Money Blue Book

We live in an extremely politically correct country these days, which means anyone who even mentions anything negative about someone different (like negatively pointing out a foreign accent), or criticizes someone for their inability to speak the language properly, he or she is immediately labeled as prejudiced, racist, or somehow inciting hateful views. I’m truly none of those things, but I feel a personal finance blog platform is as good as any to express my own personal views about my own experiences on the matter. While I was born overseas, I came to the U.S. when I was only 2-3 years old, so I’ve pretty much grown up as an American and learned to identify strongly with the crux of American culture and its values. While a key component of American culture is the ability to embrace diversity and appreciate differences between different types of people, both foreign and domestic, there are some circumstances when I greatly prefer the services of a fellow American.

This preferential situation comes up whenever I call a live customer service help line. When I pick up the phone and make that affirmative decision to seek help via a toll free telephone number, my reasonable expectation is that I will reach someone who can communicate with me in an intelligible way, and help me resolve my consumer business problem quickly and efficiently, so that I can go along my merry way. It’s bad enough that I often have to spend 30 minutes or more waiting on hold before I can talk to a live technical support representative, but these days, it seems when I finally reach that live person, he or she turns out to be completely unable to communicate with me using comprehensible and discernible English.

I Can Deal With Difficult To Understand Accents In Real Life (By Using Hand Gestures), But When The Situations Happen Over The Phone, The Conversations Can Get Comically Tedious

I am terrible when it comes to understanding different accents. Even British English accents trip me up on occasion – but at least it is somewhat closer to American English in terms of speech and pronunciation, albeit a bit more deliberately pronounced I suppose. While I can understand the different types of American English accents such as a southern, Boston, and even accents that distinguish different races and ethnic groups prominent in this country, I still have frequent difficulty understanding the cultural nuances and accents that aren’t considered mainstream American English. This difficulty in understanding foreign accents is most pronounced and debilitating when it comes to conversations over the phone with someone from another land, especially when I find my phone call re-routed to some outsourced call center located overseas and wind up with a customer service rep who speaks with a thick accent that I simply cannot understand despite my best efforts.

While in a real life conversation and business work setting, heavy accents aren’t as significant a detriment as there are other methods of communication such as using writing and through natural hand gestures to punctuate one’s point, in the world of customer service telephone calls, this type of linguistic verbal diversity is a significant detriment and handicap. When it comes to customer and technical support help lines, communication and speed are two important elements to a quick and satisfactory resolution of the problem at hand. There are plenty of jobs where having a perfect American English accent is not crucial and one can get away with not having otherwise perfect American English, but a position as a customer service call representative that caters to Americans is not one of them. The job absolutely demands that the agent be able to communicate with the language of the target country. Is that really too much to ask? Oftentimes in such scenarios, time and patience are limited luxuries. In such situations, having a thick accent is a very undesired handicap to have, particularly when the issue needs to get resolved quickly over the phone in a short period of time without the benefit of time to get to know each other. This is the biggest problem many customers such as myself are having with companies that continue to outsource their customer service call center jobs overseas to English speaking, but heavily accented countries like India.

Facing An Indian Customer Service Representative With An Incredibly Thick Accent Is Like Talking To A Brick Wall – Nothing Gets Through, and Time Is Wasted

When American call center customer service jobs are outsourced to other countries, I think it’s reasonable to expect the call agents that will be handling the calls to be trained to speak in proper America English. However that is not always the case. Especially when it comes to Indian call centers, the accent is often an interesting mish mash of British English, local Indian dialect, and butchered American English. What often comes out is an unintelligible murmur, resulting in humorous and frequently embarrassing exchanges between the rep and the customer.

A few years ago, I bought a Linksys wireless Internet router, but had major trouble setting up my wireless connection. I kept losing my wireless internet signal and so I embarked on a customer service phone call quest to solve the problem. I dialed the company’s 1-800 number and was promptly connected to an agent. Little did I know, but my call from Maryland, USA was instantly routed thousands of miles across the planet to a different time zone to a call center in India. Immediately when I heard the agent’s accent, I knew it was going to be a long day. It started as soon as my phone rep introduced herself with a thick Indian accented “Hello”…followed by a …”my name is Mary”, a presumably English name moniker chosen by the Indian customer service rep for the convenience sake of their mostly American clientele instead of compelling them to remember a more difficult Indian name. For the next 60 minutes, I struggled valiantly to understand her words and sentences. I tried to remain polite and understanding, but I kept asking her to please repeat herself, much to my continued embarrassment. Every sentence on her part would be followed by a “What?” on my end, or would be followed by a momentary pause as I scratched my head and tried to figure out what she was trying to tell me.

After a while, I could tell she was getting fed up with having to repeat herself after every instruction, but then what was I supposed to do? I desperately tried to understand, and I really did try – but it was a constant guessing game on my end. I simply could not comprehend the Indian customer service representative’s thick Indian English accent. At the end, I got little accomplished because she and I were simply unable to communicate. I found myself spending more than an hour repeating her own words back in my vain attempt to make some linguistic sense. Eventually I had to give up and seek help from another customer service rep. The next rep’s Indian accent was just as thick and I ultimately had to call back several times before I finally found an agent who’s accent was more bearable. But the experience left me with a very negative view of the company and their irresponsible cost cutting efforts to send customer service jobs overseas when the work could be better handled here.

American Companies Who Cater To American Consumers Should Seriously Re-Consider Their Indian Outsourcing Strategy Or Face Consumer Backlash In The Long Run

This is a serious problem that many major American companies who choose to outsource their call center jobs to low cost foreign countries will ultimately have to face. Customers such as myself may eventually take our customer service frustration out on the company and defect to one of their competitors. Based on some news reports I’ve read, many companies that have attempted to outsource their customer service functions abroad have not realized the cost savings they expected, discovering that there are hidden costs that far outweighed the potential savings in labor expenses. Oftentimes, due to significant customer complaints about difficult to understand customer service representative accents and great differences in culture, companies have had to expend significant amounts of additional money to train the agents on proper American English and terminology. Ultimately some of these outsourcers have brought those type of jobs back in-house and back into the country.

Faced with backlash from customers like myself who have great difficulty understanding heavily accented Indian English, some companies are actually taking the next logical alternative step by shipping the work over to other moderately English speaking countries, like the Philippines. As a former U.S. controlled territory, the Philippines at least offers a more Americanized work force with a better understanding of American culture that can potentially offer employees with lighter accents. There will still be an annoying accent to deal with, but at least the twang, so to speak, will be significantly less painful to understand than that spoken in India.

There are currently also signs that the trend toward outsourcing call center jobs to low-wage countries like India or even the Philippines may be slowing down. Research shows that some call centers are most effective when staffed by Americans and there is at least some growing attempt to keep jobs here. I’ve noticed that many companies are now trying to keep the bulk of their daytime customer service call center jobs in the United States where the calls can be handled by American English speaking agents. For customer service lines that provide 24 hour coverage and take on evening calls however, some still get routed overseas to places like India, but many daytime calls are now being mercifully handled by call centers in the U.S. At least that’s what I noticed recently when I called my cable internet provider’s help line several times recently. When I called during normal daytime office hours, I got a service rep that spoke perfect English, but at night, I basically played the ole accent guessing game, doubling and even tripling the length of time spent trying to resolve my problem.

For those of you out there who are embarrassed to admit but also have difficulty understanding accents, I recommend making your 1-800 customer service and technical support phone calls during the day. Sure that means using up your precious anytime wireless phone minutes, but you stand a much better chance of reaching someone in this country than if you called after hours.

Updated With The New and Current FDIC Insurance Limits For Bank Deposits! (New Law Went Into Effect October 3, 2008)

As the American and world economies endure a period of economic recession, the once stable and thriving marketplace can seem like a distant memory. Not only does it seem like unemployment warning flags and disappointing corporate earning reports lurk around every corner, it’s all too easy to succumb to the financial despair. When you combine the mortgage market meltdown with increasing housing foreclosures, and you mix that with high gas prices, fears of another major Islamic terrorist attack, and snowballed consumer pessimism, you have a spicy cocktail for widespread financial depression. While I’m not a financial fortune teller, nor am I a guru who can predict when the recession or lingering credit crisis will pass, all I can do is reassure you of areas in your life where you ought not to be overly distraught or paranoid about.

One segment in the economy that has spawned a huge surge of concern and irrational panic is the area of bank failures and bank bankruptcies. Because of the excessive subprime lending to consumers totally unqualified to receive home mortgages made by irresponsible mortgage lenders in the past few years, the economy is now reaping the terrible financial whirlwind result of defaulting loans and home foreclosures. This calamity is currently happening on a massive scale as huge banking giants like Citibank and Bank of America, as well as major thrift saving institutions like Washington Mutual are getting pummeled for their ties to bad mortgage loans. Unable to recoup their housing mortgage investments, many of these financial service providers are having to write off billions of dollars of unrecoverable bad loans, triggering serious questions by creditors, deposit account holders, and shareholders of their ability to continue as viable going concerns.

Bank Failures Have A Way Of Sparking Emotional Panic, Regardless Of The Government Effort’s To Alleviate Fears

While most major banks have healthier segments of their financial businesses to siphon assets and capital from, thereby allowing them to stay afloat, a few have not been so lucky. Netbank, an online banking institution that was one of the first early adopters during the initial Internet banking craze, ultimately keeled over due to the disintegration of its mortgage business segment. When its asset position could no longer meet depositor demand, federal regulators swooped in to shut it down, forcing Netbank to ultimately file for bankruptcy.

Banking and mortgage services giant Countrywide Financial recently faltered under the crushing weight of bad mortgages as well, and was ultimately acquired by Bank of America at an extremely huge discount, saving it from near collapse.

Most recently, IndyMac Bank fell flat on its face, triggering shock waves that signified the United States’ second largest banking collapse in history. Due to the sheer financial size of IndyMac bank, and the large scale and huge number of account customers the banking collapse affected, the news triggered panic attacks and resulted in reports of huge lines of desperate customers clamoring to get their deposit money out of the bank out of fear of the unknown. Despite the federal government’s announcement that the vast majority of deposit holders would not lose a single cent of their money, news of catastrophic bank failures have a way of making consumers go crazy and act in irrationally frenzied ways. As someone who considers himself relatively educated about the subject of finance, even I have to admit I was disturbed by the sheer magnitude of the Indy Mac bank collapse. After all, if IndyMac could fall, who else could potentially be next? I felt a slight tinge of emotional panic despite my otherwise logical and rational mental faculties – and I wasn’t even an IndyMac banking or home mortgage customer. But yet, I still felt the reactive emotional ripples that made me question my faith and trust in my bank and the economy at large. While bank failures are incredibly rare, they do happen – especially when there is a significant and pervasive trigger (the subprime mortgage meltdown) that is causing the financially destructive domino effect.

Thus, that is why it is extremely important for us, as cool headed consumers, to greatly educate ourselves on the types of financial and banking protections the system has in place to shield the money we save up in banks, savings and loans, and credit unions from loss. By learning more about how the federal government, the FDIC, and private bank risk sharing agreements protect our deposits, the more our fears will diminish, thus helping to solidify our faith in our banking institutions. We live in an efficient market where there are powerful protective systems in place, and proper financial education will help to reinforce that confidence. Thus sometimes, “the only thing we have to fear is fear itself – a nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance” (a powerful quote made by former U.S. President Franklin D. Roosevelt during the Great Depression).

How Does FDIC Insurance Keep Our Bank Accounts and Deposit Money Safe?

The Federal Deposit Insurance Corporation (FDIC) is a federal government run entity that provides deposit insurance protection for participating member banks – guaranteeing their deposit accounts from loss. The FDIC system was set up to instill consumer confidence in our nation’s banking system during a time of severe economic recession and financial turmoil. To prevent massive runs on banks triggered by irrational consumer panic to withdraw money during times of crisis, the United States government set up the FDIC to guarantee depositors at insured banks that their money would always be safe, even during the worst of times.

As a general rule of thumb, the current FDIC insured amount per depositor at each bank is $250,000 (with extra exceptions for different ownership categories). This blanket protection insures member bank accounts from bank failure loss, up to the maximum insured amount of $250,000. The FDIC protection covers a variety of bank deposits, including – checking accounts, savings accounts, money market accounts, certificate of deposits (CD’s), and even bank money orders and cashier’s checks. However, the FDIC protection does not cover non bank deposit type accounts and assets like – stocks, bonds, mutual fund investments, variable or fixed annuities, U.S. Treasury securities, or contents stored in safe deposit boxes. As FDIC insurance only covers bank failure loss, it also does not provide protection against bank fire, fraud, or theft, although in the overwhelming majority of cases, individual banks usually have their own private hazard and casualty insurance coverage against these other types of loss.

The FDIC also provides loss protection for retirement accounts held in member banks in the form of deposits. The FDIC limit for retirement accounts, which includes self directed plans like Roth IRA’s, Traditional IRA’s, SEP’s, and Keogh’s, currently stands at – $250,000. The higher FDIC limit for retirement accounts is a clear recognition by the FDIC of the importance of ensuring that consumers always have their retirement nest eggs to fall back on.

How Does The Federal Government and The FDIC Monitor The Banking Industry?

While by no means a perfect system, the banking industry is highly regulated by the federal government and watched by multiple federal agencies – including the Federal Reserve, the U.S. Treasury’s Office of the Comptroller of Currency, the FDIC, and the Office of Thrift Supervision. Along with state banking regulators, there are multiple sets of eyes at all time on the state of the banking market. While bank failures are incredibly rare, they do happen on occasion unfortunately.

In such an occurrence, as soon as the federal and state regulators determine that a bank no longer has the capacity to meet depositor demands and sustain sufficient capital due to insolvency problems, the FDIC barges in to take command. Once it takes control, the execution is usually fairly rapid as the FDIC is highly motivated to ensure a seamless transition. Until the FDIC can find a suitable buyer of the failing bank’s assets, the bank generally continues to run as usual without significant interruption. In the rare event the FDIC cannot find a suitable buyer, it closes down the ailing bank and sends out checks to all account holders within the FDIC insurance limits along with interest. Usually the FDIC payments are sent out in a matter of days.

For Those Banking Customers With $250,000 Or Less In Total Bank Deposits, Your Money Is Fully Covered By The FDIC

If you are a young student or a person with relatively low income with little in the way of financial or banking assets, you probably won’t have to worry too much about losing your money in the event of a bank failure. If your total bank deposits are less than $250,000, you can rest assured that the full faith and credit of the United States government has your back. The ones that have to be more vigilant in how they structure their checking and savings account deposits are those with more than $250,000 in total deposits. Those with more than $250,000 in deposits will need to pay greater attention to how they break up and consolidate their money among FDIC insured banks to ensure maximum FDIC protection against loss.

For Those With More Than $250,000, You’ll Need To Pay Attention To How The FDIC Provides Separate Coverage For Different Ownership Categories At Any One Bank

While I personally don’t have more than $250,000 in total bank deposits that require me to even worry about this problem (yet!), it’s something I want to know more about because I know one day I will reach that goal (why dream if you can’t dream big). It’s better to know how to structure your bank deposit portfolio now and plan for that occasion, than not know what to do when you reach that point someday in the not too distant future.

While the FDIC insurance program protects individual bank depositors up to a maximum of $250,000 per bank, there are clever ways and not-so-secret methods to get you around this protection limit. The primary way to accomplish this is through deposit account diversification. By splitting your total deposits into multiple ownership category accounts or splitting your assets among different FDIC insured banks, you can ensure full protection of your money. Remember, bank deposit accounts at different banks are insured separately (although all bank branches are considered part of the same bank). Thus, each bank has its own complete set of FDIC coverage limits.

At any one bank, the FDIC offers each category of ownership account its own individual coverage cap. There are different types of ownership categories, each with its own $250,000 FDIC insurance limit. You can go straight to the official source if you want to know more about the FDIC’s policy on ownership categories, but the more common ownership categories are listed here. Remember, each ownership category (single account, joint accounts, etc) gets its own $250,000 FDIC coverage limit:

• Single Accounts – Most consumer bank accounts fall into this category, which covers checking, savings, and CD’s. Basically, if your bank account is in your name only, its ownership category is probably that of a single account. Single accounts also include sole proprietorship business accounts you may own at the same bank (DBA, “Doing Business As” type businesses). All personal and sole proprietorship business deposit accounts at the same bank are added together as single accounts and insured up to the combined maximum FDIC limit of $250,000.
• Joint Accounts – Joint accounts are simply bank deposit accounts that are owned by two people or more at the same bank. While most joint accounts are held by married couples, joint account owners don’t necessarily need to be married. For example, while I have my own individual bank account at a local Chevy Chase Bank, my mom and I also jointly hold a separate shared deposit account at the same bank. Individuals can have multiple joint accounts at the same bank, each with joint ownership involving different people, but when it comes to calculating the total FDIC limit for the joint account category, all proportional shares that each individual owner owns in all joint bank accounts at any one bank are added together and insured up to $250,000 for each individual. Thus, while a joint deposit account for a married couple may appear to enjoy a higher $500,000 FDIC limit, it’s actually made up of two separately capped $250,000 limits – one for the wife, and one for the husband.
• Trust Accounts – Both revocable and irrevocable trusts get their own FDIC insurance limits of $250,000. By listing others as beneficiaries, one can strategically use trust deposit accounts to get around the usual FDIC individual caps. For example, both a husband and wife can set up 2 separate revocable trusts in each other’s names to get an extra total $500,000 FDIC limit on top of their other single and joint account limits.
• Business Accounts – I’m sure business owners feel the FDIC insurance deposit limit for business accounts are currently much too low, but as it currently stands, bank deposit account funds held by corporations, limited liability companies (LLC’s), and partnerships at any one bank are combined and insured up to a maximum FDIC limit of only $250,000 (much too low in my opinion). Keep in mind, sole proprietorship business accounts are lumped in with single accounts.
• Retirement Accounts – Self directed retirement accounts where the account holder gets to decide what to do with his or her money, are offered much higher insurance limits under the FDIC – at $250,000. This particular ownership category includes the following retirement plans – individual retirement accounts (IRA’s), Roth IRA’s, Simplified Employee Pension Accounts, and Keogh Plan accounts. All retirement account deposits held by an individual at a single bank are added together and insured up to a maximum FDIC limit of $250,000. However, keep in mind, retirement account assets invested in stocks, bonds, and mutual funds are not FDIC insured as you’re actually investing through a broker with a working relationship with your bank. The FDIC coverage only protects retirement bank deposits, not investments.

Those With More Than $250,000 In Bank Assets Should Shift Bank Deposit Money Into Joint Accounts To Maximize FDIC Coverage

Because the FDIC provides $250,000 total protection limits for each ownership category, including $250,000 for self directed retirement accounts at the same bank, consumers may be able to greatly increase their total overall financial protection by splitting their money among different types of ownership accounts at the same bank. For example, if you have an individual savings account with total deposits valued at $600,000, you need to be extra careful about bank failure. In the event your bank fails or is suddenly unable to meet depositor demands, you stand to potentially lose $350,000 because only $250,000 worth of assets in the single account category are covered. The solution is not to open up multiple bank accounts like checking accounts or CD’s as they are all of the same ownership category and doing so won’t increase your overall FDIC limit. The best way to diversity and boost your FDIC limit is to spread your deposit among different ownership categories or among different banks. In the case of the hypothetical individual $600,000 savings account, it would be advisable to take at least $350,000 from that savings account and shift it into a joint account with your spouse, thereby sheltering the $350,000 under the $500,000 ($250,000+$250,000) total joint account FDIC limit. You might even want to make sure you give each deposit account extra room under the FDIC cap to allow interest to accrue, but still remain fully protected.

To reiterate the point about ownership categories, let’s say you went to Wells Fargo and opened up a brick and mortar checking account, an online high interest savings account, and set up a few CD’s – your total coverage limit will still only be $250,000. However, if you opened a joint account with you and your wife or husband, while opening up your own individual checking account at the same time, you will be able to receive $250,000 coverage limit for the checking account, and another separate $500,000 total marital pool coverage limit for the joint account.

Business Accounts Are Covered By FDIC Insurance, But Depending On Type Of Business Entity, They May Or May Not Boost Your Overall Coverage

Depending on business type, a business bank deposit account may or may not enjoy its own separate $250,000 FDIC limit apart from the individual’s cap for single accounts. Because a sole proprietorship and the individual running it are regarded as one and the same for taxation and legal purposes, the FDIC treats sole proprietorships as single accounts for assessing the extent of FDIC coverage. Thus, opening a sole proprietorship business at the same bank as your consumer checking or savings account will not allow you to gain extra coverage.

Only partnerships, limited liability companies (LLC’s), and corporations are able to qualify as separate ownership categories for additional FDIC insurance coverage. Because the FDIC regards certain business entities as separate ownership categories for FDIC insurance purposes, it is not uncommon for clever but sneaky business types to express interest at creating phantom, dummy businesses for the sole purpose of inflating FDIC limits. However, FDIC regulations expressly forbid this practice and stipulate that business accounts for partnerships, corporations, and other unincorporated associations need to be engaged in an “independent activity” such that the business is not engaged primarily in boosting FDIC insurance coverage.

Further Bank Account Diversification Strategies Using Multiple Banks To Increase FDIC Coverage

Because FDIC insurance coverage is offered for not only different account ownership categories, but also for different banking institutions, the recommendation by some pundits for high networth individuals is to spread one’s assets among a multitude of banks. Because each bank offers its own set of bank failure protection limits by the FDIC, savvy account holders are often advised to sacrifice some of their deposits made at just a handful of high yielding banks for greater diversity by spreading it among a greater number of deposit institutions. Let’s say you have $750,000 in a high yield savings account at HSBC Direct that you want to fully protect under the FDIC. If setting up joint accounts to boost FDIC coverage is not available to you as a viable option, you could instead open up accounts at say, Bank of America and Wachovia, shifting $250,000 into each of those two new savings accounts. Thus, your total $750,000 portfolio would now enjoy separate $250,000 FDIC coverages at three different banks. As I mentioned above, in such an event, you may actually want to consider breaking up the $750,000 into four total banks instead of just three to give yourself room to grow in interest and stay fully protected.

One alternative way to shift your banking assets among different banks without actually having to run around the neighborhood or Internet looking for new banks is to participate in a Certificate of Deposit Account Registry Service (CDARS). Banks that are members of the CDARS network do the leg work for you by breaking up CD deposits into smaller size chunks that are separately held at different participating network banks. However, your funds continue to enjoy a single point of access at your primary bank with one statement and one interest rate. The practice is rapidly growing in popularity and I highly recommend it as a wonderful and hassle free way to diversify your banking holdings for maximum FDIC protection. Here’s a list of banks that participate in the CDARS network. One downside of using a CDARS bank is that they tend to be smaller, regional size community banks. Some people like smaller community banks, the type of place where everybody knows your name. However, I highly prefer mega-corporate size banks as they tend to resonate more stability and are better capitalized in my opinion. There are only a tiny handful of large institutional banks participating in the CDARS network at this time. Furthermore, because of the CDARS network fees that banks pay for each CDARS transaction (there is no fee to the customer), CDARS deposit account interest rates tend to be lower than that offered by more competitive non-CDARS banks.

However, if I had financial assets in the neighborhood of millions of dollars and account diversification was on my mind, it is unlikely I would be spending my time worrying about FDIC insurance limits. I would probably have the bulk of my money either invested in mutual funds, index funds, money market funds, or other broadly diversified investments that have never been known to actually fail. Frankly, I don’t even think broadly diversified investment assets could ever technically fail – in the worst case scenario, they would simply gradually lose their stock value over time. Buying super secure assets like U.S. Treasury Bills and Treasury Bonds would be viable alternatives for high net worth individuals as well. While U.S. Treasury products are not FDIC insured, they are fully backed by the full faith and credit of the United States government. The federal government could simply print more money if financial Armageddon necessitated that course of action.

After months of waiting and checking my mail box regularly like a little kid waiting for his video game to arrive, I was finally relieved to discover a little envelope from the United States Treasury yesterday – my long awaited 2008 Economic Stimulus Payment check had finally arrived! Cha-ching (punctuated with a few obligatory fist pumping motions).

Actually, about a week ago I had already been given written notice that the check was on its way. I received one of those pointless waste of paper junk mail letters from the Internal Revenue Service (IRS) letting me know that I was entitled to an economic stimulus payment check as provided by the Economic Stimulus Act of 2008, and to expect its arrival in a week or so. The letter also provided a simple breakdown of how the federal government calculated my small time stimulus payment.

But what was the point of sending this predecessor letter out to let me know this? Why is the IRS and federal government so oblivious and wasteful when it comes to wasting millions of dollars on paper and delivery costs to send out these pointless letters? Why not just combine the calculation breakdown letter with the actual stimulus rebate check that I received yesterday rather than sending them separately on different weeks? The financial savings for the federal government could easily have been several million dollars. Especially since we are now in an economic recession and the government keeps griping and raising issues about needing to balance the budget, and even some of the presidential candidates like Barack Obama keeps talking about raising taxes against those with higher incomes to pay for more federal government programs, why not practice some fiscal sense now by adopting real cost cutting techniques? The government’s habitual wasteful spending activities truly baffles me sometimes.

How My Economic Stimulus Tax Rebate Was Calculated

While I had hoped to receive my economic stimulus rebate via direct deposit, because I filed my 2007 tax return through TurboTax and actually owed a sizable amount of taxes, I was not able to provide my bank account routing numbers on my tax return for direct deposit purposes. Thus I was one of many who had to wait for my economic stimulus check to be mailed via the postal service.

Taking a look at my rebate, here is how my actual stimulus payment was broken down, in case you’re wondering. Because my adjusted gross income on my reported 2007 federal income tax return was above $75,000, the IRS reduced my stimulus payment by 5% of the amount of my adjusted gross income exceeding $75,000. As such, with my single filing status starting qualification amount of $600 increased by $0 for my lack of qualifying children, but reduced by $230.25 for the adjusted gross income limitation, my final calculated stimulus payment turned out to be only $369.75. It’s not a whole lot, especially since the cost of living in my D.C./Maryland suburban neighborhood is pretty high, but I suppose every little bit helps me pay the bills in the grand scheme of things.

How I Plan To Spend My Economic Stimulus Check, and Its Impact On My Future 2008 Tax Return

I’m obviously elated to receive my tax rebate check finally after all these months, but after looking at the relatively small amount, it sort of leaves me wondering, how is this small amount of money really supposed to stimulate the economy to any significant degree? While the check is certainly free windfall money in the sense that I wasn’t really expecting it or planning for it until recently, the amount isn’t really large enough for it to be good for much.

I considered several financially smart as well as a few fun but reckless ways to spend my tax rebate, now that I have it in my hand. Here are the choices and possible options I came up with:

1. Use the economic stimulus payment to help pay my rent – The downside is that with a pricey monthly rental obligation of $1,425.00, this small economic stimulus payment isn’t likely to make much of a dent in my case.
2. Deposit the small stimulus rebate into my high APY savings account to earn interest and help build up my backup emergency fund – I usually try to keep at least enough liquid cash in my savings account to last 6 months. I advocate more emergency fund savings than most, but I think this offers greater peace of mind. In this recession, you never know what unfortunate events may strike when you least expect it – everything from out of the blue vehicle repair charges to sudden unemployment necessitating the need to file for unemployment insurance benefits.
3. Save the stimulus rebate for retirement and contribute the amount towards my Roth IRA retirement fund. This is a good way to plan for the future. Great for you, but not so good for the economy (at least for the present time).
4. Pay off debt – While this sounds like a logical choice, other than my usual monthly revolving credit cards bills that I always pay off in full, my 0% APR balance transfer credit card arbitrage funds, and my very low interest student loans, I don’t have significant debt that demands my immediate attention to speak of. I think I’ve done a pretty good job of managing debt.
5. Spend the money and actually help directly stimulate the economy by injecting it back into the stream of commerce – Possibilities include using it for discretionary entertainment reasons like spending it on expensive movie tickets or even just using the amount to pay for necessary driving expenses brought about by spiraling high gas prices.

After much thought, I decided to deposit the amount into my high yield savings account like a good grasshopper (or was it the ant) and save for a rainy day. Why change my frugal savings minded personality just because I came upon some windfall money? I’m the type of person who would probably still drive around in a rain storm for a free car wash to save some money as a force of habit even after winning a lottery for millions.

As for the taxation aspects of the economic stimulus payment, due to the terms and nature of the Economic Stimulus Package, recipients of the tax rebate such as myself will not have to report the amount of our stimulus payments as taxable income on our 2008 federal income tax returns. The amount is indeed free money and not something we will have to pay back or pay taxes on. Furthermore, if any recipient also received any other federal benefits or federally financed benefits, those benefits generally will not be affected by any stimulus payment received as well.

Where’s My Economic Stimulus Payment? Ask The Almighty IRS

For those of you who are still waiting for your stimulus tax rebates with bated breath, you should utilize this handy IRS stimulus rebate tool to locate the status of your economic stimulus payment. It should be able to answer your most pressing tax rebate question. To use the online tool and verify your identity, you’ll need to provide your social security number, your filing status, and the total number of your exemptions.

If you still are not able to obtain a satisfactory answer, you may want to visit your local Taxpayer Assistance Center for help or call the IRS via the Rebate Hotline at 1-866-234-2942 for updates.

If you’re like most people out there, there’s inevitably going to come some point in your life when you’ll need to apply for credit and seek out deeper pockets to help you fulfill your personal financial goals and objectives. While the traditional American dream of home ownership seemed to be fading out of reach during the last few years, the housing meltdown is now thankfully forcing out of control real estate prices back down into sync with reality. But with the resultant repercussions and reverberations of the financial credit crisis, mortgage lenders have grown extra vigilant in weeding out unproven and unreliable mortgage debtors. While a mortgage applicant with a FICO score of 700 in the past could have easily obtained a lofty prime interest rate on their loan, lenders are now increasingly demanding higher FICO’s in excess of 760 for the same prime interest package. The subprime credit mess has made one’s credit report and credit score even more important gateway factors to determining who qualifies and who doesn’t for the loan conditions of their choice. It’s not just for expensive, higher denominational credit prospects like mortgage loans either – even routine applications for things like credit cards, checking accounts, auto loans, and even new jobs are undergoing greater credit worthiness scrutiny.

Both Your Credit Report History and Credit Score Help Determine Your Credit Worthiness, But Credit Scores Are More Uniform Measures Of Comparison From Individual To Individual

While credit reports, like your high school transcript does a better overall job in revealing the compete performance history of the individual, oftentimes, it’s the credit score, like the mathematically calculated grade point average (GPA) that is given the greatest initial attention. Like the analogous school GPA’s, credit scores are frequently used by major lenders to serve as cut off points to determine who will enjoy speedy approval and those who will require further scrutiny. As such, a high credit score serves up the best first impression when it comes to getting quickly approved for credit cards, car loans, and mortgages. Your complete credit report transcript conveys the rest of your credit history, but it’s your credit score that provides that first impression to determine whether you instantly qualify or not. If you’ve ever wondered why some people can get online and get instantly approved for a credit card in seconds, that’s because their credit scores are likely so remarkably high, credit card issuers feel they have more than enough information right off the bat to grant application approval. The same can be said for pre-qualification terms for mortgage or auto loans for favorable rates.

For those of you who buy into the financial wisdom of some personal finance pundits who advocate a cash only lifestyle and preach against all forms of debt, I personally think that is an all too safe but foolish perspective to cling to. It’s not credit or debt that is so evil, it’s the lack of financial education and mismanagement that dooms one to failure. Unless you are a millionaire, come from a very wealthy family, or your last name is Gates, Buffett, or Walton (of Walmart fame), you will inevitably need to take on student loans, car loans, or a housing mortgage loan in some form or another sometime during your life span. A cash only lifestyle is appropriate for engaging in small time transactions, but for the pricier car and home buying process, you will inevitably need to call upon your built up credit history and credit score eventually.

So What Is The Purpose Of Having A Good Credit Score And How Is It Calculated?

Your credit score is basically a three digit number that is mathematically generated by credit reporting agencies based on information found on your individual credit report. The credit score is a numeral representation used to assess your past debt payment history and predict your ability to fulfill future debt obligations. Everytime you perform actions or transactions that relate to the extension of credit in the real world, that request for credit is submitted to the three major U.S. credit bureaus (Equifax, Experian, TransUnion) for recordation. By taking that continuously updated information and plugging it into a special mathematical formula, credit bureaus can generate an up to date credit score on demand to accurately predict your present and future ability to pay off incurred liabilities. Positive actions like on-time payment and low credit usage will boost your credit score, while negative events like bankruptcies, foreclosures, and failures to pay on time will hurt your score. Experience and trends have shown that those with higher credit scores are more responsible with credit and are less likely to default on loans. However, because credit transactions are not always equally sent to all big three consumer credit reporting agencies and not all information is processed by all three in the same mistake or error-free way, there are bound to be slight differences and discrepancies among different credit bureau scoring results, even if they all utilized the same credit scoring methodology. Keep in mind, Equifax, Experian, and TransUnion all individually generate their own credit score results on request.

But in general, one’s credit score is a fairly uniform mathematical measure of credit worthiness. Banks, credit card companies, and mortgage creditors are in the business of taking on risk, and thus utilize this invaluable scoring system to gauge prospects. In exchange for taking on risk, these institutions are willing to extend you money on loan, but in return they expect to be compensated for the financial risk they take on in the form of additional interest rate payments. Different degrees of risk and possibilities of default demand different levels of interest. If you’re a risky debtor with a shaky credit history, you will be required to pay higher interest payments to the creditor to offset the risk. If you are a more reliable debtor, chances are your interest obligations will be a lot less. That is why it is important to keep your credit score high – it’s one of the most important things that lenders look at when they evaluate your financial profile. You might be a nice guy or a nice gal, really deserving of credit approval, but if your credit score is lackluster, your chances may be shot.

What Is The FICO Credit Score Made Up Of, and How Are The Scoring Categories Weighted?

When most people speak about credit scores, more likely than not they are referring to the FICO credit score, the popular credit scoring system created by the Fair Isaac Corporation. There are currently several alternative credit scoring systems out there, most notably, the new VantageScore jointly developed by the big three credit reporting agencies, Equifax, Experian, and TransUnion, but the FICO is still the most widely used scoring method. I recommend avoiding the VantageScore for now and staying clear of credit vendors that attempt to hawk it. Because the VantageScore also uses a three digit scoring system but on a different numerical range from 501-990, obtaining it at this time will only serve to confuse you. Because most lenders have not broadly adopted the use of the VantageScore yet, you are better off focusing on the FICO exclusively for now. There really is no particular purpose for consumers or lenders to adopt the VantageScore at this point in time as its development was primarily business motivated rather than designed to benefit the consumer. The credit reporting agencies simply got tired of having to pay royalties to Fair Isaac for utilizing their proprietary scoring formula and wanted to create their own cheaper version. For now, stick with the genuine FICO – it’s the most widely used credit score and currently still the most relevant by far.

The FICO credit score is formulated on a scale from 300 to 850, however most people will have scores between 600 and 800. It’s unlikely to find many people with scores below or above this general scoring range. As a rule of thumb, any FICO score that is above 700 should be deemed good, although in this current market, a FICO of 750 will probably be needed to guarantee you the most favorable loan rates. Here is how the FICO credit score is generated and broken down into its composition categories according to pie chart percentages:

1) Your Credit and Debt Payment History – ( 35% of Your FICO)

This is the absolute most important factor in determining your FICO credit score. To have a high score, you’ll need to develop a history of timely and punctual bill payments. When lenders evaluate you as a prospective credit candidate, they want to see that you have a solid history of not only fulfilling debt obligations, but that you also have a track record of paying on time. Past late payments and unpaid debts sent to collections will significantly damage your FICO score. Negative factors like bankruptcy and defaulted payments will hurt your score as well. How badly a failure to pay or a late payment will affect your credit score is determined by the total number of past due items, how long they were past due, and the length of time since your last late payment. Because the payment history category is weighted to favor more recent transactions over older actions on your credit history, it’s never too late to start paying on time. Better late than never.

2) Amounts and Balances Owed – ( 30% Of Your FICO)

The second most important factor other than timely payment is the total amount of credit money that you owe and the proportional amount of your total available credit utilized. If you are already carrying a substantial amount of active debt in the form of existing home mortgages, home equity lines, car loans, student loans, or credit cards, you are less favorable as a candidate to take on additional debt. Because of your existing debt obligations, you are seen as a greater potential credit risk. However, your total amount of outstanding debt can be hugely tempered and your risk factor greatly minimized by having a lower debt usage ratio.

Under the FICO formula, someone with an outstanding credit card balance of $900, with a total available limit of $1000 (utilization ratio of 90%) is deemed to be riskier than someone who has an outstanding credit card balance of $2000, but with a total credit limit of $10,000 (utilization ratio of 20%). Being saddled with a lot of debt isn’t necessarily bad in terms of your credit score if you are well under your total available credit limit. Obviously the more zero balance revolving credit accounts you have on your credit report the better, but the amount of your credit usage in proportion to your total credit available goes a long way to boosting your score.

Example: As someone who regularly engages in credit card arbitrage, I frequently carrying large 0% APR balances on my 0% balance transfer credit cards. But despite my high credit balances, I maintain a stellar FICO score (FICO of 758), attributable to my low overall credit usage ratio. I might carry credit card balances in excess of $20,000 on multiple cards, but because I have over $80,000 of unused revolving credit available to me, my low proportional usage keeps my FICO high.

3) Length of Your Credit History – ( 15% Of Your FICO)

When it comes to the FICO credit score, the older the credit account, the better. That is why consumers are sometimes encouraged to initiate credit usage at an earlier age, if only for the sole purpose of building up credit. College students are sometimes advised to open at a least one student credit card for the purpose of building up a credit history file. Those who stick with cash only and wait till later in life to start opening credit accounts are ultimately short changed when it comes to their FICO scores. The same rationale is also why it is almost never advisable to cancel old credit cards. Unless you are obsessive and compulsive when it comes to credit card spending, you should keep those older cards around and let the accounts age like fine wine. You don’t necessarily have to use those cards – just put them away in a drawer if you have to. Because the length of your credit history is based on the average ages of your total active credit accounts, it’s in your best interest to keep old accounts open indefinitely. If you absolutely must cancel a credit card, cancel a newer card instead. Closing out an old account will have the unintended backfire effect of hurting your FICO credit score.

4) Types Of Existing Credit Owned – ( 10% Of Your FICO)

The FICO scoring system favors credit users who are diverse with their usage. The system likes to see users mix it up a little and not just focus on one type of installment usage – like credit cards alone. In general, older individuals with longer credit histories usually tend to have a greater mix of credit account types, thus higher scores. While revolving credit accounts like mortgages and car loans help to inject some diversity into your usage, one shouldn’t go out of one’s way to mix it up purposely. Focus more on paying all bills on time and limiting your credit usage instead (they comprise 65% of your FICO credit score). In my opinion, this category has the least relevance and the least impact on your overall credit score.

5) New Credit or Recent Credit Sought – ( 10% Of Your FICO )

This is where hard credit checks and soft credit checks come in. Everytime you affirmatively submit an application for a loan or additional credit, a hard credit pull is made against your credit report. The resulting credit pull will have a short term negative hit against your formulated FICO score (in time the score will recover). In general, new and recent requests for credit are seen as risky factors in the eyes of lenders. However, new requests for additional revolving credit that follows a recent late payment will likely cause a more significant drain against your score, as they are seen as ominous signs of financial desperation.

However, the way the FICO system is set up, frequent requests for credit within a relatively short 30 day period is discounted in terms of aggregate negative effects on your credit score. This is to compensate and alleviate the effects of those who are merely interest rate shopping for mortgages or car loans who are likely to submit numerous applications within a short period of time. This is the reason why balance transfer arbitrage seekers are often advised to submit their numerous credit card applications simultaneously within a short period of time to minimize the overall hit against their credit score. As always though, only hard credit checks negatively affect your FICO. Self credit checks initiated by you to examine your own credit report or credit score will never hurt your rating.

What Is Not Considered In Your Credit Score, And How To Boost Your FICO

While the FICO score is a very important factor to those seeking instant approval for credit or a quicker path to the best loan terms and conditions, it’s not the end all. Lenders also carefully scrutinize your credit report and other financial factors like income, job stability, education, and amount of money you have in your checking and savings accounts to determine your credit worthiness. That’s because many relevant personal risk factors are not appropriately reflected in the credit report or the credit score model compiled by the big three credit reporting bureaus. Such information include age, race, sex, income, savings, marital status, education, and your current type of housing.

The FICO score also struggles with formulating an accurate score representation for new entrants into the credit world. Those with short credit histories like recent immigrants or college students are unlikely to have much of a credit report transcript to work off of. As evidenced by the Fair Isaac Corporation’s efforts at formulating and developing its new FICO Expansion Score to gauge the credit worthiness prospects of those with incomplete or thin files, the existing FICO system as is probably still needs some improvement, and is far from perfect. However, until a better thing comes along, consumers need to find ways to improve and keep their credit ratings high. Unless you don’t have plans to seek new employment, apply for a new credit card, obtain a home mortgage loan, find a new apartment, or apply for insurance in the next few years, it’s in your self interest to improve your FICO credit score and keep it high in case you ever need to use it.

As it is relevant to your ultimate credit score, I’d recommend taking several minutes to download a free credit report at annualcreditreport.com. With this free federal government service, you get to request a single credit report from each of the three major credit bureaus every four months. Instead of requesting all three credit reports at once, you might want to stagger them out to three times a year for continuous monitoring. If you spot an error, notify the bureau (online, by phone or by mail) and the creditor (call and also send a letter) immediately. While your credit score isn’t free, there are ways to get get your free credit score from the big three credit reporting agencies. Remember, if you want consistency, stick with the FICO score exclusively for now.