Radio host and author Dave Ramsey has been featured on numerous radio and tv shows as he tackles the problems that having too much debt cause and the challenges they create for personal finances. While his ideas about credit are a bit extreme, Ramsey’s debt reduction plans are valid for anyone who wants to go from being in debt to saving for their future. His main debt reduction plan goes like this:
• Establish a $1,000 emergency fund first
• Then pay off all your debts
• Build up a larger emergency fund
• Establish an IRA savings program
• Save for your children’s education
• Pay off your home
• Invest seriously
Along with these steps Ramsey advocates not using credit cards or loans. This is a great plan for someone who is dedicated and has the means to get started. But many people may stall out on the first step before they even start paying off their debts. Without the emergency fund and without credit cards, a consumer could end up in more trouble than before.
In the financial world, balance is key. Having a balance of accounts, debts and credit limits, savings and income, all add up to healthy finances. We don’t necessarily recommend following Ramsey’s debt reduction plans but also keeping a healthy and moderate amount of credit. Using one or two credit cards each month and paying the balance in full will not add to your debt problems and will help you keep a high credit score.
Just like a glass of red wine once in a while is actually good for you but a bottle of wine a day is a sign of a problem, using credit moderately is good for your finances but carrying thousands of dollars in balances is a sign of a serious problem. If you are a true debt-aholic, following Ramsey’s advice for a debt free life may be the only way to have healthy finances. But most people have the power to maintain a healthy balance of credit, debt and savings.
Foe example the debt snowball plan is a bit controversial with many financial experts who argue you should be focused on paying of debts with the highest interest rates first.
Credit report refresher course powered by the lending team from Installment Loans Network.com a leading consumer lending and financial resource website that matches borrowers with online loans from $300 to $100,000 or more online. Even people who consider themselves to be credit gurus can occasionally get confused about the inner workings on the credit system. It’s a big system full of little details. So, occasionally this blog is going to review a few of the basics. Today’s simple question: What’s on a credit report?
Your credit report includes:
• Social Security number (often masked for privacy)
• Date of birth
• Current and former address
• Current and former employer’s name and address
• Mortgage account balances, payment history and details
• Credit card account balances, payment history and details
• Loan account balances, payment history and details
• Old, closed account data going back 7+ years
• Collection records
• Public records including tax liens, bankruptcy filings and judgments
• Inquiry records (applications for credit, cell phones, loans, etc)
• Consumer statements and fraud alert records
Your credit report does not include:
• Your credit score (this is a separate entity)
• Driver’s license number
• Checking account records
• Utility payment records
• 401(k) or investment information
• Criminal records
• Business accounts (unless under your name)
• Your spouse’s or relative’s records
• Insurance records
• Paid tax records
• Payday loan accounts
• Rental payments
Knowing what is and is not included on your credit report can be surprisingly important. Next time a misguided credit counselor or lender advises you that increasing your income improves your credit score, you’ll have all the facts to inform them that it’s not the case.
Protect your identity and preserve your credit scores and ability to borrow in 2015
The numbers are staggering. More than 36 million Americans have been victims of identity theft in the past five years, according to the Federal Trade Commission’s Identity Theft Survey Report, issued in August of 2014. Even more shocking is the number of thefts by relatives. Of 9135 people surveyed who reported identity theft to the FTC, 9% said a family member was responsible.
Great tips for protecting yourself from identity theft can be found online at the USDOJ website where they outline steps you can take to protect yourself and limit the potential for future hacks of your identity. The first step is to routinely check your account activity and make sure to take advantage of the free annual credit report to review any previous inquiries and red flags.
Financial experts say parents who destroy their own finances increasingly are tempted to “borrow” their children’s good credit. As co-signers, all they need is a birth date and Social Security number, information they either know or have easy access to.
Other family “thieves” include children, siblings, cousins, aunts, and uncles. Unfortunately, the only options for victims of familial credit abuse are paying off the debt in large chunks or filing a complaint that could send your relative to jail.
Experts recommend you order a copy of your credit report annually from each of the “big three” credit reporting agencies:
Victims should request that a red flag be placed in their file to help prevent anyone else from opening fraudulent accounts.
Think you cannot qualify for a mortgage with a low credit score? Think again you certainly can. Think your rate will automatically be the worst possible with a low credit or Fico Score? Think again. While a low credit score will not net you the best interest rates it does not automatically mean you are stuck with the worst possible rate. While a low credit score can prevent some people from even getting a mortgage it is not the only factor that comes into play as with mortgages there are factors beyond credit scores which lenders look at.
A FICO score of about 500 to 520 is usually the minimum which will qualify for a mortgage. If your score is that low however you will need to have a few other things going for you that can offset your rather low credit score. Do not assume that you cannot get a mortgage just due to a credit score on the low end. Nor should you limit your lender search to creditors who specialize in mortgages for people with poor credit. Lets examine some of the other factors that affect mortgages that I spoke about.
Large down payment:
There is a rule in the mortgage industry called the 30/70 rule. This rule states that if a borrower places down 30% of the homes value as a down payment they are less likely to default on their loan due to sinking so much into the property at the offset. A large down payment can there for help to offset a low credit score when it comes to obtaining a mortgage.
Low debt to income ratio:
If you do not have much debt you are not as risky. People can have low credit scores for a variety of reasons including being new to credit. Perhaps 6 years ago you had some charge offs and you made good on the debt and paid it off recently so your credit score is on the low side but self repairing with the passage of time. As long as you are not paying out a lot each month to debt you will look much better on your mortgage application. If you keep your debt to income ratio under 41 to 43% and provide full documentation of your income and assets you should be able to qualify for a mortgage with a credit score as low as 520.
Low credit score due to unemployment or losing your home:
The failing economy hurt a lot of good people who prior to the recession had paid all their bills on time, worked full time and had their own home and the mortgage was in the black. These people who got hit hard by the recession lost points on their credit score due to personal financial hardship rather than their own mismanagement and bad habits. For these people they may qualify for FHA’s “Back to Work” program. This program helps fast track people for a home loan more quickly following financial disaster related to the recession.
If you are worried if you will qualify for a mortgage the best advice is to try. You should never pay a mortgage fee or application fee for applying, most lenders will do this as a customer service. Just remember a low score does not automatically bar you from a mortgage. You can also work on improving your credit score over time while saving for a bigger down payment.
This time of the year is a busy time, with the holiday season upon us, Christmas shopping to do, family gatherings and of course preparing for tax season. Tax season for most middle class Americans is a time of the year for a windfall of money in the form of their tax returns, money which helps many Americans recover financially from the holidays and pay down debts or even better yet to build up their savings account. Your tax refund can even help you catch up on your bills and any outstanding loans you have. If you like many Americans rely upon your tax refund there are steps you can do throughout the year to maximize your tax returns. If you follow a few simple tips you could minimize your tax liability to increase your over all tax return come tax time. Here are a few things you can look into right now to maximize your tax refund.
If you time your big payments or purchases this can make a huge difference come tax filing time. This is more pronounced come December when for example you could pay January’s mortgage payment during the month of December which could get you an additional interest deduction on your tax return. If you have a medical expense due in January or any medical procedure you can also get it done in December and use that for your medical expenses deduction on your tax return. It is all about maximizing your deductions by timing your big expenses that may not be due to early into the new year by moving them up to the end of the current year. If you have these expenses anyway it can benefit your greatly here and now to tackle them as quick as possible.
You should also thoroughly look over your 2013 tax return and look for anything you might have missed that could be included in the 2014 tax return. Every year millions of Americans miss important tax deductions. The tax code is very complex, in fact in 2013 the U.S tax code sits at 73,954 pages! That is more than any sane human could read in one year so do take advantage of tax software programs, tax professionals, and online tax advice websites to look for any deductions you may have missed.
If you make a lot of money or are close to being in a lower tax bracket there is something you can do today to lower your tax rate and potentially your tax bracket. Contribute to an IRA, not only will this help set you up for retirement but it also will help you reduce your tax burden as every dollar you contribute is non taxable income, so if you place $5000 in your IRA that is $5000 less that you can be taxed on. For 2014 you are capped at $5500 if you are under age 50 and $6500 if you are aged 50 or older.
Consider using free or inexpensive ways to file your tax return, especially if you feel that it could help you find any missed opportunity’s for tax deductions. If your tax return is going to be simple and not have many deductions then consider using a free filing service or software to save money on the tax filing fees. To sum things up look for any missed opportunity to maximize your tax return.
Brought to you by the editorial team from Installment Loans Network, a leading consumer portal offering installment loans and consumer advice for personal financing, debt solutions and credit in 2015.