Are your Children Financially Savvy?

by Wade Barnes 24. October 2011

Financial Literacy Throughout my years working for 1st Mariner Bank and observing credit trends across the country, I've learned how little most young adults (and even some older adults) know about managing their finances and what affects poor management might have on their life. Because of this, I've spent some time working with local schools to help bring financial literacy into the classroom. There are many great programs that exist to help educate students but we may have a chance to help further this effort by making this part of the curriculum for Maryland students.

I feel strongly that our future and that of our students will be brighter by providing them with financial literacy courses. Through these courses, students will learn about saving, investing in the future, managing budgets, and how to manage credit. This will not only help them personally but will also provide an excellent foundation for our next generation of future leaders.

To find out how you can help, please visit: http://www.marylandtaxes.com/comptroller/initiatives/literacy/.

How to Decide: Home Equity Loan or Line of Credit?

by Wade Barnes 14. September 2011

Home Equity Loan or Line of Credit?

So, you’ve decided to add an addition, pay tuition expense, or have a cushion for life’s unexpected expenses. As your home is one of your greatest assets, many people decide to borrow against the equity in their home by obtaining a Home Equity Loan or a Home Equity Line of Credit. The tough decision is deciding which product will best suit your situation.

When working through the decision of whether to obtain a Home Equity Loan or a Home Equity Line of Credit, there are 4 categories to consider: Access to Funds, Interest Rates, Monthly Payments, and Potential Tax Savings*. By understanding each feature you’ll be well positioned to decide between a Home Equity Loan or a Home Equity Line of Credit.

Access to Funds

Home Equity Lines of Credit are great when you need to access the funds in various increments or need a revolving credit line to pay expense as they occur. With a credit line, you are free to make advances just like you are with a credit card, up to your credit limit within the terms of the agreement.

With a Home Equity Loan, the full loan amount is disbursed in one lump sum, much like a car loan. This is great when you need a set amount and don’t need reoccurring access to the loan.

Interest Rates

For the most part, interest rates tied to Home Equity Lines of Credit tend to be variable, tied to the Wall Street Journal Prime Rate. With a variable rate loan, you get to take advantage of current market rates as they shift throughout time.

Home Equity Loans tend to be fixed rate loans, where the interest rate established at settlement will be the rate you assume for the duration of the loan.

Monthly Payments

Home Equity Lines of Credit are typically interest only for a portion of the term. This means you have the option to pay interest only each month or make additional principle payments as you see fit.

Home Equity Loans generally bill for principle and interest each month. You’ll never have to guess what your payment will be as it will be fixed for the duration of your term.

Tax Deductibility

I would advise you to discuss this with your tax advisor but given your individual circumstance, the interest paid towards either a Home Equity Loan or Home Equity Line of Credit may be tax deductible at the end of the year. As this applies to both Home Equity Loans and Home Equity Lines of Credit evenly, this shouldn’t be a deciding point in your choice between either product.

In short, if you’re looking for flexibility, a Home Equity Line of Credit might be the best product to suit your needs. If you prefer stability, you may want to narrow your search to a Home Equity Loan.

Click here for more information on our Home Equity Loans and Home Equity Lines of Credit.

*Please consult your tax advisor.

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.



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