Getting Back Into the Black

   The FICO score is the most commonly used credit score that lenders use to determine what kind of rates and credit you qualify for.  FICO scores range from 300 to 850.   Do you know what your FICO score is and what it means to you?   Knowing your score and working to improve it, can mean the difference between paying $1,678 for a $300,000, 30 year fixed rate mortgage or paying $2,680 a month.   I can think of a lot better things to do with $1,002 dollars a month than to give it to a lender to make up for my poor credit decisions.  

   Understanding your score   Here’s a quick rundown down of the scores.

Over 750 is excellent

720 to 750 is very good

660 to 720 is acceptable

620 to 660 is uncertain

620 and under is risky

Understanding how FICO is scored will let you know what you need to do to improve your score.  The biggest factor is payment history, it makes up 35% of your score.  Payment information on credit cards, installment loans, retail accounts, mortgages, etc.   Bankruptcies, tax liens, collections, judgements, late payments, etc make a huge impact on this part of your score.   They also look at how many late payments you have on file, how long they were late and time since they were reported.   The next most important category is the amount you currently owe creditors.  This makes up 30% of your score.   They look at the ratio between  the amount you owe and the amount you have available to you.  The higher this ratio, the better, meaning it’s best to carry low balances.  The length of your credit history counts for 15% of your score. They’re looking at time since accounts were opened and time since activity on the accounts.  New credit and types of credit used each make up 10% of your score. 

   How to optimize your FICO score

The most important thing you can do, is to pay your bills on time.  If you have missed payments, you need to get caught up and start paying them on time.  The longer you pay them on time, the better your score will be.  Paying off a collection will not remove it from your credit report.  It will still stay on your credit report for seven years.   Keep the balances on your credit cards low.  It’s better to pay down your debt on all of your cards then to move it to one card. Owing the same amount but having it on fewer  open accounts can lower your score.  Don’t open up a bunch of accounts that you don’t need, many experts say you only need a few credit cards to have a great score.  If you haven’t had your credit card or loan for very long, don’t open a lot of accounts at the same time.  New accounts bring down the average on your credit history length and can look risky if sign up for too many.  

   Why the Fico score is important to us

  One of the biggest goals my husband and I have is to buy a house.   We want to make sure we do it the right way.   Rebuilding my husband’s credit and establishing my credit has become an important process.   Due to our credit mistakes and my husband’s bankruptcy, we are estimating that will take two years to get our credit where it should be.   There are no easy fixes.   It takes a very short time to damage your credit and a fairly long time to rebuild it.    We could get a mortgage in a few months but we’d be paying so much more that it would be a dumb, illogical choice.  So, instead we will continue to put money into our savings accounts to use as a substantial down payment when our credit will get us a good rate.    Be informed, don’t pay more than you have to.   Get your score and more information at www.myfico.com.  You may have heard something about a new credit scoring system.  It’s called VantageScore, but at the time of this article, FICO is still the most widely used.  

My wife and I were going to the farmers market the other day to pick up our weekly supply of fruits and vegetables. We prefer to utilize the farmer’s market for these items since we know the items are grown locally and usually taste better than the store bought equivalent. Along with the fact that its usually cheaper, it is just a trifecta of benefits.
Getting back on topic, the only downside to the farmers market is that its a cash only interaction. As we pulled up to the parking I realized I did not have any cash on hand. I set about trying to find an ATM. Normally, anytime I need to get cash out I will either take out extra cash during a grocery store purchase or stop at the ATM at my bank. I ended up going to a small corner market to use their ATM. $1.75 ATM fee later and I had my $20 to spend on fruits and veggies.

Ever since we’ve started living under our budget I’ve really started watching every penny that goes in and comes out of our accounts. I was shocked after a few days when I see a $2.00 charge pop into my online banking application as an ATM fee for using an out-of-network ATM. $3.75 in charges for withdrawing $20 of my own money.

That is an 18.75% charge for withdrawing my money.

I know a lot of people that withdraw money from the ATM regularly, and if they are not using their own bank’s ATM those charges can add up quick. Talking with a friend and showing this to him he realized he was spending $20 a month on ATM fee’s alone. That is $244 a year he’s paying to access money that is already his. I don’t know about you, but I can think of a lot better things to do with $244 a year than pay fee’s to access my own money.

A few ways to save yourself from those fee’s:

1. Always use your bank’s ATM or in-network ATM’s. You can usually check your bank’s website to find out where their ATM’s are located.
2. Use your ATM card to make a purchase at a store and then withdraw extra cash at the time of paying.
3. If its possible, write a check!
4. Plan out your cash expenses every week. Take out enough cash on the weekend to cover any expenses you may encounter where paying with a card is not an option during the week.

   Let’s face it, everywhere you turn, someone is offering money advice.   Since my husband and I have straightened out our finances and gotten serious about saving we’ve read and watched countless people giving advice.  It can be a little overwhelming and a lot confusing.  Here’s a few things we’ve learned while wading through the swamp of financial advice.

   What works for someone else, might not work for you.  I was recently reading about a twenty-something who started investing  5 years ago with 1000 in mutual funds and now it’s grown to over six figures.  That sounds fantastic, doesn’t it?   During those 5 years, this person invested 65% of their salary and they were living rent-free with their parents.   Obviously, that’s an outstanding way to get huge results if you don’t have any bills to pay, but it’s not very practical for most of the people we know.  I have to admit, I chuckled a little when I read that this person has stopped contributing for the time being, now that they have rent and other bills to pay.

   Percentages can be misleading.  This example is taken straight from the Suze Orman show last night.  She was talking about how percentages are talked about so often when it comes to investing but that most people really don’t know how they relate to their money.   She gave two examples and asked which one would make the most money with 10,000 dollars to start with.  Example 1- You are guaranteed to make a 80% profit the first year. The second year, however, you are guaranteed to lose 50%.  Example 2- You put the money into money market savings account, and are guaranteed to make 5% profit both years.   Most people asked, choose option 1, which is the worst choice.  Upon first glace, it looks like you would still be ahead by 30% but here’s how it breaks down.  The first year you would have 18,000 but then the second year when you lose half, it would knock you down to 9000.  That’s an overall loss of 1000 dollars.  The second option at the end of two years would add up to 11,025.  I’d rather make 1,025 than lose 1000!

   Research all of your money decisions.  By now, we all should know that impulse spending is bad, the same is true of taking someone’s advice without investigating further.   It’s not just that it makes you vulnerable to scams, but it might not be good advice for you.   There’s been a lot of conflicting information and advice given about much talked about tax rebates to come.  One blog at a major website that I’m not going to name has written several articles about what you should do with your money and the advice has changed significantly from one article to the next.   I’m guessing there would have been less confusion if the author had waited to get more information about the subject.  

   Make sure your information is current.   Just like we’ve seen in the stock market, things can change quickly in the financial world.  And new laws can have negative effects, like the “kiddie tax” on Uniform Gifts to Minors Act.   The “kiddie tax” was put in place to prevent high income families from giving  unearned income to their children as a way to lower their taxes.   Unfortunately, these changes now make this a bad choice for college funds. 

   If it sounds too good to be true, it probably is   This bit of advice never goes out of style.  If get rich quick schemes worked, we’d all be wealthy by now.  Most people know enough not to be fooled by the Nigerian email scams but bad advice isn’t always that easy to spot.   Hence, the subprime mortgage crisis, a lot of people and financial institutions who should have known better ignored the warning signs.

   Brokers and financial planners are not your friend.  This is not to say that they are all bad, but they aren’t to be trusted blindly either.   There are always stories of people who have lost their life savings because of taking bad advice from so-called experts.  And according to Smartmoney.com  and talked about at Freemoneyfinance.com, many brokers give bad advice.  

Here are some great tips that I have learned and some great resources to get you started on saving lots of money on groceries.

1. I buy 2 Sunday newspapers to get twice the coupons. This is my best $2 investment every week. There are no coupon inserts on major holidays. Also if you want to know what coupons are going to be in your Sunday paper, find out in advance at http://www.taylortownpreview.com/

2. To save the most money, hold on to the coupons until these items go on sale. I look through all the store flyers and see what sale items match the coupons I have.

3. Find out if any grocery stores in your area, double coupons. If you live in the Silicon Valley area of CA, the answer is most likely, no.

4. I don’t buy everything at one store. There are several stores in close proximity to where I live. I get the best deals from each one.

5. If you’re a fan of organic produce, buy at a farmers market. I go every week and the prices for organic fruits and veggies are much cheaper than buying organic at the grocery store.

6. Coupon stacking is the greatest thing ever! Stacking is when you use multiple coupons for the same item. Stores like Target, Walgreens, CVS, Rite-Aid, Eckerd, Toys-R-Us, etc will allow you to use their store coupons and a manufacturer coupon on the same item.

7. Most of the stores I shop at have coupons you can print out on their websites.

8. You don’t have to buy all the items in a buy 3 for $5 sale, etc. Sometimes, these are great deals and other times they will cost you money. When stores run sales like 10 for $10 it looks good, but sometimes these are items that normally run for under a dollar.

9. Don’t expect to save a huge amount right away. It takes about a month to really start seeing results. Once you have a month’s worth of coupons it starts to make a big difference.

10. Free is best! Stores like Walgreens have a few things you can get free every month. And sometimes, you can make money doing this. Let’s say they have a rebate for a free bottle of shampoo. They will let you use a coupon for that item, but will reimburse the full purchase price. And if you choose to have your rebate put on a store card instead of a check they will give add 10% to that amount.

11. Experiment and find out what works best for you. We live in an apartment so we don’t have the space to keep a huge stockpile of items like some super savers do. If you aren’t going to use something, then it doesn’t matter how much you save unless you plan on donating it. My husband only buys Charmin toilet paper, so I don’t bother buying anything else. Instead, I look for the store that has the best sale on that brand.

12. I read these websites regularly to get tips, and to keep learning. http://www.hotcouponworld.com/forums/ and http://www.frugalvillage.com/forums/

As this blog grows, I will expand on all of these tips and share new ones