Tag Archives: credit score

Avoiding the “Stupid” New Year’s Impulses

Here we are the week before New Years and most of us want to, or feel the peer pressure, to start making resolutions for 2018.

Whatever yours may be, stop for a minute and make sure they’re not stupid or irrational things you do, or say to yourself.

The stupid things many people can do is to get super excited about getting fit in the coming year. The resolution is great – but signing a two-year fitness club contract falls under the category of stupid. If you can go for a two-month trial or on a month-to-month basis, it’s great. If you’re on a contract for a thousand bucks or more, it’s a really bad idea.

A second big one is doing serious damage to your credit score. If your mortgage is up for renewal, you’re looking to buy a home, or want to finally get your line of credit rate reduced, don’t borrow until that’s done. When you take on a new debt, the inquiry into your credit bureau can drop your score and your new debt will lower it in two other ways. Stay away from new debt if refinancing, a mortgage renewal or anything like that is on your radar within six months.

Under the category of stupid things we say to ourselves, the most common one I hear someone say is that “they got ripped off.” Sorry, there isn’t a sales person or retailer in the province who has a gun to your head. You didn’t get ripped off as much as did it to yourself. You shortcut getting another quote, you made an impulse buy with a finance contract, you didn’t shop around, etc. etc. But as long as you say to yourself and others that “you got ripped off” there’s no personal accountability. After all, if it was someone else’s fault – there’s no lesson for you to learn. If we change the wording to “I let myself get ripped off” that’s a powerful change in your thinking and in your actions the next time!

The second big way we sabotage ourselves is with the words “I can’t.” Of course you can. I can’t save, I can’t get my credit card balance down, etc. Yes you really can. But again, when you think like a victim – you’ll end up being right. If you stop using your credit card for a while, grade one math says your balance will drop with each monthly payment. So don’t sabotage yourself from the start and start thinking about how to turn the “I can’t” into “I’m going to.”

Spend $45 to Save $36,000

Two weeks ago, I received an email from a listener in Kelowna asking for some financial feedback. The email had enough in it to fill an hour or more, but here are the highlights:

This middle-aged couple has done really well in their investments. They have significant RRSPs and contribute 5% to their pension plan. They do have an RRSP loan at a good rate – and I won’t fuss about that.

They live within their means, no extravagant spending, small mortgage at a great rate, and an income of over $100,000.

On the debt side, it’s a different story. When they bought the Money Tools book at Mosaic, they immediately found $12,000 savings! Pretty good for a $20 investment! I keep saying: You go to almost any page and you’ll find a way to save money in whatever area! In their case, they have a line of credit that’s insured with life and disability. That’s one of THE biggest ripoffs in the financial field. The bank’s profits are 50 to 60%. Never get your insurance from the bank – ever. He immediately called to cancel it, but was on hold for 1 1/2 hours and never did talk to someone. Well, don’t bother calling. Write a three sentence letter that you want it cancelled as of today and deliver it to your branch. Banks can have a way of ignoring a call, claiming they never received it, etc. in order to protect their profit. In writing and delivered gets it done.

Their line of credit has been around since finances weren’t so good in the 1980s. It’s around $40,000 at a rate of over six percent! The rate is always prime plus something. That rate may have been OK when things weren’t so good, today it’s a massive overcharge. His credit score is over 780! He’s in the top 10% most credit worthy people in the country and ought to pay prime! 3% over for the last 10 years and on-track to only pay it off in another decade is over $25,000 in extra interest! All he did was go to equifax and pull up his credit score! When rates go up, lenders move up your rate. When your credit improves, they’re not voluntarily passing on a lower rate! You have to know your score and go ask – or demand it or fire your bank.

In the case of this couple, I wouldn’t move the credit line, but just get from the 10-year plan to one that pays it off pretty easily by Christmas this year. They have $20,000 in savings. Read the step up debt repayment section: First pay off your debts, then start saving. In their case, they should keep $5,000 for emergencies, dump $15,000 onto the credit line and pay $2,000 a month to get it done. It will take another six months to pay off the RRSP loan, and by June next year, they’d be debt free – instead of the 10-year payment plan they are on.

With a great income and getting really mad and motivated, they would be

$25,000 insurance cancellations for the 10 years the line of credit would take to pay off on their current plan

or: $25,000 (roughly) to pay off the line of credit 10 years sooner

$11,000 paying off the RRSP loan (the interest isn’t tax deductible) nine years sooner (by next summer)

That’s $36,000 of savings by spending $20 on the book and $25 on pulling their credit score. That’s a pretty good return!!

Then, next June to December, they can save the $500 they were paying on the RRSP, the $2,000 they were paying on the line of credit for six months or a total of $15,000 by just re-directing what they had been paying on their debts!

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.

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!

Graduating to Financial Adulthood

In most places, when you’re 18 you’re an adult. In BC, the age of majority is 19 and by 21 you can do anything anywhere. You’re done with high school and can drive, drink, vote, borrow or invest, and live on your own. However, for the majority of the population, that doesn’t make them a financial adult. That can happen soon after, or it might not happen until your 30s or 40s – if ever…

This week and next, I want to go through a list of what I believe makes you a financial adult. It doesn’t mean you have to be debt free or take a university course. The essence of it is that you need to be in control of your finances and money, instead of it being in control of you. You’re pro-active versus reactive and out of control. If you do these, or know how to do these, congratulations! You’ve graduated! Some are easier than others, but all are really important.

1..You have at least one-week of income as basic emergency fund and are working towards a full three to six months of all your expenses.

2..You have two credit cards and a debit card. Your credit card balances are less than 30% of your limit (or are lowering your balances every month in order to get there) and you do not have or use an overdraft on your chequing account.

3.. In the last two years you have checked your credit report and credit score at least once and your credit report is accurate. In other words: You’ve disputed and had them fix any errors. (Go to Equifax.ca and purchase ‘score power’ which is your credit report and score.

4..You have opened an RRSP account and/or Tax Free Savings Account and make a regular monthly contribution. No matter how small – at least you’ve started and have traction.

5..You have basic insurance. Car and home coverage is obvious. But if you’re a renter, you have a tenant fire insurance policy and if you have a child, or a partner, you have a term life insurance policy.

6..Whether you’re single or married, rich or broke, you have a properly completed will. It can be a $20 do it yourself kit if you’re single, or a lawyer-prepared one if it’s more complex and you have kids. But you (or you and your partner) do have a will.

7..You know the actual amount of your net take-home pay every month. You can’t control your money if you don’t even know the exact amount you net and keep talking about your gross pay as if that were what you could spend each month.

8..You have done at least a one-time budget, or have a system of tracking your spending.

9..Your monthly spending is less than your monthly take-home pay. You may have ten cents left or $1,000 – but you’re not spending more than you earn. Financial adults figure out how to pay for something and then buy it. Others buy it and then figure out how to pay for it later.

10..You know your net worth. At least once a year you figure out what your total assets are (what you own) less your total debts (what you owe) and whether you’re growing it by savings, or whether it’s shrinking by going into debt.

11..You have a system for paying your bills every month. Waiting for the mail is not a system! Whether it’s an app on your phone, setting up automatic payments, a calendar, an on-line program or a simple check list you look at every month – it needs to be a specific system.

Waiting for the bill in the mail isn’t a plan. If the statement doesn’t come and you forget, your credit rating plummets. Blaming the post office won’t work. It’s your fault that you don’t have a system for staying ahead of the game and on top of your bills.

12..You have a proper filing system for your financial stuff. It can be six large envelopes for each of the last six years, or a ton of file folders, if you’re an organizational nerd. Kids get to say ‘I lost it.’ Financial adults don’t have that option. The graduating test will be whether you can find your tax return from 2011, or a bank statement from February within 10 minutes.

13..You are taking specific steps every month to pay off your existing debt, excluding your mortgage. You are paying more than minimum payments and your total debt is shrinking each month. You have a specific month and year that you’re working towards when you will be debt free except your home.

14..In the past year you have made at least one call to dispute a charge, ask for a lower rate, or comparison shop. If you don’t know how to stand up for your money – others will gladly keep taking it from you.

15..If you’re in a committed relationship, you and your partner spend at least an hour each month without the TV or kids discussing your money, savings, bills, purchases and budget. Kids spend – financial adults have a plan and communicate.

16..You have at least two specific and measurable financial goals. Saving more in my RRSPs, or paying off my credit card isn’t a financial goal – it’s a dream. It needs to be specific: Saving $150 a month in RRSPs is specific and measurable. Reducing my credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal.

17..At least once each month you have the self-confidence to say no to an expense. It may be at work, to your kid, or to yourself. If you don’t know (or don’t want to) say no or say that you can’t afford it, or don’t need it you’re doomed to have your money continue to control your life, instead of the other way around. Setting boundaries is what financial adults do.

18..On anything expensive you shop around before committing to a debt or a bill. That includes interest rate shopping, your insurance, cell phone contract, and your credit card interest rate if you always carry a balance. Kids impulse buy until they’re out of money – financial adults don’t spend until they’re broke. If you do – you can skip the other items and save a bunch of time and effort – you’re doomed to be broke for years to come.

While You Weren’t Looking Your Credit Card Charges & Rates Went Up!

As I keep saying: What happens in the U.S. will come to Canada. This time, it’s a massive increase in credit card penalty interest rates. It was announced last week by the CIBC and TD that, if you get behind on your credit card, they’ll jump the rate – a lot!

It’ll increase by up to 15%. That’ll put a low rate credit card of 12% or so to upwards of 27%. And it used to be for six months – now you’ll be in the penalty box for a year at that insane rate. If you play with fire, you’re going to get burned. Credit cards are a great convenience but they’re not your friend. If you carry a balance, low rate 12% cards are a bad rate, 20% normal cards even worse – but 27% is insane. And who pays them? The people who can least afford the penalty rates, because they have a hard time making the minimum payments. Don’t charge today what you can’t pay off by the end of the month. Whatever you’ve bought on your credit card isn’t worth paying for years at close to 30%.

The second bank change, this one on lines of credits and credit cards, also has to do with your credit rating – your credit score. You’ll see a ton of rates that are now “prime plus.” When rates go up, your rates will go up right with it the following month. On the TD website, their Emerald credit card is now prime plus 1.5% to prime plus 12.75%. If you apply, you don’t know what your rate will be when you get the card in the mail. It might be low or insane. That totally depends on your credit rating. Reason number 238 to go to equifax.ca and purchase your credit score. If you don’t understand it, email it to me and I’ll explain it, or go to yourmoneybook.com for the US Fighting Back! book. It has a huge section on credit scores…something Americans all know and live and die with. Us Canadians better get to learn it, too – it’s coming to Canada right now!

Best Buy & Target Terminating Your Credit Card?

f you have a Best Buy Visa card – you need to pay attention. Best Buy (that includes Future Shop as they own them) has announced that they’re cutting long time ties with Chase for their Reward Zone Visa. They’re switching their credit cards to Desjardins, a Quebec based credit union, in April joining the Source, Rona, Staples and others…

Because they’re switching carriers, Best Buy announced their credit card will be deactivated the end of February. You’re not automatically getting a Desjardin Visa card because they’re different companies. You’d have to apply all over again if you want the new card.

That will drop your credit score and credit rating! The card will now go to a zero limit since it’s deactivated. THE biggest part of your credit score is the percentage of limits versus balances! Your total credit card balances need to be below 30% of your total limits or your score starts dropping. If you owe more than 50% of your limits, it’ll plummet. If that applies to you, you HAVE to apply for any other Visa or MasterCard BEFORE the end of February – before your credit score drops. You should have two or three major credit cards owing less than 30% of your limits! Do the math and email me if you don’t understand the math or the trouble that could be coming your way thanks to Best Buy.

The same thing applies to bankrupt Target in Canada. Their Visa is through Royal Bank. No more Target means no more Target Visa. Before it’s terminated on you and the corresponding credit limit removed, you’ll need to replace that limit. If you choose to stay with the Royal, call them and it’ll be a simple swap to another card. If not, you need to apply somewhere else online.

Do remember that you need to get or keep your percentage owing to less than 30% of your limits. If you regularly pay off, or pay down, your cards, and already have two major credit cards –  you don’t need to worry!

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!

Federal Government Strengthens Mortgage Rules

Late last week the Federal Finance Department announced some tightening of mortgage rules, hoping to avoid the risk of a U.S. type housing bubble.

The biggest one is that 40-year mortgages are out. That is, the 40-year mortgages no longer qualify for mortgage insurance when there is less than a 20% down payment.

Now don’t be thinking that’s really sad. We’ve talked about the financial risks of that length of time already. Reducing a $200,000 mortgage to 35-years increases the payments by $40, but saves almost $50,000 in interest. So it’s a good thing – but didn’t go far enough, in my opinion.

The second rule change is that there needs to be at least a 5% down payment. Fair enough – because someone with no money down is buying a nightmare and it’s often speculators who contributed in huge ways to the U.S. housing meltdown, thinking they could buy it and flip it, without ever sticking a dime into the house.

The third one is that not anyone can get a mortgage. There needs to be a minimum credit score. But NONE of the media stories had the score. It took me some time to dig it up out of the regulations.

It’s a minimum score of 620 to qualify. Now nobody needs to panic. 620 is not anyone who has decent credit. That starts around the 700 mark, but it’s a very low threshold to avoid a lot of the subprime mortgages that set off the U.S. market. And subprime mortgages have been growing at 50% in Canada. The score is too low but it’s a great start by the Government, even if it’s a ways too low.

Lowering Your Credit Card Rate

I was surprised to get a number of media calls about a story the CBC did last week. They went to a Winnipeg mall, randomly picked 10 people, and asked them to call their credit card company to get a lower rate, which six out of ten did accomplish.

Can we lower our obscene credit card rates that the no-service mega banks charge us? In the words of Barrack Obama: Yes we can! Let’s face it, credit card rates run 19% plus when prime is around 5%? Give me a break. Besides, full rates are like sticker price on a car – and who pays sticker?

In 2006, North America wide, credit card companies mailed out over 6 billion junk mailers but their response rate is less than a third of one percent. It’s not only very hard to get new clients, it’s also very expensive. So good business practices say keep the customers you have loyal to you and that’s all this amounts to.

You don’t really need a script, you just need to know you can do it and call the toll free number on the back of your credit card. You should have one of the junk mail offers in front of you. Best if it’s one from Capital One or MBNA offering a fixed rate card at 9.9 or 10.9%. Don’t use one of the teaser rates they use to suck you in for 1.9% or so. That’s only temporary – you’re looking for a fixed rate that doesn’t end next week!

Simply tell customer service you have this offer and would like them to match it because you’re a loyal and good customer. The rate on the offer in the mail is way better and you’re considering switching to save money. If they don’t cooperate, ask to speak to a supervisor.

You’ll likely get it if you have a credit score over 720, have dealt there for a while and have a good payment track record. You’re exactly the kind of client they want to attract and keep!

You’ll likely strike out if you’re at your credit limit, have been in arrears and are only making minimum payments. Card issuers aren’t dumb. They know most of those customers are lucky to have a credit card, and switching is more of a threat than reality.

But remember: If you don’t carry a credit card balance each month – who cares what the rate is and THAT is the situation we should all be in. It’s the start of financial freedom!