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Understanding How Credit Scoring Models Work

Credit scoring is a system used by lenders to help determine a consumer’s creditworthiness, the terms they will be offered and the rate they will be charged for the loan. There are over 100 different credit scoring models, each one using a different formula to review your credit history and calculate a 3-digit score.1 While consumers don’t get to choose which credit scoring model a lender uses, it can be helpful to understand how the system works.

The most familiar credit scoring model is the FICO® Score, which is used by many lenders to determine if a borrower will fulfill their financial obligations. FICO® Scores are calculated from the following five categories.2

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fiscal fitness

Fiscal Fitness Part III — Using Lessons Learned About Physical Fitness

Fiscal fitness has more in common with physical fitness than one might think. Many financial experts draw parallels between the two by using well-known elements of diet and exercise programs to illustrate how consumers can get their finances in order. In his blog post titled Eliminate Debt with 10 Successful Diet Principles, Leo Babuta, the creator and writer of says, “Debt dieting and weight dieting are exactly the same. Personally, I’m doing both, and it’s striking how similar the two practices are.”1 They both involve setting goals and having the dedication to stick with what you’ve started. Both also require you to change your habits — whether that means eating a healthier diet to stay physically fit or trimming your excess spending to reach fiscal fitness. And there’s no quick or easy way to accomplish either, especially if you want to maintain fitness.

Here are a few principles of successful physical fitness programs and how they equate to building a stronger, healthier financial situation.


1. Set up a training regime = Write down your goals in detail.

In fitness training, you don’t just say, “I’m going to lose 30 pounds.” You need to go into detail about the changes you will make to your diet and lifestyle. Similarly, as you’re building your fiscal fitness, you need to define exactly how you will reach your goals.

Is your goal to pay off  your credit card debt? Or to get your credit history in order so you can buy a house? Maybe you want to move beyond living from paycheck to paycheck. Whatever your goals are, it’s important to list them and come up with specific ways to achieve them. Solutions might include: “On every payday I will put $50 toward my credit card balance.” Or, “I’ll start making my coffee at home rather than spending $5 every morning at the coffee shop.”

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Best practices for your tax refund

How Will You Spend Your Tax Refund?

If you’re waiting for a tax refund, chances are you already have some ideas of your own. For the past few years, the average tax refund in the U.S. has been around $3,0001. That’s a sizeable amount for most of us, but before you spend it all in one place (like a dream vacation), you might consider other options that could be better for your finances in the long run. After all, your refund is not free money from the IRS. It’s your money being given back to you.

A recent Edward Jones survey2 found the following about how respondents planned to use their tax refunds this year:

- 52% — Necessary items like groceries or credit card bills

- 30% — Save

- 8% — Something fun

- 8% — Investments

- 2% — Not sure


Though we don’t really know what people actually do with their refunds, maybe their stated intentions are a good place to start with suggestions.


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Build your savings

Ways To Start Building Your Savings

With 40% of Americans saving less this year than last, building your savings can seem like an almost impossible task when there are bills to pay and your income doesn’t increase at the same, or a greater rate, as your expenses. But as part of a routine, finding ways to save money helps you to really think through your routine spending habits and can offer an opportunity to learn new habits that might provide better long-term financial outcomes.


There are countless ways to save, but these few suggestions offer a good place to start:


  • Create a place or places to put your savings — If you don’t have a savings account, you should open one. Some people open more than one savings account to help them set different savings goals (i.e.; vacation, holidays, education, etc.). Even a piggy bank can suffice if you don’t want to open a savings account. The idea is to have a repository for your saved dollars and a tangible savings location that allows you to see the results of your efforts ongoing and whenever you’d like.

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Credit Reporting Agencies

Fiscal Fitness Part II — Understanding the “Big Three” Credit Reporting Agencies

This second article in our Fiscal Fitness series outlines the basics of how the “big three” credit reporting agencies (CRAs) work. Understanding how CRAs impact your credit score is another great step to take in keeping your credit in shape.

1. Who are the credit reporting agencies?

The three largest U.S. credit reporting agencies— Experian, TransUnion and Equifax — are known as the “big three.” Their two-fold function is to collect information about consumers and report it to lending institutions and other creditors upon request. CRAs are mysterious entities to many consumers. You know they exist and how they can affect you. But how can you work with them and take an active role in maintaining a good credit score?

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Fiscal Fitness Part I – Getting Your Credit In Shape

The list of things we “should” do is always growing, isn’t it? You should get more sleep, drink more water, and work out more. You should give up soda, call your mom more often, and volunteer for a charity. Our already over-busy lives are full of good intentions that never get done, but fiscal fitness is something we should all tackle. Getting a handle on your finances can have a big affect on many other areas of your life including your relationships, health, and work (just to name a few). Though the challenge of getting fiscally fit might seem daunting when you first start, it’s really not that difficult if you break it down into smaller pieces.

 1) Evaluating your credit – Identifying your weaknesses

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