5 Common Credit Gripes -- and How to Get Past Them

Our credit scoring system is complicated. Here's how to make the most of it.

Jul 20, 2014 at 11:00AM

There's no doubt about it: The credit scoring system we use in the United States is complicated. What's more, there are plenty of critics who claim that it's downright unfair.

While it's true that our credit reporting procedures could probably use some reforms, there are ways to get past common credit gripes. Take a look at the five listed here, plus our tips for working within the system we've got.

1. I have to get into debt to build credit
People who prefer to pay cash often complain that there's no way to build credit without getting into debt. This comes from a kernel of truth: You do have to use credit to create a credit history.

But this doesn't necessarily mean you have to take on debt. For example, if you use a credit card regularly and pay your balance in full every month, you're building credit but not getting into debt. Consider this option as an alternative to taking out a loan that you don't really want or need.

2. Every little mistake is used against me
If your lenders are reporting your payment information to the three major credit bureaus, and most do, you might feel like they're tattling on you for every little mistake you make. It's true that foul-ups like missed payments, taking on too much debt, and submitting too many credit applications will get back to the credit bureaus and affect your score.

But it's important to remember that you can avoid many of these mistakes. For example, setting up text and email alerts so that you know when your bills are due or if your credit card balance is getting too high will go a long way toward preventing a gaffe.

And even if something does go wrong, a money misstep won't stay on your credit report forever. Most negative marks drop off after seven years; if you're making smart credit moves in that time, your score will recover. In short, there are lots of opportunities to avoid most mistakes and bounce back from the ones you can't.

3. My savings aren't factored into my score
Many people are frustrated to learn that some of their good financial habits, such as saving, aren't incorporated into their credit scores. If you excel in this area, feeling a little slighted is normal.

Remember, though, that the purpose of the credit scoring system is to assess borrower risk. Lenders want to know how likely it is that you'll repay money they've credited you, not how likely it is that you'll save.

Look at working on your credit score as an opportunity to highlight another side of your financial responsibility. Again, pay special attention to paying your bills on time and staying out of credit card debt. These two habits alone will help your score sparkle.

4. Credit reports are full of errors
Although lenders and the three major credit bureaus make efforts to create an accurate report of your credit-related behaviors, mistakes do happen. In fact, a 2013 study by the Federal Trade Commission found that one in five Americans has an error on at least one of his or her three credit reports.

The best way to cope with this gripe is to review your credit reports carefully at least once per year and take steps to correct mistakes if you find them. And the good news is that getting an error fixed is expected to get easier soon, because of new rules set out by the Consumer Financial Protection Bureau.

5. It's not clear how my score is determined
Historically, the credit reporting agencies were secretive about how your credit score was determined. While some information is still proprietary, we have a much clearer picture these days of what determines our scores:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • Mix of accounts: 10%
  • New credit inquiries: 10%

Again, the two most powerful things you can do for your credit score are paying your bills on time and staying out of credit card debt. But if you want to know more about your credit report and credit score, the Nerds have lots of great resources. Be sure to check them out!

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A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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