Tuesday, January 29, 2013

How is your Credit Score Calculated?

Until recently, people mostly were able to spend money only if they have them. With ability to borrow money through credit cards, mortgages, student and personal loans, people got the clear opportunity to spend money they do not have – borrowed money, paying certain percent for this use.

Why you Need Good Credit History?

When you lend money yourself, you will not give it anyone who will ask for that. The organizations, which will provide you with loan, will be even more sensitive, choosing the reliable people and getting the adequate conditions. For those who look more reliable, the financing conditions will be essentially better, than for those who may become a burden over time, not able to pay back.

So, a good credit history will benefit you in almost any major purchase that requires financing - buying a home, getting an auto loan, or setting up a business. When lenders review your credit history information, your credit score plays a big role in setting your interest rates and repayment terms. If your track record of building credit history is excellent, your efforts will save you money on interest charges. The same rule applies to insurance coverage; a high credit score means lower monthly premiums.

Landlords will use your credit history to gauge how likely you are to pay your rent on time. Phone companies and cable service providers examine your credit history to determine if you'll be a responsible customer.

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Who Defines your Credit Score?

There are many credit reporting bureaus in the US, of which the three main ones are Experian, Equifax and TransUnion. These bureaus maintain a credit file of every person who has ever borrowed any kind of credit. All your credit information, bank account information, loans, payments, etc. is contained in the credit file.  On the basis of this information, a credit score is calculated as simple numerical prediction of our creditworthiness.

Although there are many different types of credit scores, the most important is the FICO credit score.  This is the credit score that is used by the 3 leading credit bureaus in the country and it is also the credit score which the majority of the lenders look at to determine your credit worthiness.

The Fair Isaac Corporation (FICO) first developed the formula to calculate a person’s credit score based on their credit information. Since then, the FICO credit score has been accepted as the most official credit score in the US. Although there are other credit scores, none come close to the FICO score in terms of authenticity, correctness and nationwide acceptance.

A FICO credit score is a three digit number which can be anything between 300 and 850. A score in excess of 760 is considered to be an excellent credit score. Scores ranging from 700 to 759 are good, those ranging from 650 to 700 are average, and below 650 are low credit scores. Don’t feel bad if you are on the low end of excellent. Scores of 800 or higher are extremely rare. Even so, the median score is around 720, meaning half of all people have scores higher than 720.

Note that the same information, received by three competing credit bureaus, can produce different results, since the credit score calculation algorithm is slightly different. Each lender or credit issuer can choose whom it asks for your credit history. If several of your applications result in credit pulls from Equifax, your credit report and score may look different than one from TransUnion. Each bureau also manages your details separately from the others, so if there is a blemish on your credit report that needs to be fixed, you need to follow up with each bureau to make sure it has accurate information.

What are the Factors Affecting Credit Score?

While Fair Isaac and all credit bureaus keep the score calculation algorithms as top trade secrets and never reveal the exact formula, there is the following indication disclosed of what factors influence the score and what the weight of each of these factors is:
·         35% - Payment History. Not surprisingly, the biggest chunk of the score is your record of timely payments. If you pay your bills on time, you’re likely to continue paying your bills on time in the future as well. In brief, any late payments of 30-days late or worse can show up here, although a 60-day late or a 90-day late delay will have even bigger negative impact. If you just barely miss a due date and pay it off within 30 days, it shouldn’t show up here.
·         30% - Credit Utilization. This refers to the trend of how much of your available credit you are using, the value also known as utilization ratio. From the creditability perspectives, the lower the better. Being maxed out on all your cards is obviously not a good sign. Utilization ratio is tracked both on an overall level and on a per card level. For example, having five different cards with a $1,000 balance each and $10,000 credit limit each (10% ratio x 5 cards) is better than having 4 cards with no balance and one card with the $5,000 balance (50% ratio on 1 card). On the long run, having more credit cards would be a good thing as it should mean more available credit and a lower utilization ratio.
·         15% - Length of Credit History. The longer your credit history is, the better. Both the age of your oldest account and the average age of all your accounts are tracked. Continuously opening new credit lines may thus hurt your credit score. At the same time, having a lot of old cards can “anchor” your average account age as well. If I already have 20 cards averaging 8 years old, adding another new credit card won’t make that average budge hardly at all. The closed account will stay on your credit report for 10 years.
·         10% - Types of Credit Used. This factor refers to the mix of different credit accounts out there – revolving credit like credit cards, retail accounts (store cards), installment loans like auto loans, and home mortgages. Having a greater mix is better. However, due to the lesser weight of this factor, you should not deliberately open store cards, take auto loans, and buy new houses with mortgage, unless you really need this kind of the financial activities.
·         10% - Past Credit Applications. This low weight factor comes into play when you are working on some important financial operation, for example, shopping for refinancing, or purchasing a new real estate, or shopping for extra credit cards. This factor is taken in consideration because multiple inquiries and applications in a short period of time may represent an indication of existing or expected financial troubles. Therefore, you should be very careful with what are called “hard” credit inquiries. Hard credit inquiries (“pulls”) are usually from loan applications (asking for more credit). Soft credit inquiries occur when you are just checking your own credit score, or when other financial companies check your credit history as identity verification or for pre-approval offers. Hard pulls affect your credit score negatively for a temporary period of time. For mortgage and auto loans, there are special accommodations by FICO for “rate-shopping”; all hard inquiries within a 14 day period for mortgages or auto loans will only count as one inquiry. In regards to apply for new credit cards, it’s difficult to know the effect of a hard inquiry by itself, as a new credit card account will also affect the other factors above (average age of accounts, credit limits, and utilization ratio). For someone with a longer credit history, a new credit card application will have little effect. For someone with zero credit cards, it will have a larger effect. The general consensus is that each hard pull knocks about 3-5 points off your credit score, and the effect decreases as time passes – after 6 months the effect is reduced, and after a year it is gone. The recording of inquiries does stay on your report for 2 years.

What is Better: No Credit or Bad Credit?

The common sense says that people with bad credit should have a lot more hard times getting loans with bad credit. Bad credit tells bankers, loaners, etc. that your credit worthiness is not good enough for them. People with no credit should have a better chance because they have no negative reports against them.

However, the financial specialists often claim that the common sense does not work here. They think, a bad credit is better than no credit. Bad credit means that you were extended and trusted at least at one point in your life. Bad credit score could also mean that you're paid off, but the bad history of the past is still weighing your score down. Depending on your current credit situation, you'll probably get extended another loan or card...your rates will stink, but you'll get one. Also, bad credit shows that the application you filled out is probably not filled with any fraudulent information and they will have some way of being able to get a hold of you.

NO credit may be riskier for creditors because they have absolutely NO track record to what the person's character is. With no credit or anything on your report, how do they know that none of the info on the application is good or bad? Someone with no credit is going to have the higher interest rate from the beginning.

How to Fix Bad Credit?

·         Pay all bills on time or ahead! To help simplify the process, once you get paid, pay all the bills that are due between then and your next paycheck. Allow time for the mail and processing. 

·         Learn to live on your take-home income. This means if you do not have the money, don't buy it. In other words, do not add to your existing credit balances.

·         Pay all charged-off accounts that appear on your credit report. A paid charge-off is much better than just a charge-off. 

·         Create a realistic plan to allocate a portion of your income to pay off large credit card balances. A high debt-to-income ratio could be causing you to lose points on your FICO score.

·         Give it some time. Most creditors look at your most recent credit history (last two or three years).

How to Fix No Credit?

·         FICO developed the Expansion score to help new-to-credit borrowers. It looks at information not included on a regular credit report, including utility and rental payments, payday loans and use of a checking account. Ask your lender if they use the Expansion score.

·         Apply for a secured credit card. A savings account secures the card in case of default. 

·         Once you have used your secured card for several months, apply for an unsecured credit card. You may have the best luck with a retailer or with the same bank from which you received the secured card. 

·         Your credit history measures all types of credit accounts, so you may want to establish a longer-term installment loan for a car or some other large purchase loan, such as furniture, with pay-back terms of longer than one year. 

·         To avoid problems, never borrow without knowing how and when you will be able to pay off the balance. Also, you should establish an emergency savings cushion for those times when life throws you an unexpected curve.

Sources and Additional Information:

Friday, January 25, 2013

Most Russians Support Putin in Adopting the Anti-Gay Law

Such widespread propaganda of homosexuality negatively affects the formation of a child’s personality, blurs its ideas of the family as the union of a man and woman, and in fact creates grounds for limiting the freedom of choice of sexual preferences when it grows up.

Defense Statement for Legislation

Russia’s parliament backed a draft law January 25, 2013, banning “homosexual propaganda” in the country. Critics see this act as an attempt to get up public support for President Vladimir Putin in the country’s largely conservative society and stir the opposition to fight quite unpopular causes (as viewed by general public).

Only one deputy in the State Duma lower house voted against the bill.

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The law would make the “promotion of homosexuality among minors” an administrative offence in federal law, with fines of up to 500,000 rubles (US$ 16,200).

Veteran human-rights campaigner Lyudmila Alexeyeva described the draft law as “medieval” and said it was intended to appeal to conservative voters after months of protests that have sapped Mr. Putin’s popularity. Public approval for Putin, who is now 60, stood in January at 62 percent, the lowest level since June 2000, an independent pollster said yesterday.

The legislation has served to deepen divisions in society since Mr. Putin returned to the presidency in May and began moves seen by the opposition as designed to crack down on dissent and smother civil society.

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Translation from Russian: “Homosexuality is not a perversion; perversion is a hockey on the grass and ballet on the ice!”.

During the process, Mr. Putin and his supporters have underlined what they see as conservative, traditional Russian values.

He has drawn closer to the Russian Orthodox Church during this time, hoping the support of one of the most influential institutions in Russia will consolidate his grip on power.

Homosexuality, punished with jail terms in the Soviet Union, was decriminalized in Russia in 1993, but much of the gay community remains underground and prejudice runs deep.

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Anti-gay propaganda laws are already in place in Arkhangelsk, Novosibirsk and St. Petersburg, Mr. Putin’s home city. A Russian court in November rejected a $10-million compensation claim against U.S. pop star Madonna by a group of anti-gay activists who accused her of hurting their feelings by promoting homosexuality at a St. Petersburg concert. Although a court rejected that case, a local politician from Putin’s ruling Untied Russia party has said he is taking similar action against another singer, Lady Gaga, who is also a defender of lesbian and gay rights.

Today, about 20 people were detained outside the State Duma, the lower house, after minor scuffles broke out between rival groups of supporters and opponents of the law. The supporters, some of them holding Russian Orthodox icons or crosses, cheered and threw eggs as police hauled away protesters who started kissing. One gay activist was splashed with green paint, witnesses said.

“The police yet again directed their actions with arguably excessive force towards the wrong people. The LGBTI activists were not a threat to anybody; they did not instigate hate or violence. They were there exercising their right to freedom of expression of their feelings towards one another. They are as entitled to this right and protection from violence as everyone else,” commented David Diaz-Jogeix, Europe and Central Asia Programme Deputy Director at Amnesty International.

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Thursday, January 10, 2013

2062 Years Ago Julius Caesar Crossed the Rubicon

“He [Caesar] himself spent the day in public, attending and watching the exercises of gladiators; but a little before evening he bathed and dressed and went into the banqueting hall. Here he held brief converse with those who had been invited to supper, and just as it was getting dark and went away, after addressing courteously most of his guests and bidding them await his return. To a few of his friends, however, he had previously given directions to follow him, not all by the same route, but some by one way and some by another. He himself mounted one of his hired carts and drove at first along another road, then turned towards Ariminum. When he came to the river which separates Cisalpine Gaul from the rest of Italy (it is called the Rubicon), and began to reflect, now that he drew nearer to the fearful step and was agitated by the magnitude of his ventures, he checked his speed. Then, halting in his course, he communed with himself a long time in silence as his resolution wavered back and forth, and his purpose then suffered change after change. For a long time, too, he discussed his perplexities with his friends who were present, among whom was Asinius Pollio, estimating the great evils for all mankind which would follow their passage of the river, and the wide fame of it which they would leave to posterity. But finally, with a sort of passion, as if abandoning calculation and casting himself upon the future, and uttering the phrase with which men usually prelude their plunge into desperate and daring fortunes, "Let the die be cast," he hastened to cross the river; and going at full speed now for the rest of the time, before daybreak he dashed into Ariminum and took possession of it.”

Plutarchos - Βίοι Παράλληλο (Parallel lives) Caesar XXXII. 4-8

The Rubicon was a relatively minor waterway in northern Italy. It wasn't even very wide. It could easily be crossed on foot by Roman legionaries, slaves, generals, and whoever else might be traveling with a Roman army. But since ancient times, the Rubicon River had marked the northernmost boundary of Rome proper. No Roman general could cross it while at the head of his army as that would be considered treason. Treason was punishable by death. Someone who committed treason would inevitably be hunted down by Roman soldiers and dragged to the Roman Senate, where he would be tried, with the very likely outcome being a guilty verdict and a death sentence.

This day, 2062 years ago, in 49 BC, Julius Caesar did exactly what was deemed illegal, crossing the Rubicon with a legion of his soldiers. Specifically, Governors of Roman provinces (promagistrates) were not allowed to bring any part of their army within Italy itself and, if they tried, they automatically forfeited their right to rule, even in their own province. So, this act of leading his troops into Italy would have meant Caesar’s execution and the execution of any soldier who followed him, had he failed in his conquest.


So, why Julius Caesar decided to take the risk, break the most sacred laws of Roman Empire, and put his life and life of his soldiers under mortal danger? Let’s get back to the historical background.

After Caesar spent 51 BC and the better part of 50 BC touring his newly conquered province of Gaul, political chaos was developing back in Rome. The optimates despised Caesar and his conquests (viewing much of his campaigning as unwarranted and illegal) and looked for every opportunity to strip him of his command. These conquests not only brought in a great number of slaves, but brought so much monetary wealth into Rome, that the value of gold was actually reduced by as much as 1/4 or even 1/3 of its value before the wars. However, that was only one small piece of the puzzle as Caesar managed to make numerous powerful enemies in Rome. Caesar's original Consulship in 59 BC was one in which he not only acted against the central power interests, but openly opposed to the law and political custom. Such actions were destabilizing and dangerous for the health of the Republican system.

Therefore, the government in Rome was looking for mere opportunity to prosecute Caesar for a variety of reasons, including conducting an illegal war into Germania that the Senate never authorized. In fact, many argued that the protection of Cisalpine Gaul and Narbonensis didn't require the war that Caesar conducted in the larger part of Gaul in the first place. Prosecuting Caesar, whether the goal was death, exile or just a symbolic limitation of his power, would prevent his re-establishment of the populares agenda that he so masterfully manipulated previously. The years 50 and 49 BC were pivotal because during this time frame, Caesar's 'imperium' or safety from prosecution was set to expire.

So, Caesar was actually took a great risk and put himself in danger, but the point is that he was in danger already, and he preferred military fight to the legal battles in Rome, where his positions were much weaker than of his opponents. So, his options were to lay down his imperium and get buried by his enemies in Rome or to march on Rome with his troops and take the place over. He chose the latter, and not without precedent, Sulla having done much the same a couple of decades earlier.

Caesar at the Rubicon

According to the historian Suetonius, Caesar wasn’t at first sure whether he’d bring his soldiers with him or come quietly, but he ultimately made the decision to march on Rome.

Caesar stood for some time upon the banks of the stream, musing upon the greatness of the undertaking in which simply passing across it would involve him. His officers stood by his side. "We can retreat now" said he, "but once across that river and we must go on." He paused for some time, conscious of the vast importance of the decision, though he thought only, doubtless, of its consequences to himself. Taking the step which was now before him would necessarily end either in his realizing the loftiest aspirations of his ambition, or in his utter and irreparable ruin. There were vast public interests, too, at stake, of which, however he probably thought but little. It proved, in the end, that the history of the whole Roman world, for several centuries, was depending upon the manner in which the question new in Caesar's mind should turn.

First testing the loyalty of his men, (he only had the 13th legion with him at this point) he gave a stirring speech pointing out the wrongs done to him (and the tribunes). With the clear support of his men Caesar added, "Even yet we may draw back; but once across that little bridge, and the whole issue is with the sword." He is then reported to have muttered the now infamous phrase, from the work of the poet Menander, "Alea iacta est", quoted as "Let the die be cast" or "Let the dice fly high."

“The soldiers of the thirteenth legion, who were present, and whom he had sent for in the beginning of the troubles, (the rest not being yet arrived,) cried out, that they were determined to maintain the honour of their general, and to revenge the wrongs done to the tribunes.” (Caesar - Commentarii de Bello Civili I.7)

As soon as the bridge was crossed, Caesar called an assembly of his troops, and, with signs of great excitement and agitation, made an address to them on the magnitude of the crisis through which they were passing. He showed them how entirely he was in their power; he urged them, by the most eloquent appeals, to stand by him, faithful and true, promising them the most ample rewards when he should have attained the object at which he aimed. The soldiers responded to this appeal with promises of the most unwavering fidelity.

End of Republic

Shortly after the news hit Rome that Caesar was coming with an army, many of the Senators, along with the consuls G. Claudius Marcellus and L. Cornelius Lentulus Crus, and Gnaeus Pompeius Magnus, a.k.a. Pompey (Caesar’s chief rival for power who was supporting the Senate), fled Rome.  Somewhat humorously, they were under the impression that Caesar was bringing nearly his whole army to Rome.  Instead, he was just bringing one legion, which was largely outnumbered by the forces Pompey and his allies had at their disposal.  Never-the-less, they fled and after a four year struggle, Caesar was victorious and Pompey fled to Egypt where he was assassinated. Caesar then became Dictator Perpetuus of Rome. This appointment and changes within the government that happened in the aftermath ultimately led to the end of the Roman Republic and the beginning of the Roman Empire.

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