It’s Not All Credit Scores: Other Things Your Lender Might Be Looking At

When applying for a credit card, it’s relatively easy to get a seal of approval if your  FICO score meets or exceeds the lender’s benchmark.

But that’s not necessarily the case with other types of loans, such as small business loans, personal loans, or even some car loans and mortgages. In order to assume the risk you may bring to the table, some lenders might scrutinize a number of factors to determine if you’re a good fit.

The five C’s of credit

Lenders may also weigh another set of factors called the five C’s, or as Investopedia puts it, “five characteristics of the borrower, [that attempt] to gauge the chance of default.”

1. Character

Even if your credit score is through the roof, potential lenders may be interested in you personally as well as your credit profile, particularly for loans made to small businesses. Says the Minority Business Development Agency:

Character is the general impression you make on the prospective lender or investor. The lender will form a subjective opinion as to whether or not you are sufficiently trustworthy to repay the loan …

Subjective opinions will normally be less important to most lenders than the things represented by the other C’s, but depending on the type of loan you’re getting, they could still play a role.

2. Capacity

Will you be able to keep up with the monthly payments that accompany the loan? Is your debt ratio (what you owe vs. what you own) below the lender’s acceptable limit?

To answer this question, potential lenders may evaluate your stream of income, both fixed and variable.

When analyzing your income, creditors will more than likely be interested in the duration of your employment to determine the stability of your income. Is there room for growth? Frequent job changes or extended breaks in employment can be a red flag.

Your outstanding debt to the pretax income ratio, also known as the debt-income ratio, can also come up, especially for large loans such as mortgages.

Are you practising sound debt management habits or cutting it close? Excessive late payments, exorbitant outstanding balances, and constant adjustments in credit limits reflect a higher level of risk, and the APR will be assessed accordingly if the loan is approved.

3. Capital

Do you have the funds available to make a down payment and reduce the risk of default?

If you’re making a purchase that requires a down payment, such as a car or a house, having the cash on hand to contribute without completely depleting your reserves is important. The larger your deposit, the lower the loan amount, and the less risk the lender has to assume. In addition, the lender likes to know you have cash reserves. Otherwise, you put yourself at risk of default if you have unexpected expenses.

Mark Twain said it best: “A banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain.”

4. Collateral

Are large assets available to help secure the loan?

When a lender loans based on collateral you provide, it’s known as a secured loan. Loans like those used to finance cars and houses are common examples.

Obviously, if you’re borrowing for a house or car, that asset will become the collateral. But there can be instances when a lender will look for additional sources of security in the event you should default. One typical example is with business loans.

5. Conditions

What are the current market conditions, and are your finances stable enough to remit timely payments over the term of the loan?

Wells Fargo notes:

Lenders may want to know how you plan to use the money and will consider the loan’s purpose, such as whether the loan will be used to purchase a vehicle or other property. Other factors, such as environmental and economic conditions, may also be considered.

And one S: Social Media 

If you are seeking credit, be mindful of what you post on social media. As we reported recently, some lenders are mining Facebook, Twitter, and other social media outlets to reach conclusions about creditworthiness. This factor could be especially weighty for applicants who have little or no credit history, according to CNN.

If you’re financially well-established, you might not have to worry about social media when applying for a loan. On the other hand, it’s never a bad idea to be mindful of what you broadcast to the world.

Source: http://www.moneytalksnews.com/how-lenders-evaluate-your-creditworthiness/?all=1

Does Everyone Need a Credit Card?

Payment History

Americans' reliance on credit cards has been declining steadily since the Great Recession, according to an April 2014 Gallup poll. In fact, respondents reported that they are carrying less credit card debt overall and are more likely to pay their balance in full and on time compared to the early 2000s.

The survey results, based on interviews with over 1,000 adults ages 18 and older nationwide, may notate a positive trend in the financial affairs of Americans who have been increasingly bombarded with bad news about the economy in recent years. And less reliance on credit should be a good thing, right?

Well, it is and it isn't. According to personal finance experts, being debt-free is always a good thing, but there are disadvantages to living without any sort of credit card at all. This begs the question, "Does everyone need a credit card?"

A Matter of Convenience

Whether everyone does or doesn't need a credit card, people who go without one(or several) will certainly face some inconveniences in their lifetime, especially when it comes to travel. Why? Because hotels and rental car agencies almost always require a credit card to secure a reservation, and some even require that you put a card on file in order to cover incidentals. Without a credit card, you may not get the reservation you want, or you may have to jump through additional hoops that are not all that pleasant.

Of course, using a debit card is possible, but doing so might result in several hundred dollars of your actual money being put on hold in your account. If you're flush with cash, this may not be an issue for you. But if money is tight? You may have a problem.

No Credit, No History

While being wary of credit card debt is a good reason to avoid credit cards altogether, that decision could come back to bite those who wind up needing credit at any point in their lives. Opting not to build any kind of credit history could make it difficult to take out a loan for a house or car in the future, especially if your current credit report is virtually blank. How can lenders loan you money when they have no way of knowing if you've ever repaid anyone back?

According to the credit bureau Experian, "having no credit history is almost as bad as having a negative credit history," and everyone should strive to have some credit history to point to.

Credit Card Perks

But having credit isn't just about avoiding the hassle and earning the ability to borrow more money. There are some legitimate perks that come with having a few good credit cards as well. For example, many credit cards offer fraud protection, meaning that they will cover your losses if your card is stolen and used for purchases. Once you report that a credit card has been stolen, the Federal Trade Commission states that the maximum amount of money you could be on the hook for is $50 per card.

That may still sound like a lot, but compare it to what might happen if someone stole your debit card and managed to bleed your account dry. According to the FTC, if you report your debit card stolen more than two days after the loss or theft has taken place, the most you can lose is $500. However, if you report the loss later than 60 days after it occurred -– perhaps because you didn't notice a fraudulent charge -– your bank is not required to help you recover your losses in any way, shape, or form.

Other credit card perks include credit card rewards such as cash-back and airline miles, travel protection, price protection for large purchases, and even rental car insurance.

These are just a few of the reasons why most people genuinely need a credit card, whether they choose to use it frequently or not. Just remember, having a credit card doesn't mean you have to go into credit card debt. You have the power to live a debt-free life; you just need to commit to it and learn to use your cards in a way that benefits you.

How to Not Out-Live Your Retirement Savings

Retirement

One of the biggest fears that many current retirees have is that they might outlive their retirement savings. That can be a particularly difficult problem because once you’re retired there’s not much you can do about it. But if you’re planning for your retirement, there’s a lot you can do about a right now.

Here are five ways to not outlive your retirement savings:

1) Delay Retirement

This is something virtually anyone can do, as long as you are in good health. Actually, there is nothing sacrosanct about age 65 as the preferred age of retirement. The Social Security Administration is now in the process of forcing full retirement to gradually move up to age 67, for those born in 1960 or later.

But if you are concerned about outliving your retirement savings, you can delay the date of your retirement for virtually as long as you are able to work. And considering that people today are living longer, and are generally healthier than they were 50 years ago, delaying makes abundant sense.

If you can delay retirement until age 70, you’ll reduce the number of years that you will live in retirement by five (with the assumption of 65 being a normal retirement age). For example, let’s say that for planning purposes you expect that you will live to be 90. If you retire at 65, you’ll need to provide for 25 years in retirement. But if you delay until you turn 70, you’ll cut that down to just 20 years. The difference in required financial resources will be substantial.

There is another benefit to delaying retirement at least until age 70. Social Security will increase your monthly benefit by 8% for each year that you delay retiring past your normal retirement age. If normal retirement for you is 67, and you delay collecting benefits until 70, your monthly benefit will be 24% over what it would be if you retire at 67. (There is no benefit to delaying past age 70, as Social Security will no longer increase your monthly benefit beyond that age.)

2) Work Part-Time For as Long as You Can

This can be a halfway option, that will enable you to delay retirement out-right. Instead of delaying full retirement to, say age 70, you can instead spend the first few years of your retirement working part-time. Under that scenario, you’ll be trading full-retirement for semi-retirement. And the fact that you will be relying less on investment income will help you to preserve those assets for the time in your life when you’re not able to work at all.

This can work for people on a lot of fronts too. You may not be quite ready to fully retire at age 65 or 67, and working at least on a part-time basis – or starting your own part-time business – could help you to ease into the transition of finally living the work-free life.

3) Set Up a Roth IRA and Save It For…Later

We’re hearing a lot these days about the many benefits of the Roth IRA. These plans are something of a supercharged retirement plan because they enable you to withdraw money from the plan tax-free, as long as you are at least 59 ½ when you begin taking distributions, and you have been in the plan for at least five years.

Other tax-sheltered retirement plans require that you begin paying taxes on any money that you withdraw from the plan. Unlike the Roth IRA, these plans are merely tax-deferred, and not tax-free.

But Roth IRAs have another advantage over ordinary retirement plans, one that makes them particularly suitable as investment vehicles to keep you from outliving your retirement savings. Roth IRAs do not require you to take required minimum distributions (RMDs) when you turn 70 ½. Virtually every other retirement plan requires that you take RMDs as soon as you reach that age. That will virtually guarantee that other plans will eventually be depleted.

This is not true with the Roth IRA. Since there is no requirement to take RMD’s, you could allow the money in the account to continue to earn investment income and to grow until the time comes when you need funds. This can enable you to live out of other retirement accounts, while you hold your Roth IRA funds until you actually need the money. Even if you exhaust other plans, you can still have your Roth IRA growing for the day when you need the money. You can delay withdrawing your Roth IRA funds until you’re 75, or 80, or whatever age you decide you need to.

4) Live on Non-Retirement Savings For as Long as You Can

If the idea of delaying retirement, or working part-time for the first few years, don’t interest you, you could also consider living on non-retirement savings for the first few years. This will enable you to delay tapping retirement savings for several years. During that time, the plans can continue to grow, so that you will have more money available in them when you finally do begin taking distributions.

As an example, let’s say that you begin taking Social Security benefits at age 65. You also have $100,000 in non-retirement assets – savings, CDs, money market funds, stocks, mutual funds, etc. Rather than beginning to draw funds out of your retirement accounts at age 65, you instead withdrawal $20,000 per year from your non-retirement holdings for the first five years. That will allow your tax-sheltered retirement plans to continue growing for an extra five years.

Perhaps equally significant is the fact that your non-retirement assets can be withdrawn without creating an income tax liability.

5) Keep Your Cost of Living to an Absolute Minimum

This has to be a strategy if you are at all concerned over the prospect of outliving your retirement savings. There is nothing at all exotic about this strategy either. The less money you need to live on, the less you’ll need to withdraw from your retirement savings, and the longer they will last.

This involves keeping your basic living expenses as low as possible. That can mean trading down to a less expensive home, driving a modest car, and avoiding expensive entertainment hobbies. Even more fundamentally however is that you should make sure that you are completely out of debt. That means everything – credit cards, car loans, installment loans of all types, and yes, even your mortgage. The less money you owe, the lower your cost of living will be, and the longer your retirement savings will last.

Do you ever worry about outliving your retirement savings?

Source: http://moneysmartlife.com/how-to-not-out-live-your-retirement-savings/

Why You’ll Never Get Rich By Just Saving Money

All the “get rich” advice in the world revolves around saving your money. The problem with such advice is that it often misses out the point that saving money will merely increase your chances of getting rich through other platforms, such as investing.

To build wealth, you must first think of ways to make your money grow. Read on to find out why having a golden egg is not as good as having a golden goose:

1. It doesn’t combat the rising inflation

Although the terms “saving” and "investing” are often used interchangeably, they do not actually mean the same thing.

Savings, by definition, involves the preservation of money from physical loss. Methods include stashing your hard-earned savings into a fixed deposit or under your grandfather’s pillow.

Investing, on the other hand, is taking some of your money and buying things that might increase in value, such as stocks, property, bonds, or unit trusts, with the aim of protecting your money from losing its value, and also making your money grow.

While saving money is a good habit, it does not necessarily protect you from market conditions such as economic downturns or soaring inflation rates, which might cause the value of your savings to diminish over time. Saving money merely creates opportunity while investing is the one way to capitalize on that opportunity to potentially create wealth.

Consider this: Malaysian annual inflation rate accelerated to 2.8% in October 2014 from 2.6% in September, driven by higher food, transport, and housing prices. What this means is, the RM1,000 you save today may be worth just half of its value in 15 years!

To beat inflation and maintain your current standard of living, you would need to make your money grow at a rate that is equal to or higher than the current inflation rates to rake in a sufficient amount for retirement.

Some ways to accomplish this is by putting money into investments like property, unit trusts, Real Estate Investment Trust (REITs), and private retirement schemes (PRS).

2. It’ll take longer to reach your goal

Most people have the same financial goals: to live a financially comfortable life, provide for their loved ones, and have a stable retirement income in their golden years. To achieve these, certain short-term and long-term financial goals must be achieved.

Living paycheque to paycheque does not help, and putting away money aimlessly will only get you so far. Investment can help you systematically plan for these goals, without putting away all your money into savings.

However, everyone has a different investor profile with diverse goals and needs. Safety of capital, income range, age, and holding power are some factors to consider when deciding on the type of investment to put your money in.

If you’re 55 and nearing retirement, and are hoping to stretch your retirement fund, you might want to play it safe and put more assets in lower-risk investments, such as unit trusts or savings bonds.

However, if you’re 25 and are saving for your first home, wedding, and also your retirement fund, you can afford to roll the dice a little bit more and put more of your money in higher-risk investments like stocks. Being young gives you a longer time horizon, which allows you to weather and ride out the market’s highs and lows.

At the end of the day, it is always worth having a good reason to start something. Writing down your financial goals will help set you in the right direction and help you stay on track.

3. It is a high risk

Not investing your money is riskier than when you do. By just saving your money, you are at risk of losing the value of your money due to inflation, and also losing the opportunity of growing that money.

It’s never wise to put all your eggs into the same basket, or worse, to put all your eggs in a basket under your bed. Putting all your funds in a low-interest savings account is akin to stashing your money under your mattress.

If you put RM5,000 in a fixed deposit account with a rate of 3.75%, you will earn RM938 in five years. However, if you put the same amount in a unit trust with an average rate of 5%, you stand to earn about RM1,381.41 at the end of the same period.

Investing allows you to diversify your funds to mitigate risks. Investors are always encouraged to spread out their investments among different asset classes such as stock, unit trusts, bonds, industries, and even geography. Asset allocations should be reviewed periodically as the investors go through different stages of life, and as the time horizon gets shorter.

The aim is to get maximum returns by investing in different areas that would each react differently to the same events. Although diversifying your investment portfolio does not guarantee against losses, it is an important component of reaching your long-term financial goals while minimizing risk.

What many people still do not know is that you do not need a substantial amount of capital to start investing. Nowadays, with just RM1,000, you can lay claim to hundreds of companies and residential apartments, commercial buildings, and shopping malls through ETFs and REITs.

4. It does not yield high returns

Saving money, even if you put your funds in a fixed deposit account, does not provide you with a high rate of return. Currently, the highest interest rate offered for a fixed deposit is  4.15%, just enough to protect your funds from rising inflation.

However, with investments, you get to choose the rates you are comfortable with, depending on your risk appetite. With the power of compounding interest, starting early can make all the difference. The earlier you start, the more time your investment has to compound the returns.

Instead of spouting rhetoric like saving is a good habit or saving for a rainy day, what your parents should really have told you were: an RM1,000 investment today, at an average return rate of 10% a year, will magically transform into RM1,465 in five years – that’s more than a 46% return on investment!

There is no one investment strategy that can guarantee sure-fire success, but at least the likelihood of reaching your goal is much better compared to just saving your money. Each investment vehicle has its own characteristics and risks, and are subject to volatile market conditions. However, in the long term, such glitches are expected to smooth out into an overall upward trajectory and produce some substantial financial returns for the investor.

Source; https://www.imoney.my/articles/why-you-will-never-get-rich-by-saving-money

Which is Safer? Paypal Or A Credit Card

Paypal Visa MasterCard American Express

The year 2014 was when consumers came to fear the data breach for real. According to the Identity Theft Research Center, there were 761 breaches in 2014 affecting more than 83 million accounts. Big names like Sony, JP Morgan Chase, the US Postal Service, Target, Home Depot, and, most recently, Chic Fil A are some of the notables that proved that even companies with deep IT pockets are at risk.

If you fear for your money, you’re not alone. According to the ISACA IT Risk/Reward Barometer, 94% of consumers have read about or heard of data breaches and 61% say they have a take-charge attitude rather than waiting for something to happen.

 But what does “taking charge” mean? Each additional company that has your payment information puts you more at risk. If you enjoy the convenience of a PayPal account – using it makes it quicker to handle online purchases and other payments, such as charitable donations – are you increasing the chance that your information could be stolen?

 How safe is PayPal? Should you have a PayPal account or should you pay for all online purchases with a credit card and not add one more company to your list?

The PayPal Pros

According to PayPal, your data is safe. (But who wouldn’t say that?) PayPal states that your information is encrypted with the highest level commercially available. Its servers check your browser to make sure it employs the latest encryption technology and your data is stored on servers that aren’t directly connected to the Internet. 

Slava Gomzin, the author of "Hacking Point of Sale: Payment Application Secrets, Threats, and Solutions," supports their contention. “If you have a choice on the Web, always select PayPal,” Gomzin says.

PayPal even pays hackers if they find vulnerabilities in its systems. According to Dean Turner, director of security intelligence at PayPal, "If you care about the product [and] you care about your customers, you care about your customers' security – this is what you have to do."

What About credit cards?

Credit cards aren’t as straightforward. Cybersecurity advocates routinely blast the U.S. credit card industry for failing to phase in chip cards. Already used in European countries and many others, these cards offer an added layer of security not present in the United States. The lack of these technologies is a major reason the United States is such a big target for cyber thieves, according to Gomzin. (For more, read What You Need To Know About EMV Credit Cards.)

Nearly all credit cards are issued by banks – an industry more guarded and resistant to some of the cybersecurity practices that PayPal employs. According to the Financial Services Roundtable, the banking industry does not pay hackers to alert them to security flaws, for example. This year’s successful attack on JP Morgan Chase is proof that the banking industry is vulnerable despite their large teams of security experts.

PayPal, however, is the Holy Grail for hackers. Just because the company hasn’t been hacked doesn’t mean that it won’t be. Hackers are constantly trying to break into PayPal’s servers.

Protect Yourself

The best and brightest team of cybersecurity experts can only do so much. The rest is in the hands of the consumer. One study found that only 45% of consumers changed their password this year, and the most popular passwords are still “password” and “123456.” If your password is easy to remember, it’s probably easy to hack. It’s time to change it.

You have to check your bank and credit card statements as often as possible, don’t use the same password for everything, and don’t click on any link in an email, even if it looks legit. Instead, go to the company’s website yourself or call.

The Bottom Line

Should you use PayPal or your credit card? Because many of the data breaches came from physically swiping the card, and because PayPal gets high marks for its security practices, experts advise using PayPal when possible. However, don’t link it to your checking account. Instead, link to a credit card so you get your credit card’s fraud protection in addition to PayPal’s

Source:http://www.investopedia.com/articles/personal-finance/011215/which-safer-paypal-or-credit-card.asp

62% of Americans can't cover unexpected expenses

Getty Images


Car accidents, unexpected medical bills, an emergency plumber visit—there are all sorts of events that can interfere with even the best budget plans. 

But according to a study released Wednesday, more than 60 percent of Americans do not have enough rainy day funds set aside to deal with even minor calamities.

Just 38 percent of Americans said they could cover an unexpected emergency room visit or even a $500 car repair with cash on hand in a checking or savings account, according to Bankrate, which commissioned the study. About 26 percent would reduce spending on other things, and 28 percent said they would either borrow from family or friends or use credit cards.

"You hate to see so many people who are one relatively modest financial emergency away from a downward spiral," said Claes Bell, a Bankrate analyst who examined the survey results.

The Bankrate survey, which was conducted in December, did have a silver lining, however. Some 82 percent of the respondents said they keep a budget—though a majority said they do so in their heads or with pen and paper.

Bell speculated that budgeting could be an outgrowth of the financial crisis and the recession. "People are more interested in keeping a household budget and keeping their expenses under control," he said.

He's also hopeful that Americans could soon start putting more money away for emergencies. "As we see gas prices going down, unemployment falling and wages starting to rise, you may see people having the ability to build up savings," Bell said. 

If they do, it will indicate a shift in the direction of the personal savings rate, which has been declining since June and stood at 4.4 percent in November (the most recent month for which figures are available), according to Federal Reserve data.

Perhaps some additional New Year's resolutions are in order.

Source: http://www.cnbc.com/id/102317918#.

Credit card declined? – It could be one of these 8 reasons

Card Declined

Intro:

Our life revolves around money. These days it is simplified to carrying a debit or credit card. While it makes our life simpler, many a time it can be a bummer, especially when you are in a store in front of people and trying to make a payment and the swipe gets declined.

Story:

With our increasing dependence on credit and debit cards, we have grown used to not carrying cash around. We have also realised the importance of credit cards over cash. But, when you are out there throwing a dinner party to your friends and try to make a credit card payment and if the transaction gets declined, it can be an embarrassment.

There are many reasons why a credit card swipe can be declined. We have listed the top eight reasons for such a refusal of payment:

1. Credit Limit: Oh yes! This is the most common reason and all credit card users sure know this one. We have a fixed credit card limit (the maximum amount you can spend on your card preset by the issuer during the issuance), which if we cross or are very close to crossing could cause a decline of payment. Keep a track on your spending and keep in mind your credit limit to prevent such a situation.

2. Uncommon purchase: You have only used your credit cards to make bill payments online and suddenly you swipe to buy expensive jewelry of Rs 50,000, this transaction will be rejected even if you have enough credit limit. The reason why such a purchase can be declined is that your credit card company thinks that it is unusual for you to do such a purchase. Some transactions like buying gold; electronics and cash withdrawals will be declined if your credit is constantly used for smaller value swipes.

3. Invalid card: If you are using an add-on card that gets declined, it is possible that the primary cardholder has either reached the maximum account limit or has closed the account.

4. Change in terms and conditions: Do you have multiple credit cards from the same bank? If you default payment on one of those cards, it is possible that bank has blocked the other cards. In such an instance your swipe will be declined. Even if you have multiple cards from different lenders, banks randomly pull your Cibil credit score to take a relook at the creditworthiness. If the bank feels it has to lower your limit, it will give you a notice and do so.

5. Unknown location: If you live in India and if there is a credit card swipe in, let’s say Russia. This transaction will be declined because historically, all your swipes have been in India, the lender will assume it is a fraudulent transaction. So if you are travelling abroad, it is a wise step to call your credit card company and inform them about your scheduled trip.

6. Unusual currency: If you have always made bought in rupees and suddenly if you use your card to buy a ticket online in dollars that too with a heavy amount, this transaction is bound to be declined. Call your credit card company and give them a heads up before making such a purchase.

7. Technological reasons: These days, most of the new credit cards that are being issued come with an inbuilt chip. Now, to clear such a transaction, you need to key in a PIN number. Sometimes the merchant may be using a point of sales (PoS) machine that is outdated or if you have forgotten your PIN number or if your credit card is new and if you have not yet registered your PIN number, the transaction could be declined.

8. Wrong data: If you have entered a wrong billing address while buying a product online, or if you have entered a wrong credit verification value (CVV) or a wrong code for a 3D secure password, the transaction will be declined.

So, if you ever face a situation where your card transaction is declined, it is advisable to call your bank and check with them for the cause. In most cases, unless it’s a fraudulent issue, the problems will be resolved on the phone. Also, make sure you do not swipe the card again if it is declined. After three continuous declines, the bank may block it suspecting fraud. Keep your phone number updated with your credit card issuing bank, as the bank will alert you every time there is a swipe. Lastly, save the customer care number of your bank on your phone so that, when you are in a hurry to call them, you don’t run from pillar to post.