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Monthly Archives: January 2009

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How to Improve Your FICO Score

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Credit scores are one of those little things in life that while they can have a significant impact on people’s financial bottom lines and your ability to build wealth, many people don’t understand all of the ins and outs. Here are a few tips to improve or maintain a good credit rating. Keep in mind that a small improvement in a credit rating can impact the interest that you pay on mortgages and other loans. Here are a few handy reminders to help you improve your score

  1. Order a copy of your credit report. Review it carefully. Correct any significant errors. This can be done by sending in letters to all three of the credit bureaus.
  2. Pay your bills on time, every time.
  3. Don’t open a lot of new accounts over a short time period, especially if you have a short credit history.
  4. Shop for credit over a short period of time. FICO scores distinguish between searching for credit for a specific loan and searching for lots of different credit lines.
  5. Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix – it probably won’t raise your score.
  6. If you have a questionable credit history, open a few new credit accounts, use them responsibly, and pay them off on time. In general, having credit cards and installment loans (and paying timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
  7. Don’t open credit accounts you don’t intend to use. Also, don’t open a number of new credit cards that you don’t need, just to increase your available credit.
    This approach could backfire and actually lower score. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.
  8. A credit card or installment loan can raise your score as long as you don’t have too high a balance and you pay it off in a timely manner.
  9. Keep your balance low in relation to your available credit. If your credit limit is $10,000, keeping your balance below $2,500 (25%) will improve your score.
  10. Pay off credit card debt rather than move it around to lower rate cards. Moving balances to other credit cards and closing out the old account can hurt your score because it can change the ratio of your total credit card balances to your total available credit lines. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
  11. Don’t close unused credit cards as a short-term strategy to raise your score.

Keep in mind also that negative items affect your credit score much more quickly than positive items. Late payments can negatively affect your score in just a few months, whereas paying bills on time may take 6 to 12 months to generate a significant improvement in your score.

Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.

Note that closing an account doesn’t make it go away.
A closed account will still show up on your credit report, and may be considered by the score.

The launch of AnnualCreditReport.com entitles every American consumer — about 200 million people — to a free copy of their credit report each year. Check yours to see how you stack up.

Best wishes in improving your FICO.

Miel

Tip of The Day: Check Your Credit Card Statement

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Hi All,

While we’d like to think the world is a trustworthy place, sometimes it just isn’t. We have a friend who compared her credit card receipts with her statements for the year. In some cases she found that the amount she’d authorized for a tip had been changed.

In some cases this was a couple of dollars, e.g. changing a 2 to a 3. In others, it was adding a 1 to the total, that is adding a 1 to a 3 dollar tip to make it a 13 dollar charge, rather than a 3 dollar tip.

Our advice: check your statements. Little problems with your statement could build up and affect your wealth over time.

Best,

Miel&James

Is the Gold Standard That Great?

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Hi All,

With the economy under pressure, there has been some chatter among political circles that perhaps a return to the gold standard would help. The idea is that a gold standard could help to rein in deficit spending and strengthen the dollar. A stronger dollar makes it a heck of a lot easier to build wealth.

Well, new research is out which throws some cold water on that idea. Evidently back in the day, the gold standard wasn’t all that helpful in reducing interest rates. What really matters is political stability.

From the article:

“Another reason poor countries didn’t get better lending terms was the political risk involved. “The credibility gains through gold standard adoption may have been low in poor countries simply because political instability was high,” the authors write. “Where the political and social fabric of a country is still crisis-prone, its monetary regime is likely to be a second-order concern for the market.”“

Click here for the rest of it.

Best,

James

One on One With Warren Buffett

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Hi All,

In case you haven’t seen this PBS’s Nightly Business Report is airing an interview with Warren Buffet for their 30 year anniversary. The interview addresses Buffets views on the market, advice on stocks, the financial crisis and his outlook for the Obama administration. Hint: Buffett is buying. Is there a chance to build significant wealth if you buy right now? Buffet seems to think so.

Click here for the interview.

Best,

James

Paulson’s $140 Billion Surprise

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Hi All,

Where should I begin with this posting? Evidently last year around about when the treasury and the Fed were pushing the $700 billion TARP/bailout bill former Treasury secretary Paulson changed one of the tax laws to allow banks to deduct losses when merging. This allowed large banks to profit from merging with smaller banks that had a lot of bad debt on their books – handing a lot of profit to several selected large wall street banks. The only problem – this kind of thing has been illegal for 22 years. This will have implications on the average Americans ability to build their wealth.

At 6:23 it’s a quick watch.

Reflections on Unemployment

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With the continuous announcements of layoffs across the country I thought it was appropriate to voice my gratitude for experiencing only a brief two months of unemployment. With the severance I was given I never even had to go without a pay check for that time.

Not only was my unemployment brief, I also found exactly what I was looking for, doing exactly what I love. In fact, I’ll be headed to the Democratic Republic of Congo tomorrow for at least a month. I have a boatload of management issues to tackle during that time, but it feels great to be doing what I love and what I am good at.

For those who are reading that are unemployed or might know someone who is, keep in mind the power of positive thinking. I know it might sound corny, but it can make a world of difference. James noted that upon my return from Afghanistan I was at times a bit pessimistic about finding the right job for me.

I decided that if I was going to find what I wanted, that I had to define it well. I wrote out a wish list of all of the things that I wanted in my new job, including what I wanted to be paid. I also did an artful collage with cut outs from magazines expressing aspects of my dream job. This included travel, grounding in DC, and various things about positive thinking; see below.


The next morning, I found the job that I now have. I looked at the advertisement a bit stunned, as it fit my skill set and wish list to a tee. The interviewing process went smoothly and I was hired on the exact day I would have chosen to start work, making exactly what I wanted as well. Now with nearly a month on the job it couldn’t have been a better fit.

I feel that my focus on what I was interested in gave me the edge on staying positive and recognizing what I wanted for myself. Hopefully others might get similar results. Just remember to be careful for what you wish for!

Cheers,

Miel

Cost of Kids

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In honor of my twin sister giving birth to her second child on Sunday, I wanted to do a quick post about the cost of kids.

While we wouldn’t trade our fabulous Miss Makenna Rose for all the money in the world, the cost of having kids is certainly something to consider when planning a family.

Average Cost of Kids
On average, an American family spends from $143,790 to $289,380 (depending on income) to raise one child to the age of 18 – or as much as $44 per day; this is according to the USDA’s report “Expenditures on Children by Families, 2006”. That’s quite a chunk of change overall. I’d say that in the Washington area that figure is likely well above average – on average.

Homebirths are Cheaper.While my sister and her husband choose to have a home water birth for personal reasons, this decision also saved them a bundle. They don’t have the final bill for the birth yet, but according to the estimates they will only spend a few hundred dollars rather than a few thousand. This certainly isn’t an option that everyone would take, and certainly not for financial reasons alone, but if you are considering a home birth you might also think about the cost savings as an added bonus.

Save Clothing & Buy Used
Kids grow out of clothes quickly and sometimes barely get to wear some items more than a few times. Hand-me-downs are certainly the way to go in my book. While their first is a boy and their second is a girl, some clothes are uni-sex. My mother also went to the by the pound goodwill and picked up a bag of girlie clothes as well. Just look for stains and the like and you are good to go. Implementing a frugal lifestyle, especially with costs related to children, is always a great way to build wealth when you otherwise would be losing it.

Library & Used Books
If it isn’t otherwise the case, your local library will be a friend for instilling reading early on and saving on books. In Oregon they issue a library card at birth to promote the use of their system. My sister has gone regularly with her son, who is now three, and they always have a stack of library books by his bed. Another tip is to reserve the seasonal books in advance so that they can have holiday books and so forth at the appropriate time. My sister is also a huge fan of buying kids books at goodwill. In DC we don’t really have this option but we’ve found a great selection every time I’ve gone to look in Oregon. Kids libraries can add up to be very expensive otherwise!

Baby Gadgets
Aside from car seats and cribs, most baby gadgets can be used again – yes, you can wash of the applesauce and make it like new. This time around she only bought a couple of items to prepare for the birth. She also asked around from friends and managed to get a couple of items that people where just waiting to pass on – such at the beloved johnny jump-up. Overall just remember that there are many things that you can go without as well. We survived without all those gadgets and your kids will too.

Save for Maternity Leave
In the US women have the luxury of taking three months of unpaid leave (I won’t even rant about how wrong this is). My sister therefore saved $5k to help cover expenses while she is taking maternity leave. She also took time to calculate how to keep expenses lower around child care. For instance, she has worked out a leave schedule where she comes back to work gradually over time and utilizes her husband’s paternity leave to fill in some of the gaps. This means that she will be able to keep both children at half time daycare for a bit longer and save money on that end as well. As an added bonus my sister just secured her job on a permanent basis and got a retro-active raise.

Plan in Advance
Overall it takes planning and saving to prepare for this kind an expense, not to mention everything else it takes to be a good parent. My sister is a fabulous mother, so I have no doubt that she’ll be able to find cost savings where she can.

Cheers,

Miel

Tip of the Day: Negotiate Your Rent

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Hi All, 

For most people, every year you get a letter from your landlord raising your rent. Well, if your local rental market is soft or your apartment is starting to get a bit run down, negotiate!

Landlords value good tenants who pay their rent on time.  If you can come up with a good case for why your landlord should not raise the rent, state your case.  You might be able to either wrangle some rent concessions or some improvements to your place. 

Best, 

James

CitiGroup Buys New Jet, Demonstrates Lack of Accountability

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Hi All,

Just saw this story. Evidently failing corporate giant Citigroup is buying its executives a brand new luxury jet – for a cool $50 million dollars. Their new “Limo of the Sky” Dassault Falcon 7X will be retrofitted with a luxury entertainment center, private bathrooms and kitchens and seats 12 in maximum comfort. When asked by the Post if such a purchase was appropriate under current economic circumstances head of CitiFlight Bill McNamee responded:

“Why should I help you when what you write will be used the detriment of our company?”

For those of you who don’t understand corporate speak, this means “F**k Off”. (1)

By the way, Citi group is trading at less than $4 dollars a share, down from their high of $54 dollars a year and a half ago – a decline of over 90%. I’ve lost $1,500 on my investment in this company and Miel is in the red to the tune of over $400. In the meantime, Citigroup has taken over $45 billion dollars of taxpayer funds to keep their company afloat (1).

To have Citigroup fail is one thing – that’s the risk that shareholders take. However, to be obligated to pay for the mistakes of corporate managers with taxpayer dollars is quite another. Finally, to have Citigroups management arrogantly dismiss members of the press for asking relevant questions seems to suggest a resistance to transparency. Unfortunately, the entire picture appears to add up to a lack of accountability on the part of the banks senior staff.

Update: Citigroup scrapped the sale after they got a call from the White House (1).
Best,

James

Lehman CEO Fuld: Poster Boy for Whats Wrong With Capitalism

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One of the downsides of widespread ownership of shares of common stock is that individual owners have a reduced say in how a company is run. This situation effectively allows corporate officers like CEOs and CFOs defacto control of companies. If you’re not sure about this argument check out John Bogle’s book, The Battle for the Soul of Capitalism.

One of the unfortunate results of this state of affairs is that company CEOs often fail to act to safeguard the long term future of their companies.

A great example of this is the recent actions of former Lehman Brothers CEO Richard Fuld. Fuld took $22 million in compensation in 2007 and let his company go bankrupt. Now he is transferring his assets out of his name to avoid payback from the shareholders he stiffed. How unfortunate.

Best,

James

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