Today’s episode is all about credit and credit cards. FICO is releasing new criteria aimed at helping people with poor credit called “Ultra FICO.” Those who are unable to get a line of credit because of a weak traditional FICO score will benefit from this system if they have an average bank account balance of $400 and no overdrafts in the past three months. Then being that we just celebrated Veterans Day, the guys drop an interview they recently did at FinCon with Air Force Veteran, Jason Williams. Jason is the Director of Credit Card Product Management with USAA. In this interview they discuss how to find the best credit card for your needs, how 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 finances.

Highlights:

• The “Ultra FICO” 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.
• Ultra FICO places a heavier weight on your bank account balance, the amount of debit transactions you make and your overdraft history.
• Those 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 Ultra FICO system is that its main purpose is to broaden the pool of people the lenders can extend credit to. Which will ultimately benefit the credit card companies because of interest and late fees.
• Building credit history for those who don’t have credit:
  • Open up a secured card – You put down the deposit and that becomes the limit.
  • Get a credit card and don’t purchase anything. Just make small auto payments. This will show the lender that you’re using and being responsible with the card.
• 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, zero percent balance transfers will become a thing of the past.
• If you’re able to find a cheap or free balance transfer, understand that balance transfers a short-term plan for trying to pay off debt. You must come up with a more comprehensive strategy.
• Opening a card while you’re in the military comes with certain protections.
• Taxes on income for active duty Military are typically much less then civilian taxes. It’s important to plan for this as your service is nearing it’s 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.

The Takeaway: Those with little to no credit history, but who are responsible with money, as reflected in their bank account balance could, be good candidates for the “Ultra FICO” system. However, be weary that the reason FICO developed this new system is to extend their reach of who they can loan money to and thus get them paying interest and fees.

Paychecks & Balances

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USAA

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Paychecks & Balances – PB107