The Finatical

Week of July 19th, 2021 - Managing Credit Tips, Surging Prices, Fed Unconcerned About Inflation

FinaticTips - 3 Tips for Managing Credit

1 - Improving Your Credit Score

Your credit score acts as a factor that can come into play when you are applying for loans. The better your score, the more chances you have of getting the loan approved. Your credit score tells potential lenders about your reliability and accountability when it comes to repaying loans. A better credit score can even offer loans at lower interest rates. Now that you know about how a good credit score can help you, the question really is how you can achieve it. 

Here are some factors that can significantly improve your credit score:

• A history of on-time payments

• Low balances on your credit cards

• A mix of different credit cards

• Loan accounts

• Older credit accounts

• Minimal inquiries for new credit

More than 90% of top lenders use FICO credit scores, and they’re determined by five distinct factors: 

• Payment history (35%)

• Credit usage (30%)

• Age of credit accounts (15%)

• Credit mix (10%)

• New credit inquiries (10%)

Here’s how you can improve your score:

Bill Payments: As your payment history is the most important factor that determines your credit score, it is best to ensure that there are no outstanding debts. Simply paying off your debts can seal the deal. Here’s how you can avoid late payments:

• Creating a filing system, either paper or digital, for keeping track of monthly bills.

• Setting due-date alerts, so you know when a bill is coming up.

• Automating bill payments from your bank account.

• Using your credit card to charge payments.

Credit Utilization: After bill payments, credit utilisation is the second most important factor in FICO credit score calculations. It refers to the portion of your credit limit that you’re using at any given time. We do realise that paying your credit balances in full each month can be a problem. Therefore, we have arrived at a different solution. A good way to keep your credit utilisation in check is by keeping it at 30% or less. Keep your total outstanding balance at 30% or less of your total credit limit and you’ll be on the road to an ideal credit score. 

If it’s still hard for you to cover all expenses in the above limit, then the most ideal solution is to simply request a credit limit raise from your credit card company. 

Credit Inquiries: An occasional hard credit inquiry is unlikely to affect your credit score but many of them in a short period of time can negatively affect your score. More credit inquiries can lead banks and lenders to think that you are facing financial difficulties and might discard you as a reliable creditor. Therefore, try to avoid making frequent credit inquiries if you want to improve your credit score.

2 - Reading Credit Reports

Your credit report is based on what creditors report about you. They report the amount of money they loaned you, whether you paid them on time or late and the balance on the loan. Your report may also include information from your public record and your history with previous landlords. There are traditionally four common sections in every credit report: 

• Identifying Information (Name, address etc.)

• Credit accounts (Credit History)

• Public records (Bankruptcies, foreclosures etc.)

• Inquiries (Businesses that have inquired about you)

As credit reports can be accessed by lenders and businesses, it is best to ensure that the information on your report is accurate. 

Here’s all you need to check:

• Closed accounts reported as open

• Incorrect balances

• Incorrect credit limits

• Being reported as owner of an account that you were an authorized user for

• Incorrect dates

• Accounts inaccurately labeled as late or delinquent

• Accounts listed multiple times

You do not have to stress over updating your credit report. Just make sure to do it once a year and if you are applying for credit then do make sure to review your credit report once.

3 - Choosing Between a Credit and Debit Card

Simply put, a credit card allows you to make payments without using your own money while a debit card draws money from your checking account. While it may seem that both of these cards are similar or even identical with 16-digit card numbers, expiration dates, and magnetic strips and EMV chip, that is just not the case. Here are some important factors that you need to keep in mind before deciding your best fit for plastic money:

Debt: Using a debit card instead of a credit card simply refutes the possibly of finding yourself in debt anytime in the future. Using a debit card allows you to make payments from your pocket and there is absolutely no risk involved as there is no third party involved. If you feel that repaying your credit card bills or even sticking to the credit limit can be an issue for you, then going for a debit card is the most viable option for you. 

Credit Scores: While opting for a debit card is undeniably the safer option, a credit card can affect your credit score. This means that using a debit card has no impact on your credit score and will not help you if you ever want a loan in the future. However, using a credit card can be a double-edged sword as it may negatively impact your credit score if you are not careful with your payments. 

Rewards: While deciding what’s better between a credit and debit card, this factor can act as a tie-breaker for some people. Unless you have a rewards checking account, you won't earn any points, miles, or cash back on purchases made with your debit card. Because rewards can save you money, depending on how you redeem them, you could be missing out if you only spend with a debit card. On the contrary, credit card users can reap cash, discounts, travel points, and many other perks unavailable to debit card holders by using rewards cards.

There is no outright better option as both cards have their pros and cons but it is all about finding your best fit. Weigh the above factors wisely and find your best fit. If you are still facing difficulties, be assured that there is nothing wrong with having both cards in your wallet!

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FinaticTrends - 2 Financial Trends

1 - Surging Prices

If you are wondering what exactly is driving the inflation in the economy then here’s your answer: surging prices! Price increases in used cars, gasoline, food, airfares etc. are behind the biggest surge in inflation since 2008. Data suggests that there has been a whopping 87.7% increase in the prices of car and truck rentals since last year. Bank of America economists believe this may be the peak of used car-prices as the increase in sticker prices for consumers has now exceeded the jump in wholesale used car prices, which started to moderate in June. It can be inferred that all of these commodities have recently come in use with the easing of COVID restrictions. As we return to normalcy, our increased demand and usage of these products is driving the prices and is basically one of the major reasons behind inflation. It will be interesting to see how long this trend lasts but let’s just hope it’s not very long!

2 - Federal Reserve Unconcerned About Inflation 

While a lot of people are already stressing about inflation, it may bring some consolation that the US Federal Reserve isn’t actually worried about it. The US Federal Reserve released theminutes of the mid-June meeting of the Federal Open Market Committee (FOMC), which is the principal policy making body of the Fed. The committee members noted that inflation is up but consider it to be transitory. They noted that “the largest contributors to the rise in measured inflation were sectors affected by supply bottlenecks or sectors where price levels were rebounding from levels depressed by the pandemic.” Thus, they appear less worried about persistently high inflation than many business leaders. They concluded that the economy will eventually depend on the path of the virus and you can’t actually be certain about that. Some participants said that uncertainty around the economic outlook was elevated and that it was too early to draw firm conclusions about the paths of the labor market and inflation. Phew, that’s a relief!

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Financial Guidance

"Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this." - Dave Ramsey 

By being modest in your spending, you can ensure you will have enough for retirement and can give back to the community as well.

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Money Fact

Paper money is not actually paper.

U.S. paper money is not paper at all: It’s 75 percent cotton and 25 percent linen. In Ben Franklin’s day, people repaired torn bills with a needle and thread.

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