Tag: personal finance
Many people around the country live outside of their means. Whether it is trying to keep up with the Jones or having an unexpected emergency happen, it’s very easy to go outside of your budget and plunge into debt.
In fact, according to Credit.com, 80 percent of Americans are in debt. This includes types of debt such as credit card and mortgage. If you are one of the millions of American who are plagued by debt, here are five simple ways to get out of it.
Formulate a Budget
Create a weekly or monthly budget and stick with it. You can easily make a template for a budget in a Microsoft Excel document. Be honest with yourself and include all of your bills that must get paid monthly, including your rent or mortgage, utility expenses, car payment, credit card bill, and other necessities, including your weekly food shopping list. Plan on paying all of your bills in full and on time.
Living within your means can be difficult at first, but is a necessary habit to abide by if you wish to get out of debt.
Create a Savings Account
Open up a separate checking or savings account and set aside some money every month that is designated for savings. Do not touch that money unless you absolutely need to. You never know when a rainy day is going to come.
Different Sources of Income
If you find that you’re not making enough money to cover all bills, it may be helpful to find a supplement source of income. Pick up a part time job for a period of time to help you pay off some of your debt. You can also invest in real estate, stocks, or other items to pick up some extra cash.
Lower Your Rates
Do you know your exact credit card rates? You may be paying high interest rates on existing debts that can really mount up, making it almost impossible to pay off.
Based on your credit, you may be able to qualify for better interest rates on your existing credit cards. Or you may be able to consolidate all of your credit onto one card for easier payment options.
Get the Numbers
Once you have consolidated your debt and know the exact number you need to pay off, it’s time to formulate a real goal to work towards. Total the three-year pay-off amount of your debt and add monthly payment of everything else you owe. Write the results down and that is your total monthly payment.
Getting out of debt and bankruptcy is totally doable. You just need to make a plan of action and stick with it.
Need some money? Don’t ask your friends or family. Find out why.
For many people, there comes a time when it becomes absolutely essential to borrow money to pay important expenses or make bills. If you are late with a lot of bills, you could end up facing huge costs for late fees, utility shut-offs and other penalties. You could damage your credit and you could end up facing eviction or the repossession of your car.
Unfortunately, many people go through these kind of financial problems at some point in their lives and they need to find somewhere to turn for help.
If you are facing any kind of financial problem, from unexpected home or car repairs to being unable to pay bills, you may be tempted to turn to your friends or family members in order to get the money that you need for your bills. The reality, however, is that this is almost always a terrible idea.
Borrowing money from friends and family should be an absolute last resort only after you have exhausted other possible loan options that may be available to you. There are myriad reasons why you should never even borrow money from friends or from family members unless or until you have exhausted all possible other resources and are in a truly emergency situation.
Some of the many reasons why you don’t want to borrow from family and friends include the following:
You could put your family or friends in an uncomfortable position
Many people in the United States today are living paycheck to paycheck and your friend or family member that you ask for money may not actually have any cash to spare to give you, even in a temporary basis.
When you ask them for money, you’ve thus put them in a very uncomfortable position. They might have to admit to you that they are also facing financial struggles, which could be something that they don’t really want to say to you.
If they are a close friend or a close family member, they may also feel too badly to say no to your request especially if they know that you really need the money.
The result could be that your friend or family member lends you money that he or she doesn’t really have to give and thus you could drag someone you love into a bad money situation.
You could ruin the relationship and be uncomfortable whenever you spend time together
Owing someone money can make you feel very beholden to that person, even if they don’t say anything and are gracious about giving you the loan. You could feel uncomfortable and no longer like the equal of the person that you borrowed money from. This can undermine your relationship and make it less fun for you to be around a person who is important in your life.
The person who you borrowed money from could also become resentful of the fact that you took the loan, especially if they see you spending cash on something else or if they feel that you are taking too long or not trying hard enough to pay them back. You do not want to take a chance on alienating the people in your life who you care about because of a financial transaction.
You could end up being unable to pay the loan back
People generally do not borrow money with the intention of defaulting on the loan and not paying it back (especially when they borrow from a family member or a friend).
Unfortunately, sometimes life gets in the way of your best intentions. Even though you have every intention of paying back the person that you borrow from, you could end up simply being unable to do so.
This is likely to make you feel a tremendous amount of guilt and it is likely to make your friend or loved one feel resentful and possibly feel financial pressure as a result of the bad loan.
These are just a few of the many reasons why you do not want to take a chance of borrowing from a family member or from a friend. Instead, consider all other possible sources of loans available to you.
Even people who have bad credit may be able to obtain a car title loan from a trusted provider like TitleMax.com or a loan through a bank or other lender. Apply for loans and exhaust all options available before you ever even consider asking someone you love or care about for money.
Contrary to popular belief, paying bills on time is an overrated part of your financial reputation.
People are obsessed with getting and keeping an excellent credit score. We hear these statements regularly on our financial helpline:
A caller who can’t pay their monthly bills because their debt payments are so high says, “I can’t go to credit counseling because I heard it will damage my credit score.”
A caller who is not saving in their 401(k) and missing out on the company match says, “I don’t want to pay off my credit cards. I am keeping a balance to help my credit score.”
This makes no financial sense. People aren’t going to seek help getting out of debt — lowering the interest rate and possibly the balance owed — because it will hurt their credit score? How is this helpful? If people don’t get their debt under control, they may never retire. We’ll have a nation of people working into their 80’s with no savings but they can all come together and brag about their credit scores.
Let’s examine some of the biggest credit myths that can lead to disaster:
Assuming if you pay your bills on time, you don’t have to do anything else. Paying your bills on time accounts for about 35% of your credit score but there is another 65% which includes amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). Consider all of the other factors.
Also remember that there may be errors on your credit report so if you don’t check it, you’ll never know and your score will be affected. According to Deborah McNaughton, author of The Get Out of Debt Kit, 80% of credit reports have errors (as cited by Bankrate.com). Many of the erroneous reports had missing information that may boost a score, such as missing a revolving account in good standing, or miscellaneous incorrect information such as an incorrect birthday.
Check your credit report. Credit reports are unique to Social Security numbers, so if you are married, you may want to stagger your requests with your spouse every six months. You can also request your actual score for a onetime fee (which is less than $15 through most credit bureaus). Most credit monitoring services will provide your score for free when you sign up for their service.
Assuming when you divorce, your accounts automatically divorce with you. They don’t. If you have a joint account and one of the parties on the account is late, you are both late. With some types of loans, such as a mortgage or a car loan, the lender may not accept a letter asking you to be removed from the account after a divorce even if that property is going to your ex-spouse. They will need to qualify for the loan on their own before you will be removed from the account.
Take this into consideration because if they don’t refinance, and then have late payments, you may find yourself with some credit issues. When possible, close all joint accounts and refinance any debt separately. If it is not possible, maintain some type of control, whether it is an escrow account or at least access to information to make sure the accounts are paid in a timely manner. Don’t assume. Also see the last point about closing accounts.
Avoiding consumer credit counseling because it will hurt your credit score. For someone with serious debt, working with a not-for-profit credit counseling agency to develop a debt reduction plan and get out of debt permanently should take priority over credit scores. Credit counselors will work with your creditors to try and reduce your monthly payments, or settle your debt altogether. Debt settlement doesn’t affect scores as badly as you would think. In fact, many people don’t realize that late payments affect scores more than a debt settlement. Here is an example of how a debt settlement can affect credit scores, and how that compares to late payments.
A late payment hurts your score more than a debt settlement if your score is in the 680 range; it only significantly pulls it down if you are in the 780 range. Let’s be honest here, people ready for credit counseling probably don’t have the highest scores anyways, and the bottom line is credit scores are fluid — they can be rebuilt. According to Credit.com, a debt write off can stay on your credit report from seven to ten years, but as the information ages, so does its negative impact.
Making late payments aren’t that big a deal. According to FICO, a 30-day late payment can affect your score by as much as 110 points. Late payments can have a huge impact on your credit score causing it to drop like a stone. This is one disaster that is relatively easy to avoid. Simply set up all of your accounts with an automated minimum payment schedule from your checking account. This way you’ll never miss a payment. You can always pay additional amounts through online banking. Set yourself up for success with this one because it can be an easy one to miss and makes a significant impact.
Closing accounts to clean up your credit. Closing an account may be a good idea if you only opened the account to get a discount on merchandise or have too many credit cards which is causing confusion, but it won’t clean up your credit or help your score. In fact, it can hurt your score when the account you close has a long credit history — especially a good one. Your credit history accounts for 15% of your score, so in making decisions which cards to keep and which ones to close, keep in mind how long you’ve had the account open and close the most recent ones first.
Are credit scores important? Yes, but they are not the “be all and end all.” Now that we’ve dispelled some of the biggest myths, consider what the “be all and end all” is for you. What are your biggest financial challenges and concerns? Our latest research shows that less than 18% of employees feel they are on track for retirement.
Are you part of the 82% that isn’t? Do you have a personal net worth statement and is it going in the right direction? The point is when you focus on the important financial issues, you have a chance to meet your financial goals. Clean up your credit if you have to, and do your best to keep a good credit score, but let’s not go overboard and lose sight of everything for just one number.
Setting up automatic bill payments can boost your number by as much as 50 points.
Improving your credit score can feel like a gargantuan task. But by spending just 15 minutes, you can give your credit score anywhere from a small bump to a major boost. Here are some tips from credit experts on quick — and sometimes easy — ways to raise your score.
1. Set up automatic bill payment or alerts.
“The one thing you need to do is pay bills on time — that has the biggest impact on your score,” says Carrie Coghill, director of consumer education for FreeScore.com. One way to do that is to set up automatic bill payment through your bank or credit union, at least for the typical minimum amounts of your bills, says Lita Epstein, author of “The Complete Idiot’s Guide to Improving Your Credit Score.” Or, if you’re not comfortable with automatic bill payment, Coghill recommends setting up regular email or text message alerts to remind you of bill due dates. On-time payments over a period of about six months can increase your score by as much as 50 points, says Epstein. “It shows you are getting responsible about your bills.”
2. Pay down revolving debt.
If your credit card debt is more than 35 percent of your credit limit, it’s probably dragging your score down, but paying balances down can provide a quick boost. Experts recommend setting up regular automatic payments to make a dent in your debt or making one big extra payment if you can sell something on Craigslist or eBay or if you get a windfall. “People sometimes get a sizeable tax refund. I recommend using that to pay off debt,” says Doug Borkowski, director of the nonprofit Iowa State University Financial Counseling Clinic. A good rule to follow is this: For every $1,000 of available credit, try to use less than $350, says Clifton O’Neal, a spokesman for TransUnion. “Say you have three cards, each with a $1,000 limit,” O’Neal says. “One has a $500 balance, one has a $350 balance and one has a $250 balance. Pay on all of them, but pay more on the first one to bring it down under 35 percent.”
3. Pay your credit card bill early.
If you use your card for everything from groceries to utilities to a pack of gum to get rewards — but pay in full each month — pay early. Because if you charge, say, $2,000 each month, but pay your bill after you get your statement, it looks as though you’re carrying a large balance when you’re not, Epstein says. “Check when the statement closing date is,” Epstein says. “Making the payment before the statement closing date — just five or six days early — can make a big difference over time. It will be reported to the credit bureaus as a $0 balance and will look like you’re holding less credit.”
4. Ask your credit card company to raise your limit.
If you carry a credit card balance but have been making payments on time and make enough money to support a higher credit limit, a quick phone call to your credit card company could raise your score. A higher credit limit will lower your credit utilization ratio (the amount of available credit you’re using), experts say. However, experts also say it’s important to be honest about whether that step would tempt you to rack up more debt. “It’s about knowing yourself, asking, ‘Am I going to be responsible using that credit card?'” Borkowski says. “Because what if your limit is $4,000 and it gets raised to $8,000 and all you end up with is more credit card debt? But, for those who can handle it, yes, call and try to get your limit raised so you’re at a one-third or less [credit utilization ratio].”
5. Go online to dispute an item on your credit report.
Some experts advise consumers to dispute a possible credit report error by registered mail, and to include evidence. But, let’s face it, many never get around to making copies, hunting down a stamp and heading to the post office. All three major credit bureaus offer the option of filing a dispute online — and it can be faster and easier, experts say. “The first thing to do is pull a copy of your credit report from all three bureaus. You can do it free once a year at AnnualCreditReport.com,” says O’Neal. “Look at each one and see if there’s anything you don’t recognize. If you have any questions about information on your reports, you can file a dispute online. You can track it online, too, so it’s a lot quicker.”
6. Just say no to too many inquiries.
When you’re buying those cool new sunglasses and the cashier asks if you’d like to get a 10 percent discount by signing up for a store credit card, just say no. “Whenever you take new credit, you get a ding on your credit score, so don’t apply for new credit cards all the time,” Epstein says. In fact, she recommends applying for new credit, at most, twice a year.
7. Get a late payment removed from your credit report.
In the “it-can’t-hurt-to-ask” category, it sometimes pays to call a creditor and ask to have a late payment removed from your credit report. “I always say, ‘just ask,'” says Borkowski, who recommends asking for the hardship department whenever you call a credit card company to make such a request. “A lot of times, general customer service might say they can’t help you, but the hardship department — or its equivalent — might,” Borkowski says. “They make a lot of money from the person who misses a payment every now and then but carries a big balance. They like to keep those customers.”
It is often repeated that, when it comes to credit scores, there are no quick fixes. However, if you follow these tips, you could see a big improvement in your credit score — with just a small investment of time.
You know bankruptcy and missed payments, but they can be just as bad.
You pay your bills on time and never miss a payment. If you’re still having problems with credit, something on your credit report could scare lenders.
Everyone knows the gremlins that haunt the major credit reports: items such as bankruptcies, foreclosures and payments, late or even missed. Less dramatic items can also cause some anxiety among lenders inconsistent.
When you apply for a loan or a card account, lenders review your credit score and pull your credit report. Or they can take this report and pump through one of their own rating systems.
If they do not like what they see, you may be rejected. Or you can get approved with less favorable conditions. And it’s not just new applicants who have run the gauntlet. Credit card issuers to periodically review the records of existing customers, too.
Even more confusing is that different lenders zero elements of the credit report. So it’s quite possible that even for the same loan, no two lenders will see your credit history, in exactly the same light.
Think there might be something hateful about hiding your credit report? Here are six items that could scare lenders.
1. Multiplying Lines of Credit
Opening a new map is normal. Opening three in a short period of time could signal something bad happens in your financial life.
When it comes to card issuers of credit, “the window auditing has shrunk,” said Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association, the trade association of companies credit. “It used to be months and months. Now, you will find firms that monthly monitoring of account or every two months.”
And the only thing that these issuers do not want to see is that you ask all in town to lend you money.
“It would raise some questions,” he said. “This could be an indicator of something going on. I do not think it’s in the best interest of all consumers to go and be a collector of credit lines.”
2. A short-sale housing
“We told people short sales will not hurt their credit,” says Maxine Sweet, vice president of public education for Experian credit bureau. “But there is no such thing as a” short sale “in terms of how the sale is reported to us.”
“The way the account is closed is that it’s settled for a lesser amount than what you agreed to pay originally,” she said. “Status is” settled “. And it is just as negative as a foreclosure. ”
A tip: negotiating for the lender does not report the difference between your mortgage and what you paid as a “balance due” on your credit report, says John Ulzheimer, formerly of FICO, now president of consumer education for SmartCredit.com. Your credit score will take a heavy blow, but this action will not soften the blow, he said.
Sweet’s advice is not to dismiss the notion of a short sale, just go on with your eyes open.
“This may be the right decision to leave the house,” she said. It can be “better than a foreclosure in the economy, moving from the house and move on with your life. Do not expect to walk away with no impact on your credit history. ”
3. Someone Else’s Debt
Here’s something you might not know: When you co-sign on the dotted line to help someone else get a loan or card, the entire debt is on your credit report.
While the fact that you co-signed is neither good nor bad, it means – to the extent that any potential lenders are concerned – you of the debt yourself. And will be included in your existing debt burden when you apply for a mortgage, credit card or any other form of credit, said Ulzheimer.
And if the person you co-signed stopped paying, paying late or missing payments, that bad behavior is likely to go on your credit report.
So when someone tells you that co-signature is painless, because you never have to part with a penny, you can tell them that this is not true. Co-signing means accepting not only to repay the obligation, if necessary, but also to allow the debt – and all non-payment – as against you the next time you apply for credit you same.
Co-signing for a friend or family member “plays well with the Thanksgiving table, but it does not play well in the underwriting office,” said Ulzheimer.
4. Minimum Payments
If creditors make money when you carry a balance, the lenders who view your credit report does not like to see you pay just the minimum.
“It suggests that you are experiencing financial stress,” says Nessa Feddes, vice president and senior advisor for the American Bankers Association. “You can be delinquent,” she said.
Pay the minimums from time to time does not necessarily signal a problem, she said. For example, minimum pay in January, after holiday spending. Minimum one month or pay you expect your annual premium to reach.
But always pay the minimum after months months signals that you can not pay the full balance, and your current and future lenders will see that as a red giant “stop” sign when it comes to grant additional credit.
5. A Lot of Inquiries
This is similar to hiring a large number of new loans. When tightened lending standards, many borrowers, subprime borrowers in particular, had trouble getting credit, said Sweet. This meant they had to be applied several times to try to get what they wanted.
And with the VantageScore at least, that “really influenced the impact of investigations – they are more important than they used to be,” she said.
With the FICO score, the impact of investigations has remained about the same, according to Ulzheimer. Every time you allow a potential lender to pull your credit report, your score can take a small hit. The exact impact varies with the consumer, the score and the number of inquiries.
And if you apply for a mortgage, auto or student, you can minimize the damage by all applications within two weeks. When you do this, the beam score of all similar investigations and treats them as such. Unfortunately, there is no grace period for applications like credit card.
6. Cash Advances
“Cash advances, in many cases, provide the despair,” says Ulzheimer. “Either you have lost your job or are underemployed. Nobody comes out cash advances against a credit card because they want the money sitting in a bank somewhere.”
Because the interest rate is usually higher than the cost of credit card “, you are usually borrow from Peter to pay Paul,” he said.
How it hurts: first, the cash advance is immediately added to the balance of your debt, which lowers your available credit and can lower your credit score, says Ulzheimer. And all potential lenders will see your score.
Second, card issuers more regularly re-evaluate the behavior of their customers. To do this, they often get the credit report, the FICO score and history of the customer’s account and put these three ingredients through their own rating systems, said Ulzheimer. Many scoring models penalize for cash advances, which are often considered risky, he said. From your account history is only available to the issuer, only your behavior score with this card is likely to be affected, he said.
However, if the issuer slices of your line of credit or cancel your account, which could affect your credit score. And that could affect your relationship with other lenders.
There seems to be little logic to why some companies tack on nuisance charges.
Fees for this, fees for that — even a fee for paying a fee. Where does it end? I’m afraid I know the answer. In this tough economy, businesses of all types are trying to nickel and dime us with add-on charges. They want you to believe these fees are necessary to cover the cost of doing business, but more often than not, they simply mislead the consumer by adding a hidden mark-up to the advertised price.
Sometimes the fees are small, but other times they can be severe. The mortgage loan industry has been doing this forever, but now the practice has spread like the plague to many other services. I can’t be the only person who is outraged by this continuing practice. Or am I?
Here are eight classic fees that really gnaw at me. Some of them I do a pretty good job of avoiding. Others, not so much …
1. Unlisted Phone Number Fees
This is arguably the granddaddy of them all. I currently get charged $1.75 per month for my unlisted telephone number — $21 per year. Why does it cost the phone company more to keep my number out of the phone book than in it? That’s a rhetorical question, but I’ll answer it anyway: It doesn’t.
2. Convenience Fees
I recently bought four tickets online from Ticketmaster so I could take the wife and kids to see the Harlem Globetrotters. Cost: $300 for the set. But on top of that was a “convenience charge” of $5 per ticket that added $20 to my bill. Usually, buying online saves a company money that they’d otherwise spend on a telephone operator or a store clerk. So why am I being charged to make Ticketmaster’s existence more convenient?
3. Fees for Printing Tickets
I’m not done with Ticketmaster. After gagging on the $20 “convenience” charge for my Globetrotter tickets, Ticketmaster wanted to charge me $2.50 so that I could print the tickets from my home printer. Keep in mind that I also had the option to get the tickets via the postal service — for no charge. Where’s the logic in that? How much do you think it costs Ticketmaster to print the tickets on heavier stock paper, using their ticket machines, and then pay their staff to place the tickets in envelopes with the proper postage and mail it to my house? I don’t know either, but I made sure that’s exactly what Ticketmaster did.
4. Hotel Safe Fees
There are more than a few hotels out there that charge you just for the privilege of using their in-room safes — whether you use it or not. Here’s one hotel that charges $1.69 per night. What a joke. Whenever I see this fee, I ask to have it waived.
5. Tax e-Filing Fees
Among the most egregious fees out there are the ones that charge money for essentially doing nothing more than making a mouse click or pushing a couple of keys on a computer keyboard. How much money does it cost to send some bits of information through the Internet? Well, if you ask TurboTax, it’s $36.95. That’s what they charge to e-file a state tax return. So rather than printing out the return and sending it through the mail, I clenched my teeth and reluctantly paid it. Hey, if you paid attention you’ll find a lesson on opportunity cost buried in there.
6. Tax Refund Fees
After spending four hours doing my taxes with the online edition of TurboTax, I was due a refund. “Perfect!” I thought, “I’ll have TurboTax simply deduct what I owe them directly from my refund.” Unfortunately, it turns out TurboTax charges an additional $29.95 if you choose to go that route. My only other option was to pay by credit card — at no charge. How does that make any sense? So I paid with plastic. I hope TurboTax had to pay the credit card company an interchange fee for me using it too. Dummies.
7. Mortgage Junk Fees
There are dozens of mortgage junk fees out there, some more dubious than others, that make you scratch your head and ask what the heck is that for? Re-conveyance verification fees, commitment fees, and the infamous “warehouse fee” are just three classic examples.
8. And Then There’s This
It’s bad enough that airlines almost universally charge fees to people who have the audacity to travel with luggage. But a while back, United, US Airways, and Delta took things a step further by charging their “valued” customers who chose to pay for their bags at the airport, rather than online, an additional fee of between $2 and $3 per bag.
Saving and spending are the two most important elements of your life and your money. Unfortunately, money does not control many factors in life. It controls where you live, what foods you can buy, and many other things. For those who spend more than they earn, they can “look comfortable” but those looks can certainly be very misleading. We call these types of people “keep with the neighbors,” because they are deep in the debt and buy things that may be out of their price range so they can have as many cars as nice a house as his neighbor in the street. This can get you far in debt you may have to declare bankruptcy. Of course, this is not what the goal is.
Save your money, even if you are only 10 dollars an hour, it’s very doable. Ot just a small bit of your weekly income and put it in a savings account. A great way to make sure you save is to create an “allowance” that takes money directly from your paycheck or direct deposit and put it in the savings account and you never need to touch the money. Do not know what it is in the savings account. Some people literally can not save money is in their hands. The temptation is too great. Therefore the allocation of savings to the idea is great. Even if only $ 5 a week, saving something is the key here.
When it comes to spending money, you simply need to evaluate your budget. Of course, you want to subtract all your needs such as electricity, water payments, rent or mortgage payments to pay car loan, or credit card payments, and any other important projects of the total money available. You also have removed everything you put in savings and just pretend that this is not if you have never tried to touch him. Simple as that, you can skip all that is excluded from this number when you subtract your total cost of your total cash.
However, a great thing to do is to spend only what you need and maybe a few luxuries you can afford. If you have something left after spending some money, you can put in your savings account to accumulate leave. Some people have a hard time doing this, but it is very important. You can save this much more than you ever expected when you can just control your spending. It is obviously easier said than done, as many people spend every penny they have available, and a few cents, even they are not spending and borrowing from creditors and the interests of payable on these things and sometimes to pay 20 percent more than what you paid for it because of that interest.
Saving and spending are simple but what is really important is self-control and discipline. If you can control your spending and at least put some in savings and not to plunge into it, you are really great! You do not have to be rich. Sometimes being rich means being debt and buying things you can not afford. So you buy a smaller house, but at least you have money in your poche.
These measures help young adults to prove they are accountable to the owners and lenders.
When it is time for a student to start building their credit profile? The answer is simple: when ready. You will know by how they budget their money, track expenses and manage their checking or savings and debit cards.
Building good credit is a function of managing your bills responsibly. No teenager or young adult should be in bulk with a credit card or given responsibility for a car loan until they have proven they can manage their cash flow. This means they must show that can deal with obligations without constantly ask the Bank of Dad for more money.
Your child may be ready to manage credit as a rookie, especially if you are willing to look over his shoulder. I prefer to send children to college with pre-paid housing, a checking account and debit card related that does not allow overdrafts. In this way, they have no large monthly bills and can get used to the convenience of plastic without much threat dinging their credit profile.
On the other hand, this approach does little to build good credit. Debit cards and checking accounts do not count for much in the context of the major credit bureaus. Therefore each student must take specific steps to start building a good credit profile. In the real world you want and need from a potential employer or the owner or the car dealer who sees your credit report to see that you are reliable.
Contrary to what many people believe, you do not start adult life with a higher credit score falls as you embezzlement debt. You start with a score around 600 (highest score is 850) and must build through a history of timely repayment of borrowed money.
My oldest daughter is entering her final year at university and for us it’s time to start working on their credit score. After an overview of Erik Larson, founder of NextAdvisor, a financial comparison site oriented, here’s how we approach it:
• Get a credit card. This is by far the quickest and most effective way to begin a credit profile. If I did not think my daughter was ready, I would find a prepaid card or warranty that the reports for the watchdogs of credit (it will say on the application, or just ask). Because she is ready, we’ll choose from credit cards are best suited for students.
• Use credit cards wisely. A credit card opens all sorts of ways to damage your score. Never miss a payment. Pay in full if you can. If you must carry a balance that will not hurt you unless your balance is relatively large. Never charge more than 30% of your credit limit and preferably keep it close to 10%. And do not apply for more than one card at a time or with any frequency.
• Get another form of credit. Having different types of debt helps your score. Thus, a car loan or personal loan or other installment credit can help. It can even help to have a second type, but different card, like a gas card or card store. In some cases, buy furniture or appliances can help conditions monthly. But you have to ask the finance company if they report to credit bureaus.
• Pay all bills on time. If you live off campus, to pay the cable bill or electricity bill or the monthly fee for a new office or on television is a must. It will not do much to build your score. But if you relax and get referred to a collection company is a major ding on your score.
• Do not close unused card account. It’s against-intuitive. Canceling a card can lower your score, because it leaves you with less credit overall, and instantly raises the percentage of the debt capacity you use. A long credit history is part of what makes for a high credit score. So keep those old accounts and ensure that they are in order.
A well-designed dispute letter can help prevent rejection, the next time you apply for credit.
You’ve probably heard of “sticker shock”, but what about the shock of rejection of credit? This can happen when you apply for a new line of credit – a credit card airline miles new, or maybe even a mortgage – only to find yourself rejected for reasons you can not understand. Worse, when you get a good look at your credit report, you will find that you have entered do not even recognize, let alone agree with.
How do you fix something that was listed on your permanent record by one (or all) of these credit bureaus huge? Does this mean your credit is forever doomed? For starters, there is no need to panic, or anger. Unfortunately the errors on credit reports are not so rare. And even if it’s a pain in the neck, there are steps you can take to rectify the situation. This is the most important to be persistent, and document the process.
Know What You’re Up Against
Get a copy of your credit report from all three major agencies. You can do so online or by phone each of the major services: TransUnion, Equifax and Experian. Each credit report is divided into several sections, including a section covering personal information, requests for credit reports, accounts in good standing, elements of credit and potentially negative elements.
Analyze each of the three reports thoroughly and determine the accuracy of all information they contain. Much of what is on the report should be known to you as a loan you out, what you are looking for is errors. Make a list of all the elements that you feel doubtful or negative errors. (Also note the differences between the three credit reports). This will give you a start on solving problems and potentially improve your credit rating.
Documents and Disputes
If you find errors on your actual report, there are several steps that must be taken to resolve them. Under the Fair Credit Reporting Act (FCRA), the credit reporting agencies are responsible to correct inaccuracies and incomplete information on credit reports. This allows you the freedom (and responsibility) to contact the reporting agencies, which publish documents, to correct any inaccuracies you find.
Using some simple rules and tools can help you save plenty over the long haul.
Break bad habits: The science of habit change
Does it really take just 21 days to change a habit? Experts say it’s not that simple. “Breaking bad habits successfully depends on your readiness to act,” says Heidi Beckman, clinical health psychologist at the University of Wisconsin Hospital and Clinics and speaker on financial behavior change.
John Ulzheimer, president of consumer education at SmartCredit.com, agrees. “If it was easy, we’d all have big savings accounts, and none of us would have credit card debt,” he says.
Beckman says habits change more quickly when you’re in the action stage versus the ambivalence or preparation stages that come before. To catapult yourself into action, she recommends using this three-step approach daily.
1. Create a positive picture in your mind of the result you want, and act as if the bad habit is gone. Use a negative picture of the current stressful result of the bad habit to push yourself further toward action.
2. Identify and focus on your positive financial habits, as proof you can do things the right way.
3. Create simple rules to fall back on when tempted, such as: “Don’t browse shopping websites until all my bills are paid this month.”
Break bad habits: Resist impulse buying
“We’re wired for instant gratification,” says Ulzheimer. “But if you can’t afford to pay cash and whip out a credit card without thinking, then you’re on a downward spiral into debt and money mismanagement.”
Using credit cards to spend more than the cash you have while making only the minimum payments on the cards can build up their balances faster than you can pay them, he says. And if you pay late, penalty fees just add to the total. “You forgo the many benefits of the proper use of plastic, such as for reimbursable business traveling, establishing a good debt utilization percentage on your credit report… and for earning easy cash-back rewards,” says Ulzheimer.
Practice telling yourself “no” when tempted to spend, and try these tactics.
• Distract yourself by making a phone call or unwrapping a stick of gum until the “buy” urge passes.
• Make a rule to only charge for reimbursable business expenses or rewards and only when you have the cash to pay for it during the grace period before the date interest is charged. Double-check dates.
• If you must take drastic measures to curb spending, have your credit card company lower your limit and opt out of over-limit and overdraft spending so your card gets declined.
Break bad habits: Automate finances
Counting on willpower alone is not enough. “When you rely on willpower to meet your expenses, important financial obligations such as timely payments and depositing to an emergency cash or retirement fund are left up to your personal choice and can easily be mismanaged,” says David Bach, author of “The Automatic Millionaire.”
Ulzheimer warns that some use the excuse of not being organized or not having enough money, but paying late just means you pay more because many companies tack on a late fee (typically $39) and many also charge you interest on the unpaid balance as well.
Says Bach: “Make your important payments automatic so bills get paid on time, and important savings deposits that protect you and your family don’t get missed.”
Make payments automatic to avoid late fees.
• Set up shadow payment dates by subtracting seven days from the real due date.
• Make payments automatic using your bank’s or the payee’s online bill pay.
Break bad habits: Pay more than the minimum
Paying just the minimum is a good way to stretch out your debts for as long as you can. “When you only pay the minimum amount due on a credit card, you’re effectively rolling over approximately 97 percent of the balance and adding the interest applied,” says Ulzheimer. This is very profitable for mortgage companies and card issuers, but not you. “The only way to reduce your balance quickly is to pay more than the minimum, avoid fees and stop adding to balances,” advises Ulzheimer.
Pay more than the minimum with every payment.
• Set up automatic timely payments of a higher amount than the minimum.
• For fastest results, create a “debt snowball,” in which you pay as much as you can toward the lowest-balance card until it is paid off. Then you apply that same payment amount plus the new payment amount to the card with the next-smallest balance.
• Consider taking advantage of the automatic biweekly mortgage payment plan your lender may offer. For the one-time fee, the quicker pay-down is worth many thousands of dollars over the life of the loan.