Today’s episode covers all things credit: how to build credit, how to raise your credit scores, and how to find the best credit cards for you. FICO is releasing new criteria aimed at helping people with poor credit called The UltraFICO™. This new scoring model is for those who are unable to get a line of credit from the traditional credit scoring models because of a weak score or limited credit history. FICO says users will benefit from this system if they have an average bank account balance of $400 and no overdrafts in the past three months.

Source: Facebook.com/USAA

In this two-part discussion, we release our final live FinCon18 interview with Air Force Veteran, Jason Williams to help us celebrate Veterans Day. Jason is the Director of Credit Card Product Management with USAA. In his interview, we discuss how to find the best credit cards for your needs, why Jason wonders if 0% interest balance transfers might become a thing of the past, and how USAA has made it their mission to assist active military and veterans with their personal finances. Paychecks & Balances would like to thank our men and women in uniform for your service to this great country each and every day of the year!

Show Highlights:

  • The UltraFICO is a new way to score consumers on how they handle their bank account and cash transactions. It’s geared at customers who are turned down for credit based on their traditional FICO score.
  • UltraFICO will place a heavier weight on your bank account balance, the number of debit transactions you make, and your history of overdrafts.
  • Individuals with an average account balance of $400 and who haven’t had an overdraft in the last 3 months will be the beneficiaries of this new system.
  • An argument against the UltraFICO system is that its main purpose is to broaden the pool of people lenders can extend credit to, which might ultimately benefit the credit card companies because of interest and late fees. There appears to be limited mention of how under-banked or customers without access to direct deposit, savings, or checking accounts will be helped, if at all.
  • Three quick tips for building credit history for those who don’t have any credit:
    • Open up a secured card by putting down a deposit with an online bank or local credit union. This deposit serves as your credit limit and positive payment history is reported to the credit bureaus like a traditional credit card with a potentially lower risk of you going over your limit and incurring high fees and penalties. This may be a low-risk way to start responsibly managing a credit card for first-time users.
    • Get a credit card and don’t purchase anything. Just make small auto payments. This will show the lender that you’re using and responsibly managing your credit.
    • Pick a card for the right reasons. Most people focus on credit card rewards, not the fee’s associated with the card or the APR.
  • As interest rates rise, will the 0% percent balance transfer become a marketing tool of the past?
  • If you’re able to find a cheap or free balance transfer, understand that balance transfers are a short-term plan for trying to pay off debt. You must come up with a more comprehensive strategy.
  • Taxes on income for active duty Military are typically much less than civilian taxes. It’s important to plan for this as your service nears an end.
  • While you’re in the service, it’s a good idea to invest in the TSP (Thrift Savings Plan). This will help supplement your pension or take the place of your pension if you’re discharged early or as you move back into civilian life.

Key Takeaway: Those with little to no credit history, but who are responsible with money, as reflected in their average bank account balance and minimal occurrences of overdraft, could be good candidates for the  UltraFICO system. However, be wary that the reason FICO developed this new system is to extend their reach to customers who traditionally did not use or have access to credit cards and loans.

References Mentioned on This Show

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