Know your score
Your credit report contains a lot of information about your bill-paying history. That’s why one of the first steps a lender takes in the loan application process is to review your credit report. Lenders will usually also look at your credit score. This is a number between 350 and 800 that takes into account your bill-paying history, how much you owe in relation to your credit limits, and other key factors. Understanding the factors that go into your credit score may help you to raise it.

Payment history. This is the most important factor determining your score. Timely payments raise your score.

Amounts owed. Keeping debt levels well under your credit limit improves your score.

Length of credit history. A long history of timely payments contributes to a higher score.

New Credit. Fewer loan applications raises your score.

Types of credit used. A broad range of account types, such as credit cards, mortgages, retail accounts, and car loans improves your score.

Live within your means
In addition to your credit score, lenders may consider your debt-to-income ratio. This is calculated by dividing your monthly debt payments (car payments, student loan payments, minimum monthly credit card payments, etc.) by your gross monthly income. For example, if your monthly debt payments total $1,000 and your gross monthly income is $4,000, your debt-to-income ratio would be .25 or 25% ($1,000 ÷ $4,000 = .25). Depending on the purpose of the loan, lenders often look at two key ratios:

Overall debt-to-income -- Lenders like to see your debt-to-income ratio, including your housing payments and all other debt payments, at 36% or less.

Housing costs-to-income -- When looking at just your housing costs (your mortgage payment including principal and interest, taxes and insurance), lenders like to see your housing expenses-to-income ratio at 28% or less. In other words, your monthly housing costs should not exceed 28% of your monthly income.

Stay put
In addition to your credit score and your debt-to-income ratio, lenders may consider how stable you are. Stability factors that may indicate your ability and willingness to pay back your loans include:

Length of time at current job – Lenders prefer two years or more. However, changing employers is not necessarily negative as long as you can show that your employment income is likely to continue.

Length of time at current residence – Lenders prefer two years or more. Staying put simply reflects a more stable lifestyle, which translates into the likelihood you’ll pay your debts on time.

Warning Signs of Too Much Debt

Are you limping along, only able to pay the “minimum payments” required on your credit cards? Are you consistently spending more than you or you and your husband make? Here are some warning signs that you may have debt problems: Warning Signs You don't know how much debt you have. You pay only the monthly minimums required. You are usually late paying some of your bills. Your debt worries keep you up at night. You receive creditor calls and overdue notices. You reach the credit limits on all your charge cards. You need to pay routine expenses on credit because you do not have the cash. You have increased the number of credit cards you have in the past year. You do not have an emergency fund that can sustain your lifestyle for three to six months It’s particularly easy to become oblivious to the mounting size of your debt if you’re in the habit of simply making minimal payments each time you receive a bill. But what can happen, as many Americans have learned, is that you will eventually not be able to make even the minimum payments and at that point you are in real debt trouble. So, it’s best to always have a handle on how much you owe and your plans and timetable for paying it off.   Do You Have Too Much Debt? When you go to borrow for a car, home, or new property, lenders will look at your debt. The more debt you have, the riskier you are in their eyes. To compensate for that risk, lenders will probably charge you a higher interest rate or refuse to let you borrow at all. So, how much debt can you have? Lenders like to see that your debt payments do not take up more than 36% of your gross income. They call this your debt-to-income (“DTI”) ratio. In other words, for every $1,000 in income, $360 may go toward debt payments – at least that’s the general rule-of-thumb in the industry. Complete this Debt-to-Income questionnaire below to find out whether you are carrying reasonable overall debt-to-income levels. Step 1. List your car loans and credit card balances below. Car loans Name of lender Balance Monthly payment Interest rate ____________ $________ $____________ _____% ____________ $________ $____________ _____% ____________ $________ $____________ _____% Student loans Name of lender Balance Monthly payment Interest rate ____________ $________ $____________ _____% ____________ $________ $____________ _____% Other loans (i.e., personal loans, etc. Do not include mortgages or home equity loans.) Name of lender Balance Monthly payment Interest rate ____________ $________ $____________ _____% ____________ $________ $____________ _____% Credit cards (include department store cards, gas station cards, etc) Name of Credit Card Amount owed Credit limit Minimum monthly Interest Rate payment ________________$ ___________ $_____________ _________ _____% ________________$___________ $_____________ _________ _____% ________________$___________ $_____________ _________ _____%. ________________$___________ $_____________ _________ _____%. ________________$___________ $_____________ _________ _____%. ________________$___________ $_____________ _________ _____%. ________________$___________ $_____________ _________ _____%. ________________$___________ $_____________ _________ _____%. ________________$___________ $_____________ _________ _____%. Step 2 -- Figure your Overall Debt-to-Income Ratio Total monthly car, student and other loan payments +$_______ Total minimum monthly payments on all credit cards +$_______ Total mortgage & home equity loans monthly payments +$_______ Total monthly debt =$_______ Divided by your monthly income $_______ = Overall debt-to-income ratio of _____% Are you over 36%? ___Yes ____No If you are over 36%, you will need to reduce the amount of debt you are carrying to qualify for additional loans or credit and/or to get better interest rates. Why Budgeting Matters For many, the word “budget” brings to mind a dull life of scrimping and saving. But it doesn’t have to be that way at all. A budget is really a spending plan that serves as a solid financial foundation upon which you will be able to realize your financial dreams. Today, families and individuals all across America are having to do more with less financially. Daily money issues leave us stressed, often creeping into our relationships. We work hard and then wonder what we’ve gotten for all of that hard work. Where has our money gone? Virtually every company in America operates by a budget. Managers develop plans for how they’ll spend company dollars, whether it’s on supplies, staffing, or marketing a product. As the CEO of your household, you need to build the same budget, too. And it doesn’t have to be hard, really. Why does budgeting matter to your financial future? Retiring Right No matter what age you’re at, the smartest thing you can do is to start saving for your retirement. Why is this so important? Because our healthcare and education costs are skyrocketing, employers are slashing pensions, and Social Security is at risk. Please, don’t expect Uncle Sam to make sure you retire right. Budgeting will help you build an overall spending plan that puts saving for retirement at the top. Eliminating Debt If you’re struggling with debt, a budget will help you identify expenditures you can cut or reduce, so that you can more quickly pay off debt. Remember, just by increasing your debt payments, you can cut your interest costs, improve your credit, and reduce your own stress. Avoiding Arguments Spending -- or hiding purchases from your spouse -- can lead to conflicts. How can you trust your spouse and build a strong, mature relationship if you argue over why he spent $100 at the golf course or she spent the same on a new dress? Couples who discuss their goals and create a spending plan will develop mutual trust and respect. Covering the True Necessities We think some items are important to everyday living when in fact they’re not. Americans are taught and encouraged to spend. As the manager of your family’s finances, your responsibility is to say ‘no’ to those things that are not necessities so that you can reach the goals you’ve set for yourself. Reaching Life Goals A budget doesn’t really make sense unless it has a purpose. That’s why setting goals is so important. Goals can include retiring earlier, buying a retirement home, financing your kid’s education, or even taking a trip. Managing Cash Flow They say “cash is king.” It’s true both in business and in our personal lives. Without cash or income, consumers will find themselves taking on more debt. Cash doesn’t have to come from a paycheck. It can be: Rent from income property Residual payments for work you did in the past that is being used today Lump sum payments from the sale of an asset, such as a piece of property Alimony or child support payments Your best bet is to create your budget based on income you know is certain. The rest – like an unexpected bonus or commission payment - is gravy, and should be used to put you closer to your financial goals. How can you manage your cash-flow? Determine your income First, determine your income. Your income can consist of earned income – money you get from working such as your salary, any commission, tips, self-employment income. The other type of income is unearned income – examples are money you receive from your investments and savings. Keep it Positive Your cash flow looks like this: Cash-flow = Income – Expenses If you increase your expenses, your cash flow will of course drop. That means less money toward your financial goals and more money in the pockets of some company. Your goal is to minimize expenses as much as possible. This requires a change in our thinking – rather than thinking we need to spend for gratification, think to save so that you can achieve greater life satisfaction. Monitor Your Spending Accessing your account statements online, even if you’re not comfortable with online transactions will help you in two ways. First, you’ll detect any fraudulent activity in your account faster than waiting for statements in the mail. Second, you might experience shock value. Seeing what you and your family have spent in black and white can be a clear reminder that those expenditures were really not necessary – and put you further away from reaching your goals. Top 5 Budgeting Tips Managing your spending is sort of like going on a diet; it’s about controlling what you consume. Like setting goals to lower your weight, the single most important thing families and couples can do is to set goals for the things they really want in life. And, just as when we’re tempted with a ding-dong full of sugar and calories, so too must the financially savvy spender ask, “Do I need this or do I just want it?” before hearing the cash register go ka-ching. Here are 5 tips to help you budget better. Pay yourself first This is as important as food is to staying alive. Put at least 10 percent of earnings straight into a savings or retirement account. Then, take care of your other obligations. Use one low interest credit card Stop reaching into a stash of credit cards to support your spending habit. Use one credit card to more easily track spending and build up mileage rewards. And pay it off each month – avoid the minimum payment trap like the plague. Remember, small things add up A few calories here, a few there and pretty soon you’ve blown your diet. The same is true with spending. Bottled water at about $2 a pop -- one of the greatest marketing gimmicks of all time – could liquefy into some $90,000 if invested instead over 30 years. Eliminating one night of dining out at $40 per week and investing the money instead would result in some $240,000 in savings in 30 years. Reward yourself Set up special savings accounts to set aside money for the fun things in life. Reward yourself when reaching key goals you’ve set. Stick with it Ultimately, it’s the stick-to-it-ness that will help you achieve success over the long-run. Follow your spending plan and learn to say no. 10 Purchases that Save Thousands We complain about the cost of necessities while ignoring what we spend on frivolous things. The point is, if we’re conscious about how we spend our money, we’ll spend it on items that actually help us save, not waste money in the long-run. Remember, not all spending is bad. Here are ten wise purchases you can make that will actually save you thousands over the long-haul: 1.Don’t drive. Scoot. If you’re in the market for a second car, consider buying a high-end scooter (not the toy scooter you may be reading a lot about) if you have a short commute to work, the gym or friends’ houses – the easy, quick drives you make everyday that don’t involve highways or busy roads. They’re gas efficient at about 100 mpg and they can go as fast as about 40 mph. Assuming you drive about 10,000 miles over the course of a year and gas is about $2.50 per gallon, you’d spend about $250 in gas driving the scooter compared to $1,250 for the car, assuming it gets 20mpg. You’ll need insurance and registration but you’ll save there, too. Watch out for scooters made in China: you’ll have a very tough time finding parts or anyone to fix them. Potential annual savings: $1,000 per year If invested annually over 30 years: $113,283. 2. Eternal light. Energy-efficient light bulbs. You’ve thought about it before, but they’re so ridiculously expensive for a lightbulb! To get the maximum cost benefit for these bulbs, they should be used in fixtures that are left on for hours at a time – like outdoor lanterns or security flood lights, hallways, landings, or your most lived-in rooms. A compact florescent light bulb costs about $8.00, but can last 10 times longer than a regular bulb. Better yet, these bulbs use about 75 percent less energy, saving the average homeowner approximately $26 in energy bills over the bulb’s lifetime. Potential annual savings: $78 If invested annually over 30 years: $8,836 3.E-phone home. Connecting your phone through an Internet-based DSL or cable modem service can offer up substantial savings. These new packages often provide unlimited calling to any phone in the United States plus features like voicemail, caller ID, call waiting, and three way calling. All for one low price starting at about $20 per month. Drawbacks have typically included poor voice quality and frequent hang-ups, although in my experience these are hiccups of the past. The biggest limitation is accessibility - meaning some services only let you hook up phones from your computer service line – which may not be somewhere convenient, like your kitchen. Potential savings annually: $480 If invested annually over 30 years: $54,375 4.See the savings. Lasik vision surgery costs around $1,700, according to a leading refractive industry newsletter. That might sound expensive, relative to the cost of contacts or eyeglasses, but consider that Lasik surgery can last for several years and that, if you finance it through your employer’s pre-tax flexible spending account program for health care (check with your human resources department), you’ll save about 30%. Compare that to approximately a dollar a day for continuous wear contacts, and you may come out ahead with the surgery. Plus, you’ll save tons of time futzing with contacts. Be sure to check out the risks with your doctor. Potential annual savings: $195 Potential savings if invested annually over 30 years: $21,523. 5. DIY When you care enough to send the very best…only cheaper. These days, really clever greeting cards cost around $2.75 a pop (as do the not-so-clever cards). Then you’ve got to pay for postage, for a total cost of about $3.12. For the web savvy surfer, you could instead pay about ten bucks a year for a subscription to an e-greeting card service. It’s fast, flexible, and can offer both audio and animation. And you’re certain to make more people feel important on their special day given that there’s no addition cost to send more e-cards. Potential savings annual savings: $52.40 If invested annually over 30 years: $5,936 6.Home-grown bottled water. Really, are you paying for the water or the convenience? If it’s the latter, buy a new-fangled water bottle for $5 with a wide, removable top for easy dishwasher cleaning. You can take it wherever you go: biking, airplanes or to work. If, however, it’s water quality you seek, consider a whole-house filter at a cost of around $1,000 or the water purifier jug for your refrigerator at about $40. Potential annual savings: $535 If invested annually over 30 years: $60,606 7.Get credit for good behavior. One of the most expensive things you can do is ruin your credit. Just one error on your credit report can cost you thousands. The difference: Someone with great credit, as reported by one bank, could get a $100,000 home equity loan at 3.74% versus a rate of over 8% for someone with poor credit. This higher interest rate means the person with poor credit will pay an extra $100,000 in interest, assuming the loan is paid back over 30 years. Check your credit report at least annually at a cost of $9 from each of the three credit bureaus (or free if you’ve been denied credit) to check for and correct errors. Consumers will be entitled to one copy free annually starting later this year. Potential annual savings: Thousands of dollars If invested over 30 years: Tens or even hundreds of thousands, depending on your credit, loan amount and payback period 8.Automate comfort. According to the U.S. Department of energy, heating and air conditioning can account for up to two-thirds of annual energy bills in colder areas of the country – over half in others. Programmable thermostats range in price from $30 to $100 and can help you save on energy bills by reducing heat or air conditioning when everyone in the house is at school or work. You can program it to kick in early enough so you’re comfortable the minute you walk in the door. Potential annual savings: $156 If invested annually over 30 years: $17,672 9. Triple-A savings I'm always relieved -- after locking my keys in my car -- when I can pull out my trusty AAA card, call a tow truck to rescue them and get away with just a tip. Whether it's that or a real breakdown, the cost to call in a tow truck will run at least $50. For the $44 to buy a membership to the AAA auto club, you'll avoid those costs plus save anywhere from 5 percent to 20 percent on hotels, rental cars and train trips for you and the family. Don't forget to always ask for any AAA discounts because you'd be surprised at the businesses that will give you price breaks. Add dependents over 21 to your membership for about $25 more. Potential annual savings: $106 (or more), assuming three tows per year and not counting the value of any discounts. If invested annually over 30 years: $12,008 10. Dine out cheaply Let's face it: most of us feel we deserve to dine out after long days and nights on the job. But we don't realize that, at the end of the year, those meals add up to thousands of dollars. Did you know that only 21 percent of people use coupons, according to the Food Marketing Institute? Look for a good coupon book like the Entertainment book that will allow you to save bundles when having fun. At anywhere from $25 to $45, depending on where you live, you can save on everything from movie tickets to high-end restaurants. Restaurant coupons usually allow for 2-for-1 specials or discounts of up to about $20, depending on the restaurant. Potential annual savings: $215, assuming $20 savings once a month minus the $25 cost of the coupon book. If invested annually over 30 years: $25,797 So fire up the Maxwell House every morning (two scoops per cup should do the trick) and eschew the trendy coffee house for a more practical buzz. If you’re going to consume, as we all do in spades, turn yourself into a Smart Consumer!