Credit In A Nutshell

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.

 

 

How To Set Your Business Apart From The Rest

I find myself in a state of frustration just about constantly. The things I want to talk about – most people have no idea of even the concept surrounding the topic. It’s not their fault, nobody else I know shares the passion I have for what I do. Much like what we produce, I too stand apart. While it can be lonely, it’s an essential quality that genuine artisans looking to persuade others to purchase a product must have.

I find it especially frustrating when people compare our soap to something one would find at a craft fair. I have had quite a few people tell me that you can buy home made soap anywhere. Home made soap is one thing, we prefer the distinction of hand made. I usually point out to people that the difference between someone who makes soap at home and us, is that we happen to live in a factory. Craft soap is fine, it’s similar, but it isn’t what we make. Therefore it is not comparable in price or quality. How are we different? We’ve not only spent time learning how to make soap, but learning why soap is soap, the history of soap and of soap making, we’ve learned about the beneficial properties of herbs, spices, and botanicals. We’ve spent months researching additives from milk to silk, clays to charcoal and everything in between. We’ve learned about photography, web development, marketing, accounting, blogging, social networking, wood working, and now the art of blending fragrances. We’ve learned how the ingredients we use are made, we have learned about the people who make our ingredients, and the particular skills carefully developed over time to make those ingredients. We go much deeper in understanding every aspect of our product.

The purpose of this post is to explain how to set your product apart if you’re interested in microindustrialism.

A phrase I find myself repeating over and over again is that “if you’re going to build it, you might as well overbuild it.” If it’s worth doing, then make sure you do it as well as it can be done. Consider that the difference between passable and unsurpassable is a thin margin. To get to world-class excellence you must put in that extra effort. That extra effort is time consuming, laborious, and something many would say may not be worth the effort. What that means is that you may be able to do a half way decent job of making and selling something, but until you reach the level we have spent years reaching you will always be a crafter. If you want it to be everything you say it is, you must go as far as you can in quality. How?

Quality:

Every aspect of our product is designed – intentionally to completely engage every sense. From the beautiful fragrances, to the texture of the handmade paper, to the visual impact of a finished product. If you make something that you hope to sell for money, then these aspects will set you apart from mass producers and crafters who are just out there to have fun and maybe make a buck or two. This is not a hobby for us, we’ve transformed and continue to transform our lives to make this a reality. Our product interacts with a customer at multiple levels and in every way possible it should exceed expectations.

Consider this: To produce just 1 bar of our soap, takes the collective knowledge, passion, and time of, in the most real sense possible, thousands of people scattered throughout the world. Each bar is literally years in the making. From the villagers in rural Burkina Faso who mill shea nuts by hand into the world-renowned rich and conditioning shea butter heavily used in our soaps to the French farmers who grow the lavender in Provence just as their ancestors have for grown lavender in the same fields for the previous 700 years. Consider that length of time. 700 years ago, Columbus’ grandfather had yet to be born. All of this history, knowledge, tradition, etc. goes into a product that people simply rinse down the drain. What could be more excessive and sickeningly decadent than that?

Up to 10% of each bar is pure, unsaponfied shea butter. Some soap makers feel that putting shea into something that is rinsed off is completely wasteful, and have criticized me for doing so. One in particular told me that shea is so luxurious, it should only be used in lotions. For us to put such an excessively wonderful ingredient into our soaps is one reason why they’re considered to be so luxurious.

Most people don’t consider what hand made means. What it means, is that it is someone’s life work. Someone somewhere in the world spent years perfecting their technique. Highlighting just one of the many products we use to make our fine soaps, paper makers must make paper to be just the right thickness. To understand what it takes to make paper the right thickness you must understand how it’s made. When made by hand, pulp or shredded plant and fabric material are placed into a vat of water and then scooped out into a screen. Depending on how long the water has been mixed with the pulp and how many sheets have already been made from the vat, it may be holding more or less water and the artisan may have gotten more or less pulp than required, meaning that if someone aims to produce paper of a certain thickness they have to determine how much water it’s holding and how thick the slurry needs to be in the screen to match the desired thickness after it has been dried and pressed. A professional paper maker gave the figure of only 12 errors on average per thousand sheets of paper he made. While anyone can learn to make paper in less than an hour, learning to make paper with that degree of accuracy takes many years. That level of skill goes into our product every time we wrap one of soaps in a piece and that isn’t something others care to claim and it’s just another way we go above and beyond in production. Yes, hand made paper costs considerably more than cheap shrink wrap or cardboard boxes, but incorporating the quality and wonder of hand made paper is appreciable, and while people may not consciously be aware of it, when they hold it in their hands they will know that something about it is better and different. If you don’t believe me, go pick up a sheet of paper produced by hand and see the difference yourself.

In addition to that, paper made by hand has a deckled edge. Deckled edges are the rough edge that is left from paper fibers naturally settling in a screen. It’s a mark of quality and is sometimes simulated in machine made papers to give a more finished and luxurious appeal. Knowing the difference between genuine and simulated deckling is what putting in the extra effort means.

To understand what hand made soap means is that we have spent over 2 years and thousands of dollars making batch after batch, fine tuning and making the smallest adjustments to bring you something that produces amazing lather, leaves your skin supple, and smells delicious. Money is nothing, it’s value differs from person to person, but the time we spent has amounted to thousands of hours of research, reading, practice, and discussion. It has been an all consuming task that we have spent gladly and will continue to engage in.

Like many others we could have understood the basics and then ran with it, but we didn’t. We set ourselves apart by pondering the deeper meaning of quality, luxury, and richness. We go the extra mile in really appreciating every nuance of the soap making process and by having that deep understanding of every aspect of your product, you too will set yourselves apart.

Service:

There is a famous book that I have read and enjoy. It has some solid information in it, but the major premise of the book is outsourcing everything in your company – from production, product development, to customer service. This is fine for cheap junk from China, but not suitable for a luxury product that is produced in small quantities. Outsourced service providers lack the knowledge and experience a professional artist has and no one should know your product better than you do if you’re claiming it is of higher quality and value than other products available.

By dealing with your customers one on one, you preserve a level of humanity that is far too often left out. People generally like to deal with other people, and it’s sad to say that these days, getting a live person to answer your question is a luxury.

Evidence:

From our experience, we’ve yet to see another soap on the same level as ours. The passion we both have for bringing a luxury grade product to the few who can find us is all consuming. To better explain what I mean, right now I’m investing time into reading texts that were written about the art of perfumery, over 100 years ago.  These antiquated texts explain how to produce delightful fragrances before they had artificial scents and modern machines. I’m also reading modern day texts to help me define a process to produce our own custom blended fragrances in house, to ensure that nothing can touch what we produce. By going back to these older texts, I gain a deeper understanding of not only the process but the history and tradition of it, which will provide a more developed ability and ultimately a much better product.

As small manufacturers, we do not and cannot play the game of volume. We lack the ability to produce in large numbers, but it has been done to death. The only way to compete is to produce something that is genuinely and significantly better than the common place items you compete with. Soap can be found for under $1 a bar at bulk stores and even gas stations, but what we produce isn’t even in the same category.

Give your clients their money’s worth, not just in the product but in the discipline of your craft.

Luxury is not about price or an image. It’s a dedication to beauty and purity in the pursuit of perfection. For us, it isn’t in the packaging, it’s in the time it took for someone to develop the skills necessary to make the packaging. It isn’t in the ingredients, but it’s in the care in which they were prepared. It’s not about the superficial qualities that are most commonly observed, it’s about the inherent ones that are so easily overlooked. You cannot separate the villager who spent the time developing those necessary skills to hand mill shea nuts into butter from the actual tangible shea butter. You can overlook it, as most people do not think about it when they read the words “shea butter” on the label, but you still know it’s there. You don’t think about the years of practice it took a paper maker to ensure the quality of the paper when you rip off the wrapper and throw it away – but those are the aspects that make a product undeniably luxurious and while you may not consciously observe them it is evident on some level that people pick up on.

If you want to make something that is worth the extra expense, it’s not in having a good graphic designer or a catchy slogan. Sure those things help, but go above and beyond in making it and the thing will sell itself.

Here’s to your best creations!

Streamline Decision Making

Decision making is hard, but it’s key to developing yourself as a person and in business.

Making decisions does not come naturally to many people, myself being one of them. Often times it’s not just the big decisions in life that we hesitate on but we do so with small decisions as well.

Indecision stems from counter-productive emotions like fear and jealousy.

You shouldn’t fear making decisions as most can be undone or adapted.

The Trouble With Indecision:

It’s a sign of weakness and it shows fear and a lack of self confidence when we delay making a decision.  The small decisions you make now can result in your option to make a stream of increasingly larger decisions:

Going to a party ->meeting a girl->sending a text message->going on a date-> setting a wedding date-> fathering 3 babies

Bill Gates’ deciding to join a computer club resulted in Microsoft. It was a small decision, but if he had been unable to commit and missed the boat, we wouldn’t have Windows. Needless to say, indecision robs us of our potential.

Being indecisive is not something that you can keep to yourself. Other people will notice your inability to make a decision and will form opinions about you that could jeopardize your advancement in your career and/or social circle. I’ve experienced this first hand when trying to change job positions willy-nilly (that’s right, willy-nilly) or when flip flopping between love interests.

Decision Hacking: Making Effective Decisions With Minimal Effort

How do you streamline decision making? I started by making a few basic decision on how I wanted to live my life and I let those decisions make as many others for me as possible. I call this and other key decisions PRIME RULE(S). If you have not established any rules that govern how you operate it is essential to do so, and it is essential that you focus on living a life that is in harmony with your rules. This is the cornerstone of streamlined decision making. Operating without them is like trying to figure out where you are without a map.

I decided that I was not going to be in debt and that I was going to provide for myself. I decided that I will never get a divorce, and that freedom is more important than money. After making these decisions I became intently focused on taking that decision through to fruition and avoided making decisions that violate PRIME RULE(S). They resulted in other decisions such as avoiding debt, strange women, and seeking job promotions.

OUTSIDE OF PRIME RULE(S)

Unfortunately, PRIME RULE(S) do not apply to every decision I make, although quite a few things do fall in line with it. This section deals with making decisions outside of Prime.

People hesitate to decide when approaching a situation where there are too many variables even if the decision is of little importance. They have a hard time figuring out which option is “the right one”

One scenario that comes to mind is trying to select a salad dressing out of an entire isle filled with salad dressings. There are many things to consider – nutritional content, brand recognition, quality, flavor, specific ingredients (MSG or transfats) cost, organic or non-organic, base (oil or cream), food pairings, etc. When coming up to any situation with many variables I consider the following:

1: What is the weight of this decision or in other words, how much will this matter in 5 minutes, 1 day, etc. If the decision holds little weight, I acknowledge that my decision doesn’t matter and make a judgement call.

If the decision holds much weight I do one of three things:

A: Eliminate options that violate my rules (discussed more in depth up ahead)

B: Conduct further research

C: Consult with a trusted advisor

2: I seek to recognize when I’m second guessing myself and change my behavior. I take a moment and examine my previous and current actions to determine if I’ve already decided what to do, because sometimes we know what decision has been made internally but are not committed to it on some emotional level and sometimes our minds operate in two different states simultaneously.

Consider the following example: I was making a small purchase. I and my wife verbally agreed we had found the right product and proceeded to the check out. I backed out of our decision and continued browsing and repeated these same steps several times. Finally I realized that I had already decided and that I was only second guessing myself and then committed to the decision I had already made 3x in a row.

This happens in relationships all the time. Party A expresses interest. Party B expresses interest. Party A would like to make a commitment, but even though Party B has committed in action both physically and emotionally, but refrains from verbally making a commitment or frequently takes back the commitment they’ve given.

The Right One Vs Not The Wrong One:

This section deals with the problem of Mr. Right type thinking and shifting the focus of problem solving to making educated eliminations.

You can spend a lifetime waiting for the “right” person or business venture to come along. By adopting this take on a situation, it’s easy to become paralyzed with fear, in the expectation that something better may come along. It may but more times than not it never shows up. The difference between good and great is maybe 3% tops. Often times it’s not the decision that makes the difference, it’s the execution of that decision.

When you seek to eliminate the wrong options you are instead left with several workable options instead of 1 or no options. I continue to work backwards until I have eliminated as many options as possible. Perhaps I end up with 2 or 3 options to choose from instead of 15 or 20 and those remaining 3 options are more often than not, a toss up.

It’s common for people to suffer from what I think of as “Mr. Right Syndrome”. It’s human nature to want the best of everything, but to find the best, you have to eliminate the worst.

Often times there is not one right one, but our brains insist that their are. The truth is, there are generally many right ones.

Mitigating Risk:

When it came down to deciding that security and higher earning potential were important to me, I considered climbing the corporate ladder and really developing an awesome career. I then considered simplifying my life, keeping my job, but trying to avoid reaching out for promotions, and instead spend my free time developing a business.

Starting a business is a risky thing, because if it fails, you are likely lose everything. I’ve mitigated these risks by staying debt free (except for my home and a small credit card which I make sure to always have several times the limit in cash on hand). I also have held onto my job and make an effort to do it well so that promotions are an option if I find them to be more advantageous. I also bought a home that we could afford on only one salary and I avoid excess subscription services like newspapers, magazines, cable channels, applications, blogs, etc. I keep a low overhead.

You can mitigate risk by first examining what risks there are. Of course the risk that’s most dangerous is the one you don’t see – but if you’re diligent and do your best, that’s really all you can hope for.  You can reduce your exposure to risk by taking a few moments and doing some very light reading online from others who’ve had similar experiences and by educating yourself on the situation before attempting to make a decision.

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