Get Rich Slick

I recently purchased Quicken 2007 and I’m wondering why Intuit didn’t include any kind of FICO simulator.   There are plenty of areas to enter credit card info, interest rates, credit limits, and more so you’d think Quicken could take these numbers and simulate a score for you!

I’m working on creating my own FICO simulator and it doesn’t seem as daunting a task as I initially thought.  From the info I’ve gathered, FICO score is broken down by:

35% Borrower’s History
30% Debt
15% Credit length
10% Credit Type
10% Pattern of credit use

Assuming 850 points is a perfect score then

Borrower’s History  = 297.5 max
Debt                      = 255 max
Credit Length         = 127.5 max
Credit Type            =  85 max
Pattern ?               =  85 max
Total                      850 points

With some of the categories, I feel fairly confident so I’m assuming I receive:

297 points for having good history – Never late on any payments over the last 10 years
127 points for credit length – The oldest account showing is from 1996; assuming good?  Not sure how opening/closing credit card accounts factors in.
85 points for credit type – Not sure about this but I have a mix of Home, Auto, Student, Credit Cards (all paid off except Home & credit cards)

I am a bit at a loss for how Debt and Pattern are calculated
85 points for Pattern – any ideas?
255 points for Debt – This one is perhaps the trickiest.

Adding my theoretical points (297+127+85) I get 509 and assuming I get half of the “Pattern” score that brings me up to 551 (considered sub prime!)

Clearly, Debt is a big factor (almost half) of your credit score.  I’ve read that anything about 50% utilization on a credit card is considered bad so how do we determine how bad that is?

If I currently have ~$73,000  in credit lines in 5 credit cards.  I have an AMEX with no limit and not sure how this fits in

Limit              Available         % Used

CC1       10,000                9,000             10%
CC2       18,000              18,000               0%
CC3       28,000                3,750             87%
CC4       12,500                3,750             70%
CC5         4,400                3,565             19%

Total        72,900             38,065            48%

Now the issue is does FICO use the overall total debt load or individually rate each one?  What are some theoretical ways to rate debt?

A total of 255 points are available for debt load so can it be that you lose 25 points for every 10% increase in debt load?  This would only work if the assumptions are based on total debt vs total available credit.

No debt = 255 points?
10% debt = 230 points?
20% debt = 205 points?
30% debt = 180 points?
40% debt = 155 points?
50% debt = 130 points?
60% debt = 105 points?
70% debt =  80 points?
80% debt =  55 points?
90% debt =  30 points?
100% debt = 5 points?

If somewhat in the ball park, then 50% debt load gets me another 130 points to bring my score to a total of 551+120 = 671?

If the debt factor is calculated individually then the math gets more complicated but not impossible.

The whole point of doing this exercise is to try to determine how badly FICO score gets “damaged” doing arbitrage deals.   As you can see, I have 40k in available credit that is just sitting there not doing anything for me.   You have to wonder what good credit lines are if you can’t use them without seriously damaging your credit score.

The more I think about how the FICO is calculated the more I think that it is seriously flawed.

There is no consideration given to how much a person has in savings.  A person with 70k in credit card debt with $0 savings is a much greater risk, in my opinion, than someone with 70k in credit card debt and 70k in savings.

There is no consideration given to income levels.  Again, a person with 70k in credit card debt with 30k in income is a significantly higher risk than someone with 70k in debt with 150k income level.

Ultimately it may not matter since a the new WAMU credit card grants you access to your FICO score every month.  I’ll try to periodically post how my FICO score is affected when doing arbitrage deals.

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Washington Mutual is aggressively pushing me to sign up for one of their credit cards and they’ve run through the whole gambit of gimmicks to get me to do it. I’ve received these offers over the last 10 days.

Offer 1 – “Colorful” credit cards with free access to credit scores, coupons and credit line review and an added bonus of 0% APR on purchases until April 1, 2008!

http://www.getmastercardnow.com

Offer 2 – Same as offer one but 3.99% Fixed APR on balance transfers with No Fee.

http://www.getmastercardnow.com

Offer 3 – 0% APR for 9 months on purchases and balance transfers. Also has free access to credit score. I must hurry because this offer ends 10/31/06.

http://www.wamucreditcard.com/apply3

Offer 4 – Same as Offer 3, but I don’t have to hurry because this one expires on 12/01/06.

http://www.wamucreditcard.com/apply2

I’m intrigued about having access to my FICO score every month although the disclaimers state that access may take up to 90 days initially. Unless I find a better offer between now and late November, I will likely try out “Offer 4” as my 24k arbitrage deal comes to an end in December. I can only hope that I get as high a credit limit to roll the 24k over otherwise I’ll have to give the money back

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This week I received my Amex Gold Card bill and received some new and unwelcoming Terms & Conditions. Among the many new “enhancements” of the card is a higher fee: $125/year up from $90/year; elimination of the Membership Rewards Program and conversion to a new Rewards System of which I’ll know nothing about until October; and numerous changes to billing cycles and fees.

I recently wrote about my negative experience trying to redeem ~40k Amex points for something decent here and I decided to wait until I received “official” notification before taking action.
After carefully reviewing all the “features” & “benefits” and new terms & conditions of the Amex Gold Card, I’ve opted to discontinue using the card. I’ve cashed in my points for some gift cards and upon receiving them, I’ll be closing my Amex Gold account. I’ve spent the better part of my day converting my monthly Amex billables to Amex True Earnings Card.

The Amex True Earnings Card has no annual fee. 3% rebate on dining, 2% rebate on travel and 1% rebate everywhere else. This card is co-branded with Costco and can provide certificates redeemable there as well. Of course, recent news that Citibank is getting rid of their cashback cards is interesting. All the major banks appear to be rethinking their cashback credit card model and it’ll be interesting to see what the future holds. Is this the end of cash back and reward cards? Is it the end of 0% arbitrage deals? Only time will tell.

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I wrote about the new diabolical Terms some credit card companies are sneaking into their disclosure forms a few days ago and last night, I received an updated “Supplement to the Notice of Change in Terms” on my Bank of America credit card.

It’s a two page micro fine printed sheet and here are the suspicious and confusion terms:

Section 9. Grace Period

You do not have a Grace Period for Category A or Category B Cash Advances. You will have a Grace Period on new Category C Purchases and new Category D Other Balances, in a billing cycle in which you Pay in Full, from the day after the Pay in Full date until the end of that billing cycle. You will have Grace Period for an entire billing cycle on new Category C Purchases and new Category D Othr Balances and on Category C and Category D balances remaining from previous billing cycles if you Pay in Full by the Payment Due Date in that billing cycle and if during the previous cycle you Paid in Full.

Section 10. Calculation of Balances Subject to Finance Charge

Categories A and B – Average Balance Method (including new Cash Advances)

see enclosed Credit Card Agreement for Complete Terms

Categories C and D – Average Daily Balance Method (including new transactions): We calculate separate Balances Subject to Finance Charge for Category C balances and Category D balances. We calculate the Balance Subject to Finance Charge for each of these balance categories by: (1) calculating a daily banance for each day in the current billing cycle; (2) adding all the daily balances together; and (3) dividng the sum of the daily balances by the number of days in the current billing cycle.

To calculate the daily balance for each day in the current billing cycle, we take the beginning balance, add an amount equal to the applicable Daily Periodic Rate multiplied by the previous day’s daily balance, add, unless subject to a Grace Period, new transactions, new Account Fees, and new Transaction Fees, and subtract applicable payments and credits. If any daily balance is less than zero we treat it as zero. If in the current billing cycle you Pay in Full, then on the day after that Pay in Full date, we exclude from the beginning balance new transactions, new Account Fees, and new Transaction Fees which posted on or before the Pay in Full Date.

Did you get all of that? I took four semesters of calculus in college amongst other advanced finance and math courses and I don’t think I could come up with a formula to describe the above. Perhaps this is why credit card companies rake in billions in fees and interest, because no one calls them out on their garbage terms. After receiving this notice, I have decided to stop using this credit card.

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I wrote about Passive/Aggressive Credit Card Fees a few days ago and last night I received a credit card offer with some suprising terms. The come on was enticing: 0% APR for 15 Months!

But as I examined the terms of the offer I was shocked!

I had to re-read that numerous time to make sure I was reading it right. WE RESERVE THE RIGHT TO CHANGE THE TERMS OF YOUR ACCOUNT (including APR) AT ANY TIME, FOR ANY REASON…..

So while you may intitially think you may be getting 0% for 15 months, you could in fact be getting 0% APR for 1 month then 23% for 14 months! I am flabbergasted at these new credit card tactics: lure unsuspecting consumers in then bang them over the head when they’re not looking and pick their wallets clean!

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I received a balance transfer offer email  today from one of my credit cards.  Here is the offer:

• You’ll receive a great low Promotional Rate of 3.99% APR through your April 2007 billing cycle. After April 2007 your Promotional Rate will convert to your standard contract Purchase Rate.
• The Cash Advance Fee for this balance transfer offer is 4%, $10 min, $90 max per transfer. This fee will post to your account as a cash advance fee and receive a cash advance rate.

What caught my attention was the second item.  Usually there is a fee for balance transfer but I noticed that instead of the usual 3% it is now 4% and the fee (usually $75 max) is now $90.  But what really struck me was the next sentence:  This fee will post to your account as a cash advance fee and receive a cash advance rate.

I logged on to the credit card website but I couldn’t find the credit card fee.  I did find on the general website that the current cash advance fee is 24.24%.  So $90 @ 24.24% adds another $11/yr to the fee.  If the bank can squeeze this fee out of 100,000 customers it can translate into an extra $1,100,000 dollars!

I wonder how many other banks will follow suit.

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