Of Independent Means

I’m a financial planner. But I’m also a normal person just like you, and I know how difficult it is to be an American and somehow not feel it’s your duty to shop. Our economic and social system is based on capitalism, which is partly defined as the creation of goods and services for profit in a market. The consumer (you) is a very important part of this equation because if there are no buyers for the goods and services – what happens to the economy? Economists watch consumer spending like hawks – and no wonder:  it fuels about two-thirds of total economic output in the U.S. Talk about pressure! Consumer spending is so important several indexes have been designed to measure it. The most widely used index is the Conference Board Consumer Confidence Index and amongst other factors is used to determine the direction of the economy.

The perfect agent for promoting consumption is the advertising industry. Advertisers want us to consume. Their mission is to make products and services as enticing as possible so we buy them whether we need them or not. Watch a few episodes of Mad Men to learn the tricks of the trade. Watch T.V, drive down the freeway, listen to the radio, log on to a website and you’re bombarded with advertising messages. It’s almost impossible to escape from the influence of advertising unless you live like a hermit. A quote from Wikipedia describes advertising as the “pillar of the growth-oriented free capitalist economy” and states that “contemporary capitalism could not function and global production networks could not exist as they do without advertising.”

Born To Shop?

No wonder we sometimes feel we were Born to Shop! The problem: economists and advertisers aren’t concerned about your personal bottom line. Just like you, they’re concerned about their jobs, their families, their standard of living and their ability to retire comfortably. We need to adopt a “me vs. them” mentality. When we open our wallet to buy something…..let’s stop and think: do I want “them” to have my money, or do I want “me” to have my money? The person on the other side of the cash register doesn’t know if you can afford the item you are about to purchase – nor do they care. Think of shopping as a psychological battleground – that’s how advertisers think of it.  Do you want to be the victor or the vanquished?

Feeling vanquished when it comes to your personal finances isn’t a good thing.  It probably means that you’re in debt; you’re anxious about your future and you feel stuck. Is all the stuff worth it? Probably not. Excess stuff clutters your environment and the collective environment and excess debt can ruin your credit score and your relationships. So it’s time to denounce popular opinion, admit you weren’t Born To Shop, stop spending more than you earn, and live within your means.

Like anything psychological or emotional, it isn’t easy to change. Read simple truth #2:  “Your Money Personality Affects Your Money Behavior“  for more insights on this topic. But there are things you can do to take control of your spending.

Here’s a strategy to get your started:

Balance Your Budget

1.  Using an excel spreadsheet list all of your expenses subtotaled as follows:  fixed and necessary expenses: these expenses are the same every month and/or are necessary to keep you housed, clothed, groomed, healthy, fed and mobile; other committed expenses: child related expenses, pet care, fees to professionals, adult education, gym membership, insurance premiums, debt payments;  discretionary expenses: vacations, dining out, entertainment, hobbies, electronics, gifts, home improvements, furnishings;  auto-savings: retirement contributions and other savings.

2. Total all the subtotals to come up with your total monthly expenses. Subtract this amount from your total monthly income. The outcome will either be a positive or a negative number.

3. If it’s a positive number, congratulations. You are living within your means.  If you know you’re saving enough for retirement and other financial goals and have no debt to pay off, then you have some discretion as to how you use the money. If the outcome is negative, go back and rework your expenses until it comes out even or positive. A hint: you will have the most flexibility to adjust on discretionary items, but you can also try and negotiate savings with service providers or increase deductibles on insurance policies to save on premiums.   Note: it’s important that you pay off your high interest consumer debt as fast as possible, so if you can increase debt payments do so.

4. Now that your cash flow is neutral or positive, this becomes your working budget. Need help staying on a budget?

Some Tips for Staying The Course

-Use mint.com – software that tracks all of your expenses, income and savings on line. You enter your budget and it will send you an email when you overspend on a budget item.

-Try the envelope system: place your budgeted amount for discretionary items such as clothing and food-out in an envelope in cash. When the cash is gone, you can’t spend on those items again until the next month.

-Leave your credit cards at home. Become more conscious that the money you spend is from a finite source. Try paying cash or using your ATM card whenever possible.

-If you are tempted to buy an item that you don’t really need, leave the store, walk around the block and think about it. Nine times out of ten you won’t buy the item.

-Print out a copy of your budget. Post it somewhere that is visible to you regularly. Keep it top of mind.

Remember: It’s “me vs. them”. Who gets your money?

Reward yourself

Each month that you stay within budget, reward yourself in some small but significant way. Indulge in a nice lunch out, get a pedicure; order a nice glass of wine with a meal.

Earn More

If after completing the budget exercise you find that it’s impossible to balance your cash flow or you don’t want to live so frugally – look at the income side. Can you ask for a raise at work? Find a higher paying job?  Freelance?  Start a small business? Rent a room out? Sell belongings to raise cash?  Explore all avenues. Exercise your capitalist gene by thinking about all the ways you can produce goods and services for profit – for yourself!

Below are some additional resources to help you start living within your means:

Read Your Money Or Your Life by Vicki Robin, Joe Dominguez and Monique Tilford
Read I Will Teach You To Be Rich by Ramit Sethi

Blog to Follow:
Get Rich Slowly

Please feel free to share your comments about how you keep on a budget and/or what you have done to bring in extra income.

The First Simple Truth About Money was about procrastination and financial fuzziness. The idea is that your non-actions around money can lead to bigger difficulties down the road. If you read the post, I hope that it caused you to make some behavioral changes. (Please write a comment and let me know if it did!)

Do You Know You Have a Money Personality?

Here’s a related question for you. Ever wonder why you procrastinate about financial matters? It may be due to your deep-seated money personality. We’ve all developed money habitudes and attitudes over the years – learned from our parents, our teachers and our peers.

Some of the information we absorbed about money may not be serving us so well now. For example, if you were raised in an atmosphere of scarcity, you may spend your whole life craving things you can’t afford and you now overspend to get them. On the other hand, if you grew up with abundance, you may expect things will always come easily to you. If your mom was a spendthrift, you may become one too or, you may overcompensate by becoming a miser.  If your dad procrastinated about important money decisions and took the attitude “things will work themselves out”, you may find yourself taking the same approach.

My Money Story

My mother and father were extremely frugal, especially my father. He didn’t want anything. Buying him a gift was torture because it was impossible to figure out what he would like – except peanuts, he loved peanuts.  So my siblings and I would end up buying him canisters of planter’s nuts for any occasion that required a gift.  His frugality rubbed off on my mom. Going out to eat with her is challenging. She’ll look at a menu and always order the cheapest thing on it – or a side salad.  Not a comfortable experience when you’ve just ordered filet mignon.

We kids would only get the “necessities” – food, clothing (thankfully we wore school uniforms!) and shelter. So, I learned early on that if I wanted the “extras”, I needed to find a way to buy them myself. This was probably a good thing, as I became self-sufficient at a very early age. But I also rejected the frugality of my parents and have been known to indulge myself on occasion. I’ve worked hard to find a good balance between being frugal and being extravagant.

Can you change your money personality?

Like anything with psychological or emotional roots, it’s possible but it takes work.  Deborah Price is the author of Money Magic, Unleashing Your True Potential For Prosperity and Fulfillment. She is the founder of the Money Coaching Institute based in Petaluma, California and she has developed a money coaching curriculum with the aim to “combine both practical financial guidance with sound psychological principles to help you transform your relationship with money and lead a more purposeful and prosperous life.”

I asked Elizabeth Husserl, a SF Bay Area based money coach, founder of www.innereconomics.com, and a graduate of The Money Coaching Institute, her insights about money personalities.  She said, “If we don’t pay attention to our money personalities they will act out in louder and more extreme ways. For example, the shopping sprees become longer and more expensive because you can’t quite fill the emotional hole you are trying to fill or the anger towards money grows until you blame it for everything wrong in your life.”  Elizabeth offers Inner Economics workshops and private work for individuals, couples and small groups.

Aurora Medina, is also a S.F. Bay Area based money coach. She produces Efecto Mariposa, a Spanish radio show for women that specializes in the psychology of money. One of the ways she does this is through “Mariposa Money Circles” – small groups of six women who explore together the beliefs and patterns associated with money that are holding them back from maximizing their financial potential. When I asked Aurora for her insights she said, “our money personalities relate to the way money is handled mainly in our family environment. We make unconscious contracts about how we will handle money depending on the experiences we encounter that affected us deeply either in a negative or positive way.”

In my own financial planning practice, I find that the more I know about my client’s money type or personality, the better I can serve them. To that end I have each client fill out a money personality questionnaire, which seeks answers to such questions as:

• What messages did your receive about money as a child growing up?
• How did you parents handle money?
• Did you feel like you got an adequate financial education growing up?

Most people are perfectly willing to do this exercise and seem to find the opportunity to explore the emotional and psychological aspects of money cathartic. If I interview a potential client who is in financial trouble and I sense a pattern in his/her life, I will often suggest they work with a money coach first as a precursor to the more technical financial planning work.

If you think that you may be acting in ways that sabotage your chance of financial success and it’s become a pattern  - read, sign up for a workshop, talk to trusted friends or advisors, or engage a money coach. There are resources available to help you.

I’ve listed a few books  just below in addition to the resources I mentioned above:

Books

Your Money or Your Life:  Joe Dominguez and Vicki Robin
Money and the Meaning of Life, Jacob Needleman
The Soul of Money, Lynn Twist
Money, Money, Money: The Search for Wealth and the Pursuit of Happiness by Jacob Needleman
Seven Stages of Money Maturity: Understanding the Spirit and Value of Money In Your Life by George Kinder
You Paid How Much For That?: How to Win At Money Without Losing at Love by Natalie Jenkins, Scott Stanley and William C. Bailey

Other Resources:
National Foundation for Credit Counseling
Association of Independent Consumer Credit Counseling Agencies
United Family Services

In the course of my financial planning practice, I meet many people who share similar attitudes, fears or misconceptions about money management. It turns out that most people make money way more difficult and scary than it needs to be. So in response to all this, I came up with 10 Simple Truths About Money in order to point out and identify some critical financial concepts that are easy to understand and implement. My next 10 blog posts are meant to inspire you to incorporate these truths into your actions around money.

Ready? Let’s go!

Simple Truth #1:   Procrastination is the Cause of Financial Fuzziness
Does any of this sound like you?

There’s 10 months of accumulated mail  – all unopened – that contain your investment account statements and they are all dumped into a drawer you never open.

You have $30,000 sitting in a savings account at the bank earning 0.15 interest.

You refuse to automate your monthly bill paying on-line, even though you often forget to pay your bills and end up with late fees.

You sold all your stock mutual funds in March because you couldn’t stand to watch them go down anymore and now they are sitting in a money market account earning 0.35% interest.

You know you need to do something, but you don’t.  This is called procrastination.  And, it doesn’t feel good. It generates feelings of confusion, guilt and worry – fuzziness!

If it makes you feel any better, you’re not alone.

However, that doesn’t make it better or okay. This type of procrastination can have serious consequences for your finances:  the spending power of your dollars gets eroded by inflation, your credit score gets downgraded, and you have constant fights with your honey about money. Not good, and even more to the point, not necessary.

Being up to date and clear about your finances can relieve so much stress, and really, it’s just a matter of making it a priority.  This is a great time of year to get started. 2009 is almost over, and January 1 is right around the corner.  If you want to call it a New Year’s resolution, go ahead.  If that doesn’t do it for you, get started anyway!

Here are some tips to get started:

Most time management experts will tell you that the best way to tackle a big hairy project is  to do a little each day, or divide the big project up into smaller ones.
So for a great first example, let’s take that pile of mail.

First day:  Take all the statements out of the envelopes and arrange them in date order, the oldest date on top. See! You’re already making progress!

Second day:  Starting with the oldest statements, glance at the first page which summarizes what’s inside.  Pay careful attention to any deposits or withdrawals – if anything looks strange – investigate.  If not, move on to the next statement. Keep going until you have reached the latest statement and set aside.

Third day:  Spend some time on the latest statement, as it should summarize what went on in your account year-to-date: total withdrawals and deposits, investment gains or losses, total interest or dividend interest earned.

By now, you should have a pretty good idea of the activity in your investment account over the time period that the statements covered.

Fourth Day:  Determine whether you need to make any changes to your investments (or find a financial advisor that can help you with this step). For example, if one of your mutual funds is down 50% year-to-date…go to Yahoo Finance and type the symbol in the search box….read up on this dog-of-a-fund and see if there is a good reason to hold on to it, or chuck it at the soonest opportunity!

From now on, when you receive your monthly investment statement in the mail, open it immediately, glance at the afore mentioned items and file it (in date order) with the others.

I suggest keeping a year’s worth of monthly statements, but hold on to your December statements for 3 years.

I can feel that fuzziness clearing up already, can’t you?

This past Sunday morning I (and, I suspect, millions of others) read an article in the New York Times Magazine by Elizabeth Weil.

Married (happily) With Issues takes the reader along on a fascinating and personal journey in search of a more perfect union. Elizabeth Weil manages to convince her good sport of a husband, that even though their marriage is “good” they might benefit by attempting to make their good marriage better through various counseling and therapy strategies.

In the story, Weil discussed some of her peccadilloes (she doesn’t like French kissing) and his (he’s overly obsessed with cooking gourmet meals every day) that chipped away at their otherwise good marriage.  After I read the article, I remembered that my husband had “suggested” an idea that he thought might lead to a more perfect union between us. I might want to “review my magazine collection” he said, in the hope that some of them could be recycled, “before they took over the house.”

I know my magazine habit is a pet peeve of his…and the article triggered my unconscious and motivated me into action. It’s hard for me to discard my beloved magazines: The New Yorker, More, Gourmet, Sunset, Good, California Home & Design, and Cook’s Illustrated all hold for me hours of pleasurable entertainment.  But, because I knew it would be good for my marriage, I threw out everything but the 2009 issues.

Would I have agreed to purge my magazine collection if I hadn’t read about one couple trying to build a better marriage? Probably not. Could Elizabeth Weil have become a writer or a well-informed, always-trying-to-improve-spouse without reading? Probably not.

Reading is so important. One of the most powerful advantages to being an avid reader – you not only learn so many new and interesting things, (“Hey, let’s try and make our already good marriage better!”) reading has the power to change your behavior in positive ways. Reading can even help you think about, manage and handle money better!

My Personal Finance Reading list
This brings me to my list of favorite personal finance books -  guaranteed to change one or two of your money behaviors the first time you read them and more if you read again and again.  Just give some of these books a try and see if you start gaining money smarts!

1.   I Will Teach You To Be Rich, Ramit Sethi.  Meant for a 20-30’s audience this book is full of tips about how to live within your means but enjoy the things you love, and how to automate your finances so that saving and investing are on auto-pilot.

2.  Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, and Monique Tilford.  Do you ever feel like you are spending money on things you don’t even really care about but buy anyway?  This book really makes you think about the value of your time and money and helps you to align your values with your spending.

3.  Get Financially Naked: How to Talk Money with Your Honey by Manisha Thakor and Sharon Kedar.  An inspiring, practical guide that will help you to talk about money with your partner and create a successful financial life together.

4. Your Complete Retirement Planning Road Map: The Leave-Nothing-to-Chance, Worry-Free, All-Systems-Go Guide, Ed Slott.   Ed Slott is the guru of retirement planning and his books will teach you everything you need to know about 401k’s, IRA’s pensions, etc.

5. Making the Most of Your Money Now – The Classic Bestseller Completely Revised for the New Economy,  Jane Bryant Quinn.  A very comprehensive book covering all stages of your financial life. Discusses the pros and cons of major financial decisions.  (Buy the 2010 version, will be available soon).

Happy Reading!

 

 

The moment I heard about the Bay Bridge near-catastrophe….I thought oh, my God, that could have been me, my husband, or any one of the many people I know and love who cross the Bridge regularly. As it turned out, I did know one of the people who was on the bridge that day.  Lucky for her – she walked away with 4 flat tires, a totaled car, and frazzled nerves – but she was alive.  We all admit that “life is short” but when we say this we are thinking of our normal life span and yes, it goes by too quickly. But life is also fragile and we have no control over so many things – including whether we’re driving on the Bay Bridge at the moment it collapses.

What we do have control over, is how we choose to live day by day, and also how we prepare for the inevitable day of our passing. There’s a reason why so many positive-thinking, self-help, spiritual guides suggest writing your own eulogy as a way to get inspired about how to live your life. This exercise forces you to think about how you want to be remembered….and if you are living that way now.  Many of us get caught up in the busyness of the day-to-day, and never step back to see if all that activity adds up to a life we are proud of.

Think for a second about those you’ll leave behind.  The kindest thing any of us can do for the people we love, who will inevitably be devastated by losing you,  is to plan and prepare. Execute a will and a trust. Decide who will be the best guardians of your children. Make sure the designated beneficiaries on your retirement accounts are up to date. See a financial advisor about life insurance- do you need it?  Let someone you trust know where the key to your safe deposit box is  and where to find the combination to your home safe ….store your important documents and make copies for a trusted friend or advisor.   Live lightly, when you buy stuff and store it, think about a loved one walking into a room or closet and having to decide whether to keep or toss, recycle or sell your belongings.

The Bay Bridge near catastrophe was scary and inconvenient but sometimes that’s what it takes to motivate us to make positive changes and to take care of business.

Take good care.

Lots of women know their hair stylist almost as well as they know their closest friends. That’s why we don’t dread haircuts the way men do – we actually look forward to the 1-2 hours when a friendly person will make us beautiful with the added bonus of a good  heart-to-heart. No staring glumly at the mirror until it’s done for us! Topics of conversation in a hair salon run from love life to clothes, movies to food, and of course, my personal favorite, money.

Meet Trudy
So without further ado, please meet my hair stylist, Trudy. She’s 40-ish,  a single-mom (of a 13 year old daughter), a homeowner, a fashionista, and, as you can tell from this photo, irrepressibly vivacious.

On my last visit, we got into a chat about money because Trudy had just completed a loan modification and was more than happy to share the details with me. I was very interested because I knew banks were considering loan modifications, but hadn’t heard of anyone actually getting one.

Trudy’s story is typical of many American homeowners who were enticed by loans that “magically” made debts disappear and lowered mortgage payments.

Here’s what happened. Trudy bought a condominium in Hercules, California in 2003. She paid $248,000. She put $50,000 down and took out a 30 year fixed rate loan for $202,000.

She was thrilled to become a homeowner and excited by the prospect of home price appreciation.

When a Refi is a No-No
Fast forward a couple of years later. Her condo had appreciated but so had her credit card debt. Enticed by all the refinance offers that came in the mail daily, she decided to investigate. Not fully understanding what she was getting into, Trudy refinanced her loan to one that offered a myriad of payment choices, better known as an “option-ARM.” The lowest payment option caused the loan to negatively amortize – which means the deferred interest is added to the outstanding loan balance – the exact opposite of a fixed amortizing loan where part of every single loan payment reduces the mortgage balance.

Like many other homeowners before and after her, Trudy chose this option in order to improve her cash flow and at the same time pay off her $30,000 in credit card debt. It’s understandable why this would seem like a good idea, but unless you truly understand what you’re getting into, the ramifications can be devastating.

By the time she applied for the loan modification in December of 2008, her deferred interest had grown to $22,000, her loan was now $260,000 and the interest rate was 7.11%.

All hell broke loose in September 2008.  Trudy received child support from her ex, which helped make ends meet. But he was a mortgage salesperson and with the fall-out from the credit crisis his income was slashed by $80,000 a year.  He was able to get the court to reduce his child support from $1200.00 a month to $180.00 a month. Ouch!

House Underwater
Trudy notified her mortgage company in October that she wasn’t able to make her payment. She had few options. Her loan balance was larger than her home value (also known as being “under-water”) so selling wasn’t an option.  She knew foreclosure was next and starting thinking about moving in with friends or family to regroup.

She found out about loan modifications and applied with her lender. She was turned down in January – the lender cited “information contained in her credit report.”

With a Little Help From Her Lender, Trudy Pulls Through
Then, as fortune would have it, President Obama’s mortgage relief program “Making Home Affordable” was launched in March. Trudy re-applied and this time she was successful. She received a letter of agreement on April 10 from her lender. Here are the new terms:  1. The lender agreed to reduce her loan balance by $53,442.4 to $208,402.44.  2. A new payment and interest schedule starts with a 2% interest rate and gradually increases (.75) per year to 6.5%. 3. Interest only payments are valid, but the borrower can choose to make a fully amortizing payment.

After hearing Trudy’s story, I did a little sleuthing to get some updates on the Obama administration’s $50 Billion mortgage relief program.  Turns out that Trudy was lucky. So far, the results have been disappointing, as lenders were not cooperating. But there are signs that this is changing.

Lenders have sent out offers to reduce monthly payments to around 19% of 3 million eligible borrowers’ -  – this is up from 15% at the end of July. Here’s the story>>

In the end, Trudy’s persistent and irrepressible self saved the day. She’s learned a lot of lessons from this…one of which is to always read the fine print and to better manage her use of credit cards.

You can find Trudy at the beauty salon at the Claremont Hotel in Berkeley, 510-843-3000 or at Altogether Different in Corte Madera, 510-334-5401.

As a financial planner, I know too well how important good credit is to the financial health of my clients. Excellent credit is a financial asset that can pay huge dividends across all areas of your financial life. But the world of credit bureaus and credit reports can be a little confusing to many people. Maybe even a lot confusing.

If you weren’t already aware, whenever you apply for credit, whether for a mortgage, an auto loan or a home equity loan, the lender is going to “pull your credit” and take a look at your FICO score. That score is a hugely important metric. Virtually every lender depends on the FICO score to measure your creditworthiness. A “great” score means you’re eligible for the best possible interest rates. A “good” score means you can get a decent, but not “lowest possible” interest rate and so on. But what is “great” and what is “good” and who decides?

The good news is, it’s possible to improve your score. The not so good news is that banks and other lenders, frequently adjust what a “best score” is depending on overall economic conditions.

Jeanne Kelly is founder and CEO of The Kelly Group, based in Danbury, CT. The Kelly Group is a credit repair firm that specifically works with their clients to improve their FICO scores. The company works with individuals directly and with mortgage brokers. Jeanne was kind enough to spend a few minutes discussing the nuts and bolts of FICO scores.

Q: So what exactly is a FICO score? What does it measure exactly?

Jeanne Kelly: It works like this. Thirty five per cent of your FICO score is derived from your payment history. Thirty per cent comes from amounts owed on revolving balances. That’s a huge number – and people should know that by lowering balances owed, that could really help your score. Length of credit history is 15%, new credit is 10% and types of credit used is 10%.

Q: So there are five categories that go into your FICO score?

Jeanne Kelly: Right. If you understand this, you can work with your FICO score and stay on top of it and hopefully improve on it.

Q. Where does FICO get the information?

Jeanne Kelly: From all three credit bureaus – Experian, Equifax and Trans Union. A simple way to think about this is that FICO looks at your credit report and gives it a grade. So in order for the grade to change, you are really dealing with the credit bureaus, not FICO.

Q: How often is the information updated?

Jeanne Kelly: It could be updated every day. It depends on when your creditors decide to report your balances.

Q: Where does a person get their FICO score?

Jeanne Kelly: The thing to watch for are those offers where someone will give you your “credit score”. I’d stay away from that. Since most lenders are using FICO scores, then that’s what you want. Go to www.myfico.com — that’s exactly where you want to go.

Q: If a young person is just getting out of college, do they have a FICO score?

Jeanne Kelly: Well, you have a score if you’re using credit. You have to have two to three accounts to get a score. So whether it’s an automobile, a major credit card, a store card, a student loan – as long as you have three things reporting, you’ll get a score.

Q: How do you feel about young people and credit?

Jeanne Kelly: I suggest using credit in a healthy way and I also suggest trying to start young. I know people get afraid because college kids get these credit card offers and some of them go wild. But if you start young, by the time you’re 25, you will have learned how to use credit correctly and you’ll have a great score and get better interest rates.

Q. What’s a good score?

Jeanne Kelly: You know things change all the time; if you asked me that question last year I would have told you 680 was “A” credit. Now it’s 740.

Q. What changed?

Jeanne Kelly: Well, look around you. The banks have tightened credit, they’re being more cautious. People are talking more than ever about credit because of what’s going on in the economy and I’m glad — being aware is a good thing. If people are informed, then they can figure things out and improve their scores. But right now this is what banks are doing and people should be cognizant of that.

Q. Should people continue to use credit?

Jeanne Kelly: I do see people being afraid of it now. I’ve heard people say, “I’m going to use my debit card.” That’s a mistake. It’s perfectly okay to use credit, just do it in a healthy manner.

Q: Is it possible that your score is one point below what the lender needs to give you the best possible rate?

Jeanne Kelly: That does happen, sure. It’s like being in school – you might have to get a 90 or above to get an A. If you get an 89, you’re getting a B+. In that situation, you wait a little bit, you pay down some balances and try to move your score a bit.

Q. Is the FICO score a fair measure of a person creditworthiness?

Jeanne Kelly: I think it is. For the banks that are issuing credit, it simplifies the process quite a bit. Rather than trying to evaluate all the information in a credit report, or three credit reports, they have a grade. I think it’s a fair system.

Q. If someone believes that their score is inaccurate or isn’t a fair representation of creditworthiness, what should they do?

Jeanne Kelly: I would look at whether all your bills are being paid on time. And look at your balances. Remember earlier I said that 30% of the FICO score comes from revolving balances? Well here’s a great tip. If you keep your available balance to 20% or less of your credit limit, you’ll maximize your score for that particular portion of the FICO score.

Q: How long does it take for your FICO score to change?

Jeanne Kelly: It could take up to 90 days. So if you’re planning to go house hunting, be aware. You should start looking at your score months and months in advance.

Q: How does the Kelly Group help its clients improve their score?

Jeanne Kelly: We work directly with the creditors reporting the derogatory information on our clients’ credit reports. We’re the middle person. We know who to talk with to get the best, fastest results. We’re going to make sure that your creditors report accurately and we’re going to educate you at the same time. We’ll suggest what accounts to pay down, we might suggest opening a different account or closing an account.

Q: How much improvement can you achieve?

Jeanne Kelly: Well, every case is different. Some people might get a ten-point spike; others might see a 100-point gain. On average, our clients see a 50-point increase.

Q: That’s a big jump.

Jeanne Kelly: When you’re talking about a 30-year mortgage, it’s very dramatic.

There’s so much money riding on your FICO score. If you look at the interest on a thirty-year mortgage and the difference a better score could make, it’s just incredible. Think about it – when we do our taxes, we hire an accountant, when we go into a court of law, we hire a lawyer to protect our interests. With something as big as this, we really need someplace to go. That’s what we’re doing – we’re a small company trying to do the right thing.

Q: This has been fantastic. Really very helpful and informative, thanks so much.

Jeanne Kelly: I loved it! Thank you!