Tag Archive for: credit score

The Key to Effective Budgeting

Taking control of your finances is crucial at every stage of life. Whether you’re saving for a down payment, planning for retirement, or simply striving for greater financial peace of mind, understanding your spending habits, and creating a budget are essential steps.

  1. Understanding Your Spending

Before you can effectively manage your money, you need to understand where it’s going. This involves a thorough analysis of your spending patterns.

  • Track Every Dollar: Utilize your bank’s online and mobile banking tools. Analyze your transaction history carefully. Identify recurring expenses, impulse purchases, and any “money drains” – those sneaky expenses that consistently chip away at your budget.
  • Categorize Your Spending: Divide your expenses into specific categories like housing, transportation, food, entertainment, healthcare, education, childcare, savings, and debt repayment. This granular breakdown will reveal spending patterns you might not have noticed.
  • Identify Areas for Improvement: Analyze your spending patterns to identify areas where you can cut back. Can you reduce dining out expenses? Can you negotiate lower rates for your utilities? Can you explore more affordable entertainment options?
  • The “Needs vs. Wants” Analysis: Before making any purchase, ask yourself:
    • Do I need this? (Distinguish between essential needs and discretionary wants.)
    • Can I afford this? (Consider the impact on your overall budget and financial goals.)
    • Will this bring me long-term value? (Avoid impulsive purchases that offer little lasting benefit.)
  1. Building a Budget That Works for You

Creating a budget is a key step in taking control of your finances. A well-defined budget provides a framework for making conscious financial decisions and helps you stay on track towards your financial goals.

  • Calculate Your Net Income: Determine your net income (take-home pay) after taxes and other deductions.
  • Set Clear Financial Goals:
    • Define your long-term goals: Retirement, homeownership, travel, education – what matters most to you?
    • Set SMART goals:
      • Specific: “Save $20,000 for a down payment on a home.”
      • Measurable: “Contribute $500 per month to my retirement account.”
      • Achievable: Set realistic and attainable goals.
      • Relevant: Ensure your goals align with your values and aspirations.
      • Time-bound: Set deadlines for your savings goals (e.g., “Save $20,000 within the next two years”).
    • Create a Realistic Budget:
      • Explore Budgeting Methodologies:
        • The 50/30/20 Rule: A common guideline suggests allocating 50% of your income towards needs (housing, utilities, groceries, transportation), 30% towards wants (entertainment, dining out, hobbies, travel), and 20% towards savings and debt repayment. However, this is a guideline. Adjust it based on your individual needs and income.
        • The Zero-Based Budgeting Method: Allocate every dollar of your income to a specific category, ensuring that all income is accounted for.
      • Utilize Budgeting Tools:
        • Budgeting Apps: Explore user-friendly budgeting apps like Mint, Personal Capital, or YNAB (You Need A Budget) to track spending, create budgets, and set financial goals.
        • Spreadsheets: Utilize spreadsheets (like Excel or Google Sheets) to manually track your income and expenses, create custom budgets, and visualize your financial progress.
  1. Build an Emergency Fund

Building an Emergency Fund provides a safety net for unexpected expenses, such as medical bills, car repairs, or job loss.

  • Aim for 3-6 Months of Living Expenses: Ideally, your emergency fund should cover 3-6 months of living expenses.
  • Start Small and Gradually Increase: Begin with a small amount and gradually increase your contributions over time.
  • Utilize High-Yield Savings Accounts: Consider a high-yield savings account to maximize your returns on your emergency fund.
  • Treat Your Emergency Fund as Untouchable: Avoid dipping into your emergency fund for non-essential expenses.
  1. Maximizing Your Savings & Investments

Saving and investing are important for building long-term financial security.

  • Open a High-Yield Savings Account: Maximize your savings by choosing a high-yield savings account with competitive interest rates.
  • Explore Certificates of Deposit (CDs): Consider CDs for longer-term savings goals, as they typically offer higher interest rates than regular savings accounts.
  • Contribute to Retirement Accounts
  • Maximize 401(k) Contributions: Take full advantage of employer-sponsored 401(k) plans, including any employer match.
  • Consider an IRA: Open and contribute to a Traditional or Roth IRA to supplement your retirement savings.
  • Work with a Financial Advisor: Consult with a qualified financial advisor to develop a personalized investment strategy.
  1. Managing Debt Wisely

Managing debt effectively is essential for long-term financial well-being.

  • Prioritize High-Interest Debt: Aggressively pay down high-interest debt, such as credit card debt.
  • Explore Debt Consolidation Options: Consider consolidating high-interest debt into a lower-interest loan, such as a personal loan or balance transfer credit card.
  • Maintain a Good Credit Score: Your credit score plays a vital role in your financial health. Monitor your credit report regularly and take steps to improve your credit score.
  1. Utilize Your Bank’s Online and Mobile Banking Tools:

Your bank can be a valuable resource in your financial journey. Take advantage of your bank’s online and mobile banking tools to help you stay on track.

  • Online Bill Pay: Schedule and track bill payments online, saving time and reducing the risk of late fees.
  • Mobile Check Deposit: Deposit checks quickly and securely using your smartphone.
  • Budgeting Tools: Utilize built-in budgeting tools to track spending, set savings goals, and create spending limits.
  • Financial Calculators: Explore tools like retirement calculators, loan calculators, and savings calculators to help you make informed financial decisions.
  1. Building a Strong Financial Foundation

Building a strong financial foundation is an ongoing process.

  • Review and Adjust Regularly: Regularly review your budget and adjust as needed to reflect changes in your income, expenses, and financial goals.
  • Stay Informed: Stay updated on financial news and trends. Read articles, attend financial seminars, and utilize online resources.
  • Educate Yourself Continuously: Continuously learn about personal finance through books, articles, and online resources.

Building a strong financial foundation is an ongoing journey. By embracing these principles, you can budget effectively to gain control of your finances, achieve your financial goals, and build a secure future.

 

6 Tips for Improving Your Credit Score

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When it comes to your credit score, there’s almost always room for improvement. If you’ve pulled your score and you’re not satisfied with the number you received, there are several strategies to boost it. But first, you need a little insight into how that score is calculated.

Five major categories are used to determine your credit score which are reported to the credit bureaus by your lenders to generate scores ranging from 350 to 850 (higher is better, of course).

Each category is weighed differently. Here’s a quick breakdown:

  • 40% is based on your payment history, and whether you pay on time.
  • 23% is your credit utilization. Also known as credit usage, it’s the ratio between the total balance you owe and your total credit limit on your accounts. It’s best to keep your credit utilization below 30 percent — this is because if you are consistently maxing out your credit cards, it’ll look like you need money in the eyes of a lender.
  • 21% is the age and type of credit you have. This percentage factors in how long you’ve had different kinds of credit accounts open. The older and more diverse (auto, mortgage, credit card) your credit is, the better.
  • 11% is based on your total amount of recently reported balances on your credit accounts. You’ll want to keep your balances generally low because that’ll suggest to lenders that you are capable of making your payments on time.
  • 5% is based on recent credit applications. Opening multiple credit accounts in a short period of time could represent a greater risk for lenders — multiple recent inquiries may worry lenders that you are applying to so many places because you are unable to qualify for credit — or because you need money in a pinch — so avoid opening too many accounts too quickly. (You don’t have to worry about this if you’re shopping for a mortgage or car loan. All inquiries within 14 days count as a single one.)

 

RAISE YOUR SCORE BY DOING THE FOLLOWING:

  1. Pull your credit reports. The three major credit scoring bureaus, TransUnion, Equifax, and Experian will each allow you one free copy of your report each week. You also have access to your report and score daily through the United Fidelity Bank app. If you choose to get a copy directly from the credit scoring bureaus and you find an error on your report, you should dispute it as soon as possible. Simple mistakes – the wrong address or a misspelling of your name – can be fixed by calling the creditor and asking for an update. If they won’t oblige, or the error is more complicated, you should dispute directly with the credit bureaus. You can do this online.
  2. Pay your bills on time. One day late is still considered late, and just one late payment can lower your score. Consider using an online bill payment service, like Bill Pay, to stay on track with your payments.
  3. Pay down credit card debt. You don’t want to be using more than 30% of the total credit available to you. Keeping your utilization well below that (closer to 10%) can give your score a boost.
  4. Hang onto old cards. Your credit score benefits from long relationships with lenders, so cut them up, but don’t cancel them if you can help it.
  5. Be thoughtful about shopping for new credit. Every time you apply for a new card or loan, the lender takes a peek at your credit history, which dings your score.
  6. Spread your debts around. The mix of credit you have in your file—mortgages, student loans, auto loans, credit cards—shows that you can manage debt from multiple sources.

 

Remember that time – and patience – are key. You shouldn’t expect a change overnight, but you will see improvement over the course of 12 to 18 months – shorter, if your score is already fairly high and you’re just looking for a bit of a jump.

 

Article by SavvyMoney contributor Jean Chatzky.

IT’S TIME FOR YOUR ANNUAL FINANCIAL CHECK-UP!

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Just like visiting a doctor, it’s important to review and evaluate your finances so you can ensure the healthiest relationship with your money. A financial check-up will give you more confidence in your finances and allow you to have more control over where your money is going.

If you’ve found yourself feeling overwhelmed or unsure of how to tackle your financial check-up, use these tips to help you get started.

  1. Identify any recent major changes in your lifestyle that could affect your finances. Have you switched jobs, received a pay raise, gotten married or divorced, had kids, bought a house or new car, etc.? It’s all relative when reviewing your finances.
  2. Gather your bank statements and credit card statements from the last 6-12 months and find where you are spending most of your money. See if you can identify spending patterns that could be adjusted or eliminated.
  3. Check your credit score. You can obtain a free copy from one of the three main credit bureaus (Equifax, Experian, and TransUnion) to check for and report any errors. This can also help you discover if you need to take necessary steps to improve your credit score.
  4. Evaluate all your current financial accounts (personal, business, checking, savings, retirement, CDs, loans, etc.). Ensure that all the information on your accounts is correct and up to date. Having a clear understanding of your accounts in relation to your financial goals can help you plan accordingly for the year.
  5. Review your debt(s) and interest rates (mortgage, car loans, credit cards, student loans, etc.). Write these down and plug them into your budget. Create a plan that will help you pay off your debt(s) as soon as possible.
  6. Identify tools and resources you can utilize to help streamline your banking. Check out some of the services our customers benefit from such as Online and Mobile Banking, Bill Pay, Notifi Alerts, Credit Score, and more.

Our ICB staff is here if you need assistance with your financial check-up. Schedule an appointment with one of our local bankers to perform an account review and identify more ways for you to save.

After you’ve completed your financial check-up, you’ll have the information needed to reassess and set new financial goals and create a solid budget to help keep your financial goals on track.