Keep in mind, although the components of a credit score are standard, you will find that your credit score will probably vary from credit bureau to credit bureau. So, my advice is not to get too obsessed with the number and really focus your efforts on debt reduction and on time bill payment. These two items are very important to lenders, so proving yourself here is key.
Are there alternatives to traditional loans that people should look into in this environment?
It may sound crazy, but now may be good time to entertain a loan from friend or family. That's an option you should leave on the table. If you do that, it's extraordinarily important to document it because that protects both parties and helps preserve the relationship in the event of a problem.
And also look into prosper.com. It's kind of like the eBay for loans, with private citizens doing the lending. Again, having thorough documentation is a must.
Are smaller banks riskier places to keep your money?
Smaller banks are not necessarily riskier. They usually are very well run, they're regulated by the Federal Reserve and they have FDIC insurance. But still, you could be at risk with a smaller bank, especially one that specializes in one specific industry or product. For example, a bank that specializes in construction loans would not be a good place to have money right now.
But a little context: Though you're reading the headlines about the failure of Indymac, which is the country's third largest bank failure, and while more banks are at risk,only 90 banks are currently on the FDIC's watch list. During the savings and loan crisis in the early 1990s, 834 banks failed or collapsed. In the past two years only six have collapsed.
So we need to take kind of a deep breath. There's a risk that more institutions will fail, but if you look at the situation in context, it's not that bad at all.
How much protection does the FDIC give?
Individual accounts are insured up to $100,000 by the FDIC, which includes savings, checking, CDs and money market accounts.
Joint accounts are insured up to $200,000, while retirement accounts and IRAs are insured up to $250,000.
What should you do if your funds exceed the FDIC's limit?
You can't buy excess protection above standard FDIC insurance. So diversifying — putting your money in different banks — is probably your best option. It can simplify matters if you choose one big bank that that has many insured subsidiaries.
Be aware that putting money in different banks may cost you some money because banks usually give you incentives, like higher interest rates, the more money you keep there. You'll give up those perks if you put smaller amounts of money in different banks.
What about other kinds of accounts, like- 401(k)s or brokerage accounts? Are they insured at all?
The broker dealers have their own insurance, called SIPC, or the Security Investor Protection Corporation. So if you have a 401(k) with, Morgan Stanley, they cover up to a maximum of $500,000 dollars, of which $100,000 dollars is the maximum for cash. That insurance does not cover investment losses — if the mutual funds you invest in go down, for example. This insurance protects your account if the institution goes bankrupt.
Not all firms are covered by SIPC, so you need to check.