Category Archives: Credit - Page 2

Debt management

debt-reduction.jpgDid you know that the average American household with at least one credit card has nearly $9,200 in credit card debt? That’s quite amazing isn’t it? Looking at the number, it is a little hard to believe that the average is so high, but when you realize that our nation is built on credit, it becomes a little more easier to gulp down.

There’s the good and the bad:

When I look at debt, I see it as two kinds of debt. There’s the good debt and the bad debt.

You accumulate good debt when you’re borrowing money for a student loan or for a home. You just have to make sure that you don’t borrow more than you can pay back.

Bad debt is using your credit card to buy things like food, clothes, DVD, etc. This is the easiest way to fall in debt. When you get in the habit of buying things with your credit card, in return you also want to get in the habit of paying it off in full that month.

The general rule is that you don’t want to get in a habit of using your card unless you plan on paying every back that month, this is the fastest way of falling in debt. Here I have gathered 3 general debt management tips.

Debt management tips:

  1. Make a budget journal. Most people spend thousand of dollars without too much though as to what they’re buying and that’s why people are surprised at how high they’re credit card is. Get a nice journal and start writing down everything you spend. At the end of the month you’ll know not only how much you spent but also what you bought. This way, you will know what you can cut back on and how much less you want to spend the following month.
  2. Pay off your highest-rate debts first. On average, most people have more than one credit card. The key to getting out of debt is to first pay down the balances on credit cards that charge the most interest rate while paying at least the minimum due on all your other debt. Once you finished paying off the highest rate, then start tackling the one next highest.
  3. Expect the unexpected. You want to expect the worse can happen at any given time, so start making an emergency account. You want to have enough saved to last you 3 – 6 months of living expenses in case of those emergencies. If you don’t have an emergency fund, a trip to the hospital or damaged car can seriously upset your finances.

If you end up with more debt than you can manage, then you should get some help whether it’s from a professional or someone you know before it’s too late. It may be embarrassing to ask a relative for some help but that’s alot better than ending up with bad credit.

8 Reasons Why I prefer credit cards over Cash

vida_master.bmpI know most pf bloggers would disagree with me on this one but I actually think that carrying credit cards instead of cash will save you more money. I actually have been experimenting over the past few month on what I prefer over carrying over the two.

For one period of time, I went living only on cash and cash only. So that means no credit cards, no debit cards, no plastic. I would go to the ATM once a week, to my own bank to avoid the ATM fees, and take out 40 bucks and that would be it for that week.

After trying the cash method, I then went on to try carrying only credit cards and debit cards. I found this method to be a lot more effective, not only in saving money but also keeping my self organized.

Here is a list I gathered from my experiment which gives all the reasons why credit cards are better to carry then cash.

  • I don’t know if it’s just me but when I see cash in my wallet, it’s more appealing to spend it. I would make a decision on what to buy based on how many ones I had.
  • When you use your credit card, you don’t have to worry about getting change, you get charged for the exact amount and you don’t have to worry about what to do with the “leftover” cash.
  • If you like to hold on to your receipts to keep track of your finances, it is a lot easier to keep them organized when you have everything listed online from the use of credit/debt cards. This was a huge factor for me.
  • When you carry cash, you’ll end up getting a lot of lose change and for the most part, people don’t save them. They scatter and gets lost.
  • Carrying lose change is easy to lose track of and hard to manage. Especially when you’re on the go.
  • As lazy as it may sound, when using your card you don’t have to worry about counting your money, just pick and swipe. :)
  • With all the rewards and promotions credit cards companies have to offer these days you can get great deals on flyer miles and even redeem points for household appliances.
  • When using your credit card, you can also be improving your credit score at the same time.

 So there you have it. I gave you 8 reasons why credit cards are better than cash. It’s true that there are also reasons for why cash is better than credit cards also but overall I still think that credit cards is the way to shop. GO PLASTIC!

I just got approved for a credit card limit of 25k!

credit-card.jpgWow, all these years paying my credit card on time and it looks like it’s finally starting to pay off. I have now been trying to build my credit for about 3 years now, consistently checking my credit report and making sure to meet my payments each month and finally, my bank decides that they can “trust” me with a credit card with 25,000.00 dollar limit. Woot!

My first credit card had a limit of 2,000 dollars and back then, that was a lot for me. I was really happy to know that I was worthy of being offered a credit card with that high limit. Ever since then, I’ve always been trying to see how much of an increase I can get by calling and asking every 3 months. So I guess in a way, that was one of my motives for wanting to increase my credit score, so that one day I can have a credit card with limit that’s over 20,000.00 dollars. And now that I finally got this limit, I hate to say it but I think I’m going to have to decline it.

So you’re asking why decline the offer I’ve been working so hard for? Well there are plenty of reasons I guess. Here are 5 reasons:

  • Accepting this credit card with 25,000.00 might lower my credit score. Although my initial reason to build my credit was to have an enormous credit limit, now I’m looking in to buying a house within the next four years. I need to keep my credit score up so that it will help me get the necessary amount for down payment for the house.
  • I already have 3 credit cards and another one is not necessary, especially since I am in the process of getting out of debt from my previous credit cards. Accepting this credit now would be really stupid move for someone whose trying to get out of debt.
  • Having high credit limit is not always a good thing. One, it can lower your credit score, and also what if your wallet gets stolen? Then what? The higher the limits your credit cards has, the more damage the person who finds it can do.
  • Having that high credit card might just influence me to go out and use that card. Not a good thing.
  • I really don’t have the use for it. I’m just happy that I got offered :)

Anyways, on top of my credit card offer which was going for the rate of 12.15%,I was also offered an auto loan for 50,000.00 at 6.24% and also a personal loan for 3,000.00 at the rate of 11.5%. In total, it comes to a nice grand total of $78,000.00! And although it’s very tempting, I’m not accepting any of this.

How credit scores are calculated

accepted-756691.jpgYou can definitely get lenders attention by filing for bankruptcy but the small things can also have just as big of an impact on your credit score. Here are 5 areas in which credit lenders look to judge your credit score:

  1. Past payment history-Your payment punctuality weighs heavily (about 35%) on your credit score.On the flip side, by paying your bills consistently on time, you can greatly improve your overall score.
  2. Amounts owed- Add up all of your outstanding balances and compare the number to the amount of credit that is available to you. If you are reaching or exceeding your credit limits (perhaps you’ve heard the term “maxing out”?), lenders will get antsy.
  3. Length of credit history-Fifteen percent of your credit score is determined by how long you’ve been using credit.Obviously, the longer your credit history, the more favorable lenders will see you. Your score in this area also takes into account how long it has been since you used certain accounts
  4. Amount of new credit-Each time you apply for new credit, an inquiry shows up on your report. Red flags start waving when you take on more credit — or even just apply for new credit in a short period of time.
  5. Types of credit-Types of credit include credit cards, retail accounts, and installment loans (like car loans and mortgages). Your use or over-use of these has a 10% impact on your overall score.

How to improve your credit score

creditscore.jpgAs I have stressed the level of importance regarding your credit score in my previous posts, now I want to talk about how you can improve your credit score. We all know that credit is very important and useful to us in many ways. That little slip of plastic opens up a whole new world of possibilities and you want to make sure that credit is on your side. Here is a quick list of 5 things you can do to improve your credit score:

  1. Pay your bills on time. This is probably the most important of all the steps when trying to improve your credit score. Missing just one payment on a credit card or car loan can take 50 to 100 points off your credit score. And if you miss an entire month’s worth of payments, your score could easily drop 100 to 200 points.
  2. Don’t automatically close older accounts you have paid off.This way of thinking has been updated over the past few years. The rule of thumb had been to automatically close every account that had a zero balance to improve your score. Now the strategy is just the opposite. By closing your oldest accounts, you may actually be considered less creditworthy
  3. Try credit counseling. Legitimate credit counseling agencies, like InCharge Debt Solutions, a non-profit consumer organization, can help you improve your credit situation, which in turn can help improve you credit score.
  4. Avoid bankruptcy. The worse thing that can happen to your credit score is to declare bankruptcy. This can take off around 200-300(or more) points on your credit score!And declaring bankruptcy will typically stay on a credit report for a very long time, up to 10 years.
  5. Pay down your debts, and once you have paid them off, charge less in the future. Creditors expect a certain amount of room between the amount of debt on your credit cards and your total credit limits. The more debt you pay off, the wider that gap and the better your credit score.

Things to consider when choosing your credit cards

credit-cards.jpgLike most of my friends, who loves to flash their plastic cards, they don’t always make the best decisions when choosing their credit cards. Instead they chose the cards that has the highest credit limit and then spend away. Here are some things to consider when looking for a credit card:

  • Many banks and credit cards charge you annual fees for the card to lend you the money. You want to make sure you find out all the (hidden) fees that they come with before making that decision to accpet the card. If the card has an annual fee, call and negotiate. Most lenders will take the fee off if you threaten to take your business elsewhere.
  • Some cards have no annual fee, or don’t charge the fee if you spend more than a certain amount with them each year. You want to carry a card that has no annual fee, a 25-day grace period and an APR thats 12% or lower. If the card’s APR is higher than 12%, call and negotiate.
  • Many cards now have introductory offers, such as 0% charges on your old balance for six months if you transfer to them. Beware of being landed with a very high APR at the end of the interest-free period.
  • Your introductory rate should last at least 6 months.
  • If you’re already in debt, not very organized or good at handling money, maybe a credit card is not necessary for you.

Some credit cards also offer purchase protection, temporary insurance against damage to your goods or theft and this is generally free of charge. Payment protection can also be arranged at a cost, which you can design to pay it on a monthly repayment plan. When choosing your credit card, you should definitely do your research and don’t be so quick to take the card with the highest credit limit.

Retire Young Retire Rich

retire_young_retire_rich.jpgOne of the Chirstmas gifts I got this year was a book called Retire Young Retire Rich, from the same author who wrote the best seller Rich Dad Poor Dad, Robert Kiyosaki. I am looking forward to reading this book and possibly share some key points and post them here. My goal is to read at least one chapther a day so that means I should be done in twenty one days which is the 16th of January.

So far I have read the introduction to the book called ”Why David Met Goliath” and want to point out some parts that I liked. Robert Kiyosaki talks about how one the most important word in the world of money is leverage. He says, “Leverage is the reason some people become rich and others do not become rich.” The book is broken up into four sections based on leverage.

  1. The leverage of your mind (chap 1-8)
  2. The leverage of your plan (chap 9-13)
  3. The leverage of your actions (chap 14-20)
  4. The leverage of the first step (chap 21)

In the introduction, he noted that David and Goliath was one of rich dad’s favorite stories. Saying that he suspects that his rich dad may have seen himself as David, a man who started with nothing, yet to rose to compete against the giants of business. Rich dad said,”David could beat Goliath because David knew how to use the power of leverage. A young boy and a simple slingshot were far more powerful than the feared giant, Goliath. That is the power of leverage.”

I’m looking forward to starting this book.

The Importance of Having Good Credit

creditcard2.jpgHaving a good credit history is very important in maintaining a healthy and happy life. What most people don’t realize is that most employers, landlords and even insurance companies check credit scores to make that final decision in whether or not they should give you that job or contract. Credit report and their scores helps companies determine whether you pay your payments on time or even if you have been sued or filed for bankruptcies. This way, they can use these information as a future indicator of your “credit worthiness”, as it can reveal info about your past and present payment patterns.
Especially for me, everything that I want to do involves me having good credit. I can list the top 3 goals that I want to acheive in the next 5 years and how they relate to having good credit.

  1. After graduation, I am going to want to go apply for a job which will most likely check my credit score to make some indication of how “responsible” I am. Most companies today have credit checks and having good credit might be that extra push that they need to make that decision on whether or not to hire me.
  2. The type of work that I want to do might require me to have a top level security clearance. Therefore having good credit is a must for this goal.
  3. I want to buy a house maybe 2-3 years after I graduate, which will be in 2008 of may. It is critical that both my girlfriend and I have excellent credit scores for this one. Ofcourse having a good amount for down payment and our debt/income ratio will be a huge factor, but having that good credit score will for sure be helpful when it’s that time for the credit bureau to decides how much they can trust to give me for a loan for that house.

These are some examples of how crucial it is for me to have good credit. I want to emphasize the importance of good credit by saying that everything that I do now to prepare for my future is dependent of having good credit. The importance of credit today is so significant because it is one of the major methods people are using to make any kinds of judgement on who you are based on your past payments. Although bad credit scores is not the most accurate way of identifying someones behavior, however, it can still be used to make that assumption because that is all that they can go by.