Black Friday/Cyber Monday

Black Friday and Cyber Monday are JUST AROUND THE CORNER. Now most of you know what Black Friday is, but are you aware of Cyber Monday?

Many people have started speeches with "Webster defines...", BUT, in spirit of discussing Cyber Monday, I will take a different route.

Wikipedia defines Cyber Monday as "...a marketing term for the Monday after Black Friday, the Friday following Thanksgiving in the United States, the term "Cyber Monday" was created by marketing companies to persuade people to shop online. The term made its debut on November 28, 2005 in a Shop.org press release entitled "'Cyber Monday Quickly Becoming One of the Biggest Online Shopping Days of the Year".

But the real question is, ARE YOU TAKING ADVANTAGE OF IT?

There are a few reasons I believe in Cyber Monday over Black Friday.
1.) Most places offer free shipping.
      ***So it saves me money on gas.
2.) I don't have to deal with crowds.
      ***See "Violence" on the Black Friday Wikipedia page.
3.) I save a lot of my time.
      ***Showering, getting dressed, warming up the car, driving the car, waiting in line to get in, waiting in line to pay, traffic along the way.
4.) In my experience, the deals have been fairly comparable.
     ***I will be charting the price of different items from now until New Year's Day though to get an accurate assessment on this. 

If you must get that thrill of Black Friday shopping, here are some tips I've stumbled across:

1.) Make a list. You don't need to check it twice to find out who's naughty or nice, but you do need to make a list. 

2.) Determine the "Hot Items" on that list. If you main objective is to get a $200 flat screen, I would suggest that you avoid the crowds at Toys 'R Us in the morning and instead hit up Best Buy or Wal-Mart.

3.) Physically map out your driving. If you need to go to Toys 'R Us, Bed Bath and Beyond, Wal-Mart and the Apple Store, there's a right and wrong way to go about getting to all those places. "Previous Preparation Prevents Piss Poor Performance".

4.) If you have a smartphone, download apps that will help you save money. Here are a few that may help:
BuyVia, RedLaser, Amazon Price Check, ShopSavvy, Google Shopper, Smoopa
Some let you earn cash-back rewards, some let you buy directly from the app, some give you directions to better local deals.

5.) Fill up your gas tank. Gas stations aren't stupid, they know that there will be A LOT of people on the road this day. Which means a lot of miles driven, which means a lot of gas used. Fill up a few days before, or even have an extra gallon or two of gas in a can. Don't forget, when filling up with gas, use GasBuddy. It's a great, simple app that can save you hundreds of $'s.

If you are like me and would rather save time, aggravation and effort, here are some Cyber Monday tips:

1.) Open up a PayPal account for online retailers that only offer PayPal as payment for goods. It's simple, it's safe and can save you money.

2.) Know your credit card limits!!! As previously mentioned, you do NOT want to go above 35% balance to limit on any credit cards. If you're planning on spending $1,000+ in one day, make sure you use a card that has at least a $3,000 balance. GOOD DEALS ARE NOT WORTH MESSING UP CREDIT!

3.) Give your credit card issuer a quick call up and let them know your spending habits will not be the same in the coming days. A lot of online purchases in one small time frame looks fishy. You don't want to be shopping and find a great deal only to be sidetracked by calling up Chase with all others (that don't read this blog) that have a hold placed on their card for "fraudulent activity".

4.) BE CAREFUL OF PUBLIC WI-FI NETWORKS! It may seem like a good and convenient idea when you're taking a break for lunch after some early morning shopping. These networks are unsecured (which is how you can access them). That also means, anyone else can and it doesn't take Julian Assange to steal your information from a Panera Bread wifi site.


Whichever route you decide, make sure you make logical decisions to avoid wasting money, time, stress or even injury.


The items I mentioned I would be following for the next 11 weeks are listed with prices after tax for zip code 45377.
1.) 40" Samsung LED - UN40EH5300F
   Best Buy - $471.82
   Amazon -  $424.24
   Wal-Mart - $474.05

2.) 13.3" Apple MacBook Air MD761LL/A
     Best Buy - $1,318.36
   Amazon -   $1,247.73
   Wal-Mart - N/A
   Apple -      $1,393.18

3.) 11.6" Samsung Chromebook XE303C12-A01US
     Best Buy - $266.43
   Amazon -   $258.72
   Wal-Mart - $265.36

4.) 60" Vizio LED - M601d-A3R
    Best Buy - $1,542.84
    Amazon -   $1,374.16
    Wal-Mart - $1,547.58


I'm not am Amazon Sales Rep or anything, but I must say, Amazon really is:
.

Also, here's a little trivia bonus, did you know the Amazon logo is intended to show you that they have everything from A to Z?


As always, I encourage you to contact me for a free personal financial analysis. Email me at davids@eqfin.com for information.

My lead pipe locks for the week are: Carolina to cover their 6 point spread against Tampa.
SF and JAC to go OVER their 41 point spread.
Record so far = 3-0

Simple Savings - Winter Utility Bills

It has been autumn for over two weeks and I still can't tell if it feels more like Spring (with this abhorrent rain), Summer (with this random Vegas heat) or Fall (with the gold medley of leaves changing and fluttering to the ground). Regardless of what it feels like, winter is just around the corner. What does winter mean for homeowner's and renter's alike? That if you're not prepared, money is going to be seeping out of the leaks in your windows and doors faster than gas out of grandpa.

It is to be expected that your gas or electric (whichever your residence uses for heating) bill will go up from October through February. When you're budgeting, keep this in mind. Your bills go up, but that doesn't mean your income goes up. And the 3 ways to have more money:
1.) Make more
2.) Spend less
3.) Pay less taxes

This is a good example where spending less could come into play.

1.) CEILING
Did you know that the ceiling is one of the most common places for heat to escape from a home? Have you ever noticed when you have snow on your roof, there are areas where there is no snow? That's not from the sun picking and choosing where it wants to melt the snow, that's a weakness in your insulation in the ceiling. Quick Fix - Pinpoint the area, examine it from the inside, insulate accordingly. If this doesn't fix the issue moving forward, there may be an issue with the lining under your shingles. This fix will also help in the summer with keeping cool air inside, although it is much harder to diagnose in the summer.

2.) Plumbing
Most people aren't even aware of the type of energy that is lost in their plumbing. The winter is another good time to diagnose this issue. If you notice a "sweating" or beady moisture on the outside of your pipes, you may be losing energy, which is the same as losing money. The condensation is caused by a large difference in the temperature between the inside (liquid traveling through the pipe) and outside (air) of the pipe. This is similar to the effect of warm cocoa on a cold winter day and the steam you see. The difference is the pipe contains the steam and it leaks through to cause an outside moisture. Quick Fix - Examine your exposed plumbing, dry it off, measure the pipe, purchase a pipe insulator and attach accordingly. ***I say exposed plumbing because I DO NOT suggest you start breaking down drywall to try and save a few bucks, through energy lost on pipes.

3.) Windows
Windows are one of the biggest expenses in your home and rightfully so. They are decorative, keep heat in during winter, heat out during summer and allow a nice breeze to flow through during spring and fall. I know someone that has a 1,600 square foot home, with pretty standard windows that cost around $15,000 to replace them all. If you own your home, this may not be a bad idea, chances are if you're renting, it would NOT be a good investment. If you are renting, buy a window insulation kit from Wal-Mart or Target. They run about $16 for a 62" by 210" covering that is VERY easy to install. Another good window investment are thick, dark curtains. They are both decorative and efficient. During winter time you will want to keep them open during the day to let in natural sunlight while closing them at night to keep in the heat you've generated.

4.) Blankets
This is a good time to invest in some super soft blankets. Instead of GOING to a movie, spending $10/ticket, $10 on popcorn, $20 on soda pops, rent a movie from RedBox and stay home. Save Money, Get some Family Time and cuddling is the cheapest way to keep warm!

It looks like we're at 457 views so thanks again everybody and I hope these tips are helping you out.

This weeks lead pipe lock is Dallas covering the 5.5 point spread. Also, you'll want to bet the over in the New England/New Orleans game.

Don't forget, if you want a free financial analysis of your current situation, email me at davids@eqfin.com. I will identify your weak points, where you can save more and everything is COMPLETELY CONFIDENTIAL.

See you all next week!

Bi-Monthly Mortgage Insight - How much can I afford?

We are well on pace to 1,000 views by the end of the year. Currently we have 414 on just 5 posts (and one of those was the Welcome post).

Whether you are buying your 1st home or refinancing your 3rd investment property, there are things everyone should know.

1.) What can I afford?

2.) What fees are negotiable?

3.) What does APR take into account?

4.) When shopping do I just look at interest rate?

5.) What are the components of a mortgage payment?

6.) What are my different loan options?

With my "Monthly Mortgage Insight" I will go over these and many other things related to the industry and HOW IT AFFECTS YOU!

Did you know that someone making $50,000 with no debt can afford a $265,000 loan (purchase price minus your down payment) in Upper Arlington but in Sunbury they could afford a $297,000 loan?

How could just a 30 minute drive up north provide you with $30,000 more of house?

That direct answer is simple, real estate taxes. But Real Estate Taxes are only a portion of what goes into figuring out how much of a house you can afford.

Currently, you can do a conventional loan AS LONG AS your total monthly expenses total less than 45% of your income, sounds pretty simple right? 

 

We take your combined housing expenses (Principal & Interest, Real Estate Taxes, Homeowner’s Insurance, Condo/HOA Dues) and add those to other expenses incurred on a monthly basis. This includes, but is not limited to: Student Loans, Car Payment, Current Collections, Alimony, Child Support, Back Taxes, etc. We add all those up and call those your LIABILITIES.

The problem arises that real estate taxes can vary greatly depending on the location. Are you looking at a condo or single family residence? What is your insurance agent going to charge for homeowner’s insurance? Are your student loans currently in deferment? If so, what are the payments going to be when they come out? How long do you have to keep paying child support and alimony for? Do you know your credit score? A 739 vs a 740 can be a 1/8% difference in interest rate. A 740 vs 699 can be the difference between having a conventional and government loan.

We then take your income, simple right?

1.) If it’s a part-time job, you need to years of history.

2.) If you’re hourly we take your hourly wage and multiply by the average hours you work a week (weekly income), multiply by 52 (annual income), divide by 12 (monthly income).

3.) If you need commission or a bonus to qualify for the loan, we take your currently salary (if you have one) then add the average of your last two years commission or bonus. But if there is a large discrepancy (i.e. you earned A LOT MORE or A LOT LESS), they can simply take the lower of the two years.

4.) If you’re self-employed, we take two years average income (less write-offs) as long as the income is comparable in amount. As mentioned, if you write off items on your taxes, they can decrease your qualifying income. Additionally, they may required reserves in savings because YOU ARE RISKY!

AND THAT’S YOUR INCOME!

Coming January 2014 though you can only spend up to 43% of your income on total expenses, so get those applications in soon!

A good rule of thumb is that if you can afford it on a 15 year loan, it is very safe on a 30 year. Too often people try to max out what they can afford. If you have a steadily increasing income, this is fine. If you have items on your credit report that someone else is paying (i.e. mom or dad is paying student loans), this is fine. There are very few times I would recommend maxing out your allowable limit. AND THE BIGGER THE LOAN THE MORE I GET PAID! (So I must be speaking the truth).

Finally, I did not talk about FHA loans, because unless it is necessary (credit below 700, can't afford 5% down, etc) I try to avoid those. Recently the government has increased the AMOUNT of monthly Mortgage Insurance and LENGTH OF TIME you pay monthly Mortgage Insurance.

To receive a FREE and CONFIDENTIAL personal financial assessment, email me at davids@eqfin.com.

***I've saved people $1,000s over the years!

Also during Football Season I will post my leadpipe locks. Saints 44-Dolphins 24

Why Use a Credit Card?

Again, thanks to everyone who is looking to improve their financial situation. As of THIS MORNING, I had 358 views! Keep following and keep saving!

As I mentioned in my last post (which you most assuredly read and more assuredly heeded my words), I spent $2,429 last month. A certain portion of that (my fixed expenses) I was not able to pay with credit card. Usually rent, mortgage, car payments etc are only able to be paid via Debit or Credit Card if you pay a fee. However, if the reward outweighs the fee, DO IT!

Here's an example: 

If you have $1,000/month in rent to pay, but they charge a $2.95 processing fee, then that fee is only .295% of the amount you're spending. If you even earn 1% on all purchases with your credit card, you're up by .705%. That means you made $7.05 by using your credit card vs. writing a check. That's $84.05 in rewards a year. Go out to eat a nice dinner with that (and PAY WITH YOUR CREDIT CARD).

The more likely scenario is that if you have a $1,000/month in rent to pay, they charge a 5% processing fee. Now if you make 1% on all your purchases, you spent $50 in processing fees, but only made $10... So you lost out on $40.

DON'T HAVE A CREDIT CARD?

GET ONE!!!
YOUR CREDIT DEPENDS ON IT!

When applicable and when it makes sense, I use a credit card for every purchase I make, BECAUSE:

1.) I can more easily track my expenditures

2.) I receive credit card points

3.) By using the credit I am allotted, it shows I am responsible and EXPERIAN, TRANSUNION and EQUIFAX just love someone showing responsible use of credit.

Why is tracking your expenditures important?

So you know where your money is going. If there is anything you are trying to do, in this case saving, you need to point out your weaknesses. I have two great sites to track my expenses:

                                 

                                 CHASE

MINT

From the Chase info-graph, I can see that I spent $684.50 at restaurants last month because I earn 2 points per $/spent. This is my largest expenditure.

From the Mint graph, I can see that my largest expenditures are Home, Auto and Food. Home and most of auto is a fixed expense, so I can't reduce that by much. Food and Dining is a variable expense however. If I want to save money, I should focus on this area.

You'll notice that because the credit card statement does not show my fixed expenses (because I cannot use a credit card for them) this automatically eliminates items that I cannot reduce the payment on.

Are Credit Card Reward Points Worth it?

As you'll see above, I have 94,527 points saved, as of last month, on one card. With that, I can do the following:

1.) Receive a check/deposit for $945.27.

2.) 4 Adult/4 Child 1 Day Passes to Universal Studios

3.) $945.27 towards Amazon.com purchases

4.)  $1,6000 credit towards a flight and have 4,527 points left ($45.27)

SO YES, THEY ARE WORTH IT!

Responsible Credit Use?

Experian, Transunion and Equifax (the three Racketeers if you will) are the three big credit bureaus. They are responsible for almost all of credit reporting done in the United States (so you want to keep them on your good side). What's the easiest way to do this? HELP THEM MAKE MONEY!

The two ways that these companies make the largest portion of their money is 1.) Charging companies such as Chase, Honda Financial, Ford Financial to report data to them. 2.) They sell your information in the form of leads to other companies.

As an example, let's say you have 3 credit cards - 1 from Chase, 1 from Fifth Third and 1 from Huntington. You use Chase and Fifth Third ALL THE TIME. One's a Mastercard and the other you use is a Visa, so it just depends on what that merchant accepts. But you never use Huntington. After a certain period of time, Huntington stops reporting your data to the bureaus. Well, they don't like making less money so this hurts your credit score because as they put it, you are not utilizing all available credit. This is bad because they say it's bad. But ALSO, if you use too much credit (getting over 35% of the available amount on any one line, this is also bad)... HMMM...

The moral of the story is, use all your credit cards at least once every few months, but don't use too much of your credit on any 1 card, but also use your credit card anytime you can...

Get it? Got it? Good!

To receive a FREE and CONFIDENTIAL personal financial assessment, email me at davids@eqfin.com.

Next week: Monthly Mortgage Insight

Monthly Savings

I want to thank everyone who continues to view the blog. As of Friday the 13th, I had 238 views! Keep following and keep saving!

In August, I spent $2,429, not my most frugal month.

If you don't know how much you spent, KEEP READING!

There are certain items that are FIXED EXPENSES. Their cost DOES NOT CHANGE each month.

            For me, they are rent and a car payment. For you they may be mortgage, student loans, child support, alimony, etc. In general, these payments CANNOT be decreased.

            There are certain items that are SEMI-FIXED EXPENSES. They remain around the same cost, but can slightly vary month to month.

            In general, gas, utilities, cable/internet related items have a fairly similar cost. You drive a comparable amount of miles, you use a comparable amount of heat/AC and unless you purchase movies or up/downgrade your service, so these items are generally the same in cost.

Lastly, we have VARIABLE expenses. These items vary GREATLY each month.

Entertainment, groceries, travel, golf and dining are my variable expenses. 

My fixed expenses came to $1,254.
My semi-fixed expenses equaled $267.
My variable expenses summed $908.

             Rent and my car payment are NON-NEGOTIABLE. Well they are, but only at the beginning. Once the interest rate or rent payment are established, I HAVE to pay over that time period. I sign a lease or a contract. They give me a place to live, I pay them money in return. I sign a purchase contract for a car, they agree to let me take the car, even though I only paid a portion at the signing. They loan me the remainder at a .9% interest rate. The gist, I MUST make at least $1,254 after taxes or I CANNOT meet my monthly obligations.

My semi-fixed expenses (gas, utilities, heat/AC) are relatively low. 

How do I keep these low?
            GASBUDDY (app) is a GREAT TOOL. I downloaded the application and I can't tell you how much money this has saved me over the years. I know when I am going to from Columbus to Dayton, I have PLENTY of options for gas. This tells me my best option, based on user entries, updates minutes/hours ago. 

             Utilities are a FICKLE BITCH. One month I used something like $3 worth of natural gas and my total bill was near $15 after fees, charges and taxes. It is UTTERLY RIDICULOUS. Keeping the costs low are SO EASY though. In my little apartment, I turn off all lights, the AC, TV etc when I leave. This sounds simple, but the savings can really mount up. Sometimes it makes more sense to keep the AC on. You will have to judge based on the size of your home. In a smaller place, that doesn't take long to heat up, it is much less costly to turn it off when you leave and on when you return. In a much larger home, it may more sense to keep it on during the whole day because keeping the temperature at 73 is less costly than cooling from 79 to 73 when you return from work.

            What are you paying for your cable and internet? I can guarantee I am currently paying less... $0.00. For some this would be a major sacrifice. For me, I don't mind living a simple life. I bought an antennae from Wal-Mart for around $30 and it gives me ABC, CBS, FOX, NBC and some other channels, IN HD!!! If you insist that you need Bravo, E!, Food Network and HGTV, then here's a little tip, very little. You're still paying too much. CALL AND NEGOTIATE. If you're not comfortable with this, I CAN DO IT FOR YOU. THIS IS WHAT I DO!!! SAVE YOU MONEY!!! 
       
            Another option? NETFLIX. For only $8/month you can have access to over 100,000 titles. You think $8 is good? Try sharing with someone else and it's only $4/month. Guess what, there's always a way to save more!

           My variable expenses could be MUCH lower... Taco Bell.

        These are the most important expenses in a sense, because you have the most control over these. Look at your variable expenses and see where you spend the most.

Do you eat at Applebee's often? Did you know there are at least TWO OBVIOUS ways to save money?
1.) If they offer a $5 free card for buying a $25 gift card, why would you not buy one? That's $5 in instant savings.

2.) Buy gift cards at Giant Eagle or Kroger. Then you get extra discounts towards fuel. EVEN BETTER! Use your credit card and get rewards points on that. Think Credit Card rewards points are stupid? I have over $1,000 in cash saved up from credit cards and multiple free hotel nights (in less than 7 years). 

Do you ever travel to a place and need a hotel?
Use Travelocity, Hotwire or my favorite PRICELINE!

Just an example of savings:
Millenium Hotel - Cincinnati - Saturday Night Reds Game
After Tax = $174.70 for a 1 Double Room through their website.
After taxes and fees = $93.27 on Priceline. In addition, I booked it the night before.

SAVINGS = $81.43

There are certainly drawbacks, i.e. you can't choose your room type, you don't know the hotel until your bid gets accepted, it's non-refundable. The good news? NEVER BEEN AN ISSUE FOR ME!

After you get more comfortable with the site, you can even start determining which hotels you might be bidding on based on star rating, amenities, past history, etc. Questions? Worries? - Ask me!

Finally, the lost art of coupon-clipping is a GREAT MONEY SAVER. Don't buy stuff because you have coupons, use coupons for stuff you want to buy.

To receive a FREE and CONFIDENTIAL personal financial assessment, email me at davids@eqfin.com.

Next week: Use Your Credit Card!!!

How to... Read a Credit Report

In my last post I had gone over the IMPORTANCE (which can't be stressed enough) of understanding your credit score and how it's calculated. Today I will go over how to read a credit report. This is almost as important as knowing WHAT makes up your credit so that you can make sure it's accurate.

A couple things to note prior to getting into detail:

1. Each reporting company (CBCInnovis, Interactive Data, HSBC) can format their credit reports differently.
2. This will not cover everything that may appear on a credit report.

Parts Of a Credit Report

• Summary Page which has:
• The reporting company's name, number, address and fax
• WHO the report was prepared for: Equitable Mortgage, White Allen Honda, etc
• You/Your spouses basic secure information such as Full Name, Date of Birth, SSN, Recent Addresses
• Summary of Credit
• Type of Credit (revolving, installment, real estate, other)
• Monthly Payments, Balances, Limits
• Trades - # of Each type of Credit
• 30/60/90 - # of Lates in Each Category for that many days
• # of inquiries, Public Records, Bankruptcies, Past Dues
• Credit Scores

As you'll see, this individual has revolving, installment and real estate, THREE DIFFERENT types of credit. As you'll recall from last week, the different types of credit is 10% of your score, so they get a B in that department. 

Next I notice that their balance on revolving credit (usually credit cards or Home Equity Lines) is only 1.3% ($179/$13,500). Last week I stated that the goal was to keep that below 25% ideally, but it is reasonable to go up to 35% if need be. They got an A+ in that department which is 30% of their score.

As we move further right, there is all 0's in the 30, 60, 90 columns. This means they have made 0 late payments of at least 30 days. This is 35% of their payment history. Another A+.

The last thing I notice prior to their scores is that their oldest date of established credit is over 20 years ago. The average length of credit history is 15% of their score. It is safe to say their average length is pretty good if they have 20 years of history with one credit. A+.

As you'll see the scores reflect what I mentioned above, with 802, 807 and 821. Those scores are roughly in the top 10% in the nation. Scores range from 300 to 850 (Equifax), 309 to 839 (TransUnion) and 320 to 844 (Experian).

• Detailed Credit Information which has:
• Who the credit line belongs to (ECOA 0-9)
• Creditor (Who you make your payments to)
• When the data was last reported
• When the account was last used
• When the account was opened
• Limit or highest balance
• For a credit card this would be your limit
• For an installment loan (like a car) this would be the amount financed
• Balanced owed
• Amount Past Due
• Terms
• Written as "Months M Monthly Amount" 
• 30 Years at $855/Month would be 360 M 855
• Type of Credit (MTG - Mortgage, REV - Usually A Credit Card)
• Historical Status
• Number of months making payments
• If you have had any 30, 60 or 90 day late payments
• The dates of those late payments

These are the most important things so let's take a look at these pieces on an actual credit report:

(Moving Left to Right)

ECOA - Stands for Equal Credit Opportunity Act - This states how the account is owned:
     1 - Borrower (Not shared with anyone)
     2 , 4 - Joint (Shared with someone else)
     3 - Authorized User (BE VERY CAREFUL, THIS CAN AFFECT CREDIT)
     The other numbers are less prevalent, but feel free to reach out to me for an explanation.

RPTD - Shows the information was last reported in December 2012.

LAST ACT - Shows there was last action on the account in December 2012. This is updated every time credit is used or payment is made.

OPND - Shows the account was opened in August 2012. This is updated only 1 time, at opening.

The limit and balance owing are pretty self-explanatory, what your initial credit limit was and what you owed at the reporting date. REMEMBER, even if you pay it off each month, if the BALANCE OWED is high relative to the credit amount, it negatively affects your credit.

Terms Payment - As you will see on the second credit line, this person is expected to pay for 36 months the amount of $248 (36M248). Most credit cards show as V ##. This means the payment is variable (because you spend a different amount each month on your credit card).

Type - This will state either MTG  (Mortgage), INS (Installment), REV (Revolving), OPN (Open) 
FOLLOWED BY:
Real Estate, Lease, Auto, Credit Card, Unsecured, Educational Ln
FOLLOWED BY:
What bureaus it is reported to (not all credit items are reported to all bureaus).

HISTORICAL STATUS - This is what makes up 35% of your credit score. This shows HOW MANY payments you've made on this account as well as any lates you may have made. All those 1's show that this borrower has made all of his payments on time. 
If you saw: 1 - On Time, 2 - 30 Days Late, 3 - 60 Days Late, 4 - 90 Days Late, 5 - 120 Days Late, 6 - 180 Days Late, 9 - Bad Debt Placed for Collection, X - Payment Deferred/No Activity 

YOU NOW KNOW MORE THAN 95% OF AMERICANS IN REGARDS TO YOUR CREDIT REPORT, TUITION FREE. YOU'RE WELCOME!

To receive a FREE and CONFIDENTIAL personal financial assessment, email me at davids@eqfin.com.

Next week: Monthly Savings!

Credit

FIRST OF ALL, I want to thank everyone who viewed the 1st blog that as of August 30th had 101 views! AWESOME!

Unless you are a MILLIONAIRE or BILLIONAIRE you will need to use credit at one point or another in your life (and and even some of them still do). Mark Zuckerberg even financed a house (at a 1% variable rate) that he could easily have paid cash for. Anytime you finance something you are using credit provided by someone else and therefore reported to the credit bureaus (Transunion, Experian and Equifax).

But do you know how your credit is calculated? 

The basic answer is:

1.) 35% is your Payment History

2.) 30% is the Amounts Owed

3.) 15% is Length of Credit History

4.) 10% is New Credit

5.) 10% is Types of Credit Used

The more detailed answer is:

1.) You want to make all payments on time, preferably BEFORE the due date. Usually items are not reported as lates until they are 30 days past due. This does not mean you can consistently make payments on the 29th day after they are due. Companies will begin recognizing your late payment history and can start reporting items as late, prior to the standard 30 day grace period. In addition, they can charge you additional fees.

2.) The amounts owed are relative to the credit limit. This means that a $5,000 balance on a credit card with a limit of $50,000 is MUCH more reasonable than a $5,000 balance on a credit card with a limit of $7,000. Over different articles I have read, the max credit limit ratio (amount owed divided by credit limit) is between 25% and 35%. There are a few additional notes on this matter. 

     a.) Balances are reported at the end of billing cycle. When it says you owe $2,500 on a card with a limit of $5,000 your reported ratio is 50%. Even if you pay it off each month and have never paid interest, it can still hurt your credit score carrying a limit monthly limit ratio.

     b.) It IS allowable to make payment on credit cards more than once a month. As a point of matter, I do this frequently. I NEVER allow my ratios to exceed 20% at any one time UNLESS it is a large single purchase. Even when I do, I make payment on it immediately. This is much easier if your credit card is through an institution that you bank with.

    c.) If you owe $0 (either by paying not using the card or by paying the balance to $0 before the billing date comes due), your balance will obviously be reported as $0. If your balance is reported $0 too many times, the institution that holds your line of credit can stop reporting it to the credit bureaus. You do NOT want this to happen because this decreases your available credit as shown on the credit report, decreases your average length of credit history, decrease the amount of good payment history and limits the different types of credit used.

3.) Your average length of credit history is important because if you have longstanding credit with one source, it shows that you are a good borrower. If you weren't, they wouldn't continue to extend you credit. 

As an example, if you have 4 different lines of credit with lengths of time since opening: 12 Months, 28 Months, 56 Months and 84 Months, your average length of credit history is 45 months. If you were to close your credit line of 56 months, your average would drop to 41 months. Someone that has an average history of 45 months vs 41 months shows they are a stronger borrower.

4.) There are two ways new credit is judged on your credit report:

     a.) Recent inquiries - The more recent inquiries you have, the more it shows you are trying to get credit. This is not a bad thing, but if you have too many inquiries in a small time frame it can be a sign you desperately need credit which IS a bad thing.

    

     b.) Additionally, as previously mentioned, new credit decreases the average length of credit history which is not a good thing.

5.) Historically speaking, different TYPES (car, mortgage, credit card, student loans) of credit represent less risk to a lender. If you can handle a steady set payment (car aka installment) and a credit card (unsecured debt), it shows that you are responsible and helps your credit score. This doesn't mean open up a car loan just to increase the mix of loan types because at the same time it may hurt your score. This is due to the previously mentioned new credit and balance to credit limits.

Simply - If you make your payments, keep lines of credit open and keep balances relatively reasonable you will have a good credit score. However, I have looked at almost 200 credit reports in the last year and this is not always the case...

THE MOST IMPORTANT THING:

Make sure information is ACCURATE on your credit report. Your score is what it is, but you must make sure it is accurate. The best way to do this is to Check Your FREE Credit Report annually. This is the best and most legitimate site to do this. It will NOT tell you your score, but you do get a free report once a year from each bureau. My recommendation is to check each bureau every 4 months. For example, in January check Experian, in May check Transunion and in September check Equifax. This way you get to see the whole report 3 times/year. There's no sense in checking all 3 at the same time because the information will be almost identical.

To receive a FREE and CONFIDENTIAL personal financial assessment, email me at davids@eqfin.com.

Next week: How to read a Credit Report