Smart Saving and Investing

What would you like to see at this blog?

I’ve blogged about saving, investing, options, mutual funds, bonds, money stories, how to, money and marriage, etc.

Let me know?

Thanks,
Bill

written by Bill Stevens

What is your FICO score? What is FICO anyway?

FICO stands for Fair Isaac Corporation. The worldwide corporation was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac. They developed the FICO score. Fair Isaac’s corporate headquarters are located in Minneapolis, Minnesota, USA. Fair Isaac’s personal credit site is myFICO.com.

A FICO score is tied to almost all your financial decisions:

• the interest rate you’ll pay on your credit card
• a car loan
• your home mortgage
• other loans

A high FICO score is good and a low FICO score is bad.

For example, if you have a high score you can get a lower interest rate credit card. If not, your credit card interest rate could be higher and you might not even be able to get a credit card. This also applies to car loans, home mortgages and other loans.

Your FICO score is based on your bill-paying habits and the debt you carry.

Here are the five broad categories Fair Isaac uses to sort your data from the credit bureaus:

1. Paying your bills on time - 35%
2. Total balance of credit cards and other loans - 30%
3. Length of credit history - 15%
4. New account and recent applications for credit - 10%
5. Mix of credit cards and loans - 10%

Your FICO score is shared with the various agencies that you apply to for credit and various loans. They use it to size you up financially. It determines if you’re financially accepted and what financial terms are offered to you.

Graph from myFICO.com

What Credit Bureaus?

Paying your bills, credit cards and loans get reported to the credit bureaus. The three major credit bureaus that report to Fair Isaac Corporation are:

1. Equifax (800-525-6282)
2. Experian (888-397-3742)
3. TransUnion (800-680-7289)

That also means you will have three scores, one from each bureau.

After FICO sorts all your financial data out, it gets neatly placed in a score range like this:

760-850 - The Best Score Range
700-759
660-699
620-659
580-619
500-579 - The Worst Score Range

These scores translate into things like the low interest you want on a mortgage. You won’t get the lowest interest rate if you don’t have the higher FICO scores.

That also means, if you have a lower FICO score you’ll get a higher interest rate on a mortgage. You’ll be paying more for that mortgage over a long period of time.

See this chart taken directly from Fair Isaac’s personal finance site myFICO.com.

Get Your FREE Reports

You need to get your credit reports and make sure what’s on them is correct. I recommend doing this at least annually after you’ve finished your tax return just to get your annual financial tasks out of the way. Go to www.annualcreditreport.com or call 877-322-8228.

You are entitled to one free report from all three bureaus every year and those reports will contain different credit information among all three.

As you fill out the appropriate information for your credit report, don’t be surprised when you run into advertisements for different credit services at each bureau. Either ignore the offers or pay for what you want.

Surprises

You might be surprised what you find on your credit reports. If you have any disputes about what you find, contact that credit bureau first. If you need to drill down to the organization that reported something you find questionable, then contact that organization to find out more.

You might also be surprised to find mistakes caused by identity theft. Identity theft has become such an epidemic, but it can be dealt with. Check with the FTC here for more information on identity theft.

Major Purchases

You’ll want to check and clean up your scores before you make a major purchase like a home mortgage. With any loan, you can ask the lender what score they’ll use and this will allow you to be proactive in reviewing your credit scores. They might call the score something other than one of the three bureaus listed above, but ultimately the information gets back to one or more of the three credit bureaus.

Finally, you can get your FICO scores at www.myfico.com and it will cost you a bit.

Their product FICO Standard is $15.95 for one of your FICO scores. The FICO Deluxe product goes for $47.85 and gives you all three of your FICO scores - TransUnion, Equifax,and Experian.

Now What?

You’ll want to think and act according to the five credit scoring categories listed above.

1. Pay your bills on time!! Make sure what you owe, gets to who it needs to BEFORE it’s due.
2. Keep what you owe significantly lower than what you can spend. If you can borrow $10,000.00 on all your credit and you actually borrow $10,000.00, then that is NOT GOOD!! Pay your debt down, Pay your debt down, Pay your debt down!!
   
3. Prove your credit history. Don’t cancel your credit cards willy nilly. This could actually hurt your credit history. Keep the credit card if it has a long history on it. If you are considering canceling your long history credit cards it would be better to cut those cards up rather than cancel them.
4. Too many new credit accounts will hurt your credit score.
   
5. A good mix of a credit card, a retail card and a car loan will help your credit score.

No FICO Score?

If you don’t have a FICO score, it could be bad for you when you go for a loan. A good place to start is with a credit card or a retail card with the lowest interest you can get, which might not be very low since you don’t have a FICO score yet.

Charge some stuff up that you CAN afford to pay off in a short time period - like right away so you don’t carry a balance more than a month. Stick to the rules of the card and the credit will be reported to the appropriate credit bureaus.

Don’t charge things like toothpaste and everyday grocery or gas for your vehicle type items.

Charge long term items like a reasonably-priced lamp that you’ll use forever or other long-term items like a personal finance book that will educate you on your personal finances for the long term.

Pay the minimum amount due or a bit more, way before they are due. Better yet, pay it off in one month. Make a rule for yourself - the payment WILL ARRIVE at the creditor no less than three business days before the bill is due. It’s better just to get ‘em paid the moment the bill hits your mailbox.

Or, make your payments automatic from your checking account or the account your money goes into every month, to the creditor. This will make it extremely simple for you and all you’ll have to do is check to see if it went out automatically and if the creditor received the payment on time. You can do this all online.

Set up automatic reminders in your favorite calendar program and then you don’t even have to think about it. Just make sure you check your calendar everyday.

Secured Credit Cards

Another way to start your credit history is by using a secured credit card. This type of card is secured by a deposit and you can charge up to the amount you deposited.

However, you still need to act responsibly while paying the secured credit card. This will provide you with the best possible FICO score.

Ask the secured credit card company what credit bureaus they report to.

Mortgage Shopping

If you’re shopping for a mortgage and you have a bunch of lenders who are inquiring about your credit, this could hurt your credit. However, if you shop for a mortgage in a two-week time period, Fair Isaac (FICO) says this will count as one inquiry on your credit report.

Also, if you’re married or have a life partner and one of you has a significantly lower FICO score at least two ranges away, then the person with the higher score might consider applying for the mortgage alone to get the best interest rate. The person with the lower score can be added to the title later.

Financial Mess

If you think your in a financial mess, then don’t worry about your FICO score. Worry about fixing your mess first and then there will be time to correct your FICO score over the long haul.

Kids and FICO Scores

If you want your kids to have a great FICO score and you have a great FICO score in the highest range, then add them to your credit card account as an authorized user. This will start their file at the credit bureaus with a great FICO score. You don’t even have to tell your kid about it if you don’t want to.

Teach them financial responsibility around the age of fifteen and what their FICO score means to them and to you. Once your child is of legal age and can get their own credit card then consider taking them off your account. That way, if your credit score goes lower for some reason, it won’t affect your child’s FICO score.

Your FICO score is your friend. I know it’s a boring topic but it’s necessary. Work on improving your credit record and your FICO score will go up.

Credit Card Sites

http://www.bankrate.com
http://www.cardweb.com
http://askmrcreditcard.com

written by Bill Stevens

Over at Get Rich Slowly, J.D. talks about firing an employee in his family business. I thought I’d share my story on something like that as well.

I had to fire my boss. Actually, I had to fire the person who hired me years ago, who used to be my boss.

As I very slowly moved up the ranks of the company I eventually became an equal to the person who hired me to work at the company. I became his boss and eventually had to fire him.

Although it took years to get to this it was not easy. I could not grasp it too well at the time.

Both of us found it ironic and of course that person was extremely upset because of the whole deal. I can’t imagine this scenario happening too often but maybe I’m wrong.

The Scenario

My boss had worked long and hard to make the section of the company run smoothly. I was part of that for years.

As I made small impressions here and there over a long time (years) I was promoted over time to various positions until my boss’s boss made me an equal to my boss.

Up to that time, my boss who hired me, slowly got involved in other personal areas of his life such as turning his hobby into a small business that ultimately took up some of his work time at the company.

Kids

I saw him get a bit more involved in his kids’ lives a little too much as well. I think a lot of parents get way too involved in their kids’ lives. Instead of raising them up from a guidance perspective, a lot of parents seem to own their children’s time, direction and thoughts.

Picking his kids up during work hours and taking them here and there. Rescuing them during trying times in college by doing their college homework for them and a whole host of tasks that provide young people with valuable experiences at that age if they get the opportunity to learn from them.

Anyway, I knew he was a typical “one paycheck away” from losing his comfortable life.

I don’t know what happened to him after that but I’m hoping he dug his heels into his hobby that had become a small business for him. You never know, that could have been the catalyst to his “greater tomorrow” .

Thoughts

This experience leaves you with those simple questions, “What would I do if I lost my job right now?“. This will help drive your online savings contributions really quick.

Let me know what you think or any experiences with firing or being fired.

written by Bill Stevens

Rupert Murdoch has been dropping hints about The Wall Street Journal Online web site going from a paid subscription to free when he completes his purchase of Dow Jones & Co.

This announcement comes on the heels of The New York Times TimeSelect announcement that they will be going FREE tomorrow, Wednesday, 9/19/2007.

I’d say the snowball is rolling and we’re the benefactors.  

Read more about it here.

written by Bill Stevens

Today, the New York Times announced they will open up their pay for content known as TimeSelect for free. This includes:

• 23 news and opinion columnists
• personalization tools
• access to the Times archives back to 1987 and more

It will be offered as a free service starting this Wednesday, 9/19/2007. Their revenue model will be based on an advertising model due to anticipated growth in traffic. American Express has signed on as the first sponsor.
Source: The New York Time Company

written by Bill Stevens