How to Avoid Bankruptcy in Retirement

bankruptcy in retirement

Bankruptcy filings for retirees are rapidly increasing across the US. As poorly funded pensions and retirement savings shrink, retirees look to bankruptcy to put a stay on some of their monthly payments. Rising healthcare costs, adult children living at home for longer, and the financial inability to properly save for a retirement that extends into longer lifespans have all contributed to the rising senior bankruptcy rate. How can you avoid this trend and spend your golden years in peace? Here we look at a few ways to make sure you aren’t filing for bankruptcy after retirement.

1. Settle Your Debts

Regardless of how much you have invested into your retirement, if you’re carrying a mountain of debt into retirement you could end up financially strapped pretty quickly. Paying off as much debt as possible before retirement should be your number one goal. High interest credit cards are the most important to pay off, followed by your mortgage and car payment. The less debt you carry into retirement, the more money you will have to cover your living expenses. If you are struggling to tackle your debt and you are approaching retirement, sit down with a debt negotiation attorney to figure out what your options are.

2. Be Clear with Children and Other Family Members

It is very tempting to be generous with family members and other loved ones. However, you need to be realistic about when you can actually afford to help and how much this will impact your retirement savings plans. Parents should not feel obligated to pay for college, a wedding, or other big life events if they do not have the means to do so. The best thing to do is communicate these financial boundaries early. Adding more debt to your plate in order to help a family member can be disastrous for seniors looking at retirement. After all, if you do not prioritize your financial health over that of your loved ones, you could end up becoming a financial burden to them later on.

3. Downsize

Retirement comes with a lot of big life changes. More leisure time, the freedom to travel, and the ability to explore new hobbies come hand-in-hand with some harder lifestyle changes. With the inevitable reduction of income in retirement, retirees often find they cannot afford to keep up with their day-to-day expenses. Buying a smaller home or renting and downsizing to one vehicle instead of two or three can help you establish a leaner budget before retirement. This should make it easier to embrace a reduced retirement income.

4. Be Smart About Social Security Benefits

The biggest concern most people have about retirement savings is running out of money. Getting a part-time job to boost your retirement portfolio can help buoy your finances in retirement. Most retirees need about 80% of their pre-retirement income to maintain their lifestyle. Your Social Security benefits will mirror the average of your pre-retirement wages. It is important to keep in mind that your social security benefits will likely not cover even half of your retirement expenses. The longer you can go without tapping into social security, the better your financial situation will be in retirement. Even if you have the option to start using your Social Security, only do so when it is absolutely necessary.

5. Invest!

The shakiness of the market over the last two decades has many Americans making uber conservative investment decisions about their retirement. Investing doesn’t have to be scary. In order to keep up with cost of living adjustments and to give yourself a generous nest egg to work with in retirement, it is important to invest savings into a diversified portfolio of common stocks. Especially if you are a few decades away from retirement, it is a good idea to use the time you have to put your assets into money market funds. Investing your money, as opposed to letting it sit in a bank, can make all the difference for your funds in retirement.

Many seniors and those approaching retirement age have anxieties about the financial realities of retirement. Veitengruber Law can provide the services you need to establish a robust retirement plan. From asset protection and debt management to bankruptcy litigation, we can help you get the peace of mind you need. We also work with a diverse network of professionals who can help you invest, downsize, and make a comprehensive retirement plan that will be effective. Don’t wait until you are enjoying your golden years to have second thoughts about your retirement plan. Take action today to secure your financial future.

What is the Roth IRA 5-Year Rule?

roth ira

Retirement plans are not a one size fits all deal. There are many different options for saving, investing, and insuring your golden years. The Roth IRA has been a longtime favorite for retirement savings because of the tax-free withdrawals people can enjoy during retirement. But as with any kind of tax break, it is important to pay close attention to the fine print. Not every withdrawal from your Roth IRA will be tax-free. Many people with a Roth IRA don’t know about the five-year rule. This rule requires those holding a Roth IRA to wait five years before making tax-free withdrawals from their investment earnings. Before you consider investing in a Roth IRA, you need to know how the five-year rule is applied and how it will impact you as an investor.

Once you make your first Roth IRA contribution, you will need to wait five tax years before you can withdrawal your earnings from this account without being subject to taxes. This five-year period applies across the board no matter the status of the account owner. If the owner were to pass away, the beneficiary would also be expected to wait the full five-year waiting period before taking out any earnings tax-free. It is important to note that the five-year rule only applies to investing earnings, not direct contributions. Any money you put directly into your Roth IRA is considered an after-tax contribution and is available to take out before the five-year waiting period is over. You can always remove direct contributions, but the earnings you make off of these contributions must follow the five-year rule.

Even after five years have passed, you will still need to meet specific criteria to make a tax-free withdrawal. To avoid taxes and penalties, you must be age 59 ½ or older to withdrawal earnings from your Roth IRA. There are some circumstances that may allow you to make early withdrawals from the account without penalty. If you are disabled or intend to use the withdrawal for a big life circumstance, like buying your first home, you may be able to take a distribution without paying taxes or fees. Inherited Roth IRAs still follow the five-year rule from the date of the original account owner’s first contribution, not the date of inheritance.

The five-year period goes by tax years, not calendar years. This means you could make a contribution on the last day of a tax year (the day before your income taxes are due) and the contribution will count for the previous calendar year. This can shorten the waiting time to make a tax-free withdrawal by one year. For instance, if you make a contribution to your Roth IRA the day before your taxes are due in 2020, the contribution will count toward your 2019 tax year. Therefore, you will be eligible to make a tax free withdrawal of earnings in 2024 instead of 2025.

The clock starts with your first contribution to any Roth IRA. Once you get through the five-year requirement for one Roth IRA, any additional Roth IRAs will also be considered “on hold” for five years. Since the five-year waiting period can be applied across other accounts, the earlier you start contributing to a Roth IRA, the less likely you are of running into problems with the five-year rule. Start making contributions well before you plan on needing to make a withdrawal.

A Roth IRA is a great way to save for retirement. Understanding the tax rules surrounding your Roth IRA can help you make the most of your contributions.

Tips for Estate Planning After Divorce

Getting through a divorce can be rough. Divorce is expensive, time consuming, and emotionally draining. While it might seem daunting to add another task to the list of decisions you need to make, re-working your estate plan after a divorce is very important. While a divorce is ongoing, your current spouse will maintain some rights. Your goal is to keep as much control over your assets while still meeting your legal obligations. After divorce, it is a good idea to go through your estate plan and make necessary changes. Here are five important estate planning changes to consider after a divorce.

1. Health Care Proxy

Your health care proxy is the person who will be making big health care decisions for you in the event that you become incapacitated. By default this is often your spouse, but you may even have a signed health care proxy indicating your spouse as the person in charge of these decisions. You should change your health care proxy as soon as you can to ensure someone you truly trust is making these major medical decisions for you.

2. Power of Attorney

A power of attorney allows someone to act on your behalf for all legal or financial matters if and when you cannot do so yourself. If you had an old power of attorney document naming your ex-spouse, you should get it revoked and if necessary provide notice to your ex-spouse. You will also want to execute a new power of attorney wherein you name a relative, trusted friend, or legal advisor as your designated agent for your assets. Especially if a divorce is not amicable, you will want to do this as soon as possible.

3. Guardianship

This can be tricky. In the event of your death, your ex-spouse would very likely become the guardian of any minor children you share. You can choose to name them as the guardian in your will, but if there is a question of your ex’s fitness as a parent, things can get a little more complicated. You can name someone other than your ex-spouse as the guardian of any minor children. However, should your former spouse seek custody after your death, your designated guardian will need to prove in court that the ex-spouse is unfit. This often means leaving behind a sum of money for your designated guardian to cover litigation costs.

4. Will and Trustee

If you do not want to leave anything to your former spouse, it is important to remove the provisions for such from your will. If your ex is listed as the executor or trustee of your will, you will need to change this. You need to make sure he or she does not receive any of your assets and has no control over your will once you’re gone. In addition to this, if you are designating a minor child as the recipient of any of your assets, your ex will have control of your child’s finances until they turn 18. To avoid your ex-spouse gaining access to this money, you should set up a revocable trust naming someone of your choosing as the trustee to access these assets on behalf of your children.

5. Beneficiary Designations

People often forget about their beneficiary forms. Make sure that your 401(k), IRA, and life insurance beneficiary designation forms are consistent with the terms of your divorce agreement. If you do not make these changes, it can lead to litigation troubles for the person who should be receiving these benefits in the event of your death. Even if you still want your former spouse to remain the beneficiary, you should update this designation after the date of divorce and leave a letter explaining your intentions.

If you have recently gone through a divorce, one of the first things you need to do is get your divorce agreement into the hands of your estate planner. They will be able to ensure you are meeting your legal and financial obligations to your former spouse while still protecting your assets. Veitengruber Law provides full asset protection and estate planning services, and our personalized strategies can help you plan long-term for all stages of life.

How Debt can Impact Your Mental Health

Debt impacts almost everyone to some degree. A mortgage, a car loan, student loans, credit card debt, medical expenses—once everything is added up, debt can be overwhelming for some people. Unmanageable debt has obvious financial impacts, but owing money can have a major negative effect on your mental health.

In a 2017 survey by the American Psychological Association, 62% of Americans indicated money as a “significant stressor” in their lives. Financial uncertainty, overwhelming debt, or a major economic event can increase stress and cause many mental and emotional side effects, like: guilt, shame, denial, resentment, anxiety, anger, fear, insomnia, panic attacks, substance abuse, high blood pressure, and even suicide. There are many different circumstances that can lead to debt-relate stress. Divorce, illness, and a change in employment status are all factors that compound mental health issues related to debt. The bottom line is that not having enough money to pay bills can significantly impact mental and emotional wellbeing.

Whatever the cause for your debt-related stress, here are 6 ways to manage your stress and work on creating a healthier financial life:

1. Admit the Problem

Sometimes, just admitting to yourself that you have a debt problem can be powerful. It can be easy for people struggling with anxiety and depression to ignore the root cause of their mental and emotional turmoil. Ignoring the underlying issue will only make it harder for you to get the help you need to tackle your debt and, in turn, improve your mental health.

2. Get Professional Support

If your mental health symptoms are impacting your ability to function as you want to, it may be time to seek the help of a qualified professional. Especially if you are experiencing anxiety or depression, it is important to talk to someone about your debt-related stress. Be open and honest with a therapist about your financial situation.

3. Get Your Finances in Order

Face your debt head on. Gather all your financial information together in one place so you can get a clear picture of your debt situation. This can seem overwhelming at first, but once you know how much you owe, you can come up with a plan to work on paying off the debt. Knowing that you have a clear understanding of what you need to do, your stress level will start to diminish.

4. Set Realistic Goals

Every debt situation will be completely different from the next. Your goals for getting out of debt should be based on how much debt you owe and your capacity to reasonably make payments. Achieving a small but realistic goal will encourage you to continue towards bigger goals. Paying down debt can be a long process, so establishing realistic expectations for yourself can improve your outlook as you pay down your debt.

5. Find an Accountability Buddy

People facing a lot of debt can feel isolated from everyone around them. The shame and embarrassment many people associate with debt can cause them to closet their debt issues. Find someone you can trust—a friend, family member, or a debt support group—and be open with them about your debt issues. Ask them to help hold you accountable for reaching your debt repayment goals. Talking about your debt issues can be a huge stress reliever.

6. Work with a Debt Relief Professional

Seeking help from an experienced and trusted NJ debt relief attorney is an excellent step towards financial health and peace of mind. The right experts can help you assess problem areas in your finances and look for solutions fit to your needs. A debt relief attorney can even look into your terms with lenders and utility companies to negotiate for more affordable terms.

Not all debt is bad debt. The decision to take on debt can allow us to get an education, provide a home for our families, or get life-changing medical care. When debt becomes unmanageable, it is not the end of the road. Veitengruber Law provides full-service debt relief solutions that are tailored to each client’s unique situation. Our team has years of experience restoring financial health through debt negotiation. We know how heavily debt can weigh on the hearts and minds of our clients, which is just one of the myriad of reasons why we do what we do!

10 Purchases You Should Never Make with a Credit Card

Credit cards can be powerful financial tools. They offer convenience, the opportunity to build credit, and can act as a loan to buy bigger ticket items. But when credit cards are not used wisely, they can cause a great deal of financial trouble. Overspending can lead to unmanageable credit card debt. To avoid out of control credit card debt, here are 10 things you should never purchase or pay for with a credit card.

1. Mortgage Payments

Most mortgage companies will not allow you to make direct payments with a credit card. If you do find a way to circumvent the rules of your mortgage servicer to make your payment with a credit card, you are asking for trouble. If you cannot pay off your credit card balance in full before your next payment is due, you will be paying for interest on a substantial balance. This added interest, on top of the interest you already pay on your mortgage, means you will end up paying much more for your mortgage payment than you should be.

2. Household Expenses

There are some arguments that favor paying for household expenses with a credit card. These arguments point out the convenience of online payments and credit card rewards. But the risk of paying your monthly home bills with a credit card is that you can easily lose track of your balance. If you go over your credit limit, you could face fees and heavy interest rates, not to mention potential late fees if your card is declined and you cannot pay your bill. Linking your online accounts to your debit card and checking account offers the same ease of payment without the added risks.

3. Medical Bills

The cost of medical care is expensive and many people struggle to pay off their medical debt. Paying for medical expenses with a credit card only makes this situation worse. If you find you cannot pay a medical bill immediately, get in touch with your medical care provider to see if they can set up a payment plan for you. Payment plans through the hospital will likely charge you much less in interest than a credit card issuer.

4. College Tuition

Most schools charge a 2-3% convenience fee for charging payments. If you cannot pay off the bill before interest accrues, you will end up paying even more. If you need help paying your tuition, the interest for student loans are often much lower than for credit cards. Talk to your financial aid department about work study opportunities, grants, scholarships, and other ways that can help you pay for college costs.

5. Wedding Expenses

Big, lavish, Pinterest-worthy weddings are all the rage right now. The average wedding costs $35,000.00. It can be tempting to start charging all your expenses to a credit card to pull off the wedding of your dreams. But unless your dreams also include crippling credit card debt, this is the worst way to budget your wedding. When you’re paying with a credit card, it can be easy to lose track of your budget and spend way more money in interest. It is better to save money ahead of time and start planning once you have enough money put away.

6. Business Startup Expenses

Paying for business expenses or startup costs with your personal credit card can be a recipe for disaster for your new business. It can take years for a business to become profitable, which means you could end up paying high interest on debt you cannot afford to pay back. Instead, opt for a small business loan which tends to have a lower interest rate. Looking for investors can also give you the cash you need up front to finance your startup.

7. Taxes

While you can pay your taxes with a credit card, you will end up paying more money which does not make good financial sense. The payment processing services that handle federal and state tax payments charge between 2-3% for using a credit card on top of a $2-$3 flat convenience fee. If you owe thousands in taxes, your processing fees can really add up!

8. Down Payments

Using a credit card to cover the down payment on your house, your car, or any other big purchase that comes with a loan is a good sign you can’t actually afford the loan. By charging the down payment, you are adding a large cost in the form of interest rates to the sales price of your item. If you find yourself scrounging around for the money for a down payment, you are better off waiting and saving.

9. Big Ticket Items You Can’t Really Afford

A good rule of thumb for credit cards is if you can’t pay it off in full by the end of the month, don’t pay for it with a credit card. This goes for cars, appliances, furniture, equipment, and any other big purchase you can’t afford outright. The interest you will accrue carrying this balance statement to statement will make these purchases more expensive in the long run. If you need to finance these kinds of purchases, look into financing options directly from the seller or loans that will allow you to include these purchases in your monthly budget.

10. Small Indulgences

These are the things you don’t really think about: your morning coffee, a sandwich for lunch, a few drinks with friends. It is convenient to just swipe your card, but without being super careful about your spending, this can lead to an out of control balance. Unless you are taking advantage of some kind of credit card rewards, it is best to pay for these items in cash. This will help you stick to a budget and spend more mindfully.

Reasons Why a NJ Foreclosure Property is a Great Investment

NJ foreclosure

Buying a home is often the biggest investment an individual can make. Depending on where you live and the status of the market at the time, you may face heavy competition for homes in your price range. Including NJ foreclosure properties could widen your pool of potential homes while simultaneously saving you some money. It can seem to some potential buyers that foreclosed homes may be a bad investment. If you get what you pay for, the low prices of foreclosed homes may make it seem like you’re paying for a house with a lot of problems. But foreclosed homes can be a great investment for the right homebuyer.

Foreclosure status on a potential home can mean a lot of different things. In most cases, you will not be able to gather as much information on homes in foreclosure as compared to properties that are simply listed for sale. It is also a good bet that the home is in need of some upkeep, especially if it has been empty for an extended period of time. If the previous owners fell behind on payments, it stands to reason that they may have fallen behind on regular home maintenance as well. This is not always the case though – and every foreclosed home will come with different needs. A foreclosed home could be in perfectly good shape or in need of a substantial amount of hard work.

Pre-Foreclosure

Sometimes, buying a home in pre-foreclosure can be a “best of both worlds” situation. Pre-foreclosure means the home is being sold by the owners to avoid losing the home at Sheriff’s Sale. The owners have likely already received legal notice from their lender, but the foreclosure process hasn’t officially started yet. Sellers who know foreclosure is imminent are facing serious legal and financial consequences; therefore, they are often very motivated.

If you’re lucky enough to find a house just before it goes into the NJ foreclosure system, you’ll have the opportunity to tour the property before making an offer, which doesn’t always happen if you’re buying a foreclosed home at auction. It can be difficult, however, to find these homes or confirm that they are actually on the market. Often, your local newspaper will list foreclosure notices and some real estate websites have filters for “potential listings.” If you’re up for some detective work, or have a NJ real estate attorney with a vast network of real estate agents, you could get a great deal on an awesome property.

Buying a Home at Sheriff’s Sale

Once a home has officially entered the foreclosure process, there are two main ways for you to purchase it. The first is through auction. Banks and lenders prefer auctions because they are an easy, straightforward way for them to recuperate at least some of their losses and get the home off the market. For a potential homebuyer, though, auctions can be a little scary. Buying a home via NJ Sheriff’s Sale means you likely will not be able to see the inside of the home before the day of the sale. Properties are sold as-is in auctions, so you could be taking a huge risk buying a home without seeing it first. Hiring a professional home inspector to accompany you to the Sheriff’s Sale to indicate any potential repairs or major issues is one way to avoid making a huge mistake.

Additionally, you can do some research on your own to help you make an informed decision. Ownership records, building permits, and previous inspections will all be part of public record. Drive to the property yourself and see what you can from the outside. Ask neighbors what they know about the home. You will want all the information you can possibly get to make sure you are making a worthwhile investment.

Direct Purchase from the Lender

The second way to buy a foreclosed home is directly through the bank. Like with an auction, the property will be sold as-is and the seller may not have all the information you would want on important records about house maintenance or potential repairs. Unlike an auction, however, you will have more time to get the property professionally inspected and determine if the repairs are worth the investment. If you choose to go through with the purchase, be prepared for a long wait. Because you are dealing with a corporation instead of an individual, it can take a long time for these kinds of foreclosure sales to go through.

While foreclosed homes are certainly a bargain, you still may need help financing your investment. When buying a foreclosed home at auction, you will probably need cash up front for the quick transaction. However, you will have financing options if you buy a home in pre-foreclosure or directly through the lender. Your purchase will likely be similar to a traditional home buying process in that you will still have regular mortgage payments over 15 or 30 years. The only difference might come from the level of repairs needed on the home. If your inspection reveals major repairs will be necessary, you should consider getting an FHA 203(k) renovation loan. This type of mortgage loan will cover the purchase price in addition to any renovations needed.

Sometimes buying a foreclosed home comes down to luck and timing, but if you’re willing to put in some time and research it could be worth your while. Making the decision to purchase a foreclosed home doesn’t have to be intimidating. Veitengruber Law can help ensure you are getting the most out of your investment. It is possible to become the owner of a great home at a low cost – you just have to know where to look.

Private Student Loans: What You Need to Know

private student loan

You did it! You worked hard, got a college acceptance letter, and graduated high school with a crisp, new diploma. Now is when the excitement and celebration of getting into college typically starts to give way to some anxiety. College is expensive and very few of us can afford to pay for a degree out of pocket. Most people know how federal student loans work, but what’s the skinny on private student loans? Here we look at the difference between the two and when you might need a private student loan.

Federal Student Loans

If you will be borrowing money to attend school in the fall, you’ll want to start with federal loans first. Federal loans are much more flexible in the repayment process, offering income-driven repayment plans as well as loan forgiveness programs. The terms and conditions of federal student loans are set by law with fixed interest rates. You will not be required to make any payments until after you graduate, leave school, or if change your enrollment status to less than half-time. However, sometimes federal loans will not cover the entire cost of attending college. This is where private student loans come in.

Private Student Loans

Banks or credit unions issue private student loans, typically with less repayment flexibility than federal student loans. The biggest reason to go for federal loans first is because private loans typically end up being more expensive than federal loans. Because the terms of the loan are at the discretion of your individual lender, different private loans can vary greatly from lender to lender. Depending on your specific circumstances, you could have a higher or lower interest rate, it could be fixed or variable, you may have to start paying for your loan while you’re still in school, or you may be able to hold off on payments until after graduation. The biggest drawback of private student loans is their variability, which can lead to confusion.

That being said, many students every year will take out private student loans to cover the costs of attending college. If you find yourself in need of a private student loan, don’t panic. There are plenty of good private loans out there, you just have to find them. This means putting in the time to do your research to find a loan with the best rates, fees, and terms for your situation. Don’t just settle for the first private loan you find. Compare interest rates, fees, and borrower protections across different lenders to identify the most affordable offer.

Which Private Loans have the Best Rates?

To compare all of the available private loans, check out your local banks and credit unions, but don’t be afraid to look online too. Some of the better deals on private student loans can be found through online lenders. One of the best ways to do this is through Credible, an online private student loan marketplace. Students (and parents co-signing for their children) can enter basic information to see multiple loan offers online. Credible allows you to compare terms, interest rates, and fees all on their website. Because many of these lenders operate via the internet, their overhead costs are lower, which could mean lower interest rates and fees for you.

How Much Should You Borrow?

As with any student loan, you will want to minimize the amount you borrow. This is especially true with private student loans, which tend to have limited repayment or forgiveness options if you have financial difficulty in the future. It is very common for students to take out loans for more than they really need. People overestimate their income after graduation and end up with loans they cannot afford to pay back. Unlike federal loans, there is no cap on private loans. A lender may let you borrow much, much more than you can realistically afford. In order to avoid being crushed under a pile of debt after graduation, only borrow what you absolutely have to and keep yourself on a budget throughout the duration of your college career.

Pay Back Private Loans First

If you do end up with a private loan, make sure this is your top priority when you start the repayment process. Many private loans begin accruing interest from the moment they are disbursed. If you can start making payments on these loans while you are in school, it is a good idea to do so. This can help you save substantially on interest in the long run.

If you are having difficulty paying back your private student loans, you’re not alone. Managing student loan debt is a heavy burden for many Americans. Veitengruber Law is a NJ legal team experienced in all types of debt management. We can provide customized debt solutions for your specific needs so that you can get the degree you need without fear of financial ruin.

FICO Score vs. VantageScore: What’s the Difference?

fico score

Your credit score is one of the most important aspects of your overall financial profile. Potential lenders and creditors will use your credit score to determine what kind of risk they are taking by giving you a loan or a line of credit. Essentially, your credit score is your entire credit and financial history all boiled down to one number. Consequently, you may be surprised to know that there are actually many different ways to calculate a credit score. The two most popular ways to estimate your credit score are using the FICO scale and the VantageScore scale. Below, we will discuss the differences between them and how they can impact your credit score.

Details of your debt and financial history are reported to three major credit bureaus: TransUnion, Experian, and Equifax. These institutions will compile your payment history, total debt, amount of unused credit, the diversity of your credit lines, and other financial data to create your credit report. That data is then run through an algorithm which will provide the three-digit number that is your credit score. These three bureaus compile data and store your information differently, which can mean your credit report—and therefore your credit score—will look different depending on the scoring system used.

The FICO Score credit scoring model ranges from 300 (very poor credit) to 850 (EXCELLENT credit). This is the most well-known scoring method, and over 90% of big lenders in the country use the FICO credit scoring method. While there are many different versions of the FICO method, FICO8 is used most often by lenders today. While FICO doesn’t like to give out a lot of information on how they compile data, the rough breakdown of your FICO8 credit score is: 35% payment history, 30% amounts owed, 15% length of credit history, 10% new credit, and 10% credit diversity.

In 2006, the credit bureaus created the VantageScore as an alternative to the FICO Score. Vantage is similar to FICO. It still ranges from 300 (poor credit) to 850 (incredible credit) and there are multiple versions of the VantageScore method. The current industry standard is VantageScore 3.0. The biggest difference between VantageScore and FICO is that VantageScore doesn’t value the length of your credit history. While FICO requires you to have 6 months of data, VantageScore has zero time requirements. The components of the VantageScore system are also different: 40% payment history, 21% depth of credit, 20% credit utilization, 11% balances, 5% recent credit, and 3% available credit.

There are several ways to access your FICO Score and your VantageScore. Some big banks and issuers will offer their customers their credit scores on their monthly statements. Chase Bank, Capital One, and OneMain Financial use VantageScore while Bank of America, Discover, and Citibank prefer FICO. Experian also offers free access to your FICO Score and VantageScore. Keep in mind, though, that your FICO Score and VantageScore can vary from credit bureau to credit bureau, so Experian may provide a different score than TransUnion or Equifax even if they are using the same scoring method.

If there is one big takeaway from comparing these two credit scoring models, it’s that payment history is the most important factor that goes into determining your credit score, regardless of the model used for calculation. Despite their similarities, however, the differences in methods can result in some deviations where your credit score is concerned. This is why it doesn’t hurt to know what your credit score is under both scoring methods. Regardless of differences, as long as you keep up with at least one model, you should have a good idea of your financial standing in the eyes of creditors.