Category: CREDIT BLOG

If you want to learn how to build credit and raise your credit score, you simply must pull it.
I’m talking about your credit report.
I tell my clients that they must review their credit report at least once every six months, and, depending on how low their credit score is, perhaps even quarterly.
In Step Five of my book, 7 Steps to a 720 Credit Score, I explain that almost 80 percent of people have errors on their credit report, and 25 percent of these are severe enough to cause a person to lose a loan or a job opportunity.
So what do you do if you spot an error?
First and foremost, if you think you are a victim of identity theft, call the three credit bureaus right away to put a freeze on your credit account. This way, no one else can open credit in your name.
If the mistake doesn’t seem to indicate that you are a victim of identity theft, you can start by filing an online dispute at each of the three credit bureaus. Following are links:

• TransUnion
• Equifax
• Experian

As well, contact the credit card company or the bank in question. If they are reporting incorrect information, you can get the ball rolling by asking them to investigate the mistake.
One of the most common (and dangerous) mistakes you will find is an inaccurate credit limit.
So why does an inaccurate credit limit hurt your credit score?
The credit-scoring agencies give higher credit scores to people with lower utilization rates (your credit card balance as a percentage of your limit.) If your limit is, for instance, $2,000, and your balance is $600, you have a utilization rate of 30 percent.
This is a good utilization rate, and it should help your credit score.
But if your credit card company is reporting your limit as $1,000 instead of $2,000, your utilization rate will appear to be 60 percent (a $600 balance on a $1,000 limit). This is a bad utilization rate, and it will cause your score to drop.
So if you want to build your credit score, start by filing a dispute with all three credit bureaus. At the same time, place a call or send a letter to your credit card company demanding that they report your correct limit.
Then, be sure to pull your credit report again to make sure that the mistake has been corrected.
Oh, and one more credit repair tip: Your credit score will never be damaged if you pull your own credit report. Though inquiries into your credit score by lenders will cause a dent in your score, pulling your own credit report is considered responsible behavior. So do it freely!
Have any questions? Need a credit repair tip that will help you build a 720 credit score? Be sure to leave a comment below.

As part of my commitment to providing free credit education, I regularly answer frequently asked questions and offer credit repair tips.
Here’s a question that recently came across my desk:
I have an open, old credit card account.  Don’t want to close it because it helps my credit score but I have no balance on it.  I have a limit of 6,000 on it.  Should I close it or at least lower the credit limit on it.?  I have another credit card I like better with a large balance 6,000 that I’m paying down this year.  I’d like to keep that one to use and should I lower that limit too once I get it paid off.
If you want to know how to raise your credit score, know that you should never close an account, nor should you ask for the limit to be lowered.
Here are a few credit repair tips that I can offer as explanation:
1) A big part of your score is the age of your accounts. Closing an old account can lower the average age of your accounts and, in turn, lower your credit score.
2) It sounds like you have only two credit cards. The credit-scoring formula will respond best to people with at least three and no more than five credit cards. Why at least three? They need enough information to judge you, and one or two credit cards simply is not enough information.
Ultimately, you should have a 720 credit score if you want the best interest rates. I’ve rarely seen people with 720 credit scores who have fewer than three active credit cards on their credit reports. But I have seen my fair share of people with more than five credit cards who still have a 720 credit score (or higher).
The moral?
If you already have more than five credit cards, you best course of action is to pay off your extra cards and let them go inactive. Do not close them. Do not reduce the limit.
3) Your three-to-five credit cards should be kept active. If you do not use them, the credit-scoring bureaus will not know whether you can juggle multiple debt obligations, and they will assign you a low score. Better safe than sorry, they will think.
You can keep the cards active by setting up an auto-pay on a small monthly bill, like your gym membership or a magazine subscription. This way, you keep the card active while still maintaining the low balance.
4) Part of your score is based on your balance-to-limit ratio. The credit-scoring bureaus look at both your individual accounts and your collective debt as a percentage of your collective limit. This is called a “utilization rate,” and in both cases, the closer you are to a 30 percent utilization rate, the better.
Let’s say you have two credit cards. One of them has a $6,000 limit and a $6,000 balance. In other words, you are maxed out. On that credit card, your utilization rate would be 100 percent, which would not earn you any points with the credit-scoring bureaus.
Assume now that you have a second credit card. This one has a $6,000 limit and no balance. On that credit card, you have a 0 percent utilization rate, which is great for your credit score.
And your overall utilization rate (assuming those are the only credit cards you carry) would be 50 percent, which isn’t great.
5) Since I don’t know the limit on your card with a $6,000 balance, it’s hard for me to tell whether that card is hurting or helping your credit score. If the limit is not at least $20,000, it is likely hurting your score.
You see, the credit-scoring bureaus will respond best to people with no more than a 30 percent utilization rate. So in your case, if the card with a $6,000 balance does not have a limit of at least $20,000, you have exceeded the 30 percent rule.
If this is the case, you should transfer $1,800 to the card with a $6,000 limit. This way, you maintain a low utilization rate on the card with a $6,000 limit, and you lower the utilization rate on the card with the $6,000 balance.
Keep in mind that my answers are always based on a credit-scoring perspective. You might have valid reasons for wanting to close your credit cards. For instance, if you have a long-term habit of abusing credit, your finances will probably be much better off if you live a credit-free life while adjusting your spending behaviors. But from a credit-scoring perspective, the answer to “Should I close my credit card accounts?” is “No!”

Going through bankruptcy is a difficult thing for anyone. While it might be important when creditors are becoming a serious problem, it is still something no person wants to face.
If you find yourself going through bankruptcy, you should know at least some ways to remain protected. One is to ensure that not everything is taken from you during this, and that includes your savings. Possibly the most important thing you must protect is life insurance because if you do not, creditors may leave your family with nothing after your death.
While you need to pay off creditors, you also need to keep a few things to yourself. During bankruptcy, creditors will want to take whatever they can without any regards to you or your family. This means you may end up in a hole that is near impossible to escape, a situation that may worsen if they took your safety net.

What is Protected?

Life insurance is too important to give up. If you were to pass, this is what helps to pay expenses so that your family does not end up in a bad financial situation. To prevent creditors from taking this, you need to understand what you can do. Under federal exemptions, you can protect up $10,775 of a life insurance policy’s cash value. Also, married couples may double all exemptions under the federal bankruptcy code.
If you fear that bankruptcy might take your life insurance, you can make it exempt. This will give you the chance to keep your money, or at least some of it, so that your family is not left with nothing after your passing.
You do have to look into what your specific state allows. All states are going to be different, some only protecting up to a certain amount and others requiring that you have had this insurance for a certain amount of time, so you should know more about the facts. One way you may be protected is if you have cheap life insurance. This will put you under the maximums for several states, making it possible to keep your money.
This exemption can give you at least some peace of mind in your life, something you need during such a stressful time. No matter what is allowed for it, as long as you qualify for the exemption, you can benefit from it. You have that extra security so that your family will always have something, regardless of the situation they find themselves.

Buying Life Insurance After Bankruptcy

Waiting for your bankruptcy to be completely off your records is not a good excuse to put off applying for life insurance. If cost is an issue, at least consider taking out a 10 year year term policy to make sure your family is protected. Going with a shorter term policy will be cheaper for now until you can get back on your feet. The only risk is that if something happens to your health that makes getting life insurance 10 years that much more expensive or, at worse, unattainable.
Before you apply for affordable life insurance, you’ll want to make sure that your bankruptcy is completely discharged. Most insurance companies won’t underwrite you in you’re in the middle of the bankruptcy process. Luckily, if the bankruptcy is discharged you shouldn’t have issue finding an insurance company willing to underwrite you.
The Internet is filled with free online term life quotes that allow you to get a quote in a minutes. Be sure to make them aware that you have filed bankruptcy recently. One of the biggest mistakes that people make when applying for life insurance is not being up front with the carriers. I promise you they will find out and if you try to hide it it will only hurt your chances on getting approved.

Understand Your Options

If you are facing bankruptcy, it is important to know everything you can do. Letting creditors have their way with everything you have to your name might result in you having nothing left. This is not only added stress, but it could hurt you in the long run. By taking advantage of what is out there, you can keep yourself in the green and make it easier to get back on your feet after this has finished.
This is a guest post from Jeff Rose, a certified financial planner and founder of LifeInsurancebyJeff.com. A site dedicated to helping families find affordable life insurance.

If you have any concerns about your finances at all, sit back and listen to this 3-minute audio. After you do… read the rest of the post below.

—————————–
What did you think?
I remember speaking to Travis when he was considering filing bankruptcy; he was so stressed!
You probably know what I told him, but I’m going to say it again. I said, “Travis, you need to make a decision about your bankruptcy based on what is best for your family; however, don’t worry about your credit. Your credit is the easy thing to fix.”
Well, he took my advice, followed about ¾ of it…
Two years and two days later, he bought a home for 5% down, with an interest rate of 3.5%.
Think about that…
So many people worry about late payments, or a foreclosure, or a short sale… why?
If you know how to rebuild your credit, you don’t have to worry about past mistakes on your credit report.
The first step is simple: Sign up for my FREE webinar right here. Don’t delay. After all, if you attend the webinar right now, by summer or fall, your credit will be all taken care of!
If you want to change your life, click this link and sign up for this webinar right now.
Here’s to the best year of your life!
Px
P.S. Don’t put this off!  Click here to sign up for the FREE webinar.

If you want to know how to raise your credit score by paying off debt, you should know two things:

1. The lower your balance-to-limit ratio, the better your score.
2. You must keep credit cards active.

Let me start with your balance-to-limit ratio. Credit-scoring bureaus award higher scores to people who have credit card balances that are no more than 30 percent of their overall limit. If your limit is $10,000, for instance, your balance should never exceed $3,000.
One of my first strategies for helping a person build a 720 credit score is to lower each credit card balance to no more than 30 percent of the credit card’s limit.
That 30 percent target is the minimum you should aim for. If you can pay your credit cards entirely, great! Your score will be higher.
Important: Many people think that if they pay their credit card balances in full each month, they don’t have to worry about having a high balance the rest of the month. This is a common misconception.

From a credit-scoring perspective, bureaus look at your credit-card balances as a snap shot in time, which means that if you have a credit card with a $2,500 limit and a $2,000 balance on the day your credit report is pulled, your score will be lower… even if you just sent in a check for $2,000 that simply has not cleared the bank.
That is why in my Free Credit Score Webinar, I teach people to never charge more than 30 percent of their credit card balance. And the closer they can keep their balance to $0, the better!
This brings me to my second point.
You must keep your credit cards active. When I give my Free Credit Score Webinar,  I explain to people learning how to build credit that they must use their credit cards. Otherwise, the credit-scoring bureaus have no way of telling whether you are a responsible borrower.
Consider it like this: Let’s say you own an airplane. Owning an airplane isn’t enough to be granted a pilot’s license. You must first demonstrate your ability to take off and land, you must have hours of flight practice under your belt, and you must hold the proper certification.
Likewise, owning credit cards is not enough to demonstrate that you know how to use them. And because credit-scoring bureaus consider the most recent activity to be the most important, you must use them regularly.
So how do you keep a low balance on your credit cards while still keeping them active?
Simple. Let’s say you have four major credit cards that you want to pay off but keep active. (Ideally, you should have between three and five major revolving credit cards.) Here is a plan that shows you how to raise your credit score by paying off your debt.
1. Identify four bills that have a set monthly payment. For instance, your gym membership, magazine subscription dues, car insurance, and health insurance bills are probably the same amount each month.
2. For each of your four credit cards, schedule an auto pay of one of these bills.
3. Then, create an auto payment from your checking account to each credit card company. This auto payment should occur two days after your credit cards are charged for the bills. Let’s say, for instance, that you create auto payments for your Visa, MasterCard, American Express, and Discover cards to pay your gym membership, magazine dues, car insurance, and health insurance bills (respectively), on the 5^th of the month. You would then create another level of auto payments so that your checking account pays your credit card balances two days later.
This way, you will never pay interest, keep your credit cards active, and keep your credit cards paid off.
So what about other debt? Here’s a tip on how to build credit by getting small loans:
Let’s pretend you are going to buy some new furniture. Assume that you have enough money to buy the furniture outright; however, you would like to build your credit.
If the bank will report the loan as an “Installment Loan” to all three credit bureaus, it’s a great idea to finance part of the purchase. Then, pay the bills for three months before paying the remaining balance in full.
Let’s assume you finance $5,000 and pay 10 percent as an interest rate. Your monthly payments are $41.66, and you pay these for three months before paying the balance in full. During these three months, you pay only a little bit in interest, but you have a new item on your credit report that appears as “Paid in Full” and “In Good Standing.”
In summary, if you want to know how to raise your credit score by paying off debt, remember two things: keep your balance low and keep your debt active.

Philip X. Tirone is the creator of The Free Credit Score Webinar and the 14-Day Credit Challenge, both of which teach consumers how to raise your credit score and achieve a 720 credit score. You can visit his blog on how to raise your credit score at 720CreditScore.com

Why make it more complicated than it needs to be?
If your financial or credit situation is chaotic, you probably think turning over a new leaf will be too hard. But there are three easy ways you can improve your financial situation in 2013.
Tip #1: Write Your Goals Down!
What would you like to see change on your credit report within the next four to six months?
For instance, perhaps you want to:

• Pay off a credit card
• Lower your utilization rate
• Try to negotiate for a letter of deletion
• Create a plan so that you pay your bills on time every time
• Eliminate or reduce expenses
• Increase your income

Whatever your goal, write it down every single day this year.
Too often, life gets in the way of our long-term goals.
Jobs, personal lives, and hobbies seem to take precedence over organizing bills, establishing financial goals, and getting a grasp on the credit-scoring rules.
As a result, we forget about where we want to go. So there’s an easy fix …
If you start each day (or end each day) by re-writing your financial / credit goal, you will be much more likely to make decisions that support that goal.
Tip #2: Sit Down to Organize Your Bills
This might seem silly, but there are a host of byproducts that can come from simply making a list of your bills, the date the bills are due, and the approximate amount.
1. You will be less likely to pay them on time.
Forgetting to pay bills is an ever-increasing problem. Some bills are sent via e-mail. Others come in the postal mail.
Some bills are paid using auto-payment features, others are paid by credit card, still others require a check.
Without a centralized method of paying these bills, today’s modern conveniences actually make it less convenient to pay bills on time. It’s just too confusing!
2. You will see opportunities to cut your finances. When was the last time you reviewed your phone bill? And HOLY SMOKES! Do you really pay that much for your cable?
3. You will see how much money you are spending on discretionary items. If your bills add up to $2,500 a month, and you bring home $5,000 a month, but you only save $500 a month, you are spending $2,000 in discretionary spending. By listing your bills, you might be more inclined to set a budget.
Tip #3: Read a Book
Do you think that if you read one financial self-improvement book that you would be better off at the end of the year? Of course you would!
Remember: A person who does not read learns the same amount as the person who cannot read.
Each year, a bevy of books about taking control of your financial life hit the bookstores. Though some are better than others, each and every one of them will expand your knowledge simply by forcing you to focus on your financial situation.
Simply by making the choice to read a book, you will dramatically increase your likelihood of reaching your financial goals because you will spend more time thinking about and planning your future.
Pick a book you want to read.
Now, order the book today! Even if you read just one page a day, the power you gain by focusing on your finances will change your life forever!
That’s it: Pick and write down a goal, list your bills, and read a book.
It’s that simple.
What book will you read? And what is your goal for 2013? Let me know by leaving a comment below.
Here’s to a great 2013!
Philip Tirone
P.S. If you have already read great books about financial management, share your recommendation below!

What if… today was THE day.
Today was the day when you stopped worrying about that thing that has been nagging you all year.
Today was the day when you realized that the struggles you have been going through have been blessings in disgu
ise… and now, the blessings are filling your heart with joy.
Today is the day that you will look back with immense gratitude, as this was YOUR day.
Today is the day to feel blessed, because 2013 is going to be unlike any other year of your life.
Are you ready for it?
This is YOUR year!
This year is going to be easier for you and your family.
This is the year you will have the breakthrough you wanted financially.
This is the year that the pain you feel… will be taken away from you.
Together, let’s all come together and me 2013 the best years of our life. That’s what I’m going to do… will you come with me?
Post any thoughts below.
With all our love… have a Merry Christmas, and if you don’t celebrate Christmas, have a wonderful Holiday!
To an awesome 2013,
Philip, Lily, Ava, Dominic, Lucas and Emma

With Christmas just a couple of weeks away, I wanted to share this tip for protecting your wallet when you hit the malls.
I call it the “envelope system.” It works like this:
1. First, create a holiday spending budget. I know a lot of parents who want to create lasting memories for their children, so they go overboard, buying tons of presents for their kids.
But think back to your own childhood. How many gifts are etched into your memory?
Probably not many. Your children will remember the time they spend with you more than the gifts they will receive.
And if you are racking up your credit card bills, you probably feel stress and anxiety, which will detract from the time you spend with your children.
So create a reasonable budget, determining how much you can afford to spend on each person on your list.
2. Leave the credit cards and debit cards at home.
I’m totally serious about this. If you don’t take credit cards or debit cards, you cannot overspend. It’s that simple.
If you do take credit cards and debit cards, you can. So just leave them at home.
The more radical this idea sounds to you, the more important it is that you implement it.
Taking credit cards with you is just too tempting, even to the most disciplined shopper. The allure of “buy now, pay later” will allow you to make impulse purchases.
If you take only cash, on the other hand, you will limit your spending to the cash in hand. Those impulse purchases will be impossible.
3. Create “wallets.”
This is where my “envelope system” comes into play …
Before jumping in your car and hitting the local mall, pull out some plain white envelopes and write the name of each person you are going to purchase a present for on individual envelopes. (If you have eight people to buy presents for, you should have eight envelopes.)
Within each envelope, place the appropriate amount of cash you have budgeted for this person—no more and no less.
Each of these envelopes represents the wallet you have for each person on your list.
You might want to bring a little extra money for lunch, but be sure to leave your credit and debit cards at home.
When you purchase a present, use the money from the appropriate “wallet.”
This method will create a psychological barrier to impulse shopping. If you are tempted to splurge on a gift, you will be dissuaded when you consider whose wallet you will withdraw money from in order to cover the impulse shopping.
What do you think? Does this help you avoid the “holiday credit card hangover”? Leave a comment below and let me know.
Cheers!
Philip Tirone
P.S. You can use this tip for other events: birthdays, anniversaries, and other events that call you to the mall!

If you ever took a traditional economics course, you learned that human beings make rational decisions about their finances, and choose things that are in their best interests.
But you only have to look around you to find evidence that human beings are far from rational, particularly when it comes to finances.
We all consistently make irrational and stupid choices that cost us more, both in the short and the long run, because we are not always capable of deciding what is in our best interests.
This understanding of how real people make real financial decisions comes from the (relatively) new field of Behavioral Economics. This discipline looks at the intersection of psychology and economic theory, and it paints the human animal as a far more irrational creature than Adam Smith ever imagined.
Check out these five ways that humans make poor money decisions, and see if you can recognize any of your past blunders:

1. Seeing a High Price Can Make us Pay More

We like to think that we know a fair price when we see one, but the truth is that we’re remarkably suggestible. For instance, take a look for the most expensive wine on the menu the next time you are out to a nice dinner. Often, you will see a single bottle listed at $100 or even more, while the rest of the wines are listed at about $25-$50 per bottle. That one expensive bottle is listed on the menu to make the $50 bottles seem much cheaper in comparison.

Many restaurants literally only keep one bottle of the expensive stuff, because they don’t intend for anyone to actually buy it. It’s there to sell the $50 wine, which would have otherwise seemed far too expensive compared the other options.

What’s happening here is something Behavioral Economists describe as anchoring. Once we have a number in our heads, it anchors our expectations for price. Dan Ariely, in his book Predictably Irrational tells how Williams-Sonoma was frustrated at poor sales of its bread machine, priced at $275. The solution they came up with was to offer another model – one that was larger and priced at $400.
Suddenly, sales of the cheaper model rose, while no one bothered with the spendy version. This was because shoppers suddenly had something to compare the original to, and $275 no longer seemed like too much to spend- at least not compared to $400.

2. We Hate to Lose, Even When we Already Have

If you’ve ever held onto a tanking stock because it’s sure to regain its value, then you have been a victim of loss aversion. Loss aversion is psychological quirk that makes us work much harder to avoid a loss than we will to achieve a gain. In terms of the stock market, once a stock starts doing poorly, we think of the money we have already lost, and we fear further losses. But instead of cutting our losses, and accepting the fact that the money we’ve already spent is a sunk cost, we hold onto those stocks in the hope that they’ll pick back up again.
You can see loss aversion in nearly every aspect of life. This is the reason why we keep those bread machines we spent nearly $300 on, even though we never make bread in them – and we could certainly get something for them at a garage sale. The simple fact that we will never see that $300 again is enough reason to let the machine gather dust, because we’ll kick ourselves for “only” getting 10 bucks on a resale.

Loss aversion is also why we are so unwilling to cancel memberships to gyms we don’t attend, clubs we don’t go to, and cable packages we don’t use. We think about how much it will cost to rejoin if we were to quit- forgetting that every month we’re allowing more money to go down the drain for fear of “losing” the original enrollment fee.

It’s very difficult for us to remember that that money is already gone.

3. We Overvalue Free Things

How many times have you ordered a book that you’re not entirely certain you want, just to make sure you qualify for free shipping from Amazon?
When you do that (and we all do), you end up paying more money overall and end up with an unwanted item, to boot.
This is clearly irrational.
For some reason, the word “free” seems to scramble our brains. When we are offered a free item or service, we forget what other costs there might be to that item or service because we are so focused on the fact that we’re not paying money. What’s really interesting is that we are willing to pay more in order to get something free. That’s why Amazon offers free shipping for orders over $25, and why many marketers and retailers give out free gifts with purchase.

4. Future Needs Vs. Today’s Wants

We think things in the future are less important than things happening now. Human beings have a very hard time planning for the future. Apparently, 75% of Americans nearing retirement in 2010 had less than $30,000 saved, which is a pretty horrifying statistic. But before we write off three-quarters of the retiring population as irresponsible laggards, we should look at our own behavior.

• How many times have you bought something with a credit card without a specific plan to pay it off?
• How often have you promised yourself you’d diet only to be tempted off the path the moment you see a box of donuts?
• How many times have you left work for yourself to do in the morning, only to curse yourself the next day?

What’s going here is something called hyperbolic discounting. That’s a 50¢ word for our unconscious feeling that now matters more than later. We know that we ought to put money aside for retirement, but man is that far away! And the money is here now. So, we tend to think that retirement will take care of itself, while the money can be put to “good use” now.

5. We Overestimate the Possibility of Unlikely Things Occurring.

Our brains are wired to think that things we can easily come up with an example of are likely to happen. This is something called the availability heuristic. What that means is that we think we’re much more likely to win the lottery or win big in Vegas than is statistically possible just because we can think of examples of people who have won.
Since we can think of those examples, we think the outcome is more likely. And every time you read a news story or see a movie about such winners, your brain believes that you winning is even more probable.
Even if you are able to sidestep the availability heuristic, you may still fall victim to the similar gambler’s fallacy. This is when you believe that something is “due” to happen because it hasn’t for quite some time. For example, you might bet on a coin coming up heads on the 21^st toss after it has come up tails every time for 20 tosses. It seems as though the coin is “due” to come up heads, but it’s still only 50/50 odds.
Otherwise rational investors may find themselves following the gambler’s fallacy by avoiding buying stocks that are going gangbusters, for fear that there has to be a fall eventually. Statistics may show a general regression toward the mean (i.e. – everything evens out eventually), but general statistics are meaningless when talking about individual events.

Irrational Money Decisions Affecting Your Life

Approaching all of our financial decisions rationally is remarkably difficult to do. It pays to think about the money choices we make, and try to figure out what our motivation is each time. A little mindfulness and self-knowledge can do wonders for combating irrational decisions.
Source: Good Financial Cents