Raising Your Credit Score: A follow up

As a follow up to yesterday's post about improving your credit score. The comment below is from Gary Loechle, Vice President of Commercial Services for Hawthorne. Gary will soon be retiring from Hawthorne after a successful career in banking that included many years as Vice President of Lending at Hawthorne and other financial institutions in our area. Gary had this to say:

"Sandy, Interested in another point of view?

Your two tips are correct. Prompt payments and low balances.

However, in this time of uncertainty, I would have to think long and hard before advising friends to drain savings to pay off a credit card.
Traditionally, the credit score is adversely affected when the balances owing on credit cards are higher than 80% of the credit limit.

While I would always recommend keeping a tight reign on the use of plastic, I would suggest that maintaining, and if possible, building a savings balance is probably more critical today as long as the credit card balances are less than 80% of the credit limits and within our ability to make the payments while saving.

The problems today that would affect my thinking include:

Credit card companies and some home equity lenders have been reviewing accounts and reducing credit limits. Therefore, I would prefer to rely on my savings rather than find the credit, which I thought would be there for emergencies, had evaporated.

Another concern would center on the possibility that a person could lose his/her job. If so, the credit would quickly dry up anyway.

So, the more urgent needs to maintain a good credit score during these times of economic uncertainty would include:

Always make scheduled payments promptly;

Keep credit and charge card usage in check. Use them for emergencies only. Definitely, keep balances below 80% of the credit limits.

Make sure the person considers himself a creditor that also must be paid something each payday, in the form of a savings deposit.

The equivalent of three months of expenses in savings is a very worthy goal. But, for most of us, it will take time to build up the savings to that amount. But, if we don’t start on it today, we’ll never achieve it.

Just a thought from Uncle Gare."

Thanks Gary!

TIP: Ways to raise your credit score

TIP: Two ways to make the biggest impact on your credit score are 1) make your payments on time and 2) keep your balances low.

I recently paid down a balance on one of my credit cards with some savings. It was a tough choice because I know I'm supposed to keep 3 months of expenses in savings (gee, if it only it had been that much), but it seemed useless to have money in savings earning so little when I'm paying so much for credit cards. Anyway, I'll be curious to see how it impacts my credit score. It also reduced my minimum payment, so now I'll continue to make the higher payment and more of my money will go toward paying off the principal balance, lowering my finance charges. (That's called Snowballing, by the way. I should blog about that debt reduction strategy one of these days...)

For more ways to improve your credit score, see this article on our website. It's part of our Balance Financial Fitness program.

New Year’s Resolutions that can help

Your wallet might be looking a little empty after the holiday season and I know that some of you are probably a little stressed about the balance in your bank account. Don’t be afraid to admit if you’re avoiding the mailbox because you know that pretty soon that big credit card statement will arrive.

My holiday shopping this year was a little less painful than usual because of my trusted Hawthorne Christmas Savings Account. I emptied it out already to help cover the bills that have already arrived, but on New Years Day I started getting an early start on my 2008 holiday shopping by depositing $50 into the account.

My Christmas club account is a savings account at Hawthorne that I can deposit money in to throughout year to effortlessly build up a nice gift fund. In November the money automatically gets deposited in to my savings account and I can go shopping without having to worry about paying for everything.

The holidays at my house are usually very stressful with too much going on and out-of-town house guests. However, each year I am trying to find new ways to alleviate some of the tension.
How, you might ask?

You can reward yourself financially by making some of your New Year's resolutions geared toward handling your finances or debt better. You can do it, trust me. This year one of my resolutions is to work on better organization and management of our finances.

Here's a list of seven strategies taken from the Consumer Credit Counseling Service that may help you. Good luck and Happy New Year!

1. Balance your checkbook each time you receive a paycheck so you don't spend more than the amount you make.

2. Have a filing cabinet or a secured box, handy? Well, you will need one to store financial statements. Make separate files for bank statements, tax documents, credit card bills, medical information, mortgage statements and other important records.

3. Create a monthly budget to determine your monthly income and recurring expenses. Focus on items such as rent or mortgage payments, utility bills, food, transportation costs, tuition savings, entertainment and personal grooming.

4. Ok, so once you've set up the budget; prioritize the expenses and spending based on your needs and wants. If you have any funds left after the monthly expenses are paid, split them between paying down your debt, for instance pay high-interest credit card bills and loans, and stash the money away in savings.

5. Create a varied savings plan. Make regular deposits in an interest-bearing account and don't pass up your employee-sponsored benefits like retirement and flexible spending accounts.

6. Stay aware of debt trouble. Problems can occur when you start falling behind on bills like mortgage, rent, or utilities or start using credit to buy items that you should buy with cash.

7. If situations like these occur, don't suffer in silence. Call your creditor and let them know you are having problems. It's possible that you just may be able to reach an agreement with your next payment or negotiate a lower interest rate.

You may also want to consider a Debt Management Program. If you have over $5,000 in debt then a debt management program may be for you. Hawthorne’s Balance Financial Fitness debt management program can help.

Don’t Let Your Holiday Debt Last Longer than it needs to:

With holiday spending over, our debt recovery time may just be starting. Our credit card bills will start arriving in the mail soon. Recent stats by the National Retail Federation show that the 2007 holiday season got off to a record start with “Black Friday” sales by US shoppers rising 8.3% to a record $10.3 billion. Figures for the following “Cyber Monday” shopping holiday, the Monday following Thanksgiving, also showed a healthy increase with a new one-day record of over $700 million in total purchases.

It is too bad that most of the record consumer spending was paid through the use of credit cards. Most consumers, including me, don’t hesitate to place $300 in goods on a credit card but certainly would think twice if they were forced to purchase the same amount of goods solely with cash? Because of this it is no surprise that the average credit card debt per US household is expected to rise again in 2008 as it has every year since the early 1990’s.

What will this increased spending mean for the New Year? According to John Silva, chief economist for Wachovia, “(Consumers) will still be spending money (in 2008) but it will be on credit card interest and minimum payments, not on apparel or eating out.”

So what’s the average consumer with thousands of dollars in credit card debt to do in 2008? Consider these five suggestions to get your debt under control in the New Year:

1. Reduce your card interest rate - Hawthorne members can now qualify for great rates and Reward points when they transfer balances between February 1 and March 31, 2008.

Visa Platinum Reward Cardholders receive 2,500 bonus points on balance transfers .**
Visa Platinum Savers credit card - 3.99% APR* for 9 months on balance transfers.
Visa Classic credit card – 6.99% APR* for 9 months on balance transfers.

Click here for more information.

2. Stop Using the Cards - seems simple enough? Stop using the cards now and stop accumulating more debt on top of the debt you couldn’t afford in the first place.

3. Pay more then the minimum – For example if you have $5,000 in credit card debt with a 16% interest rate and a minimum monthly payment of $110. Did you know that just paying the minimum means it takes 25 years to pay off your debt and that $5000 debt will end up costing you $12,000 in total? This total includes an extra $7,000 that you will have to pay in interest. A good alternative would be to DOUBLE your minimum payment to $210 and pay off the card in 28 months, which will save you about $6,100 in interest.

4. Consider a Debt Management Program - If you have over $5,000 in debt then a debt management program may be for you. Hawthorne’s Balance Financial Fitness debt management program can help.

*APR=Annual Percentage Rate. **Minimum balance transfer of $1,000.00. Also offering 1 bonus point per dollar of balance transfer up to a maximum of $10,000.00.

We Can Help You Save for the Holidays!

Believe it or not, it’s getting to be that time of year again! Time to start thinking about the upcoming holiday season! I know, you might think I am crazy, but before you know it you’ll be planning Thanksgiving, buying gifts and possibly traveling. Can you see the dollar signs yet?

As far as I am concerned it’s never too early to start saving money and shopping for the holiday season. For some of us, including me, this is easier said than done. In January it does not seem important to start saving for Christmas, since most of us are just starting to try and recover from the financial impact that the previous holiday season has had.

A couple of years ago I decided that I wanted to do something to prepare for the holiday season and make the holidays more enjoyable and less stressful on me and my family. I decided to open a Christmas Club Account at Hawthorne.

This is a savings account that I can deposit money into throughout year to effortlessly build up a nice gift fund. In November the money automatically gets deposited in to my savings account and I can go shopping without having to worry about paying for everything.

Last year I got a late start and only had $300 in the account when the money got transferred, but this year I have been doing better. I transfer $25 - $50 each pay period into my Christmas Club Account. This year when the deposit is made I should have about $800. This will help take some of the pain out of my excessive shopping.

For us, there is not a better way to save money for the holidays than this kind of savings account. So easy & painless!


Click here for more information on the Hawthorne Christmas Club Account.