Posted by admin on July 9th, 2008 — Posted in The Mathematicians Way
Credit is a funny thing. It can be a useful tool in the hands of an informed individual, or a weight of burden to the unsuspecting. One thing is for certain, you must have a decent credit score to attain a quality mortgage loan.
We speak to hundreds of individuals each month that are in the market to buy property. Unfortunately, many of them have less than desirable credit scores, and because of this, are not able to get prequalified for a loan.
There are numerous reasons for bad credit scores: bankruptcies, late payments, large credit balances, and a host of others. There are many legitimate reasons a person may have bad credit, but frankly, most of the people we talk to have simply made poor financial decisions.
In most cases, bad credit can be easily avoided:
1. On revolving credit card balances, make sure you pay your minimum balance each month. You will even receive a slight credit boost if you pay over your minimum amount, so do it if you can.
2. Avoid “maxing” out credit card accounts. Credit cards are good to have to build your credit, but make sure you keep your spending under control. Preferably, you should be able to pay off any CC balances completely in the same month you spent the money.
3. If you need to make any big purchases, avoid the temptation to place the entire purchase on your credit card. Instead, put money aside each month until you have enough for the purchase. Remember, just because you have a big spending limit on your cards, doesn’t make it your money! You have to pay every penny back plus interest!
4. Try to think of a credit card as a tool for building credit as opposed to a tool for buying the things you want. You spend a small amount each month, and pay it off immediately. This will spike your credit score, and keep you out of CC debt.
5. Make sure to pull your credit rating at least twice a year. This will give you a good feel for what your score is, and most credit score reporting services will give you a detailed explanation for why your score is where it is. If you find any errors, make sure you report and resolve them immediately. It can be long and gruesome work to get a negative mark removed from your credit record, but it can be well worth it when it comes time to buy a house.
I hope some of these tips will be helpful for you as you try to be a good steward of your finances.
You may also want to check out these free resources:
www.FamilyCredit.org
www.DebtFreeChristian.org
Justin Smith is the President of the Christian Real Estate Network - http://www.HisMove.com
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Posted by admin on May 23rd, 2008 — Posted in The Mathematicians Way
Smart use of your credit cards is important, and it is not how many cards you possess.
If there are advantages to possessing many credit cards it is in their proper use, not in their dollars of potential credit.
Here’s how credit cards work:
Banks cooperate with each other to closely to track their cardholders, and most banks want to know how many credit cards you now have before they issue one of their own.
Banks share computer files to trade cardholder information. When a bank discovers you have too many cards (each bank has their own policy on how many cards are “too many”), they automatically reject your application.
Banks that offer the same card usually disallow repeat cards to a cardholder.
You normally may obtain only one card from an interconnected network of cooperating banks.
How does a bankcard system actually work?
When you apply for a credit card at your local bank, many events occur. While your local bank’s name is displayed on your credit card, odds are that your card was instead issued by a different bank.
Interconnected banks trade favors and reciprocate functions.
Banks also hire each other to perform different services to cut their overall costs.
Bank card systems are complicated.
First, they must accept new applications, obtain credit reports, and establish approved accounts.
Then the actual cards must be printed and embossed. Ongoing paperwork includes preparing and mailing billing statements, sales brochures, late payment notices, and other details that make a credit card program succeed.
Few banks undertake every function required to operate a credit card program. To avoid complicated and costly processes, some banks act as credit card agents for others. Usually smaller banks contract with the larger banks for card-related services.
The largest card processing centers usually handle accounting, credit checks, mailings, statements, collections, and administrative details for smaller banks.
The smaller banks pay, as a fee, a percentage of its annual credit volume. Both the large and small banks benefit from this relationship.
Bank networks commonly share parts of the credit card process.
One bank may offer applications; another may handle credit checks; a third (or fourth) bank the embossing and monthly statement function.
Major networks may have many lines of agent banks stretching out in a lengthy chain. Other networks may encompass only three or four agent banks.
So what happens if you simultaneously apply for credit cards from several local banks?
Although you may apply to different banks, many will be connected to the same major bank. This, of course, raises two possibilities:
1) The major bank will have a relationship with the agent banks that prevents the applicant from obtaining more than one card from the major bank. Even if you apply to twelve banks connected to the same major bank, the major bank will only issue one card.
All others are automatically cancelled as they enter the central computerized system. Your credit card will bear the name of the accepting bank. But in the process you generated potentially harmful numbers of inquiries on your credit report.
2) A major bank will issue several cards to the same individual if the agent bank assumes responsibility for your credit. The agent bank would then assume responsibility for any default in payment.
So before you apply for a credit card make sure that you do not already have one from that issuing bank.
Gus Skarlis is considered as of of the foremost automotive credit experts and has numerous websites devoted to educating the public about credit. You can find his website at: http://www.helpmycarcredit.com
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Posted by admin on May 7th, 2008 — Posted in The Mathematicians Way
Credit cards are convenient, but they’re also dangerous. A lot of people ruin their
financial lives by turning the phrase “charge it” into a reflex. It’s a real problem, but
this article explains how to make good use of credit cards and how to choose a
good credit card. This information, by the way, applies both to using a credit card
for personal expenses and to using a credit card for business expenses.
Selecting the Right Credit Card
Selecting a credit card is easy. If you don’t carry charges forward from month to
month, choose the card with the lowest annual fee. It doesn’t matter to you if the
credit card company charges a painfully high interest rate, since you pay only the
annual fee if you pay your monthly credit card bill on time.
If you do carry a balance, it makes sense to choose the card with the lowest interest
rate. Some credit card issuers play interest rate calculation tricks that make it very
difficult to make apples-to-apples comparisons of credit cards. But if you choose
the credit card rate with the lowest annual percentage rate, you’re doing about as
well as you can.
The Right Way to Use a Credit Card
You shouldn’t use a credit card as a way to borrow money. That means always
repaying the charges within the grace period. You want to be what the bank calls “a
revolver,” which is a person who always pays his or her credit card bills on time.
After investments in a profitable business, a 401(k), and a deductible IRA, the next
best investment you can make is to pay off credit cards that charge a high interest
rate. Earning a tax-free interest rate of, say, 14 percent, which more than what a
401(k) and deductible IRA pay (and probably only slightly less than investments in
your business should pay) is too good to pass up.
NOTE While credit card interest on personal charges would not be deductible for
income tax purposes, credit card interest on business charges should be deductible
as business interest expense. Therefore, the worst kind of credit card debt is
personal credit card debt. Business debt isn’t quite as bad.
Do Affinity Cards Make Sense?
An affinity card is a credit card that’s issued by someone other than a banksuch as
a car manufacturer, an airline, a professional group, and so forth. Affinity cards
typically combine the usual features of a credit card with some extra benefit
connected to the issuer. In the case of a General Motors card, for example, you
accumulate dollars in a rebate account by virtue of what you spend with the affinity
card.
In general, an affinity cardespecially one that doesn’t charge a feeis a good deal
as long as the interest rate is competitive. For example, I have a General Motors
credit card that includes a 5 percent rebate account. In other words, five cents of
every dollar I charge on the card goes into a rebate account that I can use toward
purchasing a new General Motors car. How big your rebate gets depends on the type
of affinity card you have. For example, as of this writing the regular General Motors
credit card lets you accumulate up to $500 a year to a maximum of $3,500. The
General Motors gold credit card lets you accumulate up to $1,000 a year to a
maximum of $7,000.
There are many different affinity cards. Ford has one. Most of the major airlines
have them too. Airline affinity cards let you accumulate frequent flier miles based on
the credit card charges. In the plans I’ve seen, you usually get a mile a dollar.
The one sticky part of using affinity cards, however, is that getting even a 5 percent
rebate isn’t worth it if having the card makes you spend more money. Some studies
show that you spend 23 percent more when you use a credit card. The same is very
likely true of affinity cards.
If you’re one of those people who spends more when you have a card in hand, you
won’t save any money by using an affinity card. Even if you get a new General
Motors car for free or a handful of free airline tickets to Europe, you pay indirectly
for your new car or airline tickets with all the extra charging you do. If you don’t
make use of the rebate, the situation is even worse. You’ve charged more, perhaps
paid hefty annual fees, and you’ve received nothing in return.
NOTE One other point to consider argues in favor of using affinity cards for
business charges. In many businesses, you will have large business credit card
chargesmuch larger than an individual making personal charges will have. In this
case, assuming you don’t overcharge and don’t overspend, you may find that an
affinity charge card produces big benefits. In my case, because many of my business
expenses can be charged on my frequent flier credit card, I probably get two free
airline tickets a year.
Bellevue WA certified public accountant &
author Stephen L. Nelson CPA has written more than 150 books. His bestselling
book is Qu Determining How Much Life Insurance You Needicken for Dummies, which
sold more than 1,000,000 copies. His books have sold more than 4,000,000 copies in
English and have been translated into more than a dozen other languages.
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