Tag: personal finance

The 6 Craziest Ways Millennials Can Save Money To Retire Early

saving, save money, investment, frugal, FIRE movement, Financial independence retire early

Financial independence, retire early.

It sounds like the dream. But it takes a lot of work to be part of the elite group of Americans in the so-called FIRE movement. While their counterparts were splurging at bars, they committed to save money from their corporate jobs…or even take on side hustles to build their income.

Inspired in part by the personal finance tome, “Your Money or Your Life” by Vicki Robin and Joe Dominguez, these millennials are pinching pennies in order to build up big nest eggs. The goal is to then live off their investments.

And while the end sounds nice – who doesn’t want a break from the office – the road there can be tough, with millennials in the FIRE movement saving anywhere from 60% – 90% of their paychecks.

From keeping a car from 2006 to saying no to out-of-state weddings, here are six resolutions for 2020 for some of the leaders in the financial independent, retire early movement. While some ideas might be a bit zany for you – like sharing your personal finance history with a friend – it’s helpful to see what the experts recommend.

Even if your goal isn’t to retire by 40, there’s something to be said about being frugal going into this new decade. Here’s some of the craziest ways FIRE leaders jumpstarted their savings.

Kiersten and Julien Saunders are co-creators of the award-winning blog, rich & REGULAR. On their platform, they document their journey through parenting, work life, entrepreneurship, real estate investing and their pursuit of financial independence. They can also be seen in the 2019 documentary, “Playing With Fire.”

Give yourself an allowance.

We stopped thinking of savings as leftovers. It’s a bit of a brain hack, but the idea is that most people do their budget and then use the leftovers as their baseline savings rate. This approach assumes that everything is savings until you spend it.

This is saving, but in the affirmative. So you’re starting with a 100% savings rate and any time you spend money you subtract a %. It helps you easily identify the areas of life you need to change to meet your goal. If your goal is a 50% savings rate but the moment you pay your car note, your 100% starting point drops to 60%, then you know the car is an impediment to the goal.

Julie Berninger is a 30-year-old new mom, blogger, and Etsy-seller living in Seattle, WA. Julie and her husband paid off over $100,000 of debt and are now saving towards financial independence. She blogs at Millennial Boss, interviews early retirees on her podcast, Fire Drill, and teaches others how to blog and sell printables for profit at Gold City Ventures.

Say no to out-of-state weddings.

I stopped saying ‘yes’ to out-of-state weddings and expensive events associated with weddings such as destination bachelorette parties. We sent a nice note and a gift instead. We prioritized the events where we were closer with the couples but avoided spending hundreds of dollars on weekend trips. We’ve not attended at least three out of state weddings since making this decision and I did not attend a destination bachelorette. I estimate that saved us a few thousand dollars total.

Tanja Hester, author of WORK OPTIONAL: Retire Early the Non-Penny-Pinching Way, is a former political communications consultant. Since retiring early from formal employment at the age of 38 along with her husband Mark Bunge, she devotes all her time to fun and purpose: writing her award-winning financial independence blog Our Next Life, podcasting on The Fairer Cents, gathering women together to talk about financial independence at Cents Positive retreats, volunteering in her community, traveling the world, and skiing, hiking, biking, paddling, and climbing around her home in North Lake Tahoe, California. Basically: living the dream.

Set up your paycheck to auto deposit into savings. 

Back when I was in debt and struggled to save any money at all, I decided to do new payroll paperwork at work so that part of my paycheck went straight to savings instead of checking, so I’d never feel like I had that money to spend. I started with $50 a paycheck, but you can do any amount. Especially if you get a raise at the start of the year, challenge yourself to live on what you earned last year and save as much of your new money as possible.

Sam started Financial Samurai in 2009 to help people achieve financial freedom sooner, rather than later. In 2012, after spending 13 years in investment banking, Sam decided to retire at the age of 34. He spends his free time writing, playing tennis, and taking care of his two young children. 

Talk about your financial habits. 

One of the best ways to learn is to teach. Therefore, of the best ways to elucidate your financial weak spots is explain your financial habits to someone close to you. Not only will you better understand your spending and savings habits, the person listening may also offer some constructive criticism. Get rid of complacency. Seek criticism to improve your financial health!

Mabel A. Nunez is the founder and Chief Investment Officer of Girl$ on The Money – a stock market investing education company targeted to women, minorities, and individuals that are underrepresented in the world of investing. Through courses and resources, she empowers women to take action towards wealth creation and to take control of their lives. 

Live frugally and keep your old car. 

In 2006, as I got started in my career after undergrad, I paid full price (less than $5,000) and bought myself a high quality used car to take me to work and back. My commute totaled more than 1.5 hours both ways, Monday through Friday. I am not ashamed to share that I drive the same car to this day. I am confident that this key decision allowed me to save and invest thousands of dollars over the years.

Kristy is a world-traveling, early retiree. She and her husband Bryce used to live in one of the most expensive cities in Canada, but instead of drowning in debt, they rejected home ownership. What resulted was a 7-figure portfolio, which has allowed them to retire in their 30s and travel the world. They now spend time helping people with their finances and realizing their travel dreams on their blog millennial revolution. Their also wrote a bestselling book “Quit Like a Millionaire.”

Embrace minimalism.

I grew up poor so hoarding was a big problem of mine. I wouldn’t even throw out empty CD cases (remember CDs?) just in case I might need them again. Luckily, before our one bedroom apartment turned into an episode of “Hoarders”, I realized how much money we’d be wasting by moving to a bigger apartment (our rent would have increased by 50%), so I started donating and de-cluttering our belongings, while making a pledge not to buy anything that wasn’t an absolute necessity.

This saved us a lot of rent – probably about $550 a month or around $6,600 by not upgrading to a two bedroom.

Follow me on Twitter. Check out my website.

Alexandra Talty

Based in Lebanon, I cover travel and personal finance topics for millennials. I’m committed to a life of adventure and have lived in four countries before turning 30. My work appears regularly in Playboy Magazine, Outside Magazine and AFAR Magazine, among others. Before becoming a full-time writer, I was the founding Editor-in-Chief of StepFeed in the Middle East.

Source: The 6 Craziest Ways Millennials Can Save Money To Retire Early

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Now That Commissions Are Free, Here’s How To Avoid The Big Costs Of Investing

TRADE FOR FREE! NO COMMISSIONS! Sounds too good to be true? Well, it is and it isn’t. Allow me to explain.

Within the past few weeks, a slew of brokerage firms reduced the rate their customers pay for online stock and ETF trades. In fact, they reduced them to dust. Interactive Brokers (IB) started it. Schwab joined in. Then, the cavalry arrived. Many of the largest firms followed suit in different forms. They joined IB, Schwab and the many robo-advisors who have offered free trading for a while.

What does it all mean for you?

Let’s start with the simplest part. Whether you trade your own accounts, or a professional advisor manages your assets, there is a very good chance your costs to execute trades has been reduced. It might even be zero.

However, that does not mean that investing is now “free.” It never was. Now, I know what you are thinking. You don’t use mutual funds, and you don’t use ETFs. So, your returns are not reduced by those “expense ratios” that are embedded in managed funds. If you buy and sell individual stocks, that is true.

You may also point out that you have most of your assets in tax-deferred accounts, such as an IRA or your 401(k) plan. Again, you are correct in assuming that you will not be taxed on those assets until you take them out or reach age 70 1/2. So far, investing sounds pretty darn inexpensive to me!

Today In: Money

The real costs of investing

One of the most frustrating things to me after more than 3 decades in the investment business is how quickly people jump at the chance to get something for “free” without considering the whole picture. Zero commissions on stock and ETF trades is just the latest example.

Trading, execution (how good a price you get when you place an order with a brokerage firm), and expense ratios get all the hype in the “race to the bottom” that is today’s big Wall Street.

Taxes…and how Wall Street tries to make them exciting

Taxes get some respect as a cost to reckon with. However, here too, the industry (especially the Robo firms) has created unnecessary drama by touting something call “tax loss harvesting (TLH).” This is something many of us in the field have done religiously for taxable client accounts for years. And we have done so with a focus on each client’s specific tax situation.

Now, firms will put your account on an automated system that hyper-actively swaps you from one security to another similar one, in order to generate a constant stream of tax losses. These can be posted against gains to reduce your tax bill. Great in theory.

TLH does not mean TLC

However, from the live examples I have seen, these TLH programs crowd out some very good investment strategy work. This would take an entirely separate article to explain. Perhaps I will post one.

For now, suffice it to say that in some instances, investment firms are charging an extra fee for something that is potentially overkill. That same service can be done more carefully and inexpensively as custom work for each client. It is just one of those things that you need to be aware of.

In an era of zero commissions, these for-profit firms are not going to find other ways to profit. In no way am I saying they don’t provide a helpful service. Just don’t get caught up in the hype.

Money market rates…also going to zero?

For example, the interest rate paid on money market funds at brokerage firms is, shall we say, in a bear market. That is, the rates are plunging. This is because brokerages are returning to one of their most profitable business, now that short-term interest rates have popped up from 0%.

For example, if T-bills yield 1.50%, you would hope that the money market fund that is used to sweep cash in and out of when you trade would pay somewhere in that range. Check carefully. Many firms have dropped those rates so that they are way, way lower than T-bills.

Cash management: the new tool in your toolbox?

That does not mean that it is a bad deal for you. If you trade actively, and don’t hold a high cash balance anyway, your interest in dollar terms is quite tiny to begin with. But if this is not the case, perhaps you are better off sharpening your skills as a “cash manager.”

I know I have done this in the accounts I manage over the past year. There are ETFs that invest in short-term, high-quality bonds like Treasuries. And, now that there is no commission cost to trade them through many firms, they may be worth considering as a money market surrogate.

The BIG cost of investing that gets too little attention

Drum roll, please…its lousy performance in down markets. Or, as David Letterman said, its all fun and games until someone loses an eye. So, amid all of the excitement about how little it will cost you to “play the market” with no trading costs and low expense ratios, there is still an issue. If the stock market drops 20%, 30%, 40% or more, you had better have a plan.

And, the plan can’t be to figure it out on the fly. Ask the folks who were suddenly faced with that in 2000 and 2007, the winds shifted. We all want to get our “fair share” of the ups. But when markets freak out and $20 of every $100 you had in your portfolio can potentially vanish in a few weeks (as stock index funds did around this time last year), lack of risk-management becomes the only cost that matters.

To try to put a bow on this cost discussion, consider the following if you have $500,000 to invest, and you are not a day trader, nor a straight buy-and-hold investor:

* The cost of 40 trades a year used to be about $5 each. That’s $200 a year you saved, with commissions going to zero.

* You switched to index funds from active funds, and maybe mixed in some stocks. Let’s say that shaved your portfolio expense ratio from 1.00% to 0.20%. You saved $4,000 on that $500,000 portfolio.

* Taxes: you generated capital gains of $30,000, but used TLH to knock that down to $10,000. Assuming a 30% tax rate, you saved $6,000 in taxes. This is getting better and better!

Minimal risk-management: the market fell by 20%, and you escaped with “only” a 18% loss. But that’s still a $90,000 decline in the portfolio! If you had practiced risk-management using some of the techniques I discussed in recent articles (tactical positioning, options, inverse ETFs, etc.), you might have kept that loss to half that.

Naturally, everyone’s situation and objectives are different. However, the key is to recognize the relative impact of the different types of investment “cost.” In the examples above, the cost of trading was well under 1%. The impact of expense ratio was a bit under 1%. TLH helped (assuming you had gains to offset with losses), to the tune of just over 1%.

However, risk-management can be “worth” well over 1%. That’s the point, and what you should focus on when evaluating your total “cost” of investing.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors

To read more, click HERE

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

Rob Isbitts

I am an investment strategist and portfolio manager for high net worth families with over 30 years of industry experience. A thought-leader, book author and founder of a boutique investment advisory firm in South Florida. My work for Forbes.com aims to break investment myths and bring common sense analysis to my audience. Connect with me on Linked In, follow me on Twitter @robisbitts. Visit our website at http://www.SungardenInvestment.com.  What do you think? I welcome your questions and feedback at rob@sungardeninvestment.com. For more on this and related topics, click here.

Source: Now That Commissions Are Free, Here’s How To Avoid The Big Costs Of Investing

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https://www.sbmoneytips.com/ Learn the first secret of successful investing with Part I of our three-part series! *** Did you know that the average individual investor does worse in the stock market than the market itself? In other words, if you just held a broad index fund and did nothing but hold on until you hit retirement you would do better than most. It turns out that the problem has nothing to do with a lack of market savvy or anything like that. Instead, it has everything to do with human emotions. Once you learn the enemy you can master it! So let’s take a quick look in the mirror and get acquainted with our opponent! The first secret is simply to invest as soon as you can. Don’t sit on the sidelines! Start now and let compounding do the heavy lifting over time. Make the effort to learn something new: like how to set up an account and put some money to work. Either do it on line or call one of the big brokerages. You’ll be richly repaid for your efforts! The next secret is to avoid being too conservative when investing for long-term goals. Many people are reluctant to invest in the stock market because they are afraid they’ll lose money. And they’re right – they will! But allow enough time and the results come back to the long term averages. Take a look at this chart showing the S&P500’s results from 2007 through 2015. That drop in 2008-2009 was pretty terrifying – I know! I personally lost over a third of my money in it! And it was really uncomfortable. But look what happened after that. It took several years but the market came back and is now well above where it was before the great recession. The right thing to do is to stay the course. Invest when you have money to do so and only sell when you need the money. This is really important. Hang on when you’re in the middle of one of these lurches and don’t sell or change your game plan.

Category

Education

12 Things You Should Do To Save Money In October

1

In today’s world, it’s more important than ever to prepare for your financial future.

And one of the easiest ways to add to your nest-egg is to simply cut your biggest household expenses and save more of your hard earned money.

We often forget some of the golden rules to saving that our parents taught us. Here’s a quick list of things you can do to save on bills in 2019. No matter your circumstance, there’s something here that everyone can use like cutting down your mortgage bill and save on utilities.

1. Take Full Advantage Of These Tax Deductions

Owning a home can be very lucrative. Seriously, owning a home can not only give you a cheaper monthly payment than renting but in many cases, the tax benefits make the decision a no-brainer.

Here are a few of the larger deductions that you need to be sure to take:

Interest you pay on your mortgage: If you own a home and don’t have a mortgage greater than $750,000, you can deduct the interest you pay on the loan. This is one of the biggest benefits to owning a home versus renting–as you could get massive deductions at tax time. The limit used to be $1 million, but the Tax Cuts and Jobs Act of 2017 (TCJA) reduced the limit and made some clarifications on deducting interest from a home equity line of credit.

Property taxes: Another awesome benefit to owning a home is the ability to deduct your property taxes. Before TCJA, the rules were a little more flexible and you were able to deduct the entirety of your property taxes. Now things have a changed a bit. Under the new law, you can deduct up to $10,000. The deduction for state and local income taxes was combined with the deduction for state and local property taxes, too.

Tax incentives for energy-efficient upgrades: While most of the tax incentives for making energy-efficient upgrades to your home have gone away, there are still a couple worth noting. You can still claim tax deductions on solar energy–both for electric and water heating equipment, through 2021. The longer you wait, though, the less money you’ll get back. Here’s the percentage of equipment you can deduct, based on time of installation:

Between January 1, 2017, and December 31, 2019 – 30% of the expenditures are eligible for the credit
Between January 1, 2020, and December 31, 2020 – 26%
Between January 1, 2021, and December 31, 2012 – 22%

2. Use Government Rebates To Get Solar Panels And Slash Your Energy Bills

Warning: Do not pay your next energy bill until you read this…

This is the 1 simple truth your power company doesn’t want you to know. There is a new policy in 2019 that qualifies homeowners who live in specific zip codes to be eligible for $1,000’s of Government funding to install solar panels. Has your power company told you that? Of course not. They hope homeowners don’t learn about this brilliant way to reduce your energy bill tremendously!

When homeowners check whether they qualify many are shocked that subsidies and rebates can cover a lot of the costs associated with installation so it greatly reduces the amount you’ll have to pay. Many may qualify for $0 down! Soon, you could be on your way to significantly reducing your electric bill in a matter of weeks.

Smart homeowners are setting out to do their own research and determine whether this new program lives up to its reputations. Over and over again, many are reporting back on their findings, with the most exciting part being that they are now able to save $1,000s a year on their own energy bill.

Estimate Your New Power Bill >>

3. Install CFLs or LED Lights Where You Can

New lighting technology has really come a long ways. Now although they do cost more than traditional incandescent bulbs, CFL and LED bulbs can last for years without having to replace them. You don’t even need to replace every bulb in the house at once. Even swapping just your four or five most-used light bulbs can save you $45 or more a year!

CFL vs. LED

CFLs, which use a quarter of the energy of incandescent bulbs and last for years, are the next cheapest option after traditional bulbs. But they also have some drawbacks: They take a while to warm up to full brightness, and they also contain a small amount of mercury.

Meanwhile, LEDs are more expensive. However, they’re getting cheaper all the time, and they are easily the best lighting option available: They light up instantly, are efficient as CFLs, produce a warm glow without getting hot to the touch, and can last for decades.

4. Automate Your Thermostat

One of the easiest things you can do to instantly start saving money on your heating and cooling bills is to get an automated thermostat. These smart thermostats will learn when you are home and make sure the home is at a comfortable setting during those hours.

You may even be able to get a rebate from your utility provider for installing one of these in your home. It’s a win-win!

5. Make A Grocery List

You ever go to the grocery store when you’re hungry and find yourself checking out with way more than you intended? We call this “Hunger Shopping” and it’s quite dangerous to your wallet!

Before going to get groceries, make a list of groceries that you need for the upcoming week. That way, you only buy what you’re intending to use and the amount that will get thrown away from being expired is kept to a minimal.

6. Buy in Bulk

One of the easiest things you can do to instantly start saving money is to buy in bulk! Retailers often give a MUCH better deal on products such as paper towel, toilet paper, detergent, etc if you buy in bulk.

This might seem like an obvious one, but we often forget how much money we waste by not buying in bulk.

7. Want a Patio? Consider Concrete Over Pavers

Building a patio can add great value to your home, as well as creating enjoyable outdoor living space for you and your family. But patios can come at a great cost.

When we decided to add a patio to our home, we looked at the different surface options carefully. Although many landscapers would recommend pavers over concrete because of their durability over time, we decided that the cost savings was more important to us. We personally love the clean look of concrete as well.

Now one thing to remember with concrete is that it WILL crack eventually. But if you have a good concrete crew, it should be prepped right where the cracks are minimal. So we expect to see cracks, but are hopeful that it will be minimal.

8. No Life Insurance? You’ll Want To Use This Brilliant Life Insurance Trick

If you don’t have life insurance, you better read this.

It’s not something any of us like to think about or plan for. But when the worst happens, it’s essential to know your family and loved ones are covered financially. That’s why it’s essential to have a life insurance. A good life insurance policy can help cover the cost of a mortgage, childcare costs and safeguard your family from inheriting any debts you might have.

 

But the sad truth is, a shocking number of Americans do not have a life insurance policy and their family is at financial risk if the worst should happen.

There is a service that is now allowing users to get free life insurance quotes from some of the top insurance companies out there. People are shocked at how cheap an excellent policy is after requesting their free quotes. But the reality is, life insurance rates are at a 20-year low and thanks to new program policies you could qualify for a great new policy at an extremely affordable price.

To get your free quote today, click below and complete a few questions (about 60 seconds). Once you’re done, you will be presented with choices and rates you never thought possible (no login required). Enjoy your savings!

Get Your Free Quote Now >>

9. Give Your Air Conditioner Some Space

Just like we need to breathe, your air conditioner needs space where it’s getting air easily. Many AC units are surrounded by shrubs that can restrict the airflow it needs to run efficiently. Take a few minutes this weekend and do the following:

Trim up any bushes that are are touching the unit so there is at least 1 foot of clearance

Clean up the ground for any loose debris or leaves

If the outside of the unit has a lot of debris clogging it up, consider having a professional service and clean it out

10. New Auto Insurance Policy

Here’s what auto insurance companies don’t want you to know…and what thousands of consumers are quickly learning about their current auto insurance plan:

If you’re paying more than $63 per month for auto insurance, this auto insurance comparison tool can help you check to see if you’re overpaying in a few minutes. This is something every driver should be doing every 6 months or so to ensure that they are getting the best deal.

 

Insurance companies are always competing to win your business, but if you turn a blind eye and keep the same policy in place for a long period of time, your rates might have increased. By checking rates, drivers saved an average of $531 per year with a new policy.

So do yourself a favor and do a quick comparison by filling out a short form (about 4 minutes). This is a fast way you can start saving on your auto bills.

Compare Auto Insurance Rates >>

11. Veterans Get a Massive Discount at Lowes

All active military and veterans are entitled to get a 10% discount on all in-store purchases at Lowe’s.

To make it even better, Lowe’s extends this offer to their spouses! Need new tools? How about new appliances? How about a kitchen remodel? Lowe’s carries a variety of things, so take advantage of this incredible discount!

12. Born Before 1985? Get $3,000/year Taken Off Your Mortgage With The Government’s New “Enhanced Relief” Program

Banks Don’t Want Homeowners Knowing This

Still unknown to many is a brilliant Government Program called the Freddie Mac Enhanced Relief Refinance Program (FMERR) that could benefit millions of Americans and reduce their payments by as much as $3,000 per year! You could bet the banks aren’t too thrilled about losing all that profit and might secretly hope homeowners don’t find out before time runs out.

 

So while the banks happily wait for this program to end, the Government is making a final push and urging homeowners to take advantage. This program is currently active but could be shut down at any given time in 2019. But the good news is that once you’re in, you’re in. If lowering your payments, paying off your mortgage faster, and even taking some cash out would help you, it’s vital you act now and see if you could qualify for FMERR or a better rate in today’s marketplace.

Source: https://article.expense-cutter.com/save-big-this-year-with-these-useful-tips-fbvlm

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It’s not about how much money you earn. It’s what you do with the money that matters. In this video, I’m going to show you a business strategy on how to manage your money. I’m not gonna tell you what to invest in. That’s not my role. Here are the best ideas of what the best professionals do to manage their money. Learn more from Tom LIVE at the next Summit event: https://tfi.media/2UC21rg ———— I hope you got some helpful tips and new ideas from this video. To ensure you don’t miss all my FREE training videos all you have to do is sign up here with your email: http://bit.ly/TomFerry-VideoTraining Get a FREE copy of my new book: http://bit.ly/2Bblstw Download FREE Agent Scripts and Resources: http://bit.ly/2iDEjpJ Tom Ferry Coaching: http://bit.ly/2eP8UlA Tom Ferry Events: http://bit.ly/2gQBjbD Join Tom’s VIP List: http://bit.ly/2sMb73n ————- Connect with me on my other social channels: Website – http://TomFerry.com Facebook – http://facebook.com/TomFerry Twitter – http://twitter.com/TomFerry YouTube – http://youtube.com/CoachTomFerry Instagram – http://instagram.com/TomFerry Podcast – http://soundcloud.com/CoachTomFerry

Category

Education

 

Three Credit Score Myths That Are Wildly Untrue

Sydney Enzler opened her first credit card when she was a 19-year-old college student. Her mom encouraged her to open the account in order to build credit and establish a strong credit score.

“I wanted to use my credit cards every once in a while to build credit, but I generally just use them for larger purchases,” said Enzler.

Now 24 years old, Enzler is one of the millions of Americans who owe a collective $1.1 trillion dollars in credit card and other revolving debt. According to the Federal Reserve, the average interest rate on those credit card balances is 16.97% APR.

With interest rates that high, it’s easy to see how credit card debt can quickly spiral out of control and leave you with a bruised wallet – and ego. The reality is that credit cards aren’t going anywhere, and they play a large role in determining your credit score – a critical factor when it comes to getting the lowest possible interest rate on your mortgage or other loans.

Today, I am dispelling three common credit card myths so that you can focus on the things that will actually improve your credit score.

Myth 1: Carrying A Small Credit Card Balance Is Good For Your Credit

Today In: Money

I applied for my first credit card shortly after my 18th birthday and I remember being told by a well-meaning colleague at work that I should try to use the card regularly and carry a small balance. The rationale was that by using the card and paying a small amount of interest monthly, the bank would love having me as a customer and give me a better credit score.

Fortunately, I was a curious teenager and fact-checked that claim, because it’s not true. And not following that advice has saved me hundreds, if not thousands of dollars in unnecessary interest charges over the years.

To begin, your credit score is not determined by your credit card company or any other lender. Your credit card issuer (in my case it was Chase), provides the credit bureaus with regular updates on your payment and account history. These credit bureaus (Equifax, Experian and TransUnion) simply receive information from your lenders and use it to calculate your credit score.

Second, carrying a balance on a credit card will increase your utilization, which could actually lower your score. In general, using less of your available credit is better from a credit score perspective.

The important lesson here is that it’s never wise to pay interest on your credit card if you can avoid it. Always pay off your full statement balance in full if possible. It will help you lower your credit utilization while avoiding costly interest charges.

(Read: The 60 Second Guide To Credit Utilization.)

Myth 2: Checking Your Credit Report Will Hurt Your Score

Reviewing your credit score regularly (and for free) is one of the best things you can do as a responsible credit card user. Period.

However, the myth that checking your credit hurts your score pervades, in part, because of the confusing language that’s used to notate when your credit file has been accessed. Whenever your credit report is requested, you’ll receive an ‘inquiry’. However, it’s important to note that there’s a big distinction between ‘soft’ and ‘hard’ inquiries.

When you request your own credit report, this qualifies as a soft inquiry. Soft inquiries have no effect on your credit score whatsoever. That means that checking your own credit report will not hurt your credit score. It’s that simple.

However, when you apply for a new loan or other type of credit, the prospective creditor will access your credit file to assess your creditworthiness. This will result in a hard inquiry, which will, in fact, have a negative impact on your credit score. Hard inquiries will remain on your credit file for two years, although they will only affect your score for 12 months.

If you’d like to check your credit report, you can do it here for free. By law, each of the three major credit bureaus must give you free access to your credit report once per year. I try to check a credit report from a different bureau every three to four months to check for inaccuracies or fraud. In fact, I just requested my credit report while writing this article and it took all of 90 seconds. You should do the same.

Bonus: If you are serious about protecting your credit you should also freeze your credit files for free.

Myth 3: You Can Pay Someone To Fix Your Credit Score

If you have a history of making late payments and don’t practice sound credit management, there’s no magic switch you can flip in order to have accurate information removed from your credit report on-demand.

While there are a lot of credit repair services roaming the web and social media, the fact is that they don’t do anything that you can’t do on your own.

The best way to repair your credit is to practice good credit management strategies. This means paying your cards and other credit accounts on time, every time. It also means understanding how credit scores work and what the components that go into your score are.

The components of your credit score are as follows:

  • Your payment history comprises 35% of your credit score
  • Amount of debt (credit utilization) comprises 30%
  • Length of credit history comprises 15%
  • Amount of new credit (and inquiries) comprises 10%
  • Your credit mix comprises the final 10% of your credit score

This means that 50% of your score (payment history and length of credit history) is related to time. Clearly, to meaningfully improve your score it will take patience.

If you’re getting ready to apply for a mortgage, or if you are hoping to lower your student loan interest rates by refinancing, here’s what you can do to give your score a boost more quickly. Thirty percent of your score is based on your credit utilization, which is essentially based on a current snapshot of your accounts. While it could take years for negative marks to roll off of your credit report, you can quickly lower your credit utilization.

Your credit utilization is determined by taking your outstanding balance on your revolving credit accounts and dividing it by the total credit available to you. It could take several weeks for the updated information to be passed from your creditor to the credit bureaus, but it’s a fast way to improve an important metric. For the highest credit scores, aim to lower your utilization below 10%.

Don’t lose sight of the fact that it can take time to improve your credit score. Start to establish healthy credit habits today so that your score reflects them in the future. But most importantly, don’t despair if your credit isn’t perfect.

Regardless of what your credit score is, it’s important to know that your credit score might not be as important as you think it is.

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Camilo Maldonado

Camilo Maldonado is Co-Founder of The Finance Twins, a personal finance site showing you how to budget, invest, bank, save & refinance your student loans. He also runs Contacts Compare.

Source: Three Credit Score Myths That Are Wildly Untrue

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Source: When Smart Personal Finance Habits Just Become Stupid

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