Archive for April, 2017

MAJOR CHANGES TO HOW YOUR CREDIT SCORE IS CALCULATED by Paul Ferraresi

The math behind your credit score is getting an overhaul, with changes big enough that they might alter the behavior of both cautious spenders as well as riskier borrowers.

Most notably for those with high scores: Abiding by the golden rule of “Don’t close your credit card accounts” may now hurt your standing. On the other side, those with low scores may benefit from the removal of civil judgments, medical debts and tax liens as factors.

Beyond determining whether someone gets approved for a credit card, a credit score can affect what interest rate and what spending limit are offered.

The new method is being implemented later this year by VantageScore, a company created by the credit bureaus Experian, TransUnion and Equifax. It’s not as well-known as Fair Isaac Corp., whose FICO score is used for the vast majority of mortgages. But VantageScore handled 8 billion account applications last year, so if you applied for a credit card, that score was likely used to approve or deny you.

Using what’s known as trended data is the biggest change. The phrase means credit scores will take into account the trajectory of a borrower’s debts on a month-to-month basis. So a person who is paying down debt is now likely to be scored better than a person who is making minimum monthly payments but has been slowly accumulating credit card debt.

“This is a really big deal,” said John Ulzheimer, an expert in credit reports and credit scoring. Ulzheimer said taking trended data into account has long been considered by the credit score industry, but hasn’t been implemented on a meaningful scale. He expects more lenders to adopt it.

People with high credit scores may be affected the most, since the goal of trended data is to see warning signs long before a borrower actually gets into serious trouble.

“When it comes to prime borrowers, you may not have bad behavior on your credit file, but a trajectory provides very powerful information,” said Sarah Davies, a senior vice president for research, analytics and product development at VantageScore.

The change also shakes up the maxim that had people keeping open accounts they’d opened long ago. An important metric in calculating credit scores has been the portion of their available credit people are actually using. A person with $5,000 in credit card debt with a $50,000 limit across several cards could score better than someone with $2,000 in debt on a $10,000 limit because of that ratio.

Looking for Online Courses by Paul Ferraresi

In today’s society one must keep learning. Plus getting educated on something new is always an adrenaline shot to me.

Here is a listing of some places to start your search. Happy learning.

THE GREAT COURSES
The site offers 500-plus courses. Most lectures are about 30 minutes, and courses range from 6 to 96 lectures (most in the 24 to 36 range). Courses can be purchased as online modules or on DVDs or CDs. Prices generally range from $15 to $230. There’s also a subscription plan called the Great Courses Plus (thegreatcoursesplus.com), with access to multiple courses for $19.95 a month or $179.95 annually. Amazon Prime also offers a menu of Great Courses for $7.99 per month.

BIG THINK
Topics range from business and technology to health and entertainment. Instructors include such well-known experts as fitness guru Jillian Michaels and Bill Nye “the Science Guy”. Every week there’s a new 45 to 60 minute podcast on a different subject, plus articles and videos, all free. For a fee there’s also Big Think Edge for professional and business development.

UNIVERAL CLASS
History, DIY projects and cooking are some of the courses available. Students can earn continuing educational units, which certify professional development in some fields. Average time commitment is 10 to 20 hours, including class time, assignments and exams. Pricing ranges from $59 for one month of unlimited courses and certification to $189 for a year of unlimited courses.

YALE UNIVERSITY
Professors from this school offer an array of free courses, from the liberal arts to sciences, on YouTube and at Open Yale Courses (oyc.yale.edu). Lectures are supplemented with syllabi, transcripts and other resources. Sorry, no Ivy League credit, though.

EDX
Developed by Harvard University and the Massachusetts Institute of Technology, edX (edx.org) strives to make higher education available to more people. Time commitments range from about 45 minutes for a single lecture to 2 to 3 hours a week for up to 12 weeks. Most courses are free.

Insurance You Should Have by Paul Ferraresi

Most people try to buy the least amount of insurance in all areas hoping to save on premiums. But penny wise may be pound foolish…

Here is a short article written by Russell Hall. I suggest you share this with friends and family.

Most discussions of insurance and estate planning focus on the value of life insurance to your heirs. Not this one. Instead, let’s consider insurance to protect your income and assets now, and to shield your executor later.

What happens if you’re in a car accident with serious injuries or death – and it’s your fault? Expect to be sued, and to pay a large judgment. Every driver is at risk of losing bank accounts, stocks, bonds, mutual funds, rental property, and other non-exempt assets to a lawsuit.

In Texas, you may keep your homestead, pension, retirement accounts, annuities, and life insurance. However, cash distributions are not exempt, and may go to the alert creditor. You may have substantial non-exempt assets, but what good are they if you cannot spend them?

As a rule of thumb, carry liability insurance equal to your non-exempt assets plus five to ten years of income. Suppose you have a home, an IRA, a modest checking account, and $300,000 in CDs. The home and IRA are exempt from creditors’ claims. The CDs are not. That suggests at least $300,000 in liability insurance. If Social Security and IRA income total $50,000 a year, another $250,000 to $500,000 in liability insurance is indicated. Even someone of modest means may want $500,000 to $1 million in liability insurance.

The typical automobile or homeowners’ policy offers no more than $500,000 in coverage. However, our agent can often provide an inexpensive umbrella policy from the same carrier with limits of $1 to $5 million, which is more than enough for most people.

Suppose you stop driving, pay off the mortgage, and die, judgment-free, without any liability insurance. Who cares at that point? Your executor should. An executor is a fiduciary with the most dangerous, thankless task known to law. They must collect all your assets, pay all your debts, distribute the remainder to your beneficiaries and make no mistakes. As one summarized it, “Whatever happens, it’s the executor’s fault.”

Both liability and property insurance will go a long way to protect the executor, and, ultimately, your heirs. New executors should review the estate with an insurance agent. Existing policies may be adequate. If not, the executor may obtain insurance at the estate’s expense. Better though, that you yourself review your insurance, and develop a plan to protect yourself in retirement. Doing so minimizes everyone’s risk, and leaves one less task to be done when you’re gone.

Power of Attorney by Paul E. Ferraresi

Powers of Attorney (POA) have become useful for disability planning. This tool is useful when someone cannot manage their own finances.

Unfortunately, most people do not keep their POA up to date. Yes, someone that they have granted the “power” to may have died, or, they themselves become mentally incompetent.

Another issue is that when one may become mentally incompetent, then, the POA tool is ended. To correct this make sure you have a “Durable Power of Attorney” (DPOA).

Keep in mind each state has its own rules and regulations on DPOA so check it out before proceeding.

As a backup and in conjunction with a DPOA, consider establishing a Revocable Living Trust for the management of all your assets.

As always we are here to guide you in all your financial planning needs.