The Basics of Money and Credit

In this series, Our team shares their thoughts on the basics of Money and Credit. These topics are typically covered with new customers.

First, let’s start with the basics of credit.

What is Credit?

Credit is other people’s willingness to let you use their money that you will repay sometime in the future.  It is a privilege, not a right. By “other people,” we typically mean banks, credit unions, and credit card companies.

“Credit” can be used interchangeably with “loan.”

How do you earn credit?

To earn the trust of the lenders in the form of “credit, you need to demonstrate you can borrow money and pay back on time. Check out a good article by Nerd Wallet: How to Build Credit

What are the types of credit?

Categorized by how the credit is extended and how it is paid back, credit falls into the following three categories:

Installment Loan: require regular payments, usually monthly, until the principal is paid off. Car loans, student loans, and mortgage all fall in this category.

Revolving Credit: includes bank credit cards, store credit cards, and home equity line of credit. You are required to pay at least the minimum payment by the due date. You can pay the minimum amount, the full payment or anything in-between. You can keep using the credit as long as you pay the minimum and stay within the credit limit.

Service Credit: used for monthly utility bills, such as electricity, gas, and yes, your cell phone bills. You set up an account, use a service and get billed by the service provider.

What Are the Advantages of Credit

You can get instant gratification, “buy now and pay later”;
Usually, no interest is charged when credit card bills are paid in full by due date;
Credit cards are safer to carry around than large sum of cash around;
Keep record of how you spend money so you can analyze your spending habit;
Some credit cards offer “bonuses” such as cash back or frequent flyer miles.

What Are the Disadvantages of Credit

Interest costs can be very high. How high? 15-20% for unpaid credit card balance is very common.
If you only pay the minimum each month, then the pay-off period will extend to very long
Since you owe so much money to other people already, you may not have much buying power left in the future

What is a Credit Report?

Lenders do not take your word for it when they come to determine whether to extend credit to you; instead, they pull your “credit report”.  It is kind of like your “school report” but lists different things. It describes your past use of credit, such as being on time in paying back debt, types of credit accounts opened, number of loans applied for, and a number of outstanding balances.

Three companies, called credit bureaus, gather information about you and give it to lenders. These three companies are:

Equifax (www.equifax.com)
Experian (www.experian.com)
Trans Union (www.transunion.com)

You can order your credit report once a year to check for errors or see if your identity has been stolen. Following the directions that come with the report, you can fix the errors.

What are Credit Scores?

Sometimes referred as a FICO score, a credit score is a three-digit number that describes your trustworthiness, or your future bill-paying behavior. It ranges from 300 to 850.  Lenders look that the number and decide whether to give you a loan and on what terms if any (interest rate, down payments, etc.).

These factors affect your credit score:

Previous payment history
Amount money owed
Number of recent credit inquiries
Length of credit history

These are only a few of the money basics we go over with new clients. If you have any questions or need help in any of the areas we discussed here, please don’t hesitate to reach out for a Free Initial consultation with one of our counselors M-F 9am-5pm pst at 854-888-0321

Quit These Bad Habits to Save Money

There are hundreds of things we do every day without really thinking about them. These unconscious habits create routine and add rhythm to our daily lives. Unfortunately, some of them might be coasting us a lot of money, too. If you are just squeaking by between paychecks or stuck with a stagnant savings balance, take a look at your daily habits to see if there are things you could stop doing that will help you save money. Here are some of the top money- wasting habits and ways to start breaking them:
Smoking- Whether it is a pack-a day habit or a less frequent indulgence, smoking is costly – in every sense of the world. The current average price of a pack of cigarettes in the U.S.  is $5.51, with some states charging more than $12 a pack! Multiplied over a year, that is a lot of money to spend on something that leaves nothing behind but potentially costly health problems. There is no doubt quitting smoking is hard, but there are so many tools available to make it easier. Give yourself an incentive to quit by saving the money you’d normally spend on cigarettes for something meaningful, like a vacation with loved ones.Recreational Shopping- Shopping online allows us to make purchases with as little as one click. It is definitely convenient, but it can also be deadly to your budget, and a hard habit to break. The first step in kicking the habit is to avoid temptation. Take a few minutes to unsubscribe from all the emails you receive from your favorite retailers – out of sight; out of mind. But, the real key to curbing impulse buying is learning to distinguish between wants and needs and letting that dictate your purchasing decisions. To make not shopping a little more fun, download the app Things I Didn’t Buy to record your victories and track your savings.
Procrastinating- Let’s face it. We don’t put off something we enjoy doing. Procrastination usually involves things that aren’t very much fun, like paying bills or getting the oil changed. But you know what’s less fun? When procrastination makes that not-fun thing even more expensive in the long run though late fees or costly car repairs. Put safeguards in place to avoid the impulse to put things off. Set up auto-pay on recurring bills and reminders on your calendar. Tell yourself that a few minutes of annoyance today will help you save tomorrow.
Trips to the Vending Machine- it is 3o’clock and you are feeling blah, so you hit up the nearest vending machine for a soda, some chips or a candy bar (or all three, yikes!) to help you make it through the rest of the day. We have all been there, and we have all regretted it after the fact. Not only is the energy you get from this purchase short-lived, you have also consumed loads of extra calories and spent several bucks in the process. Steer clear of vending machine temptation by keeping a stock of healthier snacks on hand and staying hydrated and nourished throughout the day to avoid cravings.
 
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Realize Your Dreams of Having a Home with a Bad Home Credit Loan Availability

You can definitely get home loans even with poor credit scores and realize your dreams of home ownership. You don’t have to stay anymore in someone else’s property and pay monthly rentals. Why would you waste your money on rentals and make your landlord rich when you have the opportunity to have your own house?
Are you in search of your dream house? But it seems your critical financial condition and poor credit score is barring you from obtaining a home loan. Can you do anything about it? Will you be able to have a house of your own ever with bad credit?The bad credit home loan is available
There is good news for those people who want to have a house of their own, but unable to qualify for home loans due to poor credit scores. There exists a bad credit home loan option with the help of which you can fulfill your dreams of house ownership.
Be ready to face the challenges
There is no doubt to the fact that people with good credit don’t have to face hurdles to qualify for home loans. Even when your credit score is low and lousy you can avail home loans, but you have to be ready to face challenges and hurdles.
There are still hopes left
It is due to the availability of the bad credit home loans that ensures that there are hopes for people with lousy credit scores. In your previous encounters with the banks and other financial institutions when your private and Federal loans and applications were rejected you had probably stepped into the wrong places.
A bad credit will not impact your loan application anymore
Who says you cannot get home loans to purchase your own house. There are specialist lenders, known as the subprime lenders who can help you to get loans even when your financial condition is pathetic with lousy credit scores. These lenders won’t mind your credit score and credit history and lend you money. But be ready to pay higher interest rates when repaying the loan.
Get a co-signer
Your home loan application can get a green signal if you manage to get a co-signer with good credit history who will sign the loan papers with you. The co-signer takes up the financial responsibility on your behalf. If you fail to repay the loan with the stipulated time period, your co-signer is legally bound to make the loan payment.
Make full use of the non conventional methods and avail home loans for purchasing your dream home. Those days are gone when you don’t have the money and you stay in a rented house. Even with an unstable financial condition, you can have your own house. But you should also make efforts to improve your credit scores.
Click here for more information on credit and debt issues.