Since graduating from college, Danielle and I have always been on the same page with our finances, because we have needed to, to be able to reach all of the financial goals we have set for ourselves.
I have been hearing a lot of stories from people I both know and don’t know recently that have left me baffled and so here comes a post about finances.
Photo credit: Sean MacEntee / Foter / CC BY
1. Does carrying a balance on your credit card helps your credit?
A: No. Pay off your balance every month. Credit cards should be treated as cash. Carrying a credit card balance is equivalent to paying 10-30% interest on your carried balance, depending on your card.
2. All credit scores are the same.
A: No there are three different credit reporting agencies (Equifax, Experian and TransUnion) they will almost never report the same scores based on different credit calculation metrics. When you have a hard credit pull, all three scores are pulled and in most cases the middle score is used to determine credit worthiness. Under federal law you are entitled to a copy of your credit report from all three credit reporting agencies, once every 12 months.
3. My credit is fine, why do I need to check it?
A: Just because a credit score is in a reasonable range doesn’t mean you don’t have an incorrect judgement against you. Removing an incorrect judgement may place you into a more lender favorable credit bracket.
4. I have me credit score on my (insert credit card company) statement every month. Why should I check my score?
A: You credit score reported may be what is known as a FAKO score and not a FICO score. Whay does this mean for you? Not too much, but if you’re relying on the FAKO score, you may be 10-50pts off from what your true credit score is.
5. Does paying off a loan early hurt my credit?
A: Probably, but its likely short term and minor. Would you rather pay more interest?
6. How do I increase my credit quickly?
A: Remove incorrect judgement from your credit report. Pay off debts in collections with a “pay for delete”, make all payments on time, and give it time. Other than removing judgments, there is no “quick fix.”
7. I could go on and on. If you don’t know a question about finances, look it up online. Visit your local credit union, or request us to write a post on it, we’d be more than happy to help.
I always have my eyes on credit cards. New offers and promotions are coming out all the time.
Does your credit card fit your lifestyle? Do you have more than one credit card? Chances are you are missing out if you only have one credit card.
I recently went shopping and I saw a black credit card. The guy who pulled it out of his wallet looked like he was wearing a $1,000+ suit, a Rolex, and some $200+ leather shoes. For a second I was jealous. I was curious what the ever famous “black card” (Amex Centurion) required to be part of the club. Turns out all it costs you is $10,000 upfront, $2,500 each year afterwords, a promise to spend $250,000 a year, and a private invitation.
It also turns out, I saw a Visa, not an Amex. Only a $495 annual fee for marginal benefits to the average credit card user, and the ability to pretend to have the Amex Centurion credit card.
If you review the terms of the Visa Black Card, you receive a member’s only “Luxury Magazine”, Unlimited VIP airport lounge visits, and “Luxury” gifts from the world’s top brands in addition to what you can receive from most “no annual fee” credit cards. Is it worth it?
Lets say your monthly expenses on a credit card are $1,500. If your card receives 1% cash back, you are earning $15/mo or $180 a year. But does your card have an annual fee of $89/year? You’re back down to $91.
If you instead took advantage of a Citi Double Cash card (or similar), that $1,500 turns into $360/year with no annual fee, and if you have some self control that’s easily a couple of holiday presents or part of a bigger one.
What do you use your credit cards for? Everyday expenses? A good introductory card should provide 1.5% cash back on all purchases minimum with no annual fee. 2% if you qualify for “better” cards.
Do you travel outside the county? Find a credit card that has no foreign transaction fees. Most cards charge a 3% conversion fee, Bank of America even has a travel card that provides 1.5% cash back. That’s 4.5% “savings.” You will still have to convert some cash for your trip, but save yourself the conversion fee on all of your money.
Do you like to hunt bargains? Find a card with rotating categories. Most of these cards have 5% off various stores in different quarters, combine it with e-bates cash back and take advantage of the savings.
Have bad credit? Get a secured credit card. Usually $500 on hold for the length of the term, get it back when you close the account. Build your credit by making on time payments and upgrade to a better card in a year.
If you put a purchase on a credit card, pay it off. It’s not an emergency fund. The emergency fund is the 3-6 months worth of cash you have in the bank.
A general rule of thumb is to have 3-6 months of expenses liquid as an emergency fund. Unfortunately few banks these days have interest rates worth raving about and it makes significant more sense to port extra money into IRAs and your 401k.
So where should you keep your emergency fund? A nearby bank is a great start but with technology now days take a look at online bank’s interest rates such as Ally, 0.99% and Capital One 360, 0.75%. It will take longer to get your money in hand as you will likely need to transfer money from one bank to another to go pick it up if you need cash, but with the number of places accepting credit cards these days, pay it with your credit card (benefit from the % cash back reward and the ability to leverage a credit card company for disputable transactions and liability) and IMMEDIATELY pay off your credit card balance with your emergency fund. Having cash “in hand” isn’t the same as it used to be.
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