Credit In A Nutshell

January 10, 2012 By Richard Leave a Comment

Credit In A Nutshell

Maintaining good credit or fixing bad credit is something that we know is important, but gets lost in the shuffle of every day life. Just like we know we should drink more water and hit the gym a little more, fixing bad credit can be a chore. Unlike those other two problems, it may not be so clear cut in how to actually get it done.

Credit scores are complex and confusing, so it’s understandable that most people wouldn’t want to deal with them. To help you get started I’ve written a primer to understanding your credit.

Credit Score Basics:

There are 3 Credit Reporting Agencies: Transunion, Experian, and Equifax. Each has a slightly different way of compiling your score and each has several different versions of your score that they offer to potential lenders. That means that no matter how many different places you go, you could have many different scores that are pulled all from the same companies. The factors that effect your score are basically weighted differently depending on the risk profile the Lender is looking for.

Credit Scores typical range from the 300-850 and the closer you are to 850 the better.

What’s a Good Credit Score?

It really depends on what type of loan you’re applying for but anything over 700 is usually considered to be pretty good. The thing to keep in mind is that with the Credit Crisis of 2008, Lender’s basically rewrote all of their underwriting guidelines – so that means that even with a decent score of 700, you could be turned down for a loan.

Besides Credit, What Other Things Do Lenders Look At?

One question I’m often asked is, since I’ve been a customer here for so long, does that help me out even if my credit is poor? The answer is no. Banks and Credit Unions love loyal customers, however having a long relationship with a financial institution really only matters if the underwriter is on the fence about your application and you have a good history of paying off loans with the institution.

Financial Institutions look at Debt to Income Ratio, Work History, and the collateral that is being financed, if it’s a secured loan. This means that even if you have great credit and plenty of income, an institution may not fund your recreational purchase of an old Hearse or customized monster limo.

How Do Loan Approvals Work?

Generally your application is underwritten (or reviewed) by an automated underwriting system. This system takes a look at a number of factors, including income, debts, work history, and credit score and makes a decision based on a set of guidelines programmed into it. If the computer program cannot make a decision it will send it to manual review – meaning that an actual person will review your application and make a decision based on underwriting guidelines and on policies regarding making exceptions to those underwriting guidelines. Exceptions can be made, but they are what the word implies…exceptions and not the norm.

How Are Credit Scores Figured Out?

Credit Scores are based on the Fair Issac formula. The formula is a trade secret and so it’s not really known exactly how they determine your score. The way your score is generally configured is by:

35% Payment History
30% Credit Utilization
15% Length Of Credit History
10% Type of Credit Used
10% Recent Searches For Credit

For a more complete set of information see myfico.com.

What Things Build Credit?

Loans build credit. Many people believe that having utilities or cell phone commitments in your name or apartment rental history contribute to your credit score. This is not true. These types of activities are considered by Lenders to be “unconventional credit” and can be considered in some instances for people who lack credit history.

What Things Hurt My Credit:

Collections, judgements, bankruptcy, late payments, too much new credit, using too much of your available credit, too many credit inquires, charge offs, settling for less than the full balance owed, repossessions, foreclosure, delinquencies (even on accounts that do not contribute to good credit – like Medical Bills or Bounced Checks that are in collection).

Yes, having utilities put into your name doesn’t build your credit, but if you stop paying your bills and the company puts out a collection for you, then it will damage your credit. This holds true for any type of account that is capable of putting out a collection for you which would typically involve any one who does a credit check. Keep in mind that bouncing a check to a company and refusing to pay it can also result in a collection item put on your credit report.

How To Fix Bad Credit:

1: Repair

2: Rebuild

Repair Damaged Credit:

The only way to repair your credit is to fix the negative things that are reported. The first thing you should do is grab a free copy of your credit report from annualcreditreport.com, the official website of all three consumer credit reporting agencies. The companies are required by law to give you a copy of your report once a year. You will not see your score on this report as your score is a product that belongs to the company.

Review your report for any negative items and if you’re unsure of the debts being reported you can contact each agency and dispute them.

Late payments and other delinquencies such as charge-offs, foreclosures, repossessions, and balances negotiated for less than full balance are reported for seven years from the date of delinquency and can only be resolved through disputing them with the consumer reporting agency (Transunion, Equifax or Experian) or waiting for them to fall off of your record.

Collections can only be resolved by paying them in full, disputing them, declaring bankruptcy or waiting for them to fall off of the report. Debts reported as collection items stay on for different times depending on state laws and on the agreement you entered into when borrowing.

It’s recommended that if you have serious credit issues speaking to a qualified Bankruptcy Attorney or a reputable Credit Counseling company is advised.

Keep in mind that once the damage has been done and all issues resolved, your credit score will not automatically improve. If you do nothing at best your credit will report with a message that says Not Scored – Insufficient Credit History.

Rebuild Credit:

Many people wait to try to fix their credit problems until they really need a loan – for example their car breaks down, which they need to get to work, and they need to borrow some money to finance the repairs. Often times there isn’t enough time to repair a person’s credit to help them get the loan that they need.

Once you have either declared bankruptcy, paid off your debts, or have had them otherwise removed from your credit history you’ll need to start rebuilding your credit. If you have late payments or other delinquencies showing up on your report, you’ll have trouble convincing a traditional lender to extend a loan.

There are a few hard money lenders out there that will extend a credit card to just about anyone. These credit cards are offered at extremely high interest rates and usually carry substantial annual fees due to the high risk the lender is taking on.

The most cost effective way to rebuild your credit is to take advantage of Secured or Partially Secured Loans. A secured loan involves putting up money as collateral and pledging it against your loan, meaning that if you default, the bank keeps your money. If you don’t actually have the funds to secure a credit card, many smaller community banks and credit unions offer Credit Builder Loans. These loans allow you to borrow money from the bank and place it into a savings account. The funds are secured meaning that you’re unable to use them, until after you have paid them back to the bank. You’re essentially borrowing future funds, paying a nominal amount of interest, and at the end of it all you’ll have 12 monthly payments reported on your credit file and some cash in the bank. It’s a great way to get started, but it only helps if all of your collection items have been taken care of, although some do use this method to force them to save up enough money to pay off their collection items. I advise against this generally as this type of loan is a poor choice of a savings vehicle as you do pay interest to have it.

So there you have it in a nutshell. To summarize, good credit is valuable and it’s within reach of anyone. Credit works the same way for everybody and it isn’t based on how much money you make – just how you treat the money you’ve borrowed. The less you borrow, the less you have to worry about!

Don’t wait to try to fix your credit when you need it, speak to a qualified credit counselor or bankruptcy attorney as soon as possible.

Filed Under: Economics, Minimalism, Strategy

Adobe and Photoshop Can Go Kick Rocks

August 16, 2011 By Richard 4 Comments

Tools for doing your own web graphics on the cheap.

This is Pixlr. It’s about to rock your face.

Don’t have thousands of dollars to spend on Adobe products? Neither do I! No longer do we have to suffer or try to pirate their products. Pixlr is free! It has much of the same usability as photoshop and while it won’t replace photoshop for serious design work, creating advertisements, banners, and other web graphics it works perfectly.

Pixlr is a cloud-based application meaning that it runs completely in your browser, and you can save your work, for free to their servers so that you can access your work in progress from literally any computer that runs flash and yes, they even have an iOS application.

Pixlr has filters, allows you to work in layers, is intuitive – as an example, say you have text overlaying an image, by moving it up or down in the layers list you change what takes priority, so if you want the font over the image then you would move the font higher on the list, want the font to sink beneath the image? Move the image up the list. it also works with all the fonts already installed on your computer! Which brings me to my next point.

Fonts: Let’s face it, standard fonts suck. They’re terrible, and you have only a handful to choose from. Information needs to be readable. Verdana and Ariel work well for that. However, fonts also provide artistic value to your layout and your design. Your designer knows that he can use CSS and webfonts to make exotic fonts display properly on your website. They use services like Typekit to make this work. The problem is Typekit has an annual fee and if you’re on a budget, fonts may not be that important. Did you also know that google has webfonts? They’re free!

Need more fonts for using within pixlr or other design type work? Fontpark has 1000s of free fonts to choose from, and I have found so many different options that far exceed my expectations for free fonts.

Images: I’m still looking for a really great place to get free images, but really nothing works as well as taking your own. I have taken great photos (web worthy at least) using my iphone, proper lighting, and some color adjustment. Using free editing software you can do wonders. If you have a source for great or cheap stock photography, leave it in the comments.

Filed Under: Economics, Microindustry, Starting an online store, Uncategorized Tagged With: adobe, adobe sucks, cloud based photo editing, fontpark, fonts, free fonts, free photoshop, gimp, gimp photo editor, google webfonts, inkscape, online photo editor, photo editor, photoshop, photoshop alternative, photoshop torrent, pixlr, small business, typekit, web design tools, web graphics for small business, webfonts, what is pixlr

College is Overrated and Why I Refuse to Save For Retirement:

June 14, 2011 By Richard 2 Comments

IMPORTANT:

I enjoy writing about what we’re doing at Duchess and Duke Co. But would LOVE to promote YOUR business on this blog for FREE. If you make anything, work for a small company that does, or just know of someone that does please do not hesitate to reach out.

How to reach me:

You can email me: Richard [at] I will escape . [com], leave a message, or contact me through twitter.

And now to: College is Overrated and Why I refuse to Safe For Retirement:

I remember as a child, sitting in my grandma’s kitchen. She watched me after school for a while and I remember sitting in my favorite kitchen chair while she piddled around the kitchen, probably sweeping. She decided to launch into a lecture about why I needed to go to college and at seven years old, I knew already that I had no desire to go.

My Grandma went on and on about how the only way I’d ever make anything of myself and make a lot of money was if I went to college and got a degree.

I never did end up going to college, and there are 3 reasons why.

1: I don’t need to make a lot of money. I have no debt, and the reason for this is because wealth is to a degree – cash flow. It has been very important to me to maximize cash flow by avoiding things like auto loans, credit card debt, and student loans. I also have no need for prestige, and while sometimes my ego craves to be important, it’s not a goal worth acknowledging or a hunger worth feeding.

2: I have a huge problem with the current model most people follow as they live out their lives. Possessions are empty of meaning, I don’t need many. I feel like most people have very real spiritual and emotional needs which for the most part go largely ignored. People in turn try to fill those needs with things. After getting out of school, people proceed to plunge themselves into debt with student loans, credit cards, auto loans. My time is what I care about and by avoiding financing I have much more of it to spend with those that I care about.

3: Education is free, what is expensive is the degree. Colleges are putting course materials online for free, Apple, through iTunes U and even Facebook have free educational offerings provided by world class institutions. I recently watched a video at Khan University that taught me things about Chemistry that I did not learn in my 4 years in high school, and it took me 20 minutes.

College is not inherently bad, but for someone like myself it’s unnecessary. I am making my own way and I’m doing it by bucking the trend by creating a company that has little competition. If you went to college, it may have worked out for you. There is a lot to be learned from going, it just wasn’t for me. The point of this post is not to make you feel bad for going but to let everyone who didn’t go know that you aren’t a loser (necessarily) and you probably don’t need it if you don’t want to work for someone else your whole life.

When College Makes Sense to me:

If you already know with a certainty which field you want to work in and /or it’s free / someone else is paying. It also makes sense if you have no idea what to do with your life, but you know for a fact you don’t want to figure it out, outside of college.

Why I refuse to save for retirement is another thing. I need my money now to grow our company. Saving is great for the short term needs we have, but it is impractical as a long term solution. The only option for retirement is by building up a network of investments that provide cash flow. These investments are rental properties and businesses in my opinion and not stocks and bonds. The only reason to enter the stock market (in my opinion) is if you want to hand your money over to someone who knows much more than you know about how it works. And while you might say that millions of Americans are investing their retirement money into the stock market and that it really does work, I’ll tell you that it might be feasible but it’s definitely not your best option.

Small Scale Manufacturing or Do Everything Yourself Manufacturing is not for everyone but for the people engaged in it, there is clearly money to be made. Why? Well to tell you the truth our products are one of a kind and we really can’t even make enough at this point to keep up with current demand. My goal is to scale that upwards so that more people want our products than can have them. It’s hard work to make soap and bath products the traditional way and I won’t ever be able to make more than a little bit. However the amount of money I make on selling a little bit would far exceed what I currently make and have need for.

There are billions of people who use soap every single day, I need to sell a few hundred bars per month to replace what I make now spending 8 hours a day 5 days a week doing. Inflation is low right now, but so are returns on most basic investments and no matter how low inflation is, your stored money is losing value EVERY SINGLE DAY.

There is no way to ensure a stable future, but there certainly is a way to assure yourself a higher likelihood and it’s to control your incoming cash. It’d be even better if you could grow your own food, drawing down a savings account is like going through life collecting rain drops hoping you’ll always have enough to drink and what I’m doing is like digging a well, better yet, it’s like building a dam.

I’m taking a gamble, I could fail miserably, but to me, the risk is better than knowing for sure that I’ll have less control over my future and an overall mediocre final days. Really nothing is positive and life is all about the journey rather than the destination of retirement. Even if I fail, I’ll have enjoyed the ride.

Filed Under: Economics, Escape Plan, Microindustry, Minimalism