been on the same page as parents. We’ve lost loved ones and grieved as we parted ways with dear friends.
But all that pales in comparison to the challenges before us.
Our kids are starting school, so there’s only so much we can do to control the external forces. Our focus has to be on making sure the internal forces are accompanied by rock-solid values.
Then, over Labor Day weekend, I read an article in a Canadian paper that put some of my emotions to words. One of the people interviewed for the article said …
“January 1 isn’t really the beginning of the year for most families. [The beginning of the year] tends to be Labour Day because everything starts fresh again. September seems to be the reset button for most families.”
It’s true, isn’t it? When the summer ends and kids go back to school, families revert to their routines. We set goals and start thinking about what’s going to happen next.
For us, with our kids starting school, it feels like a giant reset button on life in general. With our oldest kids at school, it’s time for us to set some new goals with this new context in mind.
Life has shifted, as so too must our goals.
What about you? Is this a good time for you to take stock of your life and make shifts? What has changed since the last time you set goals?
And what can we do to support you?
At 720CreditScore.com, one of our main goals is to help you find ways to strengthen your financial life, mindful that the final goal is a happy, successful personal life. We invite you to let us know if there is any information that you think we should include on our site that might help you along the way.
If there are, please leave a comment below..
And remember: A high credit score is a powerful tool that can help you live an easier life, but it is not a reflection of who you are as a person. A great credit score is meaningless if you aren’t using it to support your deepest values.

Last week, I sent part one of my back-to-school credit tip.
I told you my “crazy plan” for helping your children build a great credit score.
Part two of this plan include an educational platform whereby your children learn about, budgeting, savings, interest rates, and credit scoring.
Last week, I reminded you that no one else will teach this information to your children—not the schools, not their future employers.
The responsibility lies with the parent.
So after making your children an authorized user, start talking to them about credit scores, interest rates, budgeting, and the like.
Then, establish something I call the “Bank of Mom and Dad.”
If your daughter wants to buy something, lend her the money and then sit down with her to create a weekly or monthly payment plan whereby you budget the payments, which should include interest, just like a credit card company would do.
If your child is late with any single payment, assess a late payment, just like a credit card company would do.
Expect your children to make mistakes, and use these mistakes as teachable moments. Don’t berate them, but make sure they understand the consequences of being late with a payment.
Once your child demonstrates continued financial responsibility with the “Bank of Mom and Dad,” consider providing an actual credit card to your teenager.
If you are worried that your children will be irresponsible with the credit card, my suggestion is this: Allow your child access to the card only if you are present and only long enough to hand it to a cashier. This way, the child will not be able to memorize the credit card number, nor will he have prolonged access to your account.
Then have your child repay you directly for the purchase. Because you are the primary cardholder, you can preserve your credit by making payments on the account regardless of whether your children are paying you.
The purchase can be small or large, depending on your budget and your comfort level. Make sure it is not so big that you will be unable to pay your credit card debt should your child default on payments to you.
Just like with the “Bank of Mom and Dad,” make your children pay interest on their credit card purchases. If they exceed the prearranged limit or fail to make a payment by the due date, you should access an over-the-limit fine or late payment penalty.
When the credit card statements arrive, sit down with your children and explain the statements. Discuss your annual percentage rate, annual fees, late penalties, over-the-limit fines. Ask your children to verbalize their plans for paying their loans in a timely manner.
Expect your children to make mistakes, and help them create plans for correcting their mistakes. If they splurge and end up owing more than they can afford, perhaps they can do extra housework in exchange for an increased allowance. And, of course, teaching children about credit means that you call their cell phones—perhaps at 8 on a Saturday morning—to inquire about any late payments!
Teaching your children about finances and credit is like teaching your children manners. It won’t happen over night. Your children will make mistakes. But it’s far better that you teach them—in the safety of your home—than allow them to enter adulthood without a shred of knowledge about credit scoring and finances!
Okay, that concludes my back-to-school lessons.
P.S. Do you still think my plan is totally crazy? Leave a comment below!

My two oldest kids started school this week, and it reminded me that this is a good time for a lesson about helping children build great credit scores…
So here goes…
Basically, I think you should make your children authorized users on your credit cads.
A lot of people think this is totally crazy, but unless parents decide to make a concerted effort to begin teaching their children about credit, how else will they learn?
Our banks, educational institutions, and government officials tell us virtually nothing about credit.
Did you learn in school that no credit is just as bad as bad credit?
Did they tell you that you might not be able to rent a place to live unless you had a great credit score?
Did they tell you that you would pay hundreds and maybe even thousands of extra dollars each year if you didn’t have a 720 credit score?
No, they didn’t.
The job of teaching kids about credit belongs to parents.
And I think the way to do it is by adding your children as authorized users to one of your credit card account…
So long as it is in good standing.
When you add your children as authorized users, they are given the opportunity to “borrow” your history on that credit card.
Which means their scores will start to build.
If you don’t do this, consider what will happen…
Your children will enter adulthood with poor credit scores.
And since poor credit is just as bad as bad credit, they will pay sky-high interest on their first credit cards.
They will have a hard time getting a job or renting an apartment.
And they very well might get taken advantage of by lenders.
Helping them build their credit scores now, while they are at home, means they can enter adulthood one, two, or ten steps ahead.
Now, that said, I don’t think you should give your kids a physical credit card.
When you establish your children as authorized users, request that the credit card company not issue a card to your children, or simply shred the credit card when it arrives.
In this way, your children’s credit scores will benefit from the behavior on your account, and your credit will be protected.
Now, this is just part one of teaching your children about credit.
Stay tuned because next week, I’m going to tell you part two about my plan for teaching children about credit. In the meantime, read this article if you want to learn more about authorized user accounts.

Sometimes, I hear from people who are drowning in debt. They just don’t know what to do to get themselves out of their financial holes…
One of my readers, John, recently left such a comment on my blog, and I wanted to take this opportunity to answer it. Here is a summary of his comment:
I recently filed bankruptcy, and I know I need to open three new credit cards, but I cannot get the secured cards that you recommend because I have no extra money. Please help me. I’m drowning.
Okay, I have several pieces of advice…
First, if you have been through a bankruptcy, it is important to open three new credit cards after the bankruptcy has been discharged.
I recommend secured cards, which require you to pay a deposit. But if secured cards are not an option, then I recommend becoming an authorized user on someone else’s credit cards (in good standing).
If neither of these options are available, then and only then should you apply for subprime credit cards.
I dislike subprime credit cards because they usually come with high fees and high interest rates. You can’t do anything about the high fee charged to you upfront (or annually), but you can avoid the interest by charging only small amounts on your credit card to keep it active, and then paying the balance in full.
That said, I have another concern about John’s message: “Please help me. I’m drowning …”
This is my advice: Do not use credit cards as a method of paying for day-to-day life, especially post bankruptcy, unless you have a long-term budget that shows you can repay the debt.
If your budget does not prove that you can repay the credit card debt you plan on incurring to pay off your other bills, you will find yourself even deeper underwater in the months and years to come.
Yes, credit cards are a great tool for getting yourself out of a financial jam, but only when you know you have the means to pay your bills down the road.
You must—must, must, must—create a budget, take a hard look at your finances, and know exactly and when you can pay off those credit cards.
Sincerely,
Philip X. Tirone
P.S. As always, leave your comments and concerns below!

The best thing a person can do to increase his or her credit score?
Reduce credit card debt.
Aside from your past payment history, which you can’t do anything about anyway, outstanding debt is the top factor in determining your credit score. The lower your balance (as a percentage of your limit), the higher your score.
Another thing that is great for your credit score is having an active or paid installment loan on your credit report.
So how can you accomplish both of these goals in one fell swoop?
Visit your local credit union and ask for a debt consolidation loan. Then use this loan to pay off your credit cards. If you are lucky, the interest rate on your debt consolidation loan will be lower than the interest rate you pay on your credit cards.
And there you have it: lower credit card balances, an installment loan on your credit report, and lower interest payments!
Of course, for this strategy to work, you must keep a low limit on your credit cards (though you should be sure to keep them active), and you must pay your debt consolidation loan on time.
At first, your score might drop a little bit. Adding a new loan to your credit report could hurt your score a bit.
But as soon as your credit cards report your new balance, your score will start to jump.
And once you’ve made about six months of timely payments on the debt consolidation loan, your score will climb even higher.
Have any questions on this strategy? Leave them in the comments section below!
Philip Tirone

I recently read that smartphone owners experience a greater incidence of fraud and identity theft, and here’s why…
About 32 percent of smartphone owners save login info on their device, and 62 percent of them don’t use a password on their home screen, which means anyone who finds their phone can access their login info!
Here’s another problem with keeping personal info in your Smartphone – anyone who repairs it can download your personal info, and then use it to wipe your accounts clean or apply for credit in your name.
As the owner of 7 Steps to a 720 Credit Score, I’ve seen the effects identify fraud first-hand, so I wanted to pass this information along to you …
Protect yourself by:

1. Putting a password on the home screen of your Smartphone
2. Storing personal information in a file that cannot be accessed by someone who gets a hold of your Smartphone. If you ever need to get your phone repaired, the repair technician will have access to everything on your phone, so be sure to keep sensitive information somewhere else!

Any other tips for keeping your Smartphone safe? Post them below!
Sincerely,
Philip X. Tirone
P.S. Another thing you might consider is turning off your phone’s “location services,” which stores your location within every photo you take—this is bad news particularly if you have children. Imagine that you take a picture of your toddler eating spaghetti, and then post it online. Unless you disable location services, anyone who saw the picture could find the exact address of your home!

As many of you know, there is nothing that excites me more than being a great Dad (and no, I’m not there yet).
Just this weekend, I told my oldest daughter Ava that this was going to be “our” day, and I picked her up from school on Friday, and for the next 23 hours, it was just the two of us (with no brothers or sisters).
Many the ideas I get from Fathering come from what I have learned from other great dads… one of them is my close friend, Greg Hague.
Greg, like me is SO passionate about Fathering, that when he hears a story about a great Father, he writes about it and sends it out to everyone he knows.
These stories are touching, inspiring, and designed to make you think.  Many times after reading one of his stories, I’ve though “I should do this with my kids.”
Over the months and years, he has written so many great stories, that he decided to put them all into a book.
If you want a great Father’s Day gift, I HIGHLY recommend you buy this book.
Young or old, your Father will be inspired by the stories in the book!  And most likely, it will inspire him to be an even better Dad.  🙂
To buy printed version, click here.
To buy digital version, click here.
That is one thing the world needs… more Great Dads!
Have a great week!
Philip
P.S. If you order today or tomorrow, you will have the book by Sunday!  You will thank me!

An Additional Resource Exclusively for Students of the 720 Credit Challenge …

Every time I hear one of those catchy jingles on the radio advertising a “free credit score,” I cringe.
I’ve written about this before, but it bears repeating …
Almost none of the so-called “free credit score” website will actually give away free credit scores. They sell them, and the credit scores they sell are total junk.
The system is admittedly a little confusing, so let me explain the players …
There are two entities working to determine your credit score.
First are the credit bureaus—Equifax, TransUnion, and Experian. These three bureaus are responsible for collecting information about your payment history. If you pay your Visa bill on time, for instance, Visa will let the credit bureaus know that you pay as agreed. If you pay late, Visa will report a delinquency.
Think of the credit bureaus like a grocery store. The credit bureaus keep all sorts of information about you (groceries) under one roof.
That said, not all creditors will report to every single credit bureau. Your Visa credit card might report information to two out of the three credit bureaus. Your MasterCard might report to all three.
So the “grocery stores” all have slightly different information about you. Just like some grocery stores carry goat’s milk and some do not, some credit bureaus might know about that late payment on your Visa, and another might not.
But remember: the credit bureaus store the information. This alone isn’t enough to give you a credit score.
This is where the second entity comes into play.
Your credit score is created when a formula is applied to the information the credit bureaus keep about you.
That said, a different formula is applied to your information based on who wants to know your credit score.
For instance, if a potential employer wants to know your credit score, a different formula will be used than if a mortgage banker wants to know your credit score.
This is because the mortgage broker cares much more about your history on mortgage payments than a potential employer, who wants a more general picture of your financial trustworthiness.
If the credit bureaus are the grocery store, the formula is a recipe.
Like I said, your credit score is calculated when a formula is applied to the information stored by the credit bureaus.
But because the credit bureaus (grocery stores) all carry different information about you, and because the formula (recipe) varies based on who is requesting the credit score, you actually have many different credit scores.

• When applying the auto formula, Equifax will produce one score.
• When applying the tenant-screening formula, Equifax will produce a different score.
• When applying the tenant-screening formula, TransUnion will produce yet another score.
• And so on and so forth.

That said, if a lender pulls your score, the credit-reporting bureaus will almost always use something called the “FICO” formula. The only credit scores you need to know are credit scores based on the FICO formula.
But if you, the consumer, pull your own score from one of those jingle-y websites, the credit-reporting bureaus will almost always use something called a “Consumer” formula.
The trouble is that no one—no lender, no credit card company, no employer, and no landlord—will ever use your Consumer score.
Yet, this is the score you will get if you buy your credit score from most free credit report websites.
For instance, take a look at AnnualCreditReport.com. While downloading your free annual credit report, you will be offered your Equifax credit score for a fee. But check out the fine print:
“The Equifax Risk Score [a Consumer score] and the credit file on which it was based may be different than the credit file and credit scoring model that may be used by lenders.”
The truth is that the score a lender uses will be different. As of 2013, I have been in the mortgage industry for 20 years, and I have never once used an Equifax Risk Score.
When writing my book about how to build credit, 7 Steps to a 720 Credit Score, I studied tens of thousands of credit reports and credit scores used by my loan office. All of them—a full 100 percent—were based on the FICO formula, and not one of them used a Consumer formula such as the Equifax Risk Score.
This bears repeating: 100 percent of the tens of thousands of credit reports and credit scores that my loan office used to determine creditworthiness were based on the FICO formula.
So just how different are the credit scores sold on free credit report websites?
I tested this with my own credit file by pulling my FICO score and my Consumer score on the same day. My FICO score was a whopping 237 points lower than my Consumer score.
Then I asked my friends, Jocelyn and Michael, to let me run an experiment on their credit scores. Again, the Consumer score was artificially high.
Michael`s FICO score—the score a lender would consider—was 79 points lower than his Consumer score, and Jocelyn`s FICO score was 54 points lower than her Consumer score.
In all three circumstances, the Consumer score was higher.
This provides would-be-borrowers with an artificial sense of security.
Prospective homeowners or car buyers do a little research, realize that lenders provide the best interest rates to people with FICO scores of at least 720, then they buy their credit scores from a free credit report website.
They don`t realize that the credit score they are buying is not a FICO score.
And when their Consumer credit score comes in at 745 or 815, they think they are out of the woods. Instead of taking the steps necessary to build their credit scores, they sit back and relax.
But when it comes time to buy a house or a car, their loan applications are either denied due to low credit, or they end up paying more interest than they expected.
In Jocelyn and Michael`s case, the difference in interest on a $300,000, 30-year, fixed-rate home loan would have been about $12,000.
And this is a problem for everyone, not just prospective homeowners or car buyers. What about the folks who carry credit cards? These people buy their Consumer scores, and then wonder why they are not qualifying for better interest rates. My credit score is high, they think. I guess these are the best available interest rates.
Little do they know that they should take a few simple steps to rebuild their real credit score—their FICO score.
So what should you do about this dilemma?
Get an accurate representation of your credit score by buying it directly from www.720FicoScore.com. This is the one and only place you can get your FICO credit scores.
You will notice, though, that only two out of the three credit bureaus (Equifax and TransUnion) sell FICO scores through www.720FICOScore.com. Experian does not allow FICO to sell its credit scores to the general public. In fact, even Experian’s own website does not sell FICO scores.
It’s website has this disclaimer:
“Calculated on the PLUS Score model, your Experian Credit Score indicates your relative credit risk level for educational purposes and is not the score used by lenders.”
So if you want to know what your Experian FICO score is, the only place you can get it is from a lender …
But that’s okay, because you really only need to know two of your three FICO scores. Let me explain …
When determining your interest rate for any given loan or credit card, lenders look at your middle score and assign that rating to you.
For instance, if your Experian FICO score is 720, your TransUnion FICO score is 680, and your Equifax FICO score is 612, lenders will consider 680 to be your credit score.

Experian        720

TransUnion  680

Equifax           612

Because you most likely will be unable to get your hands on your Experian score, you won’t know which of your two scores is your “middle score”…

TransUnion  680

Equifax           612

Experian could come in higher, lower, or in the middle.
So what I suggest is that you work to raise both your Equifax and TransUnion scores to 720. This way, when you go in to apply for a loan, it will not matter what your Experian score is. If it is lower than 720, it will be “cancelled out” by your highest score. If it is higher than 720, it will cause another score to be cancelled out. Either way, your middle score will fall above 720, and you will be considered for the best possible loan terms.
I hope this clarifies some of the mystery surrounding the world of credit-scoring. As always, leave a comment below the Lesson Plan Video if you have any questions.

I always tell people that one of the best ways to get a great credit score is to have an installment loan on your credit report.
But how are you supposed to do this? 🙂
Just run out and buy a car so that you can add an installment loan to your credit report?
Nope. Here’s an easier strategy.
Go into your local credit union and explain that you want a secured loan that is reported to all three credit bureaus as an installment loan.
And because the sole purpose of this loan is to get your credit score to increase, you should apply for a small loan–somewhere around $500.
Now, to get this loan, you might need to offer collateral…
If you have a car that has been paid in full, then you can use your car as collateral.
If you don’t have a car that is paid in full, the credit union will let you know if you have other options.
Here’s one that I suggest…
Explain that as a term of your $500 installment loan, you will leave the money in an account at that credit union.
In fact, you should do this regardless of whether you have collateral.
Be upfront. Let the bank representative know that you are trying to build your credit score, and that you want to do it in a way that offers the credit union 100 percent security in making the loan.
So whether you are putting up collateral or not, when the credit union gives you the loan, open a checking account at that local credit union.
Stick the full amount of the loan into this account.
Don’t get checks. Don’t get a debit card.
Just let the money sit in the checking account
Then set up a payment plan so that the loan is paid automatically and in full from this account over the course of six months.
It bears noting…
When you first get the loan, your score will drop a little bit.
But paying an installment loan in full and as agreed is one of the best things you can do for your credit score …
And since this installment loan will be paid in six months, you will see the benefits of a higher credit score within a few short months.
Philip Tirone

Happy Mothers Day to all Moms!
Those “free credit score” jingles are like nails on a chalkboard to me. See—they are almost all scams.
Here’s how they work:
First, what they really offer is a free credit report. Then they try to sell you your credit score.
And here’s the problem: the credit score they try to sell you is total junk.
It’s called a “Consumer score,” and it’s not the same score that a lender, credit card company, employer, or landlord would see when they pulled your credit score.
Almost all lenders and banks use something called a FICO score. In fact, in my 20+ years in the real estate, mortgage, and credit industries, I have never once known a lender to use anything other than a FICO score.
Here’s the part that is even worse: FICO scores are almost always lower than Consumer scores. I tested this a few years ago on my own credit score. My FICO score was a whopping 237 points lower than my consumer score. I asked some friends to test it as well: Michael’s FICO score was 79 points lower than his consumer score, and Jocelyn’s was 54 points lower.
In all three circumstances, the Consumer score was higher.
Yesterday, I decided to see if things had changed. This time, my FICO score was 70 points lower than my Consumer score.
So the gap was a little narrower, but still wide enough to cause a big problem.
You see, if I relied on my Consumer score, I would have an artificial sense of security because it is always higher than my FICO score.
This can cause a big problem. Prospective homeowners do a little research, realize that lenders provide the best interest rates to people with FICO scores of at least 720, then they buy their credit scores from a free credit report website.
They don’t realize that the credit score they are buying is not a FICO score. And when their Consumer credit score comes in at 745 or 815, they think they are out of the woods. Instead of taking the steps necessary to build their credit scores, they sit back and relax.
But when it comes time to buy a house, their loan applications are either denied due to low credit, or they end up paying more interest than they expected. In Jocelyn and Michael’s case, the difference in interest on a $300,000, 30-year, fixed-rate home loan would have been about $12,000.
And this is a problem for everyone, not just prospective homeowners. What about the folks who carry credit cards and finance their cars? These people buy their Consumer scores, and then wonder why they are not qualifying for better interest rates. My credit score is high, they think. I guess these are the best available interest rates.
Little do they know that they should take a few simple steps to rebuild their real credit score—their FICO score.
So what should you do about the free credit report scam? Get an accurate representation of your credit score by buying it directly from www.720FicoScore.com.
Philip Tirone
P.S. The only place you can buy a FICO score online is from www.720FicoScore.com. Every single other website out there will have fine print explaining that the score you buy is not the same score lenders will see.