Weathering the financial storm

Today's economic environment is volatile and unpredictable  a little like a thunderstorm.

Consumers are following the financial news closely and many feel that the proverbial "rainy day" has arrived. Loretta Abrams, senior vice president of Consumer Affairs, HSBC  North America, suggests the following steps to help weather the storm.

Know your current credit condition: Sunny and clear? Partly cloudy? Raining?

· Many lenders have adopted more stringent underwriting guidelines, so a strong, healthy credit score is more important than ever. Aim for a score of 700 or better.

· Look for and correct any errors on your credit report. Inaccurate information may negatively impact your score.

· Look for any indication of fraud or identity theft. Take immediate action to protect your credit history.

· Verify your account balances and your credit limits.

· Take steps to maintain and improve your score 

Pay all bills on time, even if you only pay the minimum. Don't max out your credit cards (maintain balances at 30 percent or 40 percent of maximum). Don't open credit that you don't need.

Federal law provides that each consumer may receive one free credit report annually, from each of the three credit reporting agencies. Request your free credit report at www.annualcreditreport.com or call 1-877-322-8228.

Bring out your rain gear -- protect your credit and your identity

You should be especially vigilant to protect yourself from schemers, scammers and identity thieves:

· Never provide your personal identifying information to anyone that you did not contact

· Never pay anyone to "stop your foreclosure" or "clean up your credit report."

· Never transfer title to your property to a third party to "avoid foreclosure."

· Carefully review every bank statement, credit card billing statement for signs of unauthorized use or fraudulent activity.

· Shred any personal documents before discarding.

· Don't care more than one credit card; store your financial and personal documents in a secure and protected location.

Check the forecast

· Develop a budget plan for now and the future.

· Look for ways to save on routine expenses: shop the sales, clip coupons, and take advantage of free services.

· Contact your lenders if you anticipate future financial difficulties (resetting ARM mortgage, upcoming seasonal layoff, temporary disability).

· Contact the Chicago non-emergency hotline (311) and asked to talk with a counselor to help you with budgeting.

Build your storm shelter - even in the toughest of times, it's important to have a plan for saving.

· Build or bulk up your emergency fund  Experts suggest that your emergency fund should cover 3 to 6 months of expenses.

· Do not touch your retirement fund. Continue to put money in your 401(K) or other retirement plan. Seek advice from your company's benefit department or your financial planner regarding any needed adjustments.

· Make sure you have adequate insurance protection  life, health, disability, property, auto, etc.

· Plan to eliminate or pay down debt. If possible, aim to pay more than the minimum amount for your loans, especially credit cards to avoid the high interests. Prioritize paying down debt and pay credit card that has the highest interest rate.

A Credit Score Primer from YourMoneyCounts.com

Your credit report is unique and, in some cases, quite lengthy. While it's a helpful tool for a potential lender, credit reports can take a long time to analyze. That can postpone a lending decision, which usually isn't good either for you or the lender. Credit scores were developed to help speed up the lending-decision process, as well as to help ensure credit reports are analyzed consistently.

A credit score assigns a number to your creditworthiness  based on your credit history. The calculations are complex and take into account a number of related factors. Typically, credit scores range from 300 to 850, though different companies use different scoring models and the ranges vary slightly. The better your credit history, the higher your credit score, and the more likely you are to be approved for credit or offered a favorable interest rate.

Nowadays, potential employers evaluating you for a position that requires a high degree of responsibility and organizational skills, or employers that require their employees to be bonded can also view your credit history. This means that a negative history might affect your chances of getting a job. Insurance companies, landlords and cell phone companies may also view your credit report, and might deny you services if your history isn't favorable.

Your credit score is typically based on:

Whether you made payments on time: if you've been late with payments, your score will be lower (35 percent)

The total balance you owe compared to your available credit : the larger the balance, the lower your credit score (30 percent)

How long you've had a credit history : the longer your history, the better your score (15 percent)

How much new credit you have : a lot of new credit lines or even requests for credit, known as inquiries, can lower your score (10 percent)

The kinds of credit you have: lenders like to see experience with both revolving credit, such as credit cards, and installment debt such as auto loans or mortgages (10 percent)

Your payment history, or whether you make payments on time, weighs most heavily when your credit score is calculated. That's why it's so important to avoid making late payments. Even one or two slip-ups can lower your score.

Take advantage of free resources on YourMoneyCounts.com, available in both Spanish and English, to find information that will help you manage your finances.

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