Review Your Finances

Doing your income taxes?  If so, there is no better time to review your finances so that you have a better overall understanding of where you are, where you want to be, and how to get there.

The best place to start is with your credit score.  Do you know what your credit score is?  With all three credit bureaus?  Do you know what your FICO score is?  Chances are that your score changed during the month of January, especially if you used credit cards to help pay for part of Christmas.  Typically, the use of credit cards for Christmas can negatively impact your credit score.  So, the first thing to do is check your score, then make plans to get those balances paid off as soon as possible!

Next, review your current credit card interest rates. Compare them to the current credit card offers for your credit range. Then, make a change if there are credit cards available to you that offer better interest rates, better rewards, or introductory interest rates.

Finally, work on your budget!  Look at what you’ve spent over the past twelve months for food, shelter, and other necessities.  Then, take a look at your discretionary spending.  Are there places where you can cut back?  Maybe you want to grow your savings account?  Pay off a bill sooner?  Perhaps you want to buy a house?  A new car?  All of these things affect your budget, so make sure that you have room for additional expenses before you take them on!  And if you don’t?  Then your budget is where you need to start to FIND the money for those things!

Trust me, once you take the time to sit down and review your finances, you will feel so much more optimistic about your financial future!  Not only will the review give you peace of mind, but you might just find yourself a lot more determined to make 2022 your best year yet!

Building Credit from Scratch

money growthHow do I build credit from scratch?

Building your credit for the first time can feel a little like the chicken and the egg. You’re going to need to take out a loan or get a credit card, but you can’t qualify for a loan or get a credit card without some credit history.  So what do you do?

First, you’ll want to start with a bank account.  You don’t need a long credit history to open a checking account at your local bank. In fact, you may have one already.  Although though a checking account won’t necessarily help you build a credit history with the credit bureaus, that account may help you get your first credit card or loan from the same provider.  You see, if you already have a history of doing good business with the bank, they know you and value your business.  That existing relationship may carry some weight when it comes time to get your first line of credit.  That is a good first step, but if that’s still not enough, here are a few other things to consider.

Some banks offer credit cards for folks who want to establish, strengthen or even rebuild their credit.  These credit cards are called secured credit cards because you secure the amount you borrow with a security deposit.  In other words, you provide collateral by depositing money in an account with the bank, something the lender gets to apply a portion of, or all should you default on the loan.  Then, your credit line is equal to the amount you deposited.  You won’t be able to touch that money or use it to pay off your balance, and you will still have to prove to the bank that you have sufficient income to pay the credit card.  But, the good news is that the bank will be more confident that you’ll pay them back even without great credit, thereby allowing you to build or rebuild your credit.

Of course, you want to make sure that your lender will report all those on-time payments to the credit bureaus before you apply.  Most banks and credit unions do this, but some retail store cards, for example, don’t, so make sure to check ahead of time.  And if your payment history won’t be reported by the card issuer, you may want to keep shopping for a card that does.

Don’t apply for a bunch of different cards, though, because if you keep striking out, all those hard inquiries and declines aren’t going to help you build a score. In fact, they may make your nonexistent credit score worse!

Then, there are prepaid cards.  A prepaid card allows you to load the card with a cash amount ahead of time to spend later.  Prepaid cards are great for people who need a Visa or MasterCard to make a purchase and can be a terrific gift idea, but they won’t help establish credit.

Another way to build credit is to see if there’s, someone who might be willing to co-sign a loan with you.  This can be any adult who is credit worthy, including your parents or spouse. When someone cosines a loan, you get the benefit of their good credit history, and this may help you get approved. You can then build your own credit with a good history of payment on the co-signed account.  However, keep in mind that whoever co-signs the loan for you is taking on a really big financial responsibility.  In the event that you don’t pay, they will be responsible for paying back the debt. Therefore, it’s not something you should ask for lightly.

When you do get credit extended to you, it’s very important to keep managing it carefully.  Even after you’ve built a solid credit history, make sure that you keep the good habits you learn for the rest of your credit life. This will help you build a long, positive credit history that will eventually result in a really good credit score.


Credit Score Changing Every Month?

Does your credit score fluctuate every month?   Up a few points one month, down a few points the next… why won’t it stabilize?  If you’re like most Americans these days, you keep a pretty close eye on your credit score, but honestly, it’s just frustrating when it goes up five points one month, only to drop ten a month later!  What causes these monthly fluctuations?  And even more importantly, is it something that you should worry about?  

Here are the most common reasons why your score changes:

New Credit Inquiries:  Signed up for a new credit card lately?  Bought a car?  A house?  Anytime you take out, or in some cases, consider taking out a new line of credit, at least one credit inquiry is likely to hit your credit report.  And, while the effect is minimal, you’ll still see your score drop at least a point or two in most cases.  Fortunately, the effect is short lived, and most credit inquiries drop off after a year or so.

Closing a Line of Credit:  If you’ve just paid off a credit card bill that you’ve had for a long time, it can be really tempting to close that account, but try not to close older accounts unless you absolutely have to – closing just one long standing account will make your credit history shorter, and your credit score may drop a few points.

Missing a Payment:  Your payment history is a big factor in determining your credit score, and just one missed payment will likely hit your credit report fairly quickly, causing your score to noticeably drop.  Unfortunately, missed payments typically stay in your credit file for seven years, so the effect can be far reaching.

Credit Card Balances:  Since your credit card balances vary from month to month, it’s not uncommon for your credit score to go up (and down) a couple of points each month due to that variance.  Pay a card off and you’ll see your score go up.  Use one that you haven’t used in a while and you’ll see your score drop.  Even though this is a normal occurrence, keep in mind that your credit utilization is an important part of your score, so don’t let credit card balances get out of control.

Bankruptcy:  Even though most people know that filing bankruptcy will affect your credit score, many people are unprepared for the nosedive your score takes immediately after the filing hits your credit report.  Unfortunately, bankruptcy will stay on your report for 7-10 years, so consider all of your options carefully before you file.

Credit Mix:  Your credit mix typically accounts for about 10% of your score, so make sure you only apply for accounts that you intend to use.  Credit cards, installment loans, department store cards, auto loans, mortgages… all of these are a part of your credit mix.  Unbelievably, I know of several people whose credit score improved after buying a house simply because it changed their credit mix.

Credit History:  About 15% of your score has to do with the length of time you’ve had credit, so you may see your score tick up a few points a year simply because you’ve had credit a little longer than the month or year before.  But, you can also see that score tick down when you close an account (or open a new one), since your credit history is affected.

Identity Theft:  Although no one likes to even hear the words identity theft, in the event that your identity is stolen, you will likely see a dramatic effect on your credit score that can be difficult and costly to sort out.  Identity theft is perhaps THE most important reason to check your credit score on a regular basis, review individual accounts, and report anything unusual as soon as possible in order to minimize the damage done.

Did you know that up to 50% of us can’t tell you if there’s been a change in our credit reports?  Monitoring your credit takes only a few moments each month, and those little fluctuations can be frustrating, but just remember – minor fluctuations are normal, but keeping track of them is crucial.  A few points one month won’t make much difference, but a few points every month in the wrong direction could create significant problems for you in the future.

Why Does Your Credit Score Go Up and Down?

Ever notice how your credit score goes up or down a few points every month?  Even worse, have you ever had your score just drop like a rock and you have absolutely no idea why?  Maybe you’ve been one of the lucky ones and seen a boost?   If you’re one of those people who gets their credit score emailed to them weekly or whenever there is a change, there’s no doubt that you wonder why it changed 2 points last week, or why it went up a point this week.  Every little score change makes you wonder… why doesn’t it just STAY THE SAME?

Actually, there are a lot of reasons why your credit score changes:

Your Balance Changes:  If you make a large payment (for example, with your tax refund), you might see your score suddenly shoot up like a little rocket (the larger the payment, the bigger the spike in your score).  Or, let’s say you make a large, new purchase, maxing out a credit card… you might actually see your score take a big nosedive.  That’s because your credit utilization goes up, leaving you less available credit.  This makes up about a third of your credit score, so keep your balances as low as possible.

You Apply for a New Credit Card:   Applying for a new credit card usually causes a hard inquiry on your credit file and this typically drops your score a few points for a short period of time.  This doesn’t make up a lot of your credit score, but if every point counts, don’t apply for new credit cards unless you really need them.

You Close a Credit Card Account:  Anytime that you close an old account, you shorten your credit history, which can negatively influence your credit score.  As tempting as it is, many experts now advise you not to close a credit card account unless you absolutely have to.

You Miss a Payment:  Missing a payment goes directly into your credit file and then stays there for seven years.  Since your payment history amounts to about a third of your score, missing just one payment can really drop your score and keep it down for a long time.

You File Bankruptcy:  Even though it’s usually a last resort, bankruptcy will have a very detrimental impact to your credit file. Therefore, it’s always wise to seek an experienced attorney to help you to make an informed decision before filing for a Chapter 7 or Chapter 13 bankruptcy. The statute of limitations for a bankruptcy can range from 7-10 years.

Your Identity is Stolen:  Unfortunately, by the time your credit score is affected by identity theft, it’s usually too late.  That’s why you need to regularly review your credit report and score.  You might even want to consider a paid subscription for identity theft protection.

Your Credit History is Short:  15% of your credit score is based on the length of your credit history, so if you’re just starting out, know that it’s going to take time to build up a strong credit history (and likewise, a strong credit score).

Believe it or not, over half of the population today cannot tell you if there has been a recent change in their credit score.  Don’t be one of those people – pay attention to your score, review it regularly, and investigate anything that you’re not sure about.

Does Paying Off a Collection Increase Your Credit Score?

One of the biggest questions that we see when people are trying to improve a bad credit score is this one:

Does paying off a collection increase your credit score?

The short answer to the question is yes, you can potentially see an increase of a few points or even more when you pay off an account that’s listed under collections on your credit report. And if that’s the only collection account on your credit report? Then your score could increase by more than just a few points.

For example, one of our clients has a single medical bill on her collections list. Every month for years, she’s made a small payment on the account, and slowly but surely she’s getting it paid off. Now, while there’s still a ways to go toward paying that account off, every few months she sees a slight increase in her credit score because that collections balance has decreased. In her case, I would full expect a larger jump in her credit score once that’s paid off, not only because it’s paid off, but because there is a good payment history to back up her efforts to settle that account.

But, if you’ve got several, or even quite a few collections accounts on your credit report, then you probably won’t see much, if any, of an increase in your score should you pay off one of the collection balances. It will likely take paying off several or even all of your collection accounts to see any real improvement in your credit score, especially if the balances are very high, very old, and show no real efforts to pay them off.  Still, don’t let that discourage you.  The only way to see real improvement in your credit score is to keep plodding forward, paying off accounts, and proving your creditworthiness.

Get a Fresh Start in the New Year

The start of a new year is also a great time to get a fresh start on your credit… in fact, once those Christmas bills start rolling in, many of us will be looking long and hard at all kinds of ways to cut expenses! Interest rate too high? Maybe it’s time for a different credit card with a low introductory rate! Too many open balances? Consolidate them into a personal loan! Want to pay off lots of small balances? Why not get a balance transfer card and combine all those little credit cards onto one credit card? Look for the one with the lowest interest rate, the best balance transfer terms, and the longest introductory period!

New Year’s is also a great time to do an overall review of your finances, too. Personally, I am beginning to gather the materials for my tax returns and I’m planning my budget for the new year, setting goals, studying where I can save money, etc., so this is the perfect time for me to do my annual review of my credit cards, credit lines, open balances, and so forth. It’s also the perfect time for me to decide if I need to transfer a balance, update a personal loan, or even refinance my house or car.

But what if your credit is not so good? What if you really need to work on your credit score? Well, the good news is, it’s also a great time to get a fresh start on your credit score! Let’s face it, most of us take a little hit on our credit score every December when we use those credit cards to do our Christmas shopping! So, most of us are looking to improve it after the holidays… Why not start working on yours right now?

Changes in Credit Scoring

Over the past few years, there have been some changes in the way your credit score is calculated.  These changes can help if you’re planning to buy a home, in fact, these new rules may even help you get the credit score that you need to get that mortgage!  Even though your payment data, debts and court records will all still count, the new scoring model reflects some different weighting – in favor of the consumer. Score 9 rolled out this fall, and you may have already noticed a change in your score based on the new formula.

Four Changes to Credit Score Calculations

Rent:  If you rent your home or apartment and you pay on time, you may just get a boost to your credit score.  The new formula promises to weigh renting more heavily than the previous version. Paying on time every month could give you a boost – and a better relationship with your landlord.

Medical Collections: If your medical debt was weighing down your score, then the new model is great news for you. Medical and healthcare related debts will matter less than they have in the past, allowing consumers with otherwise good scores to be hurt less by high medical bills or overdue medical expenses. If your medical debts were impacting your ability to secure a residential mortgage, this change is very good news for you.

Trending Data: If you have a very slim credit portfolio, your data may be interpreted based on trends – the new scoring formula will use predictive models to determine your credit worthiness. This new technique will impact youthful consumers who have not yet established much credit and those with a long history of avoiding credit and choosing cash instead. If you have an established credit record, use credit cards or have a car loan, this change will not have much of an impact on your score.

More Even Scoring: One of the goals of the Score 9 model was to encourage lenders to upgrade to this new formula. While upgrading is not mandatory, it is definitely encouraged – and some lenders and credit reporting agencies are still using old scoring models.  As businesses continue to adapt, credit scores across major credit bureaus are expected to become more consistent, thereby making it easier to for a lender to get a clearer picture of your background and creditworthiness.

While these changes are expected to help most consumers, the best way to boost your credit score is to pay your bills on time and make sure your debt ratio remains low. If you are considering applying for a residential mortgage within the next year, a good credit score is a must. The right score will not only make approving your loan easier for your lender, but it could help you secure lower rates on your homeowner’s insurance as well. If you haven’t checked your score lately, it is time to review your credit report, you could be in for a nice surprise.

Simple Mistakes That Can Hurt Your Credit

Have you ever forgotten to pay a bill? Bounced a check? Believe it or not, simple everyday mistakes with your finances can affect your credit score. Read on for a few things that you might want to think twice about.

Bouncing a Check:  This will come as a surprise to many, but a bounced check may actually affect your credit score at some point.  And that is the key phrase:  At some point.   Just because your bank doesn’t send a report to the credit bureaus every month, doesn’t mean that it can’t or won’t do so, especially if you don’t pay it back promptly!  Failing to cover a bounced check can result in collection, civil, and even criminal charges – both from your bank and/or from the company that you paid with the check.

Too Many Credit Inquiries:  Whenever you apply for any type of credit card or loan, the potential lender performs an analysis known as a ‘Hard Credit’ inquiry so that they can review your complete credit report, determine your FICO credit score, and decide whether or not to extend credit to you.  Applying too frequently for any loan or new credit card can and will affect your credit score as the financial risk to potential lenders increases as your score drops, and statistical analysis has proved that having numerous new credit cards in a short time span is a bad indicator of an individual’s financial responsibility.

Late Payments:  Late payments can indicate unreliability, lack of funds, and irresponsibility in an individual.  And, since your payment history accounts for 35% of your credit score, one late payment can cause your score to drop significantly, especially if you are more than 30 days past due on the payment.  

Co-Signing a Loan:  Before co-signing any loan for a member of your family or a trusted friend, you will want to consider the effect that your involvement in another person’s finances could have on your own financial picture.  Co-signing for a credit with a very high balance could affect your utilization ratio, consequently causing a drop in your credit score.  And of course, as a guarantor, you take up the responsibility of ensuring full settlement of the loan by the borrower in accordance to the stated terms. A default or inconsistent loan servicing by the borrower lowers your credit score.

Remember, the benefits of good credit far outweigh the effort that it takes to build and maintain a good credit score, so take care to ensure that you don’t let a simple, little mistake ruin all your hard work!

3 Things You May Not Know About Your Credit

How much do you know about your credit score?  If you’re like many people, you know you have a credit score, and you may even know what it is, but that’s about all you know!  Even worse, many people have no idea WHY your credit score is even important in the first place.

If you’re not sure why you need to pay attention to your credit report and your credit scores, then you definitely need to start working on it.  Because your credit score is more than just your financial history… in many instances, your credit score can actually change the course of your life!  The question is, is your credit score changing your life for the better or for the worse?

Here are three things you need to understand about your credit score:

  1. Bad credit is expensive!   Your credit score can cost you hundreds of thousands of dollars in extra fees when it’s less than excellent.  There’s an old saying, “Buy with cash, pay once; buy with credit, pay three times.”  Sadly, it’s the truth, as it refers to interest, or the cost of borrowing money.  Not to mention the many other potential costs to bad credit, most of which lead to hundreds and even thousands of dollars spent on higher premiums for your auto and home insurance!
  2. Background checks aren’t all that potential employers pull!  Your credit score can affect your ability to get a job.  That’s right: your estimated ability to repay borrowed money (i.e., debt) also can be used to assess your suitability certain kinds of careers.   Although legislation has been introduced to limit the access of prospective employers to your credit score, these are just limitations, not universal exclusions – and I promise you, many employers these days do check your credit score.
  3. Knowledge is power!  Your credit score is a big indicator of your financial health and, as much as you’d like to, ignoring a low score won’t make it go away.  Instead, it’s time to be proactive and start working to raise or restore your credit score. You just have to take the first step and then put your mind to it.

Remember, your credit score is somebody else’s business, and not just your own.  Your credit score is big business these days.  Not only is your score at the mercy of three different privately owned credit bureaus, whose entire business is rating you and your creditworthiness, but they actually make millions of dollars every year doing it!

These “big three” national credit bureaus, Experian, Equifax, and TransUnion, not only track your score, they CREATE your credit score. And this credit – or FICO – score that they assign you ranges anywhere from 300 on the low side to a perfect 850 on the high side.  Which side do you want to be on?

Low Credit Score? These 5 Things That Will Cost More!

If you have a low credit score, you’ll pay more for certain expenses.  Whether it’s a car loan, a mortgage loan, car insurance or even the rent on an apartment, the lower your credit, the more you’ll pay.  Lenders and financial service providers rely on credit scores to define if a customer can actually pay his or her bills on time. Those who skip paying bills or delay  payments are considered a risk by nearly all lenders.

Most lenders consider a FICO credit score of 640 or below as poor credit, so if your credit score is below that, chances are you will pay more for personal loans, credit cards and other financial options. In many instances, you may even be denied credit, so keeping your credit score at or above 740 is important.

Here are five things that will cost you more:

1. Your Mortgage:  

While it’s nearly impossible to get a mortgage with bad credit, in the event that you are able to do so, your interest rate will be quite a bit higher than someone with a higher FICO score.  Over the course of a 30-year fixed-rate mortgage, that comes out to tens of thousands of dollars in interest over the full thirty years.

2. Credit Card:

Once again, that low credit score may keep you from getting that credit card, but if you do, expect to pay interest rates up to 35%.

3. Auto Loans:

Automotive finance companies will definitely charge a higher interest rate if you have a low FICO score!  Those ads you see on TV only apply to “well qualified” customers. The better the FICO score, the better the interest rate you’ll get.

4. Insurance:

Surprisingly, your credit score also affects interest rates on your home and your car!  Most insurers believe that both homeowners and drivers with excellent credit scores are likely to file fewer claims and get into fewer accidents, while those with lower credit scores statistically file more claims and this makes them riskier clients.

5. Apartment Rentals:

Most landlords check credit scores, and with a low credit score, you may have to put down a larger security deposit or pay a higher monthly rental rate.


Your best course of action?  Remember, your credit score is extremely important.  Never miss an opportunity to improve your score, make your payments on time, and keep your credit card balances below 33% of your total credit.  If you’re just starting to work on your score, it will take time, but don’t give up!  Keep working on your credit and you will see improvement.