Are you an authorized user on someone else’s credit card? If so now is the time to consider applying for your own credit card. The reason why is that the new FICO 2008 system for determining credit scores will begin functioning soon and when this happens millions of authorized users on credit cards will see their scores plummet or disappear altogether. For example, if you do not have a credit card but you are an authorized user on your spouse’s accounts you may feel you have excellent credit and nothing to worry about. But, what happens if you want to apply for credit in your name?

You may be unable to simply because you don’t have a credit score anymore. Fair Isaac stated that using the credit of an individual’s well established and with a good credit rating to build credit for someone else, most likely a family member, is part of the problem in the mortgage market disaster. The claim is that individual with bad credit inflate their credit scores by becoming authorized users and as a result are approved for credit they do not deserve.

This may be the case in some instances but in most cases authorized users are legitimate users that deserve the credit score they receive. Husbands and wives as well as children are frequently authorized users and this helps them create and build their own credit rating. However, this is all about to end. It is believed that by mid September authorized users will see their credit score dropping and by the following year millions of authorized users will have been negatively impacted by the change.

It’s a shame that a few cheats have ruined authorized credit for the rest of the world. Now divorcees, children, and even people new to the country will have even a more difficult time establishing credit simply because they can’t find any credit card to approve for because they have never had any credit. It really is a vicious cycle because the best way to  receive a credit card approval is when you have had debt and paid it off. But, if you have never had debt how can you pay it off and build credit? Its’ a great question and one that has yet to be answered and maybe never will be answered.

IF you are an authorized user on someone else’s account and you have a current credit score then you should apply for a credit card in your own name. This may allow you to take advantage of the last minute credit score you have generated by the cardholder’s credit score. Otherwise your credit score will disappear and you will be without credit again. It’s a shame that these accounts won’t be included in credit scores anymore but they simply won’t. Because of this it is a good idea to get your own credit while you still can.

While we are currently experiencing a short term lull in the US credit crunch crisis, it has already had a major impact upon the corporate finance industry, the movers and shakers who put the big takeovers and mergers together. While funding has been relatively cheap for some time, the ongoing credit crisis has seen funding costs literally shoot up over night. So what next?

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There are a number of implications for the current situation, the lack of corporate funding being perhaps the main one, but stock prices are set to fall further as well. Over the last 2 years we have seen a number of high profile mergers and acquisitions, something which has impacted upon the share price of many companies. For every takeover or acquisiton which has actually happened, there have literally been another 100 rumoured ones yet to materialise. So how does this effect stock prices?

Much of the recent boom in stock markets, especially in the US, has been on the back of takeover speculation which has pushed some share prices to crazy prices - prices which can easily fall sharply if no takeover occurs. As funding for such takeovers has become more expensive, and it will be difficult to raise large sums of money in the short term, we will see much of the “froth” taken off many share prices.

Even when stock markets around the world have calmed down, the froth from the ramped up prices will continue to fade away. The effects are then two fold, in that stock markets will slowly fall back to more realistic levels and investor sentiment may turn negative as they slowly see their investments falling back down to earth.

All in all we are likely to see a lot less corporate activity over the coming months, and this current credit crunch is by no means over - the US Federal Bank would not take such drastic action as seen last week, without knowing there is further bad news to come.

Over the last couple of days we have seen both the Labour and Conservative Parties going head to head on the subject of taxes, and specifically the much disliked inheritance tax (set at 40%).  The announcement that the Tories would consider abolishing the tax if they were to win power at the next election has been met with laughter by Labour ministers, but is that the true picture?

Since the fall of the last Conservative government, the Labour party have increased both tax income, increased spending on public services and presided over a strong economy - well that is what they may have you believe.  Underneath the headline grabbing economic figures, there is a different picture with Gordon Brown regularly accused of double counting and using smoke and mirrors in his time at the Treasury.

Subtle tricks such as increasing allowances below the rate of inflation have allowed the Labour party to boast that allowances have always gone up, when in reality they have been falling in real terms for many years.  The inheritance tax threshold is one such tax allowance which has increased by no where near the rate of inflation, never mind the rise in house prices - which make up the bulk of an individuals asset in the UK.

The current government claim that only 6% of estates actually pay inheritance, but there are many who believe that this figure is set to increase dramatically over the next few years.  The current threshold before tax is paid on an estate is £300,000, a figure which is set to rise to £350,000 by 2010.  Against an average UK house price of £150,000 this may not look too bad, but a recent report has claimed that more than four in ten homes will be valued over the inheritance tax threshold over the next 5 years - resulting in a massive increase in inheritance tax income for the government, especially when you add on other assets held in an estate.

We seem to be falling back in to the traditional tax and spend debate which has so often been the main difference between Labour and the Conservatives.  The fact that Gordon Brown was Chancellor when many of these “stealth” taxes were introduced should make for some interesting debates over the coming months.

While it was announced some time ago that the UK supermarket sector was being investigated by the UK Competition Commission, new details of the investigation have been leaked to the press and they do not make good reading for the sector leaders, Tesco and ASDA.  So what is happening?

It is believed that the Competition Commission have issued what are known as Section 109s to both groups, effectively forcing them to hand over millions of emails and letters relating to their negotiations with suppliers.  It has long been rumoured that the supermarkets have been exerting undue pressure on suppliers, many of whom are desperate to keep their business to stay a float.

Many retailers, not just the supermarkets, often ask suppliers to reduce their prices when the retailer is planning some kind of price promotion of special offers, effectively passing part of the cost on to their suppliers.  A common item such as the UK pint of milk has often been highlighted as an area where supermarkets have exerted undue pressure, with the cost of a pint actually going down in real terms for many years.  While the suppliers suffer from reduced payments, many supermarkets subtly use milk prices to tempt in customers, in effect a loss leader for many retailers.

The £120 billion supermarket sector has long be a bone of contention for many with a number of traditional “corner shops” squeezed out of business, unable to compete with the bigger companies.  While the authorities are investigating their relationship with suppliers, they are also looking at the overall power of the bigger supermarket chains and the fact that many are buying land to stop rival companies opening up “on their patch”.

It will be interesting to see if the Commission are brave enough to fight the big chains, who have seen their profiles and presence in and out of town centres, continue to rise.

Worldwide stock markets have today received a welcome, although unexpected boost with news that the US Federal Reserve have reduced US base rates by 0.5% to 5.75%.  In a move which was designed to both inject liquidity into the money markets, and give the economy a much need boost, stock markets have rebounded sharply from recent lows.  But is the worst over?

While a move such as that experienced today is not so unusual, in the past it has often precluded more bad news which the Fed were aware of, but which was maybe not yet in the public domain.  Even though the markets have good reason for this show of short term relief, the situation is far from over and there will still be further fallout.

True, there will be more readily available liquidity in the markets which may see many firms over their bad times, but some companies have already suffered beyond reasonable repair.  Many of Wall Street’s larger companies have become embroiled in the situation, and the fact that many are looking to be bailed out by larger banks around the world is a marked change from their front running attitude of the past.

The stock market is a volatile and unpredictable beast at the best of times, and it has a habit of biting back just when you think you have tamed the beast.  Today’s substantial buying pressure has been greatly received, but those who think the situation is now over may soon be disappointed.  The central banks around the world cannot support such man-made situations forever, and there will be some form of accountability at some stage - “pay back time”. 

Once the current euphoria calms, many will still wake up to the fact that the US property market is still in big trouble, personal debt has never been higher, and much of the recent stock market rise was pinned on the back of takover and merger rumours.  It is highly unlikely that we will see an immediate move back to wild takeover speculation, something which may bring many more share price valuations back into line with reality.

It is essential that investor tread cautiously in what is still a difficult period for world markets.

While many people see financial planning for those who are a little older, a little nearer their retirement date, this is not the case.  Financial planning should start as soon as you are in employment, as soon as you have money coming in, and as soon as you can afford to put that little extra aside.  So what should you be planing?

There are a number of financial issues which you should look at from an early age, including :-

Pensions

It is never too early to either start contributing to your company scheme, or open up your own pension plan.  While retirement and later life may seem a long long way off, you need to ensure that you will be able to support yourself in later years, and enjoy your retirement.

Mortgages

Buying a house will probably be the most worrying experience of your life, the expectation, the liabilities and the pressure.  You need to budget not only for the next payment, but for the next payment rise, the next call on your cash.  Ensuring you are not living from month to month without some form of savings can be difficult, but if you can put a little aside for a rainy day, DO IT.

Endowment Policies

Many people have taken to setting up endowment policies which are effectively savings plans which can be scheduled to mature at any time in the future.  For the younger generation they can often be a gift from grandparents who have decided to give their relatives a head start when they get older.  Often forgotten n the financial world of today, they can be very useful.

There are many different areas of anyone’s life which will require some form of financial planning, and while it would be impossible to look into every option, these are some of the basic products which you should consider.

Those who once thought that the state would look after them in their hour of need, or their later years, are just now beginning to find out how hard it can be, and how useful just a  small amount of savings would have been.

Commonly referred to as the “suckers rally”, worldwide stock markets have returned to their recent down trend after a recent rally which tempted some back into the market.  After a few days of rest bite, we are now seeing the first cautious statements from some of worlds largest companies, with many forecasting that the situation will get worse before its gets better.

We have seen statements from retailers, manufacturers and investment companies, all of whom have taken a similar line in their reading of the situations.  The next step will be some official reductions in the expected growth of both local and worldwide economies, which could well lead to further profit downgrades and even sell recommendations.  When you also consider that a vast number of recent takeovers rumours will soon disappear, as funding becomes more and more expensive, the premium in many share prices will soon evaporate.

Attempts by central banks around the world to shore up the money markets, by injecting much need liquidity, have had a short term impact but they cannot continue bailing out the markets for much longer.  Sooner or later the market will find its natural level, a level which will be a reflection of the concerns of the moment.

All in all the next few months are going to be vital for both local and the world economy, although the probable slow down in economies may well reduce the likelihood of further base rate rises both in the UK and across the Atlantic.  However, for many investors, both directly and indirectly exposed to the stock market, this will be little compensation with stock prices likely to be under pressure for some time to come.

While Free Banking had appeared to be part of the UK banking vulture until a couple of years ago, there are signs that the days of Free banking may now be numbered.  As we covered earlier in this blog, there have been some serious hints from the major financials who are looking to add new income streams to their businesses in the future.  The Office of Fair Trading investigation into bank charges has been the catalysts for change, and it looks as though the consumer may well be the one to lose out.

A recent investigation by the Guardian using the same basis as fee accounts available at the moment, has calculated an average fee of around £300 per year for each and every person with a bank account.  The fee estimate consists of charges for withdrawing funds, credit card transaction and general monthly charges.  While £300 is the figure mentioned for the average user, some of the more active bank accounts could draw charges approaching £500 a year!

Apart from the fact that the current conception of free banking is incorrect (the banks use your deposits to create loans for customers, thereby making a return off your money), we have seen a major reduction in the number of bank branches in the UK over the last few years.  It seems that we are being asked to pay more, for less of a service, something which is very hard for many to take.  Internet and telephone banking are the preferred mediums for the financial institutions, where costs are less and turnover of calls is much quicker, indeed HSBC recently opened a bank which differentiated between those paying a fee and those still using “free” banking services.

Personal contact with your bank manager is now a thing of the past, in favour of online and telephone services.  Is this really what the UK consumer wants?

It has been revealed that UK workers receive the least paid holidays of any other country in Europe, with only 20 true holidays a year.  While official figures will show the average as being 28 days a year, this figure includes 8 days of public holidays - a practice which has been outlawed by the EU.  So when will the UK catch up?

Under EU guidance the UK worker will receive 28 days true paid leave from 2009 onwards, although this increase will be introduced in 2 stages, with 24 days leave in place by October 2007.  Even after the increase to 28 days, the UK will still be well behind the majority of EU states, with the likes of Denmark averaging a massive 39.5 days of paid holiday per year!

While this will be good for the UK work force, it is bad news for UK industry in general, with employer costs increased in an instant.  This may lead to either lower pay and or a reduced work force, with many employers not in a strong enough position to pass cost rises on to the consumer.  When you consider the total number of holidays which will be introduced overall, the cost to UK industry is likely to run into billions of pounds.

Even though the UK is currently bottom of the EU league table for paid leave, even 20 days paid leave a year looks generous compared to Japan and Canada, where the rate is only 10 days a year.  The situation is even worse in the US where there is no legal minimum requirement with regard to the number of paid days leave per year.

A report by BDO Stoy Hayward has highlighted an increase of some 42% in UK business fraud over the last 12 months, with many believing that this is just the tip of the iceberg.  Its seems that a mixture or potential rewards, reduced chances of being caught and light sentences have tipped the risk reward ratio in favour of the fraudsters - some of whom who make a career out of defrauding customers, tax, etc.

While there are a number of frauds popular with the criminals, two of the main ones are :-

Carousel Fraud

This type of fraud is becoming more and more popular with businesses around Europe, and the changes to the European market structure have highlighted the potential rewards.  It is now easy to move goods around Europe and take advantage of the tax benefits, whereby no VAT is charged.

Many companies have been found to be billing none existing sales to customers, and then claiming back the VAT from the tax authorities.  With the authorities under the impression that the goods had been sold, many companies have been caught out reselling the goods in other areas of Europe, and reclaiming VAT on yet more none existent sales.  The potential rewards from these frauds are enormous, and detection rates are very low with the authorities stretched to the limit.

Business To Business Fraud

There have been numerous examples of business to business fraud, whether this is the sale of none existing goods, fraudulent banking transactions or employee fraud.  The problem with business frauds is that those who suffer do not want the rest of the industry to know their problems, they need to keep their reputations intact.   This has led to prosecution rates falling as low as 15%, with many companies not willing to take the matter to court, and only really interested in getting back the funds involved in the fraud.

The internet has opened up many markets for fraudsters, with spyware and email fraud becoming more and more common.  It is proving near impossible to trace many of these online fraudsters who can move there bases around the globe at the touch of a button.  This is one major downside to the increasing use of the internet.