Today, after watching some NFL games, I suddenly became curious about bankruptcy, so I did a quick google search and the first figure I found was astonishing. According to official records, in 2013 there were over 1 million non-business bankruptcy filings. 1 million. 1,000,000. On average, for every 300 people in the US you know, 1 of them filed for personal bankruptcy last year. This figuratively blew my mind.
So the topic for my blog post today was quickly decided.
You know, life happens. Someone in your family falls critically ill and you have to borrow money to pay for medical expenses without being able to pay it back. You lose a job because of the financial crisis and can no longer pay your bills. I offer my condolences to those that have a legitimate reason to file for bankruptcy. The road ahead, credit-wise, is going to be tough. Bankruptcy stays on credit reports for up to 10 years, and this is not the kind of record you want on your credit profile. Lenders that see bankruptcy when reviewing your credit report will not be very likely to extend you credit.
So, if bankruptcy is inevitable, how can you minimize its negative impact on your credit?
After achieving a 760 FICO credit score, I thought the next milestone would be 800. Since there are multiple FICO scoring models that lenders use, an 800 FICO would almost guarantee me at least a 760 on other FICO models. My credit history length is hitting 3 years in January 2015, and my AAoA (average age of accounts) is going to reach 2 years in February 2015. Since FICO scores tend to increase at these factors’ milestones, my score is probably going to achieve the maximum in February 2015 before hitting the plateau. And since I have several credit inquiries from the auto loan applications in February 2014, in February 2015 when they drop off, I’ll have a decent shot at an 800 FICO.
2 years ago, when I had just started this blog, the Discover More was one of the first credit cards that I reviewed. Since then, Discover Financial Services has replaced the card with the Discover It which is in many ways the same as the Discover More. I personally still have the Discover More, but most people these days have already switched over to the Discover It. It is about time I reviewed the Discover It as well.
Recently, a friend of mine asked me if he should pay off his auto loan he had acquired years ago. While the interest rate on the loan is very low, less than 3%, he wanted to be free of debt and felt tempted to finish making monthly payments for the loan. He makes good income and is very disciplined about expenses, so paying the remaining balance would not cause any financial burden to him, and neither would maintain the monthly payments. His main concern was the impact on his credit.
I talked him out of it.
How I achieved 760 FICO credit score in just over 2 years
My credit journey has now lasted for 2 years and 10 months, and I’m in the mood for reflecting on the journey thus far. I did a lot of research about credit along the way, especially in the first year, to make sure I could achieve the most, credit-wise, in the shortest amount of time. And at this moment, I am about exactly where I wanted to be, and in just about the best position there could be for someone with 2 years and 10 months of credit history.
760 FICO credit score has long been considered a hallmark of excellent credit, and I hit it about 3 months ago.
I have written this guide as a balanced approach to building credit if you are starting out. It is not intended to give you the maximum credit score, since that would require that you know perfectly how to manage credit from the beginning, an unrealistic expectation. If you follow this guide, at the end of the first year you should have a solid credit history that would allow you to get approved for most credit cards and obtain reasonable interest rates on auto loans.
Even though I said that a good FICO credit score takes a long time to build, there are situations where time is against you and the last few points really matter. Many mortgage lenders have FICO score thresholds for interest rates, and you may fall a few points short of the next threshold which may mean thousands of dollars’ worth of payments. You don’t have another few years to carry your FICO score to that threshold. So what to do?
Your credit score is a number that represents your creditworthiness. It is a number calculated from your credit history based on an algorithm to predict how likely it is that you will default on your debt. While your credit score is not the only thing that determines the outcome of your mortgage or auto loan application, it is one of the most crucial factors, if not the most crucial.
Travel accident insurance is yet another travel protection benefit that many credit cards provide for free. I honestly have never paid attention to this benefit, because deep down, I really hope that nobody ever has to use it. It is what it sounds like: insurance against travel accidents. Most, if not all, travel rewards credit cards cover this, and the coverage limit is typically very high, up to $1,000,000 (1 million dollars!). Restrictions apply.
I’ve talked about risks associated with traveling in earlier posts in this series. Credit cards are amazing for protection against unfortunate events along your travels, and apparently they are helpful even if you cannot make your trip or cannot complete your trip for unforeseen reasons.