On January 23rd, the Fair Isaac Corporation announced the latest release of their FICO score suite, which will be available for lenders to start using sometime this summer.
What is a FICO score?
The Fair Isaac Corporation (FICO) is the oldest and best-known credit reporting agency. Your FICO score is intended to help financial institutions and other lenders estimate your likelihood to pay them back any borrowed money. It impacts the interest rates and length of loan terms at which you may be approved, and it can even have an impact on the approval and terms of various insurance and utility companies.
Why is FICO changing?
FICO comes out with an updated scoring system every few years. The goal of the latest update in FICO scoring is aimed to better assist lenders in predicting customer's trends in order to make decisions on lending easier. According to the company, the new scoring system will outperform all its predecessors. FICO states that lenders will be able to reduce their defaulted portfolios by up to 17 percent under the new suite.
How is FICO changing?
The new suite of scores is called the FICO 10 score suite. It gives lenders a more precise assessment of your credit risk by considering trended data. This trended data is collected by reviewing how you have managed accounts on your credit report within the last 2 years, differentiating from the older FICO suites, which only gave a one-month trending snapshot.
Your monthly payments in credit cards are weighed higher under the changes. Lenders can now see how much you pay on your credit card balances every month. Consumers who pay off their balances in entirety every month will be considered low-risk customers. The trended data will also show lenders if your overall credit card balances are lessening or rising over time, which can add to your credit risk.
Late payments and credit utilization will also have a higher impact on your score. Your ratio is your credit card balances compared to your total credit available. For example, if you have 30,000 in available credit and 10,000 in credit card debt, your ratio would be 30%. The lower your percentage, the better your score.
Personal loans have a better chance of decreasing your score under the 10 suite. For example, if you have taken out personal loans to pay off credit card debt within the two years and in turn have racked up more credit card debt, your score is likely to decrease even more.
Effects on your current score
Most likely, if you currently have a good credit score (670 and up), you're more likely to have an even better score under the 10 suite. Conversely, if you have a low score, that number is more likely to decrease even more. The good news for people with low scores: FICO score 8 is still the most widely used version amongst lenders, thus the changes are not likely to have a considerable impact at this time. The traditional aspects that go into affecting your credit score aren't changing. FICO score ranges will remain as low as 300 and as high as 850.
The bottom line: What you can do
Best practices to attain a good credit score aren't changing. However, paying closer attention to your credit utilization ratio, paying monthly credit card balances in full, and making sure you aren't missing payments will greatly pay off. To keep your credit utilization ratio low, avoid closing out unused credit cards. Also, since the FICO 10 suite looks back further into your credit history, planning far ahead for lending needs is advised more than ever.
Whether you are looking for a new job or trying to grow in your current one, getting a certification can be a great way to improve your skills.
Anyone can put that they are proficient in a computer program on their resume but having a certificate can help you stand out amongst the competition and give credence to the strength of your skills.
But what's the best way to invest in yourself without breaking the bank? Some certification programs can cost hundreds if not thousands of dollars. We are going to walk through six of the best certifications you can get for $100 or less.
Who is it best for: Those who work with analyzing and presenting data.
Cost: $100 for Tableau Desktop Specialist; additional certifications are available for a larger fee.
More companies than ever see themselves as data companies. Being able to understand data and use it to guide decisions at your company is often critical to taking on a leadership role. Not to mention, being able to present the data in a clean, attractive, and compelling way can help get buy-in from others in your organization or clients. That's why Tableau is a great tool to have in your toolbox.
Tableau allows you to create interactive visual analytics dashboards. In layman's terms, you can take data; create graphs, maps, or charts; and then allow end-users to interact with these graphics to better understand the information. It's a fantastic tool allowing non-technical users to gain insights for data-driven decision-making.
Tableau Desktop Specialist certification starts at $100 and has no expiration date. There are many videos on Tableau's site to prepare for your exam as well as Tableau Starter Kits allowing you to play around and learn the different capabilities of the program. Tableau offers a 14-day free trial as well as free license for one year for students.
Additional certifications after Desktop Specialist are Desktop Associate and Desktop Professional. Those working with a Tableau server may also be interested in a separate certification as a Server Associate or Server Professional.
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When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.