Sunday, June 28, 2009

Importance of your Credit Score

“The most important thing for a young man is to establish credit - a reputation and character.” ~John D. Rockefeller

The current economic situation has made many consumers to become aware of credit. After all, you cannot turn on a TV, browse on the Internet or listen to the radio without hearing an advertisement about improving your credit. What is "improving your credit" and what is its significance? I am so glad you asked...

The definition of credit is listed below:

Credit is the provision of resources (such as granting a loan) by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources (or material(s) of equal value) at a later date.
Credit is one of the most important metrics used by banks to evaluate someone's ability to pay back a loan. How does this affect you? It basically works like this:

  1. You walk into the bank and ask for a loan.
  2. You will out the many applications they give you, one of the applications containing a release form that allows them to pull your credit score.
  3. The banks immediately receive a credit report with your credit score and hopefully the terms of the contract provided you the best interest rate possible for the loan.

Many people are pretty familiar with the credit application process, however it is a mystery as to how that credit score is determined. It breaks down into the following categories:

  • Payment History (35%)
  • Amounts Owed [Outstanding Debt] (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Types of Credit Used (10%)

Payment History

This contains information about the delinquincies on your opened credit accounts. This can also be an indicator of any past bankruptcies. It also lists the time since the last delinquent account. Delinquent accounts definitely has a negative impact on your credit score.

Amounts Owed

This contains information about the proportion of money owed on outstanding debt. A large amount of outstanding debt will negatively impact your credit score.

Length of Credit History

This contains information about the time each account has been opened. This also contains information about the time of the latest activity on each account. Having a very short length of credit history will negatively impact your credit score.

New Credit

This contains information about recently opened accounts, credit inquiries and re-establishment of positive credit after prior delinquencies. Many credit inquires on your report will cause your credit score to be negatively impacted.

Types of Credit Used

This contains information about the different types of credit. Some of the credit types are mortgage, retail, credit cards, etc.

It is close to impossible to purchase a home, a car or even start a business without having a good credit score. In addition to that, even some employers will consider a person's credit score during their application process. Also, credit scores are used by landlords when choosing certain tenants to rent to.

From this article, I hope that you are able to better understand the different components that make up your credit score as well as the importance of keeping a good credit score. Stay Disciplined

References:

http://www.investopedia.com/articles/00/091800.asp?viewed=1

Sunday, June 21, 2009

Name Brand vs. Generic?

Imitation is the sincerest of flattery. ~Charles Caleb Colton

I commonly tell people "Be an original, not a copy". However, everything from medicines, dish detergent, cheese, even cookies, have both a name brand (original) and generic (copy) counterpart. As an informed consumer, I want to get the best value for the money that I have to spend. So the question comes down to this, "What is better, name brand or generic products?"

Well, in general, generic products are cheaper than "name brand". This can easily be seen by going to your local grocery store and check the grocery store brand of cheese to a name brand product such as "Kraft" or "Sargento". You will see that there maybe upwards to $1.00 in savings if you purchase the generic brand. If price is your only factor that you consider with a purchase, then hands down, the generic cheese wins consumer dollars.

It is a common thought that name brand products are higher quality than generic products. This could be the case, but if you look on most of the packaging for generic products, you will see that most of the time, generic products are usually made in the same factory that the name brand products are made. Of course this does not mean that they use the exact same ingredients, however it does not mean that there is not quality in both products.

Although cheese is just one example of a product, there are also other products that many consumers have to make a choice about. I personally use about 50% generic and 50% brand name. Some items (such as aluminum foil, and plastic bags) do not have any noticeable differences than the most expensive counterparts. However, there are somethings that I do not skimp on.

What it all comes down to is your personal preference. It is up to the consumer to decide whether or not the name brand product is worth the extra dollars. What products do you buy that are generic? What products do you buy that are name brand?

Stay Disciplined!

Sunday, June 14, 2009

Taking the Leap of Faith

Every accomplishment starts with the decision to try. ~Unknown

Wisdom can come in the oddest forms and when you least expect it. While having lunch with one of my mentors, I found myself questioning some of my most recent actions. I just bought an investment property that is truly a "fixer-upper" and I have no handyman experience nor do I have a lot of capital to invest in paying others to fix up the property for me. I had contemplated this decision prior to actually taking the plunge, however, I was starting to feel some after purchase jitters.

I shared my feelings with my mentor and he reminded me about everyone's biggest obstacle hindering the completion of their goals. The obstacle of fear. Fear can take on many forms. For me, it is the fear of losing my job, the fear of having too many unexpected expenses and even the fear of foreclosure caused by the unforeseen circumstances.

I do not understand why the human mind tends to always prepare and expect the worst out of any situation. Although the statement was not explicit, my mentor helped to remind me about "Faith". From the bible, Faith is defined as the following:

Now faith is the substance of things hoped for, the evidence of things not seen.
(Heb 11:1)
To provide a more simplistic explanation, Faith is defined as the following from wikipedia:
Faith is the confident belief or trust in the truth of or trustworthiness of a person, idea, or thing.
In both definitions, there is a commonality of trusting/believing in something that you may or may not be tangible. Just believing alone is not enough for Faith to work, there are the required actions that must accompany it. Even if you are unsure if the actions are correct, sometimes just doing something is enough to make progress on your endeavor.

It just seems my list of things to do to work on this house is continuing to grow. However, every week, I try to accomplish a small goal to make progress on the house. I honestly do not know whether or not I will succeed in this venture, but I do believe I will try to do everything necessary to be successful.

What are your thoughts? Share them in the comments below.

Stay Disciplined!

Sunday, June 7, 2009

Getting Credit benefits on a Debit Card

No man's credit is ever as good as his money. ~Edgar Watson Howe

The last time that you have used your credit card, what option did you select? Credit or Debit? For the longest time, I was swiping my debit card as a debit card although I had this large Visa symbol listed on the bottom right hand corner of the card. Well, to most, this does not seem like a big deal because the money comes out of the account just the same. However, each time we swipe our debit cards as debit, we miss out on the benefits and protection offered by the little symbol in the bottom right side of the card.

Although this may not seem like a big deal, it actually is. See below for the benefits of using your Visa debit card as a credit card:

Gain peace of mind with Visa's extra security protections.

When you sign for your purchases, your money comes directly from your checking account, but you also get security protections that help prevent, detect and resolve fraud, including:

All of this information was quoted from Visa's site. I recommend that if you have a card other than Visa, to go to the banks site and see if they offer similar benefits.

From now on, I hope you take a second thought about whether or not you will use "Credit" when you are swiping your bank debit card. Stay Disciplined!