Week 5 Your FICO Credit Score

We are 5 weeks in. Since we are actively saving, let's also take a look at our credit. 
Below is an article on how to repair your credit and improve your FICO credit score.  

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It's important to note that repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score. In fact, out of all of the ways to improve a credit score, quick-fix efforts are the most likely to backfire, so beware of any advice that claims to improve your credit score fast. The best advice for rebuilding credit is to manage it responsibly over time. If you haven't done that, then you need to repair your credit history before you see credit score improvement. The tips below will help you do that. They are divided up into categories based on the  data used to calculate your credit score.

3 Important Things You Can Do Right Now

Check Your Credit Report – Credit score repair begins with your credit report. If you haven't already, request a free copy of your credit report and check it for errors. Your credit report contains the data used to calculate your score and it may contain errors. In particular, check to make sure that there are no late payments incorrectly listed for any of your accounts and that the amounts owed for each of your open accounts is correct. If you find errors on any of your reports, dispute them with the credit bureau and reporting agency.

Setup Payment Reminders – Making your credit payments on time is one of the biggest contributing factors to your credit score. Some banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due. You could also consider enrolling in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account, but this only makes the minimum payment on your credit cards and does not help instill a sense of money management.


Reduce the Amount of Debt You Owe – This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards. Use your credit report to make a list of all of your accounts and then go online or check recent statements to determine how much you owe on each account and what interest rate they are charging you. Come up with a payment plan that puts most of your available budget for debt payments towards the highest interest cards first, while maintaining minimum payments on your other accounts.

More Tips on How to Fix a Credit Score & Maintain Good Credit

Payment History Tips

Contributing 35% to your score calculation, this category has the greatest effect on improving your score, but past problems like missed or late payments are not easily fixed.

• Pay your bills on time.
  Delinquent payments, even if only a few days late, and collections can have a major negative impact on your FICO score.
• If you have missed payments, get current and stay current.
  The longer you pay your bills on time after being late, the more your FICO score should increase. Older credit problems count for less, so poor credit performance won't haunt you forever. The impact of past credit problems on your FICO score fades as time passes and as recent good payment patterns show up on your credit report. And good FICO scores weigh any credit problems against the positive information that says you're managing your credit well.
• 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.
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
  This won't rebuild your credit score immediately, but if you can begin to manage your credit and pay on time, your score should increase over time. And seeking assistance from a credit counseling service will not hurt your FICO score.

Amounts Owed Tips

This category contributes 30% to your score's calculation and can be easier to clean up than payment history, but that requires financial discipline and understanding the tips below.

• Keep balances low on credit cards and other "revolving credit".
  High outstanding debt can affect a credit score.
• Pay off debt rather than moving it around.
  The most effective way to improve your credit score in this area is by paying down your revolving (credit cards) debt. In fact, owing the same amount but having fewer open accounts may lower your score.
• Don't close unused credit cards as a short-term strategy to raise your score.
• 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 your credit score.

Length of Credit History Tips

• If you have been managing credit for a short time, don't open a lot of new accounts too rapidly.
  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.

New Credit Tips

• Do your rate shopping for a given loan within a focused period of time.
  FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
• Re-establish your credit history if you have had problems.
  Opening new accounts responsibly and paying them off on time will raise your credit score in the long term.
• Note that it's OK to request and check your own credit report.
  This won't affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.

Types of Credit Use Tips

• 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 credit score.
• Have credit cards – but manage them responsibly.
  In general, having credit cards and installment loans (and paying timely payments) will rebuild your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
• 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.

To summarize, "fixing" a credit score is more about fixing errors in your credit history (if they exist) and then following the guidelines above to maintain consistent, good credit history. Raising your score after a poor mark on your report or building credit for the first time will take patience and discipline.

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Week 4 Living on a Budget Doesn't Mean Living Deprived

Many people believe that frugal living means that you have to deprive yourself of things you want. This is a common misconception. Actually, to live frugally simply means that you decide to spend prudently in some areas to better afford things that you want or need in other areas. It also means that you limit unnecessary expenditures and get the most value for the money that you do spend.

Frugal living requires that you prioritize your spending choices, and look for ways to save money. While a $3 cup of coffee may be an enjoyable extravagance, it’s certainly not a necessity. Why pay for a commercial greeting card when you can make your own? All that costs is a little time.

Frugal living also means you do more things by yourself instead of paying someone else to do them. For example, changing the oil in your car instead of taking it to the mechanic will save you money. So will growing your own vegetables, making your own laundry detergent, cooking more meals at home, etc.

Frugal living also means finding inexpensive ways to spend your time. Family game night can replace a trip to the multiplex; libraries, museums, parks, beaches, community pools and recreation centers are free or may have reduced fees. Staycations — where you take a vacation in your own town — keep travel costs to a minimum.

Finally, frugal living means that you avoid debt. Paying interest on debt saps your financial resources and limits your freedom. Debt settlement and/or debt relief can help you reduce outstanding debts so that you have more money for the things you truly want.

With the savings you can accomplish by living frugally, and by making smart money decisions, you can actually better afford to splurge now and again on a few self-indulgent luxuries. In fact, if you never treat yourself to the occasional nonessential, you may feel that your lifestyle choice is depriving you of pleasure.

If that happens, then you are like the dieter who wants to lose weight all at once by starving herself, rather than by cutting back on food slowly and gradually. Being constantly weak and hungry makes little sense, even if the weight does come off.  Similarly, feeling deprived because you’ve chosen to be frugal, and refuse to ever spend for enjoyment, negates the real purpose of the frugal lifestyle.

However, while living a frugal life may be a choice for some, it may be a necessity for others. Sometimes a person is forced to be frugal because of economic circumstances. Perhaps debts have piled up due to overspending, a family or medical emergency, or a lost job.  When frugality is involuntary, it is easier to fall prey to feelings of deprivation.  In these situations, it is important to remember that the condition is likely temporary.

In the long run, however, an enforced frugality can actually lead to an overall re-examination of poor spending habits and misplaced priorities. Once a person is obligated to make more careful considerations about how money is spent, he or she may emerge from the temporary condition more attuned to preventing a re-occurrence of the involuntary thrift. Then, frugal living can become a smarter, more enjoyable way to live.

Week 3 - Practical Savings Tips for Every Day Saving

Practical Savings Tips for Every Day Saving Try take-out once a month instead of dining out. Rent a video instead of going to the movies.  If you really want to go to the movies, go to the less expensive afternoon “matinee.” Or better yet, go to your local library and borrow books, CDs, videos, and read the latest magazines and newspapers. Bring your lunch to work once or twice a week instead of buying it. Don’t grocery shop on an empty stomach or you may end up buying more than you need. Cut down food costs by buying what you need on sale, buying generic brands, buying in bulk, and shopping at discount outlets. Don’t buy a sale item or use a coupon just for the sake of it being “cheaper.”  Buy an item only if you need it!  Shop with a list. Increase your gas mileage by taking care of your car with schedule check-ups, or just drive less. Consider carpooling, walking, taking the bus or metro, or riding your bike. Cancel your cable (or at least the premium channels), as well as subscriptions to magazines and newspapers. Exercise at home rather than joining a gym. Make your own coffee at home rather than buying from a store, or at least cut down the number of times per week you purchase coffee. Get health insurance. Track your spending and cash – know where every dollar goes! Organize a friend/relative/neighbor swap of clothes, toys, furniture, CDs, etc. Buy clothes for next year at the end-of-season sales – try garage sales and thrift stores. Find a simple hairstyle that doesn’t cost too much to take care of on daily/weekly basis. Take advantage of free entertainment in your community – parks, museums, exhibits, etc.  Go to free park concerts and other community activities. Try to buy with cash, checks, or debit cards. If you use credit cards, get rid of all but one or two, and pay off the balance each month. You can save hundreds or thousands of dollars a year by avoiding credit card interest charges. Always do your grocery shopping with a list of items you need  -- and don't buy anything that's not on the list. You can save hundreds of dollars a year by avoiding impulse food purchases. Compare unit prices on labels when shopping (for example, price per ounce). You can save hundreds of dollars a year by purchasing items with the lowest price per unit. Avoid shopping at convenience stores. You pay for the convenience -- the prices are usually higher than grocery stores. Consider taking your lunch to work rather than buying it. Depending on where you live and what you eat for lunch, you could save $5 a day. Review your telephone and cable bills for services you don't use and cancel them. If you subscribe to magazines you rarely get around to reading, cancel the subscription. You could save tens of dollars each month. When choosing a cell phone plan, find one that's appropriate for the calls you intend to make. For example, if you plan to use the phone only for emergencies, avoid plans with monthly fees or minimums. When your doctor prescribes a medicine, ask if a generic is available -- you'll pay less. If you're taking a "maintenance" medicine, consider a mail-order pharmacy -- you'll pay less. Before buying a car, compare insurance, gasoline, maintenance, and repair costs for comparable models. You can save thousands of dollars over the life of the car by choosing a model with low operating costs. Save hundreds of dollars a year on gasoline by making sure your car's engine is tuned regularly and your tires have enough pressure.

Week 2 - How to Stay Disciplined with Your Savings

How to Stay Disciplined with Your Savings

• Just do it!  Pay yourself first!
• Gather all important financially-related documents and receipts to a central location.  File them so you will be able to easily find the items you need in the future.  Consider a computer based financial program so you can keep track of every dime you spend – financial control is a special form of power!
• Spending every dime and more?  Start by cutting back on a few items per week and putting away that money.  Pay yourself first.  Just say no to spending more than you have.
• Ask for direct deposit at work if they offer it – you’re saving money, and you don’t even see it.  A savings plan at work that pays you a “matching contribution” is the fastest way to save.  Pay yourself first!
• Use credit cards responsibly make sure you can make the monthly payment.  Ideally pay the balance off each month.  You will never have a late payment (now as much as $75) and you will never pay interest to others at the very high rates credit cards charge.
• Financial freedom will be worth everything you put into it.  Don’t want to work forever – choose to save!

Top Saving Mistakes

• Not modifying your spending habits and committing to save money.
• Not taking advantage of your company’s match in a 401 (k) plan, or getting involved in a defined contribution plan.
• Not appropriately/correctly allocating your assets to meet a specific goal or time horizon (diversification is important).
• Not setting a specific dollar target or financial goal.
• Not knowing how much you have, where you are spending your money, and how much you need to save for the future (failure to plan for retirement).
• Cashing out your retirement plan – should roll over to an IRA or your new company’s retirement plan.

Week 1

 

Hi Savers, 

Today is day 1, the first week of the 52 week financial challenge.  I hope you all have your dollar or two dollars depending on the option you chose.  I chose option 2 so I have my two dollars. I don’t think I’m going to using a savings account for this challenge so I am going to put my money away in the little box shown above.

As of today there are exactly 31 of you that are participating in the financial challenge.  I didn’t think that many people would participate; so I’m really excited that all of you will be saving with me.   

Thank you so much for participating!

That’s all for now.

Happy Saving!

Tonya