With such intense scrutiny over your individual credit score for the large purchases that make for a good life, the importance of keeping your credit score as good as it can be can hardly be understated. However, there are many ways that you may be negatively affecting your credit score.
The worst part is, most of these mistakes can easily be overlooked. Most are complete mistakes on the part of the credit holder; however, lenders do not make distinctions between “real” credit dings and mistakes. Below are a few of the ways that you may be negatively affecting your credit score without even knowing it:
1. Allowing many inquiries on your credit report in a short period of time.
Lenders look down on this because they assume that people who allow many credit inquiries are, in fact, in too desperate a need for credit. People in desperate need of credit are, in their opinion, often the same cash strapped people who have difficulty paying back loans.
2. Your credit balances vs. your credit lines.
If your credit cards are at or over their limit, lenders will either assume that you rely on credit to live, or that you have a problem spending money that you do not have. Or possibly, both.
3. Closing credit card accounts.
Point 2 and 3 are related because as you close credit accounts, your total credit available goes down. If the amount of credit you use remains the same, it now looks as if you are borrowing a higher percentage of your total available credit. They will then assume that you are among one of the groups mentioned in Point 2.
4. Closing credit accounts with long histories.
Having credit with a long history is worth approximately 15 percent of your overall credit score. Lenders are, of course, more likely to think of a borrower with a long history of successful borrowing as more responsible and able to pay back loans. Therefore, if you are faced with a choice of accounts to close, always choose the newer account.
5. Using debt counseling services.
Lenders want to see bills paid on time and in full. Any outside assistance you seek in this endeavor leaves a bad taste in a lender’s mouth. They assume that if you need assistance in paying bills on time and in full, you will have more trouble paying back a loan.
Top 3 Ways To Consolidate Credit Card Debt
A favorable credit score is a crucial asset in today’s society. With virtually every major purchase, such as a house or car, a decent credit score is required to receive fair interest rates.
With this fact of life in mind, you may have opened various credit cards in an effort to build good credit. As a result, you may have inadvertently accrued multiple outstanding debts. Consolidating these debts may be in your best interest. Fortunately, there are three easy methods to achieve debt consolidation.
Do A Balance Transfer
One such method is a balance transfer. This is a good option for those whose credit score is high enough to obtain another credit card. Isn’t opening another credit card counterproductive to an end goal of consolidation? Not necessarily.
To explain, the key in utilizing a balance transfer to condense debts is to obtain a new credit card with an excellent interest rate. This is why a superior credit score is beneficial in taking the balance transfer route. Generally, there is a one-time fee for a balance transfer and no other fees involved.
In addition, some cards offer a zero percent interest rate on balance transfers as an introductory incentive. If you find a credit card with such an offer and transfer any outstanding debts to it, you can save substantially on your interest payments.
The interest rate is typically higher on balance transfers than regular purchases, so you would want to pay off any transferred debt before the special introductory rate expires.
Applying Home Equity Loan
Another option to consolidate debt is by taking out a home equity loan. Homeowners can use their home as collateral to pay off their debts. While interest rates are higher for a home equity loan than they are for balance transfers, the rates are fixed.
Unlike a credit card, your interest rate will not change. If a new credit card is too tempting, and you feel it may cause you to incur even more debt, opening a line of credit on your home may be your best option. However, this loan is generally harder to qualify for than a credit card.
Also, if you default on the loan, you risk losing your home. This harsh reality may be enough to turn you away, but if you can guarantee timely payments, the fixed interest rate is certainly a plus. Be sure to research your bank and other banks to find the best rates.
For those who do not own a home or those looking to avoid opening a new credit card, a peer-to-peer loan is a fair way to consolidate debt. Important to realize, this is a one-time loan, meaning no other purchases may be added to it.
In a peer-to-peer loan, frequently referred to as P2P lending, you cut out the middle man by working directly with an online lending company that specializes in such lending. With a decent credit score, you can qualify for a P2P loan with a fairly low interest rate.
Regardless of the route, you decide to take in consolidating your credit card debt, you will want to shop and compare credit cards to find the best terms and rates.
If you don’t mind opening a new credit card, a balance transfer is a perfectly suitable way to have all your credit card debt in one place. If you are a homeowner and can assure timely payments, a home equity loan may be for you.
On the other hand, if you wish to avoid new cards or a loan associated with your home, a peer-to-peer loan may benefit you most.
5 Tips for Staying Ahead of Credit Card Debt
The holidays are over, but for many paying for the holidays aren’t over yet. According to researchers, more people utilized their credit cards for holiday shopping this year than in previous years.
This means there are millions of people still paying for their Christmas shopping, trying to return their credit card balances. With so much debt these days, it is easy to fall behind and continue paying for your shopping well into the middle of the year.
Those who know how to manage their credit cards have developed methods of paying off their balances and stay ahead of debt. Here are 5 tips for returning your credit card balance and keeping your head above water.
Pay at Least the Minimum Balance:
With your monthly bills stacking up, the credit card bill is one that commonly gets thrown in the back of the pile. This creates the risk of your funds running out before you reach that bill. If you are concerned with your credit and debt, as everyone should be, make sure you pay at least the minimum balance.
This will keep your credit account from adding late fees, penalties, or canceling your account altogether. Once your credit account reaches collections, it is harder to pay with all the added fees. Paying the minimum doesn’t make any progress, but it will keep you from falling further behind.
Cut Back Monthly Expenses:
Sometimes your budget gets very tight, too tight to pay the extra balance on your credit cards. If you are trying to return your credit balance, cut out extra monthly expenses.
Skip the movie night, dinner with friends, the low-fat extra foam latte every morning, and any other expense that will allow you the extra funds needed to put towards your credit card bill.
If you have the premium cable package with all the movie channels, cut it down for a few months to get your bills back on track. You can always add the extras back on later.
Stop Using the Cards:
Another mistake many people make is paying on the premium and then using the card again. This defeats the purpose of paying. If you are making progress on paying off your credit card balance, stop using the card.
Pay with cash as much as possible and continue paying on your balance without adding to it. Don’t take one step forward and two steps back.
Pay One Card with Another:
If you have more than one card with different interest rates, pay one card with the other. By paying off the card with the higher interest rate using a card with a lower interest rate, you can save money.
This is a great way to consolidate your credit card balances as well. If you are paying on two different credit cards, pay them both off with the credit card with the lowest interest rate and turn those two bills into one low payment each month with low interest.
Borrow Against your Insurance:
If you want to pay off your balance quickly and have life insurance, borrowing against your life insurance might be the answer you are looking for. Getting a loan against your life insurance offers a lower interest rate than a commercial loan and the payments are manageable.
In the event that you pass before the loan is paid back, the remaining balance and interest are deducted from the amount of the life insurance payout and the remaining balance is paid to your beneficiary.
Credit cards are a fantastic tool for getting what you need when you need it. In cases of emergency, they can be a lifesaver.
However, if you don’t manage your spending or keep up with your payments, credit cards can send you into a downward spiral of debt that is hard to return from. The budget for your credit card bills every month, reduce the frequency of use and keep ahead of credit card debt.
Learn About Credit Card APR, Blocking and Debt Settlement
One major problem with credit cards is that their annual percentage rates (or APRs) are never set in stone. You can start off with a low rate and the lender can either raise your rate due to changes in the economic environment or just due to what may seem like a whim.
Additionally, any late payments or other mistakes on your part will undoubtedly cause it to skyrocket. But once you’ve got a rate of 17%, 20% or even higher, that doesn’t mean it has to stay there.
How to Lower Credit Card APR
Call the customer service number on the back of your credit card.
Press zero to skip the options menu. Ask the representative if he or she can lower your rate. Mention a long history with the credit card company, consistent on-time payments or the availability of more competitive rates elsewhere. (Of course, only bring up these facts if they are true.) If he or she says it’s not possible, ask to speak to someone with the authority to do so. If that doesn’t work, call back and try again.
Transfer your balance to a new card.
Call the customer service number again and ask for your “payoff amount.” When you open your new account, enter this number and your card’s information in the balance transfer section of the application. (It’s usually near the bottom).
The new company will pay off your old card and add this balance to your new card. If you already have another credit card with a lower rate, don’t open a new account. Either make a balance transfer over the phone by giving the rep your account information or ask him or her to send you a “balance transfer check” you can mail to your old credit card company.
Pay off your card.
If your credit card has a zero balance for a month or longer, it will effectively have an APR of zero. As long as you pay off your entire balance each time you get a statement, you cannot be subject to finance charges. That’s because all credit cards are required to have an interest-free “grace period.” On most, it as at least 20 days from the date of your purchase.
The Perils of Credit Card Blocking
Credit cardholders often provide in advance their credit card number to a merchant, company or business, for a future transaction, which may or may not occur.
For example: When checking into a hotel or renting a car, the receptionists may ask for a credit number to place on file, and then to be applied to the final bill. The merchant could contact the credit card company, and provide an estimated amount of the total bill.
If permissible by the credit card company, the merchant has the estimated amount “blocked”, even though no charge has been applied to the card (debit or credit), and that amount may not be charged, if the transactions, do not proceed.
“Blocking” Practice By Some Restaurants
Also, some restaurants use the service of “blocking,” a credit card, when a large number attend a party or dinner event.
The purpose of “blocking” ensures the merchant will get paid if the customer or client relinquishes, from paying the final bill or ensures the merchant will get paid, preventing the cardholder from exceeding the credit limit, before checking out of a hotel, returning a rental car or other similar types of transaction.
Unfortunately, credit cardholder may encounter a problem, when making a future purchase, with that card. Unknowingly, the cardholder may have reached their credit limit on the card, since an amount on the card was ‘blocked,” for a possible future credit card transaction.
Some credit card companies will allow the credit cardholder to exceed their limit, but on the next credit card statement, an additional fee or punitive charge would be included.
Preventive methods avoid reaching your maximum credit card limit or fewer number of days the credit card is “blocked.” Calculate the maximum amount available on the credit or debit card you plan on using, and then subtract expected ‘block’ amount, for those merchant transactions.
Ask the merchant (hotel, car rental company or other business), how long the card will be blocked and amount. Have at least two credit cards available. One applied for “block” transactions and the other one, for all other transactions.
This ensures your ability to make credit card purchases. Remember to use the same credit card to pay a bill that was ‘blocked,” by that merchant. Within a few days, the blocked amount will be removed from the credit card.
Period to Remove “Blocked” Amount
When the bill or charge is paid by a different credit card, cash or check, then the length of time to remove the “blocked” amount will take longer, possibly up to fifteen days.
The credit card company, will not likely have been notified the amount was paid and the keep on their records the ‘blocked” amount for a longer time. This can be avoided, by asking the clerk, receptionists or merchant to notify your credit card company, to remove their “block” promptly.
Afterward, contact the credit card issuer, if the “block” was removed. When applying for a credit or debit card, ask the issuer if “blocking” is permitted, and what type of merchants will the credit card company accept to place a “block.”
The Federal Trade Commission brochure, “Credit Card Blocking,” recommends that consumer check how long their card issuer block credit lines for these types of transactions.
Apply to a credit card monitoring service, provides constant updates for credit card transactions, includes being informed when “blocking” happens, and alerts for possible fraud or theft.
You Can’t Ignore a Credit Card Company and Get Away with It
This financial lesson titled, “You Can’t Ignore A Credit Card Company And Get Away With It” does not pertain to me; it’s about two friends of mine. The reason I’m retelling their stories- anonymously*, of course- is so that others can read their experiences and not try to do the same things.
Granted, we all make mistakes in life. What matters most is that we learn from the error of our ways and not repeat costly mistakes.
Financial Lesson #1
Rich Smith was finally getting his credit back on track, and one high profile credit card company kept sending him offers to get his own piece of plastic. Rich liked the idea of getting a charge card, an easy way to pay for items he bought alone.
He and his wife usually paid cash for their purchases. If they didn’t have the money, they simply didn’t buy. But, there were hobby items he wanted- fishing gear, parts for his ATV, et cetera- he didn’t want to wait on.
Rich got his new credit card and began to use it right away. He never was one for keeping accurate records and holding onto credit card receipts, so they quickly became lost.
When his first bill came, Rich was astonished to see his balance had jumped from zero to nearly five hundred dollars. As he examined the charges, he couldn’t remember making all of them. His receipts were lost, so he couldn’t go back and check them.
So, he decided the credit card company must be wrong in their calculations. Rich decided he owed $200.00 of the $473.55 bill, but certainly no more than that. As each monthly bill came, he made the required payments until he had paid off the $200.
After that, our friend, who was unaware of the rule: “You can’t ignore a credit card company and get away with it”, called the financial institution to dispute the amount due. Of course, he lost that argument. Angry, Rich cut up his plastic credit and threw it away. And, he simply threw away any further correspondence he received from the company.
You can probably guess what happened next. After several months went by, Rich got a letter from the credit card company threatening to turn him over to a collection agency. His balance of $273.55 had now grown to nearly double its size due to late charges, interest, et cetera.
He was now forced to deal with the situation in a mature manner, which, he finally did. Rich called the credit card company again and made arrangements to pay his debt off. Hopefully, he learned his financial lesson: “You Can’t Ignore A Credit Card Company And Get Away With It.”
Financial Lesson #2
Molly Jones* is a single career woman who doesn’t have time to waste. When she got a credit card offer in the mail, she quickly filled out the application and received her new line of credit shortly afterward. As the months passed, Molly used the card to buy this and that. Her balance was never high, only several hundred dollars each month.
As I said, Molly’s a busy woman. She finally overlooked making a payment or two, and the credit card company quickly tacked late charges and interest onto her bill. That made Molly angry. So, she sat down with her checkbook when she got the next credit bill. Molly wrote out a check for the exact amount and she sent it off.
As of yet, Molly hadn’t learned that “you can’t ignore a credit card company and get away with it.” When she saw the next month’s statement from the company in her mailbox, she remembered she had paid the balance off.
So- you guessed it- Molly ignored the mail thinking it would show a zero balance. But, it didn’t. Molly still owed the credit card company the interest that had accrued from the last billing to the date the company got her to pay off.
The months passed by. And as they did, Molly’s credit card kept growing with late charges and interest and who-knows-what other fees the company could add on.
Finally, when she owed a balance of a few hundred dollars, the company threatened to turn her into collections. Fortunately, Molly paid attention to that letter, and she paid the balance off. This time, in full.
Debt Management for Credit Card Users
While it seemed prudent to use a credit card to pay for Christmas when the household budget was strapped, the wisdom of this decision may be debatable in June when the introductory interest rate skyrockets.
Many people who have obtained low interest credit cards for even emergency purposes have found themselves drowning in fees that seem to grow faster than their paychecks.
While the credit card companies would like for people in this predicament to think that getting another credit card is the perfect solution to their dilemma, the truth is that this could be absolutely the worst action to resolve their cash flow problems.
Some credit card customers are beginning to realize this and are turning instead to payday loans as the best way to manage their credit card debt. A payday loan offers the following benefits to get those with cash flow problems back on track with their finances:
- Cash in hand within twenty-four hours in most cases
- Private transactions without fear that important information will be compromised
- Easy online application processes requiring, in most cases, only access to a computer, a working email address, and proof of continuing employment.
- Friendly support personnel to walk patrons through the process
- Funds directly deposited into a designated bank account
- For more information on how a payday loan works, click here.
United States citizens over the age of eighteen who are having difficulty making payment on a number of credit cards may want to consider consolidating the cards into a single payment using a no faxing payday loan.
For this type of loan, it isn’t necessary to have a fax machine or deal with reams of paperwork. Every step is completed online, and the process is guided by highly responsive agents. It’s the fastest and easiest way to get your hands on some quick cash to take care of your financial problems.
A payday loan could prevent all of the following difficulties:
- Accumulation of penalties and late fees on bills
- The fees associated with filing for bankruptcy
- Stresses that can be harmful to the health
- A weakened credit score due to late payments
All of these problems can be avoided by simply managing credit card debt through consolidating all of your balances into one payment. The interest rate will be fixed, and the payment will remain the same throughout the course of the loan. Apply for a payday loan today and stop worrying about how you will ever pay off those high interest credit cards.
Don’t stress yourself out and learn how to manage your credit cards debt today.
Credit Card Debt and Law School Debt Options
Credit card debt and student loans can affect your life. If you miss a payment, some companies will raise your minimum payment or your interest rate. Future payments on credit card debt and student loans become more difficult.
Paying your financial obligations on time can affect your credit and future interest rates a future loan (including a mortgage). There are options to manage your credit card debt and student loans.
Managing Student Loan Debt
One option for credit card debt is to call and ask about any hardship programs that exist. People are often pleasantly surprised that credit card companies offer programs to assist their customers in this manner.
Some companies can reduce the monthly payment or suspend it for a specific amount of time to allow their customer to get back on their financial feet.
Credit card companies realize that if they work with their customers, they can gain a customer for life. This also allows you, the customer, to maintain good payment history and credit with their company.
Financial institutions that provide student loans, including the federal government, offer hardship programs as well. If you have finished school, you can consolidate your loans. Hardship programs can lower your payment or allow you to not make payments for a specified amount of time. They also offer hardship programs for student loans based on income.
Relieving Credit Card Debt
An additional option for credit card debt is offering to settle with the bank. Many lenders are willing to settle. Settling ensures that the lender will get paid at least something on the debt. The drawback to settling an account is that the lender will most often close the account.
Bankruptcy is an option for credit card debt as well. The main forms of bankruptcy for an individual are Chapter 7 and Chapter 13. Chapter 7 bankruptcy allows you to essentially wipe the slate clean with some limitations. Certain things are not discharged in bankruptcy; student loans are most often not discharged in bankruptcy.
If there are assets in chapter 7, the Trustee has the power to sell them off to pay creditors. Most people do not have enough assets. Bankruptcy law governs income and asset qualifications. An experienced bankruptcy attorney can help you through the process.
Chapter 13 bankruptcy designs a payment plan to allow creditors to be paid back at a certain percentage. This plan is designed by the bankruptcy Trustee. Occasionally, a bankruptcy will be converted from a Chapter 7 to a Chapter 13 or even from a Chapter 13 to a Chapter 7.
Additional Credit Help
Credit counseling companies can help you negotiate with your credit card companies and the lenders of your student loans. It can be very overwhelming to handle this process alone. Using a credit counseling company can relieve stress.
They often know who to talk to and have a good professional relationship making negotiation easier. Be wary because some credit counseling programs will negatively impact your credit.
Credit is very important. Keeping a good credit score can make it easier to qualify for a mortgage in the future. Credit card debt and student loan debt management can be challenging. Have patience and get help from a professional if needed. Consider your legal options for debt management.