Month: March 2016

Which Type of Credit Do I Choose?

dssLots of us face this question if we’re in the position to access new credit, and that is what type of credit do you choose? There are several different types of credit extended in numerous ways. For instance there are charge cards which usually don’t set a limit BUT require payment in full every 30 days. Next you have your simple credit cards, where a limit is set and you’re allowed to pay that back in minimum payments if you so choose BUT you also pay lots more interest over time. There are some credit cards that offer 0% interest for your first 12-18 months so it’s best to know what to do. Then of course there is the mortgage for your home or personal line of credit. This type of credit or loan usually comes with origination fees along with interest that is paid back to the lender over time. Depending on what your current credit situation is these fees mentioned above could be higher or lower or irrelevant altogether.

Let’s discuss the Charge Card and Credit Card scenario. First off a charge card will allow you to spend what you need to on purchases. When the lender for a charge card issues credit typically there is no set limit, however they do closely monitor you’re spending to minimize their risk of loss. You do need to pay the credit used back at the end of every month in order to eliminate late fees or closure of the account. Credit cards play a different role. This type of credit issued by a bank or private lender has a set limit after signup. Meaning the lender will look at your credit score and decide how much they are willing to allow you to use before they feel you’re too high of a risk. Some of these credit cards start out low but can quickly have limits raised over time by showing excellent payment history. Remember you can roll this type of credit month to month as long as you don’t miss your monthly payments. Keep in mind you NEVER want to use more than 30% of your available credit. When this happens 2 key things happen:

1) Your credit score drops no doubt about it.
2) Your now looked at as high risk to lenders by using too much credit.

It certainly is a cat and mouse game on knowing how much credit to ask for and how much credit to use – believe me I know. It can be tough. You don’t want to fall into these categories it can be hard to dig out once you do.

Finally let’s talk about the personal loan or line of credit. I have seen this type of credit become what most folks go after; I assume they just heard something and don’t really get it. When deciding what type of extended credit you need the first question asked should be what do I need the line of credit for? There are a few distinct differences you need to be aware of. If you’re doing a home remodel or need to fix some landscaping or build a garage, do you know what type of credit you need to get? A line or credit will have origination fees, interest rates, additional fees and a set term(s) for repayment. This will be true for a credit card except you can get interest free credit lines for up to 24 months in some cases. You can also get a lower interest rate depending on your credit score. Also your ability to show lenders you can pay back the debt with no stress will certainly play well for your case.

Whatever road you travel in life it’s important to be informed. It’s important to do the research and fully understand the situation you’re getting into. I included in this, we all want things yesterday and rush into situations. When we look back we all understand it could’ve been better for us had we took a little more time and did a little more research. That’s okay. Doing nothing gets nothing. Don’t expect life to just present you the answers to your questions, you need to find them yourself. Don’t think you won’t understand or can’t know. We all have the ability to find out. I hope you find your answers. Don’t give up. Only a small percent make it because only a small percent put forth the effort. It’s not science its common sense.

The Personal Credit Maze

cxThe Personal Credit Maze

It’s too often in life that we find ourselves not paying attention to the details. I personally have been in that same situation many times in life. All you can do is learn from your mistakes right? I realized paying attention to the so-called little things can have enormous impacts on our lives.

Let me start with this analogy. If you were summons to court with no documentation would you go? Does that make you guilty if you don’t show? Are you left liable for anything down the road? Much like this situation the Personal Credit Bureaus report information on consumers that may or may NOT be correct. Along the line of the being sued with no paperwork scenario, the credit bureaus have no actual proof showing the consumer actually to have that information reported on their credit profile. This can be stopped there is a way to leave all that bad reporting in the rearview mirror.

I have a quick story to share, this involves a friend of mine. Before he entered into the program he decided he could find his way through the credit maze himself. He thought “I don’t need anyone to help me do it”. Wow was he wrong. What happen was he pulled his reports and noticed that he had some items reporting that didn’t belong to him. At that time in his life he was building new credit so he didn’t have any other open lines except the information reporting that was incorrect! He went ahead and filed a dispute after many hours of trial and error trying to get that far. After a few weeks and tireless hours which he didn’t have to spare) the credit bureaus removed the positive reporting incorrect information and well his score dropped 14 pts. Not a huge drop but not understanding the credit maze I learned the hard way what can and can’t affect your score.

Let’s talk about the 5 things that make up your credit score:

1) Payment History – 35% of your total credit score is based on payment history. Repayment of past debt is one of the leading factors that create your credit score.

2) Credit Utilization – 30% of your credit score is based on the percentage of available credit the individual has borrowed.

3) Length of Credit History – 15% of your credit score is based on 2 key things: the length of time each account has been open and the length of time it’s been since it last been utilized.

4) New Credit – 5% of your credit score goes into how much new credit you have. Applying for too much credit can flag you and make you look financially unstable to lenders. Only if you can see if fit financially or when it makes sense should you apply for new credit.* Remember inquires whether denied or approved still leave a lasting mark on your personal credit score*.

5) Mix of Credit – 5% of your credit score goes into you mix of credit. Experts say that by making on time payments with different vendors shows lenders you’re simply less of a risk. Once again Good behavior Gets Rewarded.

Learn how you can obtain the profile you need to go up against lenders and get the answer you deserve. Learn how to fight back and understand what it is you need to do to stay on track and maintain. We understand each situation is uniquely different! Start to make the change today.

Get Your Credit Established and Start Saving Too!

rrrAs a retired banker I realize it has always more difficult to get a good credit rating started because you may have little or no credit or maybe some credit problems hanging around from your college days. This will give you an almost certain solution and help you start building some savings as well.

Many times first time car buyers or those people with little or no credit history (known in lending as “ghosts’) find it difficult to make larger purchases without co-signors or high interest rate penalties. The lenders are always looking for a credit history that shows good consistent paying habits. Their criteria also weigh other factors too.

  • How long on your current job: Each lender has an idea of time but usually like 1 year or more.
  • Stability: This means have you been changing jobs often and moving from address to address.
  • Ability to pay: Do you have enough income to cover recurring expenses and any new loans requested.
  • Character: These days many lenders may search you out on Social Media for this assessment. This can also be gleaned from your personal references or their own personal knowledge.
  • Paying Habits: If you have any credit history, how was it rated.
  • Credit Score: Scoring agencies assign scores based on credit history that are considered heavily at times.

There are other factors considered also. You may have to clear any small outstanding collections first. If you are requesting secured loans such as an auto loans, new home, expensive furniture or office equipment, the amount of your loan request is weighed against the amount of cash you have to put down and the value of the item after you take it home. In other words, do you have an investment in this transaction that gives the lender confidence you are not looking for free ride and intend to stay the course? Other factors are usually unique to special situations and don’t call for discussion here.

Let’s look at someone who needs a credit rating and has little to show regarding the criteria listed above. I am going to share a solution that works with many banks and credit unions who will report your rating to all the right credit agencies. This is what you want to happen if the purpose is to get good credit established.

Scenario:

  • Approach any bank or credit union lender with this proposal. Ask them to lend you an amount ($500-$1000) that you can demonstrate the ability to repay in 12 to 24 months from your verifiable income.
  • Ask them to then put this money in a savings account in your name to be locked from withdrawal and used as security for the loan and released upon final loan payment.
  • Most often the loan rate for this kind of arrangement is very low and this interest charge represents their only real loss exposure. They have their loan secured by the same amount of money you are requesting.
  • As your loan pays down, their exposure is virtually nothing since your loan balance will soon drop below the savings balance after just one or two payments.

There are some things you must then do to develop a good credit rating, they are:

Make your monthly ahead of the scheduled time. This demonstrates a strong desire to be on time and keep your commitment.

Always pay in person. Take time to say hello to the lender/loan manager and get to know the tellers. Developing a relationship in this way is beneficial and will help you later. It is almost like becoming a friend or at least a very familiar face. Relationship is vital when you are ready to do something bigger and more traditional.

Never be late on your payment and do not set up automatic payment withdrawals, even if this is an option. You want to display your ability to track and manage your finances. Auto-Pay can be used once you are well established if you desire.

Do not pay off early. Creditors are looking for your paying habits to be demonstrated over time. Even if you hit the lottery, continue your regular payment schedule. If you have a 24 month loan schedule, paying it off in 22 or 23 months would be fine but no earlier.

If practical to do so, do not change your address, job or start any other substantial credit.

Once this loan has been released you will have accomplished three important things:

  1. You will have a great credit rating visible to future lenders.
  2. You will have developed a relationship with your financial institution and the staff.
  3. And behold! You have a nice savings account that belongs completely to you.

Remember that credit is only a tool and should be used sensibly. Once you have a good credit rating, you will find credit card and other offers in your mailbox regularly. You would be wise to only use one at most and then try to get in the habit of clearing the balance every month to avoid interest charges altogether. A better alternative might be a debit card from your favorite lender with a small over limit allowance for emergencies. The lender you just paid off would be a great choice.

There is one last piece to the process. Check your credit score at least every six months. There are several free sites to do this and it will help you catch mistakes and let you your progress and standing.