Improving your Credit Score

Credit scores are important because they effect the interest rates you pay on everything:credit cards, car loans, mortgages, lines of credit, etc.  Credit scores and credit reports can also effect your success or failure in landing jobs or obtaining leases on an house, townhouse, or apartment.

If you know your credit score (FICO score), and it’s 770 or higher, you have an excellent score and are in great financial shape.  If your credit score is 720 to 769, you are in good shape, but could benefit from an upgraded score.  Finally if your credit score is below 720, you should strongly consider fixing your credit score.

I have some personal experience with credit score improvement and repair.  When I met my girlfriend and eventually found out her personal finance situation I had to take a deep breath.  She had $13,000 in credit card debt and credit score of 630.  One year later she had a credit score of 750 and almost zero debt. I provided no money to her… just advice and emotional support.  Today she is kicking butt and her credit score is well north of 770.

How’d we do it?  Pretty simple.  By making minimum payments to the low-interest accounts and throwing any left over money towards the highest interest account.  After a couple months, and an improved credit score, she took out a line of credit that was lower than her other rates.  She used it to pay off her highest rate card which was charging an outlandish rate of near 27%.  She kept making timely minimum payments to her lower-rate balances, while throwing almost all leftover money at the cards with the current highest rate.  As her credit score improved she was even able to call up and negotiate lower rates with some of her credit card companies.

I am Mr. Finance.  When I initially learned of her credit and debt situation I was taken for a loop.  I called my dad, Mr. Finance Senior, and confessed my discomfort.  Wise man that he is, he counseled me on observing how she adapts to my financial advise.   Since all else with her was wonderful, I held my breath and watched and waited.  Long story short, she did great.  I am so proud of her.

Not only is she now past her debts; she is thriving.  And because she did it herself, she has learned to “grok” a healthy financial lifestyle.  We are still happily (even blissfully) together.

Safest Possible Investments?

I was talking with a friend the other day, about, what else, investing.  He said he had lost about $100,000 on dot com investments.  He said he had some cash lying around and wondered what was a very conservative investment.

I thought some, and mentioned that, for me, paying down the mortgage is a nice, safe investment.  It certainly  beats earning between 0 and 1 percent in a savings account.  I look at the difference between short-term rates and one’s mortgage rate.  That difference could be 4+ percent.

There is no way this type of investing will pop and make you rich overnight.  But it is a safe, sensible option.  And it is likely to improve your credit score.

US Treasury Debt and other obvious warnings

It doesn’t take a rocket scientist to warn about the US’s debt woes.  For example this finance blog warned about it April of 2010.  And Bill Gross and PIMCO quit holding US Government bonds recently.  Now S&P joins the bandwagon with a warning that US Treasury debt’s AAA rating is at risk.  This in effect would mean lowering the government’s credit score.

Predicting particularly congressional outcomes is not my strong suit.  But I have been predicting growing US debt online since 1998.  Then the debt was a mere $5.3 trillion.  And I’ve been right that not only nominal debt, but debt as a percentage of GDP would rise.

To so many investors like myself the unsustainability of our current fiscal course is blatantly obvious.  During the day I work for a successful tech company, and I get a significant portion of my pay that varies based on the companies performance.  If profits increase my coworkers and I get more cash; if the profits dwindle so does my pay.  If the company stock rises, so does my compensation.  And if it falls, my compensation falls with it.  It is a smart system, commonly called profit sharing.

Might I suggest a similar compensation plan for federal government workers.  I’d call it deficit sharing.  (I’d prefer to call it surplus sharing, but get real.)  Beyond a certain point (say the average US annual wage) base pay is fixed and all future raises are in terms of variable pay increases.  And variable pay is awarded at the end of each fiscal year.  The proportion of the federal deficit to federal spending prorates this variable pay.  If someday there is a balanced budget there is a 1.0X multiplier to variable pay.  If there is a deficit then variable pay is reduced.  Should there be a surplus a multiplier of greater than 1 would apply.  Share and share alike.  The private sector employees do… and right now we are sharing the sacrifices.  So should Federal employees.

What to do you think America?

Buying US Debt?

Why not evaluate US government bonds like corporate bonds?  Take a look at the balance sheet, cash flow, and anticipated future cash flow.  Look at current management… where are the they taking the organization?

The data:

So the trend is not so good. Ever increasing debt implies more debt supply. Can the demand keep up. Not at current yields, no. Yields up, prices down.

Management? Fiscal discipline? Not anytime soon. Cash flow? The situation is not positive.

So I’m not very inspired to buy US Debt today. Maybe, maybe TIPS. But traditional US Bonds? Not with a credit report like this.