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February 2020 E-Newsletter

What Factors Affect Your Credit Scores?

Credit Report
Your credit scores are determined by several factors, such as whether you pay bills on time and the length of time you’ve used credit. Understanding what factors affect credit scores helps you plan the most effective way to build your credit or protect it.

Credit scoring companies calculate your scores from data in your credit reports. While they won’t reveal their exact formulas, they share the basic ingredients they use to calculate scores.

Why do you care? Because your credit often holds the key to other parts of your life: whether you can get a credit card or car loan, and at what interest rate; whether you can buy a house or rent the apartment you want; even how much you pay on car insurance and utility deposits.

The factors that affect credit scores most
The two major scoring companies in the U.S., FICO and VantageScore, differ a bit in their approaches, but they agree on the two factors that are most important. Payment history and credit utilization make up more than half of your credit scores. Focus your attention mostly on those two while keeping an eye on the other factors.

Here’s a breakdown of all the factors that affect your scores:Credit-Factors.png

Payment History
Your credit reports reveal your payment history, or whether you’ve consistently paid bills and other obligations on time. FICO says payment history accounts for 35% of your score. VantageScore doesn’t give percentages, but it calls payment history “extremely influential.”

Pay all bills on time. Paying bills late by 30 days or more can dent your scores — and the later you pay, the greater the damage. Set up autopay or calendar reminders so you don’t miss due dates. You might also want to ask creditors to move your due dates so they better align with when you get paid.

Credit Utilization
The amount of your credit limit you use is called credit utilization. FICO says the amount of available credit you use counts for 30% of your score, while VantageScore calls credit utilization “highly influential.”

What to do: Experts recommend using no more than 30% of your available credit. People with the highest scores tend to use much less than that. To keep your credit utilization low, you can try things like setting balance alerts or making extra payments during the month.

The good news is that score damage from having high credit utilization can be reversed. Once you pay a high balance down and the creditor reports it to the credit bureaus, the damage disappears.

Other credit score factors you should know about
Once you’ve mastered paying on time and keeping credit utilization low, turn your attention to other credit factors. These also affect your scores, though not nearly as much:

The length of time you’ve had credit: Longer is better, so keep old accounts open unless there is a compelling reason to close them, such as an annual fee on a card you no longer use. You might be able to help yourself a little in this category by becoming an authorized user on an old account with an excellent payment record.

The kinds of credit you have, or credit mix: It’s best to have a mix of installment accounts — those with a set number of equal payments, such as car payments or mortgages — and credit card accounts.

The length of time since you’ve applied for new credit: Each application that causes a hard inquiry on your credit may take a few points off your score.

Total balances and debt: It’s best if you’re making progress in paying off your debt.

The factors that Don't affect credit scores
Checking your own score: If you get your own score through your bank or a free credit score service, it does not affect your score. That’s because checking your own score is considered a soft pull on your credit. You can check it as many times as you want with no impact to your score.

Rent and utility payments: In most cases, your rent payments and your utility payments are not reported to the credit bureaus, so they do not count toward your score. The exception is if you use a rent-reporting service or if you are late on utility payments. The utility company may charge it off or sell it to a collector, who can report it to the credit bureaus and hurt your score. Some new products, such as Experian Boost, allow you to add utility payment information to your Experian credit report, which can influence your credit.

How to use your newfound knowledge
Credit scoring companies review your credit reports to see how you’re doing on all these factors. Then they build your scores from that data. You can see the same things they do by checking your credit reports.

Focus your credit-building efforts on on-time payments and keeping balances low relative to credit limits, because those factors have the biggest effect on your scores. 

The article, What Factors Affect Your Credit Scores? originally appeared on NerdWallet.

Buying a House in 2020: What You Need to Know

New Years ResolutionBuying a house is a minefield full of “I didn’t know thats.” From choosing the right home to qualifying for the best mortgage, you want to minimize the things you don’t know.

So let’s lower your “didn’t-know” ratio. With a shifting lending landscape, unpredictable interest rates and down payment priorities based on your local market, here’s what you’ll need to know about buying a home in 2020.

With acute shortages of homes for sale in so many markets throughout the nation, getting a preapproval for a home loan is more important than ever. Cash buyers used to give sellers confidence that a deal would close quickly, but fewer cash buyers are shopping right now. And when houses weren’t in such short supply, buyers didn’t face the pressures of intense seller’s markets.

With a lender lined up and a preapproval letter in your pocket, sellers know you’re serious.

“With a preapproval, [sellers] feel comfortable that, ‘Hey, this guy is a legit person who is going to buy and close,’” says Mat Ishbia, CEO of United Wholesale Mortgage in Pontiac, Michigan.

“[Prospective buyers] need to immediately start with the lender,” agrees Patti Michels, a real estate agent in Hinsdale, Illinois, a suburb of Chicago. “See what you can afford and see what your hurdles are going to be.”

Michels says shopping for homes before gaining a loan preapproval is a big home buyer mistake. “[Some buyers] don’t realize how many underwriting deal breakers there are” that can hijack — or significantly delay — getting a mortgage.

Those home loan approval pitfalls can include issues with student loans, significant recent cash deposits, and the manner in which self-employed income is reported.

2020 Mortgage Rate Trends
Mortgage rates have lingered around 4% APR for months now, and, barring an economic surprise, are expected to remain favorable this year.

“Mortgage rates aren’t expected to move much in either direction in 2020. If the forecasts are accurate, mortgage rates aren’t likely to go up a whole lot,” says Holden Lewis, who produces NerdWallet’s mortgage interest rates forecast. “That’s faintly encouraging to the legions of people who have difficulty finding affordable homes to buy. After all, if mortgage rates remain steady, those home shoppers won’t have to worry that rising rates will push monthly payments past their limits of affordability. But they still have to contend with rising home prices.”

In 2019, more than a third of Americans said they planned to buy within the next five years — and nearly one-fourth of those prospective buyers said they’d buy in the next 12 months, according to NerdWallet’s 2019 Home Buyer Report.

How Much House Can I Afford?
‘How much house can I afford?’ is the first-time home buyer question Ishbia says he is asked most often. He offers a rule-of-thumb to help.

“Instead of telling them about debt-to-income ratios,” Ishbia says, he tells first-time buyers to consider three times their income as a starting point.

So, if you and your spouse have a combined annual income of $110,000, “most likely $330,000 is your price range, plus or minus a couple of percent,” he says. Coulee Bank's Mortgage Loan Calculator can help!

But rather than guessing, you can simply take the first step — talking to a lender.

“That’s why you get the mortgage first,” Ishbia adds.

Meet Coulee Bank's Mortgage Lenders. We'll walk you through the home buying process step-by step. Plus, we'll help you find the mortgage loan that's right for you!

The article, Buying a House in 2020: What You Need To Knoworiginally appeared on NerdWallet.

5 Overlooked Small-Business Tax Deductions​

Failing to claim all the small-business tax deductions you’re entitled to is like flushing money down the toilet. Deductions are a legal way to reduce the amount of business income that is subject to tax.

Keeping good records is key to backing up the deductions, says Barbara Weltman, author of “J.K. Lasser’s Small Business Taxes 2017.”

“Keep receipts, invoices and other documentation,” she says. “If you don’t have the proof, you could be out of luck.”

You probably know that you can deduct salaries and wages, mortgage interest and taxes, office supplies, the cost of repairs and insurance, and depreciation on property. But here are some commonly overlooked small-business tax deductions.
Working out at home1.Home Office Deduction
Do you use a room in your home as your primary place of business, where you deal with patients, clients or customers? You may be able to claim a home office deduction on your personal income taxes, as long as you use part of your home exclusively for conducting business. But using a room as both an office and a place for guests to stay, for example, probably disqualifies you.

If you qualify, decide whether to deduct actual expenses or use the IRS’ simplified method.

If you deduct actual expenses, only amounts spent solely for the business part of your home will be eligible for full deductions (for example, painting or repairs in the area used for business). Indirect expenses — such as insurance, utilities, rent and general repairs — are deductible based on the percentage of your home used for business. Other unrelated expenses, such as lawn maintenance, are not deductible.

If you choose the simplified method, calculate your deduction by multiplying $5 by the square footage of the area of your home used for business. The IRS limits the area deducted under this method to 300 square feet, so the maximum simplified deduction is $1,500.

More information on qualifying for the home office deduction can be found at IRS Publication 587.

Capital losses, home office deductions and net operating losses are all overlooked deductions that can be carried over into future tax years to reduce taxable income, says Weltman

“If you work out of a home office and your expenses were actually higher than the income you earned in the home office, you can carry over the deduction to a future year,” Weltman says. However, this only works if you use the actual expense method, since there’s no carryover for the simplified method. Your carryover amount can be found on your previous year’s tax return at the bottom of Form 8829.

If your business wasn’t profitable and you had an operating loss, you actually have the option to either carry back the loss for two years (for a tax refund), or carry forward the loss for up to 20 years to offset your future taxable income, with no limit on the amount you can deduct. Doing a carryforward makes sense if the taxpayer was in a low tax bracket in the carry-back years but expects to be in a higher tax bracket going forward, Weltman says.

Whether it reduces the business’s taxable income or the business owner’s personal income depends on the company’s corporate structure. It’s best to consult an accountant or a tax professional for further guidance.

3. Startup expenses
You may be able to deduct the expenses paid to start your business, such as advertising, transportation, consultant fees, travel, employee training and wages, and legal and accounting fees.

You can deduct up to $5,000 in qualifying startup costs and up to $5,000 in organizational costs. Both deductions phase out when your total startup expenses or organizational costs hit $50,000. Each $5,000 deduction is reduced by the amount in startup costs that exceed $50,000.

If you have more than $55,000 in expenses, no first-year deduction is allowed and you’ll need to amortize all your startup and organizational costs over the next 180 months of operation, according to the IRS.

4. Losses on bad debts
Is there any money owed that your business can’t collect, such as unpaid accounts receivable or advance wages to an employee who quit? It may not be a total loss for your business because it may be a deductible expense.

The IRS defines a bad debt as one that was created or acquired in your trade or business, or closely related to your trade or business, when it became partly or totally worthless. Types of bad business debts include loans to clients, suppliers, employees or distributors, and debts of an insolvent partner. They become bad debts only after you’ve tried to collect on them for a reasonable period of time and you’ve taken “reasonable steps to collect the debt but were unable to do so,” according to the IRS.

You can claim a deduction for a bad business debt only if you previously included the amount owed to you in your gross income, according to the IRS.

5. Tax, legal and educational expenses
In general, the fees paid to your accountant, lawyers or business consultants that are “ordinary and necessary expenses directly related to operating your business” are deductible in the tax year they were paid, according to the IRS. However, legal fees that are paid to acquire business assets are not deductible.

Other eligible deductions may include tax-preparation fees paid in the previous year, licenses and regulatory fees paid to state or local governments, and expenses paid for the cost of education and training for your employees.

If you have any small business loan questions, reach out to our Business Lending Team.

This article, 5 Overlooked Small-Business Tax Deductions, originally appeared on

Coulee Security Tip: Smart Cell Phone Use

Some 95% of Americans own cellphones of some kind, among 18- to 29-year-olds, the number is a whopping 100%. But no matter your age, there are some basic ideas for keeping mobile phone use safe and constructive:

Share with care. Use the same good sense about what you post from your phone as from a computer. Once they’re posted, text, photos, and video are tough to take back, can be copied and pasted elsewhere, and are up there pretty much forever. Think about the people in them (including you!). Reputations are at stake.

Phones are personal. Letting other people use your phone when you’re not around is like letting them have the password to your social network profile. They can impersonate you, which gives them the power to mess with your reputation and relationships. Lock your phone when you’re not using it, and use strong and unique passwords for all your apps.

Keep it kind. Because people socialize on cellphones as much as online, cyberbullying can be mobile too. Treat people on phones and the web the way you would in person, and the risk of being bullied goes down. Be aware, too, of people randomly taking pictures at parties, in locker rooms, etc. – you may not want to be tagged in their social-network photo albums!

Know what your apps know. Pay attention to any permissions apps request as you install them. If an app asks to access your location, contact list, calendar or messages or to post to your social networking services, consider if the app really needs that information to function. When in doubt, consider withholding permission or not using that app.

Don’t text or handle your phone while driving. Texting or even touching your phone while driving is dangerous and illegal in many states. If you must speak on the phone, use a speaker or headset and hands-free controls. Never text, send or read email or post online and if you use your phone for navigation or listening to music or podcasts, set it before you leave or use hands-free voice recognition.

Coulee Security Tips are provided by Coulee Bank's IT Network Risk Manager, Quentin Fisher. He is always on the lookout for ways to keep our customers' information safe, here at the bank, at work and home.

Coulee Investment Center: 5 Things to Keep Your Financial Goals on Track

It is the beginning of a New Year! So, it is the time of year many people are reviewing their finances and goals.  Here are 5 Things to Keep Your Financial Goals on Track for the New Year.
  1. Review your spending and debt. Don’t spend more than you can afford.  If you racked up credit card debt over the Holidays, pay it off quickly.
  2. Determine how much you are able to save from your take home pay.  Once you have reviewed your spending you should be able to figure out how much you can save.  You need to have savings for emergency cash.  It should be 3-6 months of your monthly expenses. Then, consider the other goals you need to save for such as retirement and college savings for your children or grandchildren or other goals.
  3. Review your employer sponsored plan and other investments.  I don’t mean look at the statement and marvel at the growth last year before filing it in a drawer or shredder.  I mean, have the accounts analyzed by a professional for asset allocation, diversification and risk. Talk about your time horizon and comfort with fluctuation in the market to determine what changes should be made.
  4. Review the amount you are putting into your employer sponsored plan.  If you don’t have one, talk to an investment professional to help you find the best option for you.  Do you have an automatic increase set-up on your 401k/403b?  If not, can you increase your contribution?  Shoot for a 15% contribution or maximizing the plan.  The 2020 contribution limit is $19,500 and the catch-up amount if you are over 50 is $6500.
  5. Put your goals into a financial plan.  You are doing a great job spending within your means and saving but you should find out if it is enough.  If you want to live a similar lifestyle as you do now in retirement and you are trying to save for college or a vacation, a boat and any other variety of things, you will want to know if you are saving enough.  Schedule an appointment with a Certified Financial Planner to see if you are on track for your goals.  Your CFP will take a comprehensive look at your income, expenses and goals to do a projection for you to see if you are on track.  If you are not, your CFP will help you with ideas to fill the gap.

Make 2020 the year you take control of your financial goals!  When you think back on this moment from your retirement, you will be glad you did! 

Call Shari Hopkins to schedule an appointment at 608-784-3904.
Shari Hopkins, CFP®, LPL Financial Advisor
Coulee Investment Center at Coulee Bank
Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Coulee Bank and/or Coulee Investment Center are not registered broker/dealers and are not affiliated with LPL Financial.
LPL disclosure

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