The Rule of 72

When I used to work as a Financial Consultant for Cal Fed (before it was purchased by Citibank), I was always amazed by how few people had heard of the Rule of 72. It goes like this: Divide 72 by the interest rate you are getting on your investments and that is how many years it will take to double. If a bank CD pays you 6% annually then it will take you 12 years to double that money. If you had started out with $20,000 and assuming you received 6% interest for 36 years, at the end you would grown that $20,000 into $80,000. Not bad right? But if you had received 12% interest, that same money would be doubling every 6 years instead of twelve and after 36 years you would have $640,000.00 Thats $560,000.00 more than receiving 6% interest. Welcome to the wonderful world of compound interest. I used these examples on a power point presentation to sell clients mutual funds, stocks, annuities, and anything else where they could get more than whatever banks were paying on Certificate of Deposits. Of course I was required by law to explain to clients that there was no guarantee would receive 12% annually and that it was just a s possible that these "investments" would lose value. But wouldn't it be nice if I could guarantee them 12% or maybe 16%? And that is the flipside of the Rule of 72. Credit Cards companies. If you don't pay down balances your $20,000 debt can turn into $560,000.00 in 36 years.

Credit card companies are one of the greatest rackets of the 21st century. Just think about the fees generated by the credit card industry. The merchant pays processing fees, statement fees, transaction fees, and the consumer pays annual fees, interest, and depending on the card there could be a multitude of hidden fees. In addition to all these fees, there is the rule of 72 working in their favor. If sometimes it feels like it may seem impossible for you to get out of debt, it's not far from the truth. Some credit card companies charge 25% on balances. According to the rule of 72, that debt will double in less than 3 years. It is vital to manage your credit card use and keep balances under control. A general rule of thumb is to keep your balance less than 35% of your limit if you are unable to pay off balances month to month. This will keep your credit score clean and avoid any red flags that might damage your FICO score.

Why Almost All Credit Repair Companies are Useless

You can't do a search for "credit repair" without coming across scores of listings of credit repair companies or guides to magically repair your credit. Almost all of these companies are trying to take advantage of the requirement in the Fair Credit Reporting Act that inaccurate, outdated or unverifiable information must be removed within 30 days if it cannot be verified. The basic strategy here is to swamp the credit bureaus with letters and "hope" somebody in the paper supply chain misses this deadline. In the beginning this questionable method may have had some merit but the credit bureas have adapted and can verify debt in a matter of days. Worse, once a debt or negative item has been verified, it becomes harder to remove. Blindly questioning every negative item in your credit report with form letters is simply no longer productive and is in fact, a waste of time and money.

Does this mean credit repair is pointless? Absolutely not. You just need a more balanced approach coupled with a gameplan. The FCRA protects you against inaccurate information. Date of last activity, inaccurate balances, basically any error can be used as an argument for removal. If you are serious about credit repair you need a firm that will do exactly this for you. Go over every detail of your credit report and find errors that can be used to your advantage. Over 73% of americans have inaccuracies in their credit files which is to say 73% of americans can have better credit scores.

One of the only firms I've found that takes this approach and has no complaint with the BBB in over a decade is MyCreditGroup.com | Credit Repair Services. Founded in 2000 My Credit Group Inc. is a San Diego based Credit Report Repair & Consulting Company. Backed by an aggressive - independent legal council and an impeccable BBB track record, My Credit Group Inc. is widely recognized as a leading voice for consumers, and serves as a news hub for the credit report repair industry.

Why are Credit Scores so important?

If you're like me than you've lived your life without too much concern over some arbitrary number called your FICO score. Then one day when you're trying to convince somebody with money to lend you that money, you realize the importance of this number. In the old days, people lived in smaller communities and in general people were closer. Lending decisions were based on family connections and your standing in the community. In todays world, the money you want to borrow can come from a little old lady in China or an underworld figure in Russia. Now while this greatly increases the funds available for you to buy a car, a home, or fund a business, lenders need a uniform way of measuring risk. Because lets face it, the primary concern for any lender whether you're seven years old lending your classmate a comic book or about to retire and wondering what to do with your nest egg; you want to know you're going to get your asset returned. This is where the Credit score comes in. Yes, there are other factors but credit scores are paramount.

The current problems in the credit market should highlight the importance of credit scores. We've all heard the problems caused by "sub-prime" mortgages. In layman's terms, people with poor credit scores received funding they otherwise would not be eligible for because their credit scores indicated a high risk of default. Lenders ignored those scores, made those loans, and then repackaged and sold them to Wall Street. What do you think happened? Those people with poor scores did in fact default on those loans and now pension funds, investment banks, and hedge funds own mortgage paper nobody wants to buy without steep discounts. Trust me on this, financial institutions are inherently risk adverse and they've been burned badly on this. They wont be burned again. Credit scores will not be ignored again.

I've always felt credit score maintenance should be taught to children at an early age. It's basic principals are used in everyday social interactions. All it really is using your history of behavior as a guide for future behavior. Can anybody change their behavior? Sure but the likelihood that past actions guide future ones is well established. My son is in kindergarten and he has a classmate that constantly breaks crayons. He has "bad credit" when it comes to crayons with the entire class. What is the likelihood anybody in that class will lend him a crayon? In todays world, the risk premium would be astronomical. My five year old son understands this. He knows that kid cannot pay the premium (which would be at least another crayon) so refuses to lend him a crayon.

You may find the credit score a cold mechanism to define the various wonderful aspects of you but as imperfect as it can be, until something else is invented, it is needed so money can flow. It is unfortunate people are uneducated about the maintenance of their credit score until significant damage has been done. Get educated.