Category: Personal Finance

What You Should Know Before Closing Credit Card Accounts

After learning the difference between traditional, secured, subprime, retail and major credit cards, you may want to close one or more of your credit cards, especially if you have more than five. If that’s your only solution to increasing your credit score, learn more about the credit process before closing an account.
Most credit scoring systems award a higher credit score to those who have no more than five credit cards. Before rushing to close an account, know the impact it will have on your credit score.
Here are a few basics about owning credit cards.
Fifteen percent of your credit score comes from the age of your credit accounts. The older your credit accounts are, the better it is for your credit score. Credit scoring systems consider the average age of your accounts. If possible, never close older accounts. If you do, you will drive down the average age of your accounts which will decrease your credit score.
Closing a credit card account may also affect your utilization rate. “Utilization rate” is the ratio of your credit card balance against your credit limit, expressed as a percentage. For example, if you charge $800 on a credit card with a credit limit of $2,000, your utilization rate is 40 percent. Credit-scoring bureaus reward people who have utilization rates below 30 percent. If you want to be rewarded by the credit scoring bureaus, always keep your utilization rate under 30 percent.
How does closing credit card accounts impact your utilization rate? If you transfer the balance on the account you want to close to another account, consider this first. If you decide to cancel a credit card and transfer the remaining debt to another card, you may cause the utilization rate on the second card to rise sharply.  This may cause your credit score to drop.
Leaving a balance on your card after canceling the account is worse than transferring a balance because you won’t have a credit limit to offset the balance owed. For example:  If you leave a $700 balance on the canceled card, your utilization rate will suffer dramatically since the limit on the card will be $0.
Develop a strategy to increase your credit score when you have more than five credit cards. Your best bet is to keep all of them active but pay them off every month. This is achieved with a budget. Plan which expenses you will pay with credit cards.
A steady history of payments will demonstrate to credit-scoring bureaus your ability to manage your accounts and will eventually improve your credit score. Pay special attention to the cards with the highest limits, oldest ages, and best interest rates. Be sure to keep these cards active, maintaining a utilization rate below 30 percent.
Retail credit cards, cards which can only be used at the designated company on the card, are an exception to the “keep-them-open” rule. There is no reason to purchase monthly from these stores. Letting a retail account go inactive may not be the ideal choice, but it should not be a cause for alarm unless it causes your credit score to drop. If that happens, call the retail store and to see if you can reactivate the card.

How Divorce Impacts Your Credit

Divorce statistics do not reflect a “happily ever after” marriage for the majority of couples. When you realize there’s a possibility your marriage may end, take action to protect your credit.
When taking inventory of all assets, please remember to include all jointly held credit cards, auto loans, and mortgages. This may seem insignificant, but it will certainly affect your credit score after you’re divorced. Learning to build credit means you must also learn how divorce can impact your credit.
If you and your partner kept all credit separate during your marriage, your credit score will not be impacted by your ex-spouse’s credit behavior at any time before, during, or after your marriage. However, if your spouse is an authorized user or joint holder of a credit card, an angry former spouse may attempt to create financial havoc in your life by charging on jointly held credit cards without making a payment.
All debt incurred on jointly held cards are the responsibility of you and your ex-spouse. Therefore your ex-spouse’s financial decisions impact your credit score after divorce. For example, your ex-spouse’s late payments and collection notices will be on your credit report after your divorce if you do not separate the accounts.
Before the divorce, you should cancel all jointly held credit cards. This eliminates any chance of a negative impact on your credit report from your ex-spouse’s financial mismanagement. Some credit card companies may require a special type of notice to cancel jointly held cards, such as a written notice. Doing this as soon as possible is in your best interest in terms of divorce and credit. After a divorce, your ex-spouse may need to charge many things to make up for reduced income. Even if your ex is not being malicious, this could harm your credit score by causing your utilization rate (the balance as a percentage of the credit card limit) on jointly held credit cards to increase.
Credit cards aren’t your only consideration in a divorce. Don’t forget your mortgage. If you and your ex-spouse own a home together, both of you are responsible for the debt, unless you have worked out another arrangement. If you choose not to sell, refinance. Use a quitclaim deed to take your name off the title of the property. But don’t stop there! Your ex must also refinance. If not, your credit score will decrease if he or she becomes delinquent on payments.
If you retain ownership of your home and do not put the property in your name, you have not fully protected yourself. If your ex-spouse is sued, the house might be seized to pay off your ex-spouse’s debts.
Are you separated? No problem. Here are a few steps to prepare for an eventual divorce. Pull your credit report and assess your financial situation, noting all existing credit accounts. Keep copies of everything in a safe place. If you have joint accounts, have a discussion with your spouse about who will assume payments for which credit accounts.
If you are on peaceful terms with your spouse, have a frank discussion about the impact of divorce on your credit. Both of you need to protect yourselves. Consult an attorney. Create the best possible plan to keep your payments on schedule to protect your credit.
To reduce the negative impact of divorce on your credit, cancel all joint accounts and contact the three credit bureaus to update your address information.

Fannie Mae and Freddie Mac

Great News – Fannie Mae and Freddie Mac now accept a 620 FICO score for Mortgage Loans!
Has less than stellar credit prevented you from getting a mortgage? If so, you may be in your new home sooner than you think!
Fannie Mae and Freddie Mac are easing tight lending standards to give worthy high-risk borrowers an opportunity to become homeowners. The minimum down payment has been reduced from 5% to 3%. Although the goal of these mortgage giants is to help first-time and lower income borrowers,  they will still require borrowers with less than a 20% down payment to purchase private mortgage insurance.
FICO is also revising their formulas for generating grades this fall. No longer will overdue medical bills and paid collection accounts have a negative effect on your credit score.
Reporters E. Scott Reckard and Tim Logan write, “Improved scores could make it easier for millions of Americans with past credit blemishes to get loans or to get them at lower rates. Experts cautioned, though, that borrowers might have to wait a year or more to see the effect of changes because lenders will not quickly overhaul their systems to evaluate consumers and price loans for them.
What’s more, the effect on the housing market, a major key to economic growth, is likely to be muted. Analysts said change would be seen more rapidly in auto loans and credit cards than in mortgages.”
Fannie Mae, Freddie Mac and FICO are fighting for consumers who have had a financial meltdown and are rebuilding their credit the correct way. If you want to take advantage of this opportunity, NOW is the time to set your financial house in order!
Apply the principles in the 720 Credit Score program. Within 12-24 months, your credit score will put you in a position to take advantage of the eased lending standards of Fannie Mae and Freddie Mac. In a year or so, you can become a proud homeowner instead of renter if that is your desire.
Fannie Mae, Freddie Mac, FICO, and 720 Credit Score are extending you a helping hand. Are you ready to accept the challenge?

Are You a Victim of Identity Theft?

Do you know if someone has stolen your identity? Are they living the good life at your expense?
80 percent of people have errors on their credit reports. Most of these errors are a result of identity theft. If you’ve been a victim of identity theft, you may not be interested in using credit again. That’s the biggest mistake you can make! Use this as an opportunity to protect yourself and learn how to build your credit wisely.
Once a thief acquires your personal information, she or he can quickly steal your identity and suck your account(s) dry. This can be a devastating financial loss. Additionally, it takes a tremendous amount of time to correct these errors.
Hackers have infiltrated Target, Neiman Marcus, Johns Hopkins and many other organizations. Do you think they’re capable of stealing your information? Of course they are! Now, more than ever, you need to safeguard your personal information against scheming identify thieves. Don’t leave yourself open to identity theft. Be aware of the many ways identity theft might occur.
Dumpster diving. You may not dumpster dive but identify thieves will. This is one of the easiest ways to collect personal information. The credit card offers you discard without a thought can be used by dumpster divers to set up credit accounts in your name. Bank account statements that have your credit card number or banking information can be used to purchase items online or over the phone. To prevent this, purchase a shredder and shred all items containing your personal information.
Open-access mailboxes. If your mailbox does not lock or is an easily accessible community mailbox, beware of identity thieves snatching your mail and setting up bogus accounts in your name. Protect yourself from identity theft by putting a hold on your mail when away from home for extended periods of time.
Pickpockets and purse-snatchers. Guard your purse and bags. Never leave them unattended. If an identify thief has access to your credit card, driver’s license, and Social Security number, they will enjoy the good life at your expense. If possible, never, ever carry your Social Security card in your wallet.
Phishers and Phreakers. Be especially wary of phishers and phreakers. Phreakers are people who search for personal information by eavesdropping on telephone calls.  Phishers send cleverly disguised emails that ask you to provide personal account information. Using anti-virus software and a firewall is a good way to cut down on malignant attempts by criminals to access your information. Do not share your password with anybody and change it often to decrease the possibility someone may hack into your computer. Also watch out for spyware which can be installed on your computer without your consent. It can monitor your computer for personal information, such as credit card numbers.
Guard your Social Security number. Each person’s social security number is unique. If an identity thief gains access to your Social Security number, she or he can make financial decisions that can affect you for years. Do not give out your number unless you started the call and can confirm the identity of the person or company you are calling.
Check your credit report often. Obtain a free copy of your credit report yearly from all three credit bureaus. Your best weapon against identify theft is getting a copy of your credit report every three months. This allows you to immediately identify any suspicious information or other irregularities.
Another often overlooked important safeguard against identify theft is double-checking the purchases on your credit card as well as withdrawals from your bank account.

5 Steps to Rebuild Bad Credit

We live in a credit-driven society. You need credit for just about everything from buying a house to getting a job. Since many people use credit in lieu of currency, it is no surprise that many hard-working people have not managed credit wisely. As a result, they have bad credit. But there is hope. Here are five steps to rebuild bad credit.
Before examining the steps to rebuild your credit, let’s see how the credit bureaus determine our credit scores. There are 22 different criteria for determining a credit score. Unfortunately, the only ones who know the actual formulas are the credit bureaus. Not much information exists on rebuilding credit. Therefore people often make common mistakes that seem like the right choice, but in the end these choices hurt their credit score.
If you have bad credit and want to increase your credit score, follow these five steps. Prior to doing anything, you need to make sure you know your credit scores. Odds are you wouldn’t build a house without a blueprint. Your credit scores are the blueprint of your credit history. The only way you’ll know what corrections are needed is to get your credit report.
Quick Fix #1: Check for Errors
One of the most common sources of a bad credit score can be attributed to reporting errors.  Check your credit limits first! Make sure your credit limits are reported correctly because your credit limits are used to determine your utilization rate. This rate is based on the percentage of your credit limit you use each month. If your credit limit is not reported correctly, your utilization rate will not be accurate. A high utilization rate lowers your credit score.
Also check for duplicate notices from collection accounts that are being reported as active. Often a collection account is transferred to more than one collection agency. All of these collection agencies might be listed on your credit report. That’s not a problem, but only the agency currently trying to collect the debt should be listed as active. All other collection agencies should be listed as transferred since they are no longer responsible for collecting the debt.
If more than one collection agency is reporting the collection account to the credit bureaus as active, you have a problem. Since the single collection account is reported as two separate accounts, your credit score will be lowered.
Quick Fix #2: Reduce Your Credit Card Debt
Most people do not know why the amount of their credit card debt is significant because it has never been explained to them. I call this tip the 30/30 rule. Thirty percent of your credit score is based on your outstanding debt. If your credit balance is more than 30 percent of your credit limit, your score will drop. Here’s an example: If your credit limit is $1,000 and you charged $600, you are at 60 percent of your limit in debt. When you’re over 30 percent of your limit to debt and you’re only paying the minimum monthly payment each month, your score is going to drop, even if your monthly payments are “on time.” You must reduce your credit card debt to 30 percent or less to maintain the 30/30 rule and rebuild bad credit.
Quick Fix #3: No Credit Equals Bad Credit
Credit scores are based on the information in your credit history. If don’t have a credit history, you are treated like the person with bad credit. When evaluating your credit worthiness, companies would rather lend or give better interest rates to those whose credit history proves they are a good investment. Think of it this way: Let’s say you needed heart surgery, and you met a guy who said he was the best heart surgeon in the world. He might be the best heart surgeon in the world, but if he had no credentials and no references, there’s no way you’d ever let him open up your chest.
The credit scoring bureaus think of you the same way. If you don’t have a credit history, they consider you high risk. Prove your credit worthiness by getting three to five credit cards as well as an installment loan. Doing this will help rebuild your bad credit and provide enough information for credit bureaus to judge your risk fairly.
Quick Fix #4: Becoming an Authorized User
If you don’t have much credit (less than three major credit cards and an installment loan) or have bad credit and want to rebuild your credit, you may want to explore becoming an authorized user. Ask a relative with good credit to add you as an authorized user to their account. It helps if you and your relative have the same address.
Becoming an authorized user allows you to piggy-back on your relative’s good credit standing and reap the benefits of their credit history. This only works if the credit card company reports your status as an authorized user to the credit bureaus and if the outstanding debt on the card never exceeds 30 percent of the credit limit. While this is a great way to improve your score, if the account falls into poor standing, your credit score will also be negatively affected.
Quick Fix #5: Use Credit!
It’s natural to steer clear of credit if you have had bad credit. Avoiding credit is not helpful when it comes to rebuilding your credit. The only way to rebuild bad credit is to establish a credit history. For more information on why this is so important, get my free e-book Credit After Bankruptcy & Foreclosure. Although bankruptcy or foreclosure may not apply to you, the information in the booklet is still valid for anyone rebuilding bad credit.

Protecting Life Insurance During Bankruptcy

Bankruptcies are difficult emotionally and financially because your creditors are intent on recovering the debt you owe them. That’s fair. But you must protect what is allowable by the Federal or State Government to give you a financial footing afterwards. Don’t forget to protect your life insurance when filing for bankruptcy.
When going through bankruptcy, make sure everything is not taken from you during the process, including your savings. Protecting your life insurance is important. If you overlook this, creditors may leave your family with nothing after your death.
Paying creditors is important, but you must also prepare for life after bankruptcy. Creditors aren’t interested in you or your family’s financial status. They want whatever they can get. This means you may end up in a hole that is nearly impossible to escape. Protect your safety net!
What is protected?
Life insurance is too important to give up. If you were to pass, the money helps pay expenses so your family does not end up financially strapped. To prevent creditors from taking everything, you need to understand what you can do. Under federal exemptions, you can protect up to $12,250 (check the current amount allowed) of a life insurance policy’s cash value. Married couples can double all exemptions under the federal bankruptcy code. Check with your bankruptcy lawyer to ensure all allowable assets are protected, especially your life insurance policy.
If you are afraid the bankruptcy will take your life insurance, make it exempt. This will give you the chance to keep your money, or at least some of it, to assist your family later.
Know the cash value amount your state allows you to protect. All states are different. Get professional help, if needed, to take advantage of all you can. An option is cheap life insurance. It protects you because it puts you under the maximums of several states. This makes it possible to keep all your money.
Taking all allowable exemptions can give you peace of mind, which is what you need during a stressful time. As long as you qualify for the exemption, take it! Enjoy the security of knowing your family will have something, regardless of the situation they find themselves.
Buying Life Insurance After Bankruptcy
Waiting for your bankruptcy to be completely off your records is not a good excuse to delay applying for life insurance. If cost is an issue, consider getting a 10-year term policy to make sure your family is protected. This gives you something until you are back on your feet. The only risk is failing health which could make purchasing life insurance ten years later more expensive or unattainable.
Before applying for affordable life insurance make sure your bankruptcy is completely discharged. Most insurance companies won’t underwrite you if you’re in the middle of the bankruptcy process. If the bankruptcy has been discharged, you shouldn’t have any problems finding an insurance company willing to underwrite you.
The Internet is filled with free online term life quotes that allow you to get a quote in minutes. Be sure to let them know you have filed bankruptcy recently. One of the biggest mistakes people make when applying for life insurance is not being truthful with the carriers. They will know if you have a bankruptcy. If you lie, it will hurt your chances of getting approved.
Understand Your Options
If you are facing bankruptcy, it is important to do everything possible to benefit you and your family afterwards. Don’t let creditors take your legally allowed exemptions. Protect them! This gives you and your family a financial cushion afterwards. As creditors fight for what is theirs, you must fight for what is yours. By taking advantage of what is available, you can keep yourself in the green and make it easier to get back on your feet after bankruptcy.

Is your car a filthy mess?

Is your car sloppy? What about your home? Your office? Your yard? I’m a little embarrassed to admit my answers were, “yes, yes, yes, and yes.” Embarrassed because I realized sloppiness impacted every area of my life, including my finances.
Now, I am happy to say that was the old me. But before I acknowledged my sloppiness, I justified it by telling myself I was hyper and needed to stay busy. Although my space appeared untidy, there was “order” in my sloppiness.  I had a general idea of where things were. If they weren’t there, I kept looking until I found what I was looking for.
But then I noticed something…
My thinking changed when I intentionally made the decision to give every physical thing a purpose. When I made better decisions about my personal space, I started making better decisions about my time and my finances. Sloppiness no longer reigned in my life or my finances.
Making a decision to give every physical thing a purpose is not quite right. What really happened is I had to re-train my mind to give a purpose to things. When I assigned a purpose to things, sloppiness decreased in my life and finances.
The floor of my car is not a trashcan. That’s not its purpose. Its purpose is to stabilize the car, keep me from falling through, hold the seats in place, etc. No longer do I put garbage on the floor of my car. If I must store garbage in my car, I place it in a bag whose purpose is to hold garbage.
You might think that organization and cleanliness are irrelevant to credit or financial problems. I disagree.
If your physical space is sloppy, your life will most likely be sloppy. This sloppiness will extend into your finances also. Re-training your mind to give everything its purpose and place allows you to make better financial and spending decisions.
If your mind is not trained to examine everything, decide its purpose, and then put it in the right place, you will make purchases that do not honor your long-term goals. This leads to impulsive buying—not buying with a purpose to further your goals.
Giving things a purpose, and then placing them where they belong, gives you control over your life. It allows you to eliminate dead weight and garbage.It also gives you the opportunity to accept things that will improve your life.
Imagine the impact of training your brain to put things in its place. You can immediately eliminate expenses unrelated to your goals. Ideas to help you become more frugal will appeal to you. Frugality will eliminate sloppiness in your finances.
When making purchases with a purpose, sloppiness loses its hold on your life and your finances.
What do you think? Am I crazy? Spot on? Let me know your thoughts below!

“way too intense”… sound familiar?

I can be overbearing to my family (luckily for you, we’re not related).
For example, once I traveled home to visit my sister and parents, and Lacey (my sister) said to me, “Phil, it’s no fun when you come home because you are way too intense.”
I said, “What do you mean?”
She responded, “Phil, you are always pushing us to be better, and although there is a good part to that, it drains us. For example, Mom called me last week and said, “Lacey, let’s all get on a diet and lose weight, Phil’s coming to town!”
Ha! Can you believe that?
That is when it hit me… I don’t love them in an unconditional way. My love is coming across as conditional and fabricated and it exhausts them.
So with Easter weekend here, there is a chance you may see your family, or if you celebrate Passover, you just did. I figured I would take this moment and take a break from talking about credit.
So here is what I’m challenging myself to do this weekend with my family:
I’m going to start with my wife and stop complaining about the parts of the relationship that I’m frustrated with. I’m going to love her exactly the way she is and trust that our relationship is exactly where it is suppose to be.
I’m going to acknowledge my kids for how far they have come and not how far I expect them to be.
I’m going to give up judging other family members about what they “should be doing” or “should have done.”
I’m going to enter every conversation looking for the 1% that I can agree with, instead of the 99% that I disagree with.
I’m going to look at those that I’m frustrated with in a compassionate way and realize they are doing the best they can do at this moment.
Does any of this resonate with you?  Are you up for doing this too?
Share your stories and insights with me and be an inspiration for all of us.
Click here to read Part II of this blog.

Preventing holiday hangovers

Just a quick reminder…
Don’t get carried away with your credit cards when shopping for holiday presents. Before the holidays are over, many consumers will charge an extra $600, $1,000, or $2,000 to their credit cards. Most shoppers don’t plan for this—it just happens. But by the time January rolls around, they have giant credit-card hangovers that leave them wondering how they can preserve their finances when they have migraine-size debt looming over them.
And remember: one of the keys to a high credit score is to keep a balance that is no higher than 30 percent of the limit. So not only will extra credit-card debt hurt your pocketbook, it will also hurt your credit score.
Keeping the right credit card balance is one of the most important things you can do this holiday season to protect your credit score. Here is my time-tested tip for avoiding the holiday credit hangover.
1. First, create a holiday spending budget.
I know a lot of parents who want to create lasting memories for their children, so they go overboard, buying tons of presents for their kids.
But think back to your own childhood. How many gifts are etched into your memory?
Probably not many. Your children will remember the time they spend with you more than the gifts they will receive.
And if you are racking up your credit card bills, you probably feel stress and anxiety, which will detract from the time you spend with your children.
So create a reasonable budget and determine how much you can afford to spend on each person on your list.
2. Leave the credit cards and debit cards at home.
I’m totally serious about this. If you don’t take credit cards or debit cards, you cannot overspend. It’s that simple. If you do take credit cards and debit cards, you can overspend and induce that hangover. So just leave them at home.
In fact, the more radical this idea sounds to you, the more important it is that you implement it.
Taking credit cards with you is just too tempting, even to the most disciplined shopper. The allure of “buy now, pay later” will allow you to make impulse purchases.
If you take only cash, on the other hand, you will limit your spending to the cash in hand. Those impulse purchases will be impossible.
3. Create “wallets.”
This is where my “envelope system” comes into play …
Before jumping in your car and hitting the local mall, pull out some plain white envelopes and write the name of each person you are going to purchase a present for on individual envelopes. (If you have eight people to buy presents for, you should have eight envelopes.)
Within each envelope, place the appropriate amount of cash you have budgeted for this person—no more and no less.
Each of these envelopes represents the wallet you have for each person on your list.
You might want to bring a little extra money for lunch, but be sure to leave your credit and debit cards at home.
When you purchase a present, use the money from the appropriate “wallet.”
This method will create a psychological barrier to impulse shopping. If you are tempted to splurge on a gift, you will be dissuaded when you consider whose wallet you will withdraw money from in order to cover the impulse shopping.
What do you think? Does this help you avoid the “holiday credit card hangover”? Leave a comment below and let me know.
Philip Tirone
P.S. And don’t forget to ignore the retail-store credit card offers this holiday season (and always!).

“Cash Only” Is Dead Wrong, by 720 Credit Score

Many so-called experts say that you should adopt a cash-only policy and ignore credit cards. But here’s the truth…
They are dead wrong.
Avoiding credit won’t make life easier. In fact, it will make life a heck of a lot harder. It also won’t make your credit score improve. In fact, it will make your credit score drop like a lead balloon.
If you adopt a cash-only policy, you’ll end up with no credit. And no credit is just as bad as poor credit. You see, the credit-scoring bureaus want to see that you can responsibly handle many different types of credit before they award you a good credit score. If you don’t accumulate a proven track record, you won’t get a good score.
Now, a lot of people who have been through a financial meltdown decide that the only way to turn their lives around is to stop using credit. But think of it like this: Let’s say you took a math test in school, and you failed. Your grade was an F, so you decided to stop taking math tests—to just wipe your hands clean of math tests.
Would your grade improve? Heck no. And your credit score won’t improve if stop using credit cards either. I always say that having no credit score is just as bad as having a poor credit score. They credit-scoring bureaus won’t have any information on which to judge you, so they will think: Better safe than sorry. And they will give you a low credit score.
This means

  • You’ll have a hard time getting great insurance premium rates.
  • You might be unable to find a job.
  • Landlords might not want to rent to you.

And if you ever need a loan (and you probably will!), you will get lousy terms and pay an arm-and-a-leg in interest.
So they next time someone tells you to wipe your hands clean of credit, ignore them!
This doesn’t mean that you should get yourself into debt with your credit cards. It means you should use your credit cards wisely. Keep a low balance (less than 30 percent of the limit), and pay your bills on time every month.
And if you have any questions, be sure to leave a comment below.