Liz Pulliam Weston is the most-read personal finance columnist on the Internet, according to Nielsen//NetRatings. Her twice-weekly columns for MSN Money reach more than 12 million people each month. She’s also the author of the question-and-answer column “Money Talk,” which appears in the Los Angeles Times and other newspapers throughout the country.
Weston appears regularly on television and radio, including NPR’s “Talk of the Nation” and “All Things Considered,” American Public Media’s “Marketplace Money,” and “Fox Business.” For several years, she was a weekly commentator on CNBC’s “Power Lunch.” Her advice on credit and finance has been featured in Consumer Reports, Elle, O the Oprah Magazine, Parents, Real Simple, Woman’s World, the Boston Globe, the Chicago Tribune, Associated Press, and numerous other publications. The first edition of her book Your Credit Score was selected as “recommended reading” by The Wall Street Journal Online.
Formerly a personal finance writer for the Los Angeles Times, Weston has won numerous reporting awards. She was part of a three-member writing team that won a Gerald Loeb Award for coverage of the Comparator Systems penny stock scandal in 1997. She was also a member of the Anchorage Daily News team that won a Pulitzer Prize for Meritorious Public Service in 1989 for coverage of the alcoholism epidemic among native Alaskans.
She is the author of the books Easy Money: How to Simplify Your Finances and Get What You Want Out of Life (2007, FT Press) and Deal with Your Debt: The Right Way to Manage Your Bills and Pay Off What You Owe (2005, Pearson Prentice Hall). Her advice on budgeting is featured in The Expert’s Guide to the Baby Years (2006, Clarkson Potter).
Weston is a graduate of the certified financial planner training program at University of California, Irvine. She lives in Los Angeles with her husband and daughter. She can be reached via the “Contact Liz” form on her Web site, www.asklizweston.com.
Your Credit Score
Your Credit Score, Your Money & What’s at Stake: How to Improve the 3-Digit Number That Shapes Your Financial Future
Introduction to the Updated Edition
“In recent years, a simple three-digit number has become critical to your financial life.”
That is the sentence that opens Chapter 1 of this book. In previous editions, the statement was a surprise to many readers.
Although most people had heard of credit scores, I’d found relatively few really understood the pervasive impact these numbers have in our financial systems and our day-to-day lives.
Now, their impact is obvious, thanks to the financial crisis that began in 2008.
In the years leading up to the implosion, lenders that had once used credit scores as a factor in their decisions started to rely on them almost exclusively, ignoring other important details such as the borrower’s income, assets, job stability, and other debts.
Lenders made riskier and riskier loans thanks to their over-reliance on credit-scoring formulas. Wall Street encouraged the gambles by snapping up massive bundles of this toxic debt and selling them to investors. Financial firms compounded their exposure with complicated financial instruments, including derivatives and credit default swaps.
As mortgage defaults rose, the effects boomeranged through the financial industry. Suspicion spread that banks and Wall Street firms were hiding the true impact of bad loans on their bottom line, causing investors to bail and once-chummy firms to stop lending to one another.
The credit crisis quickly became a conflagration that spread throughout the global economy, destroying Wall Street behemoths and leading to unprecedented government interventions and bailouts.
Yet this calamity didn’t undermine the importance of credit scores for consumers. They’re more crucial than ever.
As the crisis grew, the world split into two, with one set of rules for the credit “haves” and another for the “have nots.”
People who didn’t have good credit scores saw their options dwindle as the lenders that once courted their business were forced into bankruptcy. The banks and credit card issuers that remained grew wary of taking any risk, particularly with borrowers who had trouble paying their bills in the past.
By mid-2008, for example, auto lenders were approving fewer than one in four applications from would-be car buyers with bad credit. A year earlier, those lenders had approved two out of three borrowers with the same poor scores.
Rejection rates soared for mortgages and other loans, as well. Credit card issuers began raising rates and lowering limits first on their highest-risk customers, then on those with better credit.
But people who had the highest scores still had plenty of options.
Lenders need to make loans to make money, so they concentrated their efforts on the people most likely to pay them back. Credit card issuers, in particular, continued to pelt these desirable consumers with low-rate offers. Savvy borrowers quickly discovered that if their current issuer wouldn’t rescind a rate increase or restore a credit limit, they could just go to a competitor.
Other kinds of lenders eagerly catered to this low-risk crowd, as well. Folks with high scores could still secure low-rate car loans, private students loans, and mortgages (even though home loans generally required higher down payments than in the recent past).
Lending standards may loosen as time passes, but they’re unlikely to return soon to the anything-goes excesses that triggered the financial crash. So while credit scores won’t be the only factor in lenders’ decision making, they’ll retain a major role in who gets credit and how much it costs.
So—now more than ever—knowing how to fix, improve, and protect your credit score are essential skills for successfully navigating your financial life.
“A great credit score can help you finish rich! Liz Pulliam Weston gives solid, easy-to-understand advice about how to improve your credit fast. Read this book and prosper.”
—David Bach, bestselling author of The Automatic Millionaire
and The Automatic Millionaire Homeowner
“Excellent book! Insightful, well written, and surprisingly interesting. Liz Pulliam Weston has done an outstanding job demystifying an often intimidating and frustrating topic for the benefit of all consumers.”
—Eric Tyson, syndicated columnist and bestselling
author of Personal Finance for Dummies
“No one makes complex financial information easy to understand like Liz Pulliam Weston. Her straight-talk and wise advice are invaluable to anyone with a credit card or check book— and that’s just about all of us.”
—Lois P. Frankel, Ph.D., author of Nice Girls Don’t Get the Corner Office
and Nice Girls Don’t Get Rich
“In a country where consumers increasingly pay more when they have bad credit, Liz Pulliam Weston’s book provides excellent tips and advice on ways to improve your credit history and raise your credit score. If you just apply one or two of her insightful suggestions, you’ll save many times the cost of this book.”
—Ilyce R. Glink, financial reporter, talk show host, and bestselling author
of 100 Questions Every First-Time Home Buyer Should Ask
“Your credit score can save you money or cost you money—sometimes a lot of money. Yet, most people don’t even know their scores, much less know how to make them better. Liz Pulliam Weston can help you fix that. In this easy-to-understand guide you’ll learn how to make sure your score helps you get the best deal on loans and insurance. You can’t afford not to read it.”
—Gerri Detweiler, consumer advocate and founder of UltimateCredit.com
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