Posts Tagged ‘credit score’

Getting out of credit card debt is very important. Out of all the types of debt to have, credit card debt can be the most expensive and the hardest to pay off. However, with a little hard work, determination and discipline, it is possible to eliminate your credit card debt once and for all. Here are five things you can do to begin your journey to financial freedom.

1. Pay more than the minimum amount

Making the minimum payment indicated on your credit card bill isn’t going to get you anywhere when you are trying to rid yourself of this debt. How long it takes to pay off a credit card by only paying minimum payments will depend on your interest rate and debt load. Use this calculator to figure out how long it will take to eliminate your debt by only paying minimums. Use this as a motivating factor to send in those extra payments each month.

2. Don’t use your credit card

Once you are determined to pay off a balance, stop using that card. In fact, place the card in a place that is difficult to get to. Carrying it around in your wallet is only going to make it that much more tempting to use. It will become harder and harder to eliminate a balance if you keep adding to it. If you must use your card for a purchase that only accepts credit cards — pay off that purchase amount immediately.

3. Ask for an interest rate reduction

Sometimes, a simple call to the credit card company will yield you thousands of dollars in savings. Sometimes, companies will lower your interest rate to keep your business. Every little bit helps, and this will ensure that the payments you make are devoted to paying off your principal balance instead of paying the company’s fees.

4. Never go over your limit or pay late

Going over your limit or paying your card late can trigger astronomical fees. In addition, your interest rate can adjust to the default rate, which is sometimes as much as 25 to 30 percent. If this happens, you can only imagine how long it will take to pay off your debt. Pay on time. If you are forgetful, schedule your minimum payments to draft monthly from your bank account.

5. Pay off high-interest cards first

If you are trying to pay off multiple cards, focus on the debt that is most expensive first. If you have two credit cards — one at 8 percent and the other at 12 percent — pay off the 12 percent balance first, even if it’s significantly lower than the balance on the 8 percent card.

Paying off credit cards can be somewhat intimidating. However, with a little determination and discipline, you will discover that it is a lot easier than you think.

Meg C.

With increasing rates of identity theft, many consumers choose to freeze their credit reports so that the credit report cannot be shared with potential creditors. When you freeze your credit reports, a lender or creditor who makes an attempt to check your credit history will not be able to order a report using your name and Social Security number.

How a Credit Freeze Works

To freeze your accounts, you will need to contact each of the three credit reporting agencies — Equifax, Experian and TransUnion — and provide them with identifying information such as your name, current and former address, Social Security number, birth date and a copy of your driver’s license. The request for a freeze can be made by certified mail or online.

Initiating a credit freeze costs between $3 and $10 per person per bureau, and you will likely receive written confirmation that the freeze is in effect after the credit bureau has received all the information they need. Check your state’s security freeze requirements and fees schedule for specific fees.

If you want to open a new credit account or apply for a loan, you have the ability to lift the freeze for a certain period of time so that the creditor can pull your credit report. Each credit bureau charges a fee (approximately $5 to $10) to lift the freeze temporarily, so you need to select a specific date and let the credit reporting agency know which creditor will be ordering a credit report.

Keep in mind that freezing your accounts will not lower your credit score, and will not prevent you from receiving pre-approved credit offers. If your spouse shares a credit account with you, both parties need to freeze their individual credit files separately for the entire account to be frozen.

When to Freeze Your Credit

You probably should freeze your credit if:

• You’ve been a victim of identity theft and had your accounts compromised.
• You’ve lost your credit cards and Social Security card or driver’s license.
• You simply suspect that you have been the victim of identity theft and want peace of mind that your credit report isn’t in the wrong hands.

When Not to Freeze Your Credit

There are some situations where it’s not a good idea to freeze your credit. If your job requires you to access your credit reports regularly to open new accounts, it can be very costly to lift the freeze every time you need to pull your report. If you’ve lost a single credit card or had a credit card stolen, you may only need to contact your credit card issuer to investigate the account and close it as needed.

Another drawback of freezing your credit report is that your credit report won’t be updated with your current name or address until you personally send that information to the credit bureaus. You will need to update your contact information on your own any time you move or make a name change.

Sabah Karimi

With lenders tightening their standards, and with new credit card rules, many are finding that it is not as easy as it once was to get a credit card. Indeed, proof of income is needed, and for the best credit cards you will need a credit score that is at least fair to good. If you do not meet these qualifications, you may need a co-signer to get a credit card.

What is a Co-signer?

A co-signer is someone who accepts responsibility for the loan or credit card if you cannot pay. If you do not have good enough credit or a high enough income to qualify for a credit card or some other type of loan, a co-signer will vouch for you, taking on the responsibility for the loan. This person should have good credit and sufficient income.

When someone co-signs for a loan, it means that he or she is basically taking on the debt. You should still make your payments on time, but if you don’t, the creditor can come to the co-signer to fulfill the debt. Additionally, the co-signed debt shows up as part of the co-signer’s debt burden, so their debt-to-income ratio rises. A co-signer is taking on risks when he or she backs you up, agreeing to pay on the loan if you default. If there is a chance that you will default, or if there are doubts about whether you are responsible enough to pay on time, you may have a hard time convincing someone to co-sign for you, since most of the risks are taken on by the co-signer.

Choosing a Co-signer

If you are responsible but you do not have established credit or a full-time job, you might be able to convince someone to co-sign for you. This person is usually a relative, often a parent. You might also find a very good family friend to co-sign on a credit card for you. When looking for a co-signer, you should find someone who has good credit, a low debt-to-income ratio, and who is not planning major purchases for at least six months. This is someone who is likely to handle the debt well, and who can afford to co-sign for your credit card.

Once you have your credit card, you should show your appreciation to your co-signer by using it responsibly, paying on time, and in full.

Jean Marquit

If you are trying to reduce your credit card debt, you may be tempted to start cutting up your credit cards. However, this is not the best option for properly closing a credit card account. To begin with, there may be unaccounted for charges on your credit card. Left unpaid, these can result in late fees and even collection agency notices. Such oversights are not only costly but may also negatively impact your credit score.

How, then, do you properly close a credit card account? Here are 10 simple steps to ensure the smoothest account closing possible.

1. Assess the costs and benefits of your current credit cards. Which cards have the highest APRs, fees and other costs? Do any cards offer benefits such as cash back or airline miles? Close those credit cards that are the least beneficial or the most expensive to maintain.

2. Pay off your balance in full. Do not continue using that credit card just because it is now “clean.”

3. Wait at least one billing cycle after you pay off your credit card before you close it. When the next billing cycle starts, check your credit card statement to make sure that the balance is indeed zero. Sometimes there may be leftover charges, interest and fees that still need to be paid off.

4. Obtain the customer service phone number and mailing address of the credit card issuer. This information is usually printed on your billing statement.

5. Make the call. Most credit card companies require that you call them to cancel a credit card. Set aside at least 20 minutes to properly cancel your credit card.

6. Maintain your resolve. The credit card customer service representative may try to dissuade you from closing your account. You may be offered a lower interest rate, additional rewards, etc. If the only reason you are closing your credit card is because of its high interest rate, you could use this occasion to negotiate better terms.

7. Obtain written confirmation. Request that the credit card issuer send you written (or e-mailed) notification of your cancellation. Also obtain the name of the agent you spoke with and a cancellation number.

8. Define the reason for the cancellation. Request that your credit report state that the credit card account was “closed at the consumer’s request.” Some agents may not input the correct reason for your credit card’s cancellation, resulting in your credit report stating that a credit card was closed at the issuer’s request.

9. Check your credit report. Once a month has passed, obtain a copy of your credit report. Look over the portion of the credit report that mentions your closed credit card. Make sure all information regarding this credit card is correct, and that the card has indeed been canceled.

10. Keep records. Maintain a file with the contact information of the credit card issuer, a copy of the final payment made on the balance, and the cancellation notice from the credit card issuer. Such information will be vital in case of future discrepancies.

If you feel that you’ve done everything necessary, yet the account remains open, the Federal Reserve can help mediate your particular situation.

Hally Z.

There are many ways you can get a credit card, even if you have bad credit.

Open checking and savings accounts. When you’re starting on the long road to obtaining credit cards, you will want to begin in a very obvious place: your local bank. Open a checking account and keep it in good standing. Add a savings account at the same bank, even if you only keep $10 or $20 in it.

Place utilities in your name. When possible, transfer some household utilities to your name including the cable and electric bills. Having a phone in your name is also beneficial for your credit score and report.

Comparison shop. Shop around for the best interest rate and terms before applying for a credit card. Do not cast a wide net and apply for multiple credit cards at once in hopes that one will bite. Instead, compare each credit card’s annual percentage rate (APR), up-front fees, rewards programs or cash back bonuses, as well as convenience of payment methods. Also be aware of:

• APRs: The U.S. Federal Reserve Board advises consumers to pay attention to the different APR terms of each credit card, as credit cards sometimes offer an introductory APR that will increase after a designated length of time.
• Low credit limits: Look for a card with a low credit limit or one that is within your monthly budget. You want to be able to pay off the entire balance each month before the due date. When you have bad credit, you may not be offered a high credit limit in the beginning anyway.

Gas cards. Set achievable credit card goals when you have bad credit; apply for a gas station credit card with the Visa or MasterCard logo. Gas credit card limits are typically set low in the beginning and they come with some sweet cash-back reward deals.

Department store credit cards. Department store credit cards may be easier to get when you have both bad credit and steady employment. Apply for a department store credit card when it has a special such as a 10 percent discount on your first purchase made with the card. Spend no more than you can afford to pay off when the credit card bill comes.

Bank credit cards. After you’ve shown financial responsibility by paying off your gas card or department store card bills on time, apply for a bank credit card such as a Visa, Discover, American Express or MasterCard. Be aware that with bad credit, the initial interest rate may be high, but you should be paying off the balance monthly and avoiding the interest rate anyway. If you have no luck with a bank credit card, consider a secured credit card, or have a family member co-sign the credit card application.

Pam Gaulin

One of the best New Year’s resolutions you can make is vowing to get your financial house in order. Reviewing your credit report is a great way to do this and to kick off the year right.

Viewing your credit report is completely free; you are legally entitled to one free report from each of the three credit agencies: Experian, Equifax and TransUnion. Thanks to the Fair Credit Reporting Act, you can see the credit information that potential creditors and employers may use in making decisions about you.

Here are some things to look for when reviewing your credit report at the beginning of the year.

Collection accounts

Your credit report may give you some small surprises such as that $56 bill for medical lab work that was never mailed to you. Review your collection accounts and find out how old they are. Check with an attorney or consumer credit reporting agency and see what the statute of limitations are on the collection accounts. Pay off any of the accounts that are still within the statute.

Late payments

Late payments can drive your credit score down fast. When reviewing your credit report at the beginning of the year, look at your payment history. If you only have one late payment for the entire year, call the creditor and see if they will remove that late payment one time as a courtesy. Some creditors will do this, and it will help your credit score. If you notice a pattern that indicates that you may not be paying off your bills in a timely fashion, sign up for automatic drafts. But only sign up for these services if you know you will have adequate funds in your account on the date you agree to let the creditor take the money.

Accounts you don’t recognize

If you see any accounts you don’t recognize, contact the creditor for more information. It may be an old account you forgot about, or it could be an indication that someone used your financial information.

Some experts recommend looking over all three credit reports at one time, as different agencies may report different accounts. Others recommend spacing out your free credit reports over the span of one year. If you can afford to purchase additional credit reports through the year (they are usually around $10 to $30 each), try to review all three credit reports every four months.

Meg C.

Most people know that credit history is important for obtaining loans, finding a job and applying for a credit card, but do you know why your credit report is important? This single aspect of your life can have an enormous impact on your finances, so it is essential to understand how to build a better credit report.

Why Should I Build a Better Credit Report?

When you build a better credit report, you will likely save money and enjoy a more secure financial future. Each time you apply for a credit card or a loan, the lender will access your credit history to determine what kind of risk you pose as a borrower. A better credit report will result in better terms for your loan or line of credit.

This means lower interest rates, fewer fees, better chances for approval and improved terms. A better credit report often results in your ability to take advantage of lender promotions such as zero-percent financing for a specified term.

What is the Fair Credit Reporting Act?

One of the most important things you need to know when building a better credit report is how the Fair Credit Reporting Act affects your financial life.

The FCRA determines your rights as a consumer and the requirements of credit reporting agencies. Under the FCRA, you have the right to access your credit report and to know when lenders, employers and other entities have used information in your report against you (denying your loan application, for example). You also have the right to dispute any information you believe is inaccurate and to choose who has access to your report, and when. Knowing your rights and the requirements of the credit reporting agencies can help you build a better credit report faster.

How can I Improve my Credit Report?

The only way to build a better credit report is to practice positive financial habits. This means paying bills on time, carrying as little debt as possible, maintaining good relationships with creditors and living within your means. Just because you have access to credit does not mean you should use it.

Having a credit card (or several), for example, can help your credit report, but carrying a hefty balance on all the cards in your wallet can hurt it. This is why many consumers choose to pay off their balances each month, which also saves you from paying interest and fees on the money you borrow.

Too many inquiries on your credit report can be detrimental, so you don’t want to apply for 10 credit cards at once. Keep your applications to a minimum and spread them out so they don’t all hit your report simultaneously. Similarly, avoid applying for multiple loans at the same time.

You will also notice that building a better credit report is easier as you get older. One of the factors that impacts your credit score is the longevity of your credit history; the presiding wisdom dictates that mature consumers are less likely to act irresponsibly with credit.

Finally, dispute any inaccurate statements on your credit history immediately. Building a better credit report is impossible if you don’t know what the report contains, so take advantage of the annual free report that the agencies — Experian, Equifax and TransUnion — provide. If something seems inaccurate, file a written dispute so it can be investigated.

How Long Will it Take to Build a Better Credit Report?

The length of time required to build a better credit report depends on your situation. For example, it might take less time for a young consumer to develop a credit history from scratch than for an older consumer to repair negative accounts on a credit history.

Most negative information on your credit report will be there for about seven years, though some delinquencies and defaults can remain for much longer. However, increasing your positive payment history can reduce the impact of a bankruptcy or defaulted credit card, so don’t give up.

Steve Thompson

When your credit score has run rampant like an untrained puppy, it needs to be nurtured over time. Your low credit score can be improved when you set a positive personal finance and credit history improvement plan in motion. There are three important factors you need to remember before you tackle your credit score.

The 3 Things:

1. Existing Bills Need Attention

Similar to that puppy mentioned earlier, your existing bills need attention. When a puppy does something he shouldn’t, it’s up to his owner to correct the behavior. Think of the outstanding bills or large credit balances you’re carrying in the same way: they are negative objects standing in your way of moving forward. Unpaid bills are obstacles to improving your credit history, which determines your credit score. Record them using a debts worksheet to help you determine which bills to pay first.

Action: You can take the proper action and pay off existing bills, even if you are struggling to make ends meet. Take a serious and hard look at your budget, including all outgoing and incoming money. If you don’t know where your money goes each month, keep all of your receipts or have a long look at your debit and Visa bill at the end of the month. Keep track of ATM withdrawals as well.

Cutting back on fees is one place where you can start saving yourself some money when you’re struggling with bills and need to tackle your credit score. If you’re being charged late fees, bank fees or ATM fees, make some phone calls and ask to have the fees waived.

Make small minimum payments, work out payment plans with creditors, and reduce the number of times you use fee-based ATMs or fee-based payment services to pay your utility bills. Find a bank that has free checking and does not charge you to bank the way you want, whether it’s with paper checks or paying bills online.

Find a way to earn extra income, or cut back on existing expenses — these are the only ways to “find” more money in your existing budget.

2. You Need to Use Credit

Before you scratch your head, thinking that fictional puppy shared some fleas with you, consider that in order to build your credit score you need to use credit. Avoiding credit cards will not help you improve your credit history or your credit score. This is not an invitation to rack up large balances on your AmEx or Discover cards.

Use and Pay - The most beneficial way for you to use credit cards to improve your credit score is to use credit cards to make small occasional purchases, keeping the balance to an amount you can pay off completely each month. This is not the same as carrying a balance. Carrying a balance costs you more money because you are paying finance charges. Using the card and paying it off on time will improve your credit score over time.

One or Two Cards Only - Another responsible way to use credit is to use only one or two credit cards and keep your purchases below your credit limit. Unless you have an urgent bill or need to travel suddenly, there is no reason to max out a credit card. Maxing out your MasterCard will make it more difficult to pay off the balance at the end of the month, and to stay within your set budget.

3. Have Patience

Just as you wouldn’t expect our fictional puppy to learn everything he needs to know overnight, your credit score also needs some time to grow and develop. As long as you stick to your budget and use credit wisely and within your monthly means, you will be able to improve your credit score over time.

Pam Gaulin

Click to read part 1 of 5 Tips to Increase Your Credit Score

When it comes to money management, there is plenty of talk about adopting a cash-only philosophy. Unfortunately, this really only serves a purpose for debt management/reduction. In the case of credit repair, which typically is the next step after all debts are managed or eliminated, a cash-only lifestyle will do nothing for your credit. If you want to repair or increase your credit score, you must use credit. The trick, however, is how you use credit to increase your credit score.

#3: Pay Debts on Time

Consistently paying your debts on time will do wonders for increasing your score. In fact, payment history accounts for about 35 percent of your credit score. One of the easiest ways to make sure you pay your debts on time is to enroll in automatic bill pay with your lenders and credit card company. You can also set up recurring payments through your checking account via online banking.

#4: A Tenth is All You Need

Just having a credit card alone is not enough to increase your credit score — you have to use it. With the economy the way it is, many banks are adopting the practice of closing dormant accounts. So, in other words, if you don’t use it, you lose it. But, the key to this is to use your credit card wisely. Set a maximum spending target of 10 percent of your available credit.

Each month make a purchase on your credit card(s). Use the card for a night out featuring dinner and a movie or fill up your car’s gas tank using your credit card once a month. Don’t use your cards for big ticket items like a plasma screen TV. Just be sure to keep your purchases under 10 percent of your available credit and you should be able to either pay off your balance each month and on time.

#5: Diversity is Key

Spread your debt out by diversifying how you use and manage it. Begin paying down loans by increasing your loan payments a little each month. If you have more than one credit card, distribute the 10 percent target across all cards. For instance, if you have three credit cards, strive to use at maximum 3 percent of the available balance on each so that you stay under the 10 percent cap you placed for yourself.

These tips will help repair and increase your credit score significantly over time. Just remember not to use credit, don’t overextend it (10 percent is key) and diversify your debt usage. Making the required payments on time every month along with these three things will boost your score. Be patient, because credit repair and increasing your credit score does not occur overnight — you have to stick to it. These changes will hopefully become a lifestyle change for your spending that will keep your credit in good standing permanently.

ShawnTe Pierce

When managing your finances to get out of debt, using credit or applying for new credit is not a wise decision. Face it — if you are struggling to pay your bills on time or even pay them at all, acquiring a new bill will place you further into debt. Not to mention the fact that it will further damage your credit score in the process. However, once your finances are in order, you can begin increasing your credit score by using your debt and credit cards wisely.

#1: Transfer Credit Card Debt

If you have outstanding credit card debt and are in the processing of fixing your personal finance so you can adequately pay your bills, transferring this debt is an option you should look into. Ideally you would want to transfer your credit card debt into an installment loan. Do not confuse installment loans with lines of credit, such as home equity lines of credit and secured lines of credit. These two types of credit are revolving debt, the same form of debt as credit cards, and may pose the same repayment issues your credit card caused you. (Also see Balance Transfer Pitfalls.)

Typically installment loans have a lower interest rate than your credit card. These loans tend to be secured debt, which means something you own is used as collateral with the financial institution in case you fail to repay your obligation. You can also obtain an unsecured installment loan; however, the interest will be much higher than the secured loan. With both secured and unsecured installment loans, you know what you need to pay each month based upon the repayment schedule you are given.

#2: Obtain a Credit Card

Using an existing credit card or obtaining a new credit card will put you on a faster track to increasing your score. In fact, obtaining one of the big four credit cards will make a huge difference. If you do not know what the big four are, they are the four major credit cards virtually every retailer accepts: American Express, Discover, MasterCard and Visa.

In addition to having a credit card by one of the big four, it is best to have one that is unsecured. However, if your credit is bad, you may only qualify for a secured credit card. With a secured card your limit is determined by the amount you deposit into the account. Most secured credit cards require a minimum deposit of $200.00. If you only qualify for a secured credit card, make sure it reports monthly to Experian, Equifax and TransUnion. Another matter to check into for secured credit cards is to make sure they will convert to an unsecured card within 18 months of regular timely payments.

These are the first steps to helping you repair your credit and increase your credit score. Just remember to get your finances under control first, and make use of installment loans to aid you. Then make the transition to getting a credit card or to begin using the card(s) you already have to increase your credit score.

Click to read part 2 of 5 Tips to Increase Your Credit Score

ShawnTe Pierce