Your Credit Affects More Than Just Your Finances

Isn’t this recession supposed to be over?

Millions of Americans continue to have their credit trashed as this unofficial recession drags on. According to FICO, a quarter of Americans now have a credit score below 600. Late payments, foreclosures and even mistakes on our credit reports have taken their toll.

Use this as an excuse to check your credit report and dispute any errors.

If you’re not buying a house or applying for a credit card anytime soon, you may think you’re in the clear. The truth is, your credit affects more than just your ability to get a loan or credit card.

Here are six areas of your life that are affected by bad credit:

1. Relationships First, and perhaps most surprising, having bad credit might affect your relationship with your spouse. To all you guys out there listening to your wives complain about how dingy your apartment is and how much she wants a house, you need to get your (financial) lives together. Do it for your marriage, your sanity, whatever. Your credit needs to be in good shape so you can get her that house someday.

Maybe those who need to worry most are the ones who aren’t married yet. I’ve heard stories about one person calling off the engagement after finding out the other’s debt level.

Whether you like it or not, debt attaches to you like a parasite. It is part of who you are. If you owe big bucks, you have a greater chance of falling behind on payments. And when that happens, your credit is trashed. That may make you look unattractive to your future mate. Don’t say I didn’t warn you.

2. Career It’s now common knowledge that having bad credit affects your ability to get a job. The most recent report I saw said that 47% of employers use credit checks to screen potential employees.

Personally I think this is a terrible idea. Credit reports are not good indicators of character or ability to do the job. The only reason employers should be checking your credit is when the job specifically deals with money.

3. Renting an Apartment Every apartment complex I’ve ever applied to live at has checked my credit. For good reason – you’re signing up to pay them over $10,000 a year in many cases. Your landlord wants an idea of how you’ve handled bills in the past.

An extra perk: I once had a landlord waive the security deposit because I had good credit. So make sure to negotiate when signing the lease.

4. Getting Insurance Car insurance companies think that those with bad credit are more likely to cause an accident. Baloney. In some cases they may outright deny you coverage, but it’s more likely that good credit will earn you the best rates. I’m not sure why, that’s just the way they play.

Homeowner’s and renter’s insurance works the same way. These companies believe that you’re more likely to set your house on fire if you have bad credit. You need good credit to play their game and get the best rates.

5. Setting up Utilities If you think about it, utility companies (water, electric, gas, etc.) extend you credit every month. They provide you service then bill you after the fact. If you have bad credit you may be required to pay them a larger deposit to open your account.

6. Cell Phone Service In today’s world it’s difficult to function without a cell phone. Similar to utility companies, cell phone providers bill you for service you’ve already used. Before they let you sign up for an account, they pull your credit. They just want to know if they’ll get their money each month.

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Ripoff Alert #10 – Elder Abuse Edition

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Elder Financial Abuse

In a sad twist for our nation’s elderly citizens, scamsters are increasingly turning their attention towards seniors.

According to insurance provider Metlife, Americans over age 60 lost $2.9 billion in 2010, up 12% from 2008. The most tragic part is that a third of the fraud is committed by family, friends and neighbors. The people who seniors trust most are often the ones ripping them off.

Seniors tend to be more trusting than the general population, which makes them an easy target for crooks. Some receive assistance from neighbors or family to pay bills, collect the mail and other household tasks. In addition, many seniors have a set routine they go through each day. Their predictable pattern of behavior makes it easy to steal money and other belongings from them.

Most seniors who realize they’ve been scammed keep quiet about it because they’re too embarrassed or ashamed to admit they’ve been victimized. Others may not realize they’ve been scammed until much later, but by then it’s too late to get their money back.

The Consumer Financial Protection Bureau, which in past months has gone after payday lenders and mortgage fraud, is launching an investigation into elder financial abuse. Richard Cordray, the bureau’s director, calls this the “signature crime of the 21st century.” The agency is focusing its efforts on fraud and deceit targeting those 62 and older and so-called financial advisers who claim to have expertise helping senior citizens.

In many cases, these scams can be prevented if adult children intervene in time. The solution might be to take away the checkbook and debit card. This could cause them to lose their sense of independence, but you’re the one who needs to protect them.

If you have elderly relatives, talk to them about the kinds of mail and phone calls they’re receiving. Find out if they’ve been asked for money or bank account numbers from anyone. Take a look at their checkbooks and bank statements for any evidence of fraud. This is one case where you need to be nosy.

Avoiding Lifestyle Inflation

Late last year my wife graduated from nursing school, and soon after we became a dual income family. This was certainly a blessing because it meant we could start repaying some of our student loans. But one of our biggest challenges lately has been avoiding the temptation to spend the extra paycheck.

This is something I considered even before my wife started working. We were accustomed to living off my income, so I wondered what it would feel like to have an extra paycheck every two weeks. I’ve always been pretty disciplined with money, but I wasn’t confident we would be able to avoid unnecessary spending.

When a family goes from earning one paycheck to two, one or both partners are often tempted to spend all the extra money. They might rationalize their behavior by saying that they deserve more after scrimping and saving for so long. This is known as lifestyle inflation, and is extremely hazardous to your financial health.

This past weekend I went to Costco for few things. I was strolling through the store as I often do, checking out the offerings, when I walked past some pillows. They looked really soft, so I walked up to touch them. “Yep, these would look great on our bed,” I said to myself. They might even help me sleep better. I did everything to convince myself that I needed these pillows, including telling myself that we could afford them now that we have extra money coming in.

In the end though, I walked away. Sure, I could have easily afforded them. The price was right too – $16 for two king size pillows. I thought about the pillows we currently have. Although they’re a year or two old, they work just fine. At this point they’re a want, not a need.

Recognizing the difference between wants and needs is a big step in avoiding lifestyle inflation. Just because you have extra income now doesn’t mean your list of needs has to expand.

What are some better things we could be doing with the extra income? Here’s where our focus is:

1. Paying off student loans. This is where the majority of my wife’s paycheck goes. Watching the balance fall month by month is very satisfying.

2. Increase our giving. We feel that it’s important to give to those who are less fortunate than we are. Even though we aren’t bringing in tons of money, the extra paycheck allows us to be more generous.

I heard a quote once that’s always stuck with me: God increases our means not that we may increase our standard of living, but that we may increase our standard of giving.

3. Start saving for retirement. Before my wife started working she had zero retirement savings. We’ve since opened up a Roth IRA for her and contribute a little from each paycheck. When she becomes eligible to contribute to her 401(k) at work we’ll start contributing to that as well.

Extra money might come into your life from ways other than an additional paycheck – it might come through an inheritance, a raise, or from reducing expenses. Whatever the source, don’t squander it by buying things you don’t need. Instead, consider your goals and the needs of your family, and ask yourself how you might use it to better your life and the lives of those around you.

What are your tips for avoiding lifestyle inflation?

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Handling Money in a Relationship

Money, like politics, is a very polarizing subject. Ask five people how they handle money and you’ll get five different answers. It seems that everyone has an opinion about how best to handle money in a relationship.

My wife and I are no different. Before we met, she was never interested in money other than spending it. (I hope she doesn’t get mad at me!)

Then there’s me. As a kid, I always knew how much money I had on any given day. Once a week it seemed, I’d empty out my piggy bank onto the floor and amaze myself with the shiny coins that would come tumbling out. I would count each and every penny, put them into neat little stacks, and take pictures of my creation. Sometimes I would even go get dad and try to impress him with my savings.

Fast forward to today. My interest in money and personal finance has continued to develop and my wife has become somewhat more interested in our financial situation. She’s mostly concerned that the bills are paid and that we have a little left over for the fun stuff. She has even started to brag that her credit score is better than mine!

The Problem

Disagreements over money are a common cause of tension in a marriage and often lead to divorce. What many couples fail to realize is that men and women are different. Women tend to be more conservative with money and lean towards savings and security, while men take more risks and aren’t quick to discuss or admit financial problems when they come up.

We’ve all heard that opposites attract. We’re drawn to those who possess the qualities we lack. This means that often, one person in a relationship is interested in finances while the other isn’t. The problem comes when the one who manages the finances neglects the wishes and needs of the other.

How Do We Get Around This?

In a word: Communication. Realize that marriage is an equal partnership in which both parties should be able to voice their desires. The money manager needs to consider the input of his or her partner, and the partner should in turn be involved in financial decisions and take an active interest in the couple’s finances.

It’s important to communicate often about our needs and wants. To do this, you need to tell your partner what your goals are. Then you need to listen when they’re talking to you. Once you’ve heard each other out and are clear about what the other wants, it’s time to compromise. In a relationship you’re never going to get everything you want. At times you’ll need to give up what you want. This unselfish behavior, if practiced and perfected, will make a relationship thrive.

What if you can’t get your partner to participate in the family’s finances? Lecturing or criticizing will only make him or her more reclusive. Try to understand the reasons behind the disinterest. Above all, being patient with your partner is the best thing you can do.

Who Handles Our Finances?

In our marriage, money isn’t something we argue over. We have disagreements once in a while about what we each think is the best use for our money, but we don’t let our differences get between us. What I’ve found is that we’re both moving toward the center – I’m learning to live a little and she’s getting her save on.

Because of my interest in finances and a thrifty lifestyle, I’m the one who manages money in our relationship. But most importantly, my wife is okay with this. Because we communicate and compromise often, our opposite qualities come together in a way that makes us stronger than before.

Who handles the money in your relationship?

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Are surprise gifts a bad idea?

Every year around this time we’re all faced with the challenge of picking out the perfect gift for those on our list. And inevitably, the debate emerges: Should we stick with items from their list, or buy something else we think they might like?

The idea of gift giving has evolved in recent years. According to The New York Times:

It’s no longer about this special delightful something from me to you. More and more people have gotten mercenary about the whole thing.

Mercenary indeed. Each year we make long lists of stuff we might like to have, and promptly deliver it to friends and loved ones to make sure they have time to buy before the big day. Instead of exchanging a small, thoughtful gift with our loved ones we are happier to receive only what we want.

This increased happiness is confirmed in a new study by Francis J. Flynn, a professor at the Stanford Graduate School of Business, and Francesca Gino, at the Harvard Business School, called “Give Them What They Want: The Benefits of Explicitness in Gift-Exchange”:

In five experiments, this study demonstrated that people accrued more pleasure from a gift (and were more appreciative of it) if it was something they had requested. What’s more, the study’s subjects rated givers as more thoughtful if they gave from a wish list.

So I’m happier if I get something I wanted, AND I label the giver as more generous?! Sounds like a double win for the Christmas list. It goes on:

Yet the givers (poor saps) wrongly imagined that their giftees would be equally appreciative of gifts that hadn’t been solicited. They were also mistaken in believing a gift of cash would be less welcome.

How did we become so entitled? Or to put it a nicer way, so discerning?

In our world of instant coffee, one-click purchases and on-demand streaming, we have become accustomed to instant gratification. We’ve been conditioned to believe that we deserve (are entitled to) what we want when we want it. Frankly, we’ve decided we shouldn’t have to “deal with” accepting an unwanted gift.

I find it interesting that we (incorrectly) assume recipients will appreciate surprise gifts. Sadly, the phrase “It’s the thought that counts” no longer applies for some recipients. These are a more particular bunch who would prefer that you stick to their lists.

Making a Christmas list certainly has its pros. It might make life easier for givers and provide them an idea of what you like. It might get you exactly what you want. And studies show it might even make you happier.

But you also have to consider the downsides. It takes the creativity and thoughtfulness out of gift giving. It can cause givers to feel restricted or pressured. And there are still some people out there who enjoy the surprise of an unexpected gift. Further, making a list can create an unintended consequence:

“They are getting other people to do their shopping for them. They are exchanging shopping lists and paying for the milestones of life.”

Perhaps another consequence of our consumer-driven society?

With all the talk about unsolicited gifts and Christmas lists, we lose focus of what the Christmas season is really about. It should be about spending time with friends and family. It should be about service to others. It should be about kindness and generosity towards those around you.

4 rules to follow when giving gift cards

This is the second post in a two-part series on giving gift cards. According to a study by Accenture, 57 percent of people have gift cards on their shopping lists this year. In the previous post I covered 5 gift cards not to buy your friends.

CBS MoneyWatch lists 4 rules for smart gift card shopping:

  • Beware of unwanted cards
  • Keep an eye on fees
  • Know your friends
  • Choose replaceable or refundable cards

As you can see, unwanted gift cards are a major issue. Giving a gift card can be a hassle to the recipient in general. An interesting point:

While gift cards top many holiday wish lists this year, givers should note that not all cards are created equal. Some may offend or go unused, while others can cost either buyer or recipient (or both!) more than just their face value.

I’ve seen Visa gift cards that cost $3 or $4 just to activate the card! Talk about money down the drain.

This also shows why it’s important to really know your friends and their shopping habits before buying them gift cards. As I mentioned in part 1, you want to be sure the recipient will actually use it. If unused for extended periods, inactivity fees could eat into the value of the card.

I would add a fifth rule: consider giving cash instead. Gift cards limit the choices of the recipient by essentially eliminating comparison shopping. On the other hand, cash is the most flexible gift and is always appreciated. It never expires and there aren’t any inactivity fees. Some might argue that giving cash is distasteful, but when combined with a heartfelt note and card it can be an appropriate gift in most situations.

Gift cards can be good gifts because they allow the recipient to choose what they want most. But compared with cash, gift cards come with a lot of baggage. Tread carefully this holiday season!

5 gift cards not to buy your friends

This is the first post in a two-part series on giving gift cards. According to a study by Accenture, 57 percent of people have gift cards on their shopping lists this year. In the next post I’ll cover rules to follow when giving gift cards. 

CBS MoneyWatch lists 5 gift cards your friends don’t want as follows:

  • Airlines
  • Barnes & Noble
  • Spa Treatments
  • Boutiques & High-End Retail
  • Off-Season Shops
Gift card resale companies end up with a surplus of unwanted gift cards each year when the holidays are over. These companies see the above categories most often. So you’ll probably want to avoid these categories unless you know specifically that your recipient will use it.

Here’s my take on these:

  • I don’t remember the last time I bought an airline ticket directly from an airline. I normally use an online travel agency like Expedia or Kayak. In recent years more airlines have added fees for baggage and who knows what else, which has opened up a new area of competition in the airline industry. Giving a gift card for a specific airline only limits the choices of the recipient. They especially recommend avoiding Continental and American Airlines — the two most common airline gift cards listed.
  • I’ve received a Barnes & Noble gift card in the past, which I used to buy some new books. But I could have easily bought these books for less than half the cost from Amazon or elsewhere online.
  • I’ve never been to a spa so I can’t speak for this one.
  • In this tough economy, most people aren’t looking for luxury purchases from high-end retail stores. I would lump this one in with spa treatments and say that cash is better.
  • The issue with seasonal gift cards, such as those for Christmas stores or sunglasses shops, is that the recipient may lose track of their gift card before the time to use it comes around. Again, cash wins.

Were you planning to buy any gift cards on this list?