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Action Plan to Improve Credit Score
I have recently realized that my credit score is lower than I anticipated as a result of taking advantage of the 0% balance transfer offers. I am under the impression that as long as I keep my score at or above the 710-720 range then I should be in good shape. Anything above this doesn't get you much so I felt I was using my credit score flexibility to take advantage of the 0% balance transfer offers to earn extra cash. Since my score was estimated at 687, I realized I need to take some steps to shore up my score to get it back in my target range. The 1st thing I did was google for suggestions on improving my credit score: - five ways to improve credit score - this article gave me a better idea of the composition of the credit score (never had to worry about it till now) - tips for boosting credit score - this article confirmed my impression that 710-720 was a good target range and highlights the impact if I wanted to purchase another home in the near future. I also liked the credit score simulator - it was right on the money for me. So based on this I know I can improve a couple things to get me that extra 20 points or so that will put be back into my minimum target range. The easy thing to do would be to just pay off the 0% balance transfers, but then I am losing out on all that free money - I am too much of a tight wad to do that. I'm looking for the minimum damage to the free money while getting my credit score back where it should be. So the obvious things are: -pay off my outstanding balances on the 0% balance transfer offers -bump up my credit limit on the cards to reduce the % of limit borrowed -pay down balances to reduce the % of limit borrowed -close new credit cards to raise my average age of credit -stop applying for anything that results in a credit inquiry I have decided that the best things would be to: -pay off 2/4 balance transfers that are expiring soon anyway -request credit limit increases on remaining 2 balance transfers (as long as no credit inquiry is involved) -pay down the remaining 2 balance transfer to < 75% of limit borrowed Based on this I have devised a specific action plan: -request credit limit increase from BofA card -consolidate my 2 Citi cards -pay of GM card balance transfer -immediate pay down the HSBC credit card to below 75% limit -pay off HSBC credit card in the next 2 weeks Then it looks like the next steps would be to reduce the percent borrowed to below 75% on both the Citi and BofA cards - I would not prefer to do this as I will lose out on some of the free money I was banking on, but I think its critical to get my credit score back up to the 710-720 range.
My $2 Million Net Worth Goal Part 2: Forecasting My Net Worth
In Part 1 of this series I covered my starting points and assumptions in developing my net worth goal. In this post I am going to discuss how I used these to forecast what my net worth could reasonably be in 20 years. I started by creating an excel spreadsheet that took my annual income, subtracted my estimated cost of living and taxes to determine the amount of savings for each year. I then used my assumption of a 10% annual ROR to determine what the value of my previous year's net worth would be in the current year. I then totaled my savings and the value of my previous savings to determine my target for net worth each year. | Yr | Income | Cost of Living | Taxes | Yr Savings | VoPNW* | Net Worth | | 1 | $55,000 | $23,000 | $11,000.00 | $21,000 | $0.0 | $21,000 | | 2 | $58,300.00 | $24,380.00 | $11,660.00 | $22,260 | $23,100.0 | $45,360 | | 3 | $61,798.00 | $25,842.80 | $12,359.60 | $23,596 | $49,896.0 | $73,492 | | 4 | $65,505.88 | $27,393.37 | $13,101.18 | $25,011 | $80,840.8 | $105,852 | | 5 | $69,436.23 | $29,036.97 | $13,887.25 | $26,512 | $116,437.3 | $142,949 | | 6 | $73,602.41 | $30,779.19 | $14,720.48 | $28,103 | $157,244.3 | $185,347 | | 7 | $78,018.55 | $32,625.94 | $15,603.71 | $29,789 | $203,881.7 | $233,671 | | 8 | $82,699.66 | $34,583.50 | $16,539.93 | $31,576 | $257,037.7 | $288,614 | | 9 | $87,661.64 | $36,658.51 | $17,532.33 | $33,471 | $317,475.3 | $350,946 | | 10 | $92,921.34 | $38,858.02 | $18,584.27 | $35,479 | $386,040.7 | $421,520 | | 11 | $98,496.62 | $41,189.50 | $19,699.32 | $37,608 | $463,671.7 | $501,280 | | 12 | $104,406.42 | $43,660.87 | $20,881.28 | $39,864 | $551,407.5 | $591,272 | | 13 | $110,670.81 | $46,280.52 | $22,134.16 | $42,256 | $650,398.9 | $692,655 | | 14 | $117,311.05 | $49,057.35 | $23,462.21 | $44,791 | $761,920.6 | $806,712 | | 15 | $124,349.72 | $52,000.79 | $24,869.94 | $47,479 | $887,383.3 | $934,862 | | 16 | $131,810.70 | $55,120.84 | $26,362.14 | $50,328 | $1,028,348.5 | $1,078,676 | | 17 | $139,719.34 | $58,428.09 | $27,943.87 | $53,347 | $1,186,543.8 | $1,239,891 | | 18 | $148,102.50 | $61,933.77 | $29,620.50 | $56,548 | $1,363,880.3 | $1,420,429 | | 19 | $156,988.65 | $65,649.80 | $31,397.73 | $59,941 | $1,562,471.4 | $1,622,413 | | 20 | $166,407.97 | $69,588.79 | $33,281.59 | $63,538 | $1,784,653.8 | $1,848,191 | | | | | | Net Worth in 2021: | $1,848,191 | *VoPNW - Current value of my previous year's net worth (including 10% Avg Rate of Return)
As a result of forecasting my yearly net worth ($1,848,191.00 in 2021), I decided an aggressive but reasonable goal would be a net worth of $2 million. It would me a nice round number that would be easy to remember and was slightly ahead of my already optimistic forecast of what my net worth could be. My next post in this series will highlight my yearly progress since then and cover some of my additional observations since I came up with my $2 million net worth goal.
I just found out that Eloan offers a free credit score (similar to FICO credit score). I just signed up for an account and had to enter a credit card number that was listed on my credit report (just to verify it was me). Here is what the Eloan web site reported: Personalized Credit Score Analysis for [2million]
As of October 27, 2005
Your Score
Based on your credit report data, your CreditXpert Credit Score is 687
Your credit rating ranks higher than
40% of U.S. consumers.
Although this CreditXpert Credit Score is similar to the FICO score used to underwrite your loan application, it may differ for a variety of reasons.
Ouch - apparently between recently moving and the several 0% balance transfer offers I took advantage of I may have severely hurt my credit score. Here is the list of current 0% balance transfer offers I am using: -Bank of America Balance:$13,030/Limit $13,200; -Citi Balance $16,980/Limit $17,500; -HSBC Credit Card Balance $5810/Limit $7500; -GM Card Balance $200/Limit $2,300. (Keep in mind all this money is sitting in my EmigrantDirect Savings Account earning 4% APY). The last FICO credit score I got was around ~780 about 3 years ago. I have never missed a payment for as long as I can remember and always pay off my balances every month (with exception to the 0% BT offers). I have some actions I am planning on in the next week or two that should help this score a bit. Update: Just to follow up I DID know my credit score would be negatively affected, however I didn't realize THIS much - I had expected it might have fallen from 780 to say ~730. 687 is a bit of a shock to me.
My $2 Million Net Worth Goal Part 1: Assumptions
The purpose of this web log is to document my journey to financial freedom. I have defined financial freedom as a net worth of at least $2 million. It may be a moving target, but I guess we will see over time. Regardless, I wanted to share how I came up with this goal. When I started working after grad school in 2001, I decided I need to set a goal for retirement. I am a very goal oriented person and like to have a "stick in the ground" to focus on. I decided to figure out some starting points, identify some assumptions, and use these to help me determine what was a reasonable net worth goal. Starting PointsIn 2001 I turned 25, my starting salary straight out of grad school was $65,000, and I was basically starting out with nothing. AssumptionsI then needed to come up with some assumptions about the next 20 years: -I assumed I would pay 20% of my income in taxes. This is probably way low but I figured I would work hard at legally reducing my taxes (when financially beneficial) through real estate investments, running businesses (at the time I was overseeing a small family business), buying a home, etc -To make my estimates conservative I started with a annual income of $55,000 ($10k less then my income at the time) and estimated that my annual income would increase 6%/yr thereafter -I assumed everything I didn't allocate to taxes and cost of living would go to savings -A big assumption I made was that I would be able to make a 10% annual ROR on my savings -I conservatively assumed I had no savings in 2001 (net worth was $0), but in reality I was probably worth $5-10k. -I assumed my cost of living (everything other than taxes and savings) in 2001 would be $23,000 based on my chart of estimated expenses listed below and increase 6%/yr thereafter | Estimated Living Expenses | | Living Expenses | Monthly | Yearly | | Credit Card | $600.00 | $7,200.00 | | Car | $300.00 | $3,600.00 | | Car Insurance | $50.00 | $600.00 | | Mortgage | $850.00 | $10,200.00 | | Health Care | $40.00 | $480.00 | | Utilities | $100.00 | $1,200.00 | | | | | | | Total: | $23,280.00 | Now that we covered my starting points and assumptions, my next post will detail how these helped me develop my net worth goal.
My 1st credit card application rejection notice
Wow! I would have never thought this could happen. I got a letter declining my application from the RBS credit card I applied for to take advantage of their 0% Balance Transfer offer. First I was shocked, then I felt a little insulted, by this morning I am over it. Here is the letter: Dear [2million],
We appreciate your recent application for a credit card account and regret that we are unable to approve your application at this time. Your application was processed by a scoring system that assigns a numerical value to the various items of information we consider in evaluationing an application. These numerical values are based upon the results of analyses or repayment histories of a large number of customers. The information you provided us in you application did not score a sufficient number of points for approval of your application. The reason why you did not score well compared to other application were:
Percentage of balances to credit limits on revolving accounts
Number of revolving bank credit account exceeding 75% of credit limit
Time since most recent inquiry
......You may also obtain your report or dispute the information that it contains by contacting the consumer reporting agency at the following address and toll-free telephone number:
Experian
701 Experian Pkwy Bx 2104
Allen TX 7501
(888) 397-3742
Sincerely,
RBS
Well there it is. I like how the letter gives you at least a little insight as to what the problem is. This letter highlighted 3 things: 1) Percentage of balances to credit limits on revolving accounts - Well I currently have 4 credit cards I am using for 0% BT offers: -Bank of America Balance:$13,030/Limit $13,200; -Citi Balance $16,980/Limit $17,500; -HSBC Credit Card Balance $5810/Limit $7500; -GM Card Balance $200/Limit $2,300. I only use a small portion of the limit on the other credit cards for monthly purchases and pay off balance every month. 2) Number of revolving bank credit account exceeding 75% of credit limit - Ok this is enlightening to me because it turns out I have 3 cards that are exceeding the 75% limit (Bank of America-98%, Citi - 97%, HSBC - 77%). I now know the 75% limit is important and need to make sure my other balance transfers are down to below 75% before I apply for a new card/0% BT offer. Apparently the secret number here is less than 3..... 3) Time since most recent inquiry - This one concerns me as well because I thought I purposely waited at least 4 months since I applied to my last credit card (the Citi card) so maybe that isn't long enough either, or someone else made a credit inquiry recently..... Also although not mentioned, I recently moved and changed my mailing address - I am not sure how but I bet this somehow effects your credit score..... I plan on following up with Experian to review my credit report - I'll post any results from this effort. I guess the good news is I now know what I need to watch for before I try this again. I actually have to pay off the HSBC and GM cards in the next month since the 0% BTs will be ending (that is one of the reasons I decided to try this offer). My new plan will be to just move this money out of savings and pay off these 0% BTs then in a couple months I can try this again.
Inside Wire Maintenance Service Plan
What a rip off. I spotted this on my girlfriends latest phone bill from Bellsouth. She had a line item Inside Wire Maintenance Service Plan for $5.95/mo. I laughed when I saw this. While I guess this could make sense for someone, it certainly seems like a rip off to me. First of all, this plan is designed to cover problems with the telephone wiring inside the home. I don't know for sure, but I believe this wiring is rated for 50yrs or something. My girlfriend's home was built in 2004 which means I would not expect problems with the wiring for a long long time. Second, how much does wiring possibly cost? If you are handy or know someone who is you could probably rewire the whole house for less than $50. Third, if you are renting your place, your landlord is responsible for the inside wiring, so why pay for protection you don't need? This Inside Wire Maintenance Service Plan ends up costing my girlfriend $71.40/yr. Needless to say we emailed Bellsouth and had this cancelled. Maybe my girlfriend will take me out to dinner with all the money she saved ;-).
Highlights of Benefits Enrollment Package from work
What a wonderful time of the year; football, cool brisk mornings, state fair, and of course benefits enrollment. I actually don't think I am going to spend much time this year analyzing my choices. I spend a lot of time last year going through my choices and the plans didn't change significantly this year. The only differences I can detect are on the cost side: -monthly cost is going up $4 for healthcare insurance -prescription copay is going up $5/prescription -flexible healthcare spending account is now extended an extra 2.5 mos to 3/15 the following year (this is great news for me, I won't need to be as conservative with my estimates) Highlight of Benefits:Health Plans (High Level) -No Health Plan -(IBM gives you $30/mo) -PPO - Free -PPO Plus - $44/mo -High Deductible PPO w/ Health Savings Account (IBM contributes $500/yr) - Free -EPO (similar to a HMO) - $52/mo Some other benefits IBM plans offer:-Vision Plan -Dental Plan -Healthcare Spending Account/ Dependent Care Spending Account -New employees are offered $150 rebate to sign up as a non-smoker, or enroll in a smoking cessation plan. -All employees are eligible for a $150 rebate if they complete a fitness diary for a period of 12 weeks showing that they exercised 4 days a week for 10 out of the 12 weeks. -All employees are eligible for $150 rebate if they participate in a prevention program that involves filling out an online questionnaire and taking actions recommend actions (not sure of all the details yet). -IBM also allows employees to enroll in a 401k disability protection plan that will continue to make 401k contributions if employee goes on disability. -IBM also employees to buy up disability from 1/2 to 2/3 salary replacement. So here are my elections:-EPO Insurance Plan (similar to HMO) -Basic Dental -I am passing on vision plans -Enrolled in rebates for fitness & prevention -Enrolled in 2/3 disability insurance -Passed on 401k disability protection *Note: Some info listed was what was listed in my package, I don't know if these some/all of these prices/benefits where tailored or standard.
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