Tag: finance blog

What Your FICO Score Means

What your FICO score means

Just as the understanding of the value of a dollar comes with time, the importance of your credit score often evades us until we are deciding to buy a car or purchase a home. The gravity that a credit score holds is substantial. These scores influence the credit available to you and the terms that go along with it, such as interest rates. When looking to purchase a car or home, lenders rely on the consumer’s credit scores for an understanding of the risk they take on by loaning money.

While there are different credit scores, the most widely used and accepted is the FICO score created by Fair Isaac Corporation. Using the information provided by one of three major credit reporting agencies (Equifax, Experian, and Transunion) FICO creates a credit score ranging from 300 to 850, with the higher number representing lower risks for lenders and insurers.

How exactly do they determine a consumers credit score? FICO analyzes five main factors, which each have a different impact on the score:

  • Payment History (35% of the FICO score)
  • Debt/amounts owed (30%)
  • Age of credit history (15%)
  • New credit/inquiries (10%)
  • A mix of accounts/types of credit (10%)

While the exact number of your credit score can be distracting, it is more beneficial to focus on the areas that require work, rather than feeling overwhelmed by your rank on the credit range. Let’s take a more in-depth look at the five main factors considered by FICO when determining consumer credit scores:

Payment History

This is simply how well does a consumer do with paying their bills on time. Credit reports show when consumer payments are submitted for lines of credit, and it specifies how long payments took to come in: 30, 60, 90, 120 or more days late. Since payment history is the most significant component of a credit score, it is essential to get all credit line payments in as soon as possible.

Accounts Owed

This refers to the amount of money a consumer owes in whole. Having a lot of debt doesn’t necessarily have a significant impact on your credit. Instead, FICO looks at the ratio of money owed to the amount of credit available. Put simply, do not max out your lines of credit.

Length of Credit History

The longer a consumer has had credit, the better this element of their score will be. FICO looks at how long the oldest account has been open, the age of the newest account and the overall average.

New Credit

This refers to recently opened lines of credit. If a consumer opens a bunch of new accounts in a short period, this signals FICO that there is a higher risk, which lowers the consumer’s credit score.

Mix of Accounts
Just like stockbrokers want to diversify their portfolios, consumers want to expand their credit portfolio. With a healthy mix of retail accounts, credit cards, installment loans, such as a car loan, and mortgages, a consumer has ensured a higher FICO score.

4 Ways to Wisely Use Your Tax Refund

4 Ways to Wisely Use Your Tax Refund (1)

Now that tax season is fully underway, you may be thinking about what you want to do with your tax return when it comes in.  For some, it might go right into a savings account.  For others, it might be an opportunity to splurge on different items you’ve had your eye on.  A healthy balance between the two, is looking into some wiser ways you can utilize your refund.  If you’re waiting on your refund to come in, consider some of these great options to put it towards:

Contribute to Your Emergency Fund

You may have one already, and if you don’t, it might be a good time to consider starting one.  An emergency fund is a great tool to have in case you encounter an unfortunate major expense that you wouldn’t regularly have the funding for.  You can contribute to your emergency fund on a regular basis depending on your pay schedule. However, when your tax refund comes in, depending on the amount, you may be able to make a large contribution, and give yourself a better financial cushion in the event of an unexpected expense.

Invest in a Down Payment

You may be in the process of looking for a new home, or even a car.  Both of these purchases are likely to require some sort of down payment, especially if you want your monthly payments reduced as much as possible.  Your tax return is a great way to contribute to a downpayment and significantly lower what your monthly costs or the length of your finance or mortgage term will be.  If you’re buying a home, for example, this lump sum of money will be a great contribution to your down payment or even your closing costs.

Pay Down High-Interest Debt or a Mortgage Payment

Any debt you’ve been carrying for a while is likely racking up interest, and depending on the company or what type of loan it is, the interest rate could be extremely high.  Your tax return would be a great way to pay down some high-interest debt and bring you closer to having it paid off completely. Additionally, you can also consider contributing to your mortgage payment if you’re a homeowner.  However, you should always make sure that your mortgage company isn’t going to charge you a penalty for early or pre-payment.  If you’re certain you won’t get a penalty charge, consider using your tax return to make some additional mortgage payments.

Make a Home Investment

If you’ve been wanting to make some interior or exterior home updates, refund time is a great time to do it.  This extra money may help you make improvements or updates that you might not have been financially ready for before.  In the long run, this will ultimately improve the value of your home while turning it into exactly what you envisioned.

Common Financial Mistakes Many People Make

Common Financial Mistakes Many People Make

Rarely, does someone have a perfect financial history.  Mistakes in finance are common and it’s likely that most people have experienced them at one point or another.  The important thing is to figure out how to correct them, as they can tend to pile up and create somewhat of financial hardship.  However, don’t panic; with the right tools, you can easily change your financial habits. The following tips are a great guide and provide insight into the many financial mistakes people tend to make.

Too Many Monthly Payments

You may not realize it, but your monthly payments tend to add up, quickly.  Many people are seeking the “better” things in life, so they’re willing to tack on monthly finance payments to acquire the things they desire.  And while the monthly payments may not seem like a big hit at the time, the more you have, the more they tend to add up. Additionally, it’s not uncommon for people to have monthly payments that are more on the unnecessary side.  Consider the gym, for example. While for some, a gym membership is a great investment, for others, it may just be a monthly bill that isn’t regularly utilized.  Consider where your bills each month are going, and see which ones are actually necessary.

High Credit Balances

While credit cards may seem like a great way to get what you need, without having to see your bank account take an immediate hit, they can do more harm than good if they aren’t used properly.  Think of a credit card as borrowed money; money that needs to be paid back, and should be paid back in full to avoid any further charges like interest and late fees. The days of cash only are gone for many people, as credit cards are a regular part of today’s society.  Utilize your credit cards to purchases that you know you’ll be able to pay in full and avoid using them for everyday purchases that will increase your balance quickly.

Failing to Set a Monthly Budget

Budgeting your expenses on a monthly basis is a great financial habit to have; however, many people neglect to do this.  Without a budget, you’re freely spending your money without keeping track of where it’s going. By the end of the month, you’re left wondering where your paychecks have gone and why you aren’t able to contribute anything to your savings account.  

Falling Behind on Bills and Payments

Making late payments is an unfortunate, but common habit for many individuals.  Late payments can hurt your financial health in that you will likely get hit with late charges and increased interest payments.  Additionally, late payments can affect your overall credit score and lower it by a few points. Once this cycle starts, it can be hard to correct and break.  

Great Ways to Boost Your Credit

Great Ways to Boost Your Credit

 

One of the many ways we are “defined” by society, is by our credit score and history.  Your credit information has a very significant impact on not only your personal finances but also a majority of your life and different events you may experiences, such as buying your first home.  The first step in credit management is establishing your credit score. Once this is done, it’s important to remember that you’ll want to continue to build your credit up in various ways; you can do this by gradually making small credit charges or larger transactions such as financing or leasing your first vehicle.  Always remember that any credit charges you make need to be paid back within a specific period of time, and late payments can negatively impact your score, as well as result in late charges and higher interest payments. Here are some great tips for boosting your credit:

Make Payments On-Time

Whenever you make a credit charge, you should keep the payment due date noted somewhere where it will help you remember.  Credit cards are a great tool for boosting your credit when they are used properly; however, they can do more harm than good when they aren’t managed correctly.  Any credit card charges you make should always be paid on early or on time. This will give you a good rapport with the credit company, as well as boost your score.  You’ll also avoid any late charges, and you’ll have a better chance of getting future credit cards and other purchases with low-interest rates.

Avoid Making Minimum Payments

While minimum payments are an option that you’ll usually see when you’re making a payment, it’s best to pay your bills in full if you can.  Minimum payments tend to extend your payback period, as you’ll incur interest that can sometimes make a minimum payment useless. Do your best to make any payments in full.  If you’re unable to make them in full, try to pay back well over the minimum, to tackle the balance the best you can.

Address Any Late Bills or Payments

Late bills or payments can happen sometimes.  As humans, we forget, and it isn’t uncommon. You may have changed bank accounts or hit a financial hardship that caused you to get set back on some payments.  If that’s the case, once you’re in a better financial position, work on getting any late payments or bills settled as quickly as possible. This will help bring your credit score back up if it’s taken a hit recently.