Sunday, 21 August 2011
Sunday, 1 May 2011
Why A $300 Credit Card Limit Won't Help Your Credit Score
If you are a frequent reader of my articles, you know I do recommend credit repair strategies that do involve the usage of sub-prime secured credit cards. However, this article is to help you to better understand the purpose of obtaining these types of accounts and how to use them in such a way to acquire the desired results. If you do not follow this advice, your credit score will likely drop as soon as you begin to use your new major credit card account.
As I have stated in many of my past articles, one of the single most factors that will determine your score is something called your Credit Utilization Ratio. This is simply the amount of credit you have used in relation to the amount of credit extended to you. For example, if you have a Visa with a credit limit of $1,000 and you have used $500 of that limit; your utilization ratio on this account would be 50%. Here is where obtaining a credit card with a limit of $300 or less can be tricky business. You must remember that credit utilization ratios above 30-35% will start to have a negative impact on your score. So, in the example given above where the ratio is 50%, this is bad. This is where points can be potentially subtracted from your credit score. Merely having a credit card in good standing does NOT mean your score will increase.
So, having a sub-prime credit card with a small credit limit of $300 means that in order for this account to benefit your score by lending more points, you must not use any more than approx $90 of the $300 limit extended to you. This is a 30% utilization which you will not want to go beyond in order to have a positive impact to your overall credit score. So, do not think that just because you have a credit line of $300 that you can spend $300 and increase your score. Not so, even if you make your payments on time it would take years not months to impact your score. The caveat is if you were to pay the account off in full every month. These types of sub-prime secured credit card accounts are encouraged only for the purpose of establishing new credit. It's not really promoted for the usage of the credit
What Does It Mean to Have Bad Credit
Credit Scores Determine Good or Bad Credit
Lenders rely on credit bureaus to supply them with credit scores. The three, major credit reporting agencies, Experian, Trans Union and Equifax, all use the same formula developed by Fair Isaac's and Company (FICO) to calculate a consumer's credit score. Every loan you have ever had and how well you managed those accounts are posted on a credit report. According to the Federal Trade Commission Site on Consumer Issues, the credit-scoring characteristics include an applicant's bill-paying history, the number and types of accounts, the age of account and outstanding debt; information used to calculate a credit score also comes from the loan application.
While the three agencies may have different information about you and slightly different approaches to calculating your score, each agency gives you a score of between 300 and 850. A single FICO score from one of the three agencies may be used to determine loan approval. The lender does not see just a score and judge applicants based on the score number alone, however.
High and Low Scores in a Nut Shell
Anyone with a FICO score of 539 or lower is considered at high risk to lenders. Nearly twenty percent of people at this level have defaulted on a loan; in other words, out of one hundred approved loans, twenty will stop making their payments. By comparison, people with a FICO score of 760 are rated average-to-above-average and default on their loans less than two percent of the time.
Top 3 Strategies to Help Microfinance Get Its Groove Back
There has not been much comment on how the industry can be saved and be helped to get back on the right track where it was about 5 years ago. The comment below gives a flavor of how the microfinance industry can attempt to get back on track and continue to make an impact.At the outset, most actors believe that micro finance does indeed reduce poverty and increase the level of financial inclusion for the unbaked. What I believe the industry needs however is hard and fast data to actually show the good that it does. Mix Market and Micro finance transparency are two organizations that have spearheaded data collection within the industry and have made some strides in getting data together that present the impact of micro finance in the lives of poor people.
These two organizations should however focus more providing data that gives more information on the quality of services given by MFIs rather than focus on numbers of borrowers reached for example. A focus on more qualitative data would help MFIs improve their products and how they interact with their clients and would also help the world see the non-financial impact that micro finance can make. They should also focus on providing more geographically representative data as my view is a lot of their data is India and Asia centric which a huge gap in African MFI space.
Innovation is a key area that the micro finance industry could explore further in order to improve its efficiency and possibly reduce its operational costs. For example, more MFIs should take advantage of mobile money for their clients which would mean that clients can settle their loans using their mobile phones and also receive payments using their phones. This would reduce the need to travel or complete numerous forms for loan disbursements. This could lead to increased efficiency and reduced staffing costs for Micro finance Institutions.
'Micro finance plus' is another key area for consideration. By this I mean the additional (free) non-financial services that Micro finance institutions provide their borrowers. This could be Aids counseling, financial education, clinical services, or schools. Obviously the level and quality of the services provided will be dependent on the capability of the MFI and some small MFIs may see this as an increase in their overheads which may be unsustainable.
Whilst the above 3 strategies may not create an overnight change and resolve all the issues within the micro finance industry, I believe that they are a strong starting point to getting the industry gradually where it was a few years back when Yunus won the Nobel prize and where micro finance was referred to by the Nobel prize committee as 'the most liberating force that exists
The War On Cash
It's quite ironic that as the US Federal Reserve devalues American money into abyss, yet the American government is trying to instill more and more controls on the increasingly worthless dollar.What's sad is that the US government now employs cash sniffing dogs at airports with the typical government explanation of "for your own protection." This is also known as a capital control. The Soviet Union did this as well. Usually when governments devalue their currency significantly enough, history has shown that governments employ capital controls. Currently one is required to declare $10,000 when entering the country or leaving the country.
Sure, it is true that terrorists and other types of criminals usually operate on a cash basis; however, this does not mean that every person who carries large sums of cash is a suspicious character. It's quite funny that many parts of the world are cash based societies. Countries such as China, for example, have a mostly cash based economy. It is not so common to see people whip out their credit cards to pay for things, as in the United States.
Last, since I did spend several years working in banking, I will warn you if you regularly deposit larger sums of cash at the bank. While the laws may have changed, last time I checked, banks are required to fill out a form known as the CTR (Currency Transaction Report) any time a customer deposits or withdrawals any amount within 1 cent over $10,000. This CTR report goes straight to the IRS. The bank does not have to tell you they are sending this report.
If you are a customer who has been depositing and withdrawing larger sums of cash regularly and the bank believes it is "suspicious." The bank will file what is known as a SAR (Suspicious Activity Report), and for people using cashiers checks and money order, the form is known as MIL (Monetary Instrument Log).
With this in mind, if you report foreign bank accounts, cash exceeding $10,000 (silly since 10K is not much money these days), you are being a law abiding citizen and this is good; however, one has to wonder what exactly does the government do with this information? As a citizen I feel suspicious of the government's actions and feel like I am being watched. Not to mention, with the financial meltdown of 2008 being a reminder of the Great Depression, more people have less faith in our financial system; therefore, more people carry cash.
With the idea of a cashless society becoming more of a reality under a fiat currency system, there is no better way to spy on citizens then to watch were their money goes. Some may think it's for their protection, or believe they have nothing to hide, but what about privacy? What about private property? Without opening a new can of worms and completely different topic, it's quite obvious something is wrong with our tax and monetary system.
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