What “ripple effects” are happening in your financial life right now? Can you change them?

Yesterday The New York Times featured an article about people first losing their homes and then losing their possessions because they cannot pay for their storage units. (Here’s a link to the mobile phone version of the story).

A “ripple effect” occurs when something happens and the consequences spread out to touch and affect other areas, often unintentionally.

Some examples in your financial life might be:

Not paying your bills on time, every time….which sinks your credit score….which makes it more expensive to borrow money for large purchases….which makes your new bills even higher.

That’s one ripple effect cycle to avoid! Here’s another:

Not investing small amounts when you can….missing the advantages of dollar-cost-averaging….requiring more savings and/or higher, riskier returns to live comfortably when you’re older and cannot work.

Phew! Sounds terrible! But couldn’t ripple effects in your finances also be positive? Consider the inverse of the two examples mentioned. Or, consider these shifts in behavior that can dramatically change your financial life:

Figure out where you spend all your money….create a budget to maximize your resources….meet your financial goals.

Or another good one:

Get out of debt….feel more confident and in control….be a happier person.

Choose your moves wisely. Your financial behavior will allow you to enjoy ripple effects we all want — those that keep getting better and better.

Ever wondered if someone could REALLY use your credit report information to go on a shopping spree?

Oh, yes. Unfortunately, this happened to Bill Kirst in the Washington, DC area. Someone stole his identity and bought a used Jaguar. How would you like to pay for a luxury car you don’t own?

Propelled by this incident Bill decided to jump on top of managing his finances in a BIG WAY. That’s how he came to use Geezeo. Read about Bill’s experience in the Washington Post. Bill, thanks for using Geezeo and sharing your story!

Here at Geezeo we make your privacy and data security our number one priority. If you have questions regarding our service please check out our F.A.Q.s or ask us directly.

Kara McGuire from the Daily News of Newburyport writes a great article titled “Credit course: Teaching young adults importance of making the financial grade”. The article addresses the importance of a good credit score and the impact it has on things like buying a new car and even getting a new job.

Here’s an excerpt

“…Senior Justin Ingebretson said he was surprised that prospective employers sometimes look at credit scores to help decide whether you’re a risky hire or a sure thing.

Sophomore Nou Chang said she didn’t realize “how everything in your life will depend on credit” - buying a car or a house, even renting an apartment or getting a job.”

It boggles my mind sometimes that there are people out there who don’t have any idea what their credit scores are. I suppose if you know you’ve paid your bills on time your entire life, it’s safe to assume you have nothing to worry about. Or is it?

The fact is, unless you pull your credit reports and scores you can’t be sure they contain the right information, let alone be sure someone else’s information isn’t included by mistake. But what is a FICO® score and why is it important to know yours?

“The FICO score predicts the likelihood that you or I or whoever is being scored will become seriously late in repaying any of our creditors over the next two years,� explains Craig Watts, a spokesperson at Fair Isaac Corporation, the company that developed FICO scoring.

Here’s a graph showing where Americans fall within the FICO score range.

Contrary to what you might first think, Fair Isaac does not actually provide credit scores. “We don’t provide scores at all, interestingly enough. We’re an applied math company, so we create the formula,� says Watt. “That formula is installed in the operating systems of each of the three credit bureaus. The bureau collects information it knows about you into a credit report, runs that information through our formula to produce a score.�

Whether you’re applying for a store credit card, a car loan or trying to refinance your mortgage, the organization you’re applying to will likely obtain your credit score to help make their decision to approve your application or determine an interest rate.

This is just the reason why it’s important to periodically check your score. Without knowing it, you could be selling yourself short to lenders by not knowing the information they’re using to evaluate you.

What makes it even more confusing is that there isn’t one single score for each person. Fair Isaac’s FICO formula can be used to evaluate your credit history as reported from any of the three credit bureaus—Experian, Equifax and TransUnion. You’ll never know which ones a lender will use, so it’s a good idea to monitor all of them.

“If you’re planning any kind of significant loan in the near future, you want to check your credit report and FICO score at each of the three national credit bureaus at least six months before you apply for that loan,� Watts advises. That will “give you the greatest chance to correct any errors and to influence that score positively before you walk in the lenders office and lay down that application.�

But before you run out and close all your credit card accounts, you should know what factors have the greatest impact on your score.

“The most important thing on the credit report for the FICO score is how you’re repaid your bills in the past—have you been late, have you been on time. If you have been on time, then you get positive strokes for that. If you’ve been late, then you get negative strokes,� says Watts.

Obviously, this is a change that takes time to achieve and will cause a slower improvement in your score. Below is a chart showing the top FICO score influencers and their weight. As you can see, on-time payments take up the largest portion. However, the amount you owe in relation to the amount of credit you have is high as well. This is an area where you may be able to affect a quicker change.

Watt says there are basically three good ways to work on improving your credit score:

1. Make sure you are never late in making payments. This includes bills like cell phones, utilities, parking tickets and even library fines that could be reported on your credit report for non-payment.
2. Pay down high balances on revolving credit. Lenders view you as a lower default risk if you’re not using all of your open credit.
3. Be resistant to new lines of credit. It may be tempting to save 10% at the register when a salesperson offers you credit, but evaluate the offer to see if it’s truly worth it for you in the long run.

For those who’ve never taken a look at their credit reports or scores, it can seem like a daunting task to begin to correct errors or improve your credit outlook. But Fair Isaac’s myFICO.com site is a great resource for consumers who want to educate themselves.

The company offers several products through its web site that can give you varying degrees of information.

For $15.95, you can order a FICO Standard report, which will give you your score and credit report from a single credit bureau (you choose which one) and shows you the factors that are positively and negatively affecting your score.

If you’re interested in your scores and reports from all three bureaus, then you can order the FICO Deluxe product for $47.85.

But perhaps the most interesting scoring product they offer is Score Watch, which lets you continuously monitor your Equifax score for $8.95 per month.

I recently purchased a house and had some loose ends to tie up on my credit report. I purchased Score Watchâ„¢ to get an idea of how my score would be affected as the changes were updated on my credit report. Being the credit nerd that I am, I love to see how my score fluctuates with different actions.

And for me it’s a good motivator to stay the course to rebuilding my credit profile. Each time my score changes, I’m notified via email and can log into my account to see exactly what caused the change.

Watts agrees that access to such credit information has a positive impact on scoring. “As people get plugged into what lenders really pay attention to, then they are better equipped to focus on those kinds of priorities or behaviors in the future, which leads to an improvement in their credit ratings,� he says.