A guide to credit building

A strong credit history is one of the key things that helps you get a personal loan or mortgage. It is also important to note that a strong credit history will also make it easier for you to get the job of your dreams. If you have bad credit or not credit history at all, there are things that you can do to improve your credit score. Below are some of those things:

Take out a secured credit card

Credit cards often get negative attention because they have caused a lot of people to end up thousands of dollars in debt. However, when credit cards are used responsibly they can help build or improve credit. That is why you should consider taking out a secured credit card. You are required to put a deposit on the card before you use it. The limit on a secured credit card is usually between £300 and £500.
Pay all of your bills on time

Payment history accounts for about 35 per cent of your total credit score. That is why you want to make sure that you pay all of your bills on time. When you pay your bills on time, it shows creditors that you are financially responsible. However, if you do not consistently pay your bills on time, your credit score will be negatively affected. In fact, many companies will report to the credit bureaus even after a person has missed one payment.

Check your credit at least once a year

You need to make sure that check your credit at least once a year. This might seem like a given, but many people do not understand the importance of checking one’s credit score on a regular basis. Checking your annual report not only helps you stay on top of your credit, but it also helps protect you against identity theft. Identity theft is one of the fastest-growing crimes in America.

Building a strong credit profile will allow you to take out a mortgage, personal loan and get a job. Taking out a secured credit card and paying your bills on time will allow you to build a strong credit profile. You also need to make sure that you check your credit at least once a year.

Most problems involving financial crisis stems out of the exact same reason – mismanagement of finances. Indeed, people who suffer from this type of crisis do so not because of lack of money, but rather misappropriation of funds. This means that money is not being placed where it ought to be.

It is therefore important to establish a long-term financial goal. From there, you come up with short-term and easier to manage goals. This will enable you to determine where you should be putting your money into, which will (directly or indirectly) impact the realization of your goals.

Thus, it pays to practice setting up a fixed proportion of your monthly income. This is a sure way to avoid financial failure. There is no need to save a lot of money, but rather think about saving enough to let your stay afloat during times of crisis. For example, the concept of ‘pay yourself first’ means that you can set aside 10 percent of your monthly income into your personal savings or emergency fund.

There is no need to wait until your financial status is in a precarious situation before you make a move. Nothing beats preparedness, especially in the matters of your personal finances.

A company can both be a blessing and a curse. It is a blessing when the business is doing well and profits continue to get in. However, a company whose cost of operation has become larger than the revenues gained is a curse to those who own the company and its employees. It is this very reason why there are many people who don’t want to make a business because of the risks involved. Managing a company during a financial crisis can be one of hardest positions to be because you have no choice but to do some of the following drastic measures to prevent the company from closing down.

Usually when there is a financial crisis, the company realigns their resources. They maximize resources on areas where the company gets the most profit. They do this so that the company will still earn a lot even though not as high but will be enough to get through the financial crisis. Most of the departments that are not earning much have to sacrifice for the benefit of all otherwise the entire company will have to close down. Another option would be to cut on existing costs. Purchases such as upgrades to computers are highly discouraged during the financial crisis.

While there are companies that have been with resort to termination of contract or removing employees from their payroll there are others who are still treated well. They won’t be getting any more additional raise and additional allowances as decided by the employee benefits management. This is usually favorable both for the employee and company. For the employee, he won’t get fired and will still a have a stable job. For the company, it is able to save a lot while not laying people off. They usually get their resources saved for much important business transactions.

Money Multiplier Effect

Consumer debt has one advantage and it has been termed as the money multiplier effect. The calculation behind this concept is that if consumer debt increases, it raises income for a chain of businesses and individuals. One extra purchase ensures more money for the business selling the particular product, its employees and the chain of suppliers. Simultaneously, it generates income for the lender and its employees.

Interest Rates

By fixing the Federal Funds Target Rate, the Federal Reserve in the U.S. mildly controls the interest rate in the economy. This target rate affects the prime interest rate at which banks issue short tern loans to each other. If there is a decline in consumer debt, the Federal Reserve gets alert that consumers are buying minimum products. If this happens the Federal Reserve lowers the Federal Funds Target Rate to encourage buyers to spend and invest. This may have overflowing effects on the economy as lowering interest rates influence business investment, home buying and higher education.

Savings and Investment

It’s certain that consumer debt is absolutely fruitless as it doesn’t create any profit or revenue for the borrower. It’s certain that higher levels of consumer debt mean less saving in 401(k) and less investment. This further reveals that this can transfer the demand from real estate to industries like fast food and entertainment.

Loan Defaults

If consumer debt increases rapidly in the economy and if a huge number of households owe much than their annual income, loan defaults can surely burst throughout the economy. Excessive defaults can paralyze the banks which in advance can diminish the supply of debt funding in the economy. If these occur, people withdrawing their money will close the accounts leaving little money in the lending system. And this in turn will slow down the spending behaviour and investment.

A high level of inflation means an increase in the base prices of the geographic area. On the other hand, a strong national currency affects the exports and the performances of the national goods and services that affect the national currency in a negative way.

This is why the main objective of the national bank is to control the inflation without affecting the economical growth. More exactly, to determine a level of equilibrium between the two factors.

Everybody understands that the inflation is a negative phenomenon that depreciates the buying power of money. The normal inflation level is 2%, and it is also the preferred target of the national banks.

For many countries, the inflation is a true problem, and the national banks are trying to reduce it. A cause of the inflation can be the budgetary deficit, if the government can’t control the expenses and the incomes as it should. Interesting fact: the rising of the inflation determines a drop of the unemployment rate (as the economic activity drops). This is why the governments and the central banks must act to reduce the inflation to an adequate level.

An important negative effect can be observed on the bonds market: if the investors are buying governmental bonds with a reduced interest, the level of the inflation rises. Maybe the ideal inflation level might seem to be 0 %, but it is not. Lack of inflation produces a reduction of the economical growth, a phenomenon that is more dangerous and hard to fight.

• The Consume Price Index (CPI) is used to determine the modifications in the prices of the goods and services
• The Producer Price Index (PPI) reflects the change of the value of prices for a limited number of producers. The intermediary producers and the final consumer must also be considered to determine the PPI. It is usually published in the second week of the month

The inflation could be considered worrying if the indicators are rising faster than the prognosis of the governments and the analysts. If the difference is higher, the impact on the market will be significant.

The growth of the inflation can determine the increase of the Referring Interest by the National Bank, anticipated by speculations.

The National Bank controls the level of the inflation using the monetary politics, its rising having a negative impact on the economy. Credits will be more expensive, the consumption will be slowed down, and also the investments. Therefore, the CPI/PPI affects the stocks and the Forex market. Moreover, you will also need them to estimate the trends on the long term.

If you want to understand the dynamics of this rate, you will have to follow two important indicators:

• The number of work applications
• The number of the newly created jobs (Employment Change or Nonfarm Payrolls)

The applications to obtain unemployment help show how many citizens will be unemployed in the next period. The Workforce Department publishes that information every Thursday. The number of requests has an influence over the exchange rate. However, the influence is reduced by some reasons:

• It is published weekly, therefore is not so relevant
• It is influenced by short terms factors, such as holydays, new technologies implemented, weather conditions

However, a clear tendency of the data from the last month offers clues about the new created jobs at the beginning of the month. The NFP is one of the most important indices for the United States, being published every Friday during the first week of the month by the Workforce Department.

The indicator describes with accuracy the situation on the workforce market and it represents an attraction for investors and analysts, given its volatility and liquidity that are superior to the normal conditions.

If the number of new workplaces is consistent, it is considered a signal of growth and economic development, as the companies must employ personnel to keep up with the consumer’s requests. It is necessary to analyze the structure of the NFP on economical sectors to identify the most relevant clues about the future change in the currency exchange course.

As a fundamental concept, the GDP is really important in planning the long term investments, along with the monetary politics. The two indicators are strictly correlated.

The GDP is a trimester indicator, but its revised value appears every month. However, not the final value is the most important, but the first one (Advance GDP), being the most wanted and also the most difficult to anticipate.

The GDP is the sum of all the final prices of all the goods and services produced in a country in a given period with own resources.

If the GDP is larger, the economical situation of the respective country is better. The optimal growth of this indicator is 3 % per year. If the growth is strong, the National Bank usually raises the level of the Referring Interest.

However, a simple observation over the indicator is not enough to draw the conclusions. As the government also needs to know and understand the dynamics and the perspectives of the development, the National Bank has to analyze the components carefully, to identify the trends from the latest period, and to compare them with the history and with the results of other countries.

The most used method to calculate the GDP is:

GDP=consume + investments + governmental expenses – (Exports – imports)

The trimester report for the US GDP is actualized every month, in the 3^rd and the 4^th week of the month.

The US GDP represents almost 29 % of the worldwide GDP, while the European GBP is 22 % from the total. However, for the US GBP, 65 % is returned to the citizens for consumption.

The Column Impact indicates the degree of novelty for the news. Considering the color of the icon, it could be important news (Red), medium news (Orange) or reduced importance news (Yellow).

It is recommended to use it especially at the beginning of the week. Take notes about all the important events, identify the dynamics, and follow the evolution of the indices in the latest months. Moreover, you should also follow the concordance between the calendar and the real facts every day. This way, you will identify the effectiveness of the calendar.

The impact of the Referring Interest over the Forex quotations

The Central Banks are responsible for the monetary politics, and they are also establishing the Referring Interest. The commercial banks are obliged to respect it, and they can always borrow money from the national bank with the Referring interest.

Is it worth it for the banks to take loans at the Referring Interest.

The FED establishes the rate of the interest for the commercial banks to use for Overnight loans.

This must be the cheapest resource of liquidity offered to the banks. This is why, considering the Referring Interest, the banks decide the level of interest for the clients (retail, small businesses, medium businesses and corporate)

This is why the National Banks have an important role in the national economies: if the interest is rising, the economical activity is slowed, and the inflation is controlled.

If the interests are high, the loans will be more expensive and unattractive for the business environment, so the investments are reduced.

On the other hand, if the Referring interest is reduced, the National Bank tries to stimulate the economy. This way, the loans will become more accessible, the companies are developing, and the credits are easier to obtain.

Raising the Referring Interest is useful for the national currency. The Return of Investments is rising, so the investors are attracted. This way, the demand, and also the price of the national currency rises.

However, the Referring Interest is rarely surprising: the central banks are trying to avoid surprises and the shock on the markets; therefore, they would offer clues about the future evolution of the Interest before the official announcement. Not only the comments, but also the evolution of the economical data is important to anticipate the evolution of the monetary market.

The central banks, such as the FED or the Central European Bank (ECB) have an important role on this market. They are serving the national interests while controlling the monetary fluxes, the inflation, and the exchange rates. When a central bank buys or sells currencies, it means it has to stabilize the course. This is why the actions of those banks are most important in anticipating the courses.

The commercial banks have two roles on the Forex market: they are conducting transactions in two directions, or they are speculating for profits.

The transactions are always paired, as one currency is exchanged for another. The trader will buy the currency that he anticipates it would rise, and sells if he anticipates a descending course.

Anticipating the courses with the economical indicators

The fundamental analysis in the relationship with the Forex market represents an analysis of the economic indicators and their dynamics.

For the start, it is important to determine the informational sources and the economic calendar online, as those are important sources telling us important information about anticipating the courses. It is important to know about all the worldwide economical meetings at least one week before they begin, and also other important decisions taken by the national governments. The online calendar must be updated and easy to read.