Five (5) Things You Can Do To Improve Your Credit Score

First you have to know how your credit score is compiled, as knowing the rules makes playing the game a lot easier.

FICO scores range from 300 to 850.  Five major components make up your score.

• 35%     Paying on time
• 30%     Amount and type of debt
• 15%     The length of time you’ve had credit
• 10%     The variety of accounts
• 10%     The number/types of accounts recently opened (6mos)

           

1. Bring all of your open accounts current and pay on time.

Making sure you don’t have anything late (30 days or more) will improve your score.  Your payment history makes up 35% of your credit score.

2. Pay off or pay down your revolving debt.

When your revolving debt (credit card) balances are less than 50% of your available credit lines, your score increases.

3. Don’t apply for or open any new accounts.

Opening new accounts lowers your credit score, especially credit cards.

4. Don’t close out credit cards.

Keep your accounts open even when you’re not using them.  Closing down accounts lowers your score.  It doesn’t matter whether you or the creditor close them out, it still negatively impacts your credit score.

    

5. Choose to stop receiving pre-approved credit cards.

Most people don’t know that you can opt out of receiving pre-approvals in the mail.  But more importantly, in doing this you will receive a slight improvement in your score.  There are several websites you can visit; I’ve seen positive results with www.optoutprescreen.com.

The Business of Marriage

Money and marriage go hand in hand; so much so, the vows should end with, “till death or finances do us part.”  The truth is many marriages end in divorce, I won’t qoute the over used statistic that boasts 50% of all marriages end in divorce.  As that may or may not be true, it is a fact, that far too many marriages end in divorce and a large number of those unravel due to money. 

Knowing that odds are stacked against you before you get married or even while your marriage is still intact, what conversations should you have?  Here are few topics to start with and why:

Money Management- Will you have joint checking accounts, separate or both?  It is important to know where your money is going to be saved and who will be in control of bill paying.  The person with the best money management skills should be in charge of paying the bills.  Just because you make the most money doesn’t make you the best at handling it.  Pick the right person for the job!

Family Size – How many children do we want, can we afford them?  What kind of education do we want for our children, how much will it cost and how will we save for it?

Career/Location – obviously, this is extremely important, what do you want to do for a living and where do you want to live (neighborhood/state/region, etc.).  All couples should discuss these topics at length, and agree before you start your family and incur debt together.  Disagreeing on this subject down the road is a quick way to put a major strain on any relationship. 

It’s never too late to have a financial tune-up in your relationship.  It is ok to change your course if you find that you’re traveling in the wrong direction.  I know this may sound sterile and impersonal, but this simple conversation could set you on the way to a successful marriage and turn your dream union into a reality.

Generational Wealth Creation

I want to talk for a moment about generational wealth and what it really means and why it’s so important.  Putting it simply, generational wealth builds a family legacy.  Why do so many families start over each generation while others do not?  To explain this, I’m going to use an analogy.  Imagine your family legacy as if it was a track meet and you’re running a relay.  Each generation is equivalent to a lap and the baton represents wealth building.  Now imagine that you start the race with no baton and when you get to the end of your lap, there’s nothing to hand off – game over!  Now your offspring must find a baton and then join the race, how effective would that be?  In the worst case they never find a baton and never even re-enter the race, in the best case they find a baton, and start laps behind the competition.  Neither of those options is very appealing.

So how do you create generational wealth and still live a comfortable life?  I suggest doing it the way it has been done for generations in this country; via life insurance and/or real estate.  There are other ways to create wealth, but for the nature of this article, I’m going to talk about the methods that ANYONE can achieve.  Let’s start with life insurance.  It is one of the few products in the world that is guaranteed to work.  The bottom line is everyone is going to pass away at some point.  If you’re insured properly your beneficiaries can receive your assets free and clear of debt.  That could translate into cash, real estate and other tangible assets.  Imagine leaving your children or grand children six figures or more in cash.  What would their life look like?  What kind of education could be provided, what type of business could be opened, what kind of future investments could be made?  The sky would be the limit.  Almost everyone can buy life insurance and the younger you buy it the better.  There is a myth that the elderly or people in poor health can not buy life insurance and that is simply not true.  It is a lot more expensive to buy, however, it can still be purchased and in most cases, it is still worth it.  There are several types of life insurance, term, whole-life, cash building, etc.  Call an experienced insurance agent and find out what best fits your family needs and inquire about starting your family on the way to generational wealth.

Real estate as a future investment for your family is a no brainer.  Imagine what your life would have looked like if you received a free and clear house when you graduated from high school.  You never had to make a mortgage or rent payment throughout your entire life.  Keep in mind, real estate is the largest dollar investment most people make in their lifetime and they usually spend the greater part of their adult life paying for it.  What does your future look like without that financial burden, what does your children’s lives look like without that burden?  Real estate is an attainable way to transfer wealth from generation to generation and more importantly, it is sustainable.  Remember the American Dream of home ownership, not home mortgageship®.  Please visit www.aliciataylorlv.blogspot.com and read “Just Say NO to 30 Year Mortgages” to learn how to OWN a home.  It is never too late to start the relay, but you want to start with a baton.

To Buy or Not to Buy (that is the question)

If I had a dollar for everyone that asked me if this is a good time to buy, I could retire early or at least take a nice vacation.  All jokes aside, here are the facts. 

1. Prices across the board are at all time lows.
2. Interest rates are incredible
3. Down payments are minimal
4. Tons of available inventory

So YES, it’s the perfect time to BUY a piece of property.  Many experts are saying we still haven’t seen the bottom.  Maybe they are right, but WHO CARES.  Yes we all want a deal and bragging rights because we bought for the lowest price and sold for the highest profit.  However, prices are so low right now, worrying about someone down the street who pays a few dollars less than you do, when the prices are already 50% off doesn’t make much sense.  My dad always said, “study long, study wrong” don’t miss great opportunity fishing at the bottom, because you might end up with a hand full of sand.

There are really only two types of buyers, owners and investors.  An owner is buying to live in the property and occupy it as their primary residence.  Investors on the other hand are buying with the sole intention of selling. If you are buying with the intention of selling or flipping the property, you want to pick the property up for the absolute lowest price, so you can maximize your profits.  With pricing being so low and the cost of money (interest rates) being historically low as well, a lot of investors are buying properties and using them as banks.  They can rent the property out and wait for the market to come back to make the big paydays.  As an end user or an owner, you too want to get a great deal, and you can get that today. 

Don’t be that person fifteen years from now, talking about the great four-plex that you missed out on.  That perfect dirt lot, that a shopping mall ends up being built on, or just simply in a home that could have over six figures of equity all because you had a failure to launch.

BUY NOW!!!

How To Eliminate Credit Card Debt

How do you eat an elephant?  One bite at a time!  Well, that’s the same way you eliminate credit card debt, one bill at a time.  I know many people differ on the methods to lower your revolving debt, and here’s another one.  However, this one is tried and true and it has helped many of my clients eliminate their credit card debt.  More importantly, it’s how I eliminated my credit card debt many years ago.

So, let’s get right down to it.  Pull out every credit card statement that you have and line them up from the lowest balance to the highest balance.  Most people are paying a few extra dollars every month on each card, by paying over and above the minimum required payments.  STOP IMMEDIATELY!  Start with the card that has the lowest balance, regardless of the interest rate (again, a controversial method) and apply all of the extra money you were paying above the minimum on the other cards to this card.  Keep paying the minimum payments on all of your other credit cards, as you don’t want to lower your credit score with delinquencies.  Continue this program until you have paid the card in full.  Proceed to the next card with lowest balance and add whatever you were paying to the previous card to this card until it is paid in full.  Again, continue this process until you are free of credit card debt. 

I know most people want to pay off the credit cards with the highest interest rates and that is also a very smart way to pay down debt*.  However, in my experience with clients and their debt, the psychological victory that one feels after they have eliminated a bill forever, far outweighs the feeling of simply saving money on interest.  You are already in a bad situation and you’ve probably been in debt for a while now.  Although it makes sense to attack the higher rate cards first, doing what makes sense is not how you found yourself in this situation.  I know when I had eight plus credit cards to pay monthly; it certainly wasn’t using good sense that got me there.  Just try this method and you will eliminate your credit card debt and see your confidence increase with every bill that you pay off.  Remember, “one bite at a time!”

*Tip: with similar balances always start with the highest interest rate card.

Just Say NO to 30 Year Mortgages

The 30-year mortgage should’ve gone out of style thirty years ago! 

I know this is a very controversial opinion, but these are the topics I promised you we would talk about.  You’re probably thinking, why would she want people to have higher mortgage payments?  “I wouldn’t.”   With almost twenty years in the lending industry the one thing I’ve learned about the American people is that we’ve lost sight of the American Dream.  A dream built on home ownership, not on home mortgageship.  The operative word is OWNERSHIP. 

Let us examine this closely:  Most adults cannot afford to buy their first home until they are in their thirties and more and more that is becoming early forties.  If it takes thirty years to pay off your home, you’re in sixties or even seventies by the time you are free of mortgage debt.  What would life look like if the standard mortgage was only fifteen years?  Now that same thirty year old first time home buyer owns their home by the time they reach forty five.  Imagine at age forty five actually OWNING your home.  What kind of college education could you provide your children if you didn’t have to worry about mortgage payments?  What kind of business could you start if you weren’t working to keep a roof over your head?  A lot of things could be different if you owned your home in fifteen years.  In less than ten years, you would have an enormous amount of equity (real equity) based on principal reduction not price escalation. [see chart below]

I know you’re thinking, how could anyone afford to buy their home in fifteen years, the payments would be twice as high.  This is not true; the difference in a fifteen and thirty year mortgage is not twice the amount.  In addition, most lenders will offer lower rates if you lower your term on your mortgage, why?  Because they will be paid off sooner thus limiting the risk associated with your loan.  Check out this comparison table for a standard $100,000 mortgage at 5%:

	Amount	Payment	Int. Rate	Total of Payments	Balance in 10yrs
15 Year	100,000	790.79	5.00%	142,342	41,905
30 Year	100,000	536.82	5.00%	193,256	81,342
Difference		$253.97		$50,914	$39,437

Don't worry if you have a thirty year mortgage and you don’t want to incur the costs associated with refinancing your term to fifteen years.  You can call your bank and they can amortize your existing loan for reduced term and tell you how much more you would have to pay monthly to reach your goal.

What are the drawbacks to doing a fifteen year mortgage?  I would venture to say there are none that don’t already exists with your standard mortgage.  But here are the concerns that I normally hear from clients:

Q.  What if I lose my job? 

A.  If you lose your job, you’ll be struggling to pay either note.  The difference is, you may have the equity to refinance and borrow money if needed.

Q.  The payment is too high. 

A.  Then you are buying too much house.

Q.  I don’t want to keep this house forever. 

A. Great, you can sell this one sooner, since you will be paying the balance down faster.

No more excuses!  Think outside of the box and go and get your piece of the American Dream.   Make HOME OWNERSHIP a part of your future goals.

New Year, New You - Tips for Saving This Year!

Soooo… What are you going to do different this year, than you did last year?  If you’re like the majority of people, every year you make resolutions that you never resolve, right?  Join me by yelling at the top of your lungs, NOT THIS YEAR!  This year will be different, this year, you will achieve your financial goals!  But the question is HOW?  How do you go about achieving your financial goals, this year?  You start by actually setting some goals, then you write them down, then you actually revisit them daily, weekly and monthly…  As we all know the age old adage, “that which gets measured, gets done."

How do you go about setting financial savings goals?  I’m going to share some of the tips that I’ve personally used to set my saving goals, as well as, tips that my clients and friends have shared with me throughout the years.  I’ve narrowed these down to the “Big 3” which is a theme you will find throughout all of my blogs.

1. Define the Goal
2. Make it Realistic
3. Execute

What is your actual GOAL?  And no, it can’t be “I just want to save money."  How much money do you want to save, where in your budget will you cut the costs?  Why do you need to save this amount of money?  These are the questions you have to ask yourself.  The best way to start is by taking some quiet time and sitting down with all, yes I said ALL of your year-end statements.  You need to have all of your credit card statements, bank statements and any other year end statements which evidence your spending habits for the previous year.  This way you can come up the best opportunities to save money.  Because, if you don’t know where you’ve been, then you don’t know where you’re going (or you may end up in the same place).

Make it REALISTIC.  One of the biggest pitfalls in goal setting, is planning goals that you’ll never be able to achieve.  The most common new years resolutions from my clients and friends; I’m going to lose weight and/or save more money.  Both which are great goals, but the question is, how much weight and how much money.  This is typically where the breakdown occurs.  Here are some examples:  If you’ve never saved more than $1,000 a year, why is your goal $10,000.  If you have a salary of $60,000 per year and your housing payment is $36,000 per year, it is probably not realistic to think you can save $20,000.  You still have to eat, buy gas, pay utilities, incidentals, etc.  So to keep this real simple (KISS), start by using a realistic number.  Find the places you can trim your budget, limit your eating out, unnecessary cable channels, limit monthly subscriptions, cancel memberships for clubs, groups, etc if you find that you don’t use them regularly.  Go to the library instead of buying books for leisure reading (how often do you actually re-read a book).  Buy cheaper coffee, or better yet, learn to make coffee to your liking at home.  If you don’t cook (like me) then saying you’re going to stop eating out is probably not realistic.  To avoid setting yourself up for failure, design yourself a eating out budget.  Try setting a per-meal price point and stick to it.  Take home your left-overs.  A great rule of thumb is to try and save 10% of what you bring home after all taxes and deductions, also known as your net income.  But to get started work on 5%, if 10% is already a 100% increase in your normal savings plan.  Heck, start with $100 a month, whatever it takes to get started. 

Lastly, EXECUTE!  Quit putting off until tomorrow what you can start today.  Start by opening an interest bearing account specifically for your savings and I recommend that you don’t link the account to your daily account nor have an ATM card.  I would even go so far as to suggest a completely different financial institution.  The reason for the separation is to curb your temptations.  How hard is it to lose weight if you have a refrigerator full of ice cream and cabinet full of cookies, pretty hard huh?  It’s the same with your money.  It’s too easy to go to the ATM machine and pull out that extra $100 from your savings when you’re going out.  So don’t temp yourself.  Use some forced discipline, by denying yourself easy access to your money.  The harder it is to get to your money, the more time you have to think about if you really want to dip into that fund.  Take baby steps, and don’t over save.  Yes I said DON’T OVER SAVE!  Over saving occurs when you save more money than you can afford to live without.  Of course, you want to start building that nest egg, but do it realistically.  The savings pot is to be treated as if it doesn’t exist.  Therefore your goal is to save incremental amounts of money that will build over time and don’t touch those funds!  Good Luck and Happy New You!