Tag Archives: credit rating

Three Must-Do Tips for Any Grad

Ah, it’s grad season for two groups: those graduating from high school and heading into the work world or university, as well as those just now graduating from university.

When I ask any adult when they were last debt free, the answer is almost always that they haven’t been debt free since they were your age. When they were 18 or 19 – and they’ve been in debt since then. Sad but true – that will be you.

Getting wealthy comes much easier if you learn to say “I can’t afford it,” and spend less than you earn. When you were still in high school, you probably had a summer job or other income. You worked hard, had a goal of what you wanted to do with that money, saved like a dog, and paid cash for stuff. Plus, because you had so little money, you were careful how you spent it, right?

But now you have a paycheque, and access to borrowed money, which includes student loans and a credit card. So you’ve forgotten how to get rich already and you’re just getting going. Let me remind you again and maybe, just maybe, you’ll do these things to actually get rich, instead of just making that your 40-year dream:

Pay cash for stuff

Don’t buy crap you can’t afford and don’t need

Save and invest ten percent of your money

Maybe someone in your family will print this out for you. Maybe someone cares enough to go over to Mosaic and get you the Money Tools book. Maybe I’ll see you at the top, or maybe I’ll get an e mail from you in five years or so to help you with some of your financial mess.

If you’re graduating from high school, it’s a valuable investment to establish credit. Read the chapter on how to do that and the credit card chapter to understand the rate, perks and limit traps that you’ll be dodging a lifetime.

Plus, leave your credit card at home – don’t pack it in your wallet. The first time you charge a consumable such as gas or food on your credit card and do not pay it in full when the statement arrives you’re in financial trouble – you just won’t realize it or admit to for a long time to come. From there, it’ll just get worse. Miss paying off your balance and it’s twice as hard the following month when the balance has likely doubled. Then, the credit card companies have won, and have you hooked for the next few decades.

If you’re just graduating from university, I bet you’re sick of living like a poor student and ready for some major pent-up spending. The biggest financial damage is done in the first year following graduation. Get the job, get the paycheque, but if you can delay gratification and live like a poor student for one more year, you’ll have an incredible amount of money saved in that year. Once you turn on the spending tap you aren’t going to be able to turn it off again – so just delay it one year.

The question to always ask yourself is: What financial thing can you do today that your future self will be incredibly grateful for?

George Boelcke – Money Tools & Rules book – yourmoneybook.com

What Would You Do? Pay $40 Or Destroy Your Credit?

During a recent trip to downtown Edmonton, I purchased an all-day ticket from the lot’s dispenser, put it on my dashboard, grabbed my laptop, and left. Three hours later, after my seminar, I got back to my car only to find a violation ticket for $40 under my wipers. What the heck? I was choked! It turns out that the wind had blown the receipt off my dash when I opened the passenger door to get my laptop bag.

The majority of people would ignore the ticket, while some might phone the company and try to talk their way out of it. That may work, but I doubt it. The ticket wasn’t displayed so the fine was issued. Even if someone can talk their way out of it, unless they take the extra step of getting the ticket voided in writing, it will show up again.

Within a month, the collection letters will start to arrive. Then, a few months later, this will end up at a collection agency. After their hate letter, they’ll report it to the credit bureau. You now have a collection on your report. That will drop your credit score about 100 points if you had a decent score prior to this. In other words – it’s destroys your credit.

But the chain reaction gets worse: Your interest rates on your credit line and some new borrowing will now jump a lot! Sure, you can eventually pay the ticket. There’s even a small chance you can convince them to remove it. But it’s more likely it’ll just get changed from an outstanding collection to “paid in full”. And for the next three to six years this impacts your borrowing ability or rate.

Unlike most everyone else, I swallowed hard and paid the fine the same day. Expensive lesson learned – something I call a stupid fee. But a $40 lesson is a lot cheaper than thousands of dollars in higher rates, and years of credit problems.

A Vernon person emailed me the same kind of issue. He had collection letters he ignored and now the item is on his credit file. What can he do now? Pay it and learn a very expensive lesson for the next few years.

Keeping Your Credit Alive During the Postal Strike

The postal strike starting Friday is the most common way vast numbers of people destroy their credit. You have to remember that every debt that you signed for has a clause that states that the company is not responsible for sending you bills or statements. It’s YOU that’s responsible for paying every month by the due date!

Yes, most do send statements, but they don’t have to. Yes, many of your bills may be automatic payment from your account. But you have to get a list together of the bills that are not auto pay.

That’ll include your credit cards, maybe your cell bill, utilities, etc. In fact, credit card issuers love a postal strike. It’ll have a massive impact on their profits because they’ll charge you $30 to $40 the day after you missed a payment.

Call the 800 number on your credit card to get the date your payment is due and the balance, or minimum payment amount.

Make sure your cell bill is paid. The report to the credit bureau and can destroy your credit over a $40 or $50 issue. You can pay it at your bank or pay it at one of their retail locations.

Pay your utility bills, property tax installments, or insurance at your financial institutions as well. You just need the account number and they’ll be able to process it that day.

If you manually pay your vehicle payment to Ford, Honda, or whoever, you can drop it off at a dealership. They have a courier going to Ford Credit, Honda Credit or whoever once a day. Just make sure you get a receipt that you did drop it off. If it doesn’t get to your loan, you need proof you did pay it or you’ll never get your late charges reversed or your credit rating restored!

It’ll take you five minutes to list the bills you need to pay. If you don’t, saving that five minutes can cost you five to seven years of problems with your credit ratings! You should have this list and a plan on how to pay your bills anyway. In the Money Tools book, it’s one of the top 20 things that actually make you a financial adult!

An Easy Way to Save $8.400

There’s a very happy lady in Vernon now. A couple of months ago she applied for a $20,000 line of credit. She was approved, but at a rate of prime plus three percent. She was smart enough to take a time-out and tell them she’d think about it. She was right not to sign up. The rate should have been prime, or prime plus one at worst. When she emailed me, it was really easy to see why her rate was this high.

She has a credit card with a limit of $8,000 and a balance of $5,000. When the balance is more than 50% of the limit, it plummets a credit score. Since the rate on her credit line is only based on that score, she was told prime plus three.

The fix was easy, too. To get a little better rate, she just had to pay down her credit card below 50% of the limit, so a payment of $1,100 to get there. To get a boost on her credit score, the balance versus limit has to be below 30%.

There were two ways to accomplish that: I had her call her card issuer to increase her limit. She did that, and had it raised to $10,000. A higher limit meant her balance versus limit dropped automatically. Now it was $5,000 owing versus $10,000 limit less her $1,100 payment. Now she just had to make another $600 payment to get her card balance to less than 30% of her limit.

She waited 45 days to get it through her credit report and went back to her financial institution. Presto! They re-did her credit report and just like that, she was re-approved at a rate of prime. Since the average person owes on their line of credit for 14 plus years, that was a saving of $600 a year times 14 years, or $8,400. Not bad for one little detour!

Don’t just roll your eyes, complain, and think there’s nothing you can do. Just don’t sign up on the spot. You don’t walk into Walmart and pay double for something, do you? Why would your borrowing rate be any different?

And if you already have a line of credit that’s over prime, the same thing applies. Some lenders check your credit score once a year and adjust your rate – others just do it once. If you’re line of credit rate went up, don’t just shrug your shoulders. Go ask how many points your credit score has to move up! Then get your credit card balances below 50% if they’re not – below 30% if you can and ask them to re-calculate your rate or get another lender!

This Couple’s 25% Car Loan Has Lots Of Insights

Last week the CBC did a story of a couple in Kelowna who signed up for a 25% subprime car loan. It exploded on my Facebook page with large numbers of shares.

It’s commendable that the CBC did this feature, and great education, but I’m guessing they didn’t put this family in touch with anyone that could actually help them. But, that aside, I have 20 minutes worth of learning and warnings here, and five minutes to share them. As always, I’ll post the rest of the story on my website.

This couple had a recent bankruptcy on their credit. For five years that guarantees a rate of 20% or higher for a car loan. The dealer got them financed through the TD Automotive division. Where is it the TD’s fault this couple is really high risk. Hello? They defaulted on all their debts in bankruptcy – whatever the reason! Risk equals rate – always will. Just look at the fine print of most credit cards that range from 10% to 27%, or lines of credit from prime to prime plus 6%.

Yes, the dealer probably made over $5,000 on a huge markup of interest rate, fees, and price of the vehicle. They didn’t even get to pick a vehicle – they were told it had to be this one to get financed – not true, but it’s one of so many red flags in this story. Yes, the dealer lied when they promised (if they did promise) the couple could refinance at a decent rate in a year. That was never going to happen, but I hear that promise all the time to get people to sign up for insane financing thinking it’s only for a short time. And if this promise wasn’t in writing it wasn’t true. Never rely on verbal promises as you’ll never collect on them. Now the dealer is offering 5% financing on a new car? THAT would make things so much worse. But that’ll take too long to explain. Someone get this couple in touch with someone who can help, or go to Mosaic and get them my $20 It’s Your Money book – it would have saved them $5,000 or more.

How often does the average person buy a vehicle? Maybe every five years? Well, a salesperson sells 10-12 a month, and the business manager deals with 5-8 a day. So, you have one purchase experience versus 600 sales versus the finance manager having financed and upsold 6,000 times in those five years. With a score of 6,000 to 1 that’s like bringing a knife to a machine gun fight. You don’t have a chance – this couple didn’t have a chance.

Yes, this couple got massively ripped off. But they CHOSE to be ripped off. I’m sick and tired of our ever diminishing personal accountability. I can already think of three options this couple had, other than signing up for a loan that will end up costing them 2 ½ times the price of the vehicle.

But I can already hear a lot of people thinking that this isn’t fair and no wonder the rich get richer. Yup – they have investments and savings while YOU have debt and payments. 90% of millionaires did not inherit their wealth – they became millionaires on their own. 75% of millionaires do not finance their cars. Well – they’re rich…yes, because they don’t do dumb financing. If you want to be a millionaire, get a $2,000 car instead of a $500 car payment. Then start setting aside some money. When you have some savings, step up and buy a newer vehicle. But a $500 car payment will guarantee that you’ll be stuck in debt for another decade and won’t ever be able to save. Go look up what Warren Buffet drives if you want some more evidence.

The average guy can’t get ahead – yes you can – get your finances under control, get rid of the killer car payments, or sell that house that’s eating up 50% of your income. I haven’t had a raise in two years – well – go get a raise. Good chance you get paid what you’re worth in the market place. So up your game, get to work earlier, work smarter or harder, or upgrade your skills. The average guy can’t get ahead? Come on – stop thinking like a victim. This is Canada and not North Korea.

I’m sick of the victim mentality. Repeat after me: If it is to be it’s up to me. The government, or two people in the story stating there should be more regulations, isn’t going to fix your financial life. It’s gotta be you. My apologies if I’m being unclear.

Whatever your borrowing today, at whatever rate or payments, may seem like a good idea and the only solution. But whether it’s a car, a line of credit, a payday loan, or your credit card, it will make things worse, much worse, down the road.

When you say you can’t do it, it wasn’t your fault, you have all these payments, you had to get that loan, or it’s too hard, you’re going to spend the rest of your live proving that you’re right.

PS: Why would a new vehicle loan at 5% make things so much worse?

This couple’s first 30 months of payments has paid almost 75% of the total interest at 25% as it’s very front loaded when they owe the highest balance. Having overpaid on the price and paid very little principal, they’d still owe at least $7,000 more than the car is worth. That shortfall has to be “rolled” into the new loan. Almost 50% of people owe more on a trade than it’s worth – this couple is the rule and not the exception. A new vehicle depreciates 30% in the first year. Even if it’s a $20,000 vehicle, the moment they drive it off the lot, it’s worth $6,000 less. A $6,000 loss and $7,000 hangover of their old one means they instantly owe $13,000 more on the new vehicle…and things get worse and worse and the vicious cycle continues with no hope of trading that one for six or seven years, huge payments again because the $7,000 loss is hidden in the new one and heavens forbid it’s written off or stolen because the insurance pays the real value and not the massive over-financed loan.

You’re Going to Get Ripped Off

Recently, a new wave of ads for debt settlement companies has started. I can’t call them a scam, because they’re perfectly legal. But I can tell you that you’ll get ripped off. That’s the quote from the Clark Howard show which reaches millions of people.

First, here is some of the content from their commercials:
-Our attorneys will work with your lenders to settle your debts for up to 70% less.
-Within 10 minutes, an expert will be able to determine if you’re eligible. What do you have to lose but your debt? Call us.

Well, not so fast. Before you make the call, you have to understand the background, and what will happen:

The ad, of course, is targeting people who are in over their head in debts and who would love to believe that their solution is just a phone call away. They’re praying on the desperation of people in real serious financial trouble. At that point, they’re prepared to try anything to get some help out – from anyone.

As the ad says: What have you got to lose? Our experts will determine inside of 10 minutes if you’re eligible. Oh and you will be eligible. Because it’ll make someone believe that three quarters of their debt will get wiped out.

On the call, the first few minutes will be getting your name and contact information so they can keep calling you. Then they’ll get a list of your debt. What they’re looking for is the amount of unsecured debt. That is, debt without collateral such as you house, line of credit against your home, or your car. Unsecured debts are things like smaller credit lines, and 90% of it is your credit card debt.

Based on the total unsecured debt, they’ll then advise you that you’re eligible and that they’ll work with your creditors to get this total amount settled. But one more thing you need to do first: You’ll need to pay them a fee, up front, of somewhere between $1,000 and $3,000 depending on your total debt. That may sound outrageous, but you’d be amazed how many broke and desperate people will find a way to pay that fee for the hope of getting a huge reduction in their debt.

Once the fee is paid, they should start to get to work contacting your creditors. But first, you have to work. They’ll advise you that you now need to stop paying all these bills. It’ll soften up the creditors and then they’ll be able to arrange a settlement when the debt is old and unpaid for three months.

Yes, that’s the extent of their work. Get your money up front and tell you to stop paying. That advice I can give you for free right now. When lenders haven’t been paid for two months or so, they’ll repossess your vehicle, or start foreclosure on your home. Unsecured lenders don’t have collateral. At 90 days, and then again at 180 days behind, they have a big problem. But they’re much more likely to sue you, or pursue some pretty strong collections, as they are to settle with you.

At the end of the day, you’re out some huge up-front fees and your credit is destroyed for seven years. You’ve then got no chance of re-financing, consolidating, or even getting a lot of jobs that run your credit report. You’re right back where you started, but three months behind, the stress gets much more intense with these arrears, and you’ve added more debt to pay their fee. Don’t do it. Don’t make the call. They ask what you’ve got to lose? I’ve just described some of it.

Easy Just Got Harder & A Heads Up

We’ve talked a couple of times about technology called NFC, or near field communication. It’s the technology that lets you hold your smartphone to a credit card reader to pay for something. It’s also what makes Esso key fobs work at most gas stations and worked as easyPay at Shell…until yesterday.

Shell has discontinued their easyPay at the same time as almost everyone else is rolling out this technology. Their media relations department didn’t get back to me, so you get my guess of why it’s a lot harder to stay loyal to Shell starting today.

When you wave your keyfob at the gas pump, the system is checking if they have your accurate credit card information. It’s not getting an authorization at that point, because they computer has no idea of how much you’re purchasing. So it’s a trust transaction for a few minutes until you have the full amount shown on the pump. At that point, the system is getting an actual authorization for a specific amount.

If, at that point, it’s declined, there’s a big problem. Best guess is that the big problem became a big problem for Shell. To the point where I’m guessing a ton of lost business is better than a ton of uncollected charges. It makes no sense that they wouldn’t fix it, instead of discontinuing it, but my business now goes to Esso.

Here is a heads up that you should do each and every month. Whether it’s in the event of a Canada Post strike or not, you need to do a little check list of all your bills.

You know I really want you to do a budget, then you’ll have it anyway, but do a little list of all the bills you have to pay in a month. With no mail, or if you ever don’t get your mail, you still have to pay the monthly payment. I forgot, I didn’t get an invoice, or any of those excuses don’t get you off the hook.

The payment is yours to make and all the legal documents say that they’re due – whether you get a statement, reminder, invoice or not. A little check list will just be an easy way to see that you’ve made a payment to everybody during a strike, or in any month.

Make sure you add the annual bills such as house or car insurance, property tax, etc. on the list, too. If you don’t pay something like a utility bill, the service charge is around 2.5% for being a day late. On the other hand real debt such as your credit cards or line of credit, absolutely destroy your credit rating if you’re late. And that stays on your credit file for seven years. That’s a lot of damage for missing a payment, or not being pro-active during a postal strike, or any month.

Establishing A Credit Rating for Your Son or Daughter

As we’re getting near graduation season, I thought it would be appropriate to talk about some student, grad, and young adult stuff in the world of credit.

Let’s face it, our schools don’t teach kids many of the tools that are amongst the most important for financial survival. And, to be honest, many parents don’t really do a good job, either. Not from lack of wanting to, but sometimes just not having the tools and insights themselves. Plus, if the truth were known, lots of parents really hope their kids don’t end up in the same financial mess they’re in when almost two-thirds of households live payday to payday.

One of the most common questions I get is how to start to establish credit for an 18 or 19-year old. But I’m always torn on this issue. In an ideal world, I’d like no teenager to ever have credit. Why? Because it means they won’t borrow, and not borrowing is THE best recipe to financial success.

However, reality is that most of us do want to finance a home at some point in the future, and sadly, many want to finance a vehicle at some point. A credit rating is also something that many employers look to, and a credit report is pulled by most larger landlords or management firms.

There is a large section in the It’s Your Money book on establishing credit. Make this one of THE best $20 grad presents you can give your son, daughter, or grandchild. It’s something they can refer to for years to come – before it’s too late.

Here is one easy and quick way to establishing credit for any young person: Apply for a credit card under your name, with your son or daughter as the second applicant. The card is approved based on your credit rating, while your son or daughter will have their name shown on it. When the card arrives, lock it away. Do NOT give it to your son or daughter to use. Don’t even give them the card number, or they’ll have no problem using it for on-line charges.

Because their name is on the card, it’ll report to the credit bureau with the limit, the length of time the account has been open, and always a zero balance. They key is to get credit established so a credit file gets going. A credit rating is partly based on how long someone has had a credit file, and this will get them started.

Why not give them the card? Because you’re fully liable for the charges as a joint applicant. This isn’t meant to be an experiment in temptation, but an easy way to establish a track record and credit rating. Activate the card, put it far away, and just use it once a year for a $2 or $5 charge, in order to keep the account active.

Two or three years from now your son or daughter has a solid credit rating and what they do with it at that point is up to them. Hopefully, by that time, they’ve learned some financial, credit, and borrowing tools. If so, you’ve done your best. If not, whatever they borrow at that point isn’t your problem, and won’t impact your credit rating.

Make this a priority for a grad present. After all, “graduation” to understanding the insights of finances is something we’ll all use for a lifetime. Maybe it’s for someone graduating from high school or university. Or maybe it’s the rest of us graduating from financial insanity, graduating from not wanting to be broke anymore, or graduating from the years of living on way more than we earn.

Credit Crunch? What Credit Crunch? Where?

Whether it’s in the U.S. or here in Canada, I keep hearing about that “credit crunch.”

I understand it, but I can’t personally find it, and you won’t, either. Not as an individual who has decent credit, with a credit score above 700 and the income to justify making the payment.

In fact, all the talk in the U.S. recently was that the lowering of interest rates to near zero was fueling a huge boom in re-mortgaging. Well, those two stories of a credit crunch and all that refinancing don’t jive. And if I had the resources, I’d gladly put up a reward for anyone who can document being turned down because of a credit crunch. It won’t happen.
Find me a lender who’s got the sign out: Not lending today.

I tried to find it myself. I applied for three car loans and three lines of credit. No, I wasn’t getting them – neither you, nor me need more debt. But I was approved every single time! I’m pretty typical middle class and have a credit score over 720. All the approvals were a no-brainer and took less than five minutes each time.

Challenges for business credit issues are different and do exist. But you and I don’t borrow 50 million or a half a billion dollars. It’s why the government is getting the Export Development, Farm Credit and Business Development corporations involved, and helping them.

Lots of debt also gets sold as asset backed securities. That’s the balloon that blew up in the US housing market. It’s about a $50 billion market in Canada and that’s definitely slowed down. No investors really want to own pieces of these securities right now.

As a result, lenders have to keep their loans or credit card balances on their own books, instead of re-selling them. That is the reason rates haven’t moved down much for fixed mortgages and why credit cards are actually going up. It’s an issue of supply and demand.

If we call it business credit crunch, I’m OK with that. But for you and me – for us individuals, there’s isn’t a crunch, shortfall or lack of money. There’s just a new reality that we need good credit and the money to pay the payment. If lending based on good credit and income hadn’t been temporarily abandoned for a few years we wouldn’t have 90% of the mess we do now!