Credit Repair News

Study: 50% of Americans don’t know how debit cards work

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Credit cards and debit cards look nearly identical. Each has a 16-digit number and an expiration date. However, that’s the full extent of the similarity between these two cards.

Debit cards function very differently from credit cards, relying on money you actually have in your checking account to engage in transactions. On the other hand, credit cards essentially function as mediums for small loans in that you engage in a transaction on “credit” with the promise to repay it at a later date.

We wanted to see if Americans know the difference between credit cards and debit cards, so we surveyed 2,000 people and found that:

  • Half of Americans think debit card spending impacts their credit score
  • 1 in 3 Americans wrongly believe there are no fees associated with debit cards

When we asked Americans if they thought debit cards affect their credit score, there was a 50/50 split, suggesting many are unsure.

graphic man woman credit card

Based on these results, it seems that Americans don’t know which factors affect their credit score and which do not. This is pretty startling, considering that credit scores determine your eligibility to make major purchases and borrow money for mortgages, auto loans and student loans.

Credit agencies have specific formulas for calculating your credit score. Each of the three major credit bureaus (Experian, Equifax and TransUnion) report these scores with minor differences, but all represent a similar view of your credit history. Your credit score is calculated using payment history, amount owed and types of credit used among other things. However, it does not use any activity from debit card usage, since this cannot be found on your credit report.

Over 1 in 3 Americans think there are no fees or payments associated with debit cards

In March 2018, there were approximately 555 million VISA debit card holders in the United States. With so many card holders, you’d think that most Americans would understand the way debit cards work when compared to credit cards. This doesn’t seem to be the case.

We asked Americans if there were fees or payments associated with debit cards, just as there are with credit cards. Nearly 37 percent incorrectly said there were no fees for debit cards.

graphic of credit card

In fact, there are many types of fees that can be accrued through debit card usage, including PIN fees, overdraft fees, ATM card charges, minimum fees and international fees.

One of the most common of these charges is the overdraft fee. Users of checking accounts sometimes engage in transactions that use more money than is available in their account. This usually results in a financial institution charging an overdraft fee.

The Consumer Finance Protection Bureau states that overdraft fees are typically triggered by small transactions – the median amount is $24 for debit cards. These small transactions may go unnoticed by card holders who don’t know the fees associated with overdrafting or who treat their debit cards like credit cards and as a result, could be at risk of losing additional money via these charges. In fact, for those penalized by overdrafting, these fees account for 75 percent of their total checking account fees and average around $250 per year.

It’s important to understand the differences in function between credit and debit cards. Confusing them can lead to expensive consequences like overdraft fees and dings to your credit score.

If you’re unsure how to build your credit, get a new credit card or use a debit card and checking account, contact your financial institution for advice. This will help you avoid making a serious mistake that could potentially affect your credit score and your financial stability.

Sources

Investopedia | Statista | Consumer Finance | Department of Financial Institutions



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Why did my credit score drop even though nothing changed?

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Why did my credit score drop even though nothing changed?

Posted by Erica Steeves on September 17, 2018


Your Credit Minute Show Notes:

 

  • 00:00                                   Hey what’s up guys, Nik Tsoukales from Key Credit Repair. We are gonna go through the credit question of the day, which is, why did my credit score drop even though nothing changed? Well, I have to tell you, something did change. Uh, just things you might not realize. So the credit report, keep in mind, is constantly changing. The credit score when you’re pulling it up online, or whether a lender is pulling it up, um, is going to pull data or it’s going to be a snapshot of the data in that moment. Now keep in mind from one moment to another things can change. Okay? And let me elaborate a little bit on that, ’cause some of the things you might think of haven’t changed, but I’ll actually break down some of the things that could have.
  • 00:43                                   So, you’re going to notice here, I included a little chart here of what makes up your FICO score. Okay? So at 35 percent which is payment history, we 30 percent is amount owed or debt, 15 percent length of history, 10 percent new credit, and 10 percent credit mixed. So let me give you an example of some things that may have changed that you haven’t realized. Um, first thing is payment history. Okay? You might not have a new lay payment so you’re wondering, Nik why should my credit score change if I don’t have a new lay payment. Well maybe you’ve had a few more positive payments. That could actually cause your credit score to go up. Okay? Um, if you’ve had a recent lay payment obviously the credit score is going to go down. Okay?

 

  • 01:27                                   Amounts owed. This is the big one. I would say this is the biggest culprit. Um, we get people that call us all the time and they will say my credit score has dropped five thousand points, five million points, I don’t know why. I haven’t been late, I haven’t done anything wrong. And in fact they really haven’t done anything wrong, but typically what we’re seeing is this part of the credit score is being affected because of something called, uh, credit card utilization rate. The proportion of your credit card balances compared to your credit limits affect this 30 percent of your credit score.
  • 02:02                                   So let’s say, um, two months ago you pulled up your credit report and it was almost identical with the exception to the fact of, oh, with the exception to the fact that your credit card balance was 100 dollars. Okay? And when we pulled it up this time, the credit card balance was 300 dollars, and that credit limit is, is 500 dollars. Okay? Um, that utilization rate, okay, your proportion of balance compared to credit limit, um, is, has gone up considerably higher. Okay? And that will affect the 30 percent of what makes up your credit score. And obviously if, if that credit card utilization rate has dropped, this part of your credit score will benefit. Okay? So if you’ve pulled up your credit report recently or you’ve pulled up your credit score and there hasn’t been really any adverse change or new negative, uh, uh information, this is the first thing I would check out. Okay? It’s, it’s really the quickest opportunity to grab some points too. Okay?
  • 03:03                                   Um, the next thing is, length of history. Okay, the length of history for your active accounts really affects your credit score in a pretty big way. It’s 15 percent of your credit score. So let’s say you have had a couple accounts that have just dropped off, some older accounts that were closed out a decade ago and they just fell off your credit report because of the statutes of limitations. Well that could adversely affect this part of your credit score as well. Okay?
  • 03:28                                   The other thing is new credit. Let’s say if you’ve got a bunch of new, uh, credit cards recently, um, typically that will, you’ll see a small drop on your credit score. Okay? Um, probably if it just happened, you might see a quick 10 point drop in your credit score, but really over the course of 90, 120 days it should actually help your credit score pretty substantially because you’re gonna start getting on time payments on those cards. Which will positively affect the 35 percent of you credit score that’s payment history. Okay? If they’re credit cards, um, and you keep the balances at zero, it should help your credit score which is amounts owed. Um, because your credit card utilization rate, theoretically, should drop because your proportion of balance to limit has now dropped. Okay?
  • 04:16                                   Um, and then we have credit mix. This is one no one is really talking about. Okay? Let’s actually circle this. The ideal mix is real estate number one. Uh, you have installment credit number two and revolving credit number three. Revolving being things like credit cards, lines of credit, overdraft protection. Installment credit is things like student loans, care loans, car leases, um, personal loans. Okay? And real estate credit being home equity lines of credit and mortgages. Okay? So let’s say your entire credit picture has stayed the same, um, but maybe you don’t have a car loan anymore. Maybe that balance was already down to like your last payment. The last time you checked your credit report recently was closed out. Um, this 10 percent of your credit score could be affected, ’cause you no longer have that perfect mix. You no longer have any installment credit. Um, maybe you have, uh, you know length of history maybe is gonna be a little more adversely affected if that auto loan was 10 years old and it just dropped off. Okay?
  • 05:21                                   Um, so that could have an affect. Amounts owed really shouldn’t have an affect. Um, you could see an adverse affect from payment history, because now you have one less account reporting an on time payment. Okay? So there’s a little bit more than what’s, than what meets the eye with your credit score. There’s a lot that goes into it, but keep in mind the culprits typically are right here. Okay? The culprit is typically right here in amounts owed. So if you’ve seen your credit score drop or there’s been an adverse change, um, obviously if you’ve had a new late it would show up inside of payment history. If you haven’t and all of your accounts are intact, I want you to check your credit card utilization rate. Again, proportion of credit card balances to the available credit limits.
  • 06:04                                   Guys this is Nik Tsoukales with your credit minute. Check us out at keycreditrepair.com for anything credit related. If you have any credit questions you’d like me to answer, uh, I’d be happy to, uh, drum out here on my fancy new little white board. And um, thanks for checking us out guys. Have a great day. Peace.





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How Does Closing a Card Affect My Credit?

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How Does Closing a Card Affect My Credit?

Posted by Erica Steeves on September 24, 2018


Your Credit Minute Show Notes:

  • 00:00                      Nik Tsoukales with your credit question of the day. We have, “How does closing a credit card affect my credit score?” So let’s break this down to a science. So, we’re going to uh, you’re going to see here we have the five factors that make up your FICO score. Or, we call them the FICO five, okay? So let’s break down how closing your credit card could or could not affect your credit score, and let’s go into the specific scenarios.
  • 00:23                                   So, let’s say for example, uh, you only have one credit card, and you close it out, okay? What’s typically going to happen is your going to see a massive credit score drop, believe it or not. And the reason for that is, number 130, percent of your credit score is based on debt. Specifically your credit card utilization rate. So, if you cut off all credit cards, um, really you’re not getting any of the points in that specific category, so you’re going to see a drop here. Okay? Um, also, 10% of your credit score is a mix of different types of accounts, okay? So all of a sudden, you don’t have what they call a revolving account. You’re going to see a drop here as well, okay?
  • 01:01                                   The other place you could see a drop is the age, okay? So let’s say the average age or length of history of all of your active accounts um, let’s say that account has some good age on it, or it’s been pretty old, it’s 10 years old, and you, and you, and you, uh, uh, deactivate that card, you’re going to see a drop here, so yes, um, shutting down credit cards could have a pretty big adverse affect uh, or pretty large drop in your credit score, and it can happen very quickly. So, I’d advocate you know, don’t carry balances, don’t carry the credit cards, but it doesn’t mean you need to shut them down. Now, if you think the temptation is too hard to resist, I would suggest taking that credit card, locking it up in a safe. Maybe putting it in a safety deposit account.
  • 01:47                                   If you have it only for the purpose of credit, um, maybe what you want to do, and I’ve advocated this before, is put it in a red cup, fill up the cup with water, stick it in your freezer. Sounds a little insane, why do I say that? For the obvious reasons, okay? You’re not going to make a compulsive decision to buy something, because that credit card is locked up in the freezer, okay? And if you do find something you really, really want, and you want to buy it, your going to have to melt the water. You’re going to have to melt the ice, and you are going to feel absolutely foolish and then going through those emotions, you might actually think twice about your next compulsive decision, okay? So another quick tip in terms of how to keep a credit card without having to use it.
  • 02:27                                   Um, now, let’s say you have a bunch of credit cards. Okay? Let’s say you have five credit cards, and they’re all fairly the same age, okay? And you really just don’t like this credit card, it’s a garbage annual fee. Maybe it’s the type of credit card you got when you first established your credit, and the annual fee really stinks, and the rates stink, and there’s just no purpose behind, and the service stinks, and you already have a bunch of really uh, good credit cards, where you’re getting the points, the rates are super low, you have a decent credit limit, so the utilization rate doesn’t get all wacky when you use it.
  • 02:58                                   That’s one of those scenarios where closing out one of those types of credit cards, you’ll probably see zero adverse affect, really. Because at that point, your utilization rate hasn’t been affected, okay, hasn’t been affected. Um, the age, by the way, this doesn’t mean your age, okay? The age of the accounts. Um, this really hasn’t been affective, because you have other really good healthy aged accounts. The types of credit in use, or credit mix, that’s not really affected either. Okay? So keep that in mind. Um, also payment history … Something else to keep in mind.
  • 03:32                                   Um, 35% of the score is payment history, um, so keep in mind, as long as you have other accounts reporting each month on-time payments, you are going to pretty much maximize this part of your credit score. Um, but if you don’t have enough accounts, you could see an adverse drop in your credit score, scenario one, by closing another credit card, because you could lose some points here, just because you have less accounts reporting an on-time payment. Um, 35% of your score, okay?
  • 03:58                                   So, you know, remember building credit, okay? We advocate opening up new accounts. Not going into debt, okay? Paying um, or using the card um, obviously you’re required to make a payment, but let’s say you haven’t used the card, and it’s a zero balance, by default you still get an on-time payment, okay? So we talk about that in the building process. We don’t need to go into debt to build up our credit report. Well, think of that in reverse. If you got 50 points from building up your credit scores, and use … Or building up those healthy accounts, and you start doing the opposite, just imagine those 50 points pretty much going away, if that’s all you have on the credit report.
  • 04:37                                   Guys, this is your credit minute. If you have more questions about whether or not you should close on an account, that’s definitely a phone call you should make to us, that’s something we can discuss in a free consultation, actually looking at each of the trade lines. Looking at the age of those trade lines, and helping you make a healthy decision on whether or not you should or you should not close something. Have a great day. Bye bye.

 





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When and How to Close Out a Credit Card

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According to a 2016 Gallup report, the average American has more than 3 credit cards. Whether you have too many options, you can’t control your spending temptation, or you don’t want to continue paying annual fees for cards you rarely use, there are many organizational and financial reasons to close a credit card.

But, not so fast. Before you decide to toss any cards in the garbage, it’s important to know which cards you should never close — this will help narrow your card collection down to the absolute necessities.

You should never close the following credit cards:

  1. Cards that still have a balance: Before you close a credit card, you first need to pay off the balance. If a card has an outstanding balance, even if it’s a small amount, it will look like you maxed it out. This can negatively impact your credit score (30 percent of your credit score is determined by your debt and available-credit-to-usage ratio). If you’re trying to close multiple cards, start with the account that has the lowest outstanding balance.
  2. Your only credit card: 10 percent of your credit score is based on versatile credit sources, so it’s important to keep at least one credit card in the mix. Lenders want to see you can manage different types of credit, so don’t cancel your only credit card.
  3. Your oldest credit card: Lenders are more likely to give better rates to those with a history of managing credit. While closing your oldest credit card won’t impact your score right away, it will shorten your credit history down the line and could ding your score in the long term.

You know which cards should stay, but which ones should go away? When you’re ready to close out a credit card, don’t just reach for the scissors to snip it into the trash. Follow these six steps to properly cancel a credit card.

1.   Cancel one card at a time

First, cancel the cards that charge hefty fees to alleviate financial burden. If you’re looking to minimize the impact on your credit score, close newer cards as opposed to long-standing ones. If the card is new and you don’t have much debt, it won’t have a big impact on your credit utilization. Also, keep cards with the best perks, low interest rates, and no annual fees.

2.   Pay or transfer your outstanding balance

As mentioned above, be sure your card has a $0 balance. If you can’t pay off the balance but want to close the card immediately, transfer the balance to another open account. If you try to cancel before paying your balance, you will likely be hit with fees, high interest rates, and your FICO utilization score will be negatively impacted. Remember though, there is often a fee associated with transferring balances from one card to another.

3.   Contact your credit card company

Cancelling cards online is the easiest way to close your account. But, be weary that some company representatives will try to persuade you to keep your account open. If you’re serious about closing the card, be assertive and don’t fall victim to their persuasion.

4.   Send a written statement

When you close an account, send a written statement to the company to confirm. This provides documentation in case future issues come up with the account. For example, if the account stays active or the card issuer tries to hit you with extra fees you will have written proof of cancelation.

5.   Keep an eye on your credit report

Monitor your credit report during the weeks and months after closing a credit card. Keep a close eye to see if the cancelation damaged your credit score and regularly make sure your score remains accurate. If an inaccurate item does crop up, be sure to swiftly draft a credit report dispute to mitigate damage.

6.   Finally, cut up your card

Once it’s closed, get rid of it. If somebody spends on a closed card, it will negatively impact your utilization. Be sure that piece of plastic is long gone to prevent identity theft.

 

 

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Authorized User Accounts-When do they start reporting?

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Authorized User Accounts-When do they start reporting?

Posted by Erica Steeves on September 21, 2018


Your Credit Minute Show Notes:

  • 00:00                                   What’s up, guys? Nikitas Tsoukales here with Credit News Daily. Listen, I want to do a quick follow up video to our last video. You probably already watched this. Um, trade line. Should I buy them? Um, if you’ve seen that video, I just want to add a little bit of something. I’m really just elaborating on authorized user accounts. If you remember from the last video, we were talking about authorized user accounts, and the big question we go, we get. Should I become an authorized user on someone else’s credit card, okay? So if you’re unsure what this is, an authorized user account is fairly simple. Okay, somebody you know, okay, has a credit card, and they make you a card holder on that credit card. For example, if you work for a big company, a lot of times they’ll say, “Hey, here’s a company credit card.” They’ve just made you an authorized user on that card. What you don’t realize is you actually get that positive reporting from that card to hit your credit report each month. So it’s a nice little loophole in building up some positive credit.
  • 00:56                                   Now there are some companies that actually sell trade lines or sell the ability to get on to someone else’s authorized user account. They call it piggy bank, piggy banking, uh, piggy backing. Um, it’s super shady, totally illegal. Obviously stay away from it. But if you have a spouse, okay, that’s had a credit card that you’ve been paying on yourself for many, many years but you’ve never been on it, you can actually get placed as an authorized user on that card and start getting the reporting from it, okay? So authorized user account. What is it? You’re basically piggy backing off of someone else’s credit card, okay? Now, you don’t want to do this with any other credit card other than a spouse’s, okay? And the reason why really has to do with lending criteria. So a lot of banks and lenders have seen people in the past use this loophole to, to build up their credit, okay, and build up positive trade lines and positive activity without actually uh, being credit worthy, okay? So they’re on to you if that’s what you’re doing. It doesn’t work anymore, okay?
  • 02:01                                   Fannie and Freddie, the companies or the government agencies that back the majority of our home loans these days, when they see that you have an authorized user account now on your credit report, they’re gonna ask you a question. Is it your spouse’s? If you answer no, they’re simply gonna tell you, “Get them removed so we can re-run credit,” because most major banks, lenders and the government agencies that are backing these loans just simply don’t consider them accounts. Okay, so even if you’ve got a temporary loophole lifting your credit because you’ve become the authorized user on your cousin’s credit card or your neighbor’s credit card, your boss’ credit card, guess what? It’s not gonna last, guys. It’s coming to and end, okay? But if you, if you’re added to your spouse’s card, you will get that positive credit and most major banks and lenders will allow you, um, to use it for, for your loan, understanding that it is one household. So it does affect your credit worthiness. Most likely you’re paying it with your wife or your, your spouse, right? Um, another thing is, uh, another question we get asked is, you know, do I get that person’s reporting from the beginning? Um, it used to be that when you became an authorized card holder on someone’s American Express, for example, okay? You actually got all of the previous payment history on that account. So let’s say you’re a pretty young guy, 20 years old, and your parents made you a cardholder on their American Express that they’ve had since 1965, technically speaking in the old days, you were getting all of that previous reporting from 1965 from before you were even born. Okay? It was one of the greater grand slams in artificially boosting your credit score. Um, that’s over with now, though. That does not exist, so when you become an authorized user on someone’s credit card, the reporting will start from the day you become an authorized user. You’re not getting someone’s previous history. The date open will be the date it was opened, the date you became a card holder, okay? So it’s something that I tell people to do a lot when it’s a spouse. If it’s not a spouse, stay away from it.
  • 04:03                                   Um, again, like I explained on the last video, if you need to build up positive trade lines, um, you need to get some new credit or you need to build up positive credit history after you’ve already damaged your credit score, the easiest, the smartest, the best way to do it is through a secured credit card. Your local bank and lender is typically gonna offer this, or your local bank or credit union. If you want to do this online, if you go to bankrate.com, they have an entire section on secured credit cards. Um, we’re not in there trying to get the best interest rate, guys. You’re not gonna get zero percent, 12 month APR, any of that jazz. You’re not gonna get the JetBlue points with these cards. These are starter credit cards. So when you get the credit card, use it uh, very minimally, okay? Maybe throw a cup of coffee on the card every month or two, just to show some usage and that alone should help you start building up the uh, the credit reporting and keep in mind our rule of thumb. You want to have a, a minimum of three active trade lines when you do this. So when you’re building up your credit, uh, whether you’re piggy backing off of a spouse or building up your own secured credit card, you want to have a minimum of three happening.
  • 05:06                                   So guys, any additional questions you have regarding authorized user accounts, feel free to e-mail me at NTsoukales@keycreditrepair.com. You can check us out here at Credit News Daily on YouTube and Facebook. We’re dropping a credit minute every single day of the week. Thanks guys. Have a great day.





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Tips & Tricks to Save for a Mortgage Down Payment

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Most people shy away from purchasing a home because of the down payment, a sizable amount that has to be paid upfront. Typically Lenders requires you to pay a down payment of between 10% and 20% of the home’s purchase price. The down payment can also be as little as 3.5% with an FHA loan, but the program can be restrictive due to limits set on the principal amount.

Ideally, you should aim for a 20% down payment so as to avoid paying extra for Premium Mortgage Insurance, which is an extra payment of about 0.3% to 1.5% of the original loan.

The bottom line is you need to save for the down payment (no matter the percentage). So how do you go about it? Here are some tips and tricks to save for a mortgage down payment.

  1. Do your Research and Set a Goal

Start by figuring out how much your future home will cost. This will help you in getting an estimate of the down payment that you are to save for. A mortgage preapproval from a lender can come in handy. You can also find out the median house prices in your county or state. For example, if you are going for a $200,000 loan at 10% down payment, your goal will be to save $20,000 for the down payment.

  1. Adopt a Backward Budget

A tried and tested way of sticking to a savings plan is by adopting a backward budget. Decide on the amount you want to save per month and put it in a savings account. This ensures that you only spend the portion of your pay that is left after savings.

Expert tip: A stellar idea would be to place a standing order/instruction with your bank; a specific amount is deducted from your pay and sent to your savings account, every month without fail.

  1. Cut Back on Expenses

Saving meaningfully requires you to give up on some luxuries. You may start by finding cheaper ways of reducing every day expenses. Here are some great tips;

  • Instead of buying books whether online or from a bookshop, borrow from the library free of charge or at a small fee.
  • Scale down on your hobbies by adopting activities that cost less e.g. you can replace sky diving with a swim at the beach.
  • If you can, try and use public transport as much as possible. Saving on gas, car park fees, insurance and maintenance will free up much of your income.
  • Stick with your current wardrobe and if you must buy clothes look for sales. Buying clothes during off season will also save you some cash.
  • Eat at home instead of going out and carry packed lunch to work instead of eating at restaurants. There is a huge gap between the price of cooking at home and dining out, meaning you will save a lot and probably sharpen your cooking skills as well.
  • Do you go out for movies? Why not subscribe to online streaming services that are free or comparably cheaper than movie theatre tickets?
  • Do away with cable and save money by subscribing to streaming TV packages. There are some cheap services that can save you over $500 per year.
  • Review your phone bill. Do away with phone services that you do not require or opt for cheaper cell phone plans.
  • Stay healthy and quit drinking and smoking. Whether you drink out or keep a couple of beers at home, your habit could be eating on your savings. Same goes for cigarettes. While you are at it exercise more to save on healthcare costs.    
  1. Watch your Credit

You can save a lot by being aware of how your credit habits affect your finances. Did you know that some accounts charge a fee for negative balances? These are fees that will accumulate every time you make a transaction on an overdrawn account.

How good are you at clearing your credit card debts? Unpaid credit card balances attract huge penalties that could pile up; you end up paying more for charges instead of your balance.

Do you really need to use credit cards? If you don’t, then stick to debit cards or cash. This way you won’t spend more than you have; if you must use credit cards then go for as few as possible and shop for those with best rates.

The Bottom Line

Saving for a mortgage down payment requires iron-clad dedication. Once you set your goal, re-evaluate your spending and find out what aspects of your expenditure you can do without. Also, adopt healthier ways of clearing debts to avoid paying penalties on late payments. You can also consider putting more overtime or getting a second job for some extra pay.

Need assistance getting approved for a mortgage? Contact Credit Absolute today for a free credit consultation.



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Reasons Many People Stay in Debt

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Debts are sometimes inevitable in life. For most people, it would be next to impossible to own a home, a car, pay bills or even get an education without credit. Federal Bank of New York released a report that put household debt and credit at $13.29 trillion in the second quarter of 2018.

Do people end up repaying all these debts? Unfortunately no; many people are up to their necks in debt and quite a large number of them are doing nothing towards repayment. There are numerous reasons why many people stay in debt. Here are several:

Living Beyond Means

This simply means that you are spending more than you are bringing in. If what you are earning cannot comfortably cater for house and car payments, insurance, other fixed costs and house expenses, then you cannot afford that kind of a lifestyle. It is even worse if you freely use your credit cards to pay for what your income cannot support. What happens is that debts start accumulating and accruing interest month after month and before you know it, you are swimming in debt with no way to escape.

Spending Without a Budget

According to a recent study, only 41% Americans use a budget. This means that most people cannot track their spending habits leave alone plan for the future. Without a budget and with several credit cards at your disposal, it is easy to spend your money uncontrollably and end up depending on credit as you wait for the next pay. The repeated cycle leads to failed repayments which consequently increases the outstanding debts.

Job Loss or Reduced Income

Having a job gives you the confidence to use credit knowing that your income is able to cover the repayments. Should you unexpectedly lose the job, it becomes impossible to make your repayments which may also attract additional interests and penalty fees. Even if you end-up getting another job, it is possible that your credit card debts will have soared to levels that you may no longer sustain. Similarly, a pay-cut or reduced income may also make you lag behind on your repayments leading to accrued debts.

Unwillingness to Sacrifice

If you are deep in debt and you still fight to maintain the same life style, chances are that you will never repay your debts or worse still, they will keep increasing. The ability or inability to save for debt repayments may depend on your willingness to forego a few things like holidays, cable, birthday gifts, a big house and a luxurious car among others. The question is; are you willing to make the sacrifice?

Struggling to Keep up Appearances

It is just human nature to want to fit into certain statuses set by the society, family, friends etc. In an effort to fit, you may end up spending beyond what you can sustain with your income. Unfortunately, the demands may keep going higher and higher and unless you can tell yourself to stop, you will be up to your neck in debt within no time. The fact that you are keeping up appearances means that things are not good financially in the first place so unless you win a lottery or come into some huge cash, you will stay in debt for a long time.

Financial Illiteracy

In a quest to understand how financially literate the world is, people were asked 4 simple questions regarding risk, inflation and interest. Out of 150,000 adults from over 140 countries, only a third could answer 3 out of the 4 questions correctly. If you have no idea of how credit works, you keep on making mistakes that will increase your debts in the long run. Such include; late repayments, carelessly requesting for credit top-ups, and falling for the wrong lines of credit among others. This also comes with the inability to manage the credit hence leading to heaps upon heaps of debts.

Final Take

While it is normal for people to find themselves in debt at some point or another, not all of them end up paying. The reasons why many people stay in debt range from genuine ones to outright selfish ones. Debt accumulates little by little and before you know it, you are too debt ridden to do anything about it. On the other hand, with proper planning, a little sacrifice and commitment, it is possible to disentangle yourself from the debt cycle one step at a time.



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How to Back to School Shop and Not Ruin Your Credit

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How to Back to School Shop and Not Ruin Your Credit

Posted by Erica Steeves on August 10, 2018

 

It’s back to school time! Typically, this is an exciting time of the year (for everyone but students, that is), but even now parents are feeling the pinch because of all the supplies, clothes and other materials their kids need for class. According to the National Retail Foundation, the average household spends about $700 on back to school items, and certainly, this output can significantly increase if your child is heading off to college and is going to need books, a computer, etc. So how do you keep your spending in check and not kill your credit? Here’s a look at some tips:

The Right Way to Back to School Shop

  • Needs vs. wants: There are things that your kids need and things that your kids want. Try to focus on the “needs” first, and then if your budget warrants it move on to the “wants.” Or you could make your kid pay for their “wants” themselves as a good lesson in financial responsibility.
  • Shop for deals: Don’t wait until the week before school starts to shop – start now. While many retailers offer back to school sales all month, you might be able to score deep discounts on clothes one week, school supplies the next and electronics the week after that. Browse the ads for sales and shop smart. Beyond this, many states offer “tax-free” days each year, where certain items (including school supplies) are eligible for purchase minus any sales tax. This is another great way to save. Visit www.TaxAdmin.org for more information on this. Does your child need to buy their own textbooks? Try buying them used or rent them off Amazon.com to save.
  • Try not to carry a credit card balance: Back to school shopping can amount to be a considerable expense. Using a credit card to pay for such a purchase – and then letting the balance carry – can potentially add as much as 50 percent to your back to school purchases. Remember, for the best credit score, you want to try to keep your credit utilization ratio at or below 30 percent. Between interest and the cost of back to school shopping, it would behoove you to pay off your card in full by the due date.
  • Check for student discounts: If you’re doing more expensive back to school shopping, say like a laptop or tablet from a consumer electronics store, make sure you inquire about a student discount. Many offer student discounts of up to 10 percent. Discounts are also commonly offered on computer software.
  • Only shop credible websites: If you’re doing back to school shopping online, be wary of having your information stolen. Identity theft is no joke, and certainly, the Internet has empowered a new type of hacking. On that note, make sure that you’re only shopping over a secure Internet connection and only doing business with sites that have a security icon next to the address bar. Additionally, never share your credit card information on a site without “https” at the beginning of its domain. The “s” in “https” stands for “ “security.”





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How to Save for Your Child’s College Without Breaking Your Own Bank

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How to Save for Your Child’s College Without Breaking Your Own Bank

Posted by Erica Steeves on August 23, 2018


Here’s the understatement of the century: College is not cheap. In fact, the average tuition cost for in-state students at public universities is currently about $10,000 a year. And that doesn’t include room and board, meals or books.

Like we said, college isn’t cheap – and that’s why it behooves parents to begin saving for it as soon as possible. So how can you start saving for your child’s college education without having to live off ramen noodles and cheap beer yourself? Here’s a look at some tips and suggestions:

How to Save for Your Child’s College Education

  • 529 Plans: 529 plans are available in every U.S. state and are purpose-designed to help parents save for college. You can select from two options with these plans. One plan allows you to lock in current tuition rates by purchasing credits. The other plan works similar to any other savings plan in that you just contribute regularly. These plans are only available to be used toward tuition, or room and board. If you withdraw funds from 529s for anything other than college expenses, you’ll be socked with a hefty 10 percent tax.
  • Work College Savings Into Your Budget: We get it, your paycheck is already a little exhausted when it comes to allocating for retirement, flexible spending accounts and even costs toward your employer’s benefits plan that you’re on. But it’s still important to work some sort of college savings into your budget, even if it’s just $20 a month that you allocate toward a 529 plan or separate savings account.
  • Savings Bonds: Encourage your family members to gift your child savings bonds on birthdays and for other milestone achievements (i.e. graduation, religious benchmarks, etc.). Savings bonds accrue interest over time and can represent a significant return on investment once they mature, which is usually 15 or 30 years.
  • Don’t Try to Finance College All by Yourself: While it’s only natural to want to help your children with education expenses, the reality of it is that you may still have to take out student loans in your child’s name. That’s OK, and it’s nothing to be embarrassed by.

How You Don’t Want to Finance Your Child’s College

While we’ve gone over some ideal ways to save for your child’s college expenses, let’s take a look at some options that you should absolutely stay away from:

  • Credit Cards: Never pay tuition bills with your credit card. Taking on this large of an expense can increase your credit utilization ratio and you’ll likely get socked with much higher interest rates than you would from a student loan if you can’t pay off the balance immediately. You’ll also likely be subject to an additional fee for paying with plastic.
  • Your 401K: Don’t withdraw money from your 401K to pay for tuition with the pledge of eventually paying it back. In addition to cutting into your retirement funds, you’ll be subject to a hefty tax penalty.





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How do I build my credit?

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How do I build my credit?

Posted by Erica Steeves on September 19, 2018


 

Your Credit Minute Show Notes:

 

  • 00:00                                   What’s up guys? This is Nik Tsoukales with Credit News Daily. So I got our question of the day, which is, the, actually the number one most searched credit related uh, question on Google uh, this year. Okay? Which is, how do I build my credit? Okay? So you’re either new to this country, you’re 18 years old, you’ve never used credit, or you’ve actually gone through some credit issues and you’re now starting again from scratch. So we need to answer this question, and it’s super duper important. Okay? How do I build my credit? Well, first thing we’re going to do, is we’re going to use a few rules of thumb, okay? Um, the first rule of thumb is, how many accounts do I need? Okay? The number that I like to use, and this is an almost an unofficial number, is the rule of three. Okay? What I like to see from each of my clients is a minimum of three active, healthy things. Okay? And the reason for that is, most banks and lenders, whether it’s a conventional loan, an FHA loan, um, whatever type of home loan eventually that you’re going to look to get, usually the banks and lenders like to see a minimum of three active healthy trade lines. Okay? You don’t necessarily need this for the credit score, but it’s definitely something you’d want to have for getting a home loan.
  • 01:09                                   So we’re going to use this three as well. And we’re gonna imagine that we’re pretending, um, that we are preparing to eventually get a home loan. Okay? Which is probably one of the bigger things that you’re gonna need your credit for. So the rule of three. Now keep in mind about 10% of your credit score is based on something called types of credit in use. So having different types of credit is very important, and you get some bonus points for it. Okay? So, if you’re, if you can’t fill this in with a home loan, what we do want to focus on is a couple of revolving accounts, and one installment account. Okay? So we’re going to put here, R, R, I. Okay? A revolving account is something like a credit card, okay? Or a line of credit. An installment account is gonna be something like a car loan, a personal loan, um, or a savings secured loan, or even a student loan. Okay? Now with the revolving loan, it’s going to be difficult for you to get approved for a credit card right now. Okay? So what I would suggest is something called a secured credit card.
  • 02:10                                   Now these should not be mistaken for a prepaid credit card. A prepaid credit card you put a few hundred bucks in a prepaid debit card. Okay? And you’re using that money. A secured credit card works a little differently. Where you’re gonna put let’s say $500, okay? Into a savings account with the bank. Okay? And the bank is gonna use that as collateral to issue you a credit card typically with a $500 credit limit. Okay? And then what we want you to do is use this card just a little bit. Okay? Now keep in mind 30% of your credit score is debt and how you manage it. So if you do get a small savings secured credit card, okay? And you overuse it, meaning you max out this 500 bucks, this part of your credit score, and we talk about this a lot on many of our videos, is actually going to drop. You’re not going able to get anything, okay? You’re going to have low credit scores instead of healthy credit scores. So my suggestion is, when you get this secured credit card, don’t use more than $50 on it. In fact, use it once a quarter as a maximum. Buy yourself, uh, a lunch or a cup of coffee, pay it off, pay it off the next day, and put it back in your sock, sock drawer. You want to really operate on a cash basis here. Okay?
  • 03:29                                   Um, secured credit cards can be found really everywhere right now. Bankrate.com has a slew of them. Um, your local bank, your local credit union. I’m almost sure 90% of these banks and lenders offer it right now. Um, I like doing business locally. Okay? If I’m late on the bill, I can quickly run over to the bank and pay it. Keep that in mind. We’re always trying to repair our credit. But we want to protect our credit. And we do make mistakes. Okay? So secured credit cards, guys, this is the, this should be number one, and number two on your list. And keep in mind you want to keep the balances super low. The last thing is an installment loan. Now, again, no bank really, when you have brand new credit is going to issue you a personal loan. Okay? Um, so what you can do is something very similar to the secured credit card with an installment loan. And you can get … Let’s actually make a little space here for you. You can get a CD loan.
  • 04:33                                   For all of you that are unaware, a CD is a certificate of deposit. It’s basically a savings account that uh, that you use at a bank. Your money gets locked into that certificate of deposit. You can’t take it out, okay? Um, many banks will allow you to put money into a CD. Again, let’s use this example. $500 into a CD, and then the bank, what they will do, knowing that you have collateral there, is they will allow you to get a $500 personal loan. Personal loan using the CD as collateral. Okay? A lot of banks, a lot of lenders will offer this, they’re really super duper popular at, at, at um, credit unions. Okay? Now, why not just get three revolving accounts? Well, that, that’s fine too. Okay? But again, remember 10% of your credit score is types of credit in use. Okay? So if you can mix it up with a little revolving and installment credit, you get a few little bonus points from that. Okay? Um, once you do this, okay? Let’s actually show you what the results are of this, because it’s pretty cool. Um, keep in mind with the installment loan, you don’t want to pay it off early. Okay? The interest is fairly minimum. Okay?
  • 05:50                                   Let’s say you got a 3% interest rate, or a 3% interest rate that you’re paying back with the CD loan, or the CD is making a little interest as well, that actually offsets the cost. But you don’t want to pay it off early, because the longer you keep these accounts open and active the more credit you get from them. But let’s think about where we’re getting our points from doing this, and how drastically, uh, the score can go up uh, a result of doing this. Okay? So you have 35% of the credit score is based on pay history, right? So the more on time payments you make, the more this is gonna be effective. So, you have three accounts now reporting on time, let’s say for six months, that’s going to affect that 35% pretty drastically, okay? Now, let’s say you take those revolving accounts and you manage them really conservatively. You keep the balances below 10% of the credit limit. Well guess what guys? 30% of your credit score is based on debts, okay? You’re managing these debts in a really conservative fashion. You’re getting bonus points as well here. Okay?
  • 06:54                                   Now check this out. You want to find some more points? 15% of your credit score is length of history. Okay? So by just having these accounts open for a long, long time and not opening and closing things is gonna affect this 15% of what makes up your credit score. So basically the age of your accounts affects your credit score in a positive way as well. Okay? And at least 10% of your credit score is based on types of credit in use. So by having a really nice mix of revolving and installment credit, you’re gonna maximize your points in this little category. So guys, building credit is one of the major ups we talk about at Key Credit Repair. We talk about cleanup, we talk about pay up, getting rid of debts. But we talk about buildup as well. This is huge.
  • 07:42                                   If you have any more questions about how to build up your credit, guys, check us out at keycreditrepair.com/freeconsultation. You can request a free consultation from any one of our advisors, even myself. And we can walk you through this process in detail. Thanks guys. This is your Credit Minute. Have a great day.

 





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