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5 Bad Money Habits and How They Affect Your Credit Score

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Your credit score may seem like a random, relatively useless number, but it can impact your life in some unexpected ways. Poor credit can make it tough to get an apartment or even a job, and in some cases, bill providers can charge you for having a low credit score.

While you actually have a few different credit scores, the most widely used model is the FICO score. Here are the five factors that determine this score:

Payment History: 35%
Amounts Owed: 30%
Length of Credit History: 15%
New Credit: 10%
Credit Mix: 10%

In general, a healthy score means healthy financial habits. Here’s what happens when your habits aren’t so great.

1. MAKING A LATE PAYMENT

Let’s say you completely forgot to pay your credit card bill on its due date, but you paid it the very next day. Chances are, your score will remain intact. However, if you’re more than 30 days late, there’s a good chance the company will report this activity to the credit agencies (Equifax, TransUnion, and Experian).

“Missing one payment or maxing out a credit card have major and swift impacts on your credit score,” Erin Lowry, founder of Broke Millennial tells, mental_floss. “The FICO score is still a little bit of the Coca-Cola formula of the financial world, but the higher you are the harder you fall. Someone with a 780 credit score will see a more drastic drop than someone with a 680. A high FICO score could see a drop as high as 100 points or more [for missing a payment]."

According to Equifax, even a 30-day late payment can remain on your report for seven years. That’s not to say it will take your score that long to recover, though. You can improve your score by paying those outstanding accounts and staying up to date with future payments.

2. MISSING A PAYMENT ALTOGETHER

Late payments can put a dent in your score, but as FICO points out, you can recover from them by paying them off. However, if you don’t pay at all, your debt will probably get charged off, meaning it’s turned over to a collection agency. This will ding your score a little more, although most of the damage has already been done.

It’s a little more difficult to recover from a charged off account, because it’s not as easy as paying the bill. You may be able to settle the debt (and that should be done cautiously), but the original account will still remain on your report as negative activity. Negative activity typically stays on your report for seven years.

3. MAXING OUT YOUR CREDIT CARD

“Amounts owed,” or credit utilization, makes up 30 percent of your FICO score. In a nutshell, credit utilization is the amount of credit you have available to you versus the amount you actually use. For example, if you have a credit card with a $20,000 limit, and you only use $5,000, your credit utilization is 25 percent of your credit.

If you have a habit of maxing out your credit cards, that could hurt you, because you’re utilizing more credit. In other words, your “amounts owed” is high.

“If it's a significant amount of your total available credit limit, then it could really hurt your credit score,” Lowry says. “Keep the amount of credit you use at 30 percent or less of your total available credit limit—and single digits is ideal.”

The amount your score will drop based on your utilization varies, but here are a few averages, according to a Credit Karma study.

Credit Utilization

Average Credit Score

Low (1-30%)

753-690

Mid-High (31-60%)

671-642

High (61-100%)

630-563

4. CARRYING A LARGE BALANCE

On her blog, Lowry discusses one persistent credit score myth: that you need to keep a running balance on your cards to build credit. “You do not need to carry a balance month-to-month on your card,” she tells mental_floss. “Don't just pay the minimum or leave just a little on the account for next month. Then you're paying interest and it's not helping your score.”

According to Lowry and other experts, lenders do like to see some activity on your accounts, but carrying a large balance can affect your credit utilization, which, again, will work against you. Your best bet is to pay your card off in full every month. Make this a regular habit, and your credit score should rise.

5. DEFAULTING ON A LOAN

If you have trouble paying your mortgage or student loan and decide to ignore your monthly payments, you could end up defaulting. When you default on a student loan, your wages may be garnished. When you default on a home loan, you risk foreclosure. In both cases, your credit score takes a beating.

Like a charged off account, a defaulted student loan will show up as a negative item on your report, and, depending on how high your score was to begin with, it can drop up to nearly 100 points.

Experts say a home foreclosure can knock 200 points off of your score, and declaring bankruptcy can take you down a whopping 250 points. Bankruptcies also stay on your report for ten years, so it will take quite some time to recover. If you have trouble making your monthly payments, it’s important to get in touch with your loan servicer to see if there are options available.

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California Startup Pays Users to Consume Less Energy
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You may know that turning off the lights when leaving a room or lowering the thermostat before bed are smart habits, but with no way to see their immediate impact, they can be hard to keep. OhmConnect is built around the premise that more people would follow through with these actions if they had a little motivation. As Fast Company reports, the San Francisco-based startup rewards California residents for their green choices with real cash.

The mission of the company is to prevent energy grids from using costly and dirty emergency power plants by encouraging customers to conserve power when demand outweighs supply. During “OhmHours,” users receive a text suggesting energy-saving practices. They can choose to opt out or agree to make an effort to lower their consumption. If their usage in the next hour is lower than the average for their home on that type of day (weekdays are compared to the weekday average; weekends to the weekend average) they receive points which can be redeemed for money. The more people participate on a regular basis, the more points they’re able to earn.

Participants in homes equipped with smart devices like a Nest thermostat or Belkin smart switches can program them to automatically consume less during those times. Nearly a fifth of the user base chooses some type of automatic response.

Someone living in a small apartment participating once a week has the potential to make $40 to $50 a year, while a family living in a larger home can earn up to $200. The California energy grid has also reaped the benefits: Since launching in 2014, OhmConnect has saved the state a total of 100 megawatts (the equivalent of not running two emergency power plants at high-demand times). California residents who get their energy through Pacific Gas and Electric, Southern California Edison, or San Diego Gas & Electric can sign up to participate online. If you don’t live in the state but are interested in the service, you may get a chance to try it out soon: OhmConnect plans to expand to Texas, Toronto, and potentially the East Coast.

[h/t Fast Company]

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11 Secrets of Financial Planners
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You share your darkest money secrets with your financial planner. You even tell him about the time you spent your last pennies at Starbucks, because without caffeine, how could you work? This is the person who is supposed to sort out your life so that you can buy everything your heart desires, after all—or so we want to believe. We found out whether financial planners judge your shoe-buying habit, whether they get mad if they have to repeat themselves time and time again (we hear what we want to hear), and why they don’t always follow their own advice.

1. SOMETIMES, THEY GET A LITTLE ANNOYED WITH YOU.

“I grimace when friends or clients get involved with multi-level marketing endeavors, thinking it’s a quick way to make money,” says Quentara Costa, a certified financial planner in Massachusetts. These MLMs, including LuLaRoe, Matilda Jane, and others, rarely last more than a year, but according to Costa, the outlay of funds and time you pour into developing and understanding the product could have been better spent pursuing other means of career development. “While well-intentioned, it’s my least favorite method of supplementing income because it can take years to develop business and trust within the community, as with any business venture,” he explains.

2. THEY DON’T ALWAYS APPROVE OF YOUR CAR-BUYING WAYS.

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Meghan Chomut, a certified financial planner in Thunder Bay, Ontario, says she can’t stand it when her clients overspend on vehicles. She even has a golden rule about it: The total value of all your vehicles and motorized toys shouldn’t add up to more than half of your annual income.

3. BUT THEY UNDERSTAND THAT YOU’RE GOING TO FORGET ABOUT SAVING MONEY DURING YOUR VACATIONS.

This is the time when clients tend to go off the rails, says Bill Ryon, co-founder and managing partner of the Dover, Delaware-based Compass Investment Advisors. Whenever Ryon sees clients taking distributions that are larger than what’s called for within their financial savings plan, he knows that they’re going on an international trip. “It can be a little bit of a sensitive conversation, since it is their money and I want them to enjoy themselves," he says, "however not at the expense of derailing their plan or jeopardizing their lifestyle in the future."

4. THEY BLAME YOLO.

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“If you can’t afford it, you shouldn’t do it,” Chomut says. “But then #YOLO, and all of a sudden, you’ve booked a trip to Florida. Or #FOMO you are going out to eat at a fancy restaurant with friends and putting it on a credit card," she says. "The struggle is real.”

5. THEY TOTALLY EXPECT TO REPEAT THEIR ADVICE OVER AND OVER AGAIN.

Warren Ward, senior planner with WWA Planning and Investments in Indiana, says that many years ago, his doctor told him that about half the medical issues he dealt with in his practice were optional: people overate, refused to exercise, or smoked. But they still wanted their doctor to keep them healthy. “He responded by repeating his good advice, and making medical interventions when appropriate,” Ward says. “Just like that physician, we care about our clients, and will patiently repeat our advice at every visit, knowing from experience that people can change over time and become more financially healthy.”

6. EVERY FINANCIAL PLANNER HAS THEIR OWN FINANCIAL TRICKS TO PASS ON.

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Ward is a huge fan of the “cash envelope system,” he says. Basically, you map out your spending for the week, and put that amount of cash into an envelope. “Mapping out your spending for the week allows you to know where your money goes instead of wondering where it went,” he says.

7. SOME WANT YOU TO FOCUS ON THE BIGGER PICTURE ...

“The secret is that all retirement planning is income planning and everything else is detail,” Ryon says. “I’ll have to repeat that several times, but that’s it. It helps them to focus on what’s really important and what they are planning for.” Essentially, he says, you’re saving and investing to sustain your lifestyle for at least 30 years after you retire. So if you focus on the fact that all of your retirement planning is income planning, then you’ll be able to think of your money as a machine that’ll pay the bills once you stop working.

8. ... OTHERS WANT YOU TO THINK ABOUT EVERY DOLLAR YOU SPEND.

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The key is to make a budget every single month, Chomut says. “Every dollar overspent is a dollar you have to either work harder for tomorrow, or a sacrifice you’ll have to make later.”

9. THEY DON’T ALWAYS FOLLOW THEIR OWN ADVICE ...

Ward says that the most difficult part of financial planning is convincing his clients to plan for death. That means setting aside money for the kids’ education and naming a close friend or relative as a potential guardian for those children ... just in case. “Just like my clients, I’m slow to face updating my estate planning documents,” Ward says. We don’t blame him!

10. ... BUT THEY STILL WISH YOU WOULD TRUST THEM ...

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“In our modern age of 24/7 news coverage, I think people tend to put too much emphasis on interpreting the latest headline, and then trying to act tactically in response,” Ward says. “Whether this involves making an investment decision based on world affairs, or following the weather minute-by-minute prior to a vacation, we prefer that they think strategically, formulate a plan and stick to it—of course allowing for periodic review and adjustment.”

11. ... BECAUSE AT THE END OF THE DAY, THEY’RE THE EXPERTS.

“I struggle watching one of a couple—usually the husband—claiming expertise that’s actually incomplete,” Ward says. After all, he doesn’t brag about medicine when he goes to the doctor, nor does he claim knowledge of the law if he visits a lawyer. “I try not to be judgmental, but this is an area where I struggle,” he says.

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