I recently read an article by a banking group called Mission Management and Consultants, LLC , who are mortgage bankers and project finance specialists. They work with nonprofits and schools in their financing needs.

According to their article, historically there were four components that bankers and underwriters would look at in determining a borrower’s fitness for a loan:

1. Income of the borrower (ability to pay the new loan)
2. Equity in the project (how much are they putting down, what % of the project is being financed)
3. Stability of the Leadership of the organization (how long has leadership been in place, what is the turnover rate for leadership, etc.)
4. Stability of congregation (if a religious organization) or enrollment (if school)

After all that has happened in the economy, the article talked about bankers using a fifth component – Liquidity when looking at credit approval. Liquidity is a measure of cash on hand. Based on their requirements, they like to see at least 4-6 months of operating reserves in place.

Although individuals are not companies or nonprofits, these 5 components are not bad measures for us to use – especially if we are thinking about taking out loans for cars, projects, etc.

• Is our income adequate to service our current debt without that debt being a burden?
• Are we putting enough down on the project? I would never recommend putting 0% down. I think the old rule of at least 20% down is still a good guideline. If you can’t do that, you may want to rethink going ahead.
• How stable is your family situation? Is divorce on the horizon? Are there major changes coming – a new baby, sickness or death of a loved one? These life events need to be factored in.
• How stable is your work environment? Is your industry prone to layoffs? Your company stable?
• Do you have an adequate emergency fund (liquidity)?

Although these are not all the factors, it is a good place to start to evaluate your current financial situation. With these 5 factors in mind, how are you financially?

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Out of curiosity, and in case I need to get a home equity loan (you can tell I am paranoid right now about something else breaking in the house!), I wanted to see what my home’s current value might be. I went to zillow.com and checked out what their estimates were. This last year my home’s value went down 9.4%! Fortunately, since we bought the house in 2004, the house has increased in value by 23%. So we are fortunate that we are not underwater; in fact our house has appreciated over that time span.

Our current mortgage is for only about 67% of the current value of our home, so if we had to (which I am hoping we do not), we probably could get a home equity loan.

I don’t check often, but I do like to go to zillow just to see the trends of our area and what’s happening with housing. It’s not a bad tool to use as you are making financial decisions.

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I did it. I said goodbye to two of my credit cards. Citibank because we just never used it, and Chase because they were going to start charging an annual fee. We are now down to just two credit cards – an American Express that we use mostly at Costco, and our Wells Fargo Visa that puts rewards toward paying off our mortgage.  At the same time, I asked for a limit increase on the Wells Fargo to offset the reduction in credit by canceling the other two cards – I am waiting on their response.

I didn’t make the decision overnight, I have been thinking about it for weeks. But there were so few cons, and in my opinion more pros, that it just made sense for us.Yes, my credit score will take a small hit, but it will bounce back. Also, I am looking forward to having to just reconcile two statements instead of four – simplifying my financial life! It will make budgeting much easier. And now my wallet is a little lighter.

Now I can focus on using my rewards to pay off that mortgage quicker!

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Back on August 4th I wrote a post about our credit card number being stolen. We took precautions and canceled the card. But ever since then we have been wondering how a thief got a hold of the information – we tend to be very careful.

Well last week we received a letter in the mail that explained everything. The letter was from a company called Network Solutions. They provide software services to merchants who do credit card transactions. In their letter they explained that they “recently discovered that information on some credit card transactions, including card account numbers, names and addresses, was intentionally diverted from some of its servers to servers outside of the company by an unknown source.” Over 4,000 merchants were affected. Wow!

So know we know how our information was stolen. The good news? We caught it quickly because we check our credit card info online pretty often. Also, it was good to know it was not something we did. The bad news? No matter how careful we are, when companies mess up or are intentionally hacked our information is vulnerable. Not necessarily very reassuring. Especially since the transactions involved happened from March through the beginning of July – and the letter came in August!

To give proper credit, Network Solutions is doing some things right:

1. They notified us (I have read reports of other companies just sweeping things under.
2. They will give us 1 free year of credit monitoring service
3. They gave tips on calling credit card company, attorney general, and on placing fraud alerts on our credit files.

This incident will not keep us from using credit cards. But it reminds us to be careful and to be vigilent with our data at all times.

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I just received in the mail my new Chase Freedom credit card which is replacing my Chase Reward card. Their marketing team is very creative!

The new card advertises “rewards without limits” – except that the triple points are limited, very limited (only available on the first $600 of purchases).

The new card advertises “ultimate rewards” – they reduced my 5x points on gas and groceries to only 3x.

The new card is Chase Freedom – except my old card was free, the new card you have to pay $30 a year.

Chase has pretty much insulted my intelligence and told me they don’t want me as a customer. So I will oblige them. As long as I am able, I will refuse to pay an annual fee on any credit card. So I will call sometime this week to confirm receipt of the cards and cancel them immediately. That will leave me with my Wells Fargo Credit Card (that pays off my mortgage) and my American Express (that I use mostly at Costco).

I may just stick with those two cards for awhile, we will see. I am not worried about the small ding cancelling a credit card will make on my credit score. I am not in the market for a car loan or mortgage right now (already refinanced this year), so a little lower credit score won’t hurt me – it will pop back up quickly. I may ask for an increase in spending limit though for the Wells Fargo – that would help offset a little the decrease in credit score by cancelling the Chase.

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The Internet is all abuzz about congress passing credit card reform. Some writers are saying it is a long needed reform and will help individuals. Others are saying that it will just end up being good card holders subsidizing less than stellar card holders.

Frankly, I am probably in the middle. I do think some of the reform ideas were good, but there are always unintended consequences. My one credit card company has already changed their point system downward and has added an annual fee (prior blog on 5/14/09). I expect more of the same from other companies – they will find ways to make money! With defaults rising and the rules of the game changing, I think the days of cashback and no fees may be numbered.

If my other cards start to add fees, or as some commentators have suggested give no grace period (interest begins immediately), then I will probably switch to using a debit card. I keep very little money in my checking account, so the risk is limited. It will mean that I will have to keep a closer eye on my balance, but that is better than paying interest or fees. And right now, my debit card has its own little reward program for usage.

I will probably not carry any more cash than I do now – which is little to none. I will probably begin to carry a check or two in my wallet. We use duplicate checks, so I don’t have to write anything down.

It will be interesting to see how things play out. What do you think?

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The letter said: “We’ve UPDATED YOU TO CHASE FREEDOM. Now, there are UNLIMITED REWARDS that NEVER EXPIRE. Wow – sounds like a deal! However, they just have a great marketing department.

It really is a downgrade in benefits. Although your points never expire, you get fewer of them. Instead of 5 points for every $1 spent on gas, groceries, and pharmacies, you now only get 3 points on gas, groceries, and fast food purchases. Also, even though the banner says unlimited rewards, the triple points are limited to your first $600 of purchases. After that everything is just 1 point.

Further, they are now charging a $30 fee for “all the benefits” of this new card.

I had been expecting changes – there were rumors flying around that Chase was going to change this card. And with the government beginning to act on laws to rein in credit card companies, I expect quite a few other companies will be changing their cards before the laws take effect. They will make their money, one way or another!

I will probably be canceling this card – I do not pay membership fees for credit cards. Since there is no fee for the first year, I will keep it until I can trade in my current points for cash, then cancel. I will then probably put everything on the other card that puts money toward my mortgage – it’s also only 1%, but at least every dollar they put toward my mortgage saves me 4.75% interest on that dollar, and I pay my mortgage off quicker. Yeah!

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I scored a B+ according to their test! Over at CNN Money they have a “How Healthy are Your Finances?” quiz that you can take. It focuses on 7 financial areas – this is how I scored in each area:

• House Payments – Good
• Debt Load – Good
• Stock Diversification – Good
• Life Insurance – Good
• Company Stock – Good
• Retirement Saving – Low
• Emergency Savings – Low

It’s a pretty simple test – you either get a good or a low. Each one has a little explanation for how you scored. For instance on retirement saving, they thought I needed more based on my age and income. For emergency savings, if you don’t have 3 months worth of income saved you get marked low.

I disagree with the emergency savings – it’s not how much you save that matters but what your expenses are, plus there are other factors that come into play for me:

• I’ve been laid off before so I have some experience of what my needs would truly be. It’s definetely not 3 months worth.
• I know how to work hard at getting a job, plus I have skill sets that are useful for temporary agencies, etc.
• My wife is not working now, but she could in an emergency.

But a B+ is not bad. Anyway, it’s not a bad tool if you just want a quick review. Just know that there are many factors that go into financial decisions and just because you have a different mindset, it doesn’t mean you are wrong!

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Not everyone  has a spotless credit history.  Especially these days, with the economy in a funk, and job losses mounting across the country.  An unexpected job loss can really put you in a bind, if you haven’t prepared properly.

The good news is that there are choices available to folks with bad credit, who want to rebuild.  No, I’m not advocating that you go and get back deeply into debt.  But having a good credit rating is something that comes in handy. 

Bad Credit Offers is a place that brings all sorts of offers together.  The one thing they have in common, is that they are all targeted towards folks with,well, bad credit.  Whether it’s bad credit credit cards ( use wisely! ), bad credit loans, car loans, or home loans, Bad Credit Offers has information, comparisons, and even places to apply.  If you’re really concerned about your credit ratings, you can even get access to professional credit repair agencies. 

The point of Bad Credit Offers is not to put people back on the wrong road, but rather to help them get re-established.  Getting a few credit cards for bad credit can help you along your path.  With discipline and a little nudge in the right direction, bad credit doesn’t have to last forever, and it doesn’t have to hold you back the rest of your life. 

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I am sure you have read or heard that there are only two ways to improve your finances: make more money or reduce expenses. And many blogs will tell you how to do one or the other, or even both. But there is also another way. Timing.

Let me explain. If you owe  $1000, you usually can either pay it right away or you make payments (usually with interest). But sometimes there is a way to pay it later with no interest owed – and you can make interest on the amount in the mean time.

Example. Many people allow their mortgage company to add an escrow to their monthly mortgage payment to pay for something like real estate taxes. Each month the mortgage  company, in addition to your house payment, takes an amount, say $100, to escrow against your taxes, which they will then pay for you. But why allow them to make money off of you (interest) when you can delay this payment yourself and save the money and pay your own taxes – in the mean time collecting interest off the amount you are saving?

It’s just timing. But by paying your taxes yourself you are using timing to your advantage- letting your money accrue and earn interest. You can do this with your federal or state taxes: why get a big refund with no interest when you can weekly or monthly be putting that money aside and earn interest?

This can be done with “same as cash promotions”. You’ve seen the 1-year same as cash financing deals (although they are getting harder to find right now). As long as you are disciplined, get the item, keep your cash, and make interest. Then make the payment on time. Even a credit card (the grace period) is a small way to do this on a monthly basis, although the amount of interest earned might not be worth the headache. But if you can automate the payments and the savings, over the course of a year you might make a few dollars.

Discipline is the key. You must not touch the money! But if you have (or can develop it) discipline, you can use timing to slowly improve your financial situation. I have done this in several areas (mostly taxes, but also with some larger monthly bills) and have seen my interest build up over time – a very rewarding endeavor!

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