Credit Report Updates!

It’s not every day that you hear good news about your credit report. But this Monday was the American consumer’s lucky day! Equifax, Experian, and TransUnion, the three major credit reporting bureaus, announced this week that they are overhauling the credit reporting process. They will be instituting some major changes that will benefit the consumer, changes like making it easier to dispute an error and not blaming consumers for late payments made by their health insurance company. It’s like they’re finally listening to years and years worth of complaints!

Plans to improve the credit reporting process were lengthy, but let me break it down to the important stuff for you.The changes include:

– Medical debts won’t be reported until after 180 days, so that if an insurance company is late making a payment the consumer won’t be personally penalized. Additionally, the credit reporting agencies will remove previously reported medical collections that have been or are in the process of being paid by insurance.

– Credit reporting agencies will stop the reporting of debts that the consumer did not agree to pay by signing a contract or agreement. So things like tickets or fines will no longer show on your credit report.

-Consistent standards will be enforced by the credit reporting agencies to entities that submit data for inclusion on credit reports. All three credit bureaus will enforce similar standards.

– If you get a copy of your annual free credit report, dispute information on it, and the dispute results in a change to that item, you will no longer have to wait a year to get a new copy of your credit report. You will be able to get a second one right away.

– Consumers who dispute an item on their credit report will receive info with the results of their dispute with further steps they can take if they’re not satisfied with the outcome.

– There will be more free educational material available on www.annualcreditreport.com to help consumers understand their credit reports.

– A group will be formed to regularly review the data collecting process for credit reports to help ensure consistency and fairness.

Sounds like good news to me. Thanks, credit reporting agencies! For more information, check out this spot that was featured on the NBC Nightly News.

3 Signs You’re Better with Money Than You Think

You know what we all need sometimes? A good pep talk! And while I usually rely on the pre-game speech from Miracle (“This your time! Now go out there and take it.”) to motivate me, Herb Brooks’s advice is applicable more to times when I need to convince myself that going to the gym is worth it than to times when I want to cry about the size of my student loan payments.

I paid all of my loans on time?!

I paid all of my loans on time?!

But where are all the inspirational money speeches? If there’s one thing I’ve learned since I started working in the financial industry, it is that there’s an endless list of “mistakes” to be made when it comes to money. I read a lot of articles, blogs, and tweets about financial literacy during my day at work and a solid 90% of them tell me about things I’m doing wrong. The general theme seems to be that there are a million better things I should do with my money rather than spending it on going-out tops at Forever 21. Needless to say, it’s easy to come away from those reading sessions feeling discouraged about my financial situation.

So, I did a little research and am happy to say that I can provide some financial encouragement to you today! Chances are, if you’re doing any of the following three things, you’re on the right track. You might not be a millionaire. You probably still make a financial mistake here and there. But you’re doing the best you can. And you should feel good about that! Money is difficult to manage. So give yourself credit for the things you’re doing well.

Here are 3 signs that you’re better with your money than your think you are:

  1. You Pay All of Your Bills On Time, Every Month – I was catching up with a friend from college the other day and we were talking about my blog when she said, “I don’t have a budget. I’m too poor to have a budget. I pay all of my bills and student loans and rent and then I have no money so there’s nothing to budget.” I think we all know how she feels. Salaries in your early 20’s are the reason the phrase “living paycheck-to-paycheck” exists. But I would like to point out that, if you are successfully paying all of your bills on time each month, you actually do have a budget. And even more impressive, you follow it. A budget is just a plan for how you will spend the money you earn. Not having a budget would mean spending your money impulsively on whatever you want at the moment, disregarding necessities you know you will need to pay for later. And although my friend’s budget doesn’t include a lot of wiggle room for fun stuff like buying new clothes or having a social life, the fact that she manages to pay her bills means she’s doing something right. If you’re paying all your bills on time, you are too!
  2. You Know Your Checking Account Balance – What’s your checking account balance right now? If you could answer that a fair amount of accuracy (let’s say within $5-$10 of the actual balance) you’re doing something right. Even if the answer is that you have $0 in your account, knowing your approximate balance means that you regularly check your account activity. You have an idea of how much you’re spending and where. It also means you would notice if there was fraudulent activity on your account. If you have no idea what your account balance is, you’re in trouble. Avoiding your balance doesn’t make it grow; if anything ignorance about your financial situation just makes it worse. So don’t feel guilty about checking your mobile banking app religiously. Who cares if it’s because you’re worried you don’t have enough money for coffee? At least you’re checking your balance before you spend!
  3. Your Savings Account Has More than the Minimum Balance – Have you put money into your savings account since you opened it? Then you’re doing better than a lot of other adults out there. Studies show that about 75% of Americans do not save money on a regular basis. Even if you’re just taking your spare change jar into your bank every month and depositing the money into savings, that’s better than nothing! Fifty cents here, three dollars there . . . it can start to add up. And at the very least, you are consciously making an effort to save. This means that you value money and aren’t apt to spend it willy-nilly. So keep rolling up those nickels and bringing ’em in to deposit in savings! Don’t let the haters get you down.

I hope this helps you feel a little better about your financial skills. You might not be doing everything right (like maybe you don’t have a 401K or you’re still not really sure what a 401K is . . .) but having a few of the basics down means that you’re successfully managing the day-to-day aspects of your money well. Go you!

What Is a Payday Loan, Anyways?

“Need cash now? We can help!”

“$100 – $1,000 approved in just 2 minutes!”

“No credit? No problem!”

We all hear those commercials. They’re everywhere. On TV. On the radio. Online. You can’t escape them. Apparently these people really want to give you cash. And they want you to get it fast! But chances are, unless you’ve been in bad enough financial shape to need one of these loans, you might not know what they are, how they work, or how dangerous they can be.

Loans like the ones in these advertisements are called payday loans. A payday loan is a small consumer loan, usually for under $500, which uses your paycheck as collateral. They’re not offered by traditional banks or credit unions, but rather by Check Cashing Agencies or PayDay Lending Companies.

Here’s how it works. Say you need $400 to pay to get your car fixed. You don’t get paid for another week, you don’t have any money saved, you’ve maxed out your credit cards, and you know your credit is terrible. So you go to a payday lending company and apply for a loan for $400. They won’t check your credit. They won’t ask for references. All they need is your basic contact information, proof of employment, and your checking account number. Then, you write them a check for the $400 plus a loan fee, which is typically around $15 per $100 loaned. In this case, you would write the payday lender a check for $460. They hold on to that check as collateral and then give you $400 in cash. When you get your next paycheck, you use it to pay them back the $400 plus the $60 fee. Or at least that’s what’s supposed to happen . . .

The thing is, most people who use payday loans are doing it as a last resort. Fast cash won’t solve their financial problems, it will just get them through the next few days or the next few bills. That $400 might have paid to fix their car or for groceries for the week, but 2 weeks later they have more bills to pay. Now they need money to put gas in their tank. They need to pay the electric bill. They need to fill a prescription. Basically, they need that paycheck for new expenses when they’ve already spent it on old ones and suddenly they’re right back where they started before they got the loan.

So the payday lender gives them two options. Option 1: pay back the loan in full and end the transaction. Option 2: pay a small fee to extend the loan for another 2 weeks. In our example, that’s a choice been paying the lender $460 today or just $60. To a lot of the customers using this kind of loan, that’s not a choice at all. They need the $400 for other bills. So they pay to extend the loan instead. The paycheck after that isn’t enough to pay for bills and repay the loan either, so they extend the loan again. Unless they get a new job or a major expense magically disappears, they will never have enough money to pay off the loan completely so they just get caught in a cycle of endlessly paying the extension fee over and over again.

unbanked 2

 

Why the P.S.A. about the dangers of payday lending, you ask? Because the biggest misconception about payday loans is that only people who regularly struggle with money need them. You might be reading this post from the comfort of your office at your well-paying job. If so, you’re probably thinking that you wouldn’t ever be so strapped for cash that you would actually respond to those cheesy commercials offering “$500 in just 5 minutes!” But the truth is, a growing majority of payday borrowers are middle class. They were financially stable adults, until one or two things went wrong and threw their financial world into turmoil. As Jonathan Mintz, CEO of the Cities for Financial Empowerment Fund put it, “The picture of the financially unstable is the picture of you and me but for a couple of breaks.” Often people fall into the payday lending trap because like me, they ignored those ads. They didn’t know what payday lending was or how financially harmful it could be, so when they suddenly became strapped for cash the product payday lenders pedal seems appealing, even life-saving.

The good news is, there are alternatives to payday loans available. Many credit unions and small banks offer short-term “emergency” loans, that provide a small amount of cash to a borrower based on their income. For example, here at Casco FCU we offer a Safety Net Loan. Members can borrow up to $1,000 for 6 months. Like a payday loan, your credit score doesn’t matter, approval is based on proof of employment. Unlike a payday loan, however, a Safety Net Loan is repaid in fixed monthly installments over a short period of time. Making payments also allows you to build a relationship with a reputable financial institution and to improve your credit score so you increase your access to traditional loans in the future. And perhaps most importantly, a loan officer will help you go over your monthly budget and give you advice on how to better manage your bills; the Safety Net Loan isn’t just a temporary fix like a payday loan, it’s a solution to help you build a better financial future.

Long story short – stay away from payday loans! They’re never a good idea.

 

Unlike Rihanna, Your Lender Doesn’t Love the Way You Lie

If you’re dating a girl and you find out she’s cheated on every boyfriend she’s ever had, you automatically become convinced that she’s cheating on you, right?

Or let’s say you just found out that the guy you went on a date with last night is also currently dating seven other girls. If that’s not a turn off, I’m not sure what is.

Guess what? Your financial institution feels the same way. Not about your dating history, but about your credit history. A bad dating history can make someone hesitant to be with you; likewise a bad credit history makes lenders cautious about approving you for a loan. If you’ve mistreated other lenders in the past, what proof do they have that you’ll treat them differently? It turns out the world of finance isn’t just about numbers, it’s often more about the relationship between the lender and the customer.

As addicting as this show is, you wouldn't want to be on it yourself.

As addicting as this show is, you wouldn’t want to be on it yourself.

Here are two money habits that are a major red light to potential lenders looking to approve you for a new loan:

  1. You’ve made late payments in the past. This is where the “once a cheater, always a cheater” philosophy comes into play for lenders. One late payment might not seem like a big deal, but it is to your financial institution. Just like cheating on an ex shows your new love interest that you might cheat on them, making late payments proves to new lenders that you are more likely to get behind on your payments to them.  Plus once a payment is past 30 days due, it gets reported to your credit history and it stays there for two years. That would be like cheating, and then not only do you have to feel guilty about it and apologize to the person you cheated on, but every love interest you have for two years after that has written confirm that you’re a cheater. This will result in a lower credit score, higher interest rates, and in come cases denial for loan or credit application. So avoid the trouble. You committed to making a payment. You committed to a relationship with your credit union or bank. Now you have to follow through. Make your payments on time.
  2. Your credit card balance is close to your limit. Capacity, or how much of your available revolving credit you are using, makes up 30% of your credit score. Simply put, how much of the credit available to you are you actually using? If the limit on your credit card is $10,000 is your current balance $100 or $9,999? You want your dream guy to be desirable to others, but you don’t actually want him to date others. Similarly, you want to have credit (in the form of credit cards, Home Equity Lines of Credit, or Unsecured Lines of Credit) available to you, but you don’t want to use the maximum amount. So be selective. Don’t put unnecessary things on your credit card. Pay off your balance in full each month. Use no more than 40% of your available revolving credit at a time.

In conclusion, you gotta treat your financial institution right. Otherwise it will tell all of its friends and no bank or credit union will want to date you . . . I mean finance a loan for you.

Need more help understanding your credit history and/or credit score? Check out:  https://www.creditkarma.com/ or https://www.annualcreditreport.com/index.action.