Credit score should be known before you apply for a loan

Dear Liz: I’ve been reading your Money Talk column for years and probably about a third of the questions are credit score related. Why are people stuck on their FICO results?

I didn’t realize my score until recently, when my bank account started showing my score when online. I am 65 and have had a credit card since college over 45 years ago. I pay my bills in full every month. I have never been late with my mortgage payment or any other bills. When I went to buy real estate or a car, I was never rejected.

In other words, I have used credit successfully for decades by behaving responsibly without knowing my score. Do people who like FICO mostly use it as a status symbol or a way to brag?

answer: Some are there, but most understand that credit score is hugely influential in our financial life. Scores help determine whether we can get credit and the interest rates we pay, but also whether we can rent an apartment, get car and homeowner’s insurance (in most states) and qualify for the best deals from cell phone carriers.

Credit scores do reward responsible behavior, but have some quirks that are worth knowing about. Using more than a small percentage of your credit card’s available limit, for example, can hurt your score, even if you pay your balances in full. And closing a credit account may seem like the responsible way to deal with a card you no longer use, but it can also hurt your score.

Also, you should know that you don’t have a single credit score; you have many, and they will differ based on the credit bureaus and credit scoring formulas used.

FICO is leading credit scoring formula, but there are many generations of FICO scores currently used, from the old version that has been used for a long time in mortgage lending, to the most commonly used version (FICO 8), to the latest version (FICO 10). Auto lenders and credit card issuers use versions of FICO that are adapted for their industry.

FICO’s main competitor is VantageScore, which also has a different generation in use.

On top of that, credit scores change constantly, based on the ever-changing information in your credit report.

Your bank makes it easy for you to monitor one of your scores, which can give you a general idea of ​​how lenders may view you as a borrower. Just don’t be surprised if your bank score shows you don’t qualify for what lenders use when you buy a car or refinance your mortgage.

‘Asset under management’ advisor

Dear Liz: We have been using financial advisors for just over 25 years. We will discuss what we need, she will tell us how many hours it will take, and then she will invoice us with an hourly fee.

He recently joined a company that charges 1% of investment portfolios for providing financial advice. Is this still considered cost-only financial planning? If so, how do we find a company that charges an hourly rate? We don’t want to spend thousands of dollars on someone just to change a detailed roadmap that has already been created.

answer: The so-called “assets under management” or AUM fees are indeed considered only planning, as long as the advisors only receive fees paid by the client and do not receive commissions or other compensation for the investments they recommend. AUM fees are a common compensation method and 1% is a fairly standard fee. If the advisor has done significant, ongoing planning and investment management for you, the fee may be worthwhile. If not, there are other better compensation methods. Garrett Planning Network represents the only fee Advisors are willing to charge by the hour, while Network Planning XY and Alliance of Comprehensive Planners offering fee-only advisors who charge retainer fees.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form. askliweston.com.

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