Hi Heather,
 
My husband and I want to buy a house, how can we go about improving our credit score?
 
Chrissy
 
Hi Chrissy,
 
This is an awesome question. I think lots of people come up against this issue at one point or another. Before I get into the detail, straight off the bat I’ll tell you what you don’t need to do, you don’t need to get a credit card. You can build excellent credit without a credit card despite what people say about needing a credit card to build a credit record and strong credit score. Now that I’ve got that off my chest let’s start from the beginning?
 
Firstly, what is a credit score and what’s it trying to achieve?
 
A credit score is a number that’s designed to be an indicator of your creditworthiness. This means that the credit score gives lenders an indication of how good you are at paying your debts and how likely you are to default and not pay them. Lenders only want to lend to people that are likely to repay that money and the credit score is an indicator of your likelihood to repay.
 
Your credit score is built up using all the information a credit reference agency has collected about you over time especially over the last 6 years; information older than 6 years usually doesn’t weigh into your score.
 
The credit reference agencies that you might have heard about are:

• Experian and
• Equifax

They are the household names – but there are lesser known agencies or associates of agencies that you can use; these are:

• Credit Karma – which uses TransUnion data,
• ClearScorev– which uses Experian data, and
• CheckMyFile – which uses data from 4 credit reference agency – Experian, Equifax, Crediva and TransUnion.

 
You can also go directly to Transunion or Crediva to get a credit report from but they don’t give you a score directly – they only do so via CreditKarma and checkmyfile, respectively.
 
If you want to improve your credit score you need to know what your current score is so you can track it. You can’t improve something if you haven’t measured. Credit scores work in the following way:

• CheckMyFile (score out of 1,000, free for a month then £15/month).
• Experian: score out of 999, free for a month then £15/month
• Equifax: score out of 700, free for a month then £8/month
• Credit Karma: score out of 850, free for life), and
• ClearScore: score out of 700, free for a life.

If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.

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Dear Heather,
 
Greetings from Chengdu, China; I love your vlogs and I enjoyed watching your birthing story and recent vlog on how to make money. You are so inspiring and motivating. You inspire me. On the recent vlog you discouraged investing on the stock market. Why was that?
 
My husband and I have invested in properties in America and are looking at buying one in China since we will be here for the next four years. We have also been eyeing property in England.
 
My question for you is since we want to diversify our portfolio from real estate and land what do you recommend? 
 
You have the cutest family and gorgeous son. My son is [] months and has been keeping me very busy.
 
Looking forward to hearing from you when you have some free time.
 
Best Regards,
Faith

​Dearest Faith
 
Thank you so much for your lovely email. I really appreciate everything you say, it keeps me motivated and keeps me wanting to work. Children do keep you busy but they're so enriching :).
 
The first thing I thought when I received your email last week was, what on earth are you doing in Chengdu, China? (email me for privacy)
 
I am always super intrigued re. what black people do when they’re in Asia but not studying…I’d love to learn more about that. Anyhow, back to property.
 
Firstly, I hope you have made the very low investment in my property course, the price will go up soon so get in while it’s cheap!
 
This is how I think about investing in general.
 
Firstly, I am working towards a given gross rental income per month of £10,000 from a UK/Europe and US portfolio. We don’t currently have anything in Europe or the US but I’m eyeing both up.
 
After mortgages are paid off 90-95% of this will be pure profit.
 
I could easily reach this in the next three years if I include income from rents in Malawi but I discount that income because the country has a lot of political and economic instability and it’s possible that something could happen that completely erodes the rental income.
 
Based in this methodology, we’re roughly half way.
 
If you invest in China you might want to apply a discount too given they’re legal framework may not be as solid as that in the US or UK. That said, they are definitely much more stable than Malawi so invest away.
 
Keep in mind that investing in real estate in different areas and countries is also diversification.

   1. Leverage magnifies returns 
​
Just to give you an idea of what I mean.
 
The first property I bought cost me £16,500 including a 5% deposit of £12,500. Stamp duty of £2,500 (this is a UK property purchase tax) and about £1,500 in other costs.
 
That was 2006.
 
Fast forward 10 years and the current value of £550,000 meaning a £300,000 capital gain and a gross equity value of £400,000 including what’s been chipped off the mortgage.
 
No other £16,500 investment could have produced that kind of return for me.
 
Firstly, no one would have given me cheap leverage to invest in the stock market and secondly, the returns would have been rubbish – to use a technical term.
 
An investment tracking the FTSE100 would have me worse off; I’d have roughly the same £16,500 today eroded by 10 years of inflation.
 
An investment tracking the S&P500 would have given me £23,700 today, 16,500 x (2178/1516), this is good but certainly far from £400,000.

I’d probably invest in start-ups or relatively new companies as well as the stock market.
 
A stock market purchase would always have to be an investment in a specific stock.
 
When I used to invest in the stock market that is what I did and it was quite time consuming but it felt less like gambling and more like investing:
 
I’d download data on the main stock indices from Bloomberg on 52-week highs, 52-week lows, P/E ratios and other vital stats to try and identify a company that was likely to do well.
 
I’d also think of industries that I thought were growth industries and look at new companies in the sector. For instance, I once invested in a solar company and an Asian company because Asia and renewable energy are both growth areas.
 
I sold my investment in the solar company (a German company called Phoenix Solar) when I tripled my money to £3,000. If I still had those shares they would be worth like £300 – the company is down badly.
 
I sold my shares in Citic Pacific (the Asian company) in 2011 just about recovering my money and if I’d held on for 10 years, my £1,000 investment would be worth £750 – 25% down.

I made a great investment in Apple in 2006. I sold when I had tripled my money. If I’d held on to my Apple shares until it hit its peak my £1,000 would have reached a £15,000 in value – kaching! That said, if I still had the shares they would be worth about £10,000 today because Apple is down from its peak.
 
I actually didn’t lose much money investing in the stock market.
 
Citic Pacific and Yahoo were sold roughly were I bought them and Phoenix Solar and Apple were sold after tripling my money.
 
The only complete loss was a bank called Northern Rock. I bought £1,000 when the share price was crashing in the belief that the UK Government wouldn’t let it fail. I was right, the UK Government didn’t let them fail but all shareholders lost all their money.
 
Obviously, my opinions are coloured by my experience and although I have made more from stock investing than I have lost, I deem any investments in the stock market as 100% speculative.
 
It doesn’t matter what you or your investment manager believes – anything can happen. This is why I prefer to have a base of rental income from property before dabbling in the stock market.

​Finally, I invest time and money in creating businesses. Whilst business is also speculative there are many low risk businesses that can bring a stable income.
 
For example, creating courses online doesn’t cost too much money and once you recover the investment it’s fairly easy to maintain a steady income from the investment.
 
With physical products you might invest more but if the investment fails you normally gain knowledge that will help a future business grow.
 
Business is by nature speculative but the upside is fairly unlimited and you have more control over that upside than you would with an investment in shares.

​My personal strategy is to have the bulk of my retirement income coming from property so that’s what I focus my investments on.
 
In addition, I love writing, sharing knowledge and business in general so I pump lots of energy into these activities because I believe they produce a good return and even when they don’t, I thoroughly enjoy doing these activities.
 
I don’t find trying to pick stocks particularly fun over long periods of time and ultimately, currently market volatility makes the stock market very unattractive.

Lots of scary statistics get thrown around regarding the negative retirement prospects for current 30-somethings (and even worse for those younger than us), so this week I’ve decided to dig deep. I’ll write a series of 3 articles on retirement: what do that the stats look like in the UK and the US and ultimately, what will it cost you to retire?

I will not do an article on retirement stats in Africa because for the most part those statistics are VERY hard to come by. However, I found a fantastical article by the OECD that looks at Pensions In Africa.
 
This is what I assume we all want to know:

• When Do You Get A UK State Pension?
• What’s The Amount of The UK State Pension?
• How Much Does The Average Pensioner Actually Have In The UK?
• What Do The Pension Savings of Workers In The UK Look Like?
• What Proportion Of Pensioners Own Their Home Outright?

​The retirement age used to be 60 for men and 65 for women. It’s now been equalized to 65 for both. It’s moving up to 66 by 2020, 67 by 2028 and 68 by 2046.
 
I’ll qualify to get a UK state pension at the age 68 in 2051 provided I’ve paid national insurance (NI) taxes or have NI Credits. You can calculate your own pension age here.
 
What does this mean?
 
Those of us that reach retirement age after 6 April 2010 need to have 30 “qualifying years” to get the maximum state pension and at least 10 qualifying years to get anything at all.
 
If you don’t have a National Insurance record before 6 April 2016 you’ll need 35 qualifying years.  Qualifying years are years in which:

• you were working and paid National Insurance or
• you were getting National Insurance Credits, e.g. for unemployment, sickness or as a parent or carer or
• you were paying voluntary National Insurance contributions –

 
For instance, if you work abroad or aren’t working for any reason you can pay voluntary contributions to ensure you qualify for a full state pension. I see this as a sort of backup insurance policy and I would definitely do it if I was working abroad.
 
“If you reached the pension age before April 2010, then a woman normally needed 39 qualifying years, and a man needed 44 qualifying years during a regular working life to get the full state pension.” BBC

​If you are retiring on or after 6 April 2016 the full state pension you can get is £155.65/week, this is £8,094/year or £675/month.
 
This amount is guaranteed by the government to rise by the higher of:

• earnings - the average % growth in wages (in Great Britain) or
• prices - the % growth in prices in the UK as measured by the Consumer Prices Index (CPI) or
• 2.5%

 
But, of course, government plans do change and this guarantee could fall away if the UK hits problems. There is a lot of press surrounding this possibility right now. 

​People retiring in 2016 expected income of £17,700 per annum according to a Prudential survey. They carry out this survey annually and the table below shows the results.
 
This number is actually £1,000 lower than in 2008 but it’s been making a steady recovery:

According to Partnership the average UK pension pot stood at £87,724 in 2015. There is a lot of variance within the UK, with Essex having the highest pension pots, £125,478, and Shropshire the lowest, £44,336. Check out where your region stands using the image below.
 
With compulsory workplace pensions now in effect pension savings should hopefully rise for a good majority of people.

Property ownership is one of the key determinants of financial independence in old age.

​Here are stats from the 2011 census carried out by the Office of National Statistics:

• There are 23.4 million households in the UK.
  • Out of these 7.2m were retired households (The FT, quoting the same census)
• 15 million are homeowners (64%) and 8.3 million are renters (36%)
• Of the 15 million homeowners, 7.2m homes were owned outright while the remaining 7.8m were mortgaged
• 31% of owner occupied homes were documented as being inactive, i.e. not looking for work and of these 92% were retired
  • We can therefore extrapolate that 2.05 million (7.2 x 0.31 x 0.92) retired households own their home outright and 2.22 million retirees have a mortgage.
• 36% of renters were documented as being inactive and around 50% of these were retired
  • We can therefore extrapolate that 1.5 million (8.3 x 0.36 x 0.5) retired household rent their home
• These extrapolated figures are very back of the envelope but we can assume based on these that 35% of retired people in the UK own their homes outright { 2.05 / (2.05+2.22+1.5) }, 25% rent and 40% have a mortgage, possibly a small one.

 
The obvious advantage of outright home ownership when you are retired is that you save yourself what is usually a household’s biggest expense.
 
Home ownership is almost necessary to guarantee a comfortable retirement because state pensions rules are changing all the time.
 
Personally, I hope for the best when it comes to state pensions but I certainly won’t depend on the government to look after me in old age.

Have a business or life question you want me to answer? Please email it to me with the subject “Question”. Note that all such questions will be answered as a blog post and will be sent to my full email list. 

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References
Basic State Pension Overview (gov.uk)
State Pension Eligibility (gov.uk)
State pension: The overhaul and you
The pension pot map of the UK revealed
Retirees in 2016 expect income of nearly £18k a year
Home ownership and renting in England and Wales
Number of UK working-age households drops for first time
​Pensions In Africa

​Your understanding of money and your friends’ understanding of money are likely to be totally different.
 
Differing views on money, budgeting, investing and so on and so forth is exactly why some people get rich whilst other stay poor. It’s why some people are able to retire whilst other have to get a job at the checkout counter of their local supermarket once they’re too old to be wanted by anyone else but still need to make ends meet.
 
Anyhow, I asked my friend, Oscar how he’d spend a million pounds to see if his answer would bare any resemblance to mine and it was completely different.

​He said he’d:

• Spend £3,000 on a holiday to see his cousin in America
• £500,000 would go to his parent - £250k for his mum and £250k for his pops – he has since decided he was perhaps being too generous, his parents don’t even need money
• £200,000 would go towards building a music studio
• £200,000 towards finding artists and we didn’t even get into the last £97,000.

 
Only the investment in the studio is a sure-fire investment here. The money spent on artists is a gamble and of course the gift to his parents would never come back.
 
I said I’d invest every single last penny on building a property portfolio that produced at least £5,000 of rental income per month.
 
In my initial answer I said I’d look for about 6 properties that cost c.£100k each and produced £500 of income per month each. In addition, I’d look for 2 properties that cost c.£200k each and produced £1,000 of income per month each.
 
Having thought about it long and hard I’ve decided I’d go for 5 properties that cost c.£200k each and produced £1,000 of income per month each because the revenue produced by small properties would quickly get chewed up by the fixed costs of managing them.
 
I’ve invested in the stock market in the past and done quite well. However, I no longer believe that shares are a good investment because you can’t borrow money against them to increase your returns.
 
The fact is, with property the returns are amazing because you can borrow against that investment and invest in even more property.
 
After my £1million was fully and carefully invested I could just go to a bank and borrow up to £750,000. I could then invest that in more properties producing even more rental income.
 
Overall, my goal is to own no more than 10 properties because I don’t want to be have to much debt plus I don’t want the hassle of managing an overly large portfolio so I’d probably borrow £500,000 only and stop there.
 
That £500,000 would be invested in 5 more properties of £200k each with £100k of released equity and £100k of fresh mortgage debt.
 
What would I be left with?

• 10 properties worth a total of £2million
• £10,000 in monthly income = £120,000 a year
• £1million in mortgage debt – this is a 50% loan-to-value on the portfolio, not too risky at all
• ​This would cost me £4,200 in interest every month assuming 5% interest

 
Annual costs would be:

• Gas safety certificates: £50 x 10 = £500
• Buildings insurance: £220 x £10 = £2,200
• Inventories (assuming 5 new tenants every year): £150 x 5 = £750
• Maintenance and management: I’d set aside a month of rentals every year = £10,000
• I would manage the properties myself, for the most part, I might use estate agents if I think they are worth their weight in gold

That £10,000 set aside for maintenance would allow you to keep the portfolio in tip-top shape. Within that sum you could lease a car and few other borderline personal costs.
​
Total fixed costs: £13,450
Total interest costs: £4,200 x 12 = £50,400
Total costs per year= £63,850
 
Profit per year: £120,000 - £63,850 = 56,150 
 
I would use the full profit to pay down the £1million mortgage because I don’t need the income right now which means I’d have mortgage free portfolio in under 18 years, less if I didn’t use all the maintenance budget for maintenance.

​In fact, it would be much less than this because the interest costs would fall every year as I pay down the mortgage debt.
 
At that point profits become £120,000 - £13,450 = £106,550. Probably more because rents tend to rise with time. Could the good husband and I live on this? Like kings!
  
I’d generally let my properties out unfurnished because I’ve found that tenants that bring their own furniture are in it for the long haul.
 
As for taking care of my parents, once the £1million was fully invested I’d take them on a huge holiday. My parents make very good money from their own property investments so they don’t need money from me. But, of course, it’s always great to get gifts from your children so I would send them amazing treats and gifts regularly. I’m good with money because they gave me all the money skills I need so that would be my thanks.
 
Job done -