Archives For Credit

In the last post, one of the questions I asked Charles Geisst was about usury laws. For those of you not familiar with the term, usury laws are essentially caps on the rate of interest that lenders are allowed to charge borrowers. In the past, usury laws were set at the state level but have pretty much disappeared over the last few decades.

Charles Geisst is calling for national usury laws. EDIT: He doesn’t mention a specific rate in his book, so I sent him an email and asked him what kind of rate he was talking about. His response: “Probably set it to float at about 400 basis points above conforming mortgage rate[s].”

My question to you is:

Do you think we need usury laws? Why or why not?

My opinion….

I hate regulation but in this case I think some sort of cap is a good idea. Here’s why I think this way:

Extremely high interest rates are usually charged to those who have no business borrowing money in the first place. The high interest rate, though compensating the lender for the increased risk of loaning money to people of limited means, only seems to insure that the borrower will default or at least not be able to meet the payments, requiring them to take out another loan. Peolpe who borrow money at extremely high interest rates are almost destined to fail.

Of course the issue with placing caps on interest charges, is that it will force payday lenders out of business. It will also most likely lead to loan sharks—a sort of black market for money. But, for all I know, those people may already exist.


Student Loan Sob Story

August 26, 2009

I’m only writing about this because the guy in this story left a comment on this post along with a link to his website, No wonder why this guy wants his debt forgiven and why he founded his website:

My name is Robert Applebaum. I am a 35 year old attorney from Staten Island, NY and the founder of This movement began as a proposal I wrote one morning on a Facebook Group called “Cancel Student Loan Debt to Stimulate the Economy.” This is my story:

I am a 1998 graduate of Fordham University School of Law – an education I financed through the Federal Stafford Loan program. By the time I graduated from law school, I had amassed approximately $65,000 in student loan debt.

Starting in 1999, I began working as an Assistant District Attorney in Brooklyn, N.Y. where my starting salary was $36,000 per year. With a strong desire to use my education to serve my community, I was forced to place my loans into forbearance because I simply could not afford to make student loan payments while paying rent at the same time.

Thanks to “capitalized interest” – a racket whereby interest continues to accumulate, which then gets tacked onto the principal, the amount I owed grew exponentially over time. After five years of service as an ADA, while watching my student loan debt grow at an alarming rate, I was forced to make the unfortunate decision to leave a job I loved simply because I felt that I needed to begin to pay down my student loan debt. But for that debt, I likely would have continued in public service indefinitely.

For the next five years, I made regular payments on my student loan debt, never once defaulting on my loans and I continue to make payments to this very day. Despite five years of regular payments, and because of the first five years during which my loans were in forbearance, my principal loan balance is more than $20,000 higher today than it was on the day I graduated. Unfortunately, I’m not alone.

Apparantly Mr. Applebaum has NO IDEA how interest works. You see, people and companies don’t loan money for free. The $65,000 Mr. Applebaum racked up had to come from somewhere. It was loaned to him with the stipulation that it would be paid back at some point in the future with interest. Mr. Applebaum didn’t understand this and then when he figured out he couldn’t pay back the loan, he was surprised to find out that the interest was being tacked on to his loan amount, and therefore increasing his debt.


Come on Mr. Applebaum. You’re a lawyer. You can’t figure this stuff out?

You made a mistake and it shouldn’t be up to the American taxpayer to bail you out. Instead, why don’t you look for a better job or move to a place with a lower cost of living so that you can afford to pay back your loan and pay rent?

I don’t mean to pick on Mr. Applebaum. But, publicizing his plight and asking for the Federal Government to step in and magically wipe away his debt is just too much for me to handle.

Stacey sent me a link to this piece on forgiving student loans. It’s short, so read it and tell me what you think. The main question is:

Should we forgive student loans as a way to stimulate the economy?

I say NO. Actually I say HELL NO!

Lots of college students bought cars too. Should we forgive those loans too? I’m joking of course, but how far are we supposed to take this loan forgiveness stuff? It’s silly if you ask me.


Thanks for the link, Stacey.

RELATED: Smart Spending: Should Feds Forgive Student Loan Debt?the comments are along the same lines as AFM’s readers.

Check out this graphic I found on the myFICO website:


I took the information found in that chart and made another graphic showing just how much interest a person would pay over a 30-year mortgage depending on their credit score:

FICO and Mortgage Interest

As you can see, the difference is significant. Just moving from the second highest to the highest FICO Score ranges saves you nearly $10,000 in interest over 30 years (even more if you factor in growth on the $27 per month payment difference). The difference from the lowest to the highest ranges, is nearly $100,000 in interest expense over 30 years (or nearly $200 per month)!

My advice to anyone looking to finance a purchase is to first GET A HANDLE ON YOUR FICO SCORE! The $16 spent to find out your score is an investment—especially if you have no idea what your FICO score is. The information provided to you by myFICO is easy to understand. They also show you areas that are hurting your score and things you can do to improve it.

Then take the time and effort to improve your score. Remember the two most important areas of your FICO score are:

• How timely you are with your payments, and

• How much you owe compared with your total available credit.

I would keep those in mind, along with the other items that go into calculating your credit score (found here) if a major purchase in your future.


My FICO Score is 794. What’s Your Credit Score?

The 2009 Personal Finance How-to Roundup

Bureaus Roll Out New Credit Score Formula for 2009

How Long Will It Take to Improve a FICO Score?

Here’s a couple pointers from the latest issue of Money Magazine on how to improve your credit score:

Remember your credit card utilization rate, which is your total card balances compared to your total credit limits. To calculate this, divide your credit card balances by the total available credit. Money recommends trying to keep it at 10% but says this will be harder to accomplish with credit card companies slashing available credit and closing accounts.

Keep your oldest cards in play. The length of your credit history plays a role in calculating your FICO Score so it’s a good idea to keep your oldest credit cards active. This could be something as simple as putting a monthly charge on your card and paying it off monthly.

One last thing, the article included a graphic that showed what goes into a FICO Score. They had a pretty graphic but I’ll break it down for you in percentages:

35% How timely you’ve been with payments.

30% How much you owe compared with your total available credit.

15% How long a credit history you have.

10% Whether you’ve recently taken on new credit/debt.

10% What mix of credit types you have.

As you can see, the first two are EXTREMELY important. DON’T BE LATE and DON’T CHARGE TOO MUCH!


My FICO Score is 794. What’s Your Credit Score?

The 2009 Personal Finance How-to Roundup

Bureaus Roll Out New Credit Score Formula for 2009

How Long Will It Take to Improve a FICO Score?

After reading an article in the latest Money magazine about credit scores, I decided to check my wife’s and my score. I used found out my score was 794. Pretty good. It said that the only thing hurting my score was that I had 4 accounts with balances. One of those is our Visa Rewards Card and another is a Best Buy Card for a TV purchase we made at 0%, which will pay off in October. No big deal. Another account is a car loan that will pay off next May.

I then ran my wife’s number and found out it’s 802! GEEZ…

My wife has two accounts with balances, which helped her score. The only thing hurting her score was that she has 35 accounts. I’m going to look into this one. They don’t give much information on how to fix this one.

So, what’s your score?

Here’s today’s Question of the Day:

Do you take advantage of 0% Financing Offers?

I have in the past when I purchased a TV from Best Buy. I had the option of paying full price in cash or finance the product for two years at 0% interest. I had the money available to pay for the TV outright. The decision to me was a no-brainer. I chose to finance it for two years with no interest. This was a large purchase so I figured I would get to keep my money in my high-yield savings account and take my time paying off the purchase since it was “free money.”

I set up my bank account to make the monthly payments to help make sure that the payments were made on time.

Of course there is a risk to my strategy. If I missed a payment my interest rate would soar. There’s also the chance that something might come up and I wouldn’t have the cash available to pay off the purchase IF I needed to. There are also deferred interest charges that will be charged on the account if I don’t pay it off in time. So there are risks.

One other disadvantage to buying on time is that I have a monthly payment. I HATE monthly bills and try to eliminate as many of them as possible.

So, what about you? Do you take advantage of 0% financing offers or do you pay cash anyway?