How can I start investing in stocks?

Starting investing in stocks can be a difficult task for a beginner. There are just so many things to think about and take care of that first time investors feel a little lost.

The questions that accompany investing in stocks can be broken down into operational issues like opening a brokerage account, frequency of trading, costs of trading etc. and then the investment philosophy itself. Your investment philosophy is has more to do with whether you are a value investor, growth investor, long term investor, short term trader etc.

For this post let’s look at the operational aspects and see what are the things that you need to take care of.

1. Mock trading: You really don’t want to jump into trading and investing with your real money up front. There are several websites that allow you to simulate trading with fake money. If you have never invested then this is a good way to start. www.investopedia.com has an excellent simulator that you can use.This will also give you time to get your investment technique in order and read up on the topic and get familiarized with it.
   
   
2. Opening a brokerage account: After you have fiddled around with fake money for a while you will need to open a brokerage account to get started with real money. A brokerage account is an account which lets you buy and sell stocks, mutual funds, ETFs and other assets. There are various types of brokerage accounts and they come with different type of fees, so you need to go through their terms and look for annoying little things like no activity fee and avoid such brokerages.
   
   
3. Start investing: Once you have a brokerage account and have funded it with money, you can start investing. Begin by putting in as little money as possible and get a feel of how the whole thing works. Look at the numbers that analysts talk about like EPS, P/E etc and read up on stuff like financial diversification, asset allocation, investing ideas from people like Warren Buffet and understand the concepts.

Don’t trade too frequently because this will jack up your costs considerably and make it very difficult for you to make any profits. Once you have the infrastructure set up for buying and selling stocks it is time to tune your investment strategy and develop a philosophy that will work for you.

How does my Payment History affect my credit score?

Payment History is the biggest component of your FICO credit score and it weighs for as much as 35% of the overall score. This is because lenders are most interested in knowing how have you handled debt and how timely have your repayments been.

What is interesting to note is that 60% of the credit reports do not show any late payments at all. Somehow there is a misconception among a lot of people that if they are paying off their debts in time then their credit report will be perfect. In fact, even if you have repaid all your debts on time, you are like 60% of the remaining population and will need to build on the other four aspects of your credit score to get a really awesome credit score.

What kind of bills are considered in my payment history?

• Credit card payments like Visa and MasterCard
• Retail store credit cards like Macy’s or Amazon
• Installment loans like car loans where a periodic installment is made
• Mortgage loans
• Finance Company loans

Apart from late payment on the items listed above, there are some serious things that can really hamper your payment history. For example a bankruptcy can mar your credit report for as long as seven years. This is a list of events that will damage your payment history apart from the ones listed earlier:

• Bankruptcies
• Foreclosures
• Suits
• Wage attachments
• Liens
• Judgments

How is my credit history affected by a late payment or two?

What you want is a perfect payment history record but the FICO score looks at your overall payment track record and one or two late payments will not kill the rest of your score.

While calculating the penalty for late payments FICO considers three things – how long did you default the money for? (60 days is worse than 30), how much money did you default on? and how recent was it? (default that was done a week ago will affect you more than a year old default)

What if I have already defaulted on a payment?

If you have already defaulted on a payment then try and get on track as fast as possible. The best and only way to repair this is to keep paying bills on time and keep paying them for as long as you can.

Remember if you have defaulted on a bill, then paying it in full and then closing the account will not remove it from your record, it will still stay there.

You can even seek credit counseling if you are facing trouble repaying your debt. As far as your credit score goes, you will not be penalized for seeking credit counseling.

So there you have it, payment history is the biggest component of your credit score and is somewhat like a catcher. You catch 100 catches and you are still like the remaining 60% of your peers, but if you start missing a few then you are out of the leagues!