Many investors have a hard time dealing withfalling stock prices but for the wrong reasons. No matter how often you preach the virtues of the buy-and-hold method, the true test of courage comes when you watch your holdings nose dive twenty percent in one afternoon.

Anyone who has been through abear market knows that it takes tremendous discipline and dedication to stick to your guns while everyone elseliquidates their holdings. Plagued by images of depression,recession, and corporate layoffs, manic Wall Street becomes a breeding ground for chaos and faulty logic. Perfectly good companies begin selling for fractions of their true value, despite a lack of change in the long-term economics of the business.

Here are three fundamental truths that will help you deal with short-term market losses.

Truth One: You own a business, not a stock

What you are holding in yourportfolio is a piece of a business, not a stock. Investors who purchase shares of stock simply because they are going “up” or are going to be the “next big thing” are essentially gamblers. They buy a commodity with the belief (rational or not) that the next person in line will pay a higher price for it than they did. The problem is, this cycle can’t go on forever, and at some point, someone is going to look around, realize what happened, and bail ship.

In order to be a successful investor you must do two things. First, remove all emotions from each of your financial decisions. Romeo and Juliet were terrific lovers, but not very logical people (and look where that got them). Letting yourheart and emotions impact your actions is foolish in most circumstances, deadly ineconomic ones. Second, learn to separate the underlying business from the stock price; they are not the same thing (read that again). You’ve heard it said a million times;even a great company is a lousy investment if you pay too much for it.

Where to Apply For Credit

The best way for a beginner to get credit is to apply for a credit card meant for a beginner. If you already have a checking or savings account, check to see if your bank has a credit card for someone with limited credit history. If you can’t get a credit card at your current bank, there are still more options.

Getting a department store credit card or an oil company credit card is easier than a major credit card, like Visa or Mastercard. While these cards are easier to get, they also have higher costs. For example, the interest rate, which is essentially the cost of carrying a credit card balance from month to month, is higher on department store and oil company credit cards. On the bright side, having a positive history with one of these cards helps you qualify for a major credit card later on. If you pay your balance in full each month (which you should) you won’t have anyfinance charges.

You can also apply for asecured credit card. This is a type of credit card, that requires you to make a deposit to receive acredit limit on your credit card. Some secured credit cards will convert to non-secured cards after a certain period of positive credit history.

• How to Get Your First Credit Card
• Tips for Credit Card Beginners

How Old Should You Be?

Typically, a person must be 18 to receive a credit card. But teenagers under 18 may be added as authorized or joint users of a credit card. Some retail stores that cater to teens might approve a credit card account for someone under 18. Major credit cards, like Visa and Mastercard typically do not offer credit to applicants that are underage.

New credit card rules go into effect February 22, 2009, will require credit card applicants under 21 to provide proof of income or have a cosigner to receive a credit card.

What to Watch Out For

Avoid making several applications for credit. Each will show up on your credit report making it appear as if you are desperate for credit.
How Credit Report Inquiries Affect Your Credit Score

Be wary of credit card offers that guarantee approval regardless of your credit history. Offers like this are usually scams that end up costing much more than you spend.
Types of Credit Cards to Avoid

Home buyers who are seeking a mortgage find out early-on that their credit score plays an important part in the home buying process and in determining the interest rate that a lender offers.

What is a credit score?

A credit score is a number that lenders use to estimate risk. Experience has shown them that borrowers with higher credit scores are less likely to default on a loan.

How are credit scores calculated?

Credit scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number. The three major credit reporting agencies don’t necessarily use the same scoring software, so don’t be surprised if you discover that the credit scores they generate for you are different.

Why are credit scores sometimes called FICO scores?

The software used to calculate a great number of credit scores was created by Fair Isaac Corporation–FICO.

Which parts of a credit history are most important?

The pie chart above right shows a breakdown of theapproximate value that each aspect of your credit report adds to a credit score calculation. Use these percentages as a guide:

35% – Your Payment History
30% – Amounts You Owe
15% – Length of Your Credit History
10% – Types of Credit Used
10% – New Credit

Your Payment History Includes:

• Number of accounts paid as agreed
• Negative public records or collections
• Delinquent accounts:
  1. total number of past due items
  2. how long you’ve been past due
  3. how long it’s been since you had a past due payment

What You Owe:

• How much you owe on accounts and the types of accounts with balances
• How much of your revolving credit lines you’ve used–looking for indications you are over-extended
• Amounts you owe on installment loan accounts vs. their original balances–to make sure you are you paying them down consistently
• Number of zero balance accounts

Length of Credit History:

• Total length of time tracked by your credit report
• Length of time since accounts were opened
• Time that’s passed since the last activity
• The longer your (good) history, the better your scores

Types of Credit:

• Total number of accounts and types of accounts (installment, revolving, mortgage, etc.)
• A mixture of account types usually generates better scores than reports with only numerous revolving accounts (credit cards)

Your New Credit:

• Number of accounts you’ve recently opened and the proportion of new accounts to total accounts
• Number of recent credit inquiries
• The time that’s passed since recent inquiries or newly-opened accounts
• If you’ve re-established a positive credit history after encountering payment problems
• In general, checking to make sure you aren’t attempting to open numerous new accounts

Credit scoring softwareonly considers items on your credit report. Lenders typically look at other factors that aren’t included in the report, such as income, employment history and the type of credit you are seeking.

What’s aGood Credit Score?

Credit scores (usually) range from 340 to 850. The higher your score, the less risk a lender believes you will be. As your score climbs, the interest rate you are offered will probably decline.

Borrowers with a credit score over 700 are typically offered more financing options and better interest rates, but don’t be discouraged if your scores are lower, because there’s a mortgage product for nearly everyone.

Here’s an look at credit scores among the US population in 2003:

Up to 499: 1%
500 – 549: 5%
550 – 599: 7%
600 – 649: 11%
650 – 699: 16%
700 – 749: 20%
750 – 799: 29%
Over 800: 11%

“What’s the big deal with a low credit score,” you might ask. Since so many businesses now judge you based on your credit score, having bad credit can make life extremely difficult from getting a job to getting a place to live. Here are some of the most common side-effects of bad credit.

1. High interest rates on your credit cards and loans
Creditors and lenders see bad credit applicants as riskier than their better credit counterparts. They make you pay for this risk by giving you a higher interest rate. Over time youll end up paying more in interest than you would if you have better credit.
2. Credit and loan applications may not be approved
Because creditors and lenders think youre a risk, they might not want to lend to you at all. You may find that your applications are being denied because of bad credit.
3. Difficulty getting approved for an apartment
Who knew that landlords checked credit before allowing you to sign a lease? Its true. Having bad credit can leave you homeless or close to it.

How to Rent With Bad Credit
4. Security deposits on utilities
Utility companies electricity, phone, and cable check your credit as part of the application process. If you have a bad credit history, you may have to pay a security deposit to establish service in your name, even if youve always paid your utility bills on time.
5. You can’t get a cell phone contract
Yep, cell phone companies check your credit too. They contend that theyre extending a month of service to you, so they need to know how reliable your payments will be. If your credits bad, you may have to get a prepaid cell phone or go without one at all.
6. You might get denied for employment
Certain jobs, especially those in the finance industry, require you to have a good credit history. You can actually be turned down for a job because of negative items on your credit report, especially high debt amounts, bankruptcy, or outstanding bills.
7. Higher insurance premiums
Insurance companies check credit too. They say that lower credit scores are linked to higher claims filed. Because of this theory, they check your credit and charge a higher premium to those with lower credit scores, regardless of the number of claims youve actually filed.

Bad Credit, Bad Driver
8. Calls from debt collectors
If you have past due bills, chances are debt collectors are calling you for them. It typically comes with the territory when you have bad credit.

Stop Debt Collection Calls
9. Difficulty starting your own business
Many new businesses need banks loans to help fund their startup. A bad credit history can limit the amount youre able to borrow to start a new business, even if you have the greatest idea and the data to prove it.
10. Difficulty purchasing a car
Banks check your credit before giving you a car loan. With bad credit you might get denied or you might get approved with a high interest rate. Most of those no credit check car lots charge extremely high interest rates that make it difficult to make your monthly car payments.

Bad Credit Report

Does your credit report tank? If yourFICO score is below 620, you’re not going to receive a good interest rate for a loan and, in fact, that kind of score could dump you into the hands of apredatory lender. Not a good sign.

• If you want tobuy with bad credit, you should work on fixing it before applying for a loan.
• Four late payments is enough to disqualify you from obtaining a loan.
• You can order yourcredit report free online.

High Debt Ratios

Lenders consider two ratios: front-end and back-end. The front-end is your mortgage payment, plus taxes and insurance divided by your monthly salary. The back-end adds your monthly debt payments to your PITI payment before dividing that total figure by your salary. A 50% debt ratio is a high ratio. A highdebt ratio means you may not qualify for the loan. If you should find an unscrupulous lender that is willing tofund such a loan, you may not be able to afford to feed yourself, even if you eat dirt.

Job Instability or Relocation

How secure is your job? A high-rolling Sacramento buyer purchased a home in Midtown. His mortgage payments were $3,500 a month, which was a lot for a 25-year-old. However, that payment was affordable while this guy was earning an annual $120,000 salary. But when he lost his job, he also lost his home toforeclosure.

• Is Your Job in Jeopardy?
  Is your company laying off? Could you be fired and, if so, how hard would it be to get another job right away? Unemployment compensation is rarely enough to cover mortgage payments.
• Relocation.
  Are you likely to be transferred to another city within the next two to three years? If you had to sell due to a job transfer, your property would need to appreciate at least 10% to cover the cost of selling; otherwise, you would lose money on the sale. When you buy a home, you should plan to stay put for a while.

Maintenance Issues

All homes require upkeep and maintenance. Not everybody has the where-with-all, much less the desire, to tackle home repair projects. In addition, many first-time home buyers can not afford to hire a professional to fix things that break. Experts suggest you set aside 5% of the purchase price to cover maintenance and repairs when you buy a home.

When Renting Costs Considerably Less

If your mortgage payment would be triple the amount (or more) you would pay for rent, it might not make financial sense for you to buy. For example, if it would cost you $2,000 a month to rent what would cost you $6,000 per month to own, does it make sense to pay $48,000 a year more to own a home?

If you are in a 30% tax bracket, you might not come close to recouping the difference you paid. Say your deductible expenses are $5,000 a month; 30% of that is only $1,500, which would be your true tax savings per month. Would you spend $6,000 to save $1,500? For more information, please consult a tax accountant or CPA.