Top Tips for Managing Debt

Presented by Marc Aarons

It won’t come as a surprise that 77% of American households have debt of some sort—especially as inflation hits a 40-year high and prices on just about everything skyrocket.

When you couple that with the fact that three in five people report living paycheck-to-paycheck, it’s easy to see the challenge facing American families this year.

That said, if you find yourself trying to tame consumer debt while living paycheck-to-paycheck, you’re not alone. The good news is there are small ways to ease the financial squeeze and lessen future fallout.

Here are five:

1. Avoid new debt. If possible, avoid new debt right now. As interest rates rise, save and pay cash for non-essential purchases.
2. Always pay on time. Consider enrolling in auto-pay when possible. Remember, payment history makes up 35% of your credit score, so it’s critical for your future financial health to make payments on time.
3. Activate the debt snowball. Here’s how it works. Make a list of your debts, with the lowest balance first. Pay the minimum payments on all but your smallest debt. Send extra funds there until it’s paid off, then use that money to throw at the next largest debt.
4. Add to your emergency fund. Building an emergency fund of 3-6 months of living expenses feels daunting—especially in this inflationary environment. But keep at it as you’re able! Every dollar you can set aside now will help you build a safety net and stay out of debt when unexpected expenses come your way.
5. Assess various side hustles. Paying off debt is one of my top tips for clients, but increasing income is close behind. Consider if a side hustle is right for you. The gig economy is exploding, and you can easily find a profitable side hustle to start with little or no money.

If you have questions or would like to discuss your financial situation to ensure you’re making the best decisions for you and your family, given the current climate, I’m here to help. Reach out anytime.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

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Rising Interest Rates, Savings, and Debt

Presented by Marc Aarons

I’m reaching out today given the stark financial situation many Americans find themselves in, as they grapple with the Federal Reserve’s historic rate hike campaign and the compounding effects of just-recently cooling inflation.

If you are among those facing record-high credit card debt and dwindling emergency savings, I want you to know you’re far from alone in this, and there are some helpful strategies you may not have considered. Here are three:

• Ask for a lower credit card rate. If you carry a balance on your credit card, call your bank and ask for a reduced rate or annual fee. This past year, 76% of people who asked for a lower interest rate got one. It’s not guaranteed, but the cost of asking is $0.
• Weigh whether debt consolidation loans or balance transfers are right for you. If you have a number of high-interest credit cards or other loans, you may be able to consolidate this debt at a lower interest rate, either as part of a balance transfer for credit cards or through a debt consolidation loan. Often, these lower interest rate offers are limited to a particular period of time, after which interest rates increase. So, you’ll need to seriously consider whether you can pay off the debt in that stipulated period of time. Keep in mind you’ll likely need a higher credit score to qualify for debt consolidation.
• Consider high-yield savings accounts. As you go through your budget, if you have extra cash to set aside, consider a high-yield savings account to get a better return on those funds. This is a good option for those without strong emergency savings who want to be able to access their savings relatively quickly. Unlike with CDs or other investments, account holders are legally allowed to withdraw money from high-yield savings accounts without any federal fees, though more than six withdrawals in a month could spur bank fees.

I hope these tips are helpful. As always, if I can answer questions or otherwise be of assistance, do not hesitate to reach out. I am always here as a resource for you and your family.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

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Should Retirement Funds Go Toward Current Needs

Presented by Marc Aarons

I hope you and yours are doing well. This past year has been financially trying for many individuals and families in the face of record inflation numbers and a looming recession (US Inflation Calculator).

And with rising credit card debt that averaged $9,000 per household in the first half of 2022, Americans may be tempted to turn to other sources of income and savings to pay down these balances. In fact, I’ve had a few clients reach out about tapping into their retirement savings.

With that in mind, I thought I would proactively reach out to you and share the advice I gave these clients: Using retirement funds presents a few key complications that can make it a bad financial decision long term.

First, you may pay considerable taxes on any withdrawals. For example, a 401(k) is meant to be left untouched until age 59½ (Fernando, 2022). Try to withdraw funds prior, and you’ll pay income taxes in addition to a 10% penalty. Fees and taxes exist with IRAs and Roth IRA accounts as well (Segal, 2022)*.

As a general rule, you should leave your retirement funds alone unless you have no other way to pay for essentials like food or housing. Instead of tapping into your savings in advance and losing out on tax breaks and interest accrual that could benefit you later in life, consider these tactics:

• Debt consolidation – This refinancing option could help you by combining all of your debt into a single loan that can be negotiated into a collective, possibly lower, interest rate.
• Balance transfers – By moving debt from one account to another, you may be able to pay off the balance with a lower interest rate.
• Budget cuts – Evaluating your regular spending can often reveal areas where you can cut back, diminishing the ongoing amount of spending and debt that you’re taking on.
• Hardship loans – These loans can have faster funding and lower interest rates to help you address payments during difficult times without touching your savings.

Ultimately, if you are concerned about your finances, know that the team and I are here to help. I would be more than happy to sit down and share some recommendations I have, based on your unique financial situation. Reach out anytime.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc. is a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

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Why Don’t All Affluent People Become Wealthy?

Perception, hesitation, & poor decisions are factors.   

Provided by Marc Aarons

Why do some people let their potential for lifetime wealth slip away? Some people are better off economically at 30 or 40 than they are at 50 or 60. In some cases, fate deals them a bad hand. In other cases, bad decisions and inaction are to blame.

Some buy depreciating assets instead of allowing assets to appreciate. They rack up debt and live beyond their means. What are they spending so much on? It isn’t just consumer staples. It’s not unusual for a family to “keep up with the Joneses.”

Contrary to the bumper sticker, the person who dies with the most toys does not necessarily win. In fact, that person may leave a pile of debt and little else behind. Today’s hottest cars, clothes, flat screens, phones, and tablets may be tomorrow’s junk and clutter.

Some never prioritize a retirement strategy. For many, there are opportunities to invest, whether it be through a traditional individual retirement account or a workplace retirement account. In the case of workplace retirement accounts, some companies offer matching contributions, which may be an opportunity to heighten your savings power. That being said, not everyone takes advantage of these opportunities.¹

Once you reach age 72, you must begin taking required minimum distributions from your 401(k) plan and traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Some never build up an emergency fund. Financial challenges will arise, and a rainy-day fund can help you meet them. Striving to save for that rainy day also helps to promote good, lifelong saving habits.

Some invest without a strategy. Chasing the recent hot trend is a behavior that may lead to frustration instead of financial freedom. Instant wealth seldom comes from an overnight winner. These ideas don’t stop people from hazardously assigning an excessive portion of their assets to one investment.         

Some accept a “forever middle class” mindset. Some people define themselves as middle class and accept that definition all their lives. The danger is that this can amount to a kind of psychological barrier, a sense that “this is it” and that “getting rich” is for others.

Behavior & belief may count as much as effort. It takes some initiative to create lifetime wealth from present-day affluence, but a person’s outlook on money (and view of its purpose) can influence that effort – for better or worse.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com.

ocmoneymanagers.com

MMI Disclosure: This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

^Citations

1. ^{CNBC.com, March 4, 2022}

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What you need to know.

Provided by Marc Aarons

With the Federal Reserve keeping interest rates at or near zero, you may wonder about your mortgage. Is it a good time to refinance or even pay off the debt entirely? After all, your mortgage is one of the biggest expenses you may have in life, so why not rid yourself of that debt as soon as possible?¹

Not so fast. There are many reasons why keeping your mortgage could be a better option than paying it off. Yes, you may eliminate one of the largest bills you have every month, but there are benefits to maintaining your mortgage as well.

1. Losing all your gains on your investments. Using funds from your investments to pay off your mortgage early may mean you lose out on potential gains. However, by keeping your portfolio untouched, you increase the chances of a return on your investment.²
2. Not having funds available for other debt. Your mortgage very likely has the lowest interest rate of all your debt. Consider paying off your other consumer debts or student loans with higher interest rates before you consider paying off your mortgage.²
3. Losing your tax deductions. Mortgage interest can be taken as a tax deduction. However, paying off your mortgage may mean your taxes could be higher.²
4. Risking changes to your home’s value. If you own your house outright and there’s a sudden shift in the market, your home may be worth less than what you initially paid. Conversely, if you own 20% of your home, and the mortgage company or bank owns 80%, your losses are capped at 20%.²

Are you considering paying off your mortgage or another large debt? Let’s talk about how to best leverage your investments to help meet all your long-term goals.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.}

^Citations

1. ^{Finance.Yahoo.com, November 5, 2020}
2. ^{FoxBusiness.com, November 3, 2020}

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Why you should refrain from making this move.

Provided by Marc Aarons at Money Managers, Inc. 

 Thinking about borrowing money from your 401(k), 403(b), or 457 account? Think twice about that because these loans are not only risky, but injurious, to your retirement planning.

  A loan of this kind damages your retirement savings prospects. A 401(k), 403(b), or 457 should never be viewed like a savings or checking account. When you withdraw from a bank account, you pull out cash. When you take a loan from your workplace retirement plan, you sell shares of your investments to generate cash. You buy back investment shares as you repay the loan.¹

In borrowing from a 401(k), 403(b), or 457, you siphon down invested retirement assets, leaving a smaller account balance that experiences a smaller degree of compounding. In repaying the loan, you will likely repurchase investment shares at higher prices than in the past – in other words, you will be buying high. None of this makes financial sense.¹

Most plan providers charge an origination fee for a loan (it can be in the neighborhood of $100), and of course, they charge interest. While you will repay interest and the principal as you repay the loan, that interest still represents money that could have remained in the account and remained invested.^1,2

As you strive to repay the loan amount, there may be a financial side effect. You may end up reducing or suspending your regular per-paycheck contributions to the plan. Some plans may even bar you from making plan contributions for several months after the loan is taken.^3,4

Your take-home pay may be docked. Most loans from 401(k), 403(b), and 457 plans are repaid incrementally – the plan subtracts X dollars from your paycheck, month after month, until the amount borrowed is fully restored.¹

  If you leave your job, you will have to pay 100% of your 401(k) loan back. This applies if you quit; it applies if you are laid off or fired. Formerly, you had a maximum of 60 days to repay a workplace retirement plan loan. The Tax Cuts & Jobs Act of 2017 changed that for loans originated in 2018 and years forward. You now have until October of the year following the year you leave your job to repay the loan (the deadline is the due date of your federal taxes plus a 6-month extension, which usually means October 15). You also have a choice: you can either restore the funds to your workplace retirement plan or transfer them to either an IRA or a workplace retirement plan elsewhere.²

If you are younger than age 59½ and fail to pay the full amount of the loan back, the I.R.S. will characterize any amount not repaid as a premature distribution from a retirement plan – taxable income that is also subject to an early withdrawal penalty.³

Even if you have great job security, the loan will probably have to be repaid in full within five years. Most workplace retirement plans set such terms. If the terms are not met, then the unpaid balance becomes a taxable distribution with possible penalties (assuming you are younger than 59½.¹

Would you like to be taxed twice? When you borrow from an employee retirement plan, you invite that prospect. You will be repaying your loan with after-tax dollars, and those dollars will be taxed again when you make a qualified withdrawal of them in the future (unless your plan offers you a Roth option).^3,4

Why go into debt to pay off debt? If you borrow from your retirement plan, you will be assuming one debt to pay off another. It is better to go to a reputable lender for a personal loan; borrowing cash has fewer potential drawbacks.

You should never confuse your retirement plan with a bank account. Some employees seem to do just that. Fidelity Investments says that 20.8% of its 401(k) plan participants have outstanding loans in 2018. In taking their loans, they are opening the door to the possibility of having less money saved when they retire.⁴

Why risk that? Look elsewhere for money in a crisis. Borrow from your employer-sponsored retirement plan only as a last resort.

   Marc Aarons may be reached at 714-887-8000 or Marc@OCMoneyManagers.com.

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{MMI Disclosure}

^{Citations.
1 – gobankingrates.com/retirement/401k/borrowing-401k/ [10/7/17] 2 – forbes.com/sites/ashleaebeling/2018/01/16/new-tax-law-liberalizes-401k-loan-repayment-rules/ [1/16/18] 3 – cbsnews.com/news/when-is-it-ok-to-withdraw-or-borrow-from-your-retirement-savings/ [1/31/17] 4 – cnbc.com/2018/06/26/the-lure-of-a-401k-loan-could-mask-its-risks.html [6/26/18]}

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Financial burdens could alter their retirement prospects.

Provided by Marc Aarons @ Money Managers, Inc.

Imagine retiring with $50,000 of debt. Some new retirees owe more than that. Outstanding home loans, education debt, small business loans, and lingering credit card balances threaten to compromise their retirement plans.

How serious is the problem? A study from the University of Michigan’s Retirement Research Center illustrates how bad it has become. Back in 1998, 37% of Americans aged 56-61 shouldered recurring debt; the average such household owed $3,634 each month (in 2012 dollars). Today, 42% of such households do – and the mean debt load is now $17,623.

Are increased mortgage costs to blame? Partly, but not fully. Quite a few homeowners do trade up or refinance after age 50. The Consumer Financial Protection Bureau notes that between 2001-2011, the percentage of homeowners 65 and older carrying a mortgage went from 22% to 30%. The data for homeowners 75 and older was more alarming. While 8.4% of this demographic had outstanding home loans in 2001, 21.2% did by 2011.

Education debt is weighing on boomer households. According to the Motley Fool, the average recent college graduate has $30,000-$35,000 in outstanding student loans. It would take monthly payments of $300-$400 over a decade to eradicate that kind of debt.

As good debts have risen, bad debts have also grown. MagnifyMoney, a financial analytics website, pored over the most recent round of UMRRC data and determined that 32% of older consumers now contend with revolving debt each month. The average recurring non-mortgage debt for these seniors: $12,490, of which $4,786 is attributed to credit cards. A staggering 22% of older Americans have more than $10,000 in revolving credit card debt – pretty painful when you consider that the average credit card carries 14% interest.

One school of thought says that retiring with a mortgage is okay. Interest rates on home loans are rising, but they are still not far from historic lows, and homeowners who have bought or refinanced recently could be carrying loans at less than 4% interest. While carrying mortgage debt into retirement may be bearable, owning a home free and clear is better.

How about you? Can you retire debt-free? It may seem improbable, but if small steps are taken, that goal may come within reach.

Every year you delay retirement is another year you have full financial power to attack debt. Working longer may not be ideal, but it can give you the potential to start retirement owing less. Cutting off financial support for young adult children can also free up money to pay down debt. They have many more years to pay off what they owe than you do. You could also think about moving to a cheaper home, driving a cheaper car, or living in a cheaper state; any linked short-term financial expenses might pale in comparison to the potential savings.

Whether you pay off your smallest debts first or your highest-interest ones, you are subtracting burdens from your financial life. The fewer financial burdens you have in retirement, the better.

Representative Name: Marc Aarons, 714-887-8000 or marc@ocmoneymanagers.com

MMI Disclosure

^_Citations.

^{_{1 – forbes.com/sites/nextavenue/2017/09/20/how-debt-is-threatening-retirement-dreams/ [9/20/17]}}

^{_{2 – cbsnews.com/news/mortgage-tips-for-retirees-and-near-retirees/ [10/20/17]}}

^{_{3 – tinyurl.com/ybgvt7po [9/29/17]}}

^{_{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}}

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What pre-retirees owe could compromise their future quality of life.

Provided by Marc Aarons @ Money Managers, Inc.

The key points of retirement planning are easily stated. Start saving and investing early in life. Save and invest consistently. Avoid drawing down your savings along the way. Another possible point for that list: pay off as much debt as you can before your “second act” begins.

 Some baby boomers risk paying themselves last. Thanks to lingering mortgage, credit card, and student loan debt, they are challenged to make financial progress in the years before and after retiring.

 More than 40% of households headed by people 65-74 shoulder home loan debt. That figure comes from the Federal Reserve’s Survey of Consumer Finances; the 2013 edition is the latest available. In 1992, less than 20% of Americans in this age group owed money on a mortgage. Some seniors see no real disadvantage in assuming and retiring with a mortgage; tax breaks are available, interest rates are low, and rather than pay cash for a home, they can arrange a loan and use their savings on other things. Money owed is still money owed, though, and owning a home free and clear in retirement is a great feeling.

 Paying with plastic too often can also exert a drag on retirement. Personal finance website Value Penguin notes that the average U.S. household headed by 55- to 64-year-olds now carries $8,158 in credit card debt. As for households headed by those aged 65-69, they owe an average of $6,876 on credit cards.

According to the latest Weekly Rate Report at Credit Cards.com, the average APR on a credit card right now is 16.15%. How many investments regularly return 16% a year? What bank account earns that kind of interest? If a retiree’s consumer debt is increasing at a rate that his or her investments and deposit accounts cannot match, financial pain could be in the cards.

Education debt is increasing. Older Americans are dealing with student loans – their own and those of their adult children – to alarming degree. In all 50 states, the population of people 60 and older with student debt has grown by at least 20% since 2012. That finding from the Consumer Financial Protection Bureau may be understating the depth of the crisis, which may have its roots in the Great Recession. Fair Isaac Corporation (FICO) says that between 2006-16, the number of Americans aged 65 and older with outstanding education loans has tripled.

 Just what kind of financial burden are these loans imposing? According to FICO, the average 65-or-older student loan borrower is dealing with a balance of $28,268. That is up 40% from the average balance in 2006.

 How can pre-retirees and retirees address such debts? One way might be to reduce household expenses and apply the money not spent to debt. Financial assistance for adult children may need to end. Retiring later could also be a good move – income is the primary resource for fighting debt, and the more income earned, the more financial power a senior has to pay debts off.

Servicing debt in retirement can become very difficult. Large recurring debts can drain off a retiree’s cash flow and increase overall household financial risk. Retiring without major debt is a comparative relief.

Rep’s Name: Marc Aarons, 714-887-8000 or marc@ocmoneymanagers.com

MMI Disclosures

Citations.

1 – nytimes.com/2017/06/02/business/retirement/mortgages-for-older-people-retirement.html [6/2/17]

2 – valuepenguin.com/average-credit-card-debt [9/28/17]

3 – creditcards.com/credit-card-news/interest-rate-report-92717-unchanged-2121.php [9/27/17]

4 – consumerfinance.gov/about-us/blog/nationwide-look-how-student-debt-impacts-older-adults/ [8/18/17]

5 – newsday.com/business/65-plus-crowd-facing-growing-burden-from-student-loan-debt-1.14124052 [9/10/17]

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

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Steps to get your credit rating back toward 720.

We all know the value of a good credit score. We all try to maintain one. Sometimes, though, life throws us a financial curve and that score declines. What steps can we take to repair it?

Reduce your credit utilization ratio (CUR). CUR is credit industry jargon, an arcane way of referring to how much of a credit card’s debt limit a borrower has used up. Simply stated, if you have a credit card with a limit of $1,500 and you have $1,300 borrowed on it right now, the CUR for that card is 13:2, you have used up 87% of the available credit.1

Carrying lower balances on your credit cards tilts the CUR in your favor and promotes a better credit score. If you borrow less than 30% of a card’s debt limit per month, it will help you. If you borrow less than 10% of the debt limit on a card per month, it will help you even more.

Review your credit reports for errors. You probably know that you are entitled to receive one free credit report per year from each of the three major U.S. credit reporting agencies – Equifax, Experian, and TransUnion. You might as well request a report from all three at once. About 20% of credit reports contain mistakes. Upon review, some borrowers spot credit card fraud committed against them; some notice botched account details or identity errors. Mistakes are best noted via postal mail with a request for a return receipt (send the agency the report, the evidence and a letter explaining the error).1,2

If you have been doing the right things, tell your creditors to report them. If you fail to pay your bills, your creditors will let the major reporting firms know. What if you unfailingly pay the bills on time for a year – will they tell the major reporting firms about that?

Quite often, “good behavior” goes unrecognized by certain creditors while “bad behavior” gets a quick red flag. Urging a creditor to report the things you are doing right to the credit reporting firms can aid the comeback of your credit score.1

Think about getting another credit card or two (but not too many). Your CUR is calculated across all your credit card accounts, in respect to your total monthly borrowing limit. So if you have a $1,200 balance on a card with a $1,500 monthly limit and you open two more credit card accounts with $1,500 monthly limits, you will markedly lower your CUR in the process. Alternately, you could lower your CUR a bit by keeping just one credit card, but asking that card issuer to raise your debt limit. Refrain from trying to open several new lines of credit at once – that could actually harm your score more than help it.1

Think twice about closing out credit cards you rarely use. When you realize that your CUR takes all the credit cards you have into account, you see why this may end up being a bad move. If you have $5,500 in consumer debt among five credit cards and you close out three of them accounting for $1,300 of that revolving debt, you now have $4,200 among three credit cards. In terms of CUR, you are now using a third of your available credit card balance whereas you once used a fifth.1

Beyond that, a portion of your credit score is based on account longevity. This represents another downside to closing out older, little used credit cards.1

New FICO scoring may also help you out if you have problem credit. The FICO XD score – a rating recently launched in a Fair Isaac Co. pilot program with a dozen credit card companies – could open doors for you if you have been rejected by certain credit card issuers. On-time bill paying is a big component in the FICO XD score calculation.3

Roughly 15 million consumers now have XD scores, including 55% to 60% of recent credit card applicants. Between 35-50% of those applicants are estimated to have XD scores above 620, which can be the make-or-break point for getting a credit card.3

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com
www.ocmoneymanagers.com

Citations.
1 – gobankingrates.com/personal-finance/video5-quick-ways-raise-credit-score/ [1/27/15] 2 – money.usnews.com/money/blogs/my-money/2014/07/10/how-to-dispute-credit-report-errors [7/10/14] 3 – blogs.wsj.com/moneybeat/2015/10/08/new-fico-score-may-have-wider-impact-than-first-thought/ [10/8/15]

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