Wednesday, November 29, 2006

The Basic Of FICO Credit Score

It is worth to know about FICO Credit Score since it can affect the interest level that we need to pay when we apply for a new loan. FICO Credit Score is one of the most widely used individual Credit Score System currently in the US. Other Credit Score Systems include NextGen and Vantage Score. It's developed by a Minneapolis based consulting firm Fair Isaac Corporation.

FICO scores place a value on the types of accounts you hold and your credit history. The FICO scoring scale ranges from 300 to 850, with the majority of people in the US falling around the 600 level.

There are 5 factors that determine a person’s FICO credit score:-

1. Our payment history — this accounts for about 35% of the factor - the most of any other factor. Obviously, paying your bills on time is scored as great, while paying them late on a consistent basis is scored as bad. Being referred to a collection agency is worse, and declaring bankruptcy is the worst.

2. The second factor is exactly how much money we owe, as well as the amount of credit that is currently available to us. These factors are worth 30%. They will add up all of our outstanding loans, such as car loans, mortgages, and any other loans that we have and then compare that numbers to our annual salary.

Then, they will add up the amount of credit available to us, and compare it to what we are currently using. People that use all of their available credit (for example, if all of our credit cards are maxed out) will rate lower than those who don’t.

3. Third factor is the length of our credit history. The longer we have had credit, the higher the FICO score will be for this section. In addition, if we have had a long-standing credit agreement with one party, we should gain more points on this aspect of the scoring process. This third factor counts as 15% toward you final score.

4. The fourth factor is the type of credit mix that we have. For example, do we have only unsecured credit loans (high risk), or do we also have some solid secured loans such as mortgages and automobile loans? Consumers with a mix of credit have higher FICO scores. This fourth factor counts only 10%.

5. The fifth factor in the rating is the amount of new applications that we fill out. If we have applieed for too many loans or credits recently, this will hurt our score because it puts lenders “on alert” that something may be wrong. This part of the score is worth 10%.

Although, lenders typically look at employment, income, length at current residence, and marital status, our FICO score will not be affected by these factors. The prospect of having a bad FICO score should scare anyone who plans on borrowing money for the future. If your FICO score is low, this could mean high interest rates, extra mortgage insurance when buying a home, or in some cases denial of the loan.

It’s not a bad idea to get a copy of your credit report 6 months prior to seeking a large loan, and then look over your history to make sure that there are no discrepancies. If inaccuracies are found, contact the Credit Reporting Agency in writing; they have 30 days to investigate it, and then correct it if they find truth to your claims.

You may also want to ask for a revised credit report; they are required by law to supply you with one if an inaccuracy is found and corrected.
Hopefully this short explanation can help you understand what FICO is all about. To learn more about credit score, you can go to . And of course you can always watch the Suze Orman Show aired on CNBC every week to learn more on FICO as well.

Friday, November 10, 2006

How To Better Organize Your Budget

Many of us have experienced creating our own budgets but never really have a good "chance" of following them accordingly. And this can lead to a lot of frustration as we cannot even follow our own planning. The truth is, a majority of working adults throughout the world live week to week and don’t really have savings in their accounts.

It shouldn’t be that way!

Instead, if you make a true commitment to yourself that you will create a workable budget, and then stick to it, you could find yourself living with a lot less financial stress.

Here are four workable steps to better organize your budget:-

1) Write It Down!

You have to write down your budget. Many people believe that they know approximately how much they have coming in, and more or less what their monthly expenses are, so they’ve got a budget. Well, not really!

A more realistic definition of a personal or a family budget is a complete plan that includes spending records for the past three months, estimated income (in the case of the self-employed for commissions worker), actual income, and projected spending and out-of-the ordinary expenses. All of these need to be written down in an easy to refer to manner that will allow you to know where you are financially at a glance.

It would quite simply be impossible to keep all of these in your head. Buy a notebook (or, for budget purposes use one that you already have) and start to keep a record of your expenses, and then once you have created a plan — write it down.

2) Have A Monthly Or Twice Monthly Meeting With All Your Family Members

Even if you are the only person in the household who is in charge of the money, if everyone isn’t privy to the budget and doesn’t know what to expect, it will make the process much more difficult.

A great way to get everyone on board is to call a family meeting. If you are married, then the budget should be a joint effort and you should work together as partners. If your children are of school age, then you should explain what it will mean to them.

For example, if your daughter is used to going to a movie with her friends every Friday, and you intend to cut it down to every other week, then explain it to her so that she will know what to expect.

3) Do It In Advance

Don’t wait to create your budget until you are in crisis mode. Instead, sit down at the beginning of every month and write down exactly what your incoming money will be, and then plan for your expenses. Don’t worry about creating a budget for the next year — those are never realistic and will only add to your frustration! Do it month by month, and always look at the past month as not only a guideline, but also for ways that you may improve your budget.

4) Don’t Make It Too Complicated!

One reason that many budgets fail is because they are simply too complicated! By keeping it simple, you’ll not only have a better chance of success, but you’ll also be able to create your budget in no time every month. Try to use just 2 columns - one incoming and another one outgoing — it doesn’t have to be more complicated than that!

So, start with applying these few simple advices. Hopefully they can make a big different to a more workable monthly budget for you.