No Title 2501
Supplement to “Kentucky Living’s 2011 Financial Planning Guide”
HOW IS A CREDIT SCORE CALCULATED?
HOW TO DISPUTE CREDIT REPORT ERRORS
Entering your expenditures into computer software programs like Quicken or free Web sites like Mint.com
or Buxfer.com will let you see—in easy-to-understand pie charts and graphs—a percentage breakdown of how your money’s being allocated into major categories like mortgage/rent, auto, food, and entertainment.
Sometimes, all it takes is seeing that a whopping 20 percent of your income is going to entertainment to realize it’s time to scale back on dinner out and trips to the movies.
Tip: Mint.com, a top pick of Money Magazine and Kiplinger’s, lets you set individual financial goals and track your progress toward them. Even better: the site downloads and categorizes your bank and credit card transactions automatically every day, so you don’t have to.
If your budget’s tighter than you’d like, it’s time to reduce spending wherever you can. Try these easy ways to shave a few pennies (or more) from your monthly bills:
1. Consider refinancing your mortgage. Rates are still at historic lows. If you can save 1 percent or more, it may be worth it. For example, dropping from 6.5 percent to 5 percent on a $200,000 mortgage would save you $250 a month.
Some experts suggest it is probably worth it if you plan to stay in your home for another five years. Just ask your refinance company to provide an analysis for how long it will take to pay back the cost of refinancing and how much you can expect to save on your monthly mortgage payment.
2. Shop around for the best deals. Sites like BillShrink.com
or NetQuote.com will point you to the best rates around on cell phone and TV plans, gasoline prices, and auto insurance.
3. Energy-proof your home to cut utility bills. (Download the 2009 and 2010 Kentucky Living Energy Guides at www.KentuckyLiving.com. In the Article Search box, search for “Energy Guide” for links.) One step can be as easy as unplugging so-called “energy vampires”—appliances like TVs, coffee makers, and computers that use electricity even when turned off.
4. Skip a trip or two to the grocery and use up all those leftover items in your pantry and freezer instead.
There is no clear-cut formula for how best to invest toward your retirement, since everyone’s different when it comes to how much risk in the market they’re willing to bear. While some invest heavily in stocks and annuities, others prefer to tie their investments toward lower-risk, lower-yield bonds.
(See “Kentucky Living 2010 Finance Guide” for more information about various retirement saving strategies, including specialized target-date retirement funds that shift toward lower-risk investments as your retirement date nears. To view or download, go to Kentucky Living 2010 Finance Guide.)
One thing has changed, though, in the recent turbulent economy: everyone realizes they have to be more proactive when it comes to managing—and safeguarding—their money.
“In the past, the common advice was to buy and hold. The thinking was, ‘Everything will be okay. The market has always gone up,’” says Raymond G. Strothman, CPA, ABV, CVA, CFF, managing partner with Strothman & Company PSC in Louisville. “I don’t think that’s the right strategy today” when managing your 401(k)s, IRAs, and other investments. “Today, the right strategy is to evaluate the current trends in the market. And you need a professional investment advisor to help you do that,” Strothman says.
Interesting Statistic: Devastating stock market losses in 2008 hit many people’s 401(k)s hard. But the market is slowly improving: a new Vanguard study of 3 million 401(k) participants showed the average 401(k) balance increased 23% in 2009.
HOW IS A CREDIT SCORE CALCULATED?
1. Payment History (35 percent)
• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (i.e., bankruptcy, liens, wage attachments, delinquency, etc.)
• Amount past due on delinquent accounts and severity of delinquency
2. Amounts Owed (30 percent)
• Amount owed on accounts
• Number of accounts with balances
• Proportion of credit lines used (i.e., the proportion of balances to total credit limits); called the “credit utilization ratio”
3. Length of Credit History (15 percent)
• Time since accounts opened
• Time since account activity
4. New Credit (10 percent)
• Number of recently opened accounts
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
5. Types of Credit Used (10 percent)
• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
HOW TO DISPUTE CREDIT REPORT ERRORS
It’s up to you to check your credit report annually for reporting errors or evidence of unauthorized use of your credit—sometimes the first sign you’ve been a victim of identity theft. The information on your report directly affects your credit score, which in turn determines how easily you’ll be able to get a loan—and at what interest rate.
At least once annually, go to www.annualcreditreport.com or call 1-877-322-8228 to request a free annual credit report from one, two, or all three of the major reporting agencies, Experian, TransUnion, or Equifax.
Once you get the report, review it for accuracy. The report will include information about where you live, your bill payment history, credit usage, and whether you’ve been sued or arrested or have filed for bankruptcy, among other information.
If you’ve been late or delinquent on bills, that information will be there as well. (Most negative reporting information will rotate off the credit report after seven years.)
If you see an error on the report—perhaps credit activity you did not authorize, or an inaccuracy of any other type—it’s your responsibility to contact the reporting agency in writing to dispute the error.
In your letter, identify each item you dispute and provide copies of documents to support your claim. Explain why you dispute the item and request that it be removed or corrected. Send your letter via certified mail, and keep a copy of your dispute letter for your own records.
Credit reporting companies must investigate the items in question within 30 days. When the investigation is complete, they must send you the results of their investigation in writing, along with a corrected copy of your report. If you request it, the reporting company must also send notices of the correction to anyone who received your report in the last six months.
For more info on disputing a credit reporting error, go to www.FTC.gov.
To read the January 2011 feature that goes along with this supplement, go to Kentucky Living 2011 Financial Planning Guide.
