Connect with us

Digm Piece (Op-Ed)

Don’t Let FICO Make You Psycho!

Published

on

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)

5 Hidden Risks in Retirement That Could Affect Your Financial Security

Published

on

Being well-prepared for retirement is wonderful, but there is no fail-safe plan. Things can unravel due to many inherent post-retirement risks. Understanding those risks that lie ahead and how they can harm financial security is key to making critical adjustments in a retirement plan. Sometimes without those changes, the impact of unfavorable and unpredictable events can be far more severe.

“Once you have a retirement plan in place, it’s not set in stone,” says Clayton Alexander (www.retireteton.com), an investment adviser and founder of Teton Wealth Group. “Things change. You may add or lose family members, your retirement goals may change, the economic environment may create new considerations, and financial innovations may present new strategies. Once per year is a minimum in terms of making sure your retirement plans (and beneficiaries) are constantly up-to-date.”

Alexander says retirees and those making retirement plans should be aware of these five risks:  

  • Longevity. Running out of money before they die is one of the primary concerns of most retirees. This worry is heightened by the fact that the average life expectancy has increased. “A pension or an annuity can lessen the risk, but carefully investigate any company where you’d place an annuity and be cautious of fees and interest rates,” Alexander says. “It’s best to tailor your plan to run to life expectancy plus five years.”
  • Loss of income. “Make sure both you and your spouse are protected from the unexpected,” Alexander says. “Consider the financial impact of the loss of one spouse. Remember that your surviving spouse will only get the highest of your two Social Security checks. A spouse’s death can bring additional financial burdens, including lingering medical bills and debts. Life insurance and estate planning are important vehicles to protect survivors.”
  • Health care costs. Longer life expectancy could lead to high costs in a long-term care facility. “It’s estimated that approximately 50% of people over 65 will need long-term care,” Alexander says. “Do not overspend on policies that may be subject to drastic premium increases. And surprising to some, Medicare is not free — your premiums for coverage are usually deducted from your Social Security check. Medicare doesn’t cover dental, hearing or vision, is subject to deductibles, and doesn’t cover long-term care. Long-term care insurance is advisable.”
  • Negative return risk. “A 50% gain does not allow a portfolio to recover from a 50% loss,” Alexander says. “In fact, a 100% gain is required to restore a 50% loss. The ‘buy and hold’ strategy that works when you are young — where you wait for the markets to come back up after a downturn — does not apply in retirement as we saw in 2008, when many people’s retirements were wiped out. Common stocks have substantially out-performed other investments over time and thus are usually recommended for retirees as part of a balanced asset allocation strategy, but the rate of return you earn can be significantly lower than the long-term trends.”
  • Inflation risk. “You should plan on prices for food, goods and services getting higher during retirement, reducing your buying power incrementally as you are living on a fixed income,” Alexander says. “Your retirement plan has to factor that in. Ways retirees can curb the effects of inflation include annuity products with a cost-of-living adjustment feature and investing in equities, a home, and other assets.”

“Understanding what the potential post-retirement risks are and considering them in the retirement planning stage,” Alexander says, “can help to ensure that they are mitigated and properly managed.”  

About Clayton Alexander Clayton Alexander (www.retireteton.com) is an investment adviser and founder of Teton Wealth Group. A graduate of Dixie State University with a B.A. in administration, Alexander also worked at Northwestern Mutual and Goldman Sachs. He is licensed for life and health insurance in the state of Utah and has passed the Series 65 securities exam. Alexander focuses on building holistic retirement plans, and with the launch of Teton Wealth he developed the four-step Ascent Plan – a system to help clients gain clarity and perspective on creating a financial plan for safe, secure and tax-efficient retirement income and estate transition.  

Continue Reading

Digm Piece (Op-Ed)

Are Americans Undervaluing Paid Time off + Quick Trip Tips

Published

on

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 essential 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 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 finds 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.
Continue Reading

Digm Piece (Op-Ed)

Top Ten Freshman Money Myths

Published

on

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…)

Continue Reading

Trending

Copyright © 2019 PARADIGM.MONEY, All Rights Reserved. PARADIGM.MONEY is owned/operated by BankMobile, a Division of Customers Bank. The opinions/Views expressed on PARADIGM.MONEY are not considered opinions/Views of BankMobile, a Division of Customers Bank.