Just talk to the hand: stand up on credit rating

IGNORE pressure to get a credit card to be eligible for a home loan, you just need a good deposit, a great savings ­record and reliable employment history, writes Barefoot Investor.

Say no to “advice” to get a credit card.

IGNORE pressure to get a credit card to be eligible for a home loan, you just need a good deposit, a great savings ­record and a reliable employment history.

 

PENNY WRITES: After saving for eight years, my husband and I finally have a deposit to buy a family home. So there would be no nasty surprises when applying for a loan, we ordered copies of our credit files. As it turns out ... we don’t have one. We’ve never had any debt before, or even a phone plan. I’ve been advised to get a credit card ASAP or we won’t get a loan. Is this true? I thought maybe our proven savings and reliable employment history might be enough for the bank to lend to us.

BAREFOOT REPLIES: Lean in close, because this is very important. The next time you meet the person who “advised” you to get a credit card, here’s what I want you to do: Cock your head to the side. Raise one eyebrow. Purse your lips. Then say, “Talk to the hand, girl, cos the face ain’t listening.” Next, lean back, and wave your index finger at them, while wobbling your head, and say: “The Barefoot Investor tells me that all I need to get a loan for a home is a good deposit, a great savings ­record, a reliable employment history, and the basic 100 points of identification.” Puh-leez!

 

BREXIT BLUES

MARG WRITES: My husband just inherited money from his mother in the UK. Unfortunately, the transfer to his UK bank account came through late last week as Brexit unfolded. We plan to use the money (250,000 pounds) for our retirement funding. However, the exchange rate has just wiped out a depressing chunk! We need to know what the cheapest and most reliable way is to get the money out of the UK so we can act as soon as the exchange rate looks more favourable. We’re hoping it will bounce back up at least partially over the next few days or weeks. Help!

BAREFOOT REPLIES: Yes, the pound got shirt-fronted by the Brexit vote. (My view is that Brexit will be like any other divorce: it’ll get dirty, it’ll be expensive, and it’ll drag on longer than it should.) Right now the market says a pound is worth $1.80. However, if you look at it over a 10-year period, the pound has traded from as low as $1.44 (just over three years ago) to a high of $2.62 (during the GFC). So in that context, last week’s fall was a mere blip. Now, unlike most finance guys (middle-aged white men in suits), I’m honest enough to tell you that I have no idea what the pound will do in the future. No one does. “Hoping” the currency will bounce back over the next few days or weeks is not a strategy. The bottom line is that you can’t control the currency, but you can control how much you pay to transfer the funds to Australia. Generally speaking, avoid the banks (who will slug you with fees, then hit you again with a terrible exchange rate). Instead, use a regulated currency exchange specialist like OzForex or CurrencyFair.

 

FINANCIAL FRIDAYS

TROY WRITES: I have recently become a Barefoot member and have changed so much of what I was doing with my money. Thanks very much! But I have a question for you: I am a small-business owner of a skip bin hire company and, as I cannot go to my boss and ask for a pay rise, what can I do to get ahead?

BAREFOOT REPLIES: Make each Friday afternoons a “Financial Friday”. First, look at your sales for the past week and make a stretch goal to beat it next week. Then, do one thing that will bring in more bucks before you clock off for the week (advertising? Chasing up a lead? Getting a testimonial?). Second, look at your expenses for the past week. Then, look at one expense and try to eliminate it, or at least minimise it, again before you clock off for the week. Financial Fridays are a bit like putting a Fitbit on your arm. The ritual of focusing on your revenue and expenses each week will have a dramatic effect on your profitability.

 

AMP SCREWED ME

DENNIS WRITES: I have invested $200 a month over the last 20 years in an AMP whole of life policy. After 20 years, I have a withdrawal amount of … $64,196! Divided by 240 months (20 years), that is $267 dollars per month — or about what I gave them. I feel cheated — I can’t even use that money for a house deposit. What’s more, the payout on my death would be $300k, which is not enough for my kids to buy a house outright in Brisbane. What do you recommend?

BAREFOOT REPLIES: A whole of life policy is an old-school product that bundles together an insurance policy with a managed fund. It’s a wonderful investment — for the insurance salesman who sold it to you. He would have been slung 125 per cent of your first year’s premium plus an ongoing trailing commission as high as 8 per cent. You got snookered. Now, I assume you already have adequate term life insurance in your super fund (if not, call your fund and get it). So now you need to focus on getting out of this policy without getting a thousand amps (or AMPs) up your rear end. Let’s look at your options. You could keep paying your premiums. If so, your policy will mature when you reach 95 or you die (whichever comes first) and you or your beneficiary would receive the full insured sum of $300,000 tax free. But I wouldn’t recommend it. Or you could surrender the policy and take the $64,196, but I wouldn’t recommend that either. Your best option is likely to be to convert it to an “endowment policy”, which can mature in at least five years’ time. Still, given the thousands of dollars in commissions you’ve paid over the years, I’d encourage you to ring AMP and ask them to run the numbers on the best outcome over the next five years.

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Just talk to the hand: stand up on credit rating