Obsidian Market Update 04/21/2023
Make Credit Your Servant
P.T. Barnum, founder of Barnum & Bailey Circus, said, “Money is a terrible master but an excellent servant.” We’d say that same thing about credit. Used wisely, it’s a great tool, so let’s look at two important elements of credit: credit scores and credit reports.
Credit Reports
In the U.S., there are three major credit agencies (also known as credit bureaus or consumer reporting agencies): TransUnion, Equifax and Experian. These agencies collect information from a variety of sources: banks, lenders (e.g., auto finance and mortgage companies, and credit card issuers), public records, and businesses (e.g., utilities and debt collectors).
Your credit report describes your history of loan payments, the status of your credit accounts, any new applications for credit. and the percentage of available credit that you are using.
If information on your report is not accurate, under the Fair Credit Reporting Act, you have the right to dispute it. Agencies must correct or delete erroneous information and are prohibited from reporting bankruptcies that are more than 10 years old and negative information that is more than seven years old. Under the same Act, agencies are limited to providing information only to entities to which you’ve applied for credit, a loan, insurance, or a lease (both automobile and property, such as an apartment). Prospective employers may request your credit report but are not allowed access without your permission. Finally, if you are ever denied credit, you have the right to know what information has been used against you.
Monitoring Your Report
We strongly recommend that you check your credit report at least annually. Credit card issuers, other creditors and several of the credit bureaus offer consumers one free credit report per year. Non-profit counselors, and credit score services, such as myFICO.com, can also provide free reports. A word of advice: Read the fine print! To receive a free credit report from a credit score service, you may be required to subscribe (at least temporarily) to a longer-term service.
Credit Scores
Credit agencies feed all the information they collect about you into proprietary algorithms to generate your credit score, also known as a FICO® score. (FICO® refers to Fair, Isaac and Company, a data analytics company.) Your score will vary from agency to agency but will generally fall into one range (excellent, very good, good, fair and poor).
The Power of a Credit Score
The same entities that submit information to credit agencies use credit scores to determine whether to offer you a loan (or lease) and at what rate. The higher your score, the more likely you are to be eligible for a more favorable interest rate.
Improving Your Score
Parents of young adults often ask us how their children can improve or even establish their credit scores. Making loan or credit card payments on time builds good credit, but if a child has no loans or credit cards, what then? You might check out secured credit cards or credit-builder loans offered by many banks. To improve credit, we recommend staying below credit limits, disputing errors, and limiting the number of credit applications to prevent lenders from assuming a change in economic status has occurred.
Protecting Your Credit
If you want to prevent anyone from opening new accounts in your name, you can freeze your credit by contacting each of the three major credit bureaus. Should you apply for a new loan while your credit is frozen, you will have to “thaw” your credit freeze, so remembering the passwords you use is critical. Alternatively, you can use a free credit monitoring service (e.g., CreditWise®) or a paid service (e.g., IdentityForce™or Experian IdentityWorks) to alert you to credit applications and/or changes in your credit report.
How We Help
D-Day for Highschool Seniors
May first is National Purebred Dog Day, Chocolate Parfait Day and Phone in Sick Day. For high school seniors, May 1 is also Decision Day: the last day they can decline or accept a college’s offer of admission.
This milestone is the culmination of years of preparation for parents and kids. Together, families have navigated high school coursework and performance and talked about what students want to study, and what type and size college is the best fit. An integral part of these conversations is “What can we afford?”
Parents of high school seniors have likely answered this question, but for those whose children are in preschool, elementary school or just entering high school, your answer is yet to be determined.
One of the goals clients describe during our Lifestyle Protector Process™ relates to their children’s higher education. We look at this goal in the context of assets and liabilities, of course, but also as part of their vision of the future and the legacy they wish to leave to their children.
Of the many ways to finance a college education—savings, loans grants, scholarships and work/study programs—the only one parents can control is savings. We help parents find ways to save that are tax and financially advantageous. As an example, contributors to 529 plans can receive state income tax deductions or tax credits. The earnings accumulated in these plans are tax-free if used to pay tuition and qualified expenses.
As with any tax-advantaged plan, there are requirements related to titling, contributions and use of funds in a 529 account, so if helping your child with college expenses is one of your lifetime goals, let’s talk. The more time you give money to work, the more powerful the impact of compound earnings.
Lifestyle
Game on!
The popularity of games—board, card and strategic card (e.g., Pokémon and Magic: The Gathering)—skyrocketed during the pandemic and shows no sign of slowing. Families that may have been “forced” to spend time playing games during the pandemic have found the value in spending time together and continue to hold Family Game Nights today.
Perennial favorites like Monopoly, Yahtzee and The Game of Life are just a few of the games in family game cabinets. Scores of unknown designers are releasing games on platforms like Kickstarter, so there’s a game (or ten) for everyone. New games relate to every topic imaginable: conservation, the Cold War, cattle drives, supply chains, and dike construction, to name a few. If your family is looking for a new game, check out Boardgamegeek.com for hundreds of ideas.
Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Securities are offered through Triad Advisors, member