Learn why you must diligently pursue your wealth building goals or any other goals that are significant to you…

 

If you are one who sincerely desire to achieve your wealth building goals (or any other goals), you must have a plan of action that will allow you to reach higher.  It is important that you diligently pursue the financial and non-financial goals that are of most importance to you.

 

Whether your goal is to build wealth efficiently or reach any other goal that you have a vision of attaining–it is important that you realize upfront that you will have to diligently work to make it all happen.

 

Isn’t it time that you know what you need to do–to make your dreams come true so that you can enjoy living your life on earth–and be a better you!

 

In this discussion TheWealthIncreaser.com will discuss the importance of you diligently seeking the goals that you desire so that you can reach a new level of inspiration that allows you to reach even higher.

 

Diligence is careful and persistent work or effort by you

Do you have a true desire to energetically go after what you want to occur most in your life?  If you don’t, it is important that you cultivate this quality at this time so that you can steadily pursue your goals.

 

It is important to determine “at the earliest time possible” what it is that you need to “diligently pursue” to work toward making your wealth building dreams come true.

 

Therefore, you want to ensure that you are in position for wealth building success by determining where you are now at financially–so that you can move forward at a more efficient pace during your asset accumulation and wealth building years.

 

It is important that you at this time analyze what you want out of life in a careful, accurate and critical manner–so that you can “diligently” work toward your championship banner (the goal(s) that are most important to you).

 

Diligence must be directed toward specific goals that you have

It is important that you contemplate in your mind what you want most.  What do you desire to achieve at this time–in 5 years–in 10 years and during your retirement years?

 

It is important that you spell out the goals that you want to achieve in clear terms!

 

Do you at this time desire to pay off or pay down certain debt that you have?  Well, if you do, you need a clear understanding of credit that gives “you” the advantage–not creditors.

 

Whether your goal is debt payoff, education funding for you or your child, adequate income during your retirement years or any other goal that you may have–you must identify and plan to meet or exceed that goal.

 

Diligence must be made into a habit by you

You must make “working diligently towards your goals” second nature or something that you do without even thinking about it.

 

By diligently pursuing your goals in a consistent manner you can bring what you desire most into reality.

 

By determining where you are now at, putting together plans that will take you toward the goals that you desire most and giving it your absolute best to achieve what you desire most–it will be you who will soon toast–at your own roast.

 

Conclusion

In order to be a better person or at least the best version of you–you must diligently pursue your goals and put forth real effort to really make your dreams come true.

 

Whether you desire to pay off or pay down your debt to a more reasonable amount, properly fund your emergency fund, master your understanding of credit so that you can make credit work for you as opposed to against you, increase your net worth to a certain level or achieve any other financial or non-financial goal–it is important that you do so at a level of diligence that will ensure that your dreams will come true.

 

And always remember that how and why you pursue your goals are of paramount importance.

 

Your challenges are to embark on proven ways of thinking through what you desire most so that you can gain additional clarity, implement a real plan of action that will produce results–and put strategic plans in action that “forces you” to make a diligent and real attempt to achieve long-term success!

 

The effort that “you determine” to put into achieving “your goals” is all about whether you will achieve those goals.

 

All the best as you “diligently pursue” a new path toward success….

 

Learn how you can open a new door and achieve more–by getting more income, cutting your expenses or doing a combination of the two–if you sincerely desire to make your dreams come true!

 

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Learn how you can understand how credit really works so that you can manage your credit effectively throughout your lifetime…

 

Caution: 20 minute read, but well worth your time in the opinion of TheWealthIncreaser.com

 

As TheWealthIncreaser.com  stated in the last discussion—credit and how you (and others) could thoroughly understand and benefit from would be discussed in clear and concrete terms.

 

In the most recent posts you gained a practical understanding of Personal Finance Statements, including a Personal Cash Flow Statement or Budget, an Income Statement, a Balance Sheet and a Net Worth Statement.

 

In this discussion TheWealthIncreaser.com will “hone in on credit” so that you will have an understanding and practical application of credit that you can use throughout your lifetime as you build wealth–therefore leaving all excuses behind as far as why you can’t achieve credit success!

 

Even though this discussion may be longer than most that you are accustomed to on TheWealthIncreaser.com–you will have no excuse for not managing your credit effectively throughout your lifetime after reading this blog and applying what you feel is relevant in the management of your finances.

 

How to Manage Your Debt Before a Major Purchase

 

A major purchase such as buying a house, car or boat is a big investment–and not only should you be prepared in advance—you should know what to expect throughout the process.

 

When you manage your credit you are in effect “putting on a show” (pun intended) for lenders of all types who have the power to grant you credit for various purposes.  Whether you are seeking approval for your home loan, car loan, boat loan or any other purchase, your lender would be agreeing to lend you all or a portion of the funds needed to cover your purchase.

 

Because a high-cost purchase often involves the use of borrowing, lenders (as best as they can) want to guarantee that you’re not a “risky borrower” and they want to know that you’ll be able to make your monthly payments on time and in full for the life of the loan.

 

Lenders will decide whether you’re a risk for a major purchase by looking at how well you’ve managed debt in your past, and how well you’re managing debt at this time.  Therefore, having some debt can be a good thing if you have managed your credit well in your past.

 

This should make sense to you because if you’re making a major purchase where borrowing is involved, you’d expect others who lend you money “would” want to ensure as best they can that they will be paid back according to the terms of the lending agreement.

 

It is important that you realize that whether you feel that it is fair or not, your payment history shows potential lenders your character and the real likelihood that they would be payed back in the future!

 

You may want to save as much money as you can before a major purchase—and in some cases that can be a wise strategy.

 

Even though you may not want your money tied up in debt—borrowing can serve a useful and beneficial purpose if used appropriately and in a wise manner.

 

You may have a need to borrow if:

 

• You are hurting for cash to meet a current need and there are no other options

 

• You anticipate a major purchase and borrowing makes good financial sense

 

• Over a period of several months your bills are starting to pile up

 

• You get interest rates that are better than the credit card payments that you are making

 

• You desire to utilize credit as an overall strategy to build wealth more efficiently (use leverage to your advantage)

 

Even though you may use borrowing as an overall strategy to reach your goals more efficiently, always realize that “saving money” is always a good idea and cannot be overstated!

 

However, having some debt before buying your house or any other major purchase could actually be an important factor in getting you approved for your future loan(s)–including an auto loan, boat loan, mortgage loan or rental property acquisitions.

 

Why having some Debt can be of benefit

 

To see how well you manage your debt, lenders of all types, including mortgage underwriters will take a detailed look at your credit score, credit history and your debt-to-income ratio (DTI) to see if you are worthy of granting a loan.

 

In almost all cases where you want credit to work optimally for you, you’ll want to have a high credit score and a low DTI.

 

A high credit score indicates that you manage your debt reliably and responsibly.

 

A low DTI indicates that you don’t have too much of your income tied up in paying off debt and make you a less riskier borrower in the eyes of lenders!

 

Let’s take a closer look at your credit score–and DTI—so that you can achieve more:

 

Your Credit Score

 

Virtually every factor in your credit score is defined by your borrowing behavior.  If your goal is to create and improve your credit score, you need to take on debt and manage debt as responsibly as you can based on your finances and living circumstances.

 

Your credit score is usually impacted by the following five factors according to FICO:

 

• Payment history

(35%)

— Your “payment track record” is the most important factor considered in your credit score.  Lenders want to know if you’re a trustworthy borrower, therefore, they want to see if you make on-time payments on your debt.

 

• Credit Utilization (or amounts owed)

(30%)

— Owing money on your credit cards, in particular, is not a bad thing.  However, if you’re using too much at one time, underwriters might take that to mean that you’re overextending yourself financially–and that is not good.

 

• Length or Time of credit history

(15%)

— A longer credit history is favorable to a short credit history.  Therefore, if your credit history is limited you won’t necessarily be disqualified from borrowing money–but a longer history is looked at more favorably.

 

• Credit mix or Type of credit

(10%)

— Underwriters want to see how you manage different types of debt or how you manage a mix (credit cards, auto loan, mortgage loan, personal loan, student loan etc,) of credit.

 

• New credit or hard Inquiries

(10%)

— If you’ve opened multiple credit accounts at one time, this is a red flag for underwriters because it can suggest that you’re in financial distress–keep inquiries low if you are in the process of building your credit and you plan to use your credit for a major purchase in the near future (within the next 2 years).

 

If you were anticipating an auto loan, you want a minimum credit score of 640 and for a mortgage, you’ll typically need a credit score of at least 640 for a conventional loan and possibly 620 for an FHA or other government home loan–depending on the lender.

 

In many instances it could be best to shoot for a credit score of 700 or more in both instances, as you may be able to save thousands or tens of thousands over the life of the loan(s).

 

A higher credit score increases your chances of approval, and also increases the loan amount that you’ll be approved for–regardless of the “scoring model” being used.

 

In particular, a higher credit score could also help you secure a lower mortgage rate, which could save you a significant amount of money over the life of your home loan (in many cases from thousands to possibly tens of thousands)—depending on your mortgage amount and term(s) of the loan.

.

Your Debt-to-Income Ratio or (DTI)

 

Your DTI is a percentage representing how much of your income is put towards paying down debt.  Since a mortgage is such a large investment, and your monthly payments could be fairly substantial, underwriters, loan processors, lenders or anyone who plans on lending you money for the purchase will want to make sure that you’ll be able to make those payments on a consistent basis and repay the loan amount and interest.

 

Therefore it is imperative that you keep your DTI ratio low, the lower—the better—generally speaking!

 

In general, a DTI of 36% or lower (including housing) is ideal.

 

Generally, a DTI above 50% for conventional or government loans most likely would not be approved (although there are exceptions).  43% on the back-end and 31% on the front-end is what FHA loan grantors look for, meaning your debt of 31 percent excluding housing (front-end ratio) and your housing and debt income up to 43% (back-end ratio) would be preferable—however some lenders will allow you to exceed those limits–but it may not be wise to do so on your part–particularly if you do not have a properly established emergency fund or have a plan in place to create one.

 

To calculate your DTI, simply divide your monthly debt (debt that takes 12 months or more to pay off such as your credit cards, auto loan, student loan, personal loan, boat loan etc.) by your monthly gross income.

 

To calculate your housing plus debt ratio, simply divide your monthly debt (debt that takes 12 months or more to pay off) plus your anticipated housing monthly payment by your monthly gross income.

 

If your resulting percentage is higher than 50%, you’ll want to work on paying off some of your debt in most cases so that you can get a more favorable loan and also to help improve the odds that you will remain a home owner in the future as life can be unpredictable at times.

 

Homeowners who purchase with DTI ratios above 50% normally have other “compensating factors” at work such as an expected financial windfall, social security or pension income that will start in one year and other factors that compensates the high ratio–or makes the 50% or more ratio less risky.

.

Other Credit & Debt Management Tips

 

It is important that you reduce your debt to a more favorable level before making a major purchase such as buying a house.  It is very important that you maintain a solid credit score by making consistent credit payments, managing your debt at an optimal level and managing your overall finances at a level that is the best that is within you throughout your lifetime.

 

By maintaining a solid credit score you can get “more favorable loan terms” when you make a major purchase and particularly a mortgage loan–if you desire to become a home owner at this time or in your future.

 

A solid credit score can also reduce your daily stress levels and your money management will be made more efficient during your lifetime as well!

 

The following tips can help you manage your debt more efficiently whether you desire to make a major purchase such as buying a house or use credit for other purposes.

 

Whether you have already purchased your dream home and are currently making monthly mortgage payments or you desire to manage your credit for a home purchase or any other credit goal(s) in your future, you can more effectively and efficiently build your net worth to a more acceptable level by doing the following:

 

Take a Detailed Look at Your Credit Report

Your credit score is an important qualifying factor for building wealth and qualifying for a mortgage loan at a good or the best rate.

 

Therefore, it can be a good idea to take a look at your credit report at this time to ensure that everything has been reported correctly and that there aren’t any errors that need correcting.

 

You wouldn’t want your credit score to be negatively impacted because of mistakes in your credit report–and now you can eliminate that possibility by pulling your credit report at this time and challenging inaccuracies if and when they exist.

 

You can order your credit report for free from any of the three major credit bureaus:  TransUnion, Equifax and Experian, once per year by going to annualcreditreport.com.

 

Once you have your credit report it is important to look at the following:

 

• Your personal information

 

• Your credit accounts

 

• Your credit inquiries

 

If you see any errors or inconsistencies anywhere in your credit report, they can be challenged with the credit bureau that created the report and you must exercise your right to do so as soon as you become aware of them.

 

Consolidate Your Debt if it makes Good Sense to Do So

 

If you find that you’re making payments on various loans and/or credit accounts, it could possibly save you money (and help you avoid negative stress) to consolidate your debt into one loan.

 

By doing so you could possibly pay interest on one loan instead of multiple loans!

 

Therefore, you won’t have multiple payments to keep track of and your stress levels could possibly be reduced.  Depending on your debt level and credit position you may be able to use zero percent credit promotions to consolidate a number of credit card payments and pay the debt off faster during the zero percent promo period to avoid high interest charges.

 

There are caveats that could make this and other approaches unwise—therefore you want to ensure that you have a wholesome approach to managing your finances prior to consolidating your debt and making other financial moves.

 

Always realize that what may appear prudent on the surface–could work against your best short, intermediate or long-term goals if not analyzed in a careful, critical and accurate manner.

 

In Many Cases it May Not be Wise to Make Drastic Changes to Your Credit

 

It can be tempting to pay off debt right before applying for a mortgage–however, doing so could actually hurt your credit score.  In many cases when you pay off a debt, your credit score will actually drop temporarily in the short run.

 

On the flip side, if you’re trying to build credit and try to open multiple credit cards, or take on other debt before applying for a loan, this will also reduce your credit score.

 

If you are applying for a loan (or anticipate doing so in the near future) a lot of change in your banking activity (large deposits that are not your norm etc.) and taking on new debt before applying for a loan (and particularly a mortgage) is a red flag to lenders and underwriters.

 

It can indicate that you might not be financially prepared to take on a mortgage! 

 

To put it bluntly, your credit pay off, opening new credit and overall credit and financial behavior must align with your goals!

 

Create a Budget or Cash Flow Statement as Soon as Possible

 

Whenever a financial discussion is taking place, budgeting or cash flow management often comes up and many are not enthused by the coversation.  Even though you are possibly bored by the conversation, it’s a meaningful way to track your income and expenses and ensure that you’re managing your finances as best you can.

 

There can possibly be a lot of costs involved with buying a house, and many other major purchases, therefore, you’ll want to make sure that you can afford your monthly payment and meet your other debt obligations in a manner that allows you to enjoy life on a consistent basis.

 

In most cases, creating a budget or cash flow statement can help you map out your current debt and other expenses in relation to your income so that you can meet your debt obligations from a more advantageous position!

 

By doing so you can improve your vision and see what’s happening with more clarity and make adjustments as needed.

 

A personal cash flow statement or budget can give you the peace of mind, confidence and clarity that you need–so that you can truly succeed.   You can therefore avoid overspending, and meet all of your other financial responsibilities from a position of strength as opposed to having a cluttered and in many cases overburdened mind that leads to unhealthy stress levels.

 

Properly Build Your Emergency Fund

 

Building and properly funding your emergency fund before getting a mortgage may be one of the most important things that you can do to proactively prepare for long-term success.

 

Even so, it is often overlooked by even those who consider themselves to be savvy money managers!

 

In life, emergencies of all types will occur and you never know what expenses might arise once you purchase your home or even while you are renting or leasing an apartment or house.

 

You don’t want all of your money tied up in your mortgage payment (you must manage your DTI effectively) and other monthly payments if, for example, your roof needs to be repaired, car issues occur, your HVAC goes out, plumbing issues occur and you encounter water damage or other concerns.

 

Many financial professionals suggest that you set aside three to six months worth of expenses in an emergency fund–and that is a wise suggestion in almost all cases.

 

Conclusion

 

 

A major purchase, including buying a house is a big purchase, and it can be daunting to think of getting a mortgage if you are trying to pay down student loans, an auto loan, credit cards, your monthly utility bills and other burdensome debt.

 

To help you save money and avoid or reduce unhealthy stress, work on paying down your other debt so you can be confident in your ability to make mortgage payments and enjoy your new home–if there is a need for you to do so.

 

However, you don’t need to be debt-free to buy a house.

 

In reality, some well-managed debt can boost your credit score, showing mortgage underwriters that you are a responsible borrower and can manage debt effectively!

 

Your goal is to avoid a financial hole that you’ll never come out of or  makes it difficult to manage your finances from month-to-month.

 

By taking the time to create a budget and analyze your credit report, you can see how you’re doing financially and where some changes (improvements) can or need to be made.

 

You may be able to consolidate some of your existing debt if it makes good financial sense to do so, or you could completely pay off some of your debt to improve your credit score and financial ratios and make your housing payment more comfortable!

 

In the end, you just want to make sure that you’re comfortable taking on a mortgage and you can afford to do so in a manner that allows you to enjoy life and live in as stress-free a manner as possible.

 

You already know how FICO scores are calculated and how you can improve your credit report and credit score.

 

Additionally you want to be aware of the VantageScore as well, as it is increasing in popularity and has slight differences from the FICO score.  VantageScore is the other scoring model that is widely used by some lenders but is not as popular as FICO–but you should be aware of.

 

However, if you manage your credit well based on the FICO standards—your VantageScore will improve as well!

 

Just so you are aware of and have a point of comparison the VantageScore consists of:

 

Payment history (approximately 40%)

 

The biggest factor in your VantageScore 3.0 credit scores is payment history.  VantageScore 3.0 puts more weight than FICO on your payment history–therefore you want to consistently pay your bills on time  and avoid being delinquent on your accounts.

 

A late or missed payment on the VantageScore 3.0 scoring model can significantly harm your credit scores, therefore you must pay all of your creditors in a timely manner.

 

Your payment history is a record of how often you pay your bills on time and how often you miss your payments or pay late.  Therefore, it is imperative that you make your payments on time as that can help improve your payment history and give lenders confidence that you’re likely to make future payments in a timely manner as well.

 

Age and type of credit (approximately 21%)

 

VantageScore 3.0 also factors in how long you’ve had different types of credit accounts open.

 

Ideally, lenders like to see long-term, established lines of credit , therefore having a variety of account types is preferred—as long as you stay up-to-date on your payments.  Lenders and underwriters normally like to see that you’ve used a mix of accounts or different types of credit on your credit report to see if you can effectively manage debt.

 

Your credit history or age of your accounts will indicate the types of credit accounts that you have and will show how long you’ve had them open and active.

 

By having a longer credit history and showing that you have different types of credit you will improve your score more than if you have a short credit history or  just one type of credit on your report, like credit cards or short-term loans.

.

Credit utilization (approximately 20%)

 

The purpose of the credit scoring industry is to help lenders get a clearer picture of the type of borrower you might be if they were to grant you a loan.  They want to see how you use credit and using a lower percentage of your available credit at any given time is preferable.

 

You want to ensure that your credit utilization ratio is below 30% or more preferably below 10%.  Another important goal to aim for is to pay your revolving (primarily credit card debt) debt off monthly.

 

You also want to get into the habit of using all of your credit cards every 4 to 6 months or so to keep the credit cards in your active mix as that will help ensure that your current credit issuers will not close your account due to inactivity.

 

If you have 6 credit cards use a different one every month for 6 months and then repeat the process–pay them off in full once you get your credit card statement if you are in financial position to do so and you will improve–or at a minimum maintain your credit score and lending power.

 

In a nutshell, your credit usage compares the amount of credit you’ve utilized to what you can still borrow.  You do not want to consistently use all of your available credit, like maxing out lines of credit or carrying high balances on credit cards or loans.

 

If you carry large balances–particularly on revolving debt, that will hurt your credit score, therefore you must do your best to maintain your balances at less than 30% of your credit limits or preferably 10% to help improve or maintain your credit score.

 

Balances (approximately 11%)

 

Be sure to keep the total amount of recently reported balances (current and delinquent) on your credit accounts low as lenders generally like to see low balances as it suggests the chances of you making on-time payments each month is higher.

 

Paying off your balances monthly is a good way to improve or maintain your credit and is something that you should strive to do–if you are not doing so at this time as you must avoid delinquent payments as best you can.

 

Your total balance includes all of your credit balances, and by maintaining low balances (primarily and particularly on your revolving debt) and making your required payments on time you can help improve your score and give lenders more confidence that you’re financially responsible.

 

Recent credit (approximately 5%)

 

If you applied for a new credit card lately or you have taken out a personal loan–lenders will want to know.  Your recent credit activity, including recently opened credit accounts and credit inquiries, can be an indicator of your future financial behavior.

 

Your recent credit activity typically covers credit checks made over the past two years.  It factors in any new credit cards or loans that you’ve applied for or opened.  A large number of recent credit checks, also known as credit inquiries by lenders could indicate that you’re in financial distress or opening credit lines in an irresponsible manner.

 

On the other hand, few, if any inquiries in your credit history may help your score.

 

Available credit (approximately 3%)

 

Although not a huge factor, lenders typically like to see that you’re only taking out the credit that you need.  By having available credit that you don’t use you are showing lenders that you are not over-extending yourself.

 

Therefore, you want to keep a good amount (70% or more of your available credit) of credit available that you don’t use.

 

Your available credit has the least impact on your credit score in the Vantage 3.0 scoring model.  This factor takes into account the amount of credit you can access and use.  Therefore, maintaining a low balance at or below 30% of your available credit could help improve your credit score.

 

Although you generally can’t control how your score is calculated, you can protect your credit score by paying your bills on time, maintaining a good mix of credit, avoiding high balances, and using only a fraction of your total available credit.

 

Key Points

 

• Your credit score is a number, typically between 300 and 850, that shows potential lenders a snapshot of your credit history. Whether your score falls into an “excellent” range, “poor” range, or “somewhere” in the middle, it may impact your ability to access loans and services at a good or the best rate.

 

• Many credit scoring providers use the VantageScore 3.0 scoring model which calculates your score based on six factors.  Each factor has a different impact on your credit score.  However, the majority of lenders use the FICO 8 scoring model which calculates your score based on five factors.  Factors and the applicable percentages on both scoring models are based on your unique credit file, so “percentages that are applicable to you” may vary according to your unique credit file.

 

• Paying your bills on time, using only the credit you need, and maintaining different types of credit may have a positive impact on your credit score–regardless of the scoring model.  Also keep in mind that there are other scoring model versions for specific industries and other scoring models (including FICO and VantageScore) are updated to new versions and many lenders will use older versions, newer versions, industry specific versions and the like.

 

• A good credit score might make a difference in whether you get favorable rates when applying for credit whether a major purchase such as a car or home, a credit card, employment, insurance, rental property and other areas of commerce (the 4th bureau–cell phones, utilities etc.).

 

• Your goal should be to gain a general understanding of credit and not have a cluttered mind about credit and your finances, including what has been discussed above in this article.  Even so, you always need to know that Negative information, credit Utilization, the Time length of your accounts, the Type of accounts that you have and the number of Inquiries in your credit file are very important to understand and apply to your unique credit position.  Your understanding of a “budget or cash flow statement” and “properly establishing an emergency fund” are also a key takeaways from this discussion on credit.

 

Credit score ranges

 

To further drive home credit scores you must understand that FICO ranges from 300 to 850 while VantageScore also ranges from 300 to 850 but have slightly different weighting factors and weights as mentioned above!

 

• Knowing where your credit score falls within the FICO and VantageScore ranges can help you get a sense of whether you might qualify for a loan or credit card—and what kind of rate you might be offered.

 

• There are a few key differences between the VantageScore and FICO scoring models, including how they weigh different factors in determining your scores.  They both have a score range of 300 to 850, but there primary difference is the way the ranges are considered–poor, fair, good or excellent.

 

	Vantagescore 3.0	FICO
Excellent	781–850	800–850
Very good	N/A	740–799
Good	661–780	670–739
Fair	601–660	580–669
Poor	500–600	< 580
Very poor	< 500	—

 

Why does a good credit score matter?

 

• A  good credit score varies across credit scoring models, however a score of 680 or higher is generally considered a good score with virtually all scoring models.

 

• For FICO, a good score ranges from 670 to 739.   VantageScore considers a score of 661 to 780 to be good.

 

• A credit score that falls in the good (680 and above) to excellent (800 and above) range should always be your goal.  Lenders will look at a variety of factors when considering a loan or credit application and higher credit scores play a huge role in getting approved at a good or the best rate.

 

• You want to get the lowest interest rate possible and the most competitive terms possible, therefore an excellent credit score allows you to have an even better chance of being offered the best rates and terms available.

 

If you have poor or bad credit scores, you may be able to get approved by some lenders, but be prepared to pay higher rates than if you had good to excellent credit.

 

You may also be required to make a down payment (or larger down-payment) on a loan or get a cosigner.  Consider improving your credit position and pursuing your loan options at a later time if at all possible if your credit position is not ideal at this time.

 

The Consumer Financial Protection Bureau recommends keeping your credit utilization ratio below 30%.  This may not always be possible based on your overall credit profile and your short, intermediate and long-term goals, but it’s a good benchmark to keep in mind.

 

Aim for under 10% if possible!

 

Also realize that there are many credit resources available that can help you manage your credit and credit score more effectively and it is “your responsibility” to know what is available and can possibly benefit you and your family.

 

Micro lending companies, investment companies, banks, credit card issuers and many others now offer credit products and services that can assist you as you manage your credit and finances at a nominal or free level–and may be appropriate for you depending on your financial position and future goals.

 

Many different credit scoring models are available and it is important that you know what model is in use or what model your potential credit grantor will use when you apply for a loan!

 

Credit Score FAQ

 

How long will it take me to improve my credit to an acceptable level?

• Your current credit position is unique and the time needed will vary from person to person and the type of loan that you will be pursuing along with your credit behavior over the past few years.

 

If you anticipate a major purchase such as a home purchase it may take anywhere from 1 month to 2 years to get your credit file in position to get a loan at a good rate.  However your credit patterns over the past few years will determine the real time frame.

 

By addressing your credit concerns at this time you are getting out front of your credit and your utilization of credit in the future will be more advantageous for you and your family.

 

Does checking my credit scores affect my credit?

• Checking your credit scores and reports yourself won’t hurt your credit—it’s considered a soft inquiry. By keeping tabs on your credit scores you can spot potential issues early.  If your scores suddenly drop, it could be a sign that there’s an error in your credit report information, new credit was opened or that you may be a victim of identity theft.  In addition to your credit scores, you also want to check your credit file at the credit bureaus on a planned basis as well.  Also, credit checks by your current creditors are also considered soft inquiries.

 

  What is the maximum credit score that I should aim for?

• Getting an 850 credit score is possible, but uncommon and unrealistic in most cases. Only about 1% of all FICO scores in the United States are 850, according to most public data.  Those with credit scores of 850 generally have a low credit utilization rate, no late payments on their credit reports and a longer credit history than most.

 

• Keep in mind that having a “perfect” credit scores of 850 shouldn’t really be your goal.  You can still qualify for the best loan rates and terms if your credit scores are considered  excellent (roughly 800 or higher)–therefore aim for a score of 800 or more and then maintain that score and you will put yourself among the best potential lending candidates in the eyes of most–if not all–lenders.

 

What credit scores do I need to get approved for a credit card?

• There’s no agreed upon minimum credit score needed to get approved for a credit card and issuer’s have their own criteria. Credit card issuers have different score requirements for their credit cards, and they often consider factors beyond your credit scores when deciding to approve you for a card.

 

• In general, if you have higher scores, you’re more likely to qualify for most credit cards–and at a good or best interest rates.  If your credit is fair or poor, your options will be more limited and you may receive a lower credit limit and higher interest rate or you may have to start with a secured credit card.  If you are new to credit, you can establish a credit file within 6 months.

 

Which credit score is more important?

• No one credit score holds more weight than the others generally speaking.  Different lenders use different credit scores and versions. Regardless of the scoring model or score that is used, making on-time payments, minimizing debt utilization, paying on time over time, maintaining different types of credit (cards and loans) and limiting new credit applications or inquiries, can help keep your credit in good to excellent shape and you will be looked at favorably by most lenders.

 

By stretching your mind and learning more about credit and wealth building, you are now on a serious path toward reaching your goals and ensuring a more prosperous future for yourself and your loved ones.

 

All the best as you are no longer “frightened” as you pursue a lifetime of credit and financial success…

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Learn how knowing your cash flow position and acting on that knowledge can lead to a lifetime of financial success…

 

In the current economy many are concerned about their financial future and are interested in improving their finances in an efficient and highly effective manner.

 

In this discussion TheWealthIncreaser.com will make a shift from the most recent discussions that focused on inspiring you to take action and showing you action steps that could lead you toward achieving more, to discussing in concrete terms how you can improve your “cash flow position” and finances throughout your lifetime.

 

Although managing your cash flow or budget can be difficult and challenging for many, it really is not as difficult as you may think if you have an effective plan of attack and you are sincere in your desire (efforts) to achieve real success.

 

If you have a yearning to reach higher and achieve more–you can do so with a high level of determination and the inclination to look at your monthly inflow and outflow of cash into your household at this time.

 

On many occasions in the past TheWealthincreaser.com sent visitors to other pages and sites when it came to constructing a budget or cash flow statement, however in this discussion the creator of TheWealthincreaser.com will show you in precise terms how you can budget effectively in your future by taking the following 3 actions.

 

1) Complete a self-analysis of where you now are financially

In the following data (cash flow statement) you will find information that you can use to start on a path of life that you choose.  Whether you earn $50,000 per year or if you earn $100,000 per year or any other amount–you can plan your future in a more certain manner by analyzing your income and expenses on a monthly basis by creating a cash flow statement or budget–at a minimum.

 

How to Prepare Your Monthly Budget (Cash Flow Statement) in Simple Form:

 

Monthly Receipts

 

Wages                                                                     $_________

Dividends                                                               $_________

Interest                                                                   $_________

Rental                                                                      $_________

Royalty                                                                    $_________

Other                                                                        $_________

TOTAL Monthly Receipts                           $_________

 

Monthly Expenditures

 

Auto loan payment                                              $_________

Auto maintenance                                               $_________

Child care                                                               $_________

Clothing                                                                  $_________

Contributions                                                        $_________

Credit card payments                                           $_________

Dues                                                                         $_________

Entertainment                                                       $_________

Food                                                                         $_________

Household maintenance                                     $_________

Income & SS taxes                                                $_________

Insurance                                                               $_________

Personal care                                                         $_________

Property taxes                                                       $_________

Rent payment                                                        $_________

Mortgage payment                                               $_________

Retirement Investment                                       $_________

Saving/investing                                                   $_________

Transportation                                                      $_________

Utilities                                                                   $_________

Other                                                                       $_________

 

TOTAL Monthly Expenditures                     $_________

 

Net Cash Flow

Total monthly receipts                                             $___________

Total monthly expenditures                           –       $___________

 

Monthly Net Cash Flow                 

$___________                                                                             

 

The above cash flow statement is rather simplistic, however if you enter accurate data it can be used as a template to transform your life and particularly your financial future.

 

In simple form in the end you are basically subtracting your monthly outflow (expenditures) from your monthly inflow (receipts) to come up with your monthly net cash flow (discretionary income).

 

Your wages would be your “gross wages” for the month  and would be entered in the monthly receipts category along with other sources of income (cash or equivalents) that you receive on a monthly basis.

 

Your federal and state (if applicable) income taxes paid, social security and medicare (amount withheld on your pay stub(s) for the month) would be entered in the monthly expenditures category along with your other expenditures or monthly payout of cash or cash equivalents.

 

If your retirement contribution is made on a pre-tax or post-tax basis include that as well.

 

Keep in mind the statement can be further broke down into categories such as fixed and variable expenses to add further clarification as you formulate your goals.

 

The key point is that you are ready to get started on a path toward financial success and you are fully committed in doing so.

 

It is very important that “you” want to determine your discretionary income  (monthly net cash flow) or lack thereof, so that you can plan accordingly or make adjustments so that you can reach your desired goals.

 

If you come up with a low or negative “net cash flow number” there is no need to panic at this time as that is not uncommon.

 

The key is that you may need to change your habits, get more income, cut expenses or do a combination of actions to get your cash flow in the positive column in the future so that you can more effectively reach your goals.

 

In a future discussion TheWealthIncreaser.com will provide an actual cash flow statement with real numbers so that you can have a real blueprint of what you can do to further enhance your finances and use the data entered as a guide to give you ideas that you can readily comprehend so that you can make your dreams come true.

 

2) Determine where you want to go based on data from your self-analysis

Can you use the data derived to move forward or must you come up with a payoff or pay down plan before you can actually make real progress?

 

Either way, as mentioned earlier there is no reason to panic! 

 

You can manage your money better on a consistent basis by being open to learning new and more empowering ways of doing so and putting what you learn into action on a consistent basis.

 

You can reach your retirement goals, you can pay off your credit card debt, you can get more income to make your life more meaningful, you can donate and spend time at your favorite charities–however it starts by leaving excuses or reasons why you can’t (or won’t) move forward behind you!

 

3) Determine to do even more to improve your finance and wealth building position

You must realize that improving your finances is a lifelong process.

 

That means you must build off of your financial analysis and decide to do even more by looking at your finances in a comprehensive manner.

 

By making a sincere effort to analyze your insurance, investments, taxes, education planning, estate planning/wills and retirement planning in a more congruent manner you can set yourself up for a lifetime of success where you control the direction as opposed to being pulled in directions that are not of your choosing.

 

Conclusion

By knowing your cash flow position at the earliest time possible you can position yourself and your family for a more prosperous and relaxing future.

 

You can use the above blueprint to change the direction of your life right now and leave all excuses and reasons that you can’t have a successful financial future behind you–once and for all!

 

Your actual numbers from your cash flow analysis will be unique to you, however the basic concept or understanding of how to move forward will remain constant for the most part.

 

If  after entering your data above you find out that you have adequate discretionary income that allows you to reach your desired goals–great!

 

If after entering your data above you determine that you don’t have adequate discretionary income you must make adjustments and possibly cut expenses, get more income or more than likely do a combination of the two!

 

It really is just that simple!

 

Isn’t it time that you forge a new and brighter future where success is more likely to occur and not just move about daily with no certainty of where you are headed?

 

All the best as you “analyze your cash flow” and set meaningful goals in an attempt to reach your highest level of success and make your money grow–so that you can once and for all put excuses to rest…

 

NOTE: You or your in this discussion could mean you as well as other members of your household who contribute financially whether it be your spouse or other members of your household.

 

Find out what you can do to make your dreams come true–by visiting our most frequented page–Wealth Building & You…

 

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Learn why understanding “credit tiers” can help you fly at a higher level as you increase your credit score, build wealth and achieve more…

 

When it comes to credit scoring there are tiers or ranges that are better for you when it comes to getting loans at a good or the best rates when dealing with creditors.

 

Your repayment habits that you have throughout your lifetime helps build your credit file and hence your credit score.

 

The more responsible you are—the higher your credit score and the greater the probability it is that you will get a loan at a good or the best rate.

 

It is very important that you manage your credit and financial affairs at a level that is the best that is within you! 

 

By doing so you will be able to obtain credit in a way that is best for you and your family throughout the period in your life that you desire–or have a need to use credit.

 

Credit scores fall into 3 different ranges or tiers that lenders use to grant credit and the higher you fall in a credit range or tier, the better your credit terms in most cases.

 

 What is a Tiered credit score?

 

A tiered credit score falls into “3 ranges” and they are used by creditors when it comes to credit decisions from credit cards, auto loans, home loans, student loans and many other credit and consumer loans that are of a certain type, along with insurance and employment purposes.

 

Tier 1 credit cards are for people with “excellent” credit (750 and above).

 

Tier 2 credit cards require “good” credit and falls in the 700 to 749 range on the standard 300-850 point scale.

 

And Tier 3 credit cards are for “fair” credit and falls in the 640 to 699 range on the standard 300-850 point scale.

 

In addition to getting the best interest rate on credit cards, the higher your credit tier, the better the chance that you will get the best rate on home loans, student loans, auto loans and many other credit and consumer loans that are of a certain type, along with insurance and other purposes that you may have where your credit profile would be used.

 

How lenders rate credit…

 

Lenders must evaluate the risks of lending money to you and generally follow the same guidelines to evaluate a borrower’s creditworthiness.

 

By knowing what they evaluate at the earliest time possible you can put yourself in a better position for success throughout your lifetime.

 

In addition to the “5 credit factors” that will be presented later in this discussion, a creditor usually looks at three factors known as the “three Cs” and also known as Capacity, Capital, and Character when evaluating you as a credit risk.

 

• Capacity is your present and future ability to meet your financial obligations.  Some of the areas examined would be your work history and the amount of debt that you already owe and that would be used to determine your ability to repay.

 

• Capital is savings and other assets that could be used by you as collateral for loans.  Even if you are not required to post collateral, many creditors express a preference that you have assets other than income that could be used to repay your loan.

 

• Character  is your trustworthiness and promptness in paying your existing bills and other debt.   Your credit history in a real sense defines your character whether you believe it is fair or not, as many lenders look at your past payment habits to determine the likelihood of future repayment.

 

In short, lenders are looking at how responsible you have been in your past when utilizing credit and accumulating assets!

 

The 3 C’s show in a real way whether you have the capacity, capital and character that is required of you when lenders are determining your ability to repay loans of various types.

 

In the past the “three Cs” was all that was needed to get a favorable decision on a loan, but in today’s information age, much more is required, such as a credit report(s) and credit score(s), and the higher you fall in the credit tier range with your credit score–the better your chances are to obtain a loan at a good or the best rate.

 

Your credit report represents a long list of your payment history, credit accounts, and other information.

 

Your credit reports are available for free at annualcreditreport.com, however your credit score is not included, and would normally have to be purchased.

 

Most importantly, you must understand what makes up your credit file and credit score—and what the major criteria is that goes into your FICO score.

 

The FICO score is named after the company that developed it—Fair Isaac and COmpany and you can get that score for a stated fee at (www.myfico.com).

 

The score is a three-digit number that falls between 300 and 850 and the higher your number, the more confidence lenders will have in your repayment ability.

 

Although other companies provide credit scores, the FICO score is the most prominent score used in the credit industry.

 

Your score will fall into a basket with other scores and it is important to know that generally more than 60% of people will have scores of 700 or more—therefore if your score is below 700, you have work to do if you desire to get in the TIER 1 range.

 

At 720 or higher (depending on the lender and type of loan), you would be considered a safer risk and you would generally receive a loan without a problem and also at a lower interest rate.

 

By gaining mastery of your credit at this time you can position yourself and your family for a lifetime of success.

 

Your FICO score is weighted as follows:

 

• 35% Payment history.  Having a long history of making payments on time and no missed payments on all credit accounts is very important and one of the top things that creditors look for.

 

• 30% Utilization or amount owed.  The amount that you owe relative to all of the credit that you have available is your overall utilization rate.  If you are very close to the limit on all lines of credit, you will be deemed a potential risk in the ability to repay your debt on time with many lenders.

 

• 15% Time length of credit history.  In general, you want a credit report containing a list of accounts that have been opened for a long time–as that will help your credit score.  Your credit score would be enhanced by having older account(s) and the average age of all of your accounts would be weighted more favorably as well.

 

• 10% Type of credit in use.  Your credit type or mix of credit cards, retail accounts, finance company loans, auto loans and mortgage loans are evaluated and weighted when your credit score is analyzed.

 

• 10% Inquiries or new credit.  If you plan on opening several new credit accounts in a short period of time–use caution as that can result in the lowering of your credit score.  Depending on your future goals, you may want to ease into the process of opening new credit.

 

Multiple credit report inquiries can represent a greater risk, but multiple inquiries “do not” include requests made by you, an employer, or a lender who  sends you an unsolicited, “pre-approved” credit offer.

 

This type of inquiry is called a soft inquiry and would have little to no effect on your credit score.

 

In addition, to compensate for rate shopping, your credit score generally counts multiple inquiries of the same loan type in any 14-day period as just one inquiry.

 

General Guideline of How Lenders Rate Credit Scores

 

TIER 1 750 or higher is “excellent”—some lenders consider 720 or higher as tier 1

 

TIER 2   700 to 749 is “good”—some lenders consider 660 or higher as tier 2

 

TIER 3     640 to 699 is “fair”—make plans to improve

 

• 720-higher A

 

• Take your choice of loans at the lowest cost, including risk-based loans such as stated Income and Interest Only.  Be aware that stated Income and Interest Only loans are more difficult now even with scores over 720.

 

• 620-719 A-

 

• You qualify for conforming, conventional loans.  You’ll pay slightly more for risk based loans.

 

• 600-619 B

 

• You may take a FHA/VA loan or even a low-down payment loan with desktop (automated) underwriting.  FHA/VA now require a middle score of 620 or higher with many lenders.

 

• 575-599 C

 

• You can qualify for a sub-prime loan, but your interest rate will be significantly higher.  Expect a prepayment penalty.

 

• 500-559 D

 

• Most lenders will deny your loan, however there are a few “hard money” sub-prime lenders who will approve a loan if you have sufficient down payment.  Mortgage brokers have access to these wholesale lenders.

 

• Only the rare sub-prime lender will approve a loan for someone with a score below 500, and a large down payment will be required—usually 25 to 50 percent.

 

• Other conditions will apply as well.

 

• Other Key Tips:

 

• If your home is foreclosed—5 year moratorium on purchase of another house with many lenders

 

• After Bankruptcy Discharge (Chapter 13) you can apply for a loan if middle score is 620 or more.

 

• Chapter 7 with no foreclosure, FHA loan available after 3 years with many lenders.

 

• Judgments on your credit report.  Judgments must be paid.

 

• Judgments not paid will stop the progress of your score going up.

 

Closing Thoughts

 

It is important that you know prior to applying for a loan the importance of why you need to understand your credit position and how you can improve your credit position so that you can get a good—or the best loan available based on your credit profile.

 

By keeping in mind the above credit tiers, and knowing how to use the five credit factors to your advantage, you put yourself in position to manage your credit more effectively and efficiently at the various phases of your life.

 

You can make your stay on planet earth a more joyous occurrence by using credit wisely and mapping out your future with more clarity–so that you can go where you need to be, regardless of the chaos that you now see!

 

Even though you may take small steps now to achieve what you desire, your consistency in action will lead to you flying higher and achieving from wire to wire.

 

Now is the time that you put into motion ways to manage your credit at an optimal level and achieve the goals and dreams that are uniquely your own.

 

All the best to your credit management and “credit tier” success…

 

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