Checking your bank or credit union's financial rating
Posted 29 February 2008, 03:00 in Personal Finance Leave a Comment
If you do business with any financial institution, they will undoubtedly check your credit score. Why not do the same to them?
Not all banks are created equal. And although your money is insured for up to $100,000 through the FDIC (NCUA for credit unions), anything over that amount is at risk. Even if you do not have that much money in your bank account, knowing that your money is in good hands is a nice thing to know.
A quick search on any bank’s rating yielded Bankrate.com’s safe and sound service:
Bankrate.com’s Safe & Sound® service is a proprietary system designed to provide information on the relative financial strength and stability of U.S. commercial banks, savings institutions and credit unions. The system employs a series of twenty-two tests to measure the capital adequacy, asset quality, profitability, and liquidity (CAEL) of each rated financial institution.
There are two types of rating system that Bankrate displays. The first is CAEL, which is an analysis of financial data that is submitted to the government on a quarterly basis. The second is Bankrate’s star system, which is basically the CAEL number translated into stars. A CAEL rating of 1 will translate to 5 stars, or superior rating. A CAEL rating of 2 will translate to 4 stars, or sound rating, and so forth.
Hawaii top financial institutions, 3rd Quarter 2007.
I did a comparison between Hawaii’s largest banks and credit unions and found that both have similar safe and sound ratings with the exception of one bank.
First Hawaiian Bank is rated 4 stars, which means that it has a “sound” financial rating. For quarter ending September 2007, FHB’s ROI was 1.68%, compared to the bank industry’s average of 1.0% return. This is good because First Hawaiian Bank is making sound investment decisions and its return is above the industry’s par. On the other hand, American Savings Bank is the only bank that rated below its peer group, with a “performing” rating as a result of measly 0.70% return on investment (at least it was not negative).
HawaiiUSA Federal Credit Union is rated 4 stars, which also means they have a “sound” financial rating. For quarter ending September 2007, HawaiiUSA’s return on investment was slightly less than FHB’s at 1.27%, which is still above par to the credit union industry’s 0.8% return.
I chose to compare banks with credit union only to show that banks are not necessarily better than credit unions. In fact, in terms of services provided, credit unions provide the same type of service as banks but for less. So the next time you are on a hunt for a financial institution, be sure to check out their financial rating to be sure that your money is safe and sound.
Related Links: Bankrate.com Safe & Sound | FDIC: Failed Bank List
A fast way to earn credit card reward points
Posted 15 February 2008, 19:56 in Personal Finance Leave a Comment
A few days ago, UPS delivered a package that was worth $200, and it did not cost me a dime.
Thanks to the American Express membership rewards program, I was able to redeem $200 worth of gift cards to the Cheesecake Factory in a matter of months. In my opinion, American Express has one of the best credit card rewards programs out there. For every dollar that you charge, you earn a point. And for every 2,500 points earned, you can redeem a $25 gift card.
So how did I manage to earn over 20,000 points in a matter of months? By pooling points. As a Blue credit card holder, I am entitled to issue additional cards to anyone that I trust. It is much easier to pool points rather than to charge $20,000 on your own.
A few guidelines to pooling points:
Pay it off! For any credit card rewards program to work, you will need to be sure to pay it off every month. You do not want to go into debt just for gift cards — it is not worth it. Therefore, it is imperative that you pay off your balance every month.
Trust. An agreement is made between each card holder that I authorize under my account. They must have the means necessary to pay off their balance every month. You will also need to trust your authorized card holders (siblings in my case) that they will not charge extravagant things without having the funds to pay for it the following month. Remember that you are responsible for every charge that your authorized card holder makes, so handing additional cards to anyone should not be taken lightly. Or else, your credit score will be affected.
Share the reward. What better way to use your reward than to have a family gathering at a fancy restaurant paid for by American Express? Although you could use the points all for yourself, it does not give the incentive for your card holders to use your credit card. It is also an awesome way to have a nice family outing without the expense.
I stress that reward programs are only good if you pay off your balance every month. You as well as your card holders need to be discipline in charging only what they are willing to pay at the end of the month. Only then will you benefit from pooling points.
Related Links: Membership Rewards Program | Blue from American Express | Cheesecake Factory
Understanding Your Credit Score
Posted 9 October 2007, 14:00 in Personal Finance Leave a Comment
Imagine if we lived in a cash based society, where there were no such thing as credit cards or bank loans. Would you have enough money in the bank to purchase a house? a car? or huge flat screen that you have always wanted? For most of us, we do not have the available funds to purchase these items outright. The good news is that banks are willing to lend anyone money as long as they have a good credit score.
Your credit score may affect you by the following:
- Interest rate that you receive on a loan
- Insurance rate on your auto or homeowners insurance
- Ability to obtain credit
- Ability to obtain employment
Your credit score is broken down by the following:
- 35% Payment History
- 30% Amount of Debt Owed / Debt to Credit Ratio
- 15% Length of History
- 10% New Credit Inquiries
- 10% Credit Types
Payment History 
Lenders want to know if you are paying your bills on time, which is why a huge chunk of your score is weighted based on your payment history. It is recommended to check your credit report and be sure it is clear from any discrepancies, since negative marks will adversely affect your score.
Amount of Debt Owed 
Lenders want to know if you are responsible when money is given to you. If a bank lends you $10,000, will you “max” it or just use a portion of it? A good debt to credit ratio is under 10%. This means that if a credit card company lends you $10k in credit line, you will use less than $1k.
Length of History 
15% of your credit score is based on the length of your credit history. The longer your credit history, the better. Students right out of high school (typically age 18) will not have any credit history. To establish credit, the easiest route for anyone would be to obtain a credit card. Since the length of your credit history is based on active accounts (accounts that have not been closed), you should find a credit card with favorable terms that is at a bank or credit union that you respect and keep the credit card active forever. According to David Bach, author of Automatic Millionaire, “[i]f you close your old accounts, you’re shutting down your credit history.”
New Credit Inquiries 
10% of your credit score is based on whether or not you are shopping for credit. This is known as a hard credit check because it is recored on your credit reports. You should apply for credit only when necessary because every new application will result in a hard check.
Type of Credit 
The last 10% of your score is based on the mixture of your credit accounts. Credit types include installment loans (i.e., student loans, mortgage, auto loan, etc.) and revolving credit (i.e., credit cards). The formula on which combination of credit works best is not published, but one could guess that installment loans are better than revolving credit.
The best place to find your credit score is through MyFico.com, since many lenders use the FICO score as the basis of their decision making.
Related Articles: How to Opt-Out from Receiving Credit Card Offers
Related Links: Credit Education | Nine Steps to a Great Credit Score | Get Ready for Two Credit Scores | How Bad Credit Can Impact Your Life
