The big credit score myth

The big credit score myth

 The Big Credit Score Myth

Paying down your credit card balance to zero every month may seem like the best way to boost your credit score…and we’ve all been told to pay our credit card debt in full each month, but this may not be completely accurate.

 

 

How does it impact your credit score?

While it may be a great money habit to pay off your credit card debt every month, it could impact your “utilization.” Most lenders report the balance on your monthly statement in relation to your credit limit. This is often referred to as your “utilization” and accounts for 30% of your credit score.

What should your utilization be?

If at all possible, you want to keep this below 25%. For example, if you have a $1,000 credit limit you want to make sure that the balance on your monthly statement does not exceed $250.00.

Pay attention to what is reported on your statement and if it is higher than what you would like consider making additional payments prior to your lenders billing cycle.

You can find additional details on how your cred score is determined by visiting www.myfico.com

Saving tips and tricks

Saving tips and tricks

  As a not-for-profit, member-owned credit union your financial well-being is important to us. Each month we have some money saving tips and tricks to help you along the way.

1. Start An Emergency Savings Fund

Even if you’re putting away just $25 a month, it’s better than nothing. Everyone should have an emergency savings. However, emergencies do not include those clothes or tech gadgets that are on sale now and may not be later. The fund should be reserved for real emergencies, like a medical accident or losing your job. Open a new account for your emergency fund and then set up an automatic transfer each month from your checking account – it’s easy!
 
2. Stop Getting Charged at the ATM
If you’re being charged ATM fees on a regular basis, you need to take a few minutes and figure out what you can do to avoid those fees. There are other options:
  • Go online or call your financial institution and find out where free ATMs are near your work and home.
  • Use a debit card when making purchases and you can get cash back. Just swipe your card and select how much cash you want. Usually there’s a maximum of $100.
  • If you find yourself having to continually use an ATM that is not free, could you withdraw more funds at a time so that you go to the ATM less often? For example, instead of going to the ATM three times a week and withdrawing $20 each time, could you go to the ATM once a week and withdraw $60?
 
3. Discover Your Local Public Library
Go to your local library and borrow books, CDs, and DVDs – for free!  And of course you can read the latest magazines and newspapers.
 
4. Paying for College With Free Money
When you are weighing your options on how to pay for college, it is always best to first consider free money—this includes scholarships and grants. College Scholarships is a good website that gathers available scholarship and grant opportunities for you to view all in one place, along with helpful application tips.
 
5. Every year the BECU Foundation awards scholarships to high school seniors and college undergrads who demonstrate excellence in the classroom and community. Since 1995 the Foundation has awarded over $1.4 million to over 660 students. To learn more about applying for this scholarship, visit www.becu.org/scholarships.
 

Photos: Exclusive BECU Auto Event

Photos: Exclusive BECU Auto Event

During BECU's exclusive Spring Auto Event, members can qualify for special financing rates, as well as take advantage of special offers, discounts and rebates from area dealers. Check out the rides you may be able to drive home.

During BECU's exclusive Spring Auto Event, members can qualify for special financing rates, as well as take advantage of special offers, discounts and rebates from area dealers. Check out the rides you may be able to drive home.

How to Save Money and Purchase a HomePath Home

How to Save Money and Purchase a HomePath Home

Are you currently considering buying your first home or perhaps your first, second or even third investment property? If so you may want to consider Fannie Mae’s HomePath program.

Who’s Fannie Mae

Fannie Mae is a government-sponsored enterprise chartered by Congress to keep money flowing to mortgage lenders. They do not make loans directly but rather buy loans from lenders. Unfortunately, due to the housing crisis, they now own homes that they must sell.

To minimize the impact to the neighborhoods in which they reside, they have created the HomePath program and special HomePath financing. If the property is in need of light to moderate renovation the HomePath Renovation Mortgage may be available on your selected property.

What is a HomePath Mortgage?

A HomePath Mortgage allows you to finance a Fannie Mae-owned property with no minimum loan amount, a low down payment, flexible mortgage terms, no lender-requested appraisal and no mortgage insurance; ask us for cost details on loans without mortgage insurance.

What is a HomePath Renovation Mortgage?

In addition to the above HomePath Mortgages, we are also offering HomePath Renovation Mortgages. This program allows you to purchase and finance a Fannie Mae home that needs light to moderate renovation—the loan amount includes the purchase of the home and the renovation. The funds for renovation can be less than or equal to 35% of the “as completed” value, but no more than $35,000.

What are the benefits?

·       Low down payment and flexible mortgage terms—fixed-rate or adjustable rate

·       Down payment (at least 3%) can be funded by your own savings, a gift, a grant or a loan from a nonprofit organization, state or local government, or employer

·       No mortgage insurance

·       Expanded seller contribution for closing costs allowed

·       HomePath and HomePath Renovation Mortgages are available for primary residences, second homes and investment properties

·       Many condo project requirements are waived

·       For the renovation mortgage, the renovation amount is based on an “as completed” appraised value

BECU is an approved lender bringing HomePath and HomePath Renovation Mortgages to homebuyers locally around the Puget Sound region and all of the states where BECU lends. To learn more about HomePath, visit www.homepath.com.   

Borrowing from a 401K

Borrowing from a 401K

We work hard to contribute money to a 401(k) in the hopes of using that money for a nice retirement. But life happens and you may find yourself in the position of asking—should you take out a loan against your 401(k) to buy a home or pay down debt?

As long as you can handle the payments, taking out a loan against your 401(k) is usually a less expensive option than a straight withdrawal where you may have to pay income taxes and a 10% penalty; however, there are pitfalls that you must take into account. 

Most plans will give you only five years to repay the loan.

If you borrow a large amount the payment could be substantial. If you fail to make the payments or leave your company you may be required to pay back the outstanding balance within 60 days or be forced to take it as a hardship withdrawal. This means you’ll be hit with taxes and penalties on the amount you still owe.

Get help to make the right decision.

Before you decide if a 401(k) loan is the right choice for you just make sure you understand all of the consequences. Financial Advisors with BECU Investment Services can help you make a good decision for your financial situation. Schedule a free consultation to get started. Visit www.becu.org/investments

Claim Your Full State Sales Tax Deduction

Claim Your Full State Sales Tax Deduction

It’s tax season and the most important thing that we all can do is be prepared. If you itemize your deductions on your tax return, don’t forget to claim the full deduction for the Washington State Sales Tax. 

The IRS provides tables that show how much residents of Washington State can deduct, based on their income and state and local sales tax rates. But the tables aren't the last word—if you purchased a vehicle, boat or airplane, or homebuilding materials you may add the sales tax you paid on these big-ticket item to the amount shown in the IRS table for your state.

These add-on items are easy to overlook, but could make the sales-tax deduction even bigger.

If you forgot the deduction for this year or the last three years you can file an amended return to get your full refund.

Doing your taxes is rarely fun. Here are a few helpful tips to help get you through this tax season: 

1.     Gather your records…asap! It’s never too early to start gathering any documents or forms you’ll need when filing your taxes: receipts, canceled checks, and other documents that support your income or a deduction you are taking on your return. Also, be on the lookout for W-2s and 1099s, coming soon from your employer.

2.     Take your time. Rushing to get your return filed at the last minute increases the chance you will make a mistake.

3.     Double-check your return. Mistakes will slow down the processing of your return. In particular, make sure all Social Security Numbers and math calculations are correct as these are the most common errors made.

4.     Save time and money by filing your taxes online. TurboTax is a step-by-step online tax-filing system that asks simple questions and automatically places your answers onto IRS-approved forms. TurboTax double-checks your return for accuracy and files it electronically. Direct deposit refunds are typically received in 7-15 days.

5.     Consider Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a check by mail.

6.     Relax. There’s no need to panic. We all have to go through this every year. There are plenty of tax resources available for you when you access TurboTax online.

Avoid Losing Your Home Loan Pre-Qualification

Avoid Losing Your Home Loan Pre-Qualification

When purchasing a home or refinancing your existing home, the last thing that you want to happen is to find out that upon closing you are no longer qualified. Applying for a home loan is not the time to change jobs, become self-employed, or take on new debt such as buying a car or originating new inquiries on your credit report. 

When you apply for a mortgage, the lender is looking at a number of factors: 

·       Income

·       Credit score

·       Job history

·       Debt levels

·       Money for a down payment and reserves

When you get to closing your lender is going to check to make sure that the assumptions on which the loan was originally approved are still valid. Because of this it is important that you make sure you do not make big changes. If you do make changes just make sure that they will be favorable in the eyes of your lender. 

BECU offers free educational resources on the home buying process, to learn more visit www.becu.org/seminars.  

Do You Need Help Keeping Your Home?

Do You Need Help Keeping Your Home?

If you currently own a home but are having problems making your payments, familiarize yourself with the many options that may be available to you.  As time passes, your option grow fewer -- so you should act as quickly as possible.  

Notify your lender as soon as you know your payment will be late and present your circumstances with a plan of action.  If you need assistance, start by calling the Washington Homeownership Resource Center.

Reach Out for Help

The Washington Homeownership Resource Center is a not-for-profit, 501(c)(3) agency that can help you navigate this challenging time and connect you with a HUD approved housing counselor who may be able to help you develop a household budget, or negotiate with lenders on workout strategies.

Don’t fall for scams that make promises.  If it sounds too good to be true, it probably is.  You can reach the Washington Homeownership Resource Center at 877-894-4663 or visit their website at www.homeownership-wa.org.

What to Do When You Can't Pay Your Tax Bill

Tax  Form

It's April 15, you've just finished your income tax return and you owe more money than you can pay. Maybe you had unexpected income during the year that wasn't subject to withholding. Maybe your W-4 doesn't accurately reflect your current tax situation. Maybe you underestimated tip income or royalties.

Whatever the reason, you can't pay what you owe. Don't panic, many people find themselves in this unenviable position and manage to find a solution. The most important thing for you to do is file your return on time (there are substantial penalties for not filing -- usually five percent of your tax liability per month up to a maximum of 25 percent) and figure out exactly how you're going to pay your bill.

It's April 15, you've just finished your income tax return and you owe more money than you can pay. Maybe you had unexpected income during the year that wasn't subject to withholding. Maybe your W-4 doesn't accurately reflect your current tax situation. Maybe you underestimated tip income or royalties.

Whatever the reason, you can't pay what you owe. Don't panic, many people find themselves in this unenviable position and manage to find a solution. The most important thing for you to do is file your return on time (there are substantial penalties for not filing -- usually five percent of your tax liability per month up to a maximum of 25 percent) and figure out exactly how you're going to pay your bill.

Generally speaking, it's a good idea to start by including with your return a check for as much as you can afford on the amount you owe. If possible, consider negotiating a no-interest or low-interest loan from your family and friends. Even if you can borrow only a portion of what you owe, this might be a good idea. Paying as much as possible not only shows "good faith" on your part, but a smaller outstanding balance will accrue smaller interest charges and penalties.

After you file and pay what you can, the IRS will send you a notice of the balance due, including interest charges and a late payment penalty. Then it's up to you to pursue one of the following options.

Use a Credit Card to Pay What You Owe

The IRS accepts plastic...sort of. When you pay your tax bill using a credit card, you are actually making the payment through a service provider that handles the transaction and forwards your payment on to the IRS. The payment processing company charges a convenience fee based on the amount you charge. For example, if you owe the IRS $1,000 and the provider charges a 2.5 percent fee, you will pay an extra $25 for the privilege of paying with plastic. The IRS itself does not collect any fees on credit card payments.

Bear in mind that you will owe finance charges to the credit card company if you don't pay the balance in full when you receive your statement. With many credit card interest rates hovering around 20 percent, your tax bill could quickly escalate. Still, for many, not having the IRS as a creditor is worth the extra cost of paying their taxes with a credit card.

Ask the IRS for an Extension to Pay

You can request an extension of time to pay what you owe by completing IRS Form 1127. You must prove that paying the entire bill now would cause undue hardship, which entails providing statements of assets and liabilities and an itemized listing of all money you received and spent in the three months prior to making the request for an extension.

As printed on Form 1127, taxpayers rarely want this kind of extension because the legal requirements are so strict.

Enter into an Installment Plan with the IRS

You can request permission to make installment payments by attaching a letter to your return or by completing IRS Form 9465

You must keep your current tax liability paid up while you make installment payments on an earlier tax bill or the IRS can cancel the agreement and demand payment in full.

Make an "Offer in Compromise"

An offer in compromise is a request to pay a portion of what you owe and have the IRS accept that amount as payment in full. You have to prove that you do not have the resources to pay the full bill and you must keep the current year's taxes up to date. See Publication 594, The IRS Collection Process, for more information about offers in compromise.

It may take time to hear back from the IRS since they process many offers. If your offer is accepted, you may be able to make installment payments on what you finally owe in compromise.

Avoid Future Tax Bills

There are lots of ways to get out of a tax pinch, but the best approach is always to avoid getting into one in the first place.

If you end up owing the IRS, check your W-4 form on file with your employer. The tax bill you have is an indication that you may want to lower the number of withholding allowances you claim or even ask your employer to withhold more money from each paycheck. If you're self-employed, you may need to increase your quarterly estimated tax payments. Also, anyone who expects to owe at least $1,000 in taxes (after subtracting withholdings and credits) must pay quarterly estimated taxes.

Owing the IRS isn't pleasant, but it doesn't mean you have to change your name and move to a Caribbean island. It does mean you'll have to be proactive about paying your bill and avoiding the same situation in the future.

Do You Need Help Keeping Your Home?

Do You Need Help Keeping Your Home?

If you currently own a home but are having problems making your payments, familiarize yourself with the many options that may be available to you.  As time passes, your option grow fewer -- so you should act as quickly as possible.  

Notify your lender as soon as you know your payment will be late and present your circumstances with a plan of action.  If you need assistance, start by calling the Washington Homeownership Resource Center.

Reach Out for Help

The Washington Homeownership Resource Center is a not-for-profit, 501(c)(3) agency that can help you navigate this challenging time and connect you with a HUD approved housing counselor who may be able to help you develop a household budget, or negotiate with lenders on workout strategies.

Don’t fall for scams that make promises.  If it sounds too good to be true, it probably is.  You can reach the Washington Homeownership Resource Center at 877-894-4663 or visit their website at www.homeownership-wa.org.

Does Rate Shopping Affect Your Credit Score?

We all know that the better the interest rate you get on a loan, the more you will save over the life of the loan. If you are like me, you like to shop around for the best rate possible and this means that several financial institutions may run your credit in order to determine what rate you’ll qualify for.
 

But, what do multiply credit inquiries mean for your credit score? 

Does it ding you every time another inquiry is done on your credit? 
Does it look bad to potential lenders that you have so many inquiries?
 
Applying for new credit creates what is known as an inquiry on your credit report and multiple credit requests in a short period of time can impact your credit score.
 
BUT there is an exception when it comes to shopping for an auto, home, or student loan.   
For these types of loans, inquiries made in the 30 days prior to scoring are ignored. So, if you find a loan within 30 days, the inquiries won't affect your score while you're shopping for the best rate.
 
Tips for Rate Shopping
  • When searching for a mortgage, auto, or student loan do your homework ahead of time to decide which financial institutions to approach for a quote
  • Don’t be afraid of getting multiple quotes
  • Make sure you do your rate shopping in a reasonably short period of time so your credit score will not be affected
 

What’s Does Your Credit Rating Mean to You?

Since good credit is such a valuable financial tool, you'll want to protect yours so that it's there for you when you need it.

You may have thought you got the last report card of your life when you graduated from school. But then there are credit reports, which actually grade you on how you pay your bills. Just the way a good report card helped get you into the school or the job you wanted, a good credit report can help you get things you need, like: a mortgage, a credit card, a loan, better terms on the money you borrow, an apartment, automobile, or even a new job.

Since good credit is such a valuable financial tool, you'll want to protect yours so that it's there for you when you need it.

Get Your Free Credit Report
YOU are the first line of defense in keeping your credit safe. If you haven’t obtained a recent copy of your credit report, that is the first step. Visit www.annualcreditreport.com for a free report from all three credit reporting bureaus. If you see errors on your report, dispute these with each bureau. Instructions on how to do so are at each site.

Making all of your payments on time and keeping your credit balances low are the two most important factors in achieving a strong credit rating.  If possible keep your outstanding balances to no more than 10% of your available credit for revolving loans.

Free Seminars
BECU offers free educational seminars on a variety of topics, including Understanding Credit Reports. To find a seminar near you, visit www.becu.org/seminars.
 

Who Do You Want to Inherit Your Money?

There is one estate planning concern that is shared by people from all income brackets—the decision of who gets what when you’re gone. Keeping the beneficiaries on your retirement, insurance or other investment accounts up to date probably isn’t on the top of your “to do” list…but I cannot stress enough how important it is.

While some individuals logically assume that a will is the official forum to express such decisions, that’s not always the case. If you pass away, it’s not your will that determines who inherits your life insurance policies, employer-sponsored retirement plan accounts and IRAs… it’s your beneficiary designations.


When was the last time you reviewed the beneficiaries on your accounts?     

Life events can change everything. If you were married, divorced, had a child, or a death in the family since you opened your account, then you definitely need to consider updating your beneficiary designations.

When naming beneficiaries, remember to consider:

The age of the beneficiary.
Many policies and plans will not directly transfer assets to minors until a trustee or guardian is approved by a court.

The ability of the beneficiary to manage assets.
Perhaps a trust set up in the person’s name would be better than a direct transfer.

Employer-sponsored retirement plans.
Unless expressly waived by the spouse in writing, the law requires a spouse to be the primary beneficiary of the account.

Naming contingent beneficiaries.
Should something happen to your primary beneficiary, the contingent beneficiary would receive your assets.

Take the time now to make sure the parties you designated as beneficiaries on your accounts are the ones you want to receive your money.

Tips on Financing Your Next Auto

When purchasing a new or used car, it is important to do your research ahead of time. KellyBlueBook.com is a great resource to get you started. You can compare different makes and models, find out what you should pay for a particular car, and even get an estimate of what it will cost you to own the car over a five year period.

After You Have Done Your Research—Shop Around For Your Loan

Think about paying for your auto before you go to a dealer to negotiate a purchase price. If getting a loan is a part of your plan, credit inquiries made within relatively short period of time will only count as one on your credit report so don’t be afraid to shop around for the best rates and terms.

It pays to compare loan rates from a number of sources with any financing options that a dealer may offer. Remember to focus on the total cost of the car, not just the monthly payments. For example, at the same interest rate, higher monthly payments for a shorter period of time would ultimately cost you less than lower payments for a longer time.

Also remember that it’s okay to finalize the financing at the dealership—just make sure it is the lender you have chosen and not the lender that the dealer wants you to choose.

BECU offers free financial education on buying autos. Visit www.becu.org and select the Education & Resources tab for more information.

Selling Your Home? Keep Those Receipts!

If you have owned your home for some time, it is quite possible that you can sell your home for a profit. If you can accomplish that, then you also want to make sure that you minimize your tax liability.

With real estate prices declining over the past few years, selling your home for a gain may sound improbable. But if you have owned your home for some time, it is quite possible that you can sell your home for a profit. If you can accomplish that, then you also want to make sure that you minimize your tax liability.

In order to see tax savings, you want to report the lowest capital gains that you can so that you are taxed on the smallest amount of money possible. When selling your home, the idea is to get the cost basis as high as possible, so that it will be as close to the sales price as possible.

But how do you increase your cost basis?
In the years before selling your home, you want to keep track of any major improvements that you've done to your home. The expenses for these improvements can be added to the cost basis for your home.

Expenses that improve the value of your home, such as landscaping, a new deck, or a furnace may be added to your home’s cost basis. Your tax savings can really start to add up if you have a folder full of receipts to verify your expenses.

So save those receipts. If you haven’t in the past, now is the right time to start. 

Free Educational Articles
BECU provides free educational articles on a variety of topic, including home selling. To learn more go to www.becu.org and click on the Education and Resources tab at the top of the page.

The information provided here is intended to help you understand the general issues and is not intended to constitute any tax, investment, or legal advice or to substitute for obtaining tax, investment, or legal advice. Consult your financial, tax, or legal advisor regarding your own unique situation.