How Do You Improve Your Credit Score?

Previously, we discussed how to build credit when you have no credit history.  This discussion,  is all about how to improve your credit score. 

What’s my Score?  How do I improve it?

First, it is important to understand how your credit score is calculated.  A FICO (Fair Isaac Corp) score is a number on a range from 300 to 850, with a higher number indicating lower risk to potential lenders.   Realize though that each lender and their underwriters will view your history different from one another.  You can obtain a free credit report and score by visiting AnnualCreditReport.com. 

Second, your FICO score is composed of 5 major components and here are some thoughts on how to improve your number.  Increasing your credit score will provide you the best terms and lowest interest rates for when you buy a home, car or seek a personal loan.

Payment History 35%  Maybe you have missed a payment in the past or been late.  Make sure you pay past due debts first, followed by paying current owed.  A collections situation, even if paid off, will stay on your history for 7 years.  Moving ahead, pay all of your bills on time.  Possibly consider setting up payment reminders or automatic payment options.

Amounts Owed 30%   Pay off and reduce debts you owe.  This is huge for life and financial success well above your FICO score.   It is also good to realize that the total amount of available credit currently offered to you- if high, can be a negative on your score even if you are not using it.  And if you are carrying a balance and have a high utilization % rate, that will ding your score as well.  While reducing debt will help improve your score, the bigger payoff is improving your financial situation and the lasting reward of freedom from debt.

Length of Credit History 15%  It takes time to build and show a consistent, responsible use of credit.  Don’t cancel credit cards with long history.   As well, look for errors on your credit report.  Fixing an error will lead to an improved score. 

Types of Credit Used 10%  A mix of credit cards being paid each month and loans (installments) can show responsible handling of debt.

New Credit Opened 10%  Apply for new credit as needed and don’t overdo it.  In this thought, also don’t apply for several new cards within a short time frame.

Ask for help.  Openly talk with your creditors.  They want to be paid back, so they will work with you.  Seek wise council- ask someone who has had good credit for many years for advice and/or seek professional guidance as needed.  Develop a plan of action and be persistent working towards your goal.  Debt can be a useful tool but it has to be understood how it works and used correctly.

To Improved Credit Scores,

Luke Fields, CFP®

Why you Need an Emergency Fund... November 2012 Stewardship Cents

Click here to subscribe to Stewardship Cents Newsletter Thanksgiving Reflections Thanksgiving and traditions go hand in hand.  A large meal, football and times of reflection are the most common.  And then there are the traditions we have long endured, like my father's annual reading at the dinner table.  A folded article or newspaper clipping always finds its way out of his shirt pocket with an eager audience awaiting...(just a little sarcasm). Years ago Readers Digest dominated this annual reading but now it comes from a variety of sources, thanks to the Internet and forwarded emails.  We have covered most all Thanksgiving topics including pumpkin types, why Ohio's corn is special, of course the pilgrims and a few variations on the English-speaking Indian Squanto.  Whatever the story, it always directs our discussion to the real reason for our family tradition, which ends with each family member and guest having a chance to reflect and share what they are truly thankful for. I hope your Thanksgiving was a time of reflection of the year gone by, shared with family, football, and stuffing ourselves with more than we should attempt.  The traditions we share, whether by our choice or required by the family create memories we will cherish forever. The financial planning tie-in... a good tradition We have talked in recent newsletters about budgeting and life insurance.  Another critical principal of planning is to have an Emergency fund.  Some call this a rainy day fund, slush fund or just savings.  It's a good tradition to make sure you have resources set aside. "It is wise and good stewardship to save today for what you might need tomorrow or later down the road." The pilgrims learned this principle very quickly and that fellow Squanto I mentioned earlier, helped them prepare and learn how to survive in lean times. Bankrate.com recently reported that 28% of Americans have no emergency savings and among those that do have money set aside, 50% had less than 3 months of expenses. So what are the "emergencies" I am talking about?  They range from job loss, an extended period of lower or no income for a small-business owner or commission sales person, illness, natural disasters, and even smaller, yet important issues to resolve such as car repairs or a broken washer. How Much do you Need? 6 months is the minimum amount you need.  Now realize that this is not half (6 months) of your full annual salary.  It is calculated on your living expenses- necessities such as housing, utilities, basic bills and basic food.  In a tight money time, you will not be eating out or shopping.  If you have lost your job, you won't be paying income taxes or making a 401k contribution.  6 months is even more necessary if your family is dependent on only one income. Where do you keep it? Your emergency fund should be someplace easy to access and liquid.  Banks are safe, but are not helpful with their 0.1% savings rates; good luck beating inflation.  A CD is not generally recommended for this type of money because it is not liquid and you will pay a fee if you need it prior to maturity. A strategy I use with many of my clients is to have them keep at their bank what is comfortable for their cash flow and to be able to easily pay their monthly bills.  The remaining amount of their calculated emergency fund is then placed in a Joint investment account to be invested in lower risk but much better yielding rates than the bank can provide.  A portion is kept in cash, majority in short term bonds, some in moderate term bonds and then, in some cases, when the 6 month need is fully met we may invest in dividend stocks.  This approach creates buckets of risk ranging from cash to stocks. "The haves and the have-nots can often be traced back to the did and the did-nots."                                      -D.O. Flynn How do you start? Today is the day. A detailed budget will uncover waste and opportunities to put towards your emergency fund. Start a direct deposit from each paycheck. Earmark a portion of each bonus or larger check you may receive. Here is a calculator to help you know what to shoot for: Click here To your financial freedom, Luke Fields, CFP® Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. High-yield (below investment grade) bonds are not suitable for all investors. When appropriate, these bonds should only comprise a modest portion of your portfolio. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Investing involves risk and you may lose your principal. Dividends are not guaranteed and must be authorized by the company's board of directors. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss. Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional. About Stewardship Cents Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it. Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have. Stewardship is a belief of responsible overseeing and protecting of important resources. Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981. A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is a CERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses. He resides in Columbus, OH with his high school sweetheart, Beth and their three children. Luke is an active member of his church, serving in leadership and finances. Follow additional insights and connect on LinkedIn, Facebook, his blog or Twitter. You can always reach him with comments or questions at: luke.fields@raymondjames.com. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC Join Our Mailing List

Now This IS a Scary Story (Why you need insurance)

Now This IS a Scary Story By Stewardship Cents Newsletter, click here to subscribe.

First a funny story

Our family's favorite time of year is the fall, enjoying the crisp air, apple picking, kid's sporting events and the beautiful foliage.  We also like Halloween.  When else can you dress up completely ridiculous and not have to explain a thing?  I am always amazed how many neighbors you meet on trick or treat night.  I am a big kid at heart and enjoy a good scare.  For several years in a row I would scare my neighbor across the street with my Sasquatch mask.  One year was epic.  She had decided to stay inside her house because she learned from my prior 3 years' antics.  Her mistake was she decided to sit at her kitchen table with her back to their sliding glass door, unlocked.  With her husband's full permission, I quietly opened their door and perched my mask just over her left shoulder, waiting for her to turn her head just enough.... The scream was heard down the street even with doors closed!

Ok here is the real story

It's the scary story of an unprepared family, with a widow facing the recent death of a spouse, leaving a mortgage, debt and dependents to care for.  We are not guaranteed tomorrow.  Sickness or tragedy can sadly strike in the blink of an eye.  When a financial mess is left behind, the normal period of grief and stress from the passing of a loved one can be greatly compounded spanning a prolonged duration.

Life Insurance is a basic and essential principle of financial planning.

No one likes to discuss death, I get that.  However, it's important to be prepared for the uncertain.  Maybe you say "I'm single and don't have any children, so I don't need life insurance."  Think again.  Just a small relatively inexpensive policy of $25,000 is a blessing to help your family with funeral expenses.  It is true that some people reach a point in their lives that insurance is too expensive given their age or a particular health related issue.  Others may have done a great job accumulating assets and living debt free that they then can self-insure through their savings.  Unfortunately, the truth is many people if they even have insurance, are severely underinsured.  Insurance can be affordable especially when you consider the risk for your spouse and kids of not having it.

Insurance can provide an income stream for your spouse, money to pay off the mortgage/other debts, funding for your children's college education and even a financial legacy to pass on.

What to look for...

Buy Term. Typically (except for unique situations), term life insurance could be your best option.  It provides the most coverage at affordable level premiums and it can be re-shopped at any time for better rates.  Term also helps free up cash you could have spent elsewhere, such as investing.

Choose the proper coverage.  The proper amount of coverage on you and your spouse's life should be calculated based on your needs not simply a multiple of your current salary or on an employer's group plan.  It is flexible, but has to be selected appropriately.

Choose the right provider.  Life Insurance is offered everywhere from automobile clubs to alumni associations.  However, choose a qualified professional who will consider your unique situation and full financial goals.

Keep your coverage updated.  With new babies, a new mortgage, job change or retirement insurance plans need to be revised.

For more informaton on choosing insurance click here

Any opinions are those of Luke A Fields, CFP® and not necessarily those of RJFS or Raymond James.

About Stewardship Cents Stewardship Cents exists to Educate, Entertain and Enhance the financial wisdom of all who read it.  Everyone needs to be wise with what has been entrusted to them and common sense can help us be good stewards of all that we have.  Stewardship is a belief of responsible overseeing and protecting of important resources. Luke Fields is Vice President of Foley & Foley Wealth Strategies, An Independent Firm, that has been based in Worthington, Ohio since 1981.  A graduate from The Max M. Fisher College of Business at The Ohio State University, Luke is a CERTIFIED FINANCIAL PLANNER™, holding his Series 7, 66 and Ohio Life, Health and Variable Annuity Insurance licenses.  He resides in Columbus, OH with his high school sweetheart, Beth and their three children.  Luke is an active member of his church, serving in leadership and finances. Follow additional insights and connect on LinkedIn, Facebook, his blog or Twitter. You can always reach him with comments or questions at: luke.fields@raymondjames.com. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC

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