How to Keep Your Credit Score High From Day One

When you’re just starting out in life and you don’t have a credit score at all, the whole concept of having credit, building it, and maintaining it can seem very daunting.

Fortunately, there is quite a lot of information available on how to maintain good credit from the time you pull your first credit report. However, first, let’s break down what a credit score is and why it matters.

What Is My Credit Score?

Your credit score is also called your FICO score. FICO stands for ‘Fair, Isaac, and Company,’ which was founded in San Jose, California back in 1956. It developed the score that we use today to decide whether someone is “creditworthy”. This is what a lender looks at when they’re determining whether to give you that car or home loan that you want.

Your FICO score takes into account the types of debt that you currently have, how much you owe on those debts, how many new accounts you’ve created recently, and how long you’ve had any type of credit at all. The lowest score you can have under FICO is 300 and the highest is 850.

If you want a good chance at having credit extended to you often, you’ll want to see your score above 650.

How Do I Start My Credit Off Strong?

When you start out, you don’t have a credit score at all. Until you’ve had credit extended to you and you’ve made use of it for at least six months, you don’t have a score.

If you do as you should during that first six months, though, you could pull your credit score for the first time and be surprised with a score of over 700. Do poorly, though, and it could be significantly lower.

What is important to know at the beginning of building your credit is that whatever mistakes you make early on can hurt you more. Because you don’t have much history, small mistakes can hurt big and require you to later perform credit repair.
There are a few different things that you can do to keep your score up above that 650 mark. The very first thing that you’ll want to do is understand what does and does not affect your credit score.

On-Time Utility Bill Payments Don’t Count

Your credit score isn’t going to take into account the payments that you make on your utilities every month. The fact that you paid them on time isn’t going to help your score. This includes electricity, rent, water, internet, cable TV, gas, etc.
These things aren’t reported to credit bureaus unless you’re very late or if you’ve let the bill go so long that they send it to a collection agency. At that point, you’re looking at a negative mark on your credit report due to it being in collections.

Overdraft Fees at Your Bank Don’t Count

Your bank doesn’t report overdraft fees to credit bureaus either. Bouncing a check for groceries isn’t going to hurt your credit score. However, if you allow the overdraft fees to remain until the bank turns the balance you owe over to a collection agency it will hurt you.

Soft Inquiries Don’t Hurt Your Credit

When someone does a soft inquiry on your credit, such as for a background check to get a job, it doesn’t negatively affect your credit score the way a hard inquiry does. Soft inquiries don’t hurt your score because people and companies don’t need your permission to run them, you’re the only person who can see them on your report, and they’re not a request for credit.

Make Your Payments on Time

Whether it’s a credit card or a car loan, you always want to make these payments on time. Your credit lender will report to the credit bureaus when you’re late and because payment history accounts for around 35% of your credit score, consistent late payments can hurt your score.

If You Have Credit Cards, Keep the Balances Low

When you have a credit card, you should only keep up to 30% of the balances available used at any given time if you have to carry a balance at all. If your cards have a combined limit of $3,000, for example, you only want to have a maximum of $1,000 showing owed at the end of your monthly billing cycle across all of them.

Ideally, however, they should be paid off every month, even if you have to use them again. The reason for doing this is that credit card companies will report the balance that you owe at the end of your statement period to credit bureaus. You don’t want them to report a higher amount than 30% owed on your cards, but reporting 0% is the absolute best for your score both short- and long-term.

If you don’t pay off credit cards every month and the balances keep going up, your risk assessment goes up even further the longer you let this happen. The reason for this is if you are being more dependent on revolving credit and your balance keeps going up, you’re revealing yourself as slowly drowning in debt to your potential lender.

Don’t Apply for New Credit Accounts Often

When you apply for credit, you’re allowing a company to pull your credit report so they can decide whether to lend to you. This shows as a ‘hard inquiry’, which always knocks a few points off your score. If lenders see that you’re applying for credit too often, it makes you appear desperate for credit and gives you away to lenders as a higher risk.

Keep a High Ratio of Installment to Revolving Credit

Long term, you want to have more installment credit than you do revolving credit. For example, a car loan for $20,000 is considered installment credit, while a credit card is revolving credit. If your installment credit is significantly higher than your revolving credit, lenders know that you’re not desperate and living off credit cards.

Your Debt to Income Ratio

Most lenders will consider you a high risk if your debt to income ratio exceeds 40% in most cases. In other words, if you have an income of $8,000 per month and you have revolving and installment credit in excess of $3,500 per month, you become a higher risk.

Closing Old Accounts Can Hurt

Even if you’re not really using a credit card that you’ve had a while, it’s not in your best interests to close the account. Credit bureaus consider that old active account and weigh it more heavily than younger accounts.
If you do have to close an account for some reason, make sure that doing so isn’t going to increase your debt to credit ratio. You should still only have 30% of your balances or less used after the account is closed.

Pull Your Own Credit Report to Guard against Fraud & Theft

Keeping an eye on your report is a good way to guard against identity theft and credit card fraud. When these things happen, you want to catch them as quickly as possible because they can lead to extremely negative information appearing on your report and lowering your score.

Even if you’re not a victim of either of these things, however, you can still benefit from watching your score because sometimes lenders do make mistakes in reporting that you can get corrected.

Don’t worry about pulling the report often, though. As mentioned before, it’s a soft inquiry, so it won’t hurt you.

Keeping Good Credit Is Simple if You Follow the Rules

If you can follow all of the tips above, you’ll be able to keep your credit in good standing. Stick fast to the rules when building your score from scratch in the beginning, but the key to keeping your credit score high is consistency in making your payments on time, keeping old accounts open, guarding against fraud, and keeping your revolving credit balances low.

Negative Gearing: What It Is and Why It Can Be a Positive Investment Move

There’s a good chance that you’ve heard the term negative gearing before. It’s in the news pretty frequently, which is how it’s slipped its way into the daily lexicon. If you’re currently a property investor or are looking to get into that world, then you’ve definitely heard of the term.

In Australia, a debate rages about the pros and cons of negative gearing and what the possible benefits and risks that come with it are — for both individuals and the economy as a whole, it’s been a favored strategy for Australian investors for the past decade.

If you’re looking for an overview to assist in achieving your dreams of building an abundant property portfolio, read on to learn what negative gearing is and why it can be a positive investment move.

What is negative gearing?

Negative gearing is a tax strategy in Australia. The term is used to describe an investment if the net income (after subtracting expenses) is less than the interest on the borrowed money.

In other words, an investment is considered negatively geared when the costs of owning it (such as interest on the loan, bank charges, agent fees, maintenance, repairs and capital depreciation) are more than the income it produces (such as rent).

Who is negative gearing for? 

Generally, negative gearing is used by property speculators or those with substantial tax obligations as it offers immediate tax benefits. It can also apply to shares, bonds and other investments.

Isn't negative gearing a foolish idea? 

On the surface, negative gearing can seem like an impractical way of investing. After all, why would you want the costs of maintaining an investment (such as a property) to cost more than the revenue it is producing?

Therefore, the critical benefit connected with negative gearing is that any loss can be negated against other income earned, such as the person's salary, which in turn reduces their taxable income and, consequently, their payable tax.

What are these tax benefits? 

As a strategy, negative gearing can work because it means that a person will be earning less income, resulting in having to pay fewer taxes at the end of the financial year.

These tax benefits are a significant factor for many people as they will be in a position to claim deduction and depreciation against income on the property. There are three main types of deductions available to investors:

• Revenue deductions — Examples are interest on the loan as well as continuous maintenance and repeated charges (council fees, bank fees, body corporate fees, cleaning expenses, gas, and water).

• Capital items — Examples are hot water service or white goods (which are subject to depreciation). However, the investor must declare the expense over a series of years. For this reason, the Taxation Department set depreciation schedules from a few years to more than 15 years.

• Building allowances — Additionally, investors can claim depreciation of capital works, particularly for building and landscaping. The current rate is 2.5% over 40 years.

In short, there is a lengthy list of expenses and charges that you could potentially be able to claim on your tax return.

Besides, even with negative gearing, property investors are still potentially in a position to make a long-term profit on their investment if the value of the property rises to a point larger than the expenditure costs.

What are the risks of negative gearing? 

As with any other investment strategy that you may be interested in pursuing, there are risks associated with negative gearing. As a potential investor, you must reflect on the inherent risk that comes with borrowing money for an investment.

This means that you should thoroughly examine your ability to reimburse the shortfall and proceed to maintain the investment loan even if it stops making any resemblance of a return (for example, if the tenants move, or for another unexpected circumstance).

Other cons of this type of investment are that it can drive up prices on existing houses and that it does little to generate new housing supply, which in turn means that it favors those in the high-income bracket and makes it more challenging for first-time home buyers or those in the low-income bracket to have access to the property market.

Before you opt to make any investment, you should speak with a professional financial advisor to discuss which strategies are aligned with your personal circumstances and risk preferences.

Have you ever considered using negative gearing as an investment strategy? Do you think you ever will? Why or why not? Let's start a discussion in the comments below!


AUTHOR BIO: Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he's working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.

6 Dos and Don'ts of Shopping for a Personal Loan

Your monthly salary typically covers three types of expenses: fixed, variable, and discretionary.  If your monthly earnings can’t pay for all these and some other unexpected expenses, you will need to look for an additional source of funding.

A personal loan can help you pay for all these expenses if you are having a hard time doing so. It can also serve as a cash cushion and as an emergency fund which you can dip into whenever you need to.

Finding the Right Personal Loan

To get a loan that will meet your needs and payment capability, you need to shop around for the best product first.

Here are some dos and don'ts of shopping around for your first personal loan:

Dos

1. Check your credit score

Before you begin your search for the best personal loan, check your credit score first. There are various online tools you can use to be able to do this. If your score is a bit low, certain websites can give you tips on how to improve it.

Make sure you complete this step before you start shopping around for a personal loan provider. Keep in mind that if you have a high score, you will have better chances of getting great deals and lower interest rates.

In case your score is low, consider applying for a loan later until your credit score has improved. A good start is to pay off your credit card balances first.

2. Inquire first at banks and financial institutions you know

Chances are, you already have an account with one or two banks. You can start your search for a suitable product by finding out the different types of personal loans your bank offers.

Ask your bank representative what loan amount you can get and if your credit score can qualify you for a low-interest rate. Check the terms and conditions as well.

You can also ask your credit card provider if they have some personal loan offers, too. You may even be offered the chance to consolidate your credit card debt with the loan which is an option worth considering.

3. Be cautious when shopping for personal loans online

Going online is the easiest and most convenient way to start searching for a good loan product. However, you have to know which banks and lenders offer legitimate deals.

Some online lenders, for instance, target people with poor credit by promising them loans without checking their credit history. Avoid these sites since all loan applicants will undergo a credit check. They may even charge big fees or request loan payments in advance.

Don’ts

1. Apply for personal loans from several different lenders at the same time
When shopping for a personal loan, simply shop. Study the different offers and ask the different providers for additional details. However, do not immediately apply for products that you find interesting.

When you submit your loan application online or at the bank, the lender will immediately check your credit report and history. Your file receives a mark whenever this check is carried out. If you get too many marks from your multiple loan applications, your credit score will go down further. 

Because of this, lenders will see you as more of a credit risk. Your loan application will likely not be approved or you will be offered a higher interest rate. 

2. Get a loan without knowing how much you want to borrow and the right payment term

If you have a good credit score, you can apply for a high loan amount which the best banks will be happy to offer. However, you don’t have to get the highest amount possible.

You need to determine a suitable amount that will cover your current and possible needs in the future. In addition, it should be something that you won’t have difficulties paying for every month.

It is also best to look beyond monthly payment amounts if you’re still shopping around. It is often better to get a two-year loan with a higher monthly payment than a five-year loan with a smaller monthly fee. This is because the longer you take to repay the money you borrowed, the more a loan will cost you in interests overall.

3. Ignore accompanying fees and the loan product fine print

Once you have a list of the best loan products you can qualify for, make sure you know all the fees that come with each.

Take the time look at and calculate the following:

● Annual percentage rate (APR)
● Loan origination fee
● Interest accrued over time
● Early repayment charge

Lastly, before submitting your application, read the document properly. Ensure you understand all the terms and conditions, and that they match the ones that the lender advertised and had been discussed with you by the representative.

If you are unsure about anything, get in touch with a representative of the bank or lending institution to get additional information or a clear explanation.

A personal loan can help you out during your time of need. But do remember that you will have to repay the loan and, as such, you have to be careful in choosing a loan product. You have to be 100% sure that you will get an amount you are comfortable with and won’t have difficulties making monthly payments for in the next few years.

3 Things You Need to Know Before You Finance a New Home

Financing a home may seem like a daunting prospect when we think about all the paperwork that is sure to be involved. The truth is that while the process is undoubtedly thorough, it need not be intimidating at all. Preparation and readiness can help remove most anxiety about home financing.

Here are three things you should know before you finance a new home

1. Personal finance homework saves time and money

Gather your credit information. All lenders will look at your various documents – savings, taxation, outstanding loans – and decide if you are creditworthy. Make sure all your documents are to hand. Also, ensure that you are up-to-date on payments with any loans you may have including credit card bills.

Next, work out the cost of the home purchase process. The purchase price is one thing but work out all the other expenses as well. Interior work, taxes, stamp duty, repairs, additions, remodeling, furnishing, moving charges, exterior work, all these need to factor into your total cost of home ownership. Once you know this, you have a right ballpark for how much home finance is required.

After that, see how much you have in savings for the deposit. Is it enough to get you financing? How much more do you need? How much time will that take?

One outcome of this is that you might reevaluate the type of home and the location of the house that you wish to buy. This is not a bad thing. Buying a home is not something you have to do today. If you are not prepared, it is better to wait before entering into such a significant financial commitment.

2. Evaluate various home finance options

Work out which home buyer financial aid program that suits you best. In the UK, for example, you can get home buying assistance from the Help to Buy plan wherein the government loans up to 40% (in London) of the property price at a low-interest rate. If you have saved for the 5% deposit, you need home finance for the remainder only. You can even choose the Starter Homes scheme and get 20% discount on the property price after paying the deposit.

When approaching banks/lenders for the housing mortgage, make time to understand what they are offering entirely. Loans have to be repaid over several years. It is a commitment you cannot back out of without losing your home. Get professional help, if need be, to understand which loan scheme is most manageable for your financial status as on date and the change you expect in it in future.

3. Professional help from a trusted real estate agent can save you from heartache

Buying a new house is not just a matter of saving for the deposit, taking a loan and making the purchase. Buying a house involves contracts, negotiations, evaluations, inspections, appraisals, preparation of documents, dealing with local government authorities, ensuring that sellers give the home in the promised condition.

A real estate agent can help you navigate all stages from viewing the house to evaluating finances to getting government aid to getting loans to dealing with contractors. Remember, a seller’s representative does not have to protect your interests since you are the buyer. Buyers are best served when they employ their estate agents. To find a real estate agent that you can trust, a search on the internet will give you a list of real estate agencies.

Find out what you can about the performance of the agencies and their estate agents. You can even give each a call or meet with representatives and choose one with whom you feel comfortable. Remember that it will be a long-term association. Find a real estate agent whom you like and whom you find competent and professional.

A professional real estate agent will keep open lines of communication and will get back to you as quickly as possible about all queries. They will also not dismiss any question as trivial.

A real estate agent is invaluable even before you decide on a house. Take the help of your real estate agent to work out your finances, to understand what is the best home for you and how to get a house that is suitable not just for your life today but the house for your future life.

An estate agent will also help you understand in detail about the available financing options. Financing a home is a multi-year commitment; make a decision using professional help to protect your financial interests.

Financing a new home can seem like a paperwork-filled process. A few simple preliminary steps like understanding your personal finance and evaluating various home finance options can ease the burden by quite a bit. Asking for professional help from real estate agents makes the process even more comfortable.

Secure Your Child’s Future with the Best Buying Tips

Child insurance plans are specially designed for growing child so as to meet their increasing costs of education and other financial requirements. It provides risk cover related to the life of child throughout the policy term and during extended term, that is seven years after the expiry of the policy term. As the education cost is growing rapidly, it is essential to have a child insurance plan for the better future of your child. This is the plan that will help you provide your child the best education and ensures the cash flows even at the crucial stage of your child’s life.

Best Evergreen Strategies That Drive Successful Entrepreneurship

Business can never be stagnant, especially when you have so much going on around the market. It is also quite easy for an entrepreneur to get overwhelmed with the challenges revolving around their selected industry. Not one industry is spared from the flexibility! However, to get accustomed to the changes, you have to cool it down and stay focused. That’s the only key towards success. There are some selected and much-needed strategies for entrepreneurship, which might help them to get going with the challenges that might hit their way. These strategies will help them to stay prepared beforehand.

5 financial preparation tips for buying a new house in 2018

Buying a house is one of the biggest purchases that you will make in your life. Once you decide to buy a house, the next thing is to be well prepared financially. The purchase process seems simple: 1. Like house 2. Put in an offer 3. Offer accepted 4. House owned. In truth, the process of “How to buy a home” involves quite the details. Specifically revolving around finances.

Here are 5 major financial preparation tips to note when buying a house in 2018.

1. Save for the deposit

The minimum requirement for a deposit is 5% of the property value. The higher the deposit you set aside, the better the deal you get when borrowing money from lenders like banks. Home buying tip number 1 is, save for the deposit. Start now.

One of the best ways, for those under 40, is the Lifetime ISA or LISA account. £4,000 a year and when you buy your first home, the government will add a 25% bonus. Which means you have £5,000 (before interest) to use as the deposit.

If you are 40 and above or don’t want to wait for the minimum 12 months that you need to have a LISA, you can use the Help to Buy ISA. You can apply for the government bonus once you have saved £1,600. For full benefit though, even Help to Buy ISA is effective only in the long term.

Understand your requirement and choose accordingly.