Budgeting sounds like a boring strategy used by our parents. For a long time, budgeting was considered the way to manage money because it helped people keep track of where their finances were going. But lots of people are choosing not to budget because it seems so needlessly complicated with little or not benefit. But there is a benefit to budgeting; the real trick is finding a budgeting method that works for you. Here is an excellent strategy to help you manage the money in your personal portfolio.
The first thing you need to do is create a budget. Creating a budget does not have to be restrictive, but it should be a guideline to help you manage your income and your expenses each month. The first thing you want to do is list all your expenses on a month-to-month basis. The next thing you want to do it list all of your income on a month-to-month basis. Then compare. Many people who have trouble saving find that their expenses are very close to their income. So what can you do?
One option you have is to reduce your expenses. This might mean going out with friends a little less or giving up on some luxury that you typically enjoy. Another option you have is to increase your income. Unfortunately, for many people, this is easier said than done.
One way that you can reduce your expenses and increase your income is by using a debt consolidation loan. By consolidating many outstanding debts that are due throughout the month into a single loan with a single monthly payment you will be accomplishing several things.
First, you will be reducing your monthly payment because you will be securing a larger loan and is spread out over a longer period of time. Second, you'll be reducing the amount of interest you pay because you will be consolidating your many debts into one debt from one provider. Reducing your interest not only helps to reduce your expenses but also increases your income!
And if you are able to find some assets that can help you get a secured loan, you'll be able to spread out your payment over a longer period of time and you will likely qualify for a lower interest rate because you have some security to offer the lending institution to back up the loan.
Now that you are actively pursuing a budget, you will need to find a way to continue to reduce your expenses over time. A secured loan will help you do that. But don't forget that there are many ways you can also increase your income.
Congratulations! You are assembling a budget and getting control of your finances and at the same time you are reducing your expenses and increasing your income.
Tuesday, November 18, 2008
Bankruptcy Information: Some Basics
As bankruptcy is one of the most important financial decisions a business or individual will ever make, it is essential to have correct bankruptcy information before getting starting with the process.
Finding yourself in a difficult financial situation can be scary. Facing the possibility of dealing with bankruptcy can be even scarier, especially since most individuals or businesses don’t spend time making themselves aware of the legalities that go along with the process. Since many debtors are ashamed of the situation, they often fear asking too many questions regarding the process. As bankruptcy is one of the most important financial decisions a business or individual will ever make, it is essential to have correct bankruptcy information before getting starting with the process.
The federal court systems in the United States deal with all bankruptcy information and set the laws regarding the process. This does not mean that an individual has to go to Washington D.C. to file though, as each state will deal with individuals and businesses during proceedings. This may mean going all the way to the state capitol though. The federal laws on bankruptcy information state that these laws are in place simply to give an honest, but fallible debtor a fresh start.
One of the most important pieces of bankruptcy information to know is that the courts don’t come to the individual or business to file, the individual or business goes to the courts. Simply by filing a petition called a Statement of Intentions, the debtor lets the court system know that they are applying for bankruptcy.
Just because a debtor files the Statement of Intentions does not always mean they will go all the way through the legal system. The courts will need to gather important bankruptcy information through forms that will need to be filled out by the debtor. These forms allow the courts to review a debtor’s credit history, list current creditors and the amounts of the debts, as well as current and past work history. From this the federal court system will make a determination as to whether or not a debtor can proceed with the court case.
Keep in mind that the debtor does not have to hire an attorney to represent them through the proceedings, although attorneys can be a great source of knowledge regarding bankruptcy information. Many debtors are scared to hire an attorney because of additional charges that they cannot afford, but most attorneys are reasonably priced due to the circumstances. Often times attorneys will not charge a fee for an initial consultation when the debtor is simply trying to acquire bankruptcy information.
Unfortunately, most of the general public does not have a thorough understanding of bankruptcy information. This causes misconceptions regarding bankruptcy. One of the major misconceptions of bankruptcy is that all possessions are taken and repossessed by the courts. Since there are many different chapters of bankruptcy, there are also many different takes on repaying debts, and only Chapter 7 requires a complete liquidation of assets. Even with Chapter 7, debtors are allowed exempts, or items that are necessary for living.
One more important piece of bankruptcy information to keep in mind is that there is a new bankruptcy law in place called Bankruptcy Abuse Prevention and Consumer Protection Act. This law was implemented in 2005 to stop fraudulent bankruptcy claims and may make it more difficult to convince the courts of a claim.
Although filing for Chapter 13 and Chapter 11, or reorganization plans, have not changed that much, filing for Chapter 7 has becoming increasingly difficult. Previously, debtors were not required to take courses on debt, but with the new law in place, Chapter 7 debtors are required to take Credit Counseling and Financial management courses before the process can be completed.
Finding yourself in a difficult financial situation can be scary. Facing the possibility of dealing with bankruptcy can be even scarier, especially since most individuals or businesses don’t spend time making themselves aware of the legalities that go along with the process. Since many debtors are ashamed of the situation, they often fear asking too many questions regarding the process. As bankruptcy is one of the most important financial decisions a business or individual will ever make, it is essential to have correct bankruptcy information before getting starting with the process.
The federal court systems in the United States deal with all bankruptcy information and set the laws regarding the process. This does not mean that an individual has to go to Washington D.C. to file though, as each state will deal with individuals and businesses during proceedings. This may mean going all the way to the state capitol though. The federal laws on bankruptcy information state that these laws are in place simply to give an honest, but fallible debtor a fresh start.
One of the most important pieces of bankruptcy information to know is that the courts don’t come to the individual or business to file, the individual or business goes to the courts. Simply by filing a petition called a Statement of Intentions, the debtor lets the court system know that they are applying for bankruptcy.
Just because a debtor files the Statement of Intentions does not always mean they will go all the way through the legal system. The courts will need to gather important bankruptcy information through forms that will need to be filled out by the debtor. These forms allow the courts to review a debtor’s credit history, list current creditors and the amounts of the debts, as well as current and past work history. From this the federal court system will make a determination as to whether or not a debtor can proceed with the court case.
Keep in mind that the debtor does not have to hire an attorney to represent them through the proceedings, although attorneys can be a great source of knowledge regarding bankruptcy information. Many debtors are scared to hire an attorney because of additional charges that they cannot afford, but most attorneys are reasonably priced due to the circumstances. Often times attorneys will not charge a fee for an initial consultation when the debtor is simply trying to acquire bankruptcy information.
Unfortunately, most of the general public does not have a thorough understanding of bankruptcy information. This causes misconceptions regarding bankruptcy. One of the major misconceptions of bankruptcy is that all possessions are taken and repossessed by the courts. Since there are many different chapters of bankruptcy, there are also many different takes on repaying debts, and only Chapter 7 requires a complete liquidation of assets. Even with Chapter 7, debtors are allowed exempts, or items that are necessary for living.
One more important piece of bankruptcy information to keep in mind is that there is a new bankruptcy law in place called Bankruptcy Abuse Prevention and Consumer Protection Act. This law was implemented in 2005 to stop fraudulent bankruptcy claims and may make it more difficult to convince the courts of a claim.
Although filing for Chapter 13 and Chapter 11, or reorganization plans, have not changed that much, filing for Chapter 7 has becoming increasingly difficult. Previously, debtors were not required to take courses on debt, but with the new law in place, Chapter 7 debtors are required to take Credit Counseling and Financial management courses before the process can be completed.
Bad Credit Personal Loans: Delivers Finances Irrespective of Credit
Bad credit personal loans are designed for borrowers with a history of bad credit. These loans are accessible in secured and unsecured form. By repaying the borrowed amount borrower gets a chance to improve the credit record.
To constantly live with the tag of bad credit is certainly not a good one. More so, it affects the financial stability of a person. This is where Bad Credit Personal Loans can help these specific individuals a lot. It is because these loans offer finances to the individuals irrespective of their poor credit record.
Bad credit happens when a borrower does not repay or skip his past loans which results in creating a series of problems like CCJs, IVA, arrears, defaults etc. It can be also attributed to various factors like sudden illness, transfer, loss of employment on the part of borrower. But with the finances obtained form the loans, borrower can meet the various needs like purchasing a car, renovation of home, education, wedding, travelling etc.
Lenders offer these loans in two forms i.e. secured and unsecured. The secured form of the loans can be availed only by placing collateral of value such as home, real estate property, car etc. Placing of the asset assures the lender that the amount is safe and will be safely returned. The amount offered depends a lot on the equity value of collateral. Besides as there is a security attached, the rates of interest are comparatively low.
Unsecured from of these loans are accessible without the involvement of any collateral. This makes it beneficial for borrowers who do not own any asset such as tenants and non homeowners. Homeowners too can apply for these loans. The amount offered is based mainly on the repayment capability and income drawn. However the rates of interest for this loan option is slightly higher.
These loans not only assist the borrower by offering finances, it also helps to strengthen the credit record. By ensuring regular monthly installments towards the borrowed amount, they can very much improve their credit record
Most of the lenders now offer these loans through the online mode. It is also preferable as these lenders due to stiff competition in the market are offering these loans at cheap rates.
Bad credit personal loans assist the borrower to fulfill various needs without worrying about their credit record. Moreover by repaying the borrowed amount, they can improve their credit record.
To constantly live with the tag of bad credit is certainly not a good one. More so, it affects the financial stability of a person. This is where Bad Credit Personal Loans can help these specific individuals a lot. It is because these loans offer finances to the individuals irrespective of their poor credit record.
Bad credit happens when a borrower does not repay or skip his past loans which results in creating a series of problems like CCJs, IVA, arrears, defaults etc. It can be also attributed to various factors like sudden illness, transfer, loss of employment on the part of borrower. But with the finances obtained form the loans, borrower can meet the various needs like purchasing a car, renovation of home, education, wedding, travelling etc.
Lenders offer these loans in two forms i.e. secured and unsecured. The secured form of the loans can be availed only by placing collateral of value such as home, real estate property, car etc. Placing of the asset assures the lender that the amount is safe and will be safely returned. The amount offered depends a lot on the equity value of collateral. Besides as there is a security attached, the rates of interest are comparatively low.
Unsecured from of these loans are accessible without the involvement of any collateral. This makes it beneficial for borrowers who do not own any asset such as tenants and non homeowners. Homeowners too can apply for these loans. The amount offered is based mainly on the repayment capability and income drawn. However the rates of interest for this loan option is slightly higher.
These loans not only assist the borrower by offering finances, it also helps to strengthen the credit record. By ensuring regular monthly installments towards the borrowed amount, they can very much improve their credit record
Most of the lenders now offer these loans through the online mode. It is also preferable as these lenders due to stiff competition in the market are offering these loans at cheap rates.
Bad credit personal loans assist the borrower to fulfill various needs without worrying about their credit record. Moreover by repaying the borrowed amount, they can improve their credit record.
Thursday, November 13, 2008
Why do we need to invest?
Discusses why the world's aging population impacts on the need for personal investments.
It is vitally important in this current day and age for all of us to begin taking control of our financial situation and start planning for our future, and the futures of our children.
We can no longer rely on the government to hand out an aged pension once we retire. We cannot take for granted that at the end of our working life we will be taken care of financially.
The world population is ageing, due to the baby boomer generation, and within 30 years there will be so many retired people, compared to the number of working age people, that it will be economically impossible for the government to afford to provide any reasonable source of monetary assistance for the elderly.
The government has realised this, and that is why they introduced the compulsory employer paid superannuation scheme and are even now beginning to give financial incentives to Self-Funded retirees.
Most of us have never sat down and even considered the ramifications of why the compulsory super was introduced and for many of us it is a matter of too little too late. Even for the young women in our society – who have a full working life ahead of them, they still cannot rest assured of a comfortable retirement.
Why is this? It is because that unfortunately even with contributions at the current level of less than 10%, someone on an average wage who works continually for 30 years, is still going to find themselves trying to survive on an income equivalent to less than $20,000,00 per annum in today’s dollars.
You will notice that I said continually working for 30 years. This is another reason why women are particularly disadvantaged. Firstly because they often have to take up to ten years leave from the workforce to raise children, secondly because women in general earn less than their male counterparts and thirdly because an enormous proportion of the women in Australia, for example, will never have received any superannuation contributions, prior to the compulsory superannuation being introduced, and will therefore not have had contributions made over their entire working life so far, giving them even less to fall back on by the time they retire.
Many women may previously not have thought of lack of superannuation contributions as being a problem, as their husbands may have been contributing to super since they first began work. Unfortunately though with the high number of divorces in this country, it is unwise to rely on the fact that your partner’s superannuation will be there for you in your retirement years and even if a large proportion is awarded in a settlement – that it will be sufficient to sustain a comfortable retirement for any length of time.
All of these factors are why women now more than ever, need to begin taking action to build up a source of ongoing income, that will grow to such an extent, as to be able to provide a secure and happy future for themselves and their children.
It needs to be a source of income that is unrelated to physical work…that is an income that is generated from income producing assets – and not from our personal efforts.
One of the best sources of creating this ongoing income stream is to begin building an investment property portfolio, also aptly paraphrased as bricks and mortar.
We need to start investing in income producing assets now, so that they will have time to grow and develop so that we will be financially independent for our retirement years.
The most important concept to grasp in relation to building wealth for retirement and for creating finances that can be directed toward charities, or helping out your family is that of Compound interest.
In mathematical terms 72 divided by Compound Interest Rate of Return = Years for Money to Double in Value.
Therefore if you have $1,000.00 invested at 10% interest, then the number of years that it will take for your money to double to $2,000.00 is 7.2. It will quadruple in 14.4 years and be worth 8 times as much in just over 21 years.
If your money is invested at 7% interest, then it will take approximately ten years to double in value. If it is invested at 5% it will double in just over fourteen years.
The two most important aspects of compounding are one: rate and two: time. The higher the rate and the longer the time something is left to compound, the greater the final result will be. This is why the sooner we start investing, the better.
It is vitally important in this current day and age for all of us to begin taking control of our financial situation and start planning for our future, and the futures of our children.
We can no longer rely on the government to hand out an aged pension once we retire. We cannot take for granted that at the end of our working life we will be taken care of financially.
The world population is ageing, due to the baby boomer generation, and within 30 years there will be so many retired people, compared to the number of working age people, that it will be economically impossible for the government to afford to provide any reasonable source of monetary assistance for the elderly.
The government has realised this, and that is why they introduced the compulsory employer paid superannuation scheme and are even now beginning to give financial incentives to Self-Funded retirees.
Most of us have never sat down and even considered the ramifications of why the compulsory super was introduced and for many of us it is a matter of too little too late. Even for the young women in our society – who have a full working life ahead of them, they still cannot rest assured of a comfortable retirement.
Why is this? It is because that unfortunately even with contributions at the current level of less than 10%, someone on an average wage who works continually for 30 years, is still going to find themselves trying to survive on an income equivalent to less than $20,000,00 per annum in today’s dollars.
You will notice that I said continually working for 30 years. This is another reason why women are particularly disadvantaged. Firstly because they often have to take up to ten years leave from the workforce to raise children, secondly because women in general earn less than their male counterparts and thirdly because an enormous proportion of the women in Australia, for example, will never have received any superannuation contributions, prior to the compulsory superannuation being introduced, and will therefore not have had contributions made over their entire working life so far, giving them even less to fall back on by the time they retire.
Many women may previously not have thought of lack of superannuation contributions as being a problem, as their husbands may have been contributing to super since they first began work. Unfortunately though with the high number of divorces in this country, it is unwise to rely on the fact that your partner’s superannuation will be there for you in your retirement years and even if a large proportion is awarded in a settlement – that it will be sufficient to sustain a comfortable retirement for any length of time.
All of these factors are why women now more than ever, need to begin taking action to build up a source of ongoing income, that will grow to such an extent, as to be able to provide a secure and happy future for themselves and their children.
It needs to be a source of income that is unrelated to physical work…that is an income that is generated from income producing assets – and not from our personal efforts.
One of the best sources of creating this ongoing income stream is to begin building an investment property portfolio, also aptly paraphrased as bricks and mortar.
We need to start investing in income producing assets now, so that they will have time to grow and develop so that we will be financially independent for our retirement years.
The most important concept to grasp in relation to building wealth for retirement and for creating finances that can be directed toward charities, or helping out your family is that of Compound interest.
In mathematical terms 72 divided by Compound Interest Rate of Return = Years for Money to Double in Value.
Therefore if you have $1,000.00 invested at 10% interest, then the number of years that it will take for your money to double to $2,000.00 is 7.2. It will quadruple in 14.4 years and be worth 8 times as much in just over 21 years.
If your money is invested at 7% interest, then it will take approximately ten years to double in value. If it is invested at 5% it will double in just over fourteen years.
The two most important aspects of compounding are one: rate and two: time. The higher the rate and the longer the time something is left to compound, the greater the final result will be. This is why the sooner we start investing, the better.
What is True Wealth?
What is true wealth? What should you expect if you reach the end of the gold paved road to financial freedom?
If you have a million dollars, will you be satisfied? What about 10 million? Is true wealth a numbers game or do other factors enter into the equation?
Ebenizer Scrooge of Dicken’s The Christmas Carol was very wealthy for his time, but before meeting the three ghosts of Christmas past, present and future,
he lived a miserable life, too cheap to even heat his own apartment.
Meanwhile his clerk, with his many children, was portrayed as happy and loving - a great father.
Of course this is fiction, but is there any truth to the story?
Many people will work incessantly trying to accumulate more and more wealth, but a trite joke is that their last words are never: “I wished I spent more time at
work.”
For some people the only answer to the question; “What is true wealth?", is money pure and simple - the more money the better.
Others would be content to say that true wealth is having the peace of mind of being free of debt.
Another will say he is truly wealthy if he can lead the lifestyle he chooses regardless of cost.
Others might say true wealth is being healthy and surrounded by loving family and caring friends.
There are probably as many answers to this question as they are people to answer it.
You could live in a big house on the hill, have two Mercedes in the garage and a million in the bank and not enjoy life as much as the guy who works in the gas station and lives in a two room furnished apartment.
True wealth is what one perceives it to be. And if it were not so, we wouldn’t have policemen, firemen and soldiers who risk their lives protecting us rather than trying to work on Wall Street, making big bucks.
We wouldn’t have doctors who travel to third world countries, just to try to make some difference, rather than to stay at home with a thriving practice and a comfortable life.
We wouldn’t have all the volunteers this country has, who are ready and willing to help the sick, infirm or destitute – or who suddenly turn up at disaster scenes willing to do anything to help.
This country wouldn’t have the millions of people who donate billions of dollars annually to the charities of their choice.
So even thought we concentrate on financial matters, it’s good to step back and realize there is more to true wealth than money.
I believe that having enough wealth to live a comfortable life makes lots of other things possible.
I also believe that being in debt is merely transferring your wealth to your creditors. While it may make them, or their shareholders rich, it really contributes little to your true wealth.
So my answer will be adopted from Mr. Spock’s famous Vulcan greeting: “Live Debt Free and Prosper.”
If you have a million dollars, will you be satisfied? What about 10 million? Is true wealth a numbers game or do other factors enter into the equation?
Ebenizer Scrooge of Dicken’s The Christmas Carol was very wealthy for his time, but before meeting the three ghosts of Christmas past, present and future,
he lived a miserable life, too cheap to even heat his own apartment.
Meanwhile his clerk, with his many children, was portrayed as happy and loving - a great father.
Of course this is fiction, but is there any truth to the story?
Many people will work incessantly trying to accumulate more and more wealth, but a trite joke is that their last words are never: “I wished I spent more time at
work.”
For some people the only answer to the question; “What is true wealth?", is money pure and simple - the more money the better.
Others would be content to say that true wealth is having the peace of mind of being free of debt.
Another will say he is truly wealthy if he can lead the lifestyle he chooses regardless of cost.
Others might say true wealth is being healthy and surrounded by loving family and caring friends.
There are probably as many answers to this question as they are people to answer it.
You could live in a big house on the hill, have two Mercedes in the garage and a million in the bank and not enjoy life as much as the guy who works in the gas station and lives in a two room furnished apartment.
True wealth is what one perceives it to be. And if it were not so, we wouldn’t have policemen, firemen and soldiers who risk their lives protecting us rather than trying to work on Wall Street, making big bucks.
We wouldn’t have doctors who travel to third world countries, just to try to make some difference, rather than to stay at home with a thriving practice and a comfortable life.
We wouldn’t have all the volunteers this country has, who are ready and willing to help the sick, infirm or destitute – or who suddenly turn up at disaster scenes willing to do anything to help.
This country wouldn’t have the millions of people who donate billions of dollars annually to the charities of their choice.
So even thought we concentrate on financial matters, it’s good to step back and realize there is more to true wealth than money.
I believe that having enough wealth to live a comfortable life makes lots of other things possible.
I also believe that being in debt is merely transferring your wealth to your creditors. While it may make them, or their shareholders rich, it really contributes little to your true wealth.
So my answer will be adopted from Mr. Spock’s famous Vulcan greeting: “Live Debt Free and Prosper.”
Understanding The Importance Of Your Credit Score
Credit scores are become a more and more important factor in our society. Now a days it is often used in determining prices for both auto and homeowner insurance. Many employers reserve the right to do a credit check of job applicants, in the same manner they reserve the right to drug test potential employees. The fact is that your Credit Score is important.
As recent as a few years back, the term "Credit Score" was not very commonly used in our society. While there were who understood the term and its purpose, the mass majority, although realizing that there was a system out there that their credit, they did not have a term to stick to it.
Today, however, due to a number of factors such as increase Identity Theft and mass media marketing campaigns there are very few who are not aware of the term Credit Score. The goal of this article is to add understanding on the personal to the recognition of that term.
A Credit Score is a number between 300 and 850 based on a statistical analysis of an individual's credit activity. It is used to represent the credit worthiness of an individual. How likely that the individual will pay his or her debts. A credit score is based on their credit report information which is typically sourced from credit bureaus and credit reference agencies, typically from the three major credit bureaus.
Lending institutions, such as banks, finance companies, mortgage lenders, and credit card companies, use an individual's Credit Score to evaluate the potential risk posed by lending money to that individual. Lenders use Credit Scores to determine who qualifies for a loan, at what interest rate the loan is issued, and what credit limits are determined.
The use of credit scoring prior to granting credit is a trusted system throughout the industry. Credit scoring is not limited to banks, however. Organizations, such as mobile phone companies and government departments employ the same techniques.
While there are many others, such as NextGen, VantageScore and the CE Score, The most widely known score in the United States is FICO, which is most widely used in the mortgage industry. FICO is an acronym for Fair Isaac Corporation, the company that provides the most well-known and most widely used credit scoring system in the United States.
The FICO score is calculated by applying statistical methods, developed by Fair Isaac, to information in one's credit file and is primarily used in the consumer banking and credit industry. FICO scores show how likely it is that a borrower will default. No public information is available to determine what the scores mean in terms of statistics. A separate score, BNI, is used to indicate likelihood of bankruptcy.
As stated, banks and other lending institutions use Credit Scores as factors in their lending decisions. Whether credit is denied or approved, what interest is charged, what income level and asset verification is required is all based on an individual's credit score.
The FICO score actually uses slightly different scoring methods to rate a consumer's suitability for three different types of credit; mortgages, auto loans, and consumer credit. Each reflecting the different credit risks of these various types of lending. It is not unusual for these scores to differ by as much 50 points or more for the same borrower.
There are three major credit reporting agencies in the United States. Although often times inaccurately referred to as "credit bureaus", these agencies; Equifax, Experian and TransUnion, also calculate their own credit scores. These additional scores differ depending on what they are meant to predict, what statistical methods used to determine a score, and what information is used and how it is weighted.
These additional Credit Scoring Systems are numerous and are agency specific. For example, Beacon, Beacon 5.0, Beacon 96, and Pinnacle scores are available only from Equifax. Empirica, Empirica Auto 95, Precision Score, and Precision 03 are available only from TransUnion. And, Fair Isaac Risk Score at Experian.
These various Credit Scores are developed for the different agencies by Fair Isaac, each differs and are periodically updated to reflect current consumer repayment behavior habits. The NextGen Score is a scoring model designed for consumers.
In an effort to make credit scoring more consistent across the board, in 2006 the big three credit reporting agencies introduced Vantage Score. Vantage Score uses a different number range from the FICO score. It ranges from 501 to 990 and also assigns letter grades from A to F to specific ranges of scores.
A consumer's Vantage Score may differ from agency to agency, but the difference would be entirely due to differences in the information reported to the various agencies, not due to differences in scoring systems. Since FICO is still widely used by lenders, the agencies continue to offer FICO scores (or their closest equivalent) as well.
Most credit scores use a multiple-scorecard design. Each version may use individual scorecards, and an individual potential borrower is typically compared with other previous borrowers. In other words, a borrower with one 30-day late payment will be scored against a population with some similar delinquency. A borrower with two 30-day late payments will be scored against a population with like credit faults. The individual is then graded according to which variables indicate a risk within that group.
Nearly all large banks also build and use their own systems for credit scoring purposes, and are often times in conjunction with outside scoring formulas.
The systems used to generate credit scores are subject to federal regulations. The Federal Reserve Board's Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring system from considering any "prohibited basis" such as race, color, religion, national origin, sex, or marital status. It also stipulates that credit scoring systems must be "empirically derived" and "statistically sound".
In addition, if an adverse action, a denial of a credit application, is taken as a result of the credit score then the specific reasons for the denial must be provided to the individual denied. The statement "credit score not high enough" is insufficient. The reasons for denial must be specific; "too many delinquencies 60 days or greater" and such.
Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are closely guarded secrets, the Fair Isaac Corporation has disclosed the following components and the approximate weighted contribution of each:
These percentages offer a limited guidance in understanding a credit score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also a murky concept; it consists of multiple factors two being the oldest account open and the average length of time an account has been open.
Interestingly, although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the very vague pie chart provided by Fair Isaac.
A FICO score generally has a max of 850 and a minimum of 300. It exhibits a left-skewed distribution with a median around 723. The performance of the scores is monitored and the scores are periodically aligned so that a lender normally does not need to be concerned about which score card was employed.
Because the three major credit agencies have their own, independent databases, each of us actually has three credit scores for any given scoring system. As these databases are independent of each other, they may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.
As a result of the FACT Act (Fair and Accurate Credit Transactions Act), each legal U.S. resident is entitled to one free copy of his or her credit report from each credit reporting agency once every twelve months. To guard against inaccurate information or fraud more often than yearly, one can request a report from a different credit reporting agencies available on the net.
This information is available from a number of websites across the net that offer an free credit report and use of their services for 30 days. After which, there is a monthly fee involved. The fee is nominal compared to the necessity of protecting your credit in today's highly technological society where identity theft is becoming more prevalent.
In a time where identity theft and credit fraud in on the rise, the fee these firms charge seems like a small amount to pay to protect your credit and your good name. Having a good Credit Score is becoming more and more prevalent in our society. Here are a few examples of how:
In September 2004, TXU (a Texas utility company) announced it would begin setting individualized electricity prices based on credit score. However, due to negative press and pressure from the Texas Public Utility Commission, the plan was not implemented.
Credit scores are often used in determining prices for auto and homeowner insurance. Recently, some of the agencies that generate credit scores have also been generating more specialized insurance scores, which insurance companies then use to rate the quality of potential customers. These scores are unavailable to consumers.
Many employers reserve the right to do a credit check of job applicants, in the same manner they reserve the right to drug test potential employees. The fact is that your Credit Score is important. Rebuild-Credit.us is a sight committed to providing consumers with quality information concerning credit, how to get it, and how to maintain a quality credit score. It is recommended you take the time to visit them and read through the numerous articles and reports there.
As recent as a few years back, the term "Credit Score" was not very commonly used in our society. While there were who understood the term and its purpose, the mass majority, although realizing that there was a system out there that their credit, they did not have a term to stick to it.
Today, however, due to a number of factors such as increase Identity Theft and mass media marketing campaigns there are very few who are not aware of the term Credit Score. The goal of this article is to add understanding on the personal to the recognition of that term.
A Credit Score is a number between 300 and 850 based on a statistical analysis of an individual's credit activity. It is used to represent the credit worthiness of an individual. How likely that the individual will pay his or her debts. A credit score is based on their credit report information which is typically sourced from credit bureaus and credit reference agencies, typically from the three major credit bureaus.
Lending institutions, such as banks, finance companies, mortgage lenders, and credit card companies, use an individual's Credit Score to evaluate the potential risk posed by lending money to that individual. Lenders use Credit Scores to determine who qualifies for a loan, at what interest rate the loan is issued, and what credit limits are determined.
The use of credit scoring prior to granting credit is a trusted system throughout the industry. Credit scoring is not limited to banks, however. Organizations, such as mobile phone companies and government departments employ the same techniques.
While there are many others, such as NextGen, VantageScore and the CE Score, The most widely known score in the United States is FICO, which is most widely used in the mortgage industry. FICO is an acronym for Fair Isaac Corporation, the company that provides the most well-known and most widely used credit scoring system in the United States.
The FICO score is calculated by applying statistical methods, developed by Fair Isaac, to information in one's credit file and is primarily used in the consumer banking and credit industry. FICO scores show how likely it is that a borrower will default. No public information is available to determine what the scores mean in terms of statistics. A separate score, BNI, is used to indicate likelihood of bankruptcy.
As stated, banks and other lending institutions use Credit Scores as factors in their lending decisions. Whether credit is denied or approved, what interest is charged, what income level and asset verification is required is all based on an individual's credit score.
The FICO score actually uses slightly different scoring methods to rate a consumer's suitability for three different types of credit; mortgages, auto loans, and consumer credit. Each reflecting the different credit risks of these various types of lending. It is not unusual for these scores to differ by as much 50 points or more for the same borrower.
There are three major credit reporting agencies in the United States. Although often times inaccurately referred to as "credit bureaus", these agencies; Equifax, Experian and TransUnion, also calculate their own credit scores. These additional scores differ depending on what they are meant to predict, what statistical methods used to determine a score, and what information is used and how it is weighted.
These additional Credit Scoring Systems are numerous and are agency specific. For example, Beacon, Beacon 5.0, Beacon 96, and Pinnacle scores are available only from Equifax. Empirica, Empirica Auto 95, Precision Score, and Precision 03 are available only from TransUnion. And, Fair Isaac Risk Score at Experian.
These various Credit Scores are developed for the different agencies by Fair Isaac, each differs and are periodically updated to reflect current consumer repayment behavior habits. The NextGen Score is a scoring model designed for consumers.
In an effort to make credit scoring more consistent across the board, in 2006 the big three credit reporting agencies introduced Vantage Score. Vantage Score uses a different number range from the FICO score. It ranges from 501 to 990 and also assigns letter grades from A to F to specific ranges of scores.
A consumer's Vantage Score may differ from agency to agency, but the difference would be entirely due to differences in the information reported to the various agencies, not due to differences in scoring systems. Since FICO is still widely used by lenders, the agencies continue to offer FICO scores (or their closest equivalent) as well.
Most credit scores use a multiple-scorecard design. Each version may use individual scorecards, and an individual potential borrower is typically compared with other previous borrowers. In other words, a borrower with one 30-day late payment will be scored against a population with some similar delinquency. A borrower with two 30-day late payments will be scored against a population with like credit faults. The individual is then graded according to which variables indicate a risk within that group.
Nearly all large banks also build and use their own systems for credit scoring purposes, and are often times in conjunction with outside scoring formulas.
The systems used to generate credit scores are subject to federal regulations. The Federal Reserve Board's Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring system from considering any "prohibited basis" such as race, color, religion, national origin, sex, or marital status. It also stipulates that credit scoring systems must be "empirically derived" and "statistically sound".
In addition, if an adverse action, a denial of a credit application, is taken as a result of the credit score then the specific reasons for the denial must be provided to the individual denied. The statement "credit score not high enough" is insufficient. The reasons for denial must be specific; "too many delinquencies 60 days or greater" and such.
Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are closely guarded secrets, the Fair Isaac Corporation has disclosed the following components and the approximate weighted contribution of each:
- 35% punctuality of payment in the past (30 Days Past Due)
- 30% the amount of debt, expressed as the ratio of current revolving debt to total available revolving credit
- 15% length of credit history
- 10% types of credit used
- 10% recent search for credit and/or amount of credit obtained recently
These percentages offer a limited guidance in understanding a credit score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also a murky concept; it consists of multiple factors two being the oldest account open and the average length of time an account has been open.
Interestingly, although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the very vague pie chart provided by Fair Isaac.
A FICO score generally has a max of 850 and a minimum of 300. It exhibits a left-skewed distribution with a median around 723. The performance of the scores is monitored and the scores are periodically aligned so that a lender normally does not need to be concerned about which score card was employed.
Because the three major credit agencies have their own, independent databases, each of us actually has three credit scores for any given scoring system. As these databases are independent of each other, they may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.
As a result of the FACT Act (Fair and Accurate Credit Transactions Act), each legal U.S. resident is entitled to one free copy of his or her credit report from each credit reporting agency once every twelve months. To guard against inaccurate information or fraud more often than yearly, one can request a report from a different credit reporting agencies available on the net.
This information is available from a number of websites across the net that offer an free credit report and use of their services for 30 days. After which, there is a monthly fee involved. The fee is nominal compared to the necessity of protecting your credit in today's highly technological society where identity theft is becoming more prevalent.
In a time where identity theft and credit fraud in on the rise, the fee these firms charge seems like a small amount to pay to protect your credit and your good name. Having a good Credit Score is becoming more and more prevalent in our society. Here are a few examples of how:
In September 2004, TXU (a Texas utility company) announced it would begin setting individualized electricity prices based on credit score. However, due to negative press and pressure from the Texas Public Utility Commission, the plan was not implemented.
Credit scores are often used in determining prices for auto and homeowner insurance. Recently, some of the agencies that generate credit scores have also been generating more specialized insurance scores, which insurance companies then use to rate the quality of potential customers. These scores are unavailable to consumers.
Many employers reserve the right to do a credit check of job applicants, in the same manner they reserve the right to drug test potential employees. The fact is that your Credit Score is important. Rebuild-Credit.us is a sight committed to providing consumers with quality information concerning credit, how to get it, and how to maintain a quality credit score. It is recommended you take the time to visit them and read through the numerous articles and reports there.
Study Shows Americans Need to Get Financially Fit
Most Americans lack basic understanding when it comes to their credit score and personal finance, according to the results of a survey by consumer advocacy group Consumer Action and financial services provider Capital One.
The survey polled 1,002 American adults. It gauged respondents' knowledge of the basics of personal finance like budgeting, saving habits and credit principles.
More than one-third reported they do not use a budget to manage their family's expenses; over 30 percent of those surveyed either did not know or responded incorrectly when asked to define a good credit score; and nearly one-fourth have never reviewed their credit report.
"Given the growing importance and influence of credit scores on purchasing decisions, it's startling that the majority of Americans do not understand what constitutes a good credit score," said Ken McEldowney, executive director of Consumer Action.
Various factors are used to determine a credit score, including a consumer's payment history, the amount of debt currently owed and the length of credit history.
An amendment to the federal Fair and Accurate Credit Transactions Act passed in 2004 now allows consumers to receive one free credit report every year from each of the three major credit reporting agencies. Consumers can request their reports online at www.annualcreditreport.com.
As easy as it is to check your credit score and credit report, "many still neglect to take this simple step to protect their credit and their finances," said Diana Don Colby, director of financial education at Capital One.
Besides reviewing your credit report, experts agree education is the key to a healthy financial future. To help consumers understand the basics, Capital One and Consumer Action created the MoneyWi$e financial education program.
The MoneyWi$e program includes free, multilingual brochures on personal finance topics, such as improving and rebuilding credit, budgeting, saving and investing.
The survey polled 1,002 American adults. It gauged respondents' knowledge of the basics of personal finance like budgeting, saving habits and credit principles.
More than one-third reported they do not use a budget to manage their family's expenses; over 30 percent of those surveyed either did not know or responded incorrectly when asked to define a good credit score; and nearly one-fourth have never reviewed their credit report.
"Given the growing importance and influence of credit scores on purchasing decisions, it's startling that the majority of Americans do not understand what constitutes a good credit score," said Ken McEldowney, executive director of Consumer Action.
Various factors are used to determine a credit score, including a consumer's payment history, the amount of debt currently owed and the length of credit history.
An amendment to the federal Fair and Accurate Credit Transactions Act passed in 2004 now allows consumers to receive one free credit report every year from each of the three major credit reporting agencies. Consumers can request their reports online at www.annualcreditreport.com.
As easy as it is to check your credit score and credit report, "many still neglect to take this simple step to protect their credit and their finances," said Diana Don Colby, director of financial education at Capital One.
Besides reviewing your credit report, experts agree education is the key to a healthy financial future. To help consumers understand the basics, Capital One and Consumer Action created the MoneyWi$e financial education program.
The MoneyWi$e program includes free, multilingual brochures on personal finance topics, such as improving and rebuilding credit, budgeting, saving and investing.
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