Questions

1. What is the average credit card debt?

a. $5000
b. $7000
c. $8000
d. $10,000

2. Many consumers can save ­­­­­­­­­­­­­­­________ in a lifetime through better credit management.

a. $100,000
b. $1 million
c. $500,000
d. $750,000

3. True or False.  Debt to income ratio has no impact on a credit score.

4. What component weighs most on your credit score?

a. Length of credit history
b. Credit utilization
c. Total accounts
d. On-time payment History

5. Closing your oldest account may reduce your credit score because it effects:

a. Credit Utilization
b. Length of credit history
c. On-time payment history
d. All the above

6. True or False:  Using your credit cards regularly is better than not using them at all.

7. You can improve your credit score by

a. Closing credit cards you don’t use
b. Not using your credit cards
c. Reviewing your credit report regularly and correcting any errors
d. Not paying your bills on time

8. Do credit inquiries impact your credit score?

a. Yes
b. No
c. It depends

9. In today’s economy, good credit is essential when:
a. Trying to secure a home loan
b. Applying for a job
c. Applying to rent an apartment
d. All of the above

10. True or False. A great credit score is considered anything above 690.

Answers

1. C. $8000.  The average consumer has $8,000 in credit card debt. Credit cards can be a slippery slope of spending beyond your means if you aren’t careful. Most consumers don’t realize paying the monthly minimum will keep us in debt for dozens of years.

2. B. $1 million – A good credit score qualifies you for better interest rates on home loans, car loans and student loans.  Over the course of a lifetime, these interest fees can really add up.

3. True.  Length of credit history, credit utilization, total accounts, on-time payment history and credit inquiries are the only components of a credit score.  You can learn more about the impact each of these has at www.creditkarma.com/report.

4. D. On-Time payment history.  On average, a person with perfect on-time payment history has a credit score over 700.  However, make just one late payment and your credit score can drop 50 points.

5. D. All of the above – Credit utilization, length of credit history and on-time payment history are all important components of a credit score.  Having a bad grade in one area can have a huge impact on your credit score.

6. True – Credit card utilization is defined as the total credit card debt you have divided by the total available credit on your credit cards. High credit card utilization can be a warning sign of credit risk.  According to Credit Karma consumers with a 0% credit card utilization had a credit score 73 points lower than consumer who had a credit card utilization of 1-20%.

7. C. Credit reports are rich with data and often have a error or two. If you contact credit reporting agencies and have incorrect information removed, you may improve your score. Avoiding credit entirely means you’ll have no credit history, which will may it harder to get a loan.

8. C. It depends.  Hard inquiries pulled by lenders do have an impact on your credit score, but soft inquiries don’t.  When you pull your credit score simply for information purposes through your written authorization, it is considered a soft inquiry and has no impact on your actual credit score.

9. D. All of the above.  Employers and renters are more apt to check your credit file before offering you a job or a place to live. To get your credit in top shape, it’s essential to maintain a low debt to credit ratio.

10. False.  That used to be true prior to the recession. Currently, the average American has a credit score that comes in right around 690, but, even a 690 credit score provides no guarantees when it comes to getting a loan. With the current state of the economic climate, banks are much less likely to even lend to good credit consumers and when they do it’s often at a higher price.

Analysis

If you missed 0-2 questions, you know credit.  You understand the important of being a smart credit use and likely have a high credit score.

If you missed 3-4 questions, you’re doing ok.  You likely have an average credit score and understand the importance of paying bills on time.

If you missed more than 5 questions, chances are your credit is in need of improvement and you should start taking steps towards responsible credit use.

A report from the fourth quarter of 2008 shows that a growing number of homeowners are seeking lower mortgage payments through loan modification programs and mortgage refinancing.

Jim at Bargaineering had an insightful piece a few days ago: Your Best High Yield Savings Account? in which he pointed out that there’s not much difference between 1.5% and 2.05% when you think about it. We’ve had an account with HSBC for years (three, actually) and now that it’s fallen to a rate of 1.65% the incentive to invest more money in it has become much less.  You could also argue – and I would – that 1.65% far exceeds the rate of return on our 0.00% checking account, so there’s no need to sneer at the rate of return, which is very competitive with the market.

It is ironic that at this moment, when all news stories seem to be indicating that Americans are returning to a culture of frugality and saving, that we have so few options for safe, healthy returns on our investments. I am sure if HSBC offered 7% returns many people – like me – would be pulling all of our money out of our brokerage accounts and stashing them there.  They can’t offer rates like that, of course, but the truth is that people are anxious to save and someone will make the case to be safe enough and offer high enough returns to pull in those savers eventually.

Earn 1.65% APY* at www.hsbcdirect.com

photo credit: Unhindered by Talent