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5 Easy Ways to Rebuild Your Credit

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The following is a guest post from personal finance blogger John @ Fearless Dollar. If interested in guest posting please contact us.

We live in a world where you credit worthiness is encapsulated in a three digit number – your credit score.

This three digit number, called a FICO score, will dictate how much you can borrow and what kind of interest rates you get in the future. FICO scores range from 300 to 850. If your FICO score is under 600, you need help rebuilding your credit. If your FICO score is under 500, then you really need help rebuilding your credit.

Get a Copy of Your Credit Report – It’s Free

There are three main credit reporting agencies, they are Experian, Equifax and TransUnion. Under the FACT Act you can request a copy of your report from each agency, and it’s free (one per year). To obtain that free report, you must go to www.annualcreditreport.com

Disputing Errors

Errors are commonplace on credit reports, so this is the simplest place to start in the rebuilding process. Here are some of the more common errors you will find:- Incorrect personal data (addresses, alias, workplace)
– Incorrect balance information (outstanding, credit lines, account status)
– Incorrect accounts (accounts under your name that are not yours)Identify the error, submit a dispute form (from agencies), and send via certified mail to respective agencies.

Too Much Debt Kills Your Credit Score – Pay Down Debt

About 40 percent of your credit score is formulated using outstanding balances. Create a plan to pay down debt.The sensible plan is to attack one debt at a time. Take the credit line with the highest interest rate and pay the most to it. Pay the minimum monthly payment on all other debts. Once that credit line is paid off, move to the next credit line with the highest interest rate.Down goes your debt – up goes your credit score.

New Credit – Be Cautious

Applying for new credit can affect your credit by about 15 percent. People think that rebuilding credit means getting new credit, like starting over. In some ways this is true in respect to reestablishing credit with a secured credit card, but rebuilding also means repairing the credit you have.Don’t be to anxious to abandon your old credit lines with new ones.

Get Back On Track – Pay Bills On Time

Your history of making payments play a big part in credit scores, and if you are rebuilding your credit it means you probably have late payments on file. The good news is, your lender hasn’t closed your credit line.Contact your lenders, explain your situation, and they will be more than willing to work with you. It’s more cost effective for a lender to help you get back on track than put your account into collection – use this fact to your advantage and work with your lenders.

Payoff Balances, But Don’t Close Those Cards

People have a tendency to close accounts once they are paid off, don’t do it.That card, even though paid off, will provide history, which is good for your credit score. There are exceptions to this. If you have several duplicates, such as Visa or MasterCard, then too much unused credit can be detrimental. Keep the older cards and close a few of the newer ones.You can rebuild your credit using these five easy steps – be patient – watch your credit go up, as your debt goes down.

Featured image by http://dribbble.com/blabus

OUCH! The Cost of Bankruptcy in Family Proceedings

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The beginning of the end?

Bankruptcy is something nobody wants to be associated with. It has a certain stigma attached to it, and for many, conjures up images of burly bailiffs banging down their doors to take away all their prized possessions. And then what happens? Your children move in with a more financially secure relative, whilst you live a short, cold and very sad life. You may end up swigging cheap sherry in a public park, becoming a source of mockery and amusement for the local teenagers perhaps?

Avoid the emu effect

OK, so that may sound a little extreme, and thankfully it is highly unlikely you or your family will end up in this position. There are lots of viable options for those facing the dreaded ‘B’ word these days, and since the recession it has become more common place, meaning seeking advice has never been easier. The worst thing anyone can do when facing financial woes is to bury their head in the sand and ignore debtors, as this will only make your problems worse.

Non-homeowners

77% of those declaring bankruptcy are non-homeowners, making the whole process less complicated with no family home to fight over. You can have all your debts written off and be free of them within a year, however do bear in mind this will have an impact on future lending and even job prospects. Some lenders like to see five years of good account conduct (some even longer) after bankruptcy before they will consider offering you credit. Your employment options may also suffer, and a career in banking or indeed, many other financial based organisations are likely to be unavailable to you for some time.

Homeowners

Although only 23% of bankrupts own their own home, a recent survey suggested homeowners spend a massive 97% of their monthly income, leaving little in the way of help when it comes to unexpected bills. Losing your family home is an incredibly daunting prospect, but there are certain circumstances where you can delay or even stop the sale of your property. This is a possibility where the value of your beneficial interest is less than £1,000, or the legal title (or beneficial interest) can be transferred to someone else. The sale of your home can also be delayed for up to a year if you need to organise somewhere for your children or a partner to live.

Light at the end of the tunnel

Whilst going through bankruptcy, if the money raised from the sale of your assets does not cover your debts, you may be able to make monthly payments. The amount will depend on how much you can afford after essentials such as food and bills are paid, so you may want to switch from M&S to Aldi if you want to make a more significant dent in your debts. In most cases, you will be discharged after 12 months, although this can be longer if you break the bankruptcy restrictions or do not co-operate with your trustee.

I Pay Off My Credit Card Balance in Full Each Month – But I Still Have a Balance

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One of the strangest things about becoming debt-free is using my credit card responsibly. I am still getting used to this new-to-me phenomenon. You guys have no idea how much enjoyment I get out of looking at the bottom of my credit card statement where it says “Total Fees Charged in 2013: $0.00, Total Interest Charged in 2013: $0.00” HUGE RUSH.

But wait. I’m still not totally comfortable because I think I still need a couple thousand bucks in my checking account so that once a month, I pay whatever the total balance of my credit card is in full. But at the moment, what I do is pay the statement balance each month, which ensures that I won’t be paying any interest, but there are costs that have been incurred on the card since the statement closing date. And since all of my expenses are now going on my card, and I am aggressively saving any extra money in my down payment fund, I hardly ever want to pay the entire card balance. I just want to pay enough so that I don’t incur any interest.

Here’s an example. Last month, my statement balance was $1,300. I had about 4 weeks to pay it off, during which time, I charged my regular expenses, including business expenses on my card. At one point, my balance was $3,600 because of outstanding business expense reimbursements. Once I had the $1,300, I paid my statement balance and then reimbursement checks flowed in to bring the balance down. But still the balance of another $400 or so remained until next month.

It makes me a little nervous. Why don’t I pay that $400 off right now? Well, it’s not due right now, and I can put any extra money I have towards saving and investing. It’s been over 7 months that I have been using my card AND paying it off in full. I wouldn’t say I’m out of the woods yet, and with wedding expenses, the temptation to just swipe it exists. I’ve made a few rules to keep me in line until I truly master financial discipline.

  1. Know exactly what my credit card balance is at all times.
  2. Continue to write down all spending in a notebook (keeps me in check)
  3. Have the funds to pay the statement balance each month, and, if possible, pay the entire outstanding balance each month.
  4. Do not use the credit card to finance impulsive purchases, including but not limited to: clothes, handbags, weekend trips, deciding to treat 10 people to dinner because I want to appear generous and munificent.

I definitely still don’t feel like I’ve got plenty of cash to pad any hard landings, but since paying off my debt, my net worth has experienced a 45% growth in less than four months. As that number grows, the percent increase won’t be quite as dramatic, but I am committed to positive growth every month for at least the next two years, when I intend to buy real estate with a comfortable 20% down payment.

Do you pay your credit card balance in full each month? Or just the statement balance?

Save Money Driving – Fuel Saving Tips 16 – 25

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Gas pump

This is a Guest Post by Todd @ Fearless Dollar — it’s part of his 5 site series on How To Save on Gas Money.

Are you driving to see family this holiday season? Taking a road trip to see the fam can be cheaper and more (or less) convenient than taking a flight.

If you haven’t noticed, in the past 10 days fuel prices have dropped 50 cents in many areas across the country. But don’t be deceived, they’re still a lot higher than they were just 5 years ago.

If you want to save money on driving, here’s our 5 site series on saving fuel. I’m posting across five websites, so make sure to check out all the tips!

Fuel Saving Driving Tips

Tips 1 – 5 Fearless Men

Tips 6 – 10 Fearless Dollar

Tips 11 – 15 AllThingsFinance.net

Tips 16 – 25 American Debt Project

Tips 25 – 30 Daily Tips Blog

SAVE GAS BY PLANNING YOUR TRIP

Thinking ahead to save fuel

16. Set your course

Organize activities and perform as many errands as possible in one trip. Plan a route by driving to your further distance first, and then make your way back home by hitting your other planned spots along the way.

17. Skip the rush hour

If possible, avoid driving during rush-hour & other peak traffic periods. Plus, doing so is proven to extend your life! (Well maybe not, but at least you’ll have a little less stress and frustration!)

18. Better planning

Better planning reduces the need for speeding to get there in time. The biggest waste of fuel is accelerating hard and fast!

19. Gas station shopping

Shop around for service stations with the lowest gasoline prices. – also use GASBUDDY!!

If you’re like me, you have a routine gas station you go to. If you’ve been going there for several months or over a year, it’s possible another gas station has overtaken your usual spot with better gas prices.

20. Traffic reports

Keep tuned to radio traffic reports & avoid traffic jams and other delays.

21. Public transpo

Public transportation may be cheaper, especially when you are traveling alone.

22. Eliminate dead weight in your car.

If you’ve got a trunk full of stuff that could be cleared out, you should do it right now. You’re spending gas lugging the extra stuff around.

23. Take the path of least resistance

Avoid rough roads whenever possible, because dirt or gravel can rob you of up to 30% of your gas mileage. Potholes and rough patches require you to speed up and slow down frequently. This oft acceleration will burn through your gas.

24. The shortest path isn’t always the fastest.

Avoid heavy traffic and lots of traffic lights. The shortest route is not always the most fuel efficient if you have to stop a lot.

25. Consider alternate routes

Use alternate roads when safer, shorter, straighter. Compare traveling distance differences – remember that corners, curves and lane jumping requires extra gas. The shortest distance between two points is always straight.

Checkout gas saving tips 26 – 30 on Daily Tips Blog!

[Featured image courtesy of http://www.flickr.com/photos/cmogle/]

Dipping My Pinky Toe in Investing: I Bought My First ETF

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So, I feel like for the two-plus years I blogged while still in debt I talked a big game on investing but never actually did anything. I was reading some, but not enough. But since August, I had some funds that I had marked for investing, which was just sitting as cash in my brokerage account. I own three individual stocks in my retirement account as well as a few mutual funds, but I wanted to look at buying shares of a lower-cost ETF. A lot of personal investors have raved about ETFs, and although I prefer holding a few stocks I have valued and understand deeply, I think the ETFs are good holdings as well.

I had my eye on the Vanguard Small Cap Value Index Fund (VISVX), but realized that the Vanguard Small-Cap Value ETF (VBR) was the same set of holdings and had a lower expense ratio (0.10% vs. 0.24%). I didn’t realize that ETFs and Index Funds were different (that’s how amateur I am) and Investopedia has a helpful reference page on the two.

Also, the ETF was offered through my brokerage account commission free, and since I wasn’t buying that many shares, it was nice to remove that $9.95 commission. As far as the index fund vs. ETF, they shared many similarities, but I liked the ETF’s pricing, which trades throughout the day, while the index fund is like a mutual fund and is only priced once per day when the market closes. So, while the government shutdown was sending shares all over the market tumbling, I decided to purchase the shares I had been thinking about for over a month that day at a respectable price, and VBR shares have climbed since. Of course, the market is pretty highly valued at the moment, and we may all see a correction soon. I have to decide whether I want to take my profit on these shares and then look for the next opportunity or hold on tight because I think the holdings in the ETF are still values. At the moment, I am comfortable holding.

My next venture into investing is choosing a stock or ETF for my Roth IRA. That account also has some commission free ETFs, but I may wait until the next downward cycle to make my purchases.

What do you think of this market? Are we headed for an ugly correction?