5 Credit Assumptions You’ve Got All Wrong

Posted on February 3, 2015 by Chief Marketing Officer Jessica

Let’s face it – when it comes to credit and credit scoring, there’s a lot of misinformation out there. As a result, many people make assumptions about their credit that are incorrect. Here are 5 common examples of false credit assumptions, and the truth behind each one.

1. Paying a late fee means you won’t get reported to the credit bureaus.

If you slip up and pay a bill late, getting hit with a late fee probably seems like punishment enough. After all, forking over an extra $25-$35 for your forgetfulness feels like a sufficient slap on the wrist.

But if your payment is more than 30 days overdue, you could expect a negative mark to land on your credit reports, regardless of whether or not you’ve coughed up a late fee. This is a good reason to prioritize paying on time – if you don’t, it could be costly in a number of ways.

2. Your credit utilization ratio is 0% if you pay your balance in full each month.

Paying off your credit card in full each month is a good habit to get into. But as you’re patting yourself on the back for avoiding interest charges, don’t forget to remain diligent about keeping track of your credit utilization ratio.

Here’s why: Your credit card issuer could send a balance report to the credit bureaus at any time during the month – not necessarily right after you’ve paid your bill. Consequently, keeping your balance below 30% of your available credit on all your cards throughout the month is key to maintaining a solid score.

3. All of your monthly bill payments are being reported to the credit bureaus.

Personal finance experts commonly recommend that we pay all of our bills on time. This is certainly important for avoiding late fees (see above), but it causes many people to assume that all of their bill payments are being reported to the credit bureaus.

This usually isn’t the case. Rent and utility payments are typically not reported unless you become seriously delinquent. You still should always pay on time, but these payments generally won’t give your score a boost.

4. Avoiding credit cards will help your credit score.

In an effort to avoid getting into debt, some people choose to forfeit credit cards altogether. While it’s true that maxing out a card will do damage to your credit score, avoiding plastic entirely usually isn’t a good idea, either.

Getting a credit card as soon as you can and using it responsibly (which means paying your bill on time and in full every month), is one of the easiest ways to start establishing a solid credit profile. The longer you go without establishing credit, the harder it will be to do so.

The takeaway? Using a credit card to build your credit doesn’t have to result in debt if you make a budget and track your spending carefully. Usually, the benefits of doing so outweigh the risks.

5. A bankruptcy will affect your credit for the rest of your life.

It’s true: Declaring personal bankruptcy will have a serious, negative impact on your credit. But don’t let Internet rumors or sensational media reports warp your thinking – a bankruptcy won’t actually trash your credit for life.

In most cases, a bankruptcy will stay on your credit reports for 10 years, and the effect of this event on your credit score will lessen over time. This is not to say that you should treat bankruptcy lightly, but it’s important to know that no negative mark has to affect your credit forever. By letting some time pass and cleaning up your credit habits, there’s always a way to bounce back.

Steps to Protect Against Credit Card Fraud

Posted on October 9, 2014 by Chief Marketing Officer Jessica

In light of recent retailer data breaches and with credit and debit card fraud becoming more frequent, be sure to read and follow these 8 steps to protect yourself and your identity from being stolen.

1. Be sure to get a new replacement credit or debit card if yours was compromised. If you suspect fraudulent transactions on your card and your financial institution hasn’t contacted you or provided you with a replacement card – be sure to call and request one.

2. Check your bank account and credit card activity online to see whether your card was used at any retailer that was recently hacked. Don’t wait for your print statement to come in the mail; check the latest account activity digitally with online access to your account information or by using a mobile banking app. Also watch out for changes to your debit card PIN.

3. Be alert for post-breach phishing attempts. Hackers don’t always get everything they need to break into your accounts, so they will typically send you emails or even call on the phone and pose as your bank or card issuer to try to trick you into giving up the missing pieces, including mother’s maiden name, account username and password, date of birth, and Social Security Number. Do not give this information out – your bank will never call, text, or email you for the information you already provided when you opened your account.

4. Lock down your credit report with a security freeze, which essentially shuts off access to your credit history by new would-be lenders. If a hacker applies for a loan in your name, the creditor is less likely to approve it if he or she can’t see your credit file. Freezes are typically free for victims of identity theft.

5. Get as many free credit reports as you can per year so you can regularly monitor them and keep an eye out for fraudulent new accounts. You can get three free credit reports (one from each credit bureau) from annualcreditreport.com.

You’re also entitled to a free credit report from each bureau after you file a 90-day fraud alert, which you should do every 90 days if you’ve been a victim of a data breach, or have a good-faith suspicion that you’re about to become a victim of identity fraud.

6. Change your passwords regularly on your various financial accounts and use strong passwords to thwart hackers and protect yourself online.

7. Don’t panic, but take a breach threat seriously, because this problem is now a fact of life until the big payment card brands, banks, and retailers improve the security of payment processing systems in the U.S.

How to Build Credit if You Have a Small Income

Posted on September 30, 2014 by Chief Marketing Officer Jessica

Building and maintaining a good credit score is one of the best moves you can make for your financial health. It might seem intimidating at first – the credit scoring system is definitely complex – but when it comes time to apply for a mortgage or other loan, you’ll be happy you made building a solid score a priority.

How does the picture change if you make a small income? As it turns out, not much. You don’t need to be a Rockefeller to achieve good credit. Take a look at the details below to learn how to build a great score, no matter how large or small your paycheck is!

First, know what makes a good score.

Before digging into specific recommendations, it’s important to understand the factors that affect your credit score. The FICO scoring model – which is the most widely used credit scoring system in the United States today, takes a lot of variables into account to create your score. These include:

• Payment history
• Amounts owed
• Length of credit history
• Mix of credit accounts
• Recent credit inquiries

You’ll notice that income is not one of the factors used to determine your credit score. This means that earning a big salary doesn’t equate to earning a high credit score. Even if you have a small income, you can succeed at scoring high, as long as you’re using the right strategies.

Obtaining credit is an important first step.

It’s empowering to know that the steps to good credit are about financial behaviors, not the size of your bank account balance. But what exactly should you be doing to get there?

Above all, it’s important to start using a credit account responsibly as soon as you can. Proving to potential lenders that you can be trusted with borrowed money is the best way to start building your credit momentum.

One of the easiest ways to do this is with a credit card. If you’re not earning much money, you might be shying away from plastic to avoid the temptation to overspend. But this may in fact stall your efforts to build good credit.

If you’re not interested in getting a credit card, obtaining another type of loan to establish a credit history is a good idea. You might have trouble getting approved if your income falls below the lender’s requirements. In this case, offering a big down payment or securing a co-signer might help you qualify as well.

Keep up with good habits.

Once you’ve gained access to credit, keeping up with good habits is essential to building your score further. Specifically, you should focus on a few important behaviors.

The two most important factors the FICO score looks at are:

Payment history – Are you making the minimum payment required on time every time? This accounts for 35% of the FICO Score.
Credit Utilization – Are you keeping the balances on revolving credit (typically credit cards) below 30 percent of your available credit? This accounts for 30% of the FICO Score.

In short, paying your bills on time and in full are the two most powerful things you can do to create and hold onto a good credit score.

And just to be clear: Neither requires a big income. Spend and borrow within your means, and it will be easy to manage your payments properly.

The takeaway: Those with small incomes have the same opportunity as their high-earning counterparts to build good credit.

Use the tips above to get started today!

Article Source: Lindsay Konsko of NerdWallet

http://www.usatoday.com/story/money/personalfinance/2014/09/01/credit-score-financial-health/13628811/

3 Ways Moving Can Hurt Your Credit Score and How to Combat Them

Posted on September 19, 2014 by Chief Marketing Officer Jessica

Whether you are moving because it’s an upgrade to go along with a higher salary, or simply a change of scenery, many of us love to hate moving – and do so frequently. But between asking around for free boxes and trying to comprehend how you’ve acquired so much stuff, watch out for your credit! Here are three ways moving could impact your credit score and how to deal with them.

1. A credit check will initiate a hard inquiry.

When you apply for a new apartment, your apartment management company will likely pull your credit to see whether you’re responsible with money. This will trigger a hard inquiry, which can pull down your credit score a few points. Hard inquiries remain on your credit report for two years and affect your credit score for one.

Because of the minor impact of a hard credit pull, it’s generally not a huge concern. However, if you’re initiating multiple hard inquiries each year, you could hurt your score more significantly. Hard inquiries may include: applying for credit — such as credit cards, mortgages, and loans, or applying for a service that requires financial responsibility, such as a cell phone.

Solution: To keep your credit score from suffering multiple inquiries, you should limit your annual credit applications and take advantage of rate shopping when possible. This will keep your inquiries low and your credit score high.

2. Bills that go to your old address may go unpaid.

A new study released by the Urban Institute states that over 1/3 of Americans have an account in collections. But what does this have to do with moving? An account can easily end up in collections because it isn’t forwarded correctly, instead being sent to an old address. There are two easy things you can do to prevent such a mix-up.

Solution: First, change your address with the U.S. Postal Service before you move. It will forward your mail to your new address for one year. By that time, you should have your address changed on all of your accounts. Remember to update your address on your accounts as soon as possible.

While you’re updating your address, you may also want to enroll in paperless statements and automatic bill pay. In an increasingly paperless world, it’s best to handle your financial dealings electronically. If you don’t want to use auto pay, have statements sent to your primary email so you can pay them before the due date.

3. You’re putting too many moving expenses or new purchases on credit cards.

Moving can be expensive. Between paying for a moving truck and covering your security deposit and first month’s rent, it may be tempting to put moving-related expenses on credit cards. This is all well and good, but only if you have the funds to pay off your credit card in full before the due date to avoid accruing interest.

It’s also easy to fall into the trap of charging new items for your home. After all, new digs require new furniture, right? Wrong! Unless you can reasonably pay for your new purchases, resist the urge for now.

Solution: Save money well before your move-in date to cover all moving-related expenses. And in the case of buying new things for your new place, purchase the decor of your dreams slowly as you have the money. Your home shouldn’t be a source of stress, so make sure it isn’t filled with things that are hurting your finances.

Bottom line: Moving can hurt your credit score, but only indirectly. To keep your credit from being damaged by your upcoming move, avoid getting too many hard inquiries in any given year, change your address with the USPS and switch to paperless billing, and try not to buy anything moving-related or otherwise that you can’t pay for before your credit card due date.

How to Pay Down Credit Cards to Boost Your Credit Score

Posted on June 3, 2014 by Chief Marketing Officer Jessica

If you know anything about credit scores, you know carrying high credit card balances is a problem. In fact, your debt-to-credit ratio (how much you owe vs. your total available credit) makes up about 30% of your overall credit score. And revolving debt, like credit cards, weigh heavier than other outstanding debt – like your mortgage or a car loan. So if you’re carrying a bunch of maxed-out credit cards, your credit score is likely not great.

The most straightforward way to improve your debt-to-credit ratio is to simply pay down those balances. But chances are if you’re in a lot of debt, you can’t pay off all the balances right away.

Here’s the good news: You don’t have to pay your credit cards off to boost your credit score. But to get the most credit score traction out of every extra payment, you do need to come up with a plan for paying down your credit cards in a certain way.

The Snowball Method

The snowball method is excellent for paying off debt quickly and efficiently. Basically, you throw extra money at one debt, and when it’s paid off, put the extra plus the old debt’s minimum payment toward the next debt. Repeat this until you’re debt-free.

This is an excellent way to get out of debt, if just getting out of debt is your goal. But what if your goal is to get out of debt while also boosting your credit score as quickly as possible? Maybe you’re hoping to apply for a mortgage soon, or a car loan?

In this case, the snowball method probably isn’t how you want to start. Eventually, you might switch to that, but you may want to begin by evening out your credit card balances instead.

Lowering Your Debt-to-Credit Ratio

When your credit score is calculated, your overall debt-to-credit ratio is reviewed, but also the individual debt-to-credit ratios of your various credit cards and other revolving debt accounts.

Here’s an example:

•Card 1: $5,000 balance/$10,000 limit = 50% debt-to-credit ratio.

•Card 2: $4,500 balance/$5,000 limit = 90% debt-to-credit ratio.

•Card 3: $500 balance/$1,500 limit = 33% debt-to-credit ratio.

•Overall: $10,000 balance/$16,500 = 60% debt-to-credit ratio.

In this case, your overall 60% debt-to-credit ratio will ding your credit score pretty severely. A “good” debt-to-credit ratio is around 30%, and you’re nearly doubling that.

But since your score also accounts for individual credit cards, you can see that Card 2 is hurting you the most — it’s nearly maxed out, which is not good. Card 3 is posing the smallest problem, since it is nearly in that “good” range.

In a situation like this, you’ll boost your credit score if you focus on paying down Card 2 first. Depending on the interest rates of each of these cards, you might choose to pay that card down all the way.

Or if it’s a card with a lower APR, consider putting money toward the balance until it’s at or near $1,500 to reach the 30% debt-to-credit ratio. Then move on to Card 1 or whichever card has the highest interest rate.

Now, this strategy isn’t guaranteed to add hundreds of points to your credit score. But because you’re improving individual debt-to-credit ratios for each of your credit cards, you will make progress more quickly than if you just snowballed your debt in this situation.

Still, you need to combine this with some aspects of the debt snowball, including the intensity with which you pay down your debt. After all, the only way to try to achieve credit score perfection is to pay your credit cards off completely, and refuse to carry a balance again.

Why Not Just Spread It Around?

Why not just transfer some of the balance from Card 2 to Card 3? Or get another credit card to transfer some of that balance?

You could. In fact, moving balances to lower rate cards can be a good strategy for both boosting your credit score and getting out of debt. But just shifting your balances around isn’t going to help much here, partially because the credit limit on Card 3 is so low to begin with.

What if you do have a $0 balance card in the mix? In this case, you still don’t want to transfer another card’s balance. This is because one part of your credit utilization mix is the number of accounts that carry a balance. So having three accounts carrying a balance and one with no balance is better than having four accounts carrying a balance, even if that move improves one card’s debt-to-credit ratio.

You Can’t Game the System

In the long run, you need to focus on getting your credit card balances paid off. In the meantime, bringing cards below a 30% (or even 50%) debt-to-credit ratio may boost your credit score more quickly than simply snowballing your debt. This is especially true if your debt snowball would leave a maxed-out credit card in the mix for months to come.

7 “Not So Smart” Credit Tips

Posted on June 8, 2013 by Chief Marketing Officer Jessica

There’s a lot of advice floating around out there about how to manage your credit cards and other debts to maximize your credit score. The trouble is, not all this wisdom is created equal, and some tips intended to help your credit can actually have the opposite effect. Here are seven “not so smart” tips that you should steer away from.

1. Asking for a lower credit limit.

If you can’t control your spending, asking for a lower credit limit may indeed keep you out of trouble by simply capping how much you can borrow. But there’s also a risk to this approach. As MyFICO.com explains, 30% of your credit score is based on how much you owe. The formula looks at how much you owe as a percentage of how much available credit you have, otherwise known as your credit utilization ratio. So if you’re unable to pay off your debt, lowering your credit limit will increase your ratio — and damage your score. The impulse to impose external limits on your spending is understandable, and in some cases wise, but you’re better off focusing your energy on restraint.

2. Paying off an installment account early.

Paying off debt early might seem like a good way to improve your credit, but paying off an installment loan (like a car loan), too early can actually ding your score because it raises your utilization ratio. For instance, if you have a $10,000 car loan with a $5,000 balance that you pay off in one fell swoop, your debt load will drop by $5,000, but your available credit will drop by $10,000 once the account is closed.

This isn’t to say you shouldn’t pay off a debt early if you find yourself with a windfall on your hands. An earlier payoff can save you a bundle, but if you’re trying to raise your credit score – paying off a credit card sooner rather than an installment loan is the way to go.

3. Opening a bunch of cards at once.

Since your utilization ratio is so important, a lot of people think that getting as much available credit as possible — immediately — will do the trick. But it doesn’t work like this, unfortunately. “You can’t magically improve your utilization ratio by applying for a slew of cards in rapid succession because numerous inquiries and multiple brand new cards both can lower your score,” says Barry Paperno, credit expert at Credit.com. If you want more credit to improve your score, space out the process and be realistic about your situation; don’t take the hit to your score by applying for a card you know you probably won’t qualify for. (Financial institutions that aggregate credit card offers generally spell out what kind of credit score you need to obtain a particular card).

4. Settling a debt for less than you owe.

Negotiating with a lender and then settling the debt for less than you owe can be a smart move. But it can also hurt your credit if you do it the wrong way. You must get the lender or collections company to agree in writing to report the debt as “paid in full;” otherwise, it will be noted “settled for less than the balance.”

5. Using prepaid debit cards to rebuild your credit.

John Ulzheimer, president of consumer education at SmartCredit.com, says a lot of borrowers have the misconception that prepaid debit cards and credit cards are equally good credit building tools. They’re not. Prepaid cards “don’t do anything to help build or rebuild your credit and are not a viable long-term plastic solution,” he says. Although some prepaid card issuers say they help build credit, none currently report to the three major credit bureaus.

6. Never using your credit cards.

Some people approach credit like a poker game, with the mentality that you can’t lose money if you don’t play your cards. Although it’s always advisable to pay off your bill in full every month, not using credit cards at all can actually backfire when it comes to your credit score. If an issuer looks at your account and sees that there hasn’t been any activity for a while (how long varies, but more than a year is a good rule of thumb), they might close it. Losing that credit line hurts your utilization ratio, which can hurt your credit score. Try to charge a small amount regularly — maybe a recurring bill like a gym membership or airline tickets for your annual summer vacation — and paying it off every month.

7. Checking your credit daily.

Checking your credit score every day won’t hurt your score (when you request your score, it’s called a “soft pull,” which is different from the “hard pull” lenders conduct that does affect your score). But trying to parse why you gained or lost two points here or there will just give you heartburn and won’t give you any greater insight into how your score is calculated. Lenders generally report to credit bureaus every 30 days, so checking your score every day takes the focus off what really matters: how your longer-term financial habits affect your credit file.

Article Source: http://business.time.com/2013/05/06/7-smart-credit-tips-that-arent/#ixzz2SzgoxXjx