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avatar You are viewing an archive of articles by Stephanie Colestock. Stephanie is the managing editor at Consumerism Commentary, as well as a contributing writer. She graduated from Baylor University with a Biology degree, but has since found a passion for personal finance. She also writes for a number of other sites -- including Dough Roller, Five Cent Nickel, and allCards -- in addition to running her small business, Pink Orchid Press. Stephanie lives in Washington, DC with her two sons and a German Shepherd.

Stephanie Colestock

One of the best things you can do to build awareness of your financial condition is to view your credit report. Your financial condition — as perceived by potential lenders — can cost or save you thousands of extra dollars throughout your credit repayments, such as the life of a mortgage, for instance.

Credit Card

You can get them for free these days, too. In fact, you are entitled to three credit reports, one from each of the three major reporting bureaus, each year. You can either get them all at once or visit annualcreditreport.com (the government’s official free credit report source) three times a year, to space the credit reports out evenly. Personally, I prefer the latter approach.

What You’ll Probably Find

Well, if your credit report is anything like mine, it contains a list of credit cards with basic information like partial account numbers, a credit limit, and payment history. Some probably date back to college, when you signed up for a credit card in exchange for a free t-shirt at freshman orientation. You may not even know where to find the actual credit card anymore.

For example, here’s a snapshot of one of my own records. This card account hasn’t been touched since 2011, but here it is, on my 2017 report:

old cc sc

There are a number of reasons that I keep this card active, though.

Reason 1. It’s one of my oldest accounts. I opened this card back in 2005, when I was a college freshman (cliché, I know). It’s the second oldest credit card I have, and even though I don’t use it, I like to keep my credit score’s Average Age of Accounts as high as possible.

Average Age of Accounts and How Your Credit Score Is Calculated

Were I to cancel this card, that number — an average of the credit length of all my revolving accounts — would go down. No, it wouldn’t be substantial, but I would still rather avoid it unless necessary. Which leads me to…

Reason 2. It doesn’t have an annual fee. Since I don’t use this credit card, it just sits around collecting dust (actually, I shredded it years ago, so that’s just a figure of speech anyway). It doesn’t have any sort of fees involved, so I’m alright with that. However, if I were being charged an annual fee to hold the account, I would close it faster than you could say “Semi-Annual Sale.”

Many rewards credit cards do have annual fees; whether they’re worth it or not is up to you. If you’re using the card and earning great cash back (that more than negates the fee), go for it. If not, then you’re just throwing money away. And with a mere $1,000 credit limit impacting my credit utilization ratio, it wouldn’t be worth my cash to keep the account open.

Before closing an unused card due just to an annual fee, though, try calling the issuer. Sometimes, they will be willing to waive the cost for you — at least for that year — just to retain your account. Others may have a version of the card that doesn’t have an annual fee, and would happily switch your account over to that product instead. It would keep the benefits of the account on your credit, while avoiding the unnecessary drain of a fee every 12 months. Win-win.

Reason 3. I am still paying off balances on other cards. That credit utilization I just mentioned? This is where that comes into play.

If you don’t hold balances on any of your other accounts (i.e.: you have no credit card debt), closing a card like this won’t really impact you. I, on the other hand, am still paying off some old credit card balances… so closing an account with a $1,000 limit would ding my credit score in yet another way.

This is because of my debt-to-available credit ratio. Also called credit utilization, this is the ratio of how much debt you owe (your balance) versus  your line of credit (the available credit). Let’s look at an example.

  • If you have three credit cards, adding up to a total of $10,000 in available credit, but keep a $0 balance on each one, closing a $1,000 limit card won’t hurt. Your utilization will remain at 0%.
  • However, if you have $10,000 in credit but hold balances adding up to in $5,000 in debt, your ratio is already 50%. If you close down that $1,000 card with a $0 balance, your debt-to-credit ratio just jumped up to 55.6%!

So, take into account where your credit already stands before closing an unused card. If you don’t hold any debt, you’re probably fine to close the card and won’t notice much of a difference. If you need that line of credit to boost your utilization, or need the account to factor into your average age of accounts, perhaps it’s worth keeping the plastic around.

Related: Millennials Aren’t Using Credit… But Should They?

Still Want to Close the Card?

So, the above reasons don’t impact you, and you’re still ready to cut up some cards? Go right on ahead… but take these three steps into account.

Step 1. Save your best, oldest card. Find the credit card with the longest, cleanest history, and keep this card. If you don’t know where the credit card is, call the company to update your address information and ask them to send you a new card. This probably isn’t the card you want to use moving forward, though. Just keep the credit history clean, and spend on/earn rebates with newer cards.

Step 2. Close all other inactive accounts. You can do this by calling the phone numbers that are listed with the information for each card. If you have an active card with the same company, ask to move your credit limit from the inactive card to the active card, and then close the inactive card. This will keep your credit history long and your credit report short.

Step 3. Choose the best card to use. If you are struggling to get out of debt, you should choose a low-interest card with no perks. If you are managing your money well, this should be the card that offers the best perks (like cash back, airline miles, etc.) for you and your lifestyle.

Try looking through lists of cards like

You may not have to apply for a new card if you already have one by the same lender; just call customer service and ask to convert your card. They may have some additional options for you, too.

How to Get Your (Legitimately) Free Credit Report

If you want to improve your credit score and get the lowest mortgage rates, the bottom line is you want to keep your oldest, cleanest credit card to show a long, solid history of responsible credit. You also want to have a low debt-to-income ratio and credit utilization ratio (by paying off your balances every month).

Doing these will help you to improve your credit score, qualify for the best interest rates, and receive some of the best credit products (such as rewards credit cards).

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There are over 44 million Americans currently receiving SNAP benefits, better known as food stamps. This financial assistance was designed to provide nutritious food to qualifying citizens, and about 54% of beneficiaries are children and the elderly.

However, there are a number of struggles that SNAP recipients can face as far as actually spending these funds. The elderly and those without reliable transportation can have trouble getting to the grocery store. Even worse, some areas of the country are considered “food deserts,” and residents there are forced to choose from limited options at small convenience stores or sometimes travel hours just to reach a true grocery store. So, even though those in poverty are having a portion of their food costs subsidized, they can’t actually get their groceries without an inordinate amount of effort.

Enter Amazon?

concom

The Retailers

Last month, it was announced that web giant Amazon — along with six other online grocery retailers — will begin accepting food stamps this coming summer. This is part of a USDA pilot program, aimed at making food more accessible and more affordable for those receiving benefits.

Of the online food providers included in the program, Amazon is by and large the biggest. The retail giant offers dry and fresh goods through its Amazon Pantry, Amazon Prime Now, and Amazon Fresh options.

The other retailers include Safeway, Hy-Vee, Hart’s Local Grocers, ShopRite, and Dash’s Market.  Between these, recipients from seven states will benefit from the program: Maryland, New Jersey, New York, Pennsylvania, Washington, Iowa, and Oregon.

Potential Problems

Though actual food “stamps” are now obsolete and benefits are distributed onto debit-esque cards, it is the first time that SNAP benefits have ever been accepted online. Of course, this opens the door even wider to the possibility of stamp fraud, or even simply questionable use. In fact, the USDA found that over $1.3 billion was spent on junk food in 2011… these purchases include soda/sweetened drinks (these alone accounted for $600 million, in fact), desserts, candy, sugar, and salty snacks. Of course, this is not the purpose of the government-funded program, and calls into question its efficacy.

This also raises the concern of conflicts of interest, by allowing large corporations to profit from poverty and the state programs that support it. For example, J.P. Morgan provides EBT (electronic benefits transaction) services for 24 different states and their food stamp programs. Since 2004, 18 of these states have contracted the bank’s services, for a total bill of over $560 million. This provides quite an incentive for these banks and other companies to participate in such government programs.

Rolling Out Soon

The trial program will begin in July and initially run for a two-year period. SNAP recipients in the seven states mentioned above (Maryland, Pennsylvania, New York, New Jersey, Washington, Iowa, and Oregon) can take advantage of online ordering, through Amazon or the other providers. There are plans to expand the program further down the line, potentially adding retailers like Walmart to the list.

It will be interesting to see how well the program runs, and its ability to bring fresh, healthy foods to those who cannot easily access them otherwise. I am also curious to see whether or not the benefits are abused more than they are at-present. However, I am optimistic that the use of an online purchasing system will allow for increased monitoring and will prevent some of the current fraud issues. I hope to see those in food deserts, or without transportation , improve their ability to source nutritional options.

What do you think about being able to use food stamps online?

 

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If you’ve been paying attention to financial news, you’ve probably heard mention of the fiduciary rule. This rule was approved last year under the Obama administration, with the goal of increasing transparency within the investment realm. It was designed to force advisors to suggest investment products to their clients that were more affordable, rather than being able to suggest ones that instead provided these advisors with higher commissions.

While the rule has not yet been implemented (it was slated to go into play this April), it looks like its run may be short-lived. Today, President Trump signed an executive order that is likely to halt the implementation of the rule, along with ordering a widespread review of the Dodd-Frank Act.

fiduciary rule

This has many up in arms, as the fiduciary rule seems to be a matter of common sense and integrity. Forcing ALL advisors to offer their clients less expensive investment products, rather than higher priced ones that may result in bigger commissions, seems like a great idea. Transparency throughout any industry should be mandatory… so why nix the rule?

Yes, There Is Already a Fiduciary Obligation…

For almost 80 years, a fiduciary obligation — called the fiduciary standard — has been in place. This was implemented with the Investment Advisors Act of 1940, intended to affect most types of investment accounts. This standard implements an expectation that advisors need to place their client’s interests ahead of their own. The advisor is always supposed to act in the best interests of their clients, in every situation, whether the client is aware of it or not.

The reach of this standard is far and wide. An advisor cannot, for example, make trades on a client’s behalf that would result in higher commissions or fees for himself or his firm. An advisor is supposed to make all efforts to ensure that the investment advice given is not only accurate, but complete. They are bound to a “best execution” standard, while dictates that the purchase and sale of securities should be completed with the best possible combination of low cost and efficiency. Advisors are also prohibited from buying securities for themselves before they buy them (or advise their purchase) for their client.

Lastly, and perhaps most importantly, the existing fiduciary standard already prohibits the potential of conflicts of interest. In fact, if a potential conflict of interest is present, the advisor must disclose this to the client before any trades take place. Which begs the question…

Then, What Would the Fiduciary Rule Even Change?

As mentioned, the fiduciary standard already has provisions to avoid and prohibit conflicts of interest between advisors and their clients. This is, of course, the heart of the fiduciary rule… so why the new implementation?

Well, the difference primarily lies in the types of retirement account providers to which the existing rule applied.

As it stands today, the fiduciary standard does not technically apply to insurance reps, broker-dealers, and financial company reps (other than investment advisors). These individuals, instead, are bound by the suitability standard.

The suitability standard is much simpler and much less comprehensive. In a nutshell, it says that an advisor only needs to assess a client’s risk and tolerance before offering investment products and advice. Essentially, gathering a client’s preferences is enough, as long as the products the advisor subsequently recommends match those preferences. This opens up the possibility of a very large grey area… if an advisor simply believes that a product suits a client’s risk tolerance, it’s fair game.

The new rule, though, would make sure that everyone was bound to the fiduciary guidelines. Rather than having the freedom to pick financial products that simple lie below a client’s threshold, all advisors would need to first disclose the fees, limitations, conflicts of interest, etc. of the product. As of now, just the designated investment advisors are bound to such. The fiduciary rule simply hoped to expand this rule to anyone and everyone offering any sort of investment-related advice.

Why It’s Happening

Well, the argument seems to be that the fiduciary rule could actually harm many of the lower-income investors out there, in a number of ways. First, it would prevent advisors from recommending more expensive investment products to their clients when lower priced alternatives exist — even if the higher priced ones were a better match in the end.

Forcing advisors to be transparent about fees and compensation sounds like a great idea, unless the client then chooses their investment product based on this information alone. If an advisor puts three different funds in front of a client, with one having a noticeably higher rate of commission, the client is less likely to lean toward that fund. But what if it had a good chance of outperforming the others? To combat this, potential investors would need to take into account all components of a financial product, not just seek to avoid fees where they could.

Does limiting suggestions to lower cost financial products actually harm the client? Could narrowing their options actually be taking away their investment freedom, causing harm in the long run? Some fiduciary rule-protesters think so.

Another way that this rule could harm lower-income investors is through financial advisor services. Today, some companies are able to offer free or low-cost investment advice to their customers. The new regulations threaten to increase their fees for providing such, resulting in some of the smaller savers being denied advice or simply being unable to afford it.

The Impacts Overall

The fiduciary rule has also been challenged as detrimental to the smaller firms and dealer-brokers in the industry. The cost of compliance with the rule is expected to be high, with additional technology and compliance experts being an added, necessary investment.

As a result, we could expect to see many of these companies disband or be acquired. It’s actually already being seen, in the case of American International Group and MetLife Inc. brokerage operations. Both of these have already been sold off in anticipation of the fiduciary rule’s April 10 implementation date.

What does this really mean, though? Less diversity in the industry, for starters, as the independent companies disappear. Also, as the consolidation continues, it threatens to eliminate (or make difficult to find) advisors who will be able to offer smaller plans. Once again, this has the potential to greatly impact the lower-income investors.

It’s interesting to note that when the United Kingdom implemented a similar rule in 2011, their investment industry had exactly this response. Independent companies could not keep up or could not afford to comply with the technology and changes required. So, they forged paths with larger corporations. As a result, the number of financial advisors in the U.K. has dropped by a whopping 22.5% ever since, creating an even bigger guidance gap than had previously existed.

This effect makes it easy to see why the fiduciary rule has been referred to as “Obamacare for your IRA.” While the rule is necessary and important in many ways, its impact of narrowing the advisor industry down to fewer and fewer options is certainly a check mark in the negative column. Having options and healthy competition between companies is generally a big benefit for consumers.

All Hope Is Not Lost

For proponents of the fiduciary rule who are appalled to see its (likely) overturn today, I have some good news. Many of the financial services companies that were slated to be impacted by its April roll out are going to move forward with their new standards. They had already put new changes in place and believe that transparency is an important part of the advisor-investor relationship.

Companies like Morgan Stanley and LPL Financial Holdings, Inc. have both said that they still plan to move forward with the new standards that they have already worked to create. Hopefully, this idea of working in the best interest of the customer catches on and spreads, on its own, throughout the industry.

Until then, we wait and see.

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If you are a homeowner or have looked at buying a home in the near future, you probably know all about conforming loans. While the limits for these types of loans have remained stagnant for the past decade, steady increases in the housing marking have prompted this ceiling to rise for the first time since 2006. Beginning next year, a wider range of borrowers will now be able to access these types of loans. Rather than being limited to $417,000, conforming loans will now have an increased limit of $424,100 in 2017.

What is a Conforming Loan?

In the United States, mortgage loans are categorized based on whether they do, or do not, conform to the standards set for by Fannie Mae and Freddie Mac. One of these standards is the cost of the home. In order for a mortgage to be considered “conforming” – and be eligible for lower interest rates – it needs to be below the conforming loan limit.

Until this new change was announced for 2017, the conforming loan limit was set at $417,000 for many years. While a jump up to $424,100 isn’t an astronomical difference, it opens the homebuying door to many people who wouldn’t have otherwise been able to qualify for a lower risk, conforming loan.

If you want to buy a home that crosses this conforming limit threshold, your loan is considered non-conforming or jumbo. While these loans are certainly still available, they are considered much riskier to lenders and therefore are harder to obtain. Also, they typically involve higher down payments and a more intense scrutinization of your credit history and/or income. Because of this, they are seen more often with luxury homes, investment properties, or retail spaces.

Conforming loan limits vary by county, as it is relative to the cost of living in that area. The Federal Housing Administration is responsible for setting the national conforming loan limit (which is what will be increased for 2017), but some counties are deemed eve higher cost. As such, they have special higher limits.

In my county, for instance, the conforming loan limit is at the absolute max of $636,150 —  a whopping $212,050 above the standard national limit. Then again, the cost of living where I live is astronomical (Washington, DC area) and home prices stay high, so it makes sense that certain counties are able to get higher loans. If you want to check the conforming loan limits in your own county, Bankrate has a great chart that you can view.

conforming-map

What Does the Increased Limit Mean for Me?

If you are looking at buying a home that was toeing the $420,000 range, this increase may mean the difference between a basic loan and a jumbo loan for you. That equates to a lower down payment, greater chance of approval, and less headache.

Planning to buy your home with a VA loan? You would be obligated to purchase within the conforming limits of your county. A jumbo loan isn’t even an option with these (and other) government-backed mortgages, so the increase may open a few extra doors while finding the home of your dreams.

Why the Increase?

It’s a great indicator of the health and growth of our country’s housing market, that the limit is rising. After the US housing crash in 2007-2008, home costs are on the rise and expected to continue to grow. This is great news for our economy and for anyone whose money is invested in real estate, whether that be their home, rental properties, REITs, etc.

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While the cost of your home isn’t the only limiting factor between your mortgage being “conforming” or “non-conforming,” it’s a big part of it. Non-conforming, or jumbo, mortgages are harder to obtain and often involve more stringent credit/income guidelines, an intense application process, and higher down payments.

If you’re looking at a government-backed mortgage of any kind, you will need to stay within the conforming mortgage loan limits set forth by the FHA. Beginning in 2017, you’ll get a little extra wiggle room. Be sure to check for the actual limit in your county, especially if you live in a high cost area, and happy buying!

Have you ever had to walk away from a dream home because it would have meant a non-conforming loan?

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Why Do I Have More Than One Credit Score?

by Stephanie Colestock
credit-score

At some point in your life, you’ve talked about your credit score. In fact, you’ve probably talked about it many, many times. What it is, how to improve it, how much you paid to get it… But what if I told you that “it” is really just one of dozens of potential scores out there, […]

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Today is the Day to Finish Your Gift-Buying… It’s Free Shipping Day!

by Stephanie Colestock

Well, we’re less than two weeks from Christmas, which means the shopping pinch is upon us. If you’re like me, you’re probably nowhere near done with your Christmas shopping – still have three people to shop for, and we are coming down to the wire. This year, though, I’m avoiding that last-minute, mad dash at […]

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A Penny Saved is $1,000 Earned

by Stephanie Colestock

Are you the type of person who picks up coins on the street? Even pennies? Well, I’d encourage you to step up the habit — and the rest of you may want to take up this hobby, at least for the next few weeks. Ally Bank has a fun scavenger hunt promotion going on right […]

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Trump’s Childcare Plan: How the DCSA Will Affect You

by Stephanie Colestock

Whether you’re taking care of multiple children, a disabled spouse, or elderly parents, you’ve likely experienced the high cost of dependent care firsthand. With expenses from babysitters to after school programs, it can be difficult to stay ahead of all your other financial obligations while spending on dependent care. To help make dependent care more […]

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Today’s Best Bank Deals, Promotions, and Bonuses

by Stephanie Colestock
bank-deals

When opening a bank account, there are a few things you should be looking for: low (or no) fees, the highest interest rates possible, and promotional bonus offers. With the latter, you can often score free money without doing anything extra, which is a win in my book. After all, promotional bonus cash is better […]

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2017 Federal Income Tax Brackets and Marginal Rates

by Stephanie Colestock

As tax year 2016 comes to a close, your focus is probably on filing that tax return after the new year (remember that your deadline is April 17, 2017). The IRS may end up confusing some people, though, as they just released the tax brackets, deduction limits, and marginal rates for tax year 2017. Keep […]

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