10 Months to Better Credit

My Credit Improvement Journey

The credit journey I began ten months ago has now fully paid off; I now have:

• A higher credit score, 749, than when I started (747)
• About 3 times the total available credit
• 3 new credit cards with top-notch benefits
  • A total of $400 cash in signing benefits
  • 2% cash back on all purchases
  • 5% cash back on rotating categories
  • 15 months of interest-free balance transfer

Ouch! The Lowest Score Matters Most!

My wife has recently joined me on this credit journey. We are joining forces because we want to do a cash-out refinance of our mortgage to do some home improvements.

It turns out that when a married couple applies together to refinance a mortgage it is the lower partner’s score that impacts approval and rates. Specifically, the mortgage lender pulls three credit scores for each partner from Experian, Equifax, and TransUnion.  It then determines the middle credit score for each partner. Finally, the bank (or credit union) uses the lower of the two middle credit scores.

Late Payments can Hurt Both Partners

Due to a auto-pay mix up, I have two late payments just over 3 years ago on a credit card solely under my name. Strangely, this card started showing up on my wife’s credit report about 5 months ago. I called a credit agency and they claimed that this is perfectly legal for them to do!  They can put negative credit items from one spouse onto the other spouse’s credit report.  (They don’t tend to use positive credit information this way.)

The mix-up was my fault. I am now much more diligent in keeping up with my credit cards! It sucks that my mistake pulled down my wife’s score.  When the credit card showed up on her report her score dropped about 30 points.  The timing strongly suggests that the score drop and the inclusion of this credit card are related.

Credit Prep for a Mortgage Refi

In order to qualify for the best mortgage rates and terms possible our goal is to boost our lowest credit score (between us) to about 750.  750 gives us a little wiggle room to make sure the credit score that the lender uses is 740+.  Keep in mind that the credit scores you receive are not the same as the ones the lenders get.  That is why the 10-point safety margin is useful

We want to do our mortgage refinancing while mortgage rates are still very low. The easiest quickest way to pull up my wife’s credit score is to pay down more of her credit card debt — even if it is interest-free at present.

We are both self-employed now, so we face an uphill challenge with our goal of refinancing our mortgage.  Working together we hope to meet this challenge by having solid credit scores.

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What’s a Good Credit Score (or Great Credit Score)?

The answer depends on for what purpose you’re hoping to use your credit score(s).  However, my short answer is:

• Good Credit: 700-739
• Great Credit: 740+

I’m basing this short answer on mortgage rates. A FICO score of 740+ should be high enough to get the best mortgage rate from virtually lender. A FICO score of 700-739 is sufficiently high to qualify for most mortgages but at likely a slightly higher rate (+1/8 %).

Your credit score is only one of several important variables that factor into a mortgage qualification decision.  Other factors include income, amount borrowed, appraised home value, and credit history details (from your credit report).

For credit cards a score of 720+ is a high enough score to qualify for all but the most selective credit cards. Credit card company each have their own proprietary risk measures that go beyond just credit score.

One thing I have learned is that if you have a big total limit from on credit card issuing bank, you will have a harder time of getting more total credit from that bank.  The issuing banks care about how much risk they are exposed to.

So, if your are trying to grow your total available credit in general it is best to do a little bit of homework as to what is the issuing bank.  If you already have 3 credit cards from Bank of America, applying for a 4th from them is probably not your best option.  Instead look for a card issued by another bank, say, US Bank, or Capital One.

Why Exit Corporate America and a Six-Figure Salary?

My employer and I are parting ways after nine and a half years together.  It is an amicable separation, and I wish the [unnamed] technology corporation, and especially my soon-to-be coworkers the very best.  I am happy that the severance package is reasonably generous.

I feel a bit bad for my coworkers because they still face the same aggressive schedules but with about 30 fewer engineers.  However, the company is actively working to reduce headcount, and those left behind almost always bear greater burdens on their lives.  Sixty-hour weeks are not uncommon in the tech industry, and over the years I’ve endured the occasional 100-hour week. When that happens, breakfast, lunch, and dinner is brought in because there is no time to eat otherwise.

There was a time when I didn’t mind fifty- and sixty-hour weeks.  But that was when everything was new, exciting, and fun.  That was when I worked at the “old HP”, where almost anything was possible.  In the beginning I learned something new almost daily, and I love learning.

Here is why this “job separation” feels like a good thing:

1. Severance pay is a nice perk.
2. I believe my best talents are wasted in my current role.
3. There is virtually nothing for me to learn in my current role.
4. The is little chance of me moving to a significantly different role (within the corporation).
5. I will never get rich working for a large corporation, unless I build it myself.
6. Going to work feels like stepping into the Matrix.
7. True creativity is treated like the flu… people avoid it as much as possible.
8. I am willing to bet on myself and my talents!

I am passionate about creativity and I have largely refused to drink the corporate Kool-Aid.  Pretending to be a Kool-Aid drinker is extremely taxing, and feels disingenuous.

Creativity is more habit than raw talent.  Creativity can be exercised and developed, or it can be quashed and stifled.  Creativity is dangerous to boring people and their boring jobs.  In contrast, creativity is energizing to interesting and open-minded people.

I prefer to use my energy to improve the world in my own unique way, and with my own unique, somewhat flamboyant style.  I can relate from repeated managerial feedback that my style is not appreciated by former employer.  My style is friendly, lively, and centered around humor with a touch of sarcasm.  Liveliness, humor, and particularly sarcasm are not appreciated in my former corporate realm.  What passes for humor is so sanitized that any pre-existing wit is sublimed into the corporate HEPA filter of political correctness, anxiety, self-censorship and banality.  That culture is one reason this [unamed] corporation’s advertisements are so uninspired.

I am managing my own company now.  It is a start-up, and it is my passion.  It is being built around disruptive technology — technology that will make waves in the world of investing. Technology that few will understand, but which produces results that almost anyone can appreciate.  The culture of this new company will be based on a simple idea — be bold.

 

 

 

Naked Capitalism in Las Vegas

Here I am in Las Vegas, staying at the Encore.  I’ve lost $297 today at the craps tables.  I’ve been using my “comp” card and out of curiosity asked the “casino services” representative why is a small-timer such as me even bothering to use my comp card at the tables.  He said that every player can get a comp, even if it is just a cup of coffee… all the way up to a private jet ride home.  I handed him my card and asked, “so if I keep playing like this for 3 days where do I fit on that spectrum”.   His answer:  “a cup of coffee… but please use the card.”

Lady Luck?

The folks at the Wynn/Encore are exceedingly polite and professional.  Their job is to 1) make money for the casino, and 2) provide a positive experience for the customer while doing so.

So no private jet for me!  That said, I think I will quit using my comp card.  What’s in it for me?… nada.

I understand very well the rationale of the casino.  First, table games are expensive to operate… craps takes 4 dealers to run.  Second, the way I play is least favorable to the house.  I place pass line and come bets, and place odds bets on the points.  Other than tips, that’s it.  No “field”, no placed bets, nothing.  Given a thousand people like me the casino probably, on average, breaks even after expenses.

So why do they want my data?   My hunch is that players like me still fill a role.   We  seed the tables and have fun.  Some high rollers like that.   The guy next to me at one craps table walked away with $16,000 and change.  He mentioned that at one point he had $25,000, but he had lost a bit.  Still, he said, he was up overall.   I assume this guy rolled in comps.  He is the gambler casinos covet.   He tipped generously, perhaps $500/hour.

I have decided that my privacy is worth more than a cup of coffee.  (Perhaps I would have settled for a room-service breakfast for two).  I will try to keep a lower profile, but in Vegas that is a difficult game.  Cameras, RFID-enabled chips, facial-recognition software… good luck keeping a secret here.  But I’m gonna make them work that much harder, because that’s how I roll.

Stay tuned if you want to learn some of the worst craps advice I’ve heard in a while.  Until, then, best of luck!

Update:  The terrible craps advice?  To use “placed” bets rather than pure “odds” bets on numbers in order to get more “comps” and more “comps action”.  Follow this advice and you will see your $10 bet on “4” pay back $18 instead of $20.  The $2 fee will get you about 2 cents worth of comps!  Plus you’ll get less action than you think because you’ll lose your money faster.

Bitcoin: The More the Merrier, up to 21 Million

S&P made the right declaration: AA+.  Moody’s and Fitch showed relative weakness.   The downgrade of US Treasurys makes complete sense given that US debt loads will easily surpass 100%  of GDP within a decade.  The US Treasury accuses S&P of negligence for not using their $20T vs $22T figures.  I’ve heard stronger arguments from 8th grade debate teams. [Been there. Done that.]

Here I am, Joe investor, watching the markets whipsaw like mad.  I braced for impact in my oh-so-slow way and mitigated perhaps 10% of the damage, but my investments have been generally damaged too.

Maximum caution lies not on either side of the coin, but on the edges.  100% “safe” investments are not safe in the same way that 100% aggressive investments are not safe.  Safety should be measured in terms of the following risk factors 1) situational 2) statistical (non-monetary)  3) inflationary (monetary).

In the midst of worldwide and US market turmoil there has been similar chaos in the fledgling currency called bitcoin.  It is so “new” that my spell checker suggests “bitchiness” or “bit coin” as alternatives.   Meanwhile I’m thinking of a very small exposure to bitcoin as an alternative to precious metals or commodities.

I should disclose that I have I have an emotional connection to bitcoin.   Bitcoin has aspects of finance, technology, and financial engineering that are intriguing to me.  So please consider this factor as I continue to write.

Bitcoin is all that fiat money is not… Bitcoin is finite!   The number one rule I am painfully learning about ANY fiat currency is that it is potentially infinite.  (Unbounded, if you will.)  The fiat currency “presses” are only bounded by the constitution and discipline of the political systems that underlie them.  And these very systems have show over historically documented periods to be ultimately undisciplined. Simply put: lack of monetary discipline leads to economic calamity leads to runaway inflation.

That is one factor that is engineered against in the bitcoin ecosystem.  The bitcoin “printing presses” are inherently limited to 21,000,000 bitcoins.  Further some bitcoins will be forever lost into the digital black hole.

I am not here to say that there are not flaws with bitcoin (BTC).  Just that very few have been discovered yet, and those are very minor so far.  I am saying that bitcoin also has unprecedented advantages: 1) digital portability, 2) relative anonymity, 3) potentially fee-less transfer, 4) agent-less security, 5) inflation-resistance.  I love all of these factors, especially resistance to inflation.

I am here to say that the business cycle is real.  There are booms and busts.  And there is government meddling with the business cycle that, in the long run, only magnifies booms and busts.  And that bitcoin is one possible antidote.  That said, I am sticking with stocks, bonds, ETFs, etc in a not-so-contrarian manner.  I just happen to be mining a few bitcoins on the side.  Not familar with bitcoin mining?  Google it!  🙂

Improving your Credit Score

Credit scores are important because they effect the interest rates you pay on everything:credit cards, car loans, mortgages, lines of credit, etc.  Credit scores and credit reports can also effect your success or failure in landing jobs or obtaining leases on an house, townhouse, or apartment.

If you know your credit score (FICO score), and it’s 770 or higher, you have an excellent score and are in great financial shape.  If your credit score is 720 to 769, you are in good shape, but could benefit from an upgraded score.  Finally if your credit score is below 720, you should strongly consider fixing your credit score.

I have some personal experience with credit score improvement and repair.  When I met my girlfriend and eventually found out her personal finance situation I had to take a deep breath.  She had $13,000 in credit card debt and credit score of 630.  One year later she had a credit score of 750 and almost zero debt. I provided no money to her… just advice and emotional support.  Today she is kicking butt and her credit score is well north of 770.

How’d we do it?  Pretty simple.  By making minimum payments to the low-interest accounts and throwing any left over money towards the highest interest account.  After a couple months, and an improved credit score, she took out a line of credit that was lower than her other rates.  She used it to pay off her highest rate card which was charging an outlandish rate of near 27%.  She kept making timely minimum payments to her lower-rate balances, while throwing almost all leftover money at the cards with the current highest rate.  As her credit score improved she was even able to call up and negotiate lower rates with some of her credit card companies.

I am Mr. Finance.  When I initially learned of her credit and debt situation I was taken for a loop.  I called my dad, Mr. Finance Senior, and confessed my discomfort.  Wise man that he is, he counseled me on observing how she adapts to my financial advise.   Since all else with her was wonderful, I held my breath and watched and waited.  Long story short, she did great.  I am so proud of her.

Not only is she now past her debts; she is thriving.  And because she did it herself, she has learned to “grok” a healthy financial lifestyle.  We are still happily (even blissfully) together.

Negotiating Financial Setbacks

We all face occasional financial setbacks.  One way to increase feeling of financial loss is to check your portfolio daily.  Since I have a private fund that I manage, I feel obliged to stay on top of it daily.  I’ve noticed that when the fund is up I feel modestly happy, but when it is down I feel doubly disappointed.

Sometimes various financial stresses come together at the same time.  Recently minor financial setbacks have converged for me:  modest potential issues with my rental business, and a few percentage points drop in my fund, and long hours at my day job.  Navigating these financial stresses involves 1) avoiding impulsive decisions, and 2) carefully considering available options.  For example part of me wants to sell the rental property in the next year or so, namely to avoid the occasional headaches of being a landlord and property manager.  Another thought is to contract with a property management company, who charges a fee, but helps manage some of the day-to-day property management duties.  Finally, I impulsively want to deleverage some of my investments.

I am approaching my latest bought of financial stress as I always do.  With contemplation and composure.  At least outwardly I am composed and seemingly unflappable.  Internally, I am stressed and a bit anxious.  This comes with the territory of managing a wide range of investments.   This occasional stress is one of the few things I dislike about finance and wealth management. Of course it too shall pass.

I simply wanted to share the fact that, at times, maintaining a financial course can be emotionally challenging.  I spend a lot of time talking about how successful investing can be easy… and in many ways it can be.  Creating a financial plan can be fairly simple, but sticking to it at times can be stressful and nerve wracking.  Financial discipline is worth it, and financial impulsiveness should be kept to a minimum.  That is what I intend to do; even when it is not so easy.

Choose your Fear: Motivating Financial Choices

I freely admit fear is a motivating factor behind my financial decisions.  High on my list of fears (worries, concerns) is inflation.  For a variety of valid economic reasons, long-term bond returns are generally worse than equity returns in an inflationary environment.  In other words, an uptick in inflation hurts bonds more than it hurts stocks.

Fear of market volatility steers me away from stocks, fear of inflation steers me away from (long-term) bonds.   In the current interest rate environment, real rates of return on short-term Treasury debt are negative.  High-quality corporate bonds are only paying a pittance.  And as I have recently blogged, TIPS based on the CPI-U, are not looking so good either.

What options are left to the anxious investor?  Some remaining choices are:  foreign-debt ETFs (as a hedge against US and US dollar inflation), foreign-equity ETFs, and junk bonds.  Perhaps, value stocks as well.  Unfortunately each of these options comes with their own particular set of risks and worries.

The moral of this stories is there are few low-anxiety options for the investor who fears volatility, uncertainty, and inflation.  Retirees looking to reinvest expiring bonds and CDs are finding few good investment options.

There remains on strategy to fall back on to help ease financial anxiety: diversification. Diversifying between equities, bonds, and cash.  Diversifying between US and foreign equity. – Diversifying between large-cap and small-cap. Diversifying between long-term and short-term debt.  Diversifying between high-quality and high-yield (junk) debt.  And, yes, even diversifying between value and growth.

Still, I choose my fears.  Inflation is number 1.  Volatility is number 2.  Fear of missing gains is number 3.  Inflation concerns and dismal interest rates are motivating me to hold more equities (via low-cost equity ETFs) than I otherwise would.

Smart People, Dumb Investments

When I started this financial blog a couple years ago, I wondered if I would run out of ideas to blog about.  Luckily, so far anyhow, I have had a different problem — How to choose amongst all of the ideas that pop into my head.

Thing train of thought takes me to consider what explains the relative success and failure — the investing fates if you will — of various investors.  It would be foolish (and wrong) of me to make the blanket statement that smart people make poor investors.  On the contrary I believe that successful investors are very smart people — John Bogle, Warren Buffett, Carlos Slim, Peter Lynch, Bill Gross.

What is interesting and occasionally baffling to me are the poor choices that I see smart people making.  For whatever reason, people tend to share two things with me:  personal information and personal investing information.  If I had to guess why, it is for two reasons.  1) I am actually interested, fascinated in fact. 2) I am very discrete.  Still this doesn’t quite explain why relative strangers tell me these things.

One thing is for sure.  I listen. And on thing I have learned is that people love to tell of their investing success and are hesitant to share their investing misses.  I feel privileged to hear both types of stories.

For the record there is, perhaps, no such thing as a bad (or good) investment in the present.  The “goodness” or “badness” of a given investment is only truly realized when the position is closed and the gains and/or losses are counted.   There are, however, in my opinion, poor portfolio decisions.

Here is my overall impression of the types of under-performing (aka bad) portfolio decisions that smart people make.  Most notably rationalizations for extreme non-diversification.

1) I work in field X.  I understand field X.  I believe the outlook for field X is tremendous, therefore I’m going to pick my favorite stocks that participate in X.  [I heard this all the time during the tech/dot-com pre-bubble and bubble].  I’m going to focus my portfolio in X…. meaning I’m going to severely underweight all other sectors.

2) I’ve followed fund manager, fund company, or my investment manager Y, and I trust and believe in them.  I’m going to put most/all of my money in their hands.

3) I understand the economy, the markets, and what’s going on.  I’m going to make my own decisions, and cut my losses when appropriate.  I’m going to manage my own money, and I’m not going to sheepishly follow conventional wisdom (things such as time-horizon-based asset allocation and CAPM models).  I’m going to bet big and win big on what I believe in.

Over the years I’ve seen that hubris and pride are subject to positive self-reinforcement.  When bets pay off, bettors place bigger bets.  In most cases though, luck eventually runs out and large losses are realized.  This is soul searching time.  Some respond by becoming hyper-conservative for a while (I will only save money in the bank and in T-Bills), some by becoming moderate for a while (I will own some stocks, but mostly bonds), and some by doubling down.

I understand these impulses.  In fact I see that impulse control is a key factor in rational investing.  I understand that smart people are accustomed to being correct.  It is instinctual to believe that this extends to investment decisions.  I’m saying, “If you believe you are orders of magnitude smarter than ‘the market’, think twice.” Or put another way, it is better to be wise than smart when it comes to investing.

To summarized, I know first hand that smart people sometimes make very dumb portfolio decisions.  They believe that their personal academic and career success will translate directly to investment success.  I also know that many such very smart people have been burned, to the tune of $100,000+ (if not millions) of losses directly attributable to non-diversification.

And finally, as to my personal investments, I happily say that I have been relatively steadfast in my Boglehead-like investing style.  So far it has paid dividends.

Intangibles

Intangibles, short for intangible assets, are what economists and accountants call things that are not easily measured, valued, or counted. In life, it is the intangibles that matter.

Summer-like weather has me thinking about the reasons I work hard, save hard, and invest. My home has tangible value, and has appreciated in spite of the rough housing market.  The intangible aspects also have value to me.  Planting trees and watching them grow, year after year.  Maintaining my yard, and enjoying the first emerald green grass of the year.  Watching the flowers and flowering bushes come out in their sequence.  And of course, enjoying summer parties in the backyard.

I enjoy my modest home and the myriad home improvements I have made over the last decade.  Not only has been a reasonably good investment, my home has made me feel a greater connection to my community.

When I bought my house, I was approved for a much larger mortgage.  But I insisted on buying a cheaper house.  My first real estate agent kept showing me homes 10 of thousands of dollars above my price range.  After a couple months of that, I fired him, and selected another agent.  My next real estate agent actually respected my price range… only going over by a few thousand dollars, under the idea that we could make a lower offer conforming to my price range.

It worked.  After another several months of near misses, I found a house I really liked and offered $2500 below the asking price… valid for 24 hours.  After about eight tense hours at a friends house, my realtor called and said that the sellers had accepted.

For the last couple years I’ve been thinking that I’d like a larger house, with amenities like a 3-car garage.  We’ve even thought about buying land and building a custom home and looked at a few lots.  But so far I’ve resisted, partially because real-estate commissions and seller-side closing costs could eat easily up $15,000 of net worth.  In-town moving expenses would probably add another 3,000 dollars, and buyer-side closing costs (assuming we buy rather than build) another 7,000 dollars.  Something like $25,000 down the drain  to step into a new, upgraded dream home.

So the plan is to stick it out in the current home or another 5 or so years.  In order to enjoy it more we continue to make upgrades large and small.  About half of the upgrade work is DIY, the rest we contract out.  The return on investment for DIY work is probably 200%, the work contracted out will only pay back 50-60 cents on the dollar.

There is something nice about working on the home.  A sense of progress and accomplishment that is enjoyable.

I keep telling myself the cons of buying a dream home for twice the cost the current home.  Property taxes will double, utilities will go up, real-estate commissions and other costs will eat up a big chuck of equity, moving will be a hassle, etc.  And of course, do I want to live here for the next 10, 20 years?  Hard to say.  Until I make the next big move on the housing front, I plan to delay and enjoy my current home and neighborhood.  Take some walks, host some parties, and do some gardening.  Enjoying the intangibles of home ownership and try not be to hasty in my desire to keep up with the Joneses.