Rebuilding Credit After Bankruptcy
Time is Your Credit’s Best Friend
Time is the biggest player in rebuilding your credit after filing for bankruptcy. The further in the past the bankruptcy filing is, the less damage it will cause to your credit score.
To “speed up” the rebuilding process, you will need to have a plan, work hard, and probably accept higher interest rates and fees.
So, unless you’re planning to make a major purchase on credit in the coming three to five years, you may want to consider the long route and just wait it out. Continue reading “Rebuilding Credit After Bankruptcy” »
How to Talk to Your Children About Money
Above all other lessons, strive to model healthy money management behaviors in your own finances. Many of us may make a mistake or two along the way regarding our credit, incurring excessive consumer debt, or failing to honor our financial promises. However, the effort of trying will be noticed by your children. Be honest and proactive when discussing money with children. Let them know it’s important to you. Continue reading “How to Talk to Your Children About Money” »
FICO Explained
What in the World Is a FICO?
When it comes to credit scores (also generically referred to as a credit rating), most Americans know that they are important and that they can have a major impact on our financial lives. However, very few know what goes into a credit score or just how influential it can be.
First of all, the term, “credit score” does NOT refer to a SINGLE scoring system. In the US, there are over a thousand credit scoring models in existence, created and used by hundreds of creditors and consumer reporting agencies. However, the most common credit scoring model (used in about 80% of all credit-based decisions) was developed by Fair Isaac Corporation (FICO for short). Continue reading “FICO Explained” »
What’s on a Credit Report?
Seriously, how are we, the average Joe or Jane on the street, supposed to build (or rebuild) our credit when no one ever teaches what’s on our credit to begin with? Well, here’s the answer:
• Contact information (no impact on credit score): It simply includes the names, addresses, employers, and, sometimes, marital statuses under which you have applied for credit in the past.
• Credit/Trade Lines: Details on the various lines of credit the consumer has had in the past 7-10 years, including balances, terms and their history of on-time payments. Continue reading “What’s on a Credit Report?” »
Why Care About Your Credit?
It’s a fair question: “If I’m not planning to make a purchase on credit anytime soon, why should I care about my credit?” While it’s true that the most commonly known use of credit has to do with getting approved for a loan, there are other situations when credit can have a positive or negative impact (direct or indirect) on our lives.
1. Many employers check job applicants’ credit prior to making a hiring decision. This may seem unfair and irrelevant to many, but employers reason that since a person’s credit is indicative of their efforts to repay financial obligations, employers may use that information as an additional insight into the job applicant’s overall qualifications for employment. When the potential employer is in the finance, law enforcement or government sector, credit checks are even more common. Continue reading “Why Care About Your Credit?” »
“Leveling” our Expenses
I regularly teach in my Budgeting (“Spending Plan”) classes that our goal should be to turn as many of our Variable and Periodic expenses into Fixed (or “level”) expenses as possible.
A Fixed expense is one that occurs every single month at the same cost. Examples are rent or mortgage, car payments, 401(k) contributions, monthly bus passes and day care center bills.
A Variable expense occurs every month also, but the amount varies. Electricity, heating, gasoline, and groceries are among the most common variable expenses in our household budgets.
A Periodic expense, obviously, occurs less than monthly, irregularly or just once in a life time. Typical of this type of expense are medical-related charges, vacations, car or home repair, taxes, and most insurance premiums. Continue reading ““Leveling” our Expenses” »
Debt Management Programs and Credit Scores
Financial Myth: Don’t Debt Management Programs Hurt my Credit Score?
When entering our debt management program (DMP), keep repeating to yourself…”I am here to get out of debt.” Nothing worthwhile is ever very easy, including a DMP. For one, our program requires you to close all credit accounts that are on the program. This may even briefly lower the debt balance-to-credit limit ratio portion of your credit score. However, by sticking with the program until your debt is completely paid off, this short drop can pale in comparison to the potential credit score increase debt-free clients see at the end of the program.
One common question is, “I heard its better to file bankruptcy. Is that true?” While bankruptcy may be a valid option for some, it is generally accepted that declaring bankruptcy is the single most damaging event in your credit history. A bankruptcy stays on your credit report for ten years, lowering your credit score. DMPs are designed to last five years or less. Actual participation in the program itself has no affect on your FICO credit score.
Within 30-60 days of entering a Debt Management Program, a notation is generally added to your credit report by your creditors. That notation exists so that while you are in a DMP, no new unsecured credit lines should be issued, such as credit cards or signature loans. This notation is generally removed by the creditors upon completion of the DMP.
Despite the growing number of studies that show that individuals in Debt Management Programs are more likely to eliminate their debt than those in the control groups that do not seek such counseling, there are still a few lenders that misunderstand the credit report notation.
If you’re considering a car or home loan, please call us first to review your budget and analyze your current financial situation. Then, if you run across a lender that will not work with you for a secured loan (home or car) because of the credit notation, let us know. We know there are many lenders that work well with our clients.
If you have any suggestions or stories on how you’ve experienced relief from credit cards and other debt feel free to share in the comment section below. Tips, tricks and other suggestions are always welcome!
1-877-OUT-DEBT (688-3328)
Maximizing Benefit of Tax Refunds
It’s tax return time. Many households are receiving tax refunds now or will over the next month or so., but too often, these refunds – which can amount to several thousands of dollars – are spent on consumer goods. Such emotion-based consumer spending typically has no significant impact on the household’s net worth or financial stability. Instead, it tends to perpetuate the mindless spending cycle that keeps too many American households stuck in the rut of paycheck-to-paycheck living. Continue reading “Maximizing Benefit of Tax Refunds” »
Correcting Credit Report Errors from Defunct Creditors
Having taught nearly 500 personal finance classes since 2004 to over 8,000 individuals, it’s not often that I get a question about course topics that I haven’t heard before. I love it when I do, though, and that’s exactly what happened last week at a local housing authority. Here is the question:
What can I do if the title loan company to which I once owed money but have paid off in full has gone out of business but is still listed on my credit report with money owing? Continue reading “Correcting Credit Report Errors from Defunct Creditors” »
Cost of Groceries per Person per Month
I recently had an email I appreciated greatly from one of our management leaders regarding the suggestion in our budgeting presentation that households should try to spend between $75 and $125 per person per month in their household on groceries. His concern (a valid one) is that the number appears quite low when compared to the suggested figures released by the government (upwards of $200 per person per month). Continue reading “Cost of Groceries per Person per Month” »