What Makes Up Your Credit Score?

A few days ago I posted about creating credit resolutions for the new year.  I thought now would be a good time to review what makes up your credit or FICO score.

There are five key elements that comprise your credit score: payment history, outstanding debts, credit history age, inquiries, and account types.  Each of these items is weighted differently when calculating your FICO score.  Payment history is 35% of the score, outstanding debt is 30%, credit history age is 15%, and both inquiries and account types are 10% of your total FICO score.

So… what do each of these elements include and more importantly, what’s considered good and what’s bad for each component?

Payment History
Your payment history includes the details of how you’ve been paying your bills - i.e., whether you’ve been paying them on time, or even at all.  Each of your creditors reports your payments as on time or late.  Late payments are reported as being 30-, 60-, 90-, and 120-days late.  After six months of non-payment, many creditors charge-off your account, deeming it as uncollectible.  The more recent the late payments are, the worse the effect it is on your credit score.  Timely monthly payments boost your score in this area.

Continue Reading What Makes Up Your Credit Score?

How to Pay Yourself First

You’ve heard it a million times… “pay yourself first”. And every time you hear it you think “I can barely pay my bills, how can I afford to pay myself first?”

Many people never start paying themselves first, because they are too concerned that they won’t have enough to pay the bills if they put any money in savings.

Well, this is one of those things that you just have to do, even if you don’t think you can afford to.

So how do you pay yourself first when you are worried that you won’t be able to pay the bills? Here’s how…

1. Setup a savings account that you have easy access to. This can be a savings account with your current bank, or an online savings account (you will probably earn more interest with an online bank).

2. Transfer 5 or 10 percent of your income every time you get paid to your new savings account.

3. Eventually, you will get used to saving this money and you won’t even miss it in your checking account. But until then, if you find that you’re short on funds and can’t pay your bills, transfer some of that money back from the savings account to your checking account to pay your bills.

This strategy may be hard at first, especially if you find you have to raid your savings every month to cover bills. But eventually, you’ll find that you are able to save money without dipping into your savings account each month. When that happens, you will already be in the habit of saving, so it will be no big deal to pay yourself first.

Do Something Every Day to Increase Your Income

If you’re self employed, you likely experience income slumps. It may be because your business is cyclical (being a tax professional, I am extremely busy the first 4 months of the year, but then things slow down drastically during the summer months), or it may be because the economy is slow, or it may be just because you haven’t done any marketing in a while.

Whatever the reason, I like to take some time to brainstorm about ways I can increase my income. And when things are really slow, I pull that list out and try to do something every day to get my income back up to where I want it to be.

So… here’s a few things I do to boost my income when I’m in a slump:

• the most obvious is to complete any client work I have in progress (usually because I’m waiting on info from the client, so time to nag… I mean contact the client for that info!)
• contact potential clients to see if I can answer any questions or objections they may have
• contact old clients I haven’t heard from in a while… time for an annual review?
• write an article or two and post to article directories
• add new products or services to the product funnel
• post to blog (stock up on posts for a while so you don’t get behind when business picks up)
• create a Squidoo lens or Hub page
• hold a teleclass
• hire someone to help out with the menial tasks so you can focus on billable hours or income generating projects
• create a system in your business to make you more efficient
• optimize your blog/website for keywords to increase traffic
• answer questions at Yahoo! Answers or on related forums

These are just a few ideas (in no specific order). What do you do when you’re in an income slump to increase your business?

Cooking on a Budget

One of my favorite websites is Allrecipes.com. I go there anytime I’m looking for a new recipe or just need inspiration for something to cook for dinner.

On my most recent visit, I noticed a section called ‘Cooking on a Budget’. Since inflation and rising food prices are at the top of many people’s minds these days, this was a great find!

In ‘Cooking on a Budget’ you’ll find articles on smarter meal planning, budget friendly recipes (the lemon garlic tilapia looks awesome!), tips on how to buy in bulk and how to freeze food, and videos on how to prepare “cheaper than takeout” meals for your family.

I’ve gotten many great recipes from this site over the years. I can’t wait to try some of the budget friendly recipes. I hope you enjoy this site as much as I do!

Visualizing Your Goals With Feeling

In my Living Debt Free ebook, I suggest that readers visualize their goals to help them stay motivated on their journey to getting out of debt.

Joan Sotkin of Prosperity Place takes this a step further, and says visualizing with feelings is a more powerful way to change your money thoughts and will help you achieve your goals faster.

For more about visualizing your goals, check out Prosperity Quick Tip: Visualizing with Feelings.

How to Save Money With Meal Planning

Here are some more articles on how to save money with meal planning:

Quick Ways To Save and Be Frugal With Meals - Make a list. Always keep a list on hand for what you need and what’s on sale. This will also help with your meal planning. Plan your meals around sales. If pork is on sale that week add it to your menu for the week. …

7 ways to save money at the grocery store - Fresh, frozen or dried, fruit makes a satisfying, sweet end to any meal. It will add vitamins, minerals and fiber that aren’t found in cakes or candy. Working some small changes into your grocery shopping habits will not only save money …

That’s our list and we’re sticking to it - Being further away has also forced us to plan our meals a little better as well. Again, before we just ran to the grocery store before dinner to get whatever was needed for our meal, now we can’t. My wife has been pretty much planing …

Healthy Eating on a Budget - Menu Plan. Having a menu plan for the week allows you to save money, time and brain power. 2. Coupons. Clip, clip, clip from your local paper. Print, print, print from money saving websites like Freebies 4 Mom, Money Saving Mom, …

Recommended Resources:

Dine Without Whine - A meal planning service for busy families. If you understand the benefits of meal planning, but need help implementing it, this is a great service to have. Get menu plans, grocery lists, recipes and more to help you save money and time!

Meal Planning on a Budget - Tips on how to get started with meal planning and how to slash your grocery budget with meal planning.

Smart Money Moves in a Tough Economy

With all the bad news in the economy lately, you may be feeling a bit helpless when it comes to your finances.

While you may not be able to make the market go back up, there are steps you can take to make your finances as strong as possible in these tough times:

1.  Fund your emergency fund.  It’s more important than ever to have an emergency fund, in case you lose your job, have unexpected medical expenses, or have a major house repair, so that you don’t have to sell investments (while they’re down), or rack up credit card debt.  The general rule of thumb is to have three to six months of living expenses set aside for emergencies.

2.  Pay off credit card debt.  If you have high interest credit card debt, the greatest return you can get right now is to pay off that debt.  Start by calling your credit card companies and asking for a lower interest rate (if you have a good credit score, you could get your rates down to 8-12%, which is much better than paying 20+ percent).  Then make the minimum payments on all of your credit cards except the highest interest rate card until paid off.

Continue Reading Smart Money Moves in a Tough Economy

Credit Resolutions for the New Year

One way to cut the sting of the post-holiday credit card bills is to set a new agenda when it comes to credit.  So consider the following ideas when setting your credit resolutions for 2009:

Set dates for getting your credit reports: Each year, you should check each of your credit reports from annualcreditreport.com directly.  You should spread out your requests, making requests quarterly so you can catch errors that might come up at different parts of the year and spot identity theft.

Get your credit score once a year: A credit score is a three-digit number that reflects the credit history detailed by a person’s credit report.  Go to www.myfico.com to retrieve your credit score once a year from one or all of the three credit bureaus.

Continue Reading Credit Resolutions for the New Year

An Exercise to Reduce Financial Anxiety

A few years ago I learned an exercise that is designed to de-clutter your mind.  While this exercise was really created to be used when you have too many things to do, I found it to be a great stress reliever, and use it anytime I’m worried about something and need to reduce my stress about whatever is bothering me.

Given the state of the economy and the stock market, I thought it would be a great idea to share this exercise with you to help reduce any stress you may have related to your finances.

To get started… For 15 minutes, write down everything that’s on your mind.  In this case, I want you to focus on writing down everything that’s on your mind about your finances.  It doesn’t matter if you use pen and paper for this exercise, or use a computer (I use a computerized journal).  The purpose is to write down everything that is on your mind about your finances.  Keep writing until you run out of things to write.

Continue Reading An Exercise to Reduce Financial Anxiety

Building an Emergency Kit

You’ve heard about the importance of having an emergency fund, but Erin Burt at Kiplinger.com takes this concept further in her Essential Emergency Kit article.

The goal of an emergency fund is to have funds set aside in case you lose your job, have unexpected medical expenses, or have some other short term financial need that is unexpected.

The emergency kit is a complete emergency strategy.  The emergency kit is similar to the emergency fund in that it is protecting you against a job loss, unexpected medical expenses, etc., but the emergency kit is also intented to make sure you’re ready for bigger emergencies, like a natural disaster, or even worse, a man-made disaster.

How is an emergency kit different than an emergency fund?  An emergency kit includes:

• an emergency fund to cover three months of living expenses (start with $1,000 if 3 months of living expenses is too big of a goal)
• making sure your car & home owners insurance is up to date
• updating your life and disability insurance to protect your family in the event of your death or disability
• making your wishes known by updating your will, healthcare directive and other estate planning documents
• creating a survival kit with food, water, and supplies
• creating an evacuation strategy in the event of fire, flood or other natural disasters

These are just a few of the items Erin discusses in her emergency kit.  To learn more, please read the full article, Your Essential Emergency Kit.

Your Essential Emergency Kit - Kiplinger.com.

Next Page »