Can New Changes In The FICO Score Affect Retirees?

Posted by: Aiden white on

A credit score plays an important role in our financial lives! After all, it defines our creditworthiness! Creditors use this score to evaluate the risk of lending money.

Having a good credit score means you can pay off your accumulated debts on time! So, the higher your credit score, the higher your chances of approval for a credit line!

In our country, one of the prominent credit scoring models is the FICO score which was first introduced in 1989 by the then Fair, Isaac, and Company.

In the FICO scoring model, a credit score ranging from about 670 to 739 is considered as a good one!

But recently, Fair Isaac Corporation introduced a new scoring model, known as FICO 10. According to Joanne Gaskin, vice president of scores and analytics at FICO, about 40 million people might notice their credit scores increase by 20 points or more.

But another 40 million people might notice their scores slash by 20 points or more. And about 110 million people might see their credit scores increase or decrease by less than 20 points!

And you know what? These people include retirees too! Yes, you heard it right! Here we are gonna discuss the new FICO score 1O suite. And how it can affect the retirees of our country!

Why is FICO coming up with new credit score changes?

In 2017, all credit bureaus of our country implemented changes to eliminate civil judgment records. And by 2018, all the tax liens were eliminated too from the credit reports by the bureaus. Eventually, many people noticed a boost in their credit scores. This resulted in many people opting for loans that they couldn’t afford to pay off!

However, the new FICO score 10 suite focuses on rising debt levels by the changes mentioned above.

So, we can hope that you will be able to reduce your default payments and improve your financial behavior to maintain a decent credit score!

What are the new changes that FICO is going to implement?

Well, FICO is trying to provide the lenders or creditors a more accurate analysis of your credit risk based on the trended data. For that, it has come up with the new FICO 10 Suite model.

It consists of the FICO 10 score and the FICO 10 T score. Like the previous versions, FICO 10 score will consider these 5 factors , i.e,

  1. Payment history
  2. Amounts owed
  3. Length of credit history
  4. Credit mix
  5. New credit lines

But the FICO 10T is first of its kind! It will contain the information of how you have managed your credit accounts in the past 2 years, like,

  • Your outstanding balances
  • Minimum payments required
  • Amounts you paid on your recent credit card

It means, if you don’t have a history of paying off your outstanding balance amount in full every month, your credit score may drop.

Generally, creditors report an account delinquent when you miss payments for at least 30 days. And once delinquency is reported, it stays on your credit report for approximately 7 years! Eventually, your credit score drops!

But in FICO score 10 suite, late payments are taken much more seriously than the previous versions. So, being late on your payments can lead to a substantial drop in your credit score! That’s why always remember to make payments on time!

In FICO score 10 suite, opting for personal loans might reduce your credit score. Taking out a personal loan to consolidate debts is a common affair. It helps you to pay off your high-interest debts with a single loan. And that too at a reduced interest rate than that of your existing loans.

Well, that’s fine!

But let’s say, you are paying off your consolidation loan. And at the same time, you are using the credit cards for making new purchases. In short, you are building up new outstanding balances along with paying off a consolidation loan. In that case, your credit score will take a hit in this FICO score 10 suite!

So, if you have taken out a personal loan to consolidate your debts, make sure that you don’t fall prey to the credit card debt again! It will be beneficial for your finances and credit score too!

Why is a credit score important in your retirement?

Often, people ask me “does retirement affect FICO score?”. Well, retirement doesn’t affect your FICO score. But yes, how you are managing your credit lines after retirement affects your FICO score!

Many people think a credit score is not that important for retirees! But it’s completely wrong! A credit score is equally important for retirees too! Having a good credit score can help you to get:

  • A lower interest rate of the mortgage
  • A chance to refinance your mortgage if interest rates drop
  • Comparatively lower interest rates for credit cards , auto loans, etc
  • Lower insurance premiums

The bottom line is, credit score remains an important factor in your retirement too! So, you need to improve your financial behavior by paying off your outstanding balances in full and always on time, taking out a personal loan wisely, etc.

Doing so, you can maintain a decent FICO score and relax during your golden years!

Stay financially fit by following 9 amazing tips

Posted by: Aiden white on

If you want to get good financial health and maintain it for a long time, then you should try to change your lifestyle, just like you do to have a good, healthy body. What type of changes do you need to consider? You must adapt to the changes that will put you on a positive lifestyle and add good financial habits in your daily routine.

Do not wait for a financial crisis knocking at your door. You should manage your finances by increasing your financial knowledge, making proper plans, and most importantly maintaining good financial habits.

So, what are you waiting for? Gather knowledge and become smarter so that you may use your every dollar to grow your wealth more. Follow these 9 tips and stay financially fit as much as you can.

9 Amazing tips you must follow to stay financially fit

Here are 9 tips that may help you get good financial health:

1. Analyze your every monetary activity

You should find the specific reasons for your money-oriented activities. You must know why you are doing a job, why you are saving, why you should invest, and why you need to spend on a thing. If you don’t know why you are doing such money activities, you’ll practically run out of motivation to work for a purpose. You can’t live without any monetary aim, because there’s nothing that may guide your financial behavior.

2. Learn from your past financial mistakes

You should review your old money mistakes and take notes on the things that you have learned from them. You might have gathered too much debt during the last vacation tour you had. You might have purchased insurance for your car without analyzing the benefits and the additional costs. You might have purchased too many commodities by using your credit card, due to impulse buying habits. Mark my words, you should learn from these mistakes and avoid such activities in the future. You can consider yourself as a financially literate person, only if you identify your past mistakes and take necessary steps to rectify those wrong financial moves. That’s how you can start following wise financial habits and stay financially fit.

3. Set goals and make a proper assessment

Did you set up a target that you want to achieve in the coming 5 years? Is there any plan that may engage your mind and resources to get something beneficial for your future? Ten years from now, where do you want to see yourself, both personally and professionally? Sort out these answers, and pick up the top 5 out of them. These five objectives might be your top five goals for the coming years. Keep those goals pinned in front of you, where you may see them regularly.

Financial goals should be categorized into short, medium and long-term goals. One of the most popular ways to define financial goal is the SMART method that you can use:

  • Specific-Setting up a specific amount of goals.
  • Measurable-Where progress can be measured or tracked.
  • Assignable-Take personal accountability.
  • Realistic-Setting up practical goals that can be achieved.
  • Timeline– Goals should have a specific deadline.

4. Create a budget for financial freedom

Making a budget is nothing but forming plans on how you should use the available money properly. Making a proper budget and following it exactly the way it is planned, is necessary for good financial health. It is proven that the first step in completing financial goals is budget planning.

Budgeting will indicate where your income is going and how you can reduce unnecessary costs from each category. This way you may save enough money from your allotted monthly budget and use that money for other purposes, such as paying off debts, doing some repairs on your car, or you may deposit it in a retirement savings account. You might have issues setting it up initially, but once you chalk out a plan and use it for a couple of months, you’ll get it right.

5. Create an Emergency Fund 

Creating an emergency fund is a necessary step for every individual who has a family, earns money by doing a regular job, and pays taxes. You never know when you have to face a sudden financial crisis, such as sudden medical emergencies, job loss, or urgent car repair or home repair jobs, etc. If you don’t have an emergency fund ready, to fight against such a financial crisis, you might be forced to use other money resources like credit cards or personal loans. The main issue with this solution is, they are costly and hampers your monthly budget for the next several months.

6. Diversify your investment

You should diversify your investment options to get better returns from different types of investment resources. Every investment carries a typical amount of risk. So, if you want to minimize the risk of your capital loss, you must diversify the investments and build a strong portfolio.

Investing in multiple types of investment options is a wise financial habit that can keep your finances healthy. The variation of return rates and the risk factors may enrich your investment portfolio, and also increase your net worth.

7. Work on investment cost and tax management

The cost of investment and taxes may affect your finances well. If these costs increase too much, it can lower your total amount of investment returns. You should work on a strategy that may allow you to reduce the cost of investments and also give you tax efficiency.

8. Increase your income by doing different side hustles

Your monthly income will decide how much you can, save, invest, and spend each month, towards small and big financial goals. You should focus on increasing your income as much as possible. If you are doing a full-time job, and you have enough time after that, then you should engage in some side hustles to earn some extra. You may invest your time in giving online tuitions, music classes, working in a library, working in food joints or cafes. This income is considered passive income, which is very important for financial development.

9. Get out of debt burden

Whether it is a good debt or bad debt, secured or unsecured, debt is debt!!! You should always focus on getting out of debt as soon as possible. Normally secured debts, such as a home loan, have a long loan term to pay it off. So, comparatively unsecured debts, such as credit card debts, payday loans, or medical bills, are easier to pay off.

If you have financial issues to pay off debts, then you can talk to your creditor and sort out an easy repayment plan. It is best to avoid high-interest debts, or at least you may try to make debt payments on time. Without paying off existing debts you can’t stay financially healthy for long.

Endnotes

Maintaining good financial health is difficult, but not impossible. You must follow those good financial habits and stay financially fit. This way you may increase your net worth and become financially free. Best of luck.