One of the main complaints many students have when looking to close the college funding gap have is that it is increasingly difficult for them to get approved for private loans . People Capital is hoping to help students by providing a metric that can help lenders get an idea of a student’s potential through a Human Capital Score. Alan Samuels, the Chief Product Officer for People Capital, spoke with me about this new credit score .

“Our metric looks at someone’s potential,” he said. “It takes into account high school attended, GPA and achievement scores and then projects a probable income path , offering insight into the likelihood that they will be able to repay loans.”

The score will be used on People Capital’s forthcoming P2P student lending platform. “We plan to provide a platform where lending rates are set by auction method, bidding rates down for students and providing them with access to additional capital.”

I looked at my own income projection, leaving off the fact that I have gone on to get a Master’s degree. I simply filled out the form as if I were finishing up my B.S.

You can see on either side how the green indicates a range. I am happy to say, though, that for being 7 years out, I have exceeded the projection offered by my Human Capital Score.

Samuels says that the score is mostly designed to be ideal for undergraduate students . Graduate funding is a different animal altogether. It will still be possible to obtain graduate loans through People Capital, but the metrics aren’t optimized for graduate students. “We are developing a graduate model, though,” Samuels said. “That model will probably be used in conjunction with the FICO score , since students will have had opportunity to build credit profiles.”

In the end, this is another way to try and reduce human behavior down to something that can be easily quantified. But for students looking for a little more help in getting approved for education loans, this might be helpful.

You know about your credit score . And you know that it is used, in general, to give a number of people, from landlords to lenders to employers, an idea of how fiscally responsible you are. But your credit score is not the only financial score being used to assign you risk. In fact, there are other “secret” scores used in conjunction with your credit score to determine what sort of financial person you are. And, unlike the credit score, companies are not required to disclose this stuff under the Fair Credit Reporting Act . If you ask me, there is waaaaaay too much of our information that we don’t have access to.

At any rate, Cash Money Life offers a list of eight secret scores that take your personal financial information and use it to make a number of determinations:

1. Response score - This is a score based on the probability you’ll respond to an offer they send you.
2. Application score - This score incorporates all the data on your application.
3. Bankruptcy score - This score tries to predict how likely you will to declare bankruptcy.
4. Revenue score - This score tries to predict if and how profitable you will be to the institution.
5. Attrition-risk score - This score tries to predict how likely you will stop using their products.
6. Behavior score - This score tries to predict future behavior, as nebulous as that sounds.
7. Transaction score - Every time you charge something to your card, a transaction score is calculated to determine whether to approve the charge.
8. Collection score - This score is used on accounts in collections by collection agencies to determine how “collectible” it is.

Honestly, I think the scariest of these are the revenue, behavior and transaction scores. These seem especially invasive. Especially since it would only take a little bit of tweaking for the transaction score to compile every spending choice you make . What happens if a night on the town, via transaction and behavior score, was used against you in the future? Maybe I’m starting to sound paranoid, but the fact that we don’t have a clear view of these scores — and that there are no immediate efforts to make them more transparent — does worry me. Does it worry you?

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Back in January, TransUnion became the first major credit bureau to beginning using FICO 08 , the updated credit scoring formula rolled out by Fair Isaac Company. (This explains, somewhat, the dip in my credit score as reported on Credit Karma .) However, the other two credit bureaus have been slow to adopt the new formula. Now, though, with Equifax adopting the new FICO 08 formula , things are about to become truly changed in the credit score landscape. MainStreet.com offers a guide to some of the main changes offered by FICO 08 :

1. Debt load : A higher debt load will weigh more heavily on your credit score.
2. Available credit : FICO 08 doesn’t not penalize you as much if you have a large amount of available credit that you are not using.
3. Debt activity : Sadly, a reduction in debt activity could weigh on your credit score. With only a couple of credit accounts, you could find your score slipping.
4. $100 debts : Any unpaid debt under $100 will no longer have a huge effect on your score. In fact, it may have almost no effect on your score.
5. One-time credit mistakes : Penalties for mistakes (such as a single late payment or charge off) won’t be as severe.

The main point is that FICO credit scoring has become more sophisticated, allowing for finer shadings. In a way, that can be helpful, allowing for human mistakes. However, FICO 08 does not address one of the main arguments many have with the credit scoring process: That in order to be considered “financially responsible” or even viable, you have to use credit and even carry a balance. No matter how you look at it, credit scoring is still angled to encourage debt .

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One of the most important things you can do for your personal finances is to understand your credit and how it works. In my opinion, Credit Karma is one of the best Web sites available for this purpose. It is free, and you get access to your TransUnion credit score for free. Credit Karma has a number of features aimed at helping you better analyze your credit, and understand where you are at. The latest feature is the Credit Report Card. Kenneth Lin, CEO of Credit Karma, sent me this information in an email about the new feature:

With this service, consumers will be able to see how much their scores could change and what they would need to do to optimize it. In essence, the service takes the user’s 10-12 page credit report and compiles a simple to understand report that directly correlates to the credit score with prescriptive recommendations.

The report card uses letter grades to help you easily see how you are doing in different areas that affect your credit score. Here is a sample Credit Report Card that Lin shared with me:

You can see that it is very straightforward and easy to read. Explanations about each aspect of your credit score are provided, and you can get an idea of how you stack up in comparison with others who use Credit Karma. Since the Credit Report Card uses information from your credit report, you will have to provide permission for the service to access your report. And, in order to get the full benefits, you will have to register (it’s free) with Credit Karma. Overall, though, it is worth the trouble to do so. Credit Karma is an excellent personal finance resource that can help you keep on top of your credit.

The recession has caused many to re-evaluate their saving habits, and other financial habits as well. And one of the “other” financial habits that is seeing some reform has to do with debt. Many are deciding that debt is not worth it, and that paying off debt is a worthy goal. And it is. Here are 10 reasons to pay off your debt ASAP:

1. You keep more of your money. When you are paying interest, more of your money goes to others. This is money that you could be using, but instead you just pay to someone else. You don’t get services or goods. You just get the “privilege” of financing.
2. It frees up monthly household income. Consider how much you are making in debt payments. $300? $500? More? What could you do with that money? It allows more discretionary spending for you and your family.
3. Save more money. You could save more money for short term and long term goals if you could set that money aside each month, rather than putting it toward debt. Save the money in an interest bearing account (like a retirement account, CD or high yield savings account), and your money works for you — instead of against you.
4. Improve your credit score. You can get a better credit score when you pay down debt — and keep your debt low. A credit score is good for more than just helping you get other loans. Employers, insurers and others use your credit score to make decisions about hiring, premiums and other financial issues.
5. Teach your children by example. When you pay off your debt, you teach your children the importance of good financial decisions, and show them that it is a good idea to remain financially free. You can help your children down the right path.
6. You can give more to others. Once you pay off your debt, you can be free to help others. You will have more resources to donate to charity, as well as to family members who might need it.
7. You increase your financial security. When you pay off your debt, you are decreasing your risk. Debt increases the chance that an emergency will be financially devastating. Without debt, you are safer in terms of your financial situation.
8. Feeling of freedom. There is something very freeing about paying off debt and realizing that you are not financially obligated to your creditors.
9. Peace of mind. Along with financial freedom and security comes peace of mind. You will feel better about life, and your finances, when you have less debt.
10. Better relationships. Peace of mind, less stress and better finances often lead to better relationships. It is hard to nurture your family, spouse and friendship relationships when you are worried about money and your financial future.

Can you think of some other reasons to pay off your debt ASAP?

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I enjoy the commercials done by freecreditreport.com, even though I would never consider actually using the service. To get your “free” credit report, you have to sign up for a monthly service. Instead, I recommend annualcreditreport.com for a truly free report once a year from each of the three major credit bureaus. You should check your credit report regularly, and I don’t mind paying $34.95 a couple times a year for a three-in-one credit report after I’ve used up my free reports.

Anyway, enjoy your Sunday, the remainder of this three-day weekend, and getting ready for a shortened week!

If you are looking for a lower credit card interest rate, you might want to beware: Credit card issuers are becoming pickier about who gets credit — and even whether you get to keep the credit line you already have. Calling to ask for a lower credit card interest rate may draw their attention to you. Indeed, asking for a lower credit card interest rate may trigger what is known as a “credit review” by your issuer. MarketWatch points out some of the possible outcomes of a credit review:

The outcome could be a lower credit line, higher interest rate or closed account. These actions could ding your credit score, and that, in turn, may trigger higher interest rates on your other credit accounts.

Before you try for a lower credit card interest rate, you should first consider your position. Ask yourself these questions:

1. Do you have a good credit score? (This may means something that is at least 720.)
2. Have you made all your payments on time?
3. Have you had any credit issues in the recent past?

If you have a good credit score, pay on time and in full and have no recent credit issues, you might get that interest rate reduction without any harmful side effects. But if you have any issues, asking for an interest rate reduction may actually cause more problems than it solves.

image source: Wikimedia Commons

We hear a lot about credit scores and how important they are. Indeed, you can’t get a loan with out one, and in some cases you may not be able to get a job or an apartment. Some insurance companies will adjust your premium based on your credit score, and the interest rate you end up with on a loan depends on your credit score. Unfortunately, you may not know which credit score is being used. Because there are numerous credit scores — all of them using slightly different criteria and formulas to boil down your financial history into a single number.

Each of the credit reporting bureaus has its own credit score, which is different from the FICO score issued by the Fair Isaac Company. Lenders may choose any of these to use. Depending on the company, your score may differ by between 5 to 20 points. Mortgage lenders usually pull all three scores from bureaus and use the middle one. When we applied for our mortgage loan, I had a 705, 717 and 720. On top of these differences between the major credit bureaus, it is worth noting that auto finance scores may be different, developed by “specialists” in that industry to measure different aspects of your financial history.

Even though your credit score varies according to the issuer, there are some things you can do to help improve your credit score across the board:

• Make payments on time.
• Reduce your debt load.
• Limit the number of times you request credit.

You can check the TransUnion version of your credit score for free at CreditKarma.com.

image source: Pne via Wikimedia Commons

If you are looking to manage your financial life online, there are 5 Web sites that can help you do just that. Credit Karma’s Ken Lin recommends these 5 financial Web sites that can help you keep track of what’s important to your finances — no matter where you are:

1. Manage your money at mint.com – After just a few minutes of set-up, you can access all of your accounts in one place through a single sign-on, track expenses and project your budgeting needs out into the future. Another good option is wasabi.com.
2. Manage your credit score at creditkarma.com – Credit Karma offers free, unlimited access to your credit score, and useful tools to manage it. Credit is a hugely important component in our lives, whether you’re a student or a homebuyer, your current credit can have effects for 2-7 years into the future. For a full, free credit report, visit annualcreditreport.com.
3. Manage your investments at finance.yahoo.com – Yahoo! Finance offers a free resource for managing all of your investments in a single place online. There are other brokerage-specific Websites where you can manage a portfolio of investments, such as fidelity.com.
4. Manage your taxes at turbotax.com– TurboTax allows users to manage their taxes year-round. It’s amazing what a benefit it can be to have a single place to capture and manage tax information, such as business expenses, IRA contributions and charitable donations, among many other events. Another good option is hrblock.com.
5. Manage your insurance at insurance.com – Car, health, home, and life insurance options can be vast and complex, so it’s one of the things that many of us put on the backburner. But we shouldn’t, as it’s one of the simplest things we as consumers can do to ensure our financial futures. An insurance company that will actually offer better quotes from its competitors: progressive.com.

I’m not a huge fan on online money management. I’m just too old school about the whole online privacy thing. I like to use Quicken for my personal finance needs, and I like Vanguard for my index funds. I have an account at an online broker for my other investments. And my accountant manages my taxes. But I can definitely see how these resources would work for a number of people.

What Web site or programs do you use to manage your money?
image source: Wikipedia

Mortgage interest rates are at historic lows. Many people are thinking about buying or refinancing right now. I know I’ve been thinking about refinancing. But will you really get those low advertised rates? That all depends on the formula your mortgage lender is using, and the kind of financial situation you are in. In order to get the best interest rate, you are most likely to need the following:

• Credit score of at least 740
• 20% equity (if you are refinancing)
• Low debt to income ratio
• Conforming loan amount (below $417,000)
• Pay a point or two up front
• Getting out of the HELOC (if you are refinancing)

You can still buy or refinance if you don’t meet the above conditions, but you may not get the interest rate that you would like. Instead, you may find yourself with a higher interest rate. Shop around and talk to mortgage lenders about your options, and what they can offer you. Hint: Try smaller local banks and regional banks first. They are more likely to lend the big guys that have sustained heavier losses due to the financial crisis and mortgage market meltdown.

image source: sxc.hu