by Rusty and Credit Puppet on May 28, 2009
In today’s financial world everyone who is employed should have a checking and savings account opened. With these accounts and the use of direct deposit and the internet, doing personal banking has become very easy and cost efficient and in most cases you don’t have to leave the house.
The first thing most people think about when you mention opening these accounts is going to a Bank. Many people do not know about Credit Unions and there advantages. At first glance they seem to operate in a similar fashion. You have a standard checking and savings account, you can apply to take out a loan or mortgage, you can even get a credit card issued through your Credit Union. So what’s the difference and why should you consider a Credit Union.
The first difference between the two is that Banks are for profit corporations. To be healthy they must make money for their stockholders, sometimes this can lead to risky behaviors as we have seen in 2008. While not all banks had difficulties the whole industry has suffered because of the relaxing of regulations and searching out new and creative ways to turn a profit. Some of these new endeavors did not work out as planned and banks had to write down millions in losses.
Credit Unions are small, nonprofit consumer-organized savings and lending institutions, owned entirely by their member-customers. Their stated purpose is to encourage thrift among members, provide a source of consumer credit at a reasonable rate, and provide members an opportunity to use and control their own money in order to improve their economic and social position. The most unique feature of the Credit Union not shared by Banks is their membership requirement. To apply for membership a person must supply the usual personal information about them and purchase an initial share in the Credit Union. This usually is very nominal, about $5 to $10 dollars.
When we look back over the banking and credit crisis that came to a head in 2008, we know that many banks failed, some were merged with others to save them, and many were bailed out by the government. Did you here about any Credit Unions failing? Did you here about the government bailing out Credit Unions? The answer is no because the primary source for funds of a Credit Union are the “share accounts” or the deposits of its members. While they do use this pool of deposits to make loans to the membership they have a much better record than banks when it comes to defaults. You need to remember that the Credit Union is not trying to make a profit. They simply need to cover operating expenses, after that any remaining gains are paid back to the member base as dividends.
While the deposits at a Bank are considered very safe because they are insured by the FDIC (Federal Deposit Insurance Corporation), Credit Unions also share a similar safe guard. Since 1970 all state and federally chartered Credit Unions are regulated by the NCUA (National Credit Union Administration) and they administer a similar program FSLIC (Federal Savings and Loan Insurance Corporation) which safe guards the deposits of the Credit Union. Your money will be very safe whether you keep it in a Bank or Credit Union.
The cooperative nature of Credit Unions give them many advantages to consumers, especially to those just starting out, those that may be credit challenged, and folks that can not start an account that requires them to maintain a certain balance in their accounts. It is very easy to start your association with a Credit Union. They typically will give credit opportunities to their members when a Bank may not.
While they do have some fee’s related to their products these are not excessive or punitive as any excess funds will be paid back as dividends. You are also a member-owner of your Credit Union and as such you have the right to vote for election of officials, and to participate in the committees formed to run the Credit Union.
If you are trying to start or rebuild your credit, or if you are just not happy with the saving institution you are currently using, you do have options. While Banks work perfectly for many people there is an alternative. When shopping for a new savings institutions don’t sell yourself short. Look at all your choices and remember Credit Unions are a great option.
by Rusty and Credit Puppet on May 22, 2009
by Rusty and Credit Puppet on May 21, 2009
by Rusty and Credit Puppet on May 20, 2009
Types of credit in use also known as “credit mix” refers to what types of credit accounts are being used. To have and maintain a high credit score consumers need to show the ability to properly control a variety of credit accounts. Consumers should not be overly cautious in regard to their credit mix as consumers will acquire credit accounts based on need, but as they build their credit file they need to be aware of potential positive and negative actions.
Credit scoring models want to see a variety of different credit accounts being used without too many of any one type. Those consumers with good credit scores and a long credit history may be able to overcome a poor credit mix. A credit challenged person with a short history may not.
A mortgage account in good standing is one of the most positive accounts to have in your credit mix, while it is technically an installment account many credit reports will separate it from other installment loans. Mortgages are positive because over the long term they assist in building wealth for the consumer, not only do they have an ownership stake in real property each payment builds equity in their financial portfolio.
Installment and revolving accounts are very desirable on a credit report as long as they are in good standing. These show creditors that a consumer has the ability to handle different types of credit accounts responsibly. While a good credit mix will include both of these types of accounts, having too many in either category may become negative. It may be very difficult to establish how many accounts of each kind a consumer may have on a credit report as this will be determined by how well the consumer is doing in the other four categories of credit scoring. A general rule of thumb would be at least one, and no more than three of each.
Quality of the source on these accounts is another factor to consider. Finance companies have lower credit standards than Banks and Credit Unions; therefore the credit scoring models judges them differently. Having multiple Finance Company loans may eventually begin to drop the credit score. The same can be said about revolving accounts, while gas and department store credit cards are easier to obtain, the credit scoring models give more weight to the major credit card carriers (Visa, MasterCard, Discover, and American Express).
Where do I find “Types of Credit in Use” on my Credit Report: Many credit reports will offer a summary page that will record the total of each type of accounts listed; Mortgage Accounts, Installment Accounts, Revolving Accounts, and Total Open Accounts.
If the credit report does not contain a summary page you will need to view each separate account listed on the report. Check the line called Type or Account Type. This will list the segment of credit that this account belongs in.
by Rusty and Credit Puppet on May 17, 2009
by Rusty and Credit Puppet on May 13, 2009
From time to time all consumers will have the need to search for new credit. They may be seeking a new mortgage, vehicle purchase, credit card, loan, or some other offer for credit. When you fill out a credit application the merchant is going to make an inquiry against your credit report. These inquiries do have consequences to your credit scores. While new credit inquires do not have a major impact on the overall score, not handling them properly may impede your overall credit success.
It is in the best interest of every consumer to limit new credit requests by only applying for items and accounts that they truly need. Never do a credit inquiry with a merchant just to see if you would qualify, or to check your scores. Consumers have the right and ability to check their credit reports and scores without negatively affecting the credit scores. Having multiple credit inquires in a short period of time is a red flag to creditors and the credit bureaus. It reflects the risk that you may be overextending yourself or be in a cycle of trying to refinance your way out of a tough financial situation.
When shopping for a new mortgage or vehicle the scoring models do give consumers the ability to shop multiple merchants to acquire the best deal without the effect of multiple inquires. To accomplish this consumers should be prepared to do multiple inquires within a 14 day period. If multiple inquires of the same type are initiated within this 14 day period they will only affect your credit score as one inquiry. A consumer’s best defense against lowering a credit scores due to inquires is to shop knowing that their credit scores are in an acceptable range to desired merchants, and to shop in a fixed amount of time.
While new credit is only 10% of the credit score, its effects are also limited by a short obsolescence period. Credit inquires only remain on the record for 2 years. The only inquires that have consequences to your credit score are those that the consumer generates for the purpose of granting credit.
Where do I find “New Credit” on my Credit Report: Credit reports have a separate section that is dedicated to recording inquires. Here it will list the name of the company where an inquiry was initiated and the date it was executed. Some credit reports will have two separate sections for inquires. One will be for inquires that the consumer initiated, or inquires that will affect your credit score (hard inquires). The second is for other types of inquires that do not affect your score (soft inquires). The reason soft inquires are listed is the consumer has the right to know who has access to their credit file. The soft inquiry section will list promotional inquires (pre-approved credit offers), inquires for review purposes (current creditors checking your credit file), employment decisions, and tenant screening. The soft inquires will not be seen by future potential creditors.
by Rusty and Credit Puppet on May 11, 2009
The recent recession and the credit crunch that followed have changed the landscape in the financial industry as it relates to getting new credit. They are no longer having prospective borrowers just fill out an application and then looking the other way while you walk out the door with a new loan. No, now lenders are demanding to see what shape your credit profile is really in and the standards for good scores has moved in an upward direction.
While a FICO credit score of around 720 used to give you a shot at the lowest mortgage rates, today you’ll need a 750 or higher to qualify for the best terms.
How can you bridge the gap? First, make sure mistakes on your credit reports aren’t dragging you down. Go to www.annualcreditreport.com and get a free report from the major credit bureaus; Equifax, Experian, and Trans Union.
Next, bump up your score by lowering your debt to credit ratio. If you owe $5,000 but your credit limits are as much as $12,000, your ratio would be about 41%. Pay off enough debt to “get your overall utilization down below 10%, and you will see your score improve drastically.
Avoid using your cards in the month or so before applying for a loan. Even if you pay off your balances at the end of the billing cycle, there’s a chance the lender might do an “inquiry” of your credit the day before those payments are recorded, making it look as though you’re using more of your credit than you actually are and your score will reflect that.
If your credit limits have not been raised in the last year, call and ask the issuer to raise the limits on your existing accounts. Even though all the news is that credit card issuers are cutting credit, they may also be selectively offering more credit to their best clients. This is another way to affect your debt to credit ratio. You won’t know unless you try, it’s worth the phone call!
by Rusty and Credit Puppet on May 10, 2009
If you are denied credit, the Equal Credit Opportunity Act requires that the lender give you notice that tells you the precise reasons your credit application was rejected, or the fact that you have the right to learn the reasons if you ask within 60 days. Unclear and vague reasons for denial are illegal, so ask the lender to be specific.
Sometimes you may be denied credit because of information listed on a credit report. If so, the Fair Credit Reporting Act requires the lender to give you the name, address, and phone number of the credit reporting agency that supplied the information. You should contact that agency and ask for a free copy of the credit report (you must request it within 60 days of being denied credit). The credit bureau can tell you what is on your report, but only the lender can tell you why your credit application was turned down.
If your lender says you were denied credit because you are too close to your credit limit on your credit cards or you have too many accounts, you may want to reapply after paying down your balances or closing some accounts (always be careful when closing accounts, these accounts affect your credit in many different ways and you do not want to lower your credit score). Credit scoring models update information and change over time.
If you’ve been denied credit, or didn’t get the rate or credit terms you want, ask the lender what credit scoring model was used. Ask what characteristics were used in that model, and the best way to improve your application (or score). If you are approved for credit, ask the lender whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies or errors on your credit report, be sure to dispute the inaccurate information with the credit bureaus involved.
Don’t just accept being denied if you feel your credit is good, do your homework and get the situation rectified.
Ready For The Big Three?
by Rusty and Credit Puppet on June 1, 2009
Are you prepared for three of the leading circumstances that eventually cause Americans credit to take a tumble?
Divorce. Loss of income. Medical issues with no insurance. These 3 life changing events are the top ways a person may end up with major credit problems. Think about it. How many people plan for these events and the financial consequences that will follow? With proper planning and an emergency savings plan you may be able to avoid the credit problems that follow.
DIVORCE- No one enters into marriage thinking it will end in divorce. Statistics show that in the United States, 50% of marriages do end this way. When a couple decides it is best to part ways, they rarely think how the split might affect their financial and credit situation. With simple planning, a couple could shore up their financial future. Decide who will pay what bills and notify creditors of who is financially responsible for the account may save some future headaches. Not all divorces are amicable. If this is the case you might consider a security freeze with the credit bureaus. Remember; your ex-spouse has all the information they need to open new accounts that may ruin your credit in the future. If your spouse has account privileges on your credit accounts, consider contacting those creditors to establish new accounts. It would also be prudent to close any joint accounts that you are no longer using. These few steps may secure your accounts against fraudulent use by an ex-spouse.
LOSS OF INCOME- Losing your job or main source of income can be devastating not only financially but emotionally. When you can’t pay your bills, major credit problems are right around the corner. Some people will try to live off of their credit cards until they are employed again, but this can backfire and should not be you’re only plan. Have emergency savings or a “rainy day” fund, enough to cover your living expenses for at least 2 or 3 months. This is the best strategy to avoid financial and credit ruin. Writing or calling your creditors to let them know of your situation is the first thing you should do if you find you are unable to pay your bills on time. Most creditors are willing to defer or reduce payments until you are on your feet again. Working with your creditors is always better than waiting until bills go into collections and spoil your credit.
MEDICAL CRISIS- The health insurance crisis in our country seems to grow larger each and every day. As the crisis expands, more Americans are without medical insurance. The potential for unpaid medical expenses grows for each of these people. One trip to the emergency room has the potential to wipe out the financial security of most people, and bad credit is certain to follow. Unfortunately the only way to avoid this is to have health insurance or some type of medical savings plan. If your employer does not provide health insurance as a benefit, you should try to seek out affordable health care elsewhere. This is even more important if you have children. Look in your local yellow pages or internet search for health insurance offered to individuals and families. Inquire about group insurance that might be available from your child’s school or church. Some Credit Unions offer discounts on group health insurance or you may be eligible for some type of government assistance.
The time to plan for these unseen circumstances is now. You may not be able to avoid these three circumstances, but with proper planning you will make it through the difficult times and still have your financial and credit health intact.
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