Belief: Cash is king; I have great credit because I pay cash for everything
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Response:  Fiction
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While it is a great idea not to buy things that you cannot afford, you have to actually establish and use forms of credit in order to earn a credit score.  The more often you demonstrate that you are responsible with the credit that you have been granted, the stronger your score will be and the better access to credit you will have.
 
There is a happy medium here.  It is not a good idea to try and establish all of your credit all at once and you certainly want to avoid opening up and trying to maintain too much credit.  A typical credit report will often contain a mortgage trade line, one or two auto trade lines, and two or three credit cards along with whatever previous credit you obtained and paid off or otherwise closed.  Establishing this type of credit will ultimately help you to build up your score as you make timely payments and pay down your debt levels while maintaining available credit sources.  As your credit history builds so will your score.
 
You should still use cash when it is comfortable for you to do so, just don’t expect to build up your credit score without first establishing a credit history.
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 This Tip is part of Scott Arney's educational series, entitled The Serial Decision Maker.

Understanding your credit report and your score
 
Everything contained in your credit report is important and personal to you.  In addition to the names of your creditors and the balances that you owe them, information contained within your credit report includes your Social Security Number, your date of birth, your home address, and your place of employment.
 
You should monitor your credit report regularly, if for no other reason than to ensure accuracy.  The information that everyone, from a potential lender to a potential employer, will look at with the most interest, however, is your score.  Today, in our quick answer-immediate response world, your score is the single most important factor in determining whether or not you will be approved for that loan or, in some cases, be granted a job interview.
 
There are many scoring systems, at least one for every credit bureau, but they all have one thing in common.  The higher your score, the better off you will be.  Your cost of borrowing will be lower and you will have more options from which to choose.

​Q:        How are banks and credit unions insured and to what degree is my money
protected should my financial institution fail?
 
A:        Your money is insured up to the exact same levels whether it is deposited at a
bank or a credit union.  In fact, banks and credit unions are regulated in almost
exactly the same way, but by two separate entities.  Banks are insured and
regulated by the Federal Deposit Insurance Corporation (“FDIC”) and credit
unions are insured and regulated by the National Credit Union Administration
(“NCUA”).  Both insurers provide the same amount of insurance to depositors,
typically $250,000 for core deposits (savings accounts, checking accounts, money
market accounts, and certificates of deposit).
 
While these numbers are the most widely known, there are many ways to
obtain additional levels of federal insurance through your financial institution.
Both websites, FDIC.gov and NCUA.gov, have sections devoted to better
understanding and calculating the levels of insurance available to you and your
family.

This article is part of Scott Arney's educational series, entitled The Serial Decision Maker.

​Belief:  I will hurt my credit score if I meet with a Financial Counselor
​
Response:  Both fact and fiction
 
Simply meeting with a Financial Counselor will not have any impact on your credit report, whatsoever.  Keep in mind that you have to share certain data with a creditor or any company that reports information to a credit bureau in order for that transaction to show up on your credit report.  It is a good idea to understand what, if anything, potential creditors or financial professionals are going to do with your information before you do any business with them.
 
If you decide to employ a Financial Counselor and you give them permission to act on your behalf in re-structuring or reducing the amount of debt you owe a creditor or a group of creditors, those actions could very well have a negative impact on your credit score.  Even if you reach a mutual agreement with a creditor who allows you to settle with them for less than what you owe them or to pay them over a longer period of time than what was originally agreed, that creditor will almost certainly report that information to the credit bureau and that data will cause your credit score to drop.
 
If you have made some bad decisions in the past and those decisions have had a negative impact on your credit score, meeting with a certified financial counselor may be the best thing that you can do for yourself even if the actions that you need to take have an additional negative impact on your credit.
 
If you take the time to understand what you have done or not done to contribute to your situation and you are willing to hold yourself accountable for your actions going forward, employing a certified financial counselor may be your best avenue to move forward on positive footing. 

This article is part of Scott Arney's educational series, entitled The Serial Decision Maker.

Q:        How can I obtain information on the financial condition of my bank or credit union, and what should I be looking for once I obtain this information?
 
A. Most banks are publicly held and, therefore, are required to publish detailed balance sheet, and profit and loss information.  Sometimes this information is available on their web site and many banks provide copies of their financial statements at their branch locations.  All credit unions are required to file a quarterly report detailing all relevant financial information.  You can find this information at ncua.gov, which is the website of the credit union regulating body, the National Credit Union Administration.
  
Your objective should be to determine the overall financial health of the organization that you have entrusted to assist you in managing your finances.  You can best accomplish this goal by zeroing in on two key numbers, namely the capitalization and profitability of your financial institution.  While a detailed analysis would require a lot of time, energy, and expertise, a quick look at these two numbers will tell you a lot.  Capitalization may best be described as the institutional equivalent of the equity in your home.  It is the retained and undivided earnings of the organization and is best viewed as a percentage of the assets of the organization.  That percentage will vary greatly among banks and credit unions, but as a frame of reference, a credit union is considered well capitalized if its capital is equal to or greater than 7% of its assets.
 
Profitability is pretty straightforward.  Is your bank or credit union making money and, if so, how much?  If not, how long have they been losing money and what is the plan to turn things around?

Be sure to check Scott's Spot on Patrolmen's Dispatch for financial tips and CEO Scott Arney's Serial Decision Maker series. 

Q:        What steps can I personally take to lessen the impact of rising costs?
 
A:        The best thing you can do is control your spending.  Keep track of all of your expenses.  Cut or reduce frivolous or unnecessary purchases and try not to incur any new debt unless it is absolutely necessary. You can also take steps to reduce the interest rates you are paying.  One positive that usually exists during economic downturns is the availability of better rates and terms on common debt such as home equity loans and credit card balances. Do your research and seek out those better rates and terms.  You might be surprised how much you will save just by transferring existing loans and balances to lower interest rate products.

This Tip is part of Scott Arney's educational series, entitled The Serial Decision Maker.

Q.  What steps can I personally take to lessen the impact of rising costs?
 
A. The best thing you can do is control your spending.  Keep track of all of your expenses.  Cut or reduce frivolous or unnecessary purchases and try not to incur any new debt unless it is absolutely necessary. 
 
You can also take steps to reduce the interest rates you are paying.  One positive that usually exists during economic downturns is the availability of better rates and terms on common debt such as home equity loans and credit card balances. 
​
Do your research and seek out those better rates and terms.  You might be surprised how much you will save just by transferring existing loans and balances to lower interest rate products.

​This Tip is part of Scott Arney's educational series, entitled The Serial Decision Maker.

Q.  What are some of the factors that influence the stock market and housing prices?

A.  When attempting to analyze any type of market behavior, it is helpful to remember that markets behave irrationally.  There never is just one factor or a fully definitive answer as to why markets behave the way that they do, in good times or in bad.  Conventional wisdom indicates, however, that cyclical markets will seek an equilibrium point.
 
Recent examples illustrate this point.  The last time the stock market values dropped significantly was after an extended period of unprecedented increases in stock prices.  At the time of the increases, the market performance far outpaced the supporting economic data so when values began decreasing it was viewed, by many experts, as a time of correction.  The housing market also reflects this cycle.  We experienced extreme and largely unexplainable home value appreciation for several years prior to a few years of depreciation.  In many markets, housing prices have started to increase again as buyers create new demand.  Once that demand begins to outpace the supply of homes that has built up in recent years, prices will increase to an even greater extent.
 
While the extent of these cycles is yet to be determined, it is very reasonable to expect that a sense of normalcy will return to both the stock market and the housing market.  It also helps to remember that the best time to buy and invest is typically when the price is low so if you have the ability to do so, it is a good time to look at your options and make some wise investments, whether they be in real estate or stocks.

 This Tip is part of Scott Arney's educational series, entitled The Serial Decision Maker.