Mickey On Money

Posted on December 22, 2010 by Mickey Smith

What does bad credit look like?

Not sure what bad credit looks like?

Here’s what lenders will look for in assessing whether or not you might be a risky creditor.

If you do have these types of things on your credit report, you might be considered a subprime borrower.

Here’s what you want to watch out for:

• Mortgage and rent payments past due. To keep your credit score pristine, you should not have any past due payments in your current mortgage or rent. (more…)

Posted on December 21, 2010 by Mickey Smith

Always sell your worst stocks first

When it comes to a tanking stock portfolio, you should repeat this mantra: sell your worst performers first and keep the winners a little longer.

A general market decline can help you identify the best stocks in your portfolio. On the other hand, it will also point out the dogs (and cats).

The better stocks will normally correct one and a half to two and a half times the general average stock in the market.

Generally speaking, many say that growth stocks that decline the least in terms of percentage will ultimately make for the best investments.

Those that plummet in the bear market are typically the weakest stocks to hold.

There is no standard definition for a bear market but in general it is considered to be any time there is a 20 percent price decline in the stock market over a two-month period.

Posted on December 20, 2010 by Mickey Smith

What is a FICO credit score?

A FICO score is a numerical value given to assess how much of a risk you might be when borrowing money.

It’s the best-known and most widely used method of calculating credit-worthiness in the United States.

Roughly speaking, the higher the FICO score, the better.

The lower the score, the higher the interest rate. Or, you might not get a loan at all.

What is exactly is the score? It will fall between 300 and 850. According to FICO, the median score is 723.

Many people say a FICO score higher than 660 is considered good.

If you are between 620 and 660, you might need to work to convince the lender than you are good for the loan.

There are five factors that influence your FICO score. Here’s what the lenders take into account:

Use of credit. This is really an assessment of your spending habits. If you constantly max out your cards and carry a high balance, the lenders might think you are more of a risk.

Credit history length. If you have a short history of using credit, the lender may assume you are not used to using credit and this will count against your FICO score.

Number of requests for credit. Asking for credit cards, loans or other types of debt over a short time span will make you appear to be more of a risk.

Mix of credit types. It looks better if you have different types of credit uses, instead of just credit cards. Don’t take out a loan just for your credit score but it will be boosted if you have been responsible with car loans or some other type of credit instrument.

Past trouble. For some, this will be the biggest problem. If you’ve made late payments or you’ve had past delinquencies, you’re liable to do it again in the lender’s eyes.

Don’t worry if you’re score is less than 620. You’ll probably still get a loan but it’s going to be more difficult and you can expect to pay a higher interest rate.

For those of you in the upper range (more than 700), don’t be so smug. You’ll find that that having a great credit score don’t get you that much of a break on interest rates when compared to those people who have ‘good’ credit scores.

Posted on December 19, 2010 by Mickey Smith

How safe are municipal bonds?

Municipal bonds have a reputation for being among the safest of all investments.

That’s because state and local governments often use the taxes they collect to pay back the bonds. In other instances, the bonds are repaid with the proceeds from whatever project they fund.

But, with state and local governments being squeezed by the economy, noted analyst Meredith Whitney says we may soon see a number of defaults in municipal bonds.

On tonight’s episode of 60 minutes, she was quoted as saying that she thought state governments would be able to meet their obligations.

But, local governments are another story. They will be squeezed by the states as the states tighten their fiscal belts this year.

It’s going to feel particularly acute this spring when $160 billion in federal stimulus money runs out.

As a result, Whitney said she expects the trouble in the municipal bond market to start in the next 12 months. She predicted that there will be 50 to 100 or more “sizable” municipal bond defaults.

That translates to hundreds of billions of dollars’ worth of municipal bond defaults.

You may recall that Whitney rose to fame by predicting the 2008 housing crisis while S&P and Moody’s missed it.

Certainly the airing of the program will set off some alarm bells but I think inertia will keep us invested in municipal bonds until a real crisis hits. In other words, once that first sizable default comes down the pike.

We could soon be reliving the banking crisis all over again. Oh, boy.

Posted on December 19, 2010 by Mickey Smith

The new healthcare law: a snapshot

The new healthcare reform law (sometimes referred to as ‘Obamacare’) will bring sweeping changes to millions of Americans.

It’s been challenged in the courts and so far differing opinions have been rendered. It will likely end up in the U.S. Supreme Court.

Until then, here are a few things we know about the healthcare law thus far.

Most of the changes won’t take effect until 2014.

By then, the law will require all U.S. citizens and legal residents to have health insurance. Otherwise, you will need to pay a penalty. Also, insurers cannot reject anyone due to a preexisting condition.

If you get coverage through your employer, you likely won’t notice much of a change.

Individuals and small businesses, however, will be eligible to purchase insurance through an exchange and low-income people will receive help with their premiums.

High earners will see a difference in their paychecks: starting in 2013 these high earners will pay higher Medicare taxes.

There also will be higher taxes associated with high-cost health plans.

In 2018, the government will begin taxing these high-cost health plans and the increased costs are expected to be passed on to the employees.

A lot of observers expect businesses to trim back on these high-cost plans in order to avoid the tax in 2018.

Lastly, the new law limits contributions to health-care flexible spending accounts to $2,500 in 2013.

Health-care savings accounts will continue to be the best way to set aside tax-free money for medical expenses.