Credit reports and credit scores are thermometers that allow others – including future employers – to see you approach to money. Some might even say it is a reflection of your approach to life. Understand that the financial footprints you are making today will have an impact on your dreams.
Credit Scores
You have three credit scores, one for each of the three credit bureaus: Experian, TransUnion and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes your credit scores tend to change as well. Your 3 credit scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. Taking steps to improve you credit scores can help you qualify for better rates from lenders.
Fico Scores
Credit bureau scores are often called “FICO score” because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company. FICO score are provided to lenders by the major credit reporting agencies. The higher the credit score the lower the risk.
FICO Scores are calculated from a lot of different credit data in your credit report. This date can be grouped into five categories as outlined below. The percentage in the chart reflect how important each of the categories is in determining your FICO score.
Below are some tips and tricks to help you plan your budget, save money, and prepare for the future:
1.Know where your money goes. Be aware of how you spend your money. Review some of the items you spend your money on to find areas where you can cut back.
2.Prepare a Budget. Develop a budget and live within your means. Make adjustments to remain within your budget and don’t use credit cards to cover shortfall or unnecessary purchases.
3.Include savings in your budget. Pay yourself first. Treat your savings account like any other monthly bill by making a monthly payment toward it.
4.Plan for major purchases. Adjust your budget accordingly to build savings for your next major purchase without using a credit card.
5.Save for emergencies. A good rule to have is to have a minimum of six months of salary available in your savings account. While this will take some time to achieve, it is important to strive for it so you’re prepared for any unexpected emergencies.
6.Plan for retirement. Take advantage of interest or market upturns by saving for retirement early. Often your employer will help you save for retirement with a 401(k) plan.
7.Get tax advice. If you have special circumstances when it comes to your taxes such as self-employment, own/lease property, etc. make sure to seek tax advice from a professional for the best possible outcome.
8.Protect your credit. You have the right to pull a free credit report from each reporting bureau once per year. Keep in mind that late payments will adversely impact your credit, as will failure to pay. Immediately report any credit issues or discrepancies to the reporting bureau.
9.Keep good financial records. Utilize online tools as well as paper copies of your receipts to keep records of your pay stubs, banking information, taxes, insurance and other documents important to your financial situation.
Below are some additional tips and tricks to help you save money on some of the money common monthly expenses:
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Housing |
Entertainment |
Food |
Health |
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Set your thermostat lower |
Eat out less frequently |
Compare prices before buying |
Exercise and eat right |
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Unsubscribe your cable service |
Use coupons for events |
Buy food in bulk when possible |
Quit smoking and/or drinking |
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Transportation |
Debt Payments |
Miscellaneous |
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Utilize public transportation when possible |
Stop using credit cards to make purchases |
Make a budget and do your best to stick to it |
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Plan to carpool with a friend or coworker |
Pay off the full balance at the end of the month |
Consider your wants vs. what you actually need |
Although each credit reporting agency formats and reports this information differently, all credit reports contain basically the same categories of information. Your social security number, date of birth, and employment information are used to identify you. These factors are not used in credit scoring. Updates to this information come from information you supply to lenders.
Identifying Information
Your name, address, Social Security number, date of birth ad employment information are used to identify you. These factors are not used in credit scoring. Updates to this information come from information you supple to lenders.
Trade Lines
These are your credit accounts. Lenders report on each account you have established with them. They report the type of account (bankcard, auto loan, mortgage, etc.) the date you opened the account, your credit limit or loan amount, the account balance and your payment history.
Credit Inquiries
When you apply for a loan, you authorize your lender to ask for a copy of your credit report. This is how inquires appear on your credit report. The inquiries section contains a list of everyone who accessed your credit report within the last two years. The report you see lists both “voluntary” inquires spurred by your own requests for credit, and “involuntary” inquires, such as when lenders order your report so as to make you a pre-approved credit offer in the mail.
Public Record and Collections Items
Credit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies. Public record information includes bankruptcies, foreclosures, suite, wage attachments, liens and judgements.
Setting Financial Goals
As with anything else in life, without financial goals and specific plans for meeting them, we drift along and leave our future to chance. A wise man once said: “most people don’t plan to fail; they just fail to plan.” The result is the same.
Setting a financial goal is just like setting a personal goal. For example, if you decide you want to be an architect, you develop a plan of action that will get you there. First, you research college architecture programs. You decide which ones are best for you, apply, enroll and get the education you need. After you graduate, you search for internships at architecture firms and work up the hours to get your architect’s license.
1. Define your goals
What do you want? Here are some common financial goals:
2. Write down your goals
When you write down your goals, you are more likely to achieve them. It also helps you assess what you really want.
3. Prioritize
You may have a lot of goals. After you write them down, prioritize them. This will help develop a plan of action you can stick to.
4. Be Specific
Define an amount, a time frame, and what the money is for in your financial goal. Example: “I would like to save up to $20,000 within the next 10 years for a down payment on a house.”
5. Be realistic
Set a goal that is reasonable attainable. You can always revise your goal in the future depending on how you are doing with your plan.
6. Develop a plan of action
After you define and prioritize your goals, come up with a plan on how to meet your goals by working with your monthly budget. For example, if you want to save $1,000 for a new TV over the next year, see if you are able to set aside $84 a month towards it. If so, after 12 months you will have the $1,000 you need to make the purchase plus interest you earned on your savings.
7. Don’t forget interest
If your goals is to save a certain amount of money, open an account that will allow you to earn the highest rate of interest and your savings will increase faster. If your goal is to pay something off, keep in mind you are paying interest on that item. Many experts advise that you put any extra money you have for paying off loans and credit cards to the item with the highest interest rate first.
8. Set milestones
If you want to save $5,000 in the next five years, set short term goals along the way. You may decide that during the first year, you will save $700, the second $800, the third $1,000, and so on.
9. Commit yourself to your goals
You will probably have to make some trade-offs in order to meet your financial goals. Maybe you want to go to Italy for a week and you also want to save for a house. Weigh the importance of each goal and commit to meeting your milestones. Many times, you can still reach both goals – it may just take a little longer.
10. Review your progress
Periodically check to see how you are doing with meeting your financial goals. Makes adjustments to your plan as necessary.
There’s no better time than right now to plan for your retirement. Saving for retirement often gets put off as we deal with life’s more pressing demands – marriage, house, and children – but each month you delay cuts significantly into the total savings you have when that day comes.
Options to Consider when Saving for Retirement
Many employers sponsor a retirement savings plan for their employees. Under these plans, also commonly known as defined contribution plans, you can save money toward your retirement on a tax-deferred basis – this is, you don’t pay Federal or state income taxes on your savings or their investment earnings until you withdraw the money at retirement.
Most people’s taxable income – and there, their tax rate – is lower at retirement than during employment, so they end up paying considerably less in taxes on their savings.
With a 401(k) plan, money is deducted from your paycheck before taxes are withdrawn, which lowers your taxable income and there, lowers your taxes. Some plans allow you to contribute money on an after-tax basis as well. Check with your financial advisor for cases when this might be advantageous in your situation.
Some employers apply a waiting period before you can begin participating in their 401(k) – anywhere from one month to one year – while others allow employees to begin making contributions immediately. Also, it’s not unusual for an employer to wait until you pass a similar waiting period before it will begin making matching contributions to your account. Check your benefits enrollment materials to see what, if any, waiting periods must be met.
The IRS sets a maximum amount you can contribute to a 401(k) plan in any given year and it is usually adjusted upward to account for inflation. For 2015, this limit is $18,000. In addition, employee over age 50 can also make “catch-up contributions” above and beyond the maximum amount. For 2015, this catch-up contribution amount is $6,000, and it is also likely to be adjusted upward in future years to account for cost-of-living increases.
Most plans let employees contribute a percentage of covered compensation, in whole percentages, up to a specified percentage – usually up to a maximum of about 20 percent to 25 percent covered compensation. (Note: The definition of “covered compensation” usually means total salary, but it varies from employer to employer, so check your plan documents. This upper percentage amount could conceivably limit your ability to reach the legal maximum contribution, depending on your pay. For example, if you earn $35,000 a year and your employer limits contributions to 20 percent per pay, you could only contribute up to $7,000 a year ($35,000x0.20=$7,000).
Although not required to by law, many employers match a portion of the contributions employees make to their 401(k) account. These matching contribution amounts vary.
