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Six Credit Building Steps To Improve Your Credit Score

Building step 1: Never miss payments

Just in case you’re wondering, the worst mistake you can make that negatively affects your credit rating is late payments. Based on FICO’s credit formula, your payment history accounts for 35% of your credit score. Your credit payments are reported by your creditors every 30 days to the credit bureau. Any disruption in your payment pattern sends your credit file into a frenzy causing your credit score to plummet. Building from a missed credit payment depends on the type of credit account in question. For example, a mortgage payment is weighted more heavily than a credit card in the FICO algorithm and therefore takes more time to recover from. Secondly, the higher the score the more a late payment would negatively affect you. A recent study shared on FICO’s Banking Analytics Blog, noted that a 30-day late mortgage payment can take anywhere from 9 months to three years to recover from. Recovery times differ depending on the individual credit score. Credit cards may take less time to re-build from. The best way to mitigate a history of late payments is to NEVER ever miss payments going forward.

Building step 2: Lower Credit Utilization

High credit utilization is another mistake that negatively affects your credit rating. A credit card utilization rate above 30% would begin to drag down your credit score. You want to keep your credit utilization around 10%. In the case of high utilization, paying balances down is the best way to help improve your credit rating.   Carrying high balances sends the wrong message to the credit bureaus that you are cash strapped and living off credit. This in turn further hurts your credit score.  You’d also be paying double digit interest rates on those balances which increases your debt and makes it more difficult to pay off. Increasing your credit limit can be a short-term solution because it does in-fact decrease your utilization ratio, but this is not a solution for everyone. If you’re not disciplined about managing your credit accounts, a credit line increase can easily put you further in debt.  When it comes to building credit back up, don’t always settle for the quick fix, you’ll regret it later.

Building step 3: Don’t close older credit accounts

The FICO algorithm includes a category called “Average age of credit,” which represents 15% of your credit score. It essentially looks at the total “age” of each of your accounts or the number of years/months you’ve had an account and divides that number by the amount of accounts you have. The answer represents the “average age of your credit.” The higher the number, the more valuable it is to your credit rating. Which brings me to the point. Closing older established accounts on your profile would decrease the “average age of your credit” and ultimately hurt your credit score, especially if you’re trying to rebuild . If you must close an account, make sure it is not one of the older more established credit accounts. Secondly, if you close an account that negatively affects your credit utilization or lowers your available credit ratio, it can also prevent your from building your score back up.

Building step 4: Avoid co-signing or adding an authorized user.

There are various instances where cosigning a loan or adding an authorized user on your credit card is necessary.  It’s extremely important to be educated around the pros and cons of co-signing. Having spent more two decades in the banking industry, I’ve seen first-hand the problems that can occur when things don’t work out. The thing to always remember is that as a co-signer, you’re on the hook for that debt. Secondly, credit card companies for example, are not in the business of differentiating who did what when it comes to credit card balances.  Thirdly, some companies may not allow you to remove a person’s name from an account, even if you are the primary account holder.  You may have to refinance the entire loan/line and or re-apply for a new account altogether. Bottom line is the debt has to be paid. As stated earlier, if things don’t go as planned, make sure you’re not left holding someone else’s debt which can hurt your credit score. In case of a dispute with a co-signer, you can pursue a legal remedy through small claims court. Claim amounts can vary by state.

Building step 5:  Know your rights

Things like bankruptcy and foreclosure can impact your credit profile for years. The good news is, recovering from credit mistakes and rebuilding is time consuming but possible. More good news! All debt, with the exception of Federal student loans or Federal liens, have a statute of limitations. It’s really important that you know what they are. You can create your own DIY credit action plan to review, manage and monitor your credit in efforts to rebuild and recover.  As part of that plan you can get a free copy of your credit reports from (All four bureaus) Equifax, Experian, Transunion and Innovis. A hard copy of your credit report will list when a debt is scheduled to fall off, including bankruptcy or foreclosure. In addition, to mitigate the negative, make sure you are building on the positive – your good active accounts. Never miss payments and keeping utilization rates down.

Building step 6: Beware of credit repair services 

The credit repair industry itself can be misleading and tough to navigate. According to the Credit Repair Organization Act, “companies that offer credit repair is prevented from demanding advance payment and are required to provide contracts in writing that gives consumers certain contract cancellation nights.”  If a credit repair companies is asking you for money upfront or want you to pay for a service they have yet to provide, they are breaking the law. I am sure there are legit companies out there providing a great service, but the industry is littered with many that make promises they are unable to fulfill. I hear stories from many of my workshop students, that have used companies who were ultimately unsuccessful in addressing their needs. That said, be aware of the quick fix schemes and be committed to building your credit score back up the right way.


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How to choose a credit counseling agency- 3 things to look for

Maybe you’re having difficulty keeping up with those monthly credit card bills. It could be student loans or even those old medical bills. Either way, you’re in way over your head and feel a bit overwhelmed. You may be looking for some direction in terms of managing your debt but, you’re not quite sure what to expect from a credit counseling agency. Here are three things you’ll need to look for from a credit counseling agency.

Make sure your credit counseling agency is accredited   

A legitimate credit counseling agency must be accredited. Non profit counseling agencies must obtain and maintain accreditation by the Council on Accreditation, Inc. (COA). COA is an independent third-party not-for-profit accrediting organization that review non-profits counseling agencies to ensure that they are compliant with respect to their practices. You can also cross-check the National Foundation for Credit Counselors (NFCC) before engaging with anyone who says they are a certified credit counselor.  Furthermore, do not hesitate to ask any counselor whether or not his/her agency is accredited. This should give you some sense of confidence that you’re making the right choice with a particular credit counseling agency and that your personal and confidential information will be handled in accordance with privacy laws.

Make sure your credit counseling agency does not charge you fees  

Most credit counseling agencies are non-profit organizations that receive funding to provide counseling or debt management services to consumers. In other words they do not necessarily charge you a fee for counseling services. In addition, they are often incented by creditors since it’s in a creditor’s best interest to ensure their receivables (your debt) is collected. This scenario benefits everyone involved. Keep in mind however, once you sign an agreement with a credit counseling agency your monthly payments to each of your creditors will be processed through the agency usually electronically. You are also contractually obligated to follow through on the payment schedule. Once the agency receives your payment they in turn submit payments to each creditor on your behalf as agreed. Review your credit counseling options to ensure you’re not paying any fees.

Make sure that your credit counseling agency will actually save you money.  

Saving money is one of the major positives in choosing the right credit counseling agency. Because these agencies have the ability to negotiate with creditors to help lower your rates, payments, stop late fees and over-limit fees they are able to help save you money. You’ll be more likely to pay off your debt much faster. Another point here is that while you’re under agreement with the agency you will not be able to assume any new debt, which is not bad given that you’re still getting back on good financial footing. On the down side however, your credit score will be negatively impacted in the short term or while under the agreement. Reason being, consulting with a credit counseling agency is viewed as a red flag by creditors. They see it as one step away from bankruptcy. The silver lining in all this is that, as long as you are able with the help of the agency to get out of debt you’ll be in much better shape financially and your credit score will definitely improve over the longer term as well. The key is to ensure that you choose the right credit counseling agency to begin with.

Below are the links to a couple of accredited credit counseling agencies.




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3 Reasons To Repair Your Own Credit

Even with many years of experience in the financial field, I still found it intimidating to deal with the issue of repairing my own credit.  After being on the verge of entrusting the process to credit repair professionals, I decided to take some initiative and learn about the credit scoring systems on my own. Here are three reasons I thought it was worth repairing  your own credit

Reason number 1)  Repairing your own credit is an educational investment

One of the best investments you can make during your lifetime is in your own education. Educating yourself around the use and management of credit is supremely important. Credit usage permeates every segment of our lives, from student loans to personal loans, and from auto loans to mortgages. And yet, many school/college curriculums do not cover this issue or households for that matter. Investing time and energy in this endeavor will not only save you money, it will help you make wiser credit choices in the future. It will also pay dividends as you become more knowledgeable about the credit game.

Reason number 2) Repairing your own credit helps you avoid  future mistakes

Not only is educating oneself empowering, but acquire new knowledge and practices which when applied can help prevent costly and repeated mistakes. The simplest way to break old negative habits is to formulate new positive ones. The beauty of learning new habits, is knowing that you would be less likely to recycle past errors. Stop going in circles. Take the time to understand the credit process and particularly how you can employ new positive practices to help rebuild your credit and credit score.

Reason number 3) Repairing your own credit can be financially rewarding

For families whom are be impacted by less than good credit, the financial cost to their households can be significant. For example, over the life of a 30-year mortgage, the cost can be tens of thousands more, versus borrowers with higher scores. Having bad credit can also cost you a great career opportunity or time and resources with credit repair services. That said, whether it’s applying for a job or not knowing how the usage of credit can be leveraged to build wealth, learning about credit affords you the opportunity to become better stewards of your financial life. Ultimately, we’re talking about taking back control of your financial life with respect to your credit. This intangible asset and proper understanding of its usage is a financial difference maker which can help you build a financial legacy if not greater levels of self-sufficiency.




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6 Lessons I’ve Learned About Money

Experience is a great teacher. And experiences with money can provide some of the most important lessons of all.  Have you ever said to yourself, “Man, I wish I had done this or that” or, “I wish I hadn’t done this or that,” you’re not alone.  It is very important that you take a moment to consider what is at the core of your relationship with money. I have. Learning about money can be life-changing and I have learned some amazing truths about money. Here are five important lessons about money.

Money lesson 1 – Money is a tool

Humans over time have made gradual steps toward the future with innovation and usage of tools. From tools used for hunting and gathering to those used for farming and trading. Money, as we understand it today is the world’s most ubiquitous tool. It is used for everything. Let’s be very clear about how value is ascribed to money. Printed money or fiat money, has no inherent value, it assumes value because it is a legal medium of exchange. Real money is backed by something of value, generally a precious metal such as gold. There should be a difference between how we value currency versus how we value what the currency represents. One of the keys to understanding money as a tool is to first understand what real money is. Once you’ve done that, take the time to strategically think through how best you can utilize this tool.

Money Lesson 2- Money Can Be Grown/Invested

In general, being employed is the primary way in which people earn wages (money) they exchange labor and time for wages. Wages/earnings equate to money. Money can also be grown or invested. Money in many ways can be represented as a seed (capital) where it can be planted or invested by an (investor) for the specific purpose of getting a return  a return (creating a profit). There are numerous ways to grow and invest money. Seek out which is the best option for you. Publications such as Forbes and Money are great resources to get more information on investing.

Money Lesson 3Money must be managed

Much like a craftsman perfecting his craft, it takes time to get better at managing money. To become more proficient requires time, work and dedication. There are some basic principles that can help you become more skilled in managing your money. For instance, learning how to budget and can help you develop positive habits that will serve you well over time. As your knowledge about managing money improves, it becomes easier to understand the more advanced concepts such as investing or planning for retirement. It all begins with having a basic understanding of managing your money.

Money Lesson 4- Money follows purpose.

One of the more important financial concepts I’ve learned is that, “money follows purpose.” Because money is a tool and has no will of its own, it can only do what it is “purposed” to do period. Let that sink in for a minute. One reason money often leaves your pocket or bank account and goes to a retail store is because those businesses have  a clearly defined purpose for your money. A business owner creates a purpose for your money by creating a product or service. In fact, that whole process has a very critical role to play in our economy. The real issue here is that you must be disciplined about creating a clear purpose for your money. It goes without saying that if you don’t someone else will.

Money Lesson 5Money amplifies who you are

We’ve often heard it said that, “people don’t change overnight.” There’s some truth to that statement. Winning the lottery won’t make anyone change who they’ve always been. They may change zip codes, but core values and beliefs are difficult to divest.  Money can create for us – “a blow horn effect.” A blow horn is a device often used to amplify human speech. For example, if you’ve been a compassionate person, chances are you’ll still be compassionate with more money. Likewise, if you’ve always been irresponsible with money, then more of the same can be expected. One way to handle this potential imbalance, is to focus on becoming better at managing your money. Understand that this tool will only amplify who you are.

Money Lesson 6Money is literally everywhere.

For many of the world’s citizens the thought, pursuit and business of money is all consuming. As a financial services professional, I often view the world through a financial lens. As a result, I understand that everything has financial worth…everything. Even things that we often take for granted such as trees and basic vegetation.  For every segment of human life, apart from a few indigenous tribes, “money matters.” Many of the world’s conflicts and crises in some way stem from an economic origin. Much like ancient times money as a medium of exchange is evolving. Paper money may not be entirely obsolete but it’s very likely the future of money will be different. In fact, it may already be here. Cryptocurrencies such as bitcoin are challenging the traditional notion of money and is already occupying a unique space in our world, thanks to new technology. The key lesson here is we live in a world where virtually everything on planet earth can be quantified, everything has a value and because everything has a value, although not always easily converted, it can in some way be equated to money.