Tuesday, March 29, 2011

Financial Literacy Series 101, Understanding Your Credit Bureau

What is the first thing that comes to your mind when you hear Credit Bureau? Credit Bureau or report is a document that is mostly used by financial institutions for the purpose of determining whether to grant credit to a consumer. The report is also used by individuals themselves to review and identify their credit rating. The credit reports purpose is to outline a financial history trend and also take into considerations such as home ownership and employment history with the intent of creating a score to be used for credit granting purpose. Financial institutions are heavily influenced on the content within the credit report especially the credit score. The credit score is tabulated after it takes in a series of information such as;
  • Types of credit in use
  • Payment History
  • Amounts Owed
  • New Credit
  • Length of Credit History

Although each of the above categories is assigned a different weighting ratio they all are important. For example the biggest influence on your credit score is the payment history of your credit. The types of credit in use would not skew your score in comparison to payment patterns. So why is the score important? Most financial or credit granting institutions use the score as a quick way in determining if you are credit worthy. The higher the credit score, the more likelihood of obtaining the requested credit. Equifax is the most popular credit report provider in Canada. Leading Edge Credit Union uses their services to produce credit reports when required on our members. Equifax uses a scoring matrix that uses a numeric scheme of 350-850 with 850 being the highest possible credit score. Each financial institution chooses their own level of approvals in which they would grant credit. Some institutions use only the credit score in determining approval while others use additional details. At Leading Edge Credit Union the credit score is combined with a series of information and is not the only source of determining if credit will be granted. In reference to a good score, 650 and above would look very favorable from our organization perspective. We also look at a person's character when determining to grant credit. Many institutions have moved away from looking at how a consumer has paid in the past or their relationship with the individual and focused solely on the credit score. If you apply for a prepaid cell phone for example the score will most likely be the only benchmark for determining if you are granted the phone.
What can you do to increase your score? Raising your score is bit like getting in shape; it takes time and there is no quick fix. The best advice is to manage credit responsibility over time and follow these simple tips;
  1. Pay your bills on time. Delinquent payments have a major negative impact on your score.
  2. If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score.
  3. Keep balances low on credit cards and other "revolving credit". High outstanding debt can lower your score.
  4. Pay off debt rather than moving it around. The most effective way to improve your score is by bring your debt balance down, not transferring from one credit source to another.
  5. Don't close unused credit cards as a short-term strategy to increasing your score. Owing the same amount but having fewer open accounts may actually lower your score.
  6. Don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower your score.
  7. If your new to credit, don't open a lot of new credit in a short time. Manage your credit over time to build your score.
  8. Don't open new accounts that you don't need. Simply applying for credit for a purchase that you are not intending to purchase will lower your score. Shopping for a car, wait until you selected your car first before applying for the credit to purchase it. We suggest apply for a loan with us at LECU to get your approved amount, and then go shopping. Be careful however as some dealers will put your information through to their lenders creating inquiries which could lower your score. Bottom line, limit your inquiries!
Here are so more tips I found from our supplier if you want to check it out http://www.myfico.com/CreditEducation/ImproveYourScore.aspx
In conclusion, your credit score is a very important part of applying for credit. It is also very important to understand how you can manage your score. If you would like to obtain a copy of your credit report visit http://www.consumer.equifax.ca/home/en_ca

Friday, March 25, 2011

Financial Literacy 101 Series

In a recent report released by an Ontario Trustee firm which analyzed 8000 clients that filed for bankruptcy, the statistics did not surprise me. We typically link a person who would file for bankruptcy as being unemployed and experiencing a financial hardship due to loss of employment. However in this particular report http://www.cbc.ca/news/business/story/2011/02/28/bankruptcy-statistics-hoyes.html 80% of the applicants were employed at the time of filing. The most startling statistic is that 55 percent of the applicants admitted to overextending their credit and poor financial management. To put things in perspective, consider that this particular firm 4400 of the 8000 applicants mismanaged their finances which lead to the bankruptcy findings. The Federal Government held public consultations between April 6th and May 27th, 2010 with an appointed Task Force to determine how best to curve some startling statistics on financially literacy. The task force defines "financial literacy" as having the knowledge, skills, and confidence to make reasonable financial decisions. It is interesting, I attended a conference about three years ago when a speaker described that people if given the opportunity have difficulty making financial decisions even when the obvious pitfalls present themselves. He was speaking of the environment in the United States that allowed people to take out mortgages even when people could see the risk associated with taking out the mortgage. In Canada we have legislation and policies that are more stringent to prevent people from taking out products that could impair their financial position. However, the arena is still very open for numerous financial products to allow people to fall into a financial trap unless they have the appropriate level of financial literacy. In comparison, the United States allowed mortgages to people that had no down payment, extended mortgage terms up to 40 years, low introductory rate offers, and not necessarily the income to support the debt. Although a person with high financial literacy could look at this particular mortgage product and make the assumption that they shouldn't buy a home under these conditions, many Americans proceeded to take advantage of the lax rules and jump in without understanding the consequences. The speaker mentioned above, highlighted that despite the pitfalls, the fulfillment of the goals overshadowed rational thinking. Consumers were more concerned about owning a home, then paying for it. In Canada, credit card debt is soaring at an alarming rate. Despite the fact that the average interest rate is 19% of most credit cards, people overspend because the goal of obtaining something, overshadow the cost of obtaining it.

The Federal Government task force released some statistics that indicated 57% of Canadians cannot answer a question about the contents of a credit report. They also indicated that 33% of Canadians don't understand the impact of inflation on their savings and only 35% know that investments in the stock market are not insured. It is obvious that the majority of Canadians are suffering from poor financial literacy. As a Credit Union it is our duty to protect the interest of our membership. We have trained staff that analyzes all the details provided by our members to ensure we provide the most accurate advice. I encourage all the staff to remember that we are the experts and it is our duty to educate the membership on making wise financials decisions. In some cases this contravenes what a member wants to accomplish. As a lender there is numerous times that credit has to be declined and the feeling is certainly not satisfying, but it is the best decision at the time, despite if the member agrees with the decision. As a practice our credit union reviews those loans that have filed for bankruptcy to look for patterns. The majority of the loans indicate large loans with high payments and members with unsecured debt such as credit cards and lines of credit. Poor financial literacy is evident with the inability to understand the impact of making poor financial decisions. Over the next few weeks I will update this blog with very simple easy to understand financial literacy topics for the benefit of our membership. I would also encourage members to send me questions and emails on particular financial decisions they are contemplating or simply asking for guidance. Email all inquires to cmunden@lecu.ca and I will ensure that all identities are kept confidential however share the responses on this blog. Stay tuned as the first topic will be on understanding your credit bureau. I also encourage you to become a follower of this blog by clicking the right side of this page. As a follower you get notified of updates automatically.

Monday, March 14, 2011

Spreading the News

One of the commitments that was required as a part of the CCA coaching program was to share the experience. Although I love to speak in public, I was wondering on what angle would people be interested in hearing about this experience. First I was caught up in the topic, Africa. The topic alone would obviously limit the captive audience that I could appeal to, or would it? I questioned if a group like the Chamber of Commerce would be interested in this story when it involves travel and not related to any core business fundamentals. This is where I was wrong!! The topic yes is Africa, but the experience relates to many more topics. Topics like leadership, career development, economics, social studies, empowerment, respect for others, religion, and many more.
My very first captive audience was some of my staff who I could show how this experience was work related. How it developed me personally to become a better leader and learn the basics of coaching and mentoring. How these options are available as a personal development tool, and how we can assist others in the credit union system. Next I presented to a small group of friends with the intent of displaying how the people in this area live, and the challenges they face daily. There was also a history component thrown in and a general overview of the "travel experience".
My first true public experience was the fun grade 5 class where I turned the trip into a social studies story. I wanted to impress on the kids that despite the hardship this society encountered in their history, there is hope and prosperity. The importance of education, family and respect for each other. Bulling now is such a troubling issue that we can all learn from the people of Ghana and respect each other. It is important that kids learn there is a big world out there and opportunities will present to them  as their life advances. Following that presentation I was invited to the high school to present to three career education classes. The theme again was changed to focus on my career and how it provided me an opportunity to work abroad. I highlighted the importance of an education and key personal fundamental principles that I use for my own employment.
  1. Diversity- The ability to go beyond your job description.
  2. Attitude- A positive attitude that screams with passion.
  3. Knowledge- They don't say knowledge is power for no reason, it is critical to success!
  4. Commitment- All to often employees do not display commitment as it should be displayed, those that do, survive!
The kids at the high school had the opportunity to witness during my presentation that anything is possible with a little hard work. I was an average student to say the least, without any career aspirations. It was simply by fluke that I even made the attempt to get a university degree. However, once I realized what was at stake, I used the above principles to assist me in reaching my goals.
The most recent presentation was today to a class of grade nine social studies students. The message was very similar to the ones I outlined to the grade 5 class with a stronger focus on the social components of Ghana, and how they can make a difference. I remember my former teacher Miss Noreen Saunders coming into our class room, way back, and I mean way back, and telling us about her traveling experiences around the world. I was fascinated with the fact that you could visit Egypt, Australia, and other foreign lands. She inherently taught us that anything is possible, you simply have to make it happen. I hope in these presentation that some of the kids remember to think about ways they can achieve their own dreams. I hope they not only think about their own welfare, but the welfare of others.
Until next time..
Teaching the Ghanian Handshake