Suze Orman's new book: A waste or a must read?

Suze Orman has always been a favorite of mine. I love her enthusiasm and ability to give financial advice at a practical level and in simple terms.  However, her advice doesn’t hold my attention much anymore. I guess I have developed a need to understand the financial world at more complex levels. But from time to time, I catch myself watching her show, especially when she decides whether or not someone can afford something.  It’s more entertainment and voyeurism than education.

While on the Oprah Winfrey Show yesterday, Orman promoted her new book, 2009 Action Plan, a free PDF that anyone can download.  I hadn’t planned on checking it out until my father, a self-proclaimed credit guru, sent me the PDF today.  I immediately skimmed the pocket-sized financial vade mecum, but focused on the section that gives advice on credit. I found some good solid information, but was hoping for more.

She opens the chapter on credit stating, “The banking industry is running scared.”  She continues saying, “Your FICO score may drop--not because you changed your financial behavior, but because the credit card companies changed the rules on you.”   That was music to my ears, especially since the title of this much needed blog is New Credit Rules: New Rules for a New Economy.  Overall, this book will help educate millions of consumers on sound financial habits and some of the new tactics of terrified banks.   

Inaccurate piece of advice?  I think so.  

I agreed with most of the advice Orman gave, but one statement caught my attention as being inaccurate. Orman argues that even if your credit card limit is reduced, it will not have a negative impact on your FICO score as long as you pay off the balance. Contrarily, if one pays off his or her balance and the limit is lowered, the debt-to-available-credit ratio will increase or worsen.  In other words, if we have two identical consumer profiles except for one credit line that has a limit at $20,000 and another at $1,000, the consumer with the higher limit or available credit will likely have a higher FICO. 

Comments

[Troy in Raleigh]

Please keep in mind that Suze Orman currenty has a deal with Fair Issacs. The Parent company of the FICO formula.

She earns income from them... Why would she ever tell the truth about the formula/score?

[scorch]

I believe her knowledge of the FICO scoring system. OK, let's says you have 3 cards with a CL of $10,000 on each one and a balance of $5,000 on all 3. One of the lines gets reduced to $1,000.

As long as you can get the balance on the card with a reduced credit line down to $500, your debt to credit ratio is unaffected.

2 10,000 2 x 5,000 = 10,000
1 1,000 1 x 500

10,500/21,000

3 10,000 3 x 5,000

15,000/30,000

please tell me that makes sense.

[Jeff]

I stopped listening to Suze about 3 years ago when she did a commercial saying something like, "with loan interest rates this low, now is a great time to buy a Cadillac."

Also, for me a lower card limit would increase my debt ratio and lower my score. I pay off every month, but the monthly activity (monthend balance) reports to the credit data merchants as the unpaid balance ($300-$1,500 depending on what I've purchased). So I cannot pay it down any further without 1-not using the card or 2-making midmonth advanced payments.
Great site. Thanks.

[John Bacall]

> consumer with the higher limit or available credit will likely have a higher FICO.

Citation needed.

[George]

Suze Orman is a waste of time. She needs to spend less on fake tans and teeth bleaching.

[puddin2014]

I'm about to pay off my substantial credit card debt with a windfall I recently received. Now I'm wondering if I do that, will the credit card companies reduce my credit limit? And will that reduction effect my credit score? It's a catch-22 and has me fearful!

[Dawn Harris]

Im wondering with these new rules will the FICO scores be re-adjusted? I mean what is the purpose of lowering your score just because your lending limit was lowered. I also agree with some that this is a necessary step to maybe get a grip back on the amount of people with to much of a limit which could cause someone to owe even more money and maybe find themselves in a predicament where they cannot repay the loans. Something needs to be readjusted. I just dont think that profiling someone's spending habit is the answer because if Wal-Mart is the one they find to be unreliable well then you might as well reduce everyone's credit! Just my 2 cents.

[Pam R]

I have folowed some of Ms. Ormans advice but in the end used the Dave Ramsey plan for getting out and staying out of debt.I like not getting a bill in the mail and being debt freee is the best feeling in the world.To heck with the FICO score.

[Robert Oliveira]

The download no longer appears to be valid at Orman's site. I could only find links to LEARN MORE or BUY NOW.

[Joanne P. O'Neill]

My elderly mother Caroline has been a long time customer of Cablevision. She always paid on-time about $49 a month to Cablevision for Family Cable. Last year they gave her a 6-month promotion for $29.95 which was great. In Oct. 2008. Cablevision shut off 12 stations. Then in Nov. 2008, they shut off ALL the stations and said it was due to new digital signals. We were told to take the Cable box back to Cablevision. They gave us a new box (io Navigation/Digital Box) the next bill was $83.52 and paid Dec 2008. Now in Jan. 2009 the bill is $69.37. If Cabelvision is suppose to be Digital ready, why are they doing this? I reported this to the FCC on 1/27/09.

[Derrick L Woods Sr]

I have bookmarked this site. Great info really! I'm going to make a blog post and Tweet about this as well. Thank you Sir.

[mw]

I concur with Suze's comment about reducing the number if times we eat out. I reduced the numbet of times I eat out late last year and have notice a diffence in my discretionary income overall. Thanks for sharing your story.

[Shel]

Thanks for posting Suze Orman's 2009 Action Plan. I agree that her advice is very practical & no matter how basic or complex your financial needs are she has helpful tips that we can all use to improve our finances. When she was on Oprah last week, she challenged everyone in the audience not to eat-out for a month. I decided to accept the challenge for myself & I've already noticed a difference in my day-to-day discretionary income.

[Tameka W]

I agree that the statement on the FICO score not being affected is untrue. When AMEX decreased the spending limits on my cards (one from $20+K to $11K to $5K within a 3 months time frame), my FICO score was at 725/730 and it dropped to a 699. I haven't had below a 700 in about 3 years. The unfair treatment of credit card companies are affected the buying power of consumers, which translates into dollars. It only caught my attention because I was in the process of bidding on some rental property and my score changed in the process because of the decrease in spending limit as it related to my balance. In return, this affected my interest rate and down payment requirement for purchasing the property. This is the time for consumers to get educated on what is really going on with these credit card companies and understand how debt is holding us in bondage. The hold tightens as interest rates increase and credit limits decrease. Because it makes it more difficult to pay off and more difficult to make major purchases at a fair rate.