April 30, 2011

Credit Scores: How Confusing Are They?

Like it or not, most aspects of the consumer world revolve around the individual's personal credit score. Thinking of buying a new automobile? The better the credit score the more favorable the auto loan. A new home on the horizon? Same goes here. Higher scores can mean savings of tens of thousands of dollars on mortgage interest paid over the life of the loan. While improving and maintaining good scores is important, understanding the inner workings of one's credit score is the best way to start down that road of knowledge.

                                 credit scores

Starting at the very beginning, what does FICO mean? It is an acronym for the business which created the credit worlds most dominating software applications used by the major credit bureaus to determine an individual's credit rating. The name of that business is Fair Isaac and COmpany, hence FICO.

But one does not have a FICO score in and of itself. Instead, most consumers with credit histories have three different credit scores which are calculated, in part, using the FICO software. So then, how do these three companies come about affecting ones ability to obtain credit more reasonably?

Competing with each other are Equifax, Experian and TransUnion. Essentially all three companies do the same thing, though in slightly different ways. Just to make matters a little more confusing for the unaware consumer each of them have their own name for the proprietary credit score their company produces. Equifax has the BEACON Score, Experian the Experian/Fair Isaac Risk Model, and TransUnion's is the EMPIRICA.

Now with not one, but three credit scores to worry about, the average consumer learns that many lenders have their own models which they produce a credit score from. Though lenders tend to use one or more of the major credit bureaus numbers, they also have their own equations in which the bureau numbers are but one variable. Instead of just three, a person can have an infinite number of scores.

Confusing? It is. But it need not cause one to lose sleep.

Because credit scoring is a very competitive world, most of the numbers one is likely to see should be relatively close to each other. If they are not, chances are the one number which is widely divergent from the others has some sort of reporting error contributing to the variance.

As a consumer, keeping an eye on just such variances is an important part of maintaining a healthy personal credit rating. Why? Because it can be impossible to know which of the credit bureaus a lender may draw its credit score information from. When applying for a vehicle loan, if the bank or credit union in consideration uses numbers that are untrue and much worse than the scores available at the other companies, the loan will either be rejected or offered with very unfavorable terms.

It is also good to understand that credit scores are a very fluid, changing number. With most creditors now reporting in near real time, good or bad activities get applied to one's FICO scores very quickly. Scores at the beginning of the month are likely to be quite different than at the end of the month.

Bearing this fluidity in mind is another important reason to consider subscribing to one of the many credit reporting services. Knowing exactly when to apply for a loan can save hundreds of dollars. Plus, having access to one's personal information can help reduce or minimize the affects of stolen identity as the crime adversely damages ones credit history.

Tim Coffman is a freelance writer for My Credit Group . He assists people with credit repair services and provides valuable online resources.
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April 19, 2011

Surviving the Trader Learning Curve

Have you ever considered why most people fail as traders? We know that most do. In fact, industry folklore tells us that about 90% of daytraders will lose money and quit trading. In this article, we are going to break down why traders fail, and then we are going to discuss a practical solution to prevent this cause of failure from materializing in ones trading.

                               trading 

So, why do most people fail and quit trading? The first and most obvious answer is because they lose money. But is this really the reason that people quit? If it were simply a matter of money, a person could cut back his expenses, save more money, and come back to the game with a new grubstake. The fact that people lose and quit trading has to do with more than just money.

The loss of money stings so bad, that eventually it crosses a psychological line and the person does not believe they can trade successfully and gives up. Of course, there are other reasons that people quit, but this is probably one of the leading causes—people cross a line psychologically where they cannot handle the stress of losing money and facing defeat on a regular basis.

Now, the reality is that most traders fail early on in their careers. It’s much rarer for a seasoned professional to reach the breaking point and quit after 20 years in the business. Typically, the most challenging and difficult years are the early ones. The first 2-5 years is where most people will quit trading. If this is true, then a new trader should focus on simply surviving the learning curve!

The learning curve is where a trader is learning about the market, and learning about himself, and this is where most traders fail and give up. Therefore, we are going to provide a tool to help traders survive the learning curve. The secret is to simply reduce risk substantially. This will empower a new trader like few other things.
Most new traders conduct a few forex broker reviews and open an account, start trading, and are risking way too much of their account equity on a single trade and this makes trading very difficult. Instead, new and developing traders should consider risking no more than 0.25% or less of their account on each trade. This will substantially reduce the stress connected with any single transaction as a loss will be so small it will not sting nearly as bad as a normal loss. This will also help a trader take his focus off the money that is being lost or made and onto actual trade execution.

By substantially reducing risk, a trader will be better positioned to trade from a mentally detached perspective from money, and this is an essential key to staying in the game long enough to develop as a trader. It is always good never to use money gained from other income means when trading. Like small business loans and other finances you may be involved with.

Risk disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
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April 14, 2011

Are You Newly Independent? 4 Tips To Establish Good Spending and Saving Habits Early

I don't know about you, but I was on expert on spending since I could walk and lousy at everything else finance related for much of my life, well into early adulthood. Considering the rampant way in which so many Americans have bought things on credit, I would venture to say that this is true of a lot of people as well. While my parents weren't the best at educating me about the ins and outs of personal finance, I learned eventually, but I learned the hard way. Here are a few tips for those of you who are just starting out on your own but you don't know exactly how to go about handling your money.

                             early savings

1. Getting that first check from your full-time job can be exhilarating, but don't get too excited.
I think the biggest problem that newly independent young professionals have with their money is that they simply aren't used to having so much. When I got my first check, that was the most money I had seen in my bank account in my entire life. I was so excited that I proceeded to blow through so much of it after I had taken care of rent and other basic living expenses. As such, I was living paycheck-to-paycheck for much longer than I care to admit. Whenever you get paid, pay yourself first by setting aside at least 10% of your earnings each month.

2. Most young professionals have modest tastes. Keep it that way for as long as you can.
The great thing about being a newly employed young person is that you are making ample money but you don't have things to worry about like paying for kids and a mortgage. Coming directly out of school, during which most students are barely scrounging by, you probably also haven't yet developed very expensive tastes. Keep it that way by living in a modestly priced area (with room-mates if possible) and keeping basic expenses like groceries low. Grown up tastes are pricey, so stay young for as long as you can.

3. Most people don't start investing until they're in their 30s. Beat them to the punch.
If you are new to the working and making money world, you are probably terrified and confused by even just thought of investing. I know it sounds like an extremely complicated game of roulette or craps, but believe me, it's really not that difficult if you do your research. Read some beginner books on investing, check out young professional investing blogs, and ask friends who studied finance/economics and may work for banks or investing firms.

4. Limit your entertainment expenses.
The largest expenses that my friends and I encountered when we first embarked out into the real world were all in some way or another related to entertainment. That's because when you're young and not yet married, you have ample free time to enjoy yourself beyond the confines of family responsibility. Of course, having fun is fine, but be sure to set aside a set amount that you spend on going out, eating out, and buying things like electronics, such that you don't take things too far.

These are just a few easy ways to make sure your financial health doesn't plummet as soon as you get things started. Your credit score is probably good and your debt is probably low at this point, so don't mess it up by starting to save and budget early on.

This is a guest post by Alvina Lopez who is a freelance writer and blog junkie, who blogs about accredited online colleges.  She welcomes your comments at her email Id: alvina.lopez @gmail.com. 
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April 11, 2011

Tips for making an insurance claim

insurance claim
Making an insurance claim can often be confusing. Your car insurance company may have a certain time period they turn around a claim and require you to follow specific steps to have your claim processed. Regardless of this, here we've listed the main things you need to take into consideration when making a claim:
  • As soon as you are able, phone the insurance company soon after the incident occurs. This is important to get things moving and speak to them about what happened while everything is still very fresh in your mind. You will most likely be asked to fill in a claims form after this, including as much detail as possible about what happened.
  • Be open and honest about the exact circumstances of the incident. Sometimes we can change things which may be a bit embarrassing or omit information we don't want to talk about. Being open and honest means that the claim should go through promptly and without any issues. If it is found out that some of the information is wrong or missing, this can lead to an investigation by the insurance company, your claim may be delayed or worse, you may be denied and not able to claim at all.
  • Give the insurance company copies of all documentation that will help them to process the claim. It is a good idea to keep all of your insurance related documents in an easily accessible folder in the case of needing to make a claim or if you are running into any issues making a claim in the future. The more documentation you have to support your claim, generally the faster your claim could be processed.
  • Cooperate completely with the insurance company and the people affiliated with them including any medical practitioners and investigators. These people will help you with your claim, so being irritable or uncooperative with them will only work against you. Making a claim doesn't have to be a hassle, but it can often feel like it is. Keep calm and go through the process to make it as easy for you and the insurer.
If you feel you have been dealt with unfairly, there are a number of actions you can take, but hopefully and in most cases, this won't happen if you follow the insurance companies claims procedure and provide them with all of the documentation and information they require to process your claim.

If you are just gathering a number of car insurance quotes to organise insurance for your first vehicle, or if you have been driving for many years, the above tips are good to keep in mind should you ever have to make a claim. It is stressful enough having an accident, the last thing you want is for the claims process to cause even more stress. We hope you find the above tips useful in making your claim process as hassle free and as easy as possible should you ever have to lodge a claim with your car insurance company.
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