Credit score, report, history are different

This was originally published on Monday, January 22, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My New Year’s personal finance resolution is to start repairing my credit score. I have had some missed payments and other serious financial troubles. I know that there are certain areas that the credit institutions look at but I find it all a bit confusing. Could you help simplify how it works and what I can do to improve my score?

Answer: That is a great resolution. Your credit is important because it affects your ability to get low interest loans, your employment, your purchasing power and many other areas. Your credit is basically your reputation as a borrower. Credit agencies use information about your borrowing patterns and repayment history.

Your credit history is the foundation on how you are scored. Paying bills on time is the key to good credit. Paying late or defaulting on payments can severely damage your score and rebounding from it can take a while. Employers, utility agencies, and landlords often look at your credit history to see how financially responsible you are.

When looking at your credit, many use credit score, credit report and credit history interchangeably. These are three separate terms that are related to each other.

Credit score. This is a calculated value that specifies your creditworthiness. FICO, or Fair Isaac Corporation, has created a formula that’s the model most financial institutions use to determine your credit score. Your credit score can range from 300 to 850. There are 28 different FICO scores that are industry specific. The three credit bureaus often use these different scores and this is the reason you get a different score from each.

According to the myfico.com website here is what your FICO scores indicate:

  • 800 and up is an exceptional score and is well above the average U.S. consumers. It exhibits that you are an exceptional borrower and that you are not too far in debt and pay your bills in a timely manner.
  • 740-799 is very good. It is still above the average of most United States consumers and indicates that you are a dependable borrower.
  • 670-739 is good. In this category you are near or slightly above the average credit score which the FICO website states as 695. Most lenders consider this a score still trustworthy.
  • 580-669 is fair. If your score falls in this range you are below the average consumer score. Lenders still see some credit worthiness in you but will offer a higher interest rate.
  • 580 and below is poor. This range is far below the average consumer score and indicates to lenders that you are a very risky borrower. Many who fall in this category are often denied loans.

Credit report. This is the official record of your credit history that you receive from the three credit bureaus — Equifax, Trans Union and Experian. Lenders, utility companies, landlords and collection agencies send the credit bureaus information about your status with them.

You are entitled to a free credit report from each of the three credit reporting agencies once every 12 months. You can request all three reports at once, or space them out throughout the year, which is my recommendation. That way you can monitor your scores throughout the year. You can order your free credit reports at https://www.annualcreditreport.com.

Credit history. This is the unofficial record of your debt and repayments. Your credit history describes how you use money. It contains how many credit cards you have, how many loans do you have and if you pay your bills on time.

You have a credit history if you have a credit card or a loan from a financial institution. Without a credit history, it can be harder to get a job, an apartment, or even a credit card.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Get your personal finances into shape

This was originally published on Monday, January 1, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Happy New Year’s! Many of us are looking at the first day of 2018 as a fresh start. The No. 1 New Year’s resolution is usually to get physically healthier by losing weight, eating better or to start exercising. As you start to get healthier, don’t forget to get your personal finances in shape as well.

Here are a few ideas to get your wallet and budget healthier:

Get out of debt. Most people think debt is all the same, but it isn’t. Make a list of all your debt and liabilities, including the amount and interest rates. The debt with the highest rate should be paid off first. Once you pay that debt in full, use the same amount to pay toward the second-highest debt.

Think about your retirement. If you haven’t opened a retirement fund, you may want to strongly consider one. If you have one, add a little more to your contributions. If your employer matches your contribution, contribute at least to their maximum match. Take some time and talk to your financial adviser if a traditional IRA or Roth would best suit your financial goals.

Save money. One of the hardest yet most important financial steps to take is saving money. You should have at least three months worth of your living expenses saved in case of an emergency. This includes rent/mortgage, groceries, utilities and loan payments. If you are looking to buying a home or car this year, open an account that is strictly for that goal. One of the easiest ways of savings is using an automated deposit into your account.

Spend less. Take a good look at your spending habits and examine where you can cut back. Find ways ] you can spend less money. Cancel your gym membership and work out at the beach or at home. Look at bundle plans for your insurance and communication needs.

Cutting cable is a big trend in saving money. Many have opted to remove cable from their homes and use online entertainment apps and sites.

Another money saving technique is to commit to a weekly no-spend day. Set aside one day a week where you spend absolutely nothing. No shopping, pack lunch to work and school, use free entertainment. If you spend an average of $20 a day, by the end of the year you will have saved $1,040.

Another money saving idea is to learn how to perform your car and home maintenances. There are many online sites to help you fix and maintain your property.

Make more money. Do you have a hobby like painting, sewing or baking? Or maybe a skill like automotive maintenance or babysitting? Turn these hobbies and skills into making money. Why not get paid for doing something you love and are good at? Consider a part-time job. Even if it isn’t a high-paying job, every little bit counts and adds up.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Learn from financial mistakes

This was originally published on Monday, December 25 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Maybe you remember your parents saying that you should learn from their mistakes. It’s not any different when it comes to finances.

Perhaps you have witnessed others make financial mistakes that have led to financial hardships. It’s much easier to avoid financial mistakes if you know what others have gone through. By recognizing your financial behavior in others, you may be able to steer clear of these pitfalls and avoid the hardship that comes with them.

  • Too much house. Are you in the market to buy a home? Be sure to know how much you can spend on the mortgage and insurance before looking at homes. It’d be nice to move into a brand new home with several bathrooms and enough rooms for all. But on the logical side, you may not be financially ready. Instead, a nice fixer-upper may be the solution. Look at homes in your price range. You don’t want to be stuck with a mortgage that restricts you to a slim budget. Purchase a house that you can comfortably afford. Also, remind yourself that the kids will eventually start lives of their own and move out of your house. If you are in a huge home, you’ll have to maintain that empty nest.
  • Upgrading your house. One of our biggest expenses is housing, whether for rent or for a mortgage. When upgrading your house, decide on a budget and stay within that budget. Decide what exactly needs to be urgently upgraded and what can be put off for later. Try setting up a savings account just for the upgrades and avoid taking out a loan.
  • Emergency fund. Job loss, cars breaking down and medical emergencies are just a few things that are never planned. Having money put aside just for the emergencies provides a crucial crutch when things don’t go as planned. Most experts say you should have at least three months of living expenses saved if you are a two-income home. If you are a single-income family, consider five to six months of living expenses. Saving that much money can be difficult, but any money stored away will help.
  • Co-signing a loan. There may be a time when a family member or friend will ask you to help them get a loan by co-signing. Although your intentions are from the heart, know that the debt is now yours. The loan will appear on your credit report. If they don’t make a payment it will directly affect your credit score. If an asset secures the loan and the loan defaults, the asset will be seized and used toward the loan balance. If the sale of the asset isn’t enough to cover the amount of the outstanding balance, the lender can come to you for the remaining balance.
  • Lending money. We want to help those who are close to us when they are in a time of need. If you loan money to a friend or family member, there is a good chance that you may not get your money back. If it becomes habitual, you may have to learn how to say no. There are other ways of helping. Buying a week’s worth of groceries, offering them a job around the house or even helping them find an additional source of income may help more than just lending them money.
  • Not paying your debt. According to NerdWallet, the average American carries about a $15,355 balance on his or her credit card. If the credit card carries 15-percent interest, that can easily be more than $2,000 a year. Reducing the amount of debt will increase your financial security and the amount you have in your bank account. Paying off debt should be one of your top priorities of 2017.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Avoid some common financial mistakes

This was originally published on Monday, December 19 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

It goes without saying that money is of the utmost importance and, if not dealt with in the right way, could land you in a bad financial situation. What you are today and where you want to be tomorrow are the results of all the financial choices you have made in the past.

The good news is that you can prevent most of these mistakes if you are aware of them. Here are some more common mistakes made:

  • Your mortgage length. The most common mortgage term is 30 years. Many new home owners settle for the 30-year mortgage because the upfront costs are lower. But take some time and really look at your mortgage contract. If you purchased your house with a 30-year mortgage for $250,000 at 8 percent, the total amount you will be paying is $660,000. That is a difference of $410,000 that goes directly to your lender. If you can refinance your home to take advantage of low interest rates, do so, and take a 15-year mortgage instead. If you can’t afford to make higher payments with the 15-year mortgage, try paying half your mortgage every two weeks. At the end of the year you will have made 13 payments instead of 12. By doing this, you can pay your mortgage five to 10 years earlier and save $100,000 or more, depending on your interest rate.
  • Automatic payments. Let’s face it, life is hectic enough. You don’t need to run to the bank to deposit paychecks or run errands at lunch time to pay bills. By automating your finances, you can save time, fuel and the expenses of late fees if you forget to pay your bill on time. Create an automatic payroll deduction with your employer to your checking or savings account so that you ensure you are paid first. Financial institutions make it easy to pay bills or credit cards on line with their online bill-paying services.
  • Not monitoring your credit score/report. Your credit score and report are important because these two items essentially tell potential lenders how well you handle your money. If you are purchasing a home, your credit rating is considered in determining your loan interest rate, and the difference between a poor credit rating and a good rating can be enormous. With a good score, you are offered lower interest rates, which in the end can save you thousands of dollars and sometimes even hundreds of thousands of dollars. Future employers can also look at your score and use it to determine how dependable you are. To keep a good score, pay your credit cards and other debts on time. A good rule of thumb is to use 10 percent to 30 percent of the credit available to you. Check your credit report and score for free three times a year and dispute any odd accounts or mistakes on your report.
  • Not having a will or trust. We never want to think about passing, but not having a will or trust can cause some serious financial issues for your loved ones. Even though you feel that you do not have enough assets or money to pass on, what you do have should stay with your family. A will or trust can also plan for the care of your children upon your death. If a guardian is not named, the state will have to decide who will provide care for your children. Protect your family and your estate by having a will or a trust.
  • Life insurance. Life insurance can assist your family members in covering the cost of your funeral expenses and pay other bills long after you are gone. Not only should you be covered, so should every member of your family. Funerals are expensive no matter how old you are. Life insurance can also help pay for medical bills that may be left behind.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Evaluate your spending habits

This was originally published on Monday, December 5 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: With the new year approaching quickly, I have been reflecting on my current financial habits. I know that there are certainly some habits that I can change. I want to start thinking about my New Year’s financial resolution for 2017 and how I can improve my financial position. What are some of the most common money mistakes you encounter that lead to bad financial habits and how do you go about avoiding them?

Kudos for taking the time to evaluate your spending habits. There are several habits or patterns that often lead people to major hardship. Fortunately, many of them are preventable. Some may require a different way of thinking and others may include overhauling how money is spent. Realize what mistakes have happened and resolve.

  • Frivolous spending. This is the most common error. It is the most undetected, but easiest to fix. Unless you are very honest with your budget and become aware of your spending patterns, this habit is literally letting money slip through your fingers. How many of us stop off at a coffee shop or gas station for a coffee in the morning? While $5 doesn’t seem like much at the time of purchase, if you multiply that by five times a week that equals to $25 a week. For the year, 52 weeks, that equals to $1,300 on coffee alone! Now think about how many other little purchases you make? All these nonessential expenses add up. That $1,300 can be better spent on lowering your credit card balance or making an extra mortgage payment on your house.
  • Living off credit cards. Unfortunately, this behavior is becoming more of the norm.  Many purchase gasoline, groceries and other essentials, and even advance cash, with high-interest-rate credit cards. Credit card interest rates can double, sometimes triple, the amount of the original purchase.
  • Purchasing a new car. Many of us cannot afford to pay for a car in cash. On Guam, a car is an essential item to get around. However, many don’t take into consideration that a car is a depreciating asset. A depreciating asset loses value due to its age, wear and tear, or market conditions. For a vehicle, once you start adding mileage to the car, the value of resale decreases. This magnifies the difference of how much you owe versus how much the car is worth. Many people trade in their car every two or three years and lose money. Evaluate what type of car you really need. If you have a large family, a vehicle that comfortably fits everyone may be needed. But is a gas-guzzling SUV with all the upgrades needed? Those extras add up and create the need for a larger loan. Don’t forget to factor the high price of insurance and fuel costs. Assess what type of car you need, not want, and use the money you saved for other purposes.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Set goals to improve personal finances

This was originally published on Monday, November 29 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

In just a month, we will be toasting in the New Year and wishing each other the best throughout the year. We think about resolutions that will help us improve our way of life.

One such resolution should be setting goals to better your personal finance health. The hardest part isn’t deciding what the goal is; it’s sticking to the goal. With a few tips you can create obtainable goals that will help you.

Successful people in all fields of life set goals. Goals help you with long-term vision and short-term motivation. It helps focus your time, effort and resources. Clear and defined goals will help you steer your life in the direction that you want. When setting goals, think SMART.

  • S: Specific. Vague goals are unsupportive because they don’t give you an adequate course. Goals are to help you find your way. Make it easy on yourself by setting clear and distinct goals that will get you exactly where you want to be.
  • M: Measurable. Without measuring your progress, you cannot celebrate your success. Measurable goals should have exact dates, amounts and time. How do you want to achieve your goal? When do you want to achieve it?
  • A: Attainable. Don’t set goals that aren’t possible. Impossible goals will only frustrate you, causing you to lose interest and eventually give up on your goals. On the other hand, goals that are too easy to achieve don’t give you a sense of accomplishment. A realistic and challenging goal is the perfect balance needed for success.
  • R: Relevant. Keep your goals in line with what you want from your life. Goals that are scattered and irrelevant are a waste of time, effort and resources. Cultivate the focus and drive your need to obtain your goals.
  • T: Time. When you think of a year, you might think that 365 days is a long time. But if you break the year down into quarters, the year becomes much more manageable. Set your goals with specific dates. If your goals are a year or longer, make milestones that mark your progress.

Some other tips

Keep your goals positive. Use motivating words such as “will” and “do.” Stay away from words that conjure uncertainty like “might” or “if.”

Make a list and write your goals down. Keep them in an area that you visit daily. Let others around you know of the goals you set. Your friends and family will hold you accountable and provide a great support system.

Know your individual steps. These steps provide a map to where you want to go.  Write your steps down and cross them off as you accomplish them.

Goal-setting is fluid and moves in the direction you need them to go. Being rigid with your goals sets you up for disappointment and eventually failure.

Stick with it. Goal-setting is much more than just saying what you want to happen — it’s encouraging yourself that you are worthy of the success and understanding that work is needed to get there.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Time to assess your financial goals

This was originally published on Monday, November 21 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

With just a little over a month left in the year, you may be realizing that you haven’t quite met your financial goals. With time rushing by and the busy holidays upon us, take some time to think about ways to improve your personal financial situation.

  • Family report card. Take some time to talk to your family about where you stand financially. Be open and honest. Everyone plays a part in earning and spending the money. Kids are quite receptive and often like to be included in something so important. The family must work as a unit so that they can achieve the goals set for them. Get everyone involved in saving. Make it into a game; the family member that saves the most wins.
  • Prepay. If you have the opportunity to prepay your bills — property taxes, medical bills or college tuition — do so. It can mean deductions or discounts. Some may even reduce your taxable income.
  • Emergency fund. How much do you have in your emergency fund? Do you have an emergency fund? Many experts say that a healthy emergency fund consists of at least three months’ worth of expenditures. If you don’t have one, start one. Make it a New Year’s resolution. The fund will be helpful when your car breaks down, or if you lose your job.
  • Add a little to your mortgage. Call your financial institution and ask if there’s a penalty in paying off your mortgage early. If you have a little left over after every pay period and you are already paying down your debt and putting money aside for savings, you may want to consider adding to your mortgage payment. If you have 20 years and a $150,000 balance remaining on your mortgage, and a fixed rate of 6 percent, you will pay about $107,915 in interest over the next 20 years. When you add an extra $100 payment each month, you shorten the repayment timetable by almost three years and will save more than $18,000 in interest payments.
  • Harvest capital losses to balance gains. When you review your year-end portfolio, consider taking some of your capital losses to cancel out your capital gains. Not only will it save you money on capital gains taxes, but it will give you the opportunity to remove some of the lower performing stocks, reset your asset allocation and reinvest in areas you think may have more potential for gain.
  • Pay more than the minimum. A minimum payment on a credit card adjusts every month. The minimum payment is a percentage based off your current balance. If you do make charge purchases to the card and your APR doesn’t change, then your balance and your minimum should shrink with every payment.  Consider using a fixed payment to pay down your balance more quickly. Do not use the card for six months to a year. Add an extra $20 to $50 above the minimum payment – you will be surprised how much your balance is reduced. Automatic transfers will eliminate a bill payment chore, and the temptation to fall back to minimum payments.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog atwww.moneymattersguam.wordpress.com