Become one of thousands who can say... "Keir Got Me Through!" 1-800-795-5347

Category Archives: Personal Finance

The Top 5 Factors That Affect FICO Scores

Credit information form

One way for planners to help clients access credit at lower interest rates is to teach them how to manage their FICO scores. This score can range from 330 to 850. The higher the score, the better. To get the best interest rates, clients should try to keep their FICO scores at 760 or higher. The score value is based on information from credit reports. Understanding how this information affects the score can provide an opportunity for planners to help clients make the right decisions to increase their FICO scores.

 

Payment History, Amount Owed and Length of Credit History

 

Payment history is the largest factor in the score. Planners should make sure clients understand the importance of making payments on time. When students enter college, they will typically apply for their first credit card. Students should do so with the understanding that failing to make timely payments can impact their ability to qualify for other types of credit like auto and home loans. This impact can continue well into the future.

 

The second major factor affecting the FICO score is the amount that’s owed. It’s an assessment of whether or not a borrower might already be overextended on credit. Being overextended means the borrower may have borrowed so much that he or she is unable to make the payments required on this amount of debt. Utilization affects the score positively if credit cards are used periodically and paid on time, but there is no effect on the score if someone has a credit card available but never uses it.

 

The longer the credit history, the better the score. In the example of the college student getting his first credit card and making timely payments, he’s also increasing his credit score for buying a home in the future by having a longer credit history from the credit card account.

 

Types of Credit and New Credit

 

Ten percent of the FICO score comes from looking at the types of credit that are used. These types include credit cards, retail cards, installment loans, finance company accounts and mortgage loans. Having a credit card and using it responsibly provides a higher score than not having any credit cards at all.

 

The final category that affects the FICO score is new credit. Opening several accounts in a short period of time can indicate a higher credit risk and will lower the score.

 

Checking a Credit Score

 

When a consumer checks his or her own credit score, there is no impact on the score, and it is recommended that clients check credit reports on a regular basis to identify and correct any errors and to ensure that there has not been an identity theft situation. Every individual is entitled to one free copy of the credit report from each of the three credit bureaus each year. A good practice to monitor activity throughout the year by requesting a report from a different company every four months.

Financial Planning With Long-Term Care Insurance and Revocable Trusts

Serene senior couple

People are living longer than ever before. That is why long-term care costs have become a very important part of financial planning. All of these costs should be taken into account before any gifts are made. A common way of addressing long-term care costs is through a LTC insurance policy. The purchase of a long-term policy, however, is not the end of the planning required for clients approaching retirement.

Steps need to be taken to see that the long-term care coverage will be available when it is needed. The problem is that over a third of LTC policies lapse before their owners ever use them. Women over 65 have a 38% probability of lapse, while the probability for men in the same age group is 32%. What’s even more surprising about these lapses is they’re not all caused by inability to afford the premium. A significant amount of lapses occur because of cognitive decline.

Policies that lapse are often policies that were needed by the affected individuals, so it’s important for advisors to ensure that there’s a plan in place to deal with cognitive decline. Not only should financial planning include a durable power of attorney authorizing the agent to handle financial matters if the client cannot do so, but the planner needs to make sure that the agent is also aware of when to step in and what actions to take. Among the actions for the agent to take may be paying the premium for the long-term care insurance.

 

 

 

Revocable Trusts

 

 

 

Another way to protect an aging person is by means of a revocable trust. While revocable trusts have traditionally been viewed as a way to avoid probate costs, they can also be used to provide protection from elder financial abuse, identity theft, and different risks of aging, including the risk of cognitive decline. A trustee may be given responsibility for continuing the long-term care insurance as well as making other payments for the aging client. .In addition, when a revocable trust is created to protect an aging person, the advisor should ensure that the attorney drafting the revocable trust includes a trust protector. A trust protector is appointed by the revocable trust to monitor the accounting of the trust and to see that there is no misbehavior by the trustee. The trust protector may be given the power to fire and replace the trustee of the revocable trust. By adding a trust protector, an advisor can help protect clients from a trustee behaving irresponsibly.

Why Keeping a Will Updated is Just As Important As Having One

Notary officer helping mature client

According to recent studies, more than half of all Americans are likely to die without a will. In this event, applicable state laws will dictate what happens to the assets of the estate. The decedent will have no say in the disposition, nor will the surviving family.

 

In general, state laws will direct the assets to spouse and children, or parents and other family members if the decedent was not married and had no descendants. There is no provision for bequests to friends, benefactors or charities. But even those who have a valid will might not have the distribution go entirely according to their wishes.

 

When a Valid Will Isn’t Enough

 

There are several reasons for this disparity. First of all, many assets do not pass through probate and thus are not subject to will provisions. Most people are aware that any insurance proceeds will go to the named beneficiary, but there are also other items to consider. Retirement accounts, annuities, transfer on death (TOD) and joint accounts will pass outside the will, as will any property held in joint tenancy with rights of survivorship.

 

Another consideration is that a person’s circumstances may have changed. Change is an unavoidable part of life, as we all know. Some of the major changes one might experience include marriage, divorce, the death of a loved one or the birth/adoption of a child or grandchild. Whether planned or unexpected, every change requires some adjustments, but often people overlook the less obvious items. For this reason, clients should be reminded to review their wills on a regular basis and update them as necessary.

 

How Planners Can Help Clients Manage Their Wills and Related Documents

 

Just as important, though, is to review the beneficiary designations (both primary and contingent) on all retirement plans, insurance policies, annuities and such.  Many a court battle has developed when an individual neglected this important detail. For instance, if a person fails to change the beneficiary after a divorce, insurance proceeds could be paid to an ex-spouse rather than the children or current spouse. Some states have laws that invalidate ex-spouse beneficiary designations after a divorce, but these laws don’t necessarily apply in every case, and can be superseded by any applicable federal statutes.

 

For retirement accounts covered by ERISA, a spouse automatically has rights to the account unless he or she has signed a waiver. So if, after a divorce, you name your children as beneficiaries of your 401(k) and subsequently remarry, your new spouse will get the assets absent a valid waiver. Any other beneficiary designation will be disregarded.

 

Every change in circumstance should prompt a review. An unmarried person may have designated parents or a sibling as beneficiary of an insurance policy and then married but never updated the beneficiary. Perhaps the original beneficiary of a plan or policy has passed away, in which case the choice of contingent beneficiaries comes into play. Should they be moved up to primary, or is there reason to make a different choice? Maybe there’s a new child in the family who needs to be provided for, or donating to a charity becomes a better option.

Given the certainty of change, a planner should not only exhort clients to execute their wills, it’s important for the planner to also remind them to review and update all of their documents and designations regularly.

Retirement Planning is Key for Security

Businessman Brainstorming About Retirement Planning

Retirement planning should be an important consideration for all workers, even those who think they’ll never retire, or who intend to work as long as possible. In reality, nobody can predict the future, so no one can say how long ‘possible’ will be. Unexpected events such as layoffs, disability, or the need to care for an ill or dependent family member can bring an end to people’s working years long before they thought it would happen.

Continue reading