Credit Scores: GPAs for Adults

by Wade Barnes 10. May 2011

Improving Credit Score

Your credit score impacts every major (and some minor) purchase that you'll make during your lifetime. In regards to making a purchase that requires financing, (i.e. a house or car) your credit score can dictate the applied interest rate and in some occurrences, can prevent you from being eligible to receive financing at all. How about the impact on your career? Nowadays, many employers run credit checks before hiring.

Do you want to own a car, buy a house, have a career and be an all-around self sufficient individual? Mmm. Not much thought required there, huh? Of course you do!

So what is the best way to tackle this overly-exciting subject matter?

We asked our very own Wade Barnes, Vice President of Consumer Lending, to run through the ins and outs of a credit score with a word that we think will be all too familiar to you - the dreaded GPA.

"Professor" Barnes, meet the world.

The world, meet "Professor" Barnes.

700 - or above- is the score (or grade) that will get you on the honor roll of society. Like GPAs, credit scores are simply a numerical ranking of your credit performance.  The best way to think of a credit score is like a grade in school.  There are many parts to this grade like tests, quizzes, homework, participation, and attendance.  The teacher then weighs each factor in accordance with its importance and determines a final grade or score.  Credit scores are no different and look to the following factors. 

Not everything is treated equal - the return of "weighted averages."

35% of your overall credit score is determined by your Payment History, which is the single most impactful factor of your credit score. Be sure to make your payments on time every month. If you’re having issues paying your bills talk to your lender. Many lenders will work with you to help establish favorable terms for both you and the lender.

Next on the list is outstanding debt, holding a 30% weight.  It is important that you don’t carry high balances on your credit cards.  Carrying balances of less than 35% of your available credit limit is ideal.  Balances using 70% of your credit limit or greater are having a negative impact your score.

Weighing in at 15% is the length of time the accounts have been established.  It is helpful to have accounts with a long history reporting to the credit bureaus established.  For revolving accounts that have been managed well, consider keeping these accounts open so they continue to build history.

At 10% each, inquires and credit diversity are the least impactful but are nonetheless important to consider.  Be sure you aren't authorizing lenders to pull your credit report needlessly – keep this in mind when you’re checking out at your favorite retail store where they offer a discount for opening a store credit card.  With regards to diversity, be sure your debt instruments are spread amongst various loan products.  An individual who has a car loan, credit cards, and a mortgage will rate better than an individual who simply has multiple credit cards.

Is the test going to be graded on a curve?

Yep. Just like finals, these factors are scored on a curve type system where your performance is compared directly to other individuals.  Scores range from 350 – 850 where anything over 700 is good and anything under 600 needs improvement.

Be Aware

Perhaps the most important tip is to be aware of what’s on your credit report.  With over 290 million reports, mistakes are bound to happen.  You are entitled to receive a free copy of your credit report from each of the reporting bureaus every year.  To obtain your credit report, visit www.annualcreditreport.com , an official site sanctioned by the bureaus to allow you free access to your report.  Put this on your calendar and make it an annual practice.

As always, feel free to reach out with any questions you have about your credit score or any other credit question.

Considering a Fixed Annuity for your maturing Certificate of Deposit? Not sure how they stack up against one another?

by Marylove Moy 26. April 2011

Recently, we sent out a Fixed Annuity (FA) mailer to our 18-month Certificate of Deposit (CD) customers. We did this in hopes of offering our customers an alternative option in the event that their Certificate of Deposit is nearing maturity.  With that being said, we thought there might be other folks out there (including those who received the mailer) that could be asking themselves, "What's the difference and more importantly, which one is the most beneficial for me?"

To answer this question, we went to our very own Marylove Moy, Program Director of 1st Mariner Financial Services, to see if she could shed some light on that matter. 

The Experienced Financial Advisor's Opinion.

Both (CDs) and (FAs) are considered savings vehicles, normally used to accumulate wealth: but there are key differences between the two options. 

Safety of Principal

Both are considered appropriate choices for the conservative investor. CDs are usually issued by banks and therefore offer the FDIC backing up to $250,000. Annuities, on the other hand, are issued by insurance companies; they are backed by the financial strength of the issuing company (regardless of dollar amount). Ratings agencies, such as S&P and Moody’s, provide critical information in assessing a company’s financial situation. 

Interest Rate

As a rule, CDs guarantee a rate of return for a period of time; many factors determine this rate. Fixed annuities can offer either a fixed rate for a predetermined contract term or a rate that adjusts periodically during the term. Annuities – unlike cds – offer a minimum floor interest rate that is guaranteed irrespective of market conditions. 

Tax Considerations

For those individuals concerned with minimizing taxes, a fixed annuity is an attractive option. Interest on a FA accrues on a tax-deferred basis; an investor is taxed on this interest only to the extent that it is withdrawn from the contract. This fact can – in the appropriate circumstance – reduce the taxes paid on an individual’s Social Security benefits.  On the other hand, the investor faces a 10% penalty on the interest withdrawn if he/she is under the age of 59 ½.  If you have tax related questions, please consult your tax advisor. 

Liquidity/Investment-term horizon

As a rule, a CD is the preferred option for those investors with a short term investment time frame. If an investor redeems a CD early, he/she is normally subject to penalties.

Fixed annuities usually offer the investor access to interest earned on the contract or a certain percentage of the contract value. It is critical for the investor to understand that interest withdrawn from an annuity contract is taxable at this point. Additionally, should the investor surrender the contract before its maturity date, surrender charges can apply (depending on the fixed annuity type, these surrender charges may or may not invade the contract principal)

Estate Considerations

Proceeds from a fixed annuity bypass the probate process; that is to say they go directly to the beneficiary once the contract is surrendered with proper documentation. The proceeds are not delayed by the court processing of the estate.


  

 

 

Program Director
1st Mariner Financial Services 

 

Still confused?

No worries.  Marylove and her team of Financial Advisors would be happy to help answer any questions or concerns that you still have.  Feel free to contact our Financial Services Department or call us at 410-558-4200. 

Please contact your financial advisor. Securities offered by 1st Mariner Financial Services, and Investment Advisors are registered with UVEST Financial Services, member FINRA. UVEST is independent of any financial institution. Securities (1) are not deposits of this institution; (2) are not insured or guaranteed by the FDIC or any other governmental agency; (3) are not obligations of, or guaranteed by, any financial institution; and (4) involve investment risks, including the potential for fluctations in investment return and the potential loss of principal.

 

Operation: Unclutter 2011 - and keep your identity while you are at it.

by Erica Starr 18. April 2011

With today being April 18th, a.k.a 2011's tax deadline, we thought it would be a good idea to celebrate Earth Day (April 22nd ) by teaming up with the folks at Shred-It to help our community “shred” those unwanted, clutter-enabling, not essential to your existence documents that you may have acquired over the years. Tax returns from last decade, useless; old credit card offers, it’s probably time for them to go; expired passports, bank cards, passports, visas, and identification cards; shred, shred shred! It’s an easy way to get rid of those unnecessary documents by recycling the shredded material, which is good for both you and the environment.

The US Federal Trade Commission received 250,854 complaints about identity theft during 2010.  In many cases, identity theft victims are unaware they are a target until they see the havoc wreaked on their credit report. While much of the fraud takes place online, most of the identity theft takes place in offline areas. While the tech-savvy thieves continue to unite, your trash can should NOT be the scene of the crime. Entering your information into a phony website or swiping your card at a skimmed gas pump (skimmer: small electronic devices that gather and store all credit or ATM card data) can happen even to the most cautious of consumers; however, conveniently leaving your social security number in an public unsecure container (i.e., your trash can) is like serving your identity up on a silver platter.

In other words, when you throw something in the trash, it immediately becomes available to anyone who’s willing to overlook the enticing smells of last night’s dinner.

What to shred and what NOT to shred?

Now that you know WHY you should shred documents, the question now becomes, what to shred and what NOT to shred. At a high level, you should generally shred anything that has a signature, account number, social security number, or medical or legal information. Check out this link for a full list of documents that can be tossed (a.k.a shredded) and those that you might want to hang onto a little longer.

The Scene of the Solution: 1st Mariner Bank’s Cockeysville and Dundalk Branches

The Shred-It Team will be set up from 9 a.m. to 1:00 p.m on Saturday, April 23rd at both our Cockeysville and Dundalk branches. This event is open to both 1st Mariner Bank customers and non-customers; however, there is a limit of five boxes per person.. We strongly encourage everyone and anyone to participate in this FREE, earth-friendly opportunity to de-clutter your lives and help Maryland AND your file cabinets to become as spacious, eco-friendly and green as they possibly can be.



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