Personal Financial Tip 5

Routine maintenance is something that needs to be performed on everything. We periodically change the oil in our cars, we have the car inspected annually, we have annual physical check-ups, etc. We do this in the hope of preventing problems and to discover minor problems before they become major ones.

One thing we tend to ignore is our credit report. They only time we think of our credit is when we are applying for a loan. If there are any problems with our credit profile, we can end up being declined for the loan or find ourselves paying more for credit than we should.

Today, more than ever, it is important that you do ongoing routine maintenance on your credit report. Lenders examine your credit profile when you are applying for credit, employers when you are applying for a job, landlords when you are looking to rent an apartment and insurance companies when you are looking for insurance. Errors on your credit report will negatively impact all these major decisions.

Mistakes are not common in credit profiles, but they do happen. Correcting mistakes takes time so it is in your best interests to discover a mistake before it can cause you any harm. I’m going to tell you what routine maintenance you need to do as well as the steps that you will need to take to address any problems that you may find.

Before we begin, you need to understand how the industry works. Think of the credit bureaus as nothing more than large filing cabinets. Every month each creditor you deal with sends an update to the bureaus. If you’ve borrowed more money, paid off a loan, made a timely payment or made a late payment, this data is added to your file. There are 3 major credit bureaus (Equifax, Experian and Trans Union) and most creditors report to all three. You will need to monitor all three bureaus for accuracy.

When an entity wants to see your credit profile, they need to first receive your permission and then an inquiry is submitted to the bureaus. The bureaus then assemble all the data that has been supplied to them by your creditors and searches public records for any judgments and bankruptcy filings. This data is combined to create your credit report and if requested, a credit score is calculated. The score is a computer analysis of your report that yields a short cut to your creditworthiness.

For a more detailed analysis of credit scoring please visit http://www.shelter-rock.com/Credit%20Reports.htm.

You are entitled to get a free credit report once a year from each of the bureaus. What you want to do is to request a report from each bureau once a year, spread out throughout the year. This way you get to see a report three times a year without any cost. Visit www.annualcreditreport.com to access your report.

In reviewing your report you’re looking for any derogatory data, judgments, collection accounts, charge-offs, late payments, etc. If you find any incorrect information you will then need to work on getting the item(s) corrected. This will be a time consuming process and you will need to document every step.

Contacting the credit bureau with a consumer complaint is not going to guarantee the correction will be made. When you file a dispute with a credit bureau, the bureau is responsible to forward your complaint to the creditor in question. The creditor has 30 days to respond. If the creditor doesn’t respond, then the bureau must remove the item in question.

If the item is removed because the creditor corrected the error, you’re fine. If it is removed simply becaues the creditor did not address the dispute within the 30 days, you have not solved the problem and that same error will re-appear on your report. Remember, each creditor reports to the bureaus every 30 days. If their records haven’t been corrected, then the item in dispute will be re-entered into your credit profile in the next cycle. There is no way for you to know what initiated the removal of the disputed item unless you are fortunate enough to get a written acknowledgement from the creditor.

The only way to assure that the error is permanently corrected is to contact the creditor and/or collection agency directly. Before making contact, assemble any documentation you have available to support your claim that there is a reporting error. Send any written correspondence by certified mail/return receipt requested and keep a telephone log of any conversations with the creditor. Through your persistant contact with the creditor you will eventually get the problem resolved.

It will appear that the creditor is just being difficult and doesn’t want to cooperate in correcting their mistake. In some cases this is true, but in most cases you are dealing with a creditor that is being overwhelmed with invalid disputes. Until your valid claim is separated from the overwhelming number of invalid complaints it cannot get the attention it deserves.

The bureaus and creditors receive a combination of legitimate, valid disputes as well as disputes where the consumer is wrong and the data is correct; and then there are the disputes filed by "credit repair" companies. These are companies that promote themselves as professionals in removing derogatory items from credit reports. Their business model is to overload the system with disputes. Every time a dispute is proven to be invalid, they simply resubmit the dispute complaint. In every batch of disputes sent to the bureaus and creditors, a few get randomly removed. Their goal is to create enough confusion at each of the agencies, that errors begin to happen. In this case however, the error is removing a valid derogatory item from a report.

You need to do everything possible to separate your valid dispute from the hundred of thousands of invalid ones. That is the only way to you can be sure the mistake is removed, permanently.

Mistakes in your credit file don’t happen often. Minor mistakes such as an occasional late payment will have no material impact on your creditworthiness. If you do however discover an error, just be prepared for a long and frustrating task. As frustrating as it is, it’s definitely worth the effort.

Personal Financial Tip 4

Credit cards are powerful financial tools. They allow us the freedom to make purchases today and pay for them over time. They eliminate the need to carry large sums of cash around. They provide a great convenience that we’ve all grown dependent on.

We are all aware of how easy it is to accumulate large balances on our cards. We try, with varying degrees of success, to resist the temptation to purchase things we don’t really need. We hope that through this exercise in self-control we can keep our credit card balances from growing any larger than absolutely necessary.

No matter how successful we are in controlling our spending, our credit card balances will still creep up if we’re not careful. This stems from the fact we rarely purchase anything with cash anymore, we use our credit cards. It’s not practical to carry around enough cash for our day-to-day purchases. In today’s society the simple actions of filling up your gas tank and picking up groceries will require you to have over $100.00 in cash. It is more convenient, as well as safer, to charge the purchases and then pay the credit card bill at the end of the month.

There is a problem in addressing your personal expenditures this way. If you left home yesterday with $100.00 in your pocket and bought a tank of gas for $50.00 you now have $50.00 to spend at the grocery store. You are limited to what you can buy with that $50.00. Today you are planning to do the same thing. Leave the house with $100.00 buy gas and groceries. You stop to buy gas and that same tank of gas now costs you $55.00, leaving you with only $45.00 to spend on groceries. You start with $100.00, you have no control over the price of gas and since you can’t print up money at will you are now forced to spend less on groceries.

Living day-to-day on cash forces you to reduce your spending habits immediately in response to inflationary pressure on the cost of your previous purchases. By using credit cards for these purchases you typically will not modify your spending habits but end up having charged more at the end of the day. This results in a slow yet steady increase in the outstanding credit card balances that can easily go unnoticed.

Until recently we’ve been living in an economic period of little or no inflation. Increases to our monthly expenses were primarily due to lifestyle decisions. We bought a new car and now have a car payment to make or we added a movie channel to our cable package and now have a higher cable bill. We spent more because we consumed more.

Today we are faced with a new reality. We are forced to spend more every month because everything costs more. In order to maintain the same level of living, we need to earn more money or be forced to borrow more money. Few of us have the ability to make more money so if we don’t want to go deeper into debt we now must adjust to living with less.

In today’s financial environment we now need to think about any major purchase. We want to prevent ourselves from living off of tomorrow’s income, today. Income committed to paying interest charges cannot be spent to buy anything else. This is only a first step. We need to watch all our minor purchases as well, to make sure we’re not unknowingly taking on additional debt.

Addressing your personal financial needs is a job. If it’s not taken seriously, trouble awaits.

Personal Financial Tip 3

Creditors have gotten much more conservative in response to the problems in the financial markets. It’s now more important than ever to do everything possible to maintain the highest credit score you can. Creditors are looking for any excuse to restrict a consumer’s access to credit or to increase the consumer’s cost for credit.

Simply paying all your bills on time may not be enough to maintain an excellent credit score. Yes, timely payments have the largest impact on your credit score (roughly 35%). There is more you should do, especially in this credit environment.

The second most important component of your score is credit utilization and it’s here where you have ability to increase your score even more.

This is going to be the focus of today’s Personal Financial Tip. Credit utilization is an analysis of the amount of credit you have available and how much of that credit is actually outstanding. Credit utilization contributes 30% to your score, making it something that shouldn’t be ignored.

Credit falls into 2 general categories. There is installment debt, such as a mortgage, car loan, student loan, etc. The second category is revolving credit. Here you are granted a credit limit and you have the flexibility to borrow up to that limit without asking the lender’s permission or applying for additional credit.

They only thing you can do with installment debt is to pay it on time. There is nothing you can do here to help your credit score, except to comply with the terms of the loan documents. You do have the ability to lower your score, by not paying on time but there is nothing you can do here to increase your score.

The way you use revolving credit is reflected in your score. You can substantially improve your credit score by doing some very simple things. Before we can address what you can to do, we need to understand what aspects of credit utilization the analyst is looking at.

The general components that are used in the analysis are:
The length of time the accounts have been opened
The number of accounts that are active
The overall percentage of the available credit that’s being utilized
The percentage of the available credit on each card that’s being utilized

Not having the ability to go back in time, there is no way you increase the length of time you’ve had an account opened. The one thing you can do is resist the urge to close inactive accounts. By closing an old account that you no longer use actually works against you. You are shortening your credit history.

My first piece of advice is to never close accounts simply because you are no longer using them. If you’re afraid of the “temptation” of keeping too many accounts open, then either destroy the physical card, not the account, or lock the cards away somewhere.

If you only have one or two credit cards, you should consider opening another one or two. This helps out in a couple of ways. It not only increases the number of accounts in your credit profile but also increases the available amount of credit you have.

Let’s say you have one credit card with a credit limit of $5,000 and you are carrying a balance of $2,500. You are using 50% of you available credit. If you open a second card with a $5,000 limit and carry a zero balance on it you are now utilizing only 25% of your available credit. This improvement in the credit utilization will reflect in a higher credit score as time passes. It won’t help immediately, but you will see a steady increase in your credit score as the months go on.

You can now go one step further and move $2,500 off of the original credit card and onto the new card. Now not only have you improved your overall percentage of credit use you’ve also improved the individual percentage on the original card, again contributing to a better score.

Don’t use credit cards? It definitely is a great feeling having no credit card debt and you should be proud of your success in exercising self-control over your spending habits. My suggestion in this case, though, is to use credit cards to make your purchases and pay the outstanding balance in full when the bill comes. You will incur no finance charges by doing this so there is no cost involved. This does, however supply data to your credit profile. This gives the program that generates your score, something to work with. It’s all positive information; balances appearing and being paid off on an ongoing basis, generating a higher credit score than having no activity.

By being proactive with your credit profile you can be confident that credit will be available to you when you want it and at the best possible cost.