A Financial Education Event
 

Do You Believe in Good Credit?

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I love a good hero.

When I was a little girl, I saw “Peter Pan.” I fell in love with Tinkerbell for all her spunk and fairy dust, she became my hero. I believed in fairies. I was convinced that if I wished hard enough and focused on happy thoughts, I could fly like Peter and Tink!

My BFF, Nanette Woffard, and I made fairy wings out of panty hose, wire hangers and glitter. We began to exercise our belief by jumping off her circular second story stairway, climbing a step higher each time. We were (five-year-old) girls interrupted when, about step number 8, her mom walked through the room with a load of laundry and discovered our exploits.

Mrs. Woffard encouraged our creativity, but grounded us from flight school. We wallowed our disppointment in homemade chocolate chip cookies and milk.

But I never forgot about my hero and how she could fly.

As a young adult, I met a hero who could fly—for reals (that’s millennial-speak for really and truly).

He flew jets and his wings were hard earned through Air Force pilot training.

We’ve had a fairy tale life so far and raised a passel of Kay kids who also learned to dream, believe and soar to greater opportunities than they thought possible. One of those kids even earned his own set of pilot wings last month. Flying, in life and in dreams, is something we’ve always encouraged.

But there’s nothing that will bring a dream crashing down faster than financial difficulties. That’s why we taught our millennial children how to manage credit and earn great credit scores.

When each of the Kay kids graduates from college, they have a good-to-excellent credit score at the age of only 22. It can be done, but the first step is to understand how credit and credit scores work.

Credit scores impact interest rates, insurance premiums, security deposits, employment and even security clearances. In our Heroes at Home Financial Events, we have various segments. I teach on spend plans and car buying. USAA sends JJ Montanero to speak on saving and investing. But we also have an entire segment on how to develop and maintain good credit in order to keep their security clearances so they can do their jobs.

Gerri Detweiller has been writing in the consumer credit space for years and as one of our speakers, she can attest that credit and debt are themes that bleed into all financial areas. A lot of what I’ve recently learned comes from Rod Griffen a financial educator from Experian, who teaches me the latest nuances in this sometimes complicated space.

What do you believe about credit and are those beliefs fact or fantasy? Here’s a quick quiz for you to gauge how much you know about today’s world of credit.

Answer the following as either FACT or FANTASY:

  1. If I have never had a credit card or debt, then I won’t have a good credit score.
  2. Carrying over a balance on my credit card helps me build good credit scores.
  3. My credit history is the area that has the greatest impact on my score.
  4. If I pay off my balances each month, then I don’t have to worry about Debt Usage or Utilization (the amount of debt to credit available).
  5. If I co-sign a loan for someone else, it will still be their debt and not mine.
  6. I have three credit scores.
  7. I can get a free copy of my credit report at Annual Credit Report for each of the three main credit reporting bureaus.
  8. My credit report and my credit score are both free and they are basically the same.
  9. It’s a smart credit move to repeatedly take advantage of introductory APR rates by opening new credit cards and transferring these balances to the lower APR. Then cancel the cards and you will still have a good score while taking advantage of the lower rates.
  10. If I only have credit cards and student loan debt, then it’s important for me to get a car or motorcycle loan for the expressed purpose of building diversification to help my credit score.

Answers

  1. Fact. No credit history means you haven’t started to positively build your credit score. This means you would have a low score on many of the scoring models.

FIX: Start out with a secured credit card where you can’t charge more than you have secured in the credit card account. You can review cards at Bankrate but read the fine print to know what you are getting. This will establish a history and help you start to develop good credit.

  1. Fantasy. Carrying over a balance only means you’re paying interest every month on the balance you carry—which isn’t a smart credit move. Maintaining a credit card balance doesn’t help to build your credit.

FIX: Pay your credit bills on time, carry lower balances and have credit cards for a longer period of time in order to build positive credit.

  1. Fact.  Credit history accounts for 35% of your score and Debt Usage (Utilization) accounts for 30% of your score.

FIX: Concentrating on these two areas (Credit History and Debt Usage) are the most effective means of helping you build good credit.

  1. Fantasy. Even if you pay off your balances every month, you could take a hit in the Debt Usage area if you charge more than 30% of the available credit at the time that the snapshot of your account is taken. So if you have 10K available on the credit card and you’ve charged 9K in order to get points, you’ll have a 90% utilization record if this account is recorded before you pay the balance when the bill is due.

FIX: If you charge items to get points and your utilization is high, then transfer a payment BEFORE the bill is due. You’ll still get your points, but you get ahead of the Debt Usage scenario.

  1. Fantasy. Once you co-sign, then you are responsible for the debt if the other person doesn’t pay. If they pay, it’s not problem, but if they don’t, you will.  You’ll have to pay off that motorcycle, the remainder of the lease or the credit card, should that person default.

FIX: Don’t co-sign on a loan. We’ve lost friendships and relationships with family members when they tried to take us hostage by trying to force us to co-sign. If the lender determines they won’t take a risk on them without a co-signer, then why would you take the risk?

  1. Fantasy. Rod Griffin from Experian, our Heroes at Home credit educator says he could probably pull 80+ scores on any of his audience members. There are three main credit reporting bureaus, but many credit scoring models.

FIX: To know if you have a good credit score, pay attention to the scoring model. On some scales 750 is a good score and on other scales, it could be average.

  1. Fact. You can and should get your free copy of your credit history from each of the three main reporting bureaus listed at Annual Credit Report. But be careful, you have to opt out of paying for scores, monitoring or other services.

FIX: When you order your free score at this site, don’t ever give your credit card info or you could inadvertently be signing up for a product or service you don’t want. However, you do need to be prepared to give your social security number at this secured site.

  1. Fantasy. A credit history is different from a credit score. The history gives a list of all the various credit accounts/debt you’ve have in your lifetime. The credit score is a number that determines your credit worthiness to lenders. The credit history is free at Annual Credit Report.

FIX: Free credit scores are available at Credit.com and CreditKarma.com. But make sure you are getting the free service and not accidentally signing up for a paid service. You can also check your credit card bill to see if your company provides a free copy of your score. If you are military, get a free score at your Family Readiness Center.

  1. Fantasy. This is a good way to deteriorate your credit score. Lenders can see you are transferring balances and taking advantage of a new card’s APR offer. It can even look like you are floating the note or trying to pay Peter by robbing Paul. When you open and close multiple accounts, you shorten the overall length of your credit history and can ruin your score.

FIX: Pay attention to your credit history and remember that every new card you open shortens the overall credit history length of all your accounts combined. Open new credit accounts sparingly and don’t credit card jump to try and save money.

  1. Fantasy. While it is true that different kinds of loans build diversification in your credit profile, diversification only accounts for 10% of your score. So the idea that you SHOULD go out and buy a car or motorcycle (and finance it) in order to get a better credit score is pretty ludicrous.

FIX: Buy a car or motorcycle because you need one and you can afford it. Make sure you budget to be able to pay the note, insurance and other vehicle ownership expenses.

 

Scoring

10 Correct

 Superstar – You know a lot about credit, so you are probably: 1) in the financial industry or 2) really well informed and good with money or 3) you cheated. If you didn’t cheat, you might even qualify to be one of our superstar speakers at Heroes At Home because you certainly know enough to teach this topic!

 

8-9 Correct 

Excellent – You may be kicking yourself or crying “trick question” because you got almost all the right answers. Nonetheless, even experts can learn a few things about the ever-changing world of credit. Be sure you are giving your mentees up to date advice and pay attention to the nuances of building excellent credit.

 

6-7 Correct

 Good – You have a good working knowledge of credit, but you’re no expert. You’ve believed a few fantasies instead of the facts in some of these areas. Pay attention to the questions you missed and make it a point to readjust your thinking so that you can build even better credit.

 

5 or less Correct

 MEH – You know just enough to be dangerous and you are at the greatest risk of crashing and burning when it comes to credit mistakes. Study the wrong answers and make sure you understand how credit works before you open new lines of credit, cosign a loan or try to get a loan for a new vehicle.

 

 

 

 

 

The Heroes at Home Financial Event Tour Update

We’ve visited JBSA, San Antonio, Lackland AFB, Randolph AFB, Laughlin AFB and the last stop was Sheppard AFB. At every base there are things that are the same: 1) we have a lot of fun presenting financial education to our military audiences 2) everyone wants to win the iPad 3) they are surprised that they can learn and have a good time simultaneously and 4) we are always grateful to USAA for providing for so many aspects of this tour. But

Friends and family at every base!

at every base there are also challenges that our military members face that are unique to that base.

At JBSA there are 11 different units from all branches and consequently we have a “purple” audience with Airmen, soldiers, Marines and sailors in attendance. As a mom with sons in each of these branches, I can still relate to my audiences. At Lackland, which is “out in the middle of nowhere” they were so appreciative that we came “all the way out” to Del Rio, TX, (right by the border) to spend time with them. They were a welcoming audience and have a unique mission of training pilots who will go into all parts of the world, flying different kinds of airplanes. We called them “the little base with a big mission,” they also have big hearts.

This past week, we went to Sheppard AFB and saw yet another demographic of Airmen who are in freshly out of boot camp and in military training for their big world mission. Many are mechanics, but there are all kinds of technical professions trained there as well—60,000 per year. There’s also ENJPT (Euro NATO Jet Pilot Training) where future fighter pilots are trained (about 200 per year).

One of the unique challenges of Airmen at Sheppard is that they are vulnerable

A Full house at Sheppard AFB. Photobombing my fellow speakers Ingrid Bruns from USAA and Bethany Grace our high energy emcee!

financially in two areas: family and love. Some of these young military members are pressured by extended family members to send money back home. We stressed that when you are getting a flight briefing from the flight attendant on a commercial airline, she says, “If the cabin depressurizes, air masks will fall from the upper compartment. If you are traveling with someone who needs assistance, put on your own mask first, then assist them.” That’s the same premise we stressed with our young Airmen, “take care of your own finances first and get financially fit and healthy, then teach your family how to do the same.” From the platform, I stressed the old adage, “You can give a man a fish, and feet him for a day. But you can teach him how to fish and feed him for a lifetime.” Yep! We gave some fishing lessons.

The other thing that slips up Airmen is love. They spend money they don’t have trying to impress a significant other by going out to eat, to movies and even buying them jewelry. Some of the jewelry stores convince these young Airmen to sign on the bottom line and they end up paying for years at 30% interest for a necklace or a ring. At one point, I almost shouted from the stage, “If you don’t remember anything I said today, remember this: NEVER SIGN FOR A LOAN WITHOUT HAVING SOMEONE LOOK IT OVER!” I believe the 1300 trainees in the audience got that point. “There are folks at Airmen and Family Readiness who would be more than happy to review a loan before you sign it.” This tip alone could save them thousands of dollars on auto, jewelry, computer and personal loans.

     One of my favorite aspects of the Heroes at Home Financial Event is reconnecting with friends and family. In San Antonio, my BFF Brenda Taylor was there in the audience. A friend knows a lot about you, a BFF knows enough to blackmail you. Brenda can blackmail me many times over! At Laughlin AFB, my good friend Beth Runkle was not only instrumental in getting the spouses together the night before the financial event, but she also introduced me as well. I love the heroes in the Runkle family! At Sheppard, our longtime friends, BG Pat “Moon” Doherty and his wife Dee Dee were there to welcome us royally. I’d call him the World’s Greatest Fighter Pilot because he did fly me in an F15E Strike Eagle once, but Bob would beg to differ about that designation. These Heroes not only brought me out to Seymour Johnson AFB many “moons” ago, but they were instrumental in bringing this tour to the Air Force!

     But the one audience member on this tour whom I love more than life itself is my son Jonathan, who is a student at ENJPT and was a smiling face that I adore. I removed a slide or two that might prove embarrassing in front of 1300 Airmen and tried really hard to not highlight my son in my presentation or during the tour day. If you want to know if I was successful in this regard, you’ll have to ask Jonathan. Apparently, parents can embarrass their kids without even knowing they are doing that. There was just one time, when I ate a blue mint in the General’s office and then addressed his staff of 55 commanders that might have been a problem. I was told later, my teeth were Air Force Blue.

We may be coming to a base near you, this schedule is constantly changing and we are adding news dates regularly. Contact us at assistant @elliekay.com for more info and continue to Aim High!

Quick and Easy Steps to Healthy Finances in the New Year

With the hustle and bustle of the holidays at a close, I remember what it was like to play with the new toys from Christmas long after ringing in the New Year. It was the time of marbles, pick up sticks, and hot wheels racers sets. My favorite toy was a set of Klackers. These came on the market in the late 60s and lasted into the early 70s. They looked like glass, but were actually acrylic balls attached to a string with a ring or small handle attaching the two strings. The object was to get the two balls going up and down and have them “klick” and “klack” against each other. You would build up momentum until they were hitting on the top and bottom in an arc. It was very hard to do at first and when they hit your fingers instead of each other, it was incredibly painful, too. Without fail, every time I played with my Klackers I ended up with bruised and banged fingers. But I kept playing, day after day.
I’m reminded of my Klackers when I look at today’s economy. Consumers have been playing with debt for years and it’s been hurting them—but they just kept playing. In fact, between 1989 and 2001 credit debt nearly tripled from $238 billion to $692 billion and last year it was up to $937 billion. The average debt-laden American especially feels the pinch when the economy is lagging, gas prices are rising, home values are imploding and inflation is rising. But there is hope and a way to not only survive a possible recession—but thrive in the midst of it.

Here are seven basic tips to help you beware and prepare in the new year:

1. Credit Credibility ––The first step, no matter what your financial picture is to improve your FICO (Fair Isaac Credit Scores) as these scores can determine a variety of financial issues including auto insurance premiums, whether you’ll get the promotion or the job (many employers check FICOS), and whether you pay a security deposit for utilities. You can get a free copy of your credit report at credit.com . If you downsize a home or a vehicle, you’ll also need to have an excellent FICO to get the best APR rates. You can improve your FICO in three easy steps:

  • Pay your bills a day early (rather than a day late) by setting up payments online
  • Pay $5 to $10 more than the minimum balance which indicates paying down debt
  • Proportionality: make sure that you don’t have more than 50% of the available credit charged on any one card.

2. Savings Savvy– I get loads of emails every week from people who are cutting hundreds from their household budget by following simple savings tips. From insurance to groceries, there are savvy ways to save at your fingertips. I have a lot of these savings tips on my blog. Start to implement these tips and it will create good discipline that will prepare you for a recession. Use the money saved from these tips to pay down debt and build short term savings.

3. Debt Deal Dilemma: With a slowing economy comes an influx of those who want to “help” prepare you for the worse by consolidating your debt. However, most “for profit” debt counseling companies charge a hefty fee for their services which is usually tacked onto your debt load. Instead, go to the National Consumer Credit Counseling Service and use their free services.

4. Don’t Do Dumb Debt– As things begin to get tight, you might be tempted to get a HELOC (Home Equity Line of Credit) or refinance your home in order to pay consumer debt. Bad idea. This will only deteriorate the equity in your home and chances are really good you’ll be right back in that HUGE boat load of debt by this time next year. The better option is to cut costs, budget, and go to the NFCC.

5. Budget Baby and Learn – If you don’t have a budget, as part of your lifestyle, then yesterday was the day to start. Set one up with online budgeting tools, found at www.elliekay.com. It’s also important to learn how to budget, a great new program that helps military families with their money matters is supported by the Military Family Advisory Network called MilCents and it begins a new (free) course in February.

6. Repurpose Funds: My daughter loves to take antiques and even junk and repurpose it to give it more life (and save money in the process). As you save money in one area, it’s important to redirect it to another area through proactive actions such as writing a check to pay debt or to fund your savings account.

7. Plan With A Purpose – Whenever a “theory” is tested, it must stand up to a “proof” in order to be established as true. You can have all this good stuff on paper, but if you slap down the credit card to pay for a “40% off” killer Marc Jacobs suit, or use debt to fund a vacation–then your plan is only a theory. For it to become REAL, you need to make it part of your daily life. This means you start living with your plan and don’t incur more debt.

Happy Savings and Happy New Year!

Ellie Kay