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Don’t Let FICO Make You Psycho!

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Let’s face it. There are several daunting and even scary financial words (student loans, recession, depression, etc). But here’s one you might not know: FICO. Before you panic, let me explain.

For those who are not familiar, FICO is a credit reporting system started by the Fair Isaacs Corporation. It is a numerical measurement of your credit worthiness that ranges from 300 to 850. Your FICO score is used by most lenders to determine whether or not you can obtain credit. In fact, because of lack of financial education and the current state of student loan debt, most people may feel like FICO has done nothing but hinder them.

Your score can stop you from getting loans, renting or buying a home, purchasing a car, opening a bank account or even getting a job. Getting a handle on your FICO score is easy if you educate yourself on how FICO is calculated and then discipline yourself.

The five categories used to calculate your score are:

  • How much debt you have
  • Your payment history
  • Your debt usage ratio (how much you owe in relation to your credit limit)
  • How far back your credit history goes
  • Your mix of various types of credit

Understanding these five categories can really help you keep your credit in order. And just in case you’re part of the 44 million Americans who have fell behind on their credit, there is still hope. The following are five things you must avoid to keep FICO from becoming a curse:

1) Making Late Payments

Obviously, we should know why this is a big no. But here’s why: credit is given based on your ability to pay back your obligations on time. Late payments simply show creditors that you are having a hard time meeting your obligations and stay on your credit report for up to seven years. It’s imperative that you avoid them at all costs. However, if you’ve made some late payments in the past, it’s not the end of the world. As you continue to pay on time, the late payments will have less of a negative impact. The key is discipline and showing creditors you are responsible.

2) Carrying Big Balances

Most people don’t realize this but creditors usually extend credit to those who they don’t think need it with the hopes that they’ll use it eventually. Carrying a big balance show creditors that you are having issues and are relying too heavily on the credit to get you by. This has a negative effect on your credit score as well as your ability to obtain new credit. As a rule of thumb, you should keep your usage down to about 30%. (Example: If your credit card limit is $1,000, you should not carry a balance greater than $300.)

3) Closing a Credit Line

Closing a credit line can hurt you in two ways; first as I stated just a few moments ago, you want to keep your usage down to 30%. Closing a credit line increases your usage because you no longer have that credit limit available to you. It can also affect you because you may be getting rid of a rich part of your credit history. If you have a card that’s been open for a while and you’ve been making payments on time, it is best to keep that card open. Most people close credit cards because they may have received a new card with a better rate and don’t want to have too much credit outstanding or might be trying to avoid an inactivity fee if they’re not using the card. Keep in mind that you lose more by closing your old cards. Best thing to do is to call your current credit card provider to negotiate a lower rate or fees.

4) Having Too Many Credit Inquires

Anytime a creditor checks your credit, it affects your FICO score by two or more points. The deduction in points may only last for up to 2 years, but it is still important to use caution. Keep in mind that you can check your credit as much as you want yourself without any effect to your credit score. With that in mind, I suggest that you know your score whenever going anywhere to obtain credit and inform your potential creditor of your score prior to applying to anything.

5) Defaulting

Defaulting on any type of loan or credit card is the single worst thing you can do to your credit. Defaulting will surely get you declined for any new loans and should be avoided at all costs! If you ever foresee that you can’t meet some or all of your obligations, it is imperative that you reach out to your creditors as soon as possible. Most will be willing to work with you.

All in all, FICO can be your friend if you treat it right. Treat it wrong and it will become your worst nightmare. Start getting a grip on your debt by using our Student Loan Consolidation and Debt Payoff Calculator to estimate your monthly payments and get a head start. You’ll be surprised at how getting a head can save your heartache and pain.

Once you use the Student Loan Consolidation and Debt Payoff Calculator to estimate your monthly payments, tell us in the comments below what your findings were. What did you learn? Did anything surprise you?

Ash Exantus aka Ash Cash is one of the nation’s top personal finance experts. Dubbed as the Financial Motivator, he uses a culturally responsive approach in teaching financial literacy. He is the Head of Financial Education at BankMobile and Editor-in-Chief at Paradigm Money. The views and opinions expressed are those of Ash Cash and not the views of BankMobile and/or its affiliates.

Digm Piece (Op-Ed)

Are Americans Undervaluing Paid Time Off + Quick Trip Tips

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It’s August, which for many Europeans means taking almost the entire month off. So why is it difficult for Americans to take even the little vacation time they receive? A recent piece in The Economist states workers in the U.S. are doing it all wrong by going on short holidays which can add even more stress or taking none. Instead, it’s important for employees to recharge their batteries. It’s also beneficial for companies to have a consistent holiday month during which junior employees can head to the beach and managers can take stock of things, says the report.

While many Americans may not receive paid time off, especially those that only work part-time, even those who receive it generally don’t take all of it. What we don’t realize is that not taking a vacation is like giving money back to your employer especially with companies that have a use it or lose it policy. Which should encourage employees to use their time but unfortunately it does not. According to recent polls conducted by Bankrate, nearly 2600 US adults say they plan to take a quarter of their vacation days while 4% are not planning to take any vacation time at all.

Time off is a valuable perk, to the tune of millions of dollars! Just to bring the point home in 2017 Americans gave up 212 million days off that amounts to $62.2 billion dollars in lost benefits! So, take your vacations and follow the tips below to not break the bank while taking time off:

  1. Take a Staycation – Stay local and vacation somewhere that is less than a day drive away, this helps save gas, mileage, and spending on lodging. Look for local attractions, vineyards, interesting museums and landmarks or even travel to your closest big city and be a tourist for a day. You would be amazed at how much you can discover and learn by staying local and all on the cheap! It’s a bonus if you have friends in the town your visiting they can serve as a tour guide and let you stay over for free if they have the room.
  2. Book Flights Off-Season – July 4th, Memorial Day and Labor Day seem like a great time to go on vacation, unfortunately, everyone is planning to take time off during those busy weekends and ticket prices are through the roof because of it. Book flights after major holidays and during the week you will generally find that they are cheaper than weekend flights
  3. Take a Road Trip – Road trips are fun and cheaper than taking a plane especially if you must rent a car when you get to your destination anyway. Plan cool stops along the way and find interesting places to eat that way you can make the journey part of the vacation.
  4. Plan to Eat In – Food adds up on vacation so pack food and making one or two meals in your hotel can keep you under budget.
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Digm Piece (Op-Ed)

Top Ten Freshman Money Myths

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Photo credit iStock by Getty Images

Starting college is one of the most important and exciting times of your life. Now that you’re all “checked-in,” enjoy your college experience without worrying about where your next meal will come from by chasing away these common freshman money myths. (more…)

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Digm Piece (Op-Ed)

Do What You Love for Free – Here’s Why

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This is ParadigmMoney.Com, right? So, speaking about a paradigm shift should come as no surprise. In science and philosophy, a paradigm is a distinct set of concepts or thought patterns, including theories, research methods, postulates, and standards for what constitutes legitimate contributions to a field. When speaking about money, most believe it is something you work for and not something that works for you. In all truth, the one percenters understand this concept quite well. In order, to wake up and do what you love, you too must shift your thoughts when it comes to finances.

Doing what you love for free allows you to create freely. You can come up with disruptive, out of this world, never seen before creations that will rock this planet. Take Elon Musk from South Africa, founder of X.com which went on to become PayPal and sold to eBay for 1.5 billion dollars. Musk is also the CEO of SpaceX which designs, manufactures and launches advanced rockets and spacecraft. The company was founded to revolutionize space technology, with the ultimate goal of enabling people to live on other planets. You may say, of course, he can do this, he is a billionaire and co-founder of Tesla.

Not true. PayPal, Tesla, and SpaceX are all products of Musk doing what he loved. As a child, he was an avid reader and taught himself computer programming leading to the creation of X.com. He dropped out of college to start a company with his brother and here’s what he had to say about that PayPal deal… “My proceeds from the PayPal acquisition were $180 million. I put $100 million in SpaceX, $70m in Tesla, and $10m in Solar City. I had to borrow money for rent.” Elon Musk’s current net worth is estimated to be at about $13.3 billion. No bad at all.

The reality of the matter is the less you are attached to money the more money flows to you. Pay more attention to creating things that move the culture forward. Starting at doing what you love with ultimately position you for financial success and happiness.

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