Credit Repair News

Credit Cards – How often should I be using them?

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Credit Cards – How often should I be using them?

Posted by Erica Steeves on November 16, 2018


Your Credit Minute Show Notes:

  • 00:00                                   YouTubers, what’s going on? This is Nik Tsoukales with Key Credit Repair. Excuse me, my voice is a little uh, beat, beat up here. Bear with me. A question of the day is, “Nik, how often should I be using my credit cards?” And, it’s a great question, and I think you’re going to be shocked at my response, and that response is never. I don’t think you need to. Um, I know you don’t need to, okay? One of the greatest little secrets of credit is the fact that if you don’t use your credit card, the bill comes in, it says zero due, and you don’t have to send a check, um, even though you’re not sending in a payment, it’s still reporting an on-time payment, guys.
  • 00:34                                   And a lot of people don’t know this. Your banker’s not going to tell you this. The credit card companies are not going to tell you this, but this guy’s going to tell you this, because I’ve looked at, I don’t know, a hundred bazillion credit reports in my lifetime, okay? Let’s say you have a slew of four or five credit cards right now that are active, but you really don’t use them. I mean you can just don’t use them every single month, you are getting an on-time payment from that credit card, okay?
  • 00:58                                   To fol-, uh, to follow up with that question, some people ask me, “Nik, but if I don’t use it, they’ll close it out.” That’s a good question. Okay. Um, if you’re scared of that, um, I, I haven’t seen it yet, I’ve not seen a card get closed, uh, because of no use. Uh, in my experience I have cards that are over 10 years old, I haven’t touched them, they’ve never been closed, okay? They’re expecting you at some point to make a purchase. But, if you’re worried about that, and you want to once every six months buy yourself a cup of coffee and pay it off the same day, if that makes you feel better, go ahead. Even that, I don’t think is necessary.
  • 01:32                                   Also, some people will say, “Nik, but there’s an annual fee for that card. Should I pay the annual fee just to keep it open?” Heck yeah, you should. You know, if it’s a $29 annual fee, or $59 annual fee, or whatever it’s going to be, there’s a higher likelihood they won’t close out the card. Because they’re getting something, okay? It does have a little … The card does have um, some costs associated with it, they mail out a card every so often, they have to send you a statement, so if that alone covers their cost, there’s a higher likelihood that they would never close it out. So, I would absolutely pay the annual fee. I’m cool with it, okay? Because you know what you get. You know, you get a card, it’s active, it’s open, and it’s reporting on time, because you didn’t use it.
  • 02:11                                   Keep the cash in your pocket, keep the cards at home. Throw them in the freezer. If you’re wondering what I mean by that, check out one of my previous episodes about, you know, how to freeze your credit cards, literally. Freeze them.
  • 02:22                                   Guys, this is Nik Tsoukales, with Key Credit Repair. Thank you so much, have a great day.
Credit Cards – How often should I be using them?

 





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What UltraFICO is & What You Need to Know About it

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FICO scores have been used for a long time to gauge the creditworthiness of individuals. This scoring system has however left many people in the cold due to its requirement of credit history; immigrants, people who don’t use credit cards or have no loans, as well as those with low FICO scores have been finding it hard to qualify for financing or opening lines of credit.

To remedy this Fair Isaac Corp, the company behind FICO scores is set to launch UltraFICO credit scores. This refined system is being marketed as one that ‘enhances your credit score based on indicators of responsible financial behavior’.

So, what is UltraFico and what do you need to know about it? Read on to find out.

What is UltraFICO

This is a new credit scoring model that is scheduled to debut in early 2019. It will be an opt-in service that will be targeted at individuals with bad credit or in the range of fair credit, (500s and 600s FICO score range).

Who will Benefit from UltraFICO Scores

The new model in all likelihood will increase such low scores provided that you have moderate savings with no negative balances in the last three months. This ambitious plan by Fair Isaac Corp in conjunction with Experian, a leader in credit reporting, and Finicity, a financial solutions provider, is set to benefit several classes of consumers;

  • Immigrants
  • Freelancers and the self-employed
  • Bankrupt people
  • Fresh graduates

These are people without credit history or whose history has been damaged due to previous mismanagement of personal finances. This category of consumers also includes divorced spouses who never got to develop their own credit history.

As of September 2018, 22% of consumers had credit scores in the 600-699 FICO score range. These are customers who could improve their credit worthiness if only they could get a positive bump in their scores; these are people whose score can change for the better with UltraFICO scores.

With the new scores you don’t have to have a proven debt record to secure financing. People who don’t deal with credit cards or those who have never had to take a loan will now have a credit score to show.

Factors that Affect UltraFICO Scores

Linking your bank accounts to UltraFICO will help in determining your new credit score. Your banking activities such as amount of savings and balances will factor into this. The information from your accounts such as savings and credit that will be scrutinized includes;

  • The time that an account has been active
  • Frequency of using the account
  • Amount of savings and saving habits
  • How well you clear bills

This information will be used by lenders to determine the credit that you qualify for and the terms that suit you. The new scoring system promises to favor a huge number of customers who could previous not get financing.

The Downside of UltraFICO

Although the new system comes with good news for some consumers, some industry experts have raised issues. Here is why:

Trapping more people into debt

The strictness of the current scoring system ensures that consumers are protected from debt. With the new scores even people with sketchy debt history will probably get into more debt. In essence it opens up loaning to people who can’t pay back.

Bank and other lenders will be the biggest beneficiaries

The new scores will be launched with the aim of helping more people get credit. However there is the feeling that this is just a ruse to make lenders make more money. This will be from the high interests that will be charged from this new class of borrowers that are likely to default.

Lack of financial security

One of the requirements for UltraFICO is a balance of not less than $400 in savings. This has been seen as setting the bar too low with arguments arising that the amount is too low for financial security.

The Bottom Line

UltraFICO is the new credit scoring system due to be launched early next year. It’s targeted at making more people qualify for different lines of credit. It will offer second chances to people with bankruptcies and open up financial products to people without credit histories. That said, UltraFICO may end up leading more people to debt, increase defaulters and create false sense of security.

While this new scoring system may help those with poor credit histories get approved for loans, it will come at a heavy cost. If you have a low credit score due to negative items on your credit report, a credit repair specialist can help you increase your credit score quickly by cleaning up your credit report. Rather than risking further damage to your credit with the UltraFICO system, work to repair your credit for long-term financial freedom.



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Soft Vs. Hard Inquiry – What’s the Difference?

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Sometimes it’s the little things in life that can make all the difference.

A small ding to your credit score can drop it just enough from being in the excellent credit score range to the good score range. That can be enough to cause lenders to charge you higher interest rates, costing you money that you might otherwise save without the small nick on your credit score.

Inquiries, or new credit, account for about 10 percent of a FICO credit score. While that isn’t much when compared to payment history accounting for 35 percent of a FICO score, a credit score drop of up to 10 percent for having too many lenders look at your credit score can be enough to cost you real money in the long run.

There are two types of inquiries — hard and soft — and the first will hurt a credit score and the latter won’t. Knowing the difference can help you know when to act so that an inquiry doesn’t hurt your score, or when you don’t have to worry about it.

An example of a hard hard inquiry is when you apply for a credit card and the issuer “pulls” your credit report from one of the three major credit bureaus.

The hard inquiry may lower your score up to five points, depending on the rest of your credit profile. Going months between credit inquiries can have less of an impact than having a bunch at the same time.

Applying for a mortgage is another hard inquiry. The FICO score allows mortgage rate shopping, so applying with four different mortgage lenders in 45 days is counted as only one hard inquiry.

Hard inquires stay on a credit report for two years, but the FICO score ignores them after 12 months. Whatever your credit score, potential lenders will look at you as risky if you have too many inquiries over a short period. For people with a short credit history, this can be especially troublesome.

Soft inquiries come in many forms, and none should hurt a credit score.

Checking your own credit report is a soft inquiry. It doesn’t lower your credit score, as some people think it does, and in fact is a good thing to do to make sure your score is good and the information on your credit report is accurate. Consumers can check their credit reports for free once a year from each of the three major credit bureaus.

Creditors you already work with may do soft inquiries by checking your credit report to see if you’re still creditworthy. Credit card companies do this monthly.

If you get preapproved credit card offers in the mail, those are soft inquiries that don’t affect your score.

If you’ve given a potential employer permission to view your credit report as part of a background check, it’s also a soft inquiry that doesn’t affect a credit score.

If you want to avoid a hard credit inquiry that could cause your credit score to drop, the simple solution is to not apply for new credit. But that isn’t always practical, such as if you want to find a better credit card or want to buy a home or car.

There are some money management steps you can take, however.

Start by not applying for credit cards that you know you won’t qualify for. Knowing where your score is on the credit score range can help you decide if applying for a card with some of the best travel rewards, for example, is worthwhile since many such cards require having excellent credit. Applying for a credit card that you probably won’t be approved for results in a hard inquiry and a rejection, which can also hurt your score.

Some credit card issuers target people with bad credit. If that’s you, be sure to read the fine print and make sure it’s a card you can live with. It may not have all of the features you want, but over time and by paying the bill on time, you can improve your credit score and move up to a better credit card.

These issuers may advertise that they won’t run a hard credit check and will base their decision on other factors, such as your income and employment history.

If you have good or excellent credit, a hard inquiry shouldn’t have much of an impact, if any, on your credit score. Keep your score high by paying your bills on time, don’t use more than 30 percent of the credit available to you, and have a good mix of credit.

When checking your credit score, look for errors and dispute them with the credit bureaus. Your vigilance should pay off with a better credit score and eventually should get you better credit terms. With that, a hard credit inquiry won’t hurt so much, if at all.

About Author

Aaron Crowe

Aaron Crowe

Aaron Crowe is a journalist who specializes in personal finance. He has written for AOL Real Estate, HSH.com, US News & World Report, Wisebread, LearnVest, AOL Daily Finance, AARP, Wells Fargo, Allstate, the USC Marshall School of Business, and Credit.com, as well as other insurance, credit and investment websites. Check out his website at AaronCrowe.net.



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Why 123 Million Americans Buy Subscriptions

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How Americans buy their goods and services is changing. The increased availability of financing has allowed Americans to purchase more goods and services with less upfront cost. Why pay for the product in full or a full year of service when you can pay a nominal fee every month, like when signing up for a monthly subscription service?

The subscription service model has grown considerably from this paradigm shift. Realizing the power these cognitive biases can have on the customer’s decision to purchase, companies are offering more pricing and payment flexibility.

According to our recent survey of more than 2,000 people, 68 percent of Americans who purchase at least one subscription service reported convenience and price as their reason for purchasing.

The growth in subscription services has been astounding and with 62 percent of Americans reporting they do not subscribe to any services, this growth is likely to continue. Hitwise reports the increase in online traffic to the subscription box space alone is up 24 percent since 2017.

In addition to this increase in subscription services, we also discovered:

  • 17 percent of Americans who do subscribe to a service, subscribe to more than one.
  • Only 11 percent of Americans reported additional features and products were reason enough to purchase a subscription.

To learn more about what consumers want from their subscription services, jump to our infographic below.

Content streaming is the most popular paid subscription with 25 percent of Americans.

Although many people take full advantage of Netflix’s policy for the number of accounts per household, the company continues to increase subscribers year over year. Netflix is going all in with a production budget for original content between $12–$13 billion in 2018.

percent americans are paying for subscriptions

2 in 5 Americans use some type of subscription service, with 25 percent subscribing to content streaming services like Netflix and Spotify alone.

Men and women enjoy many of the same subscription services with nearly equal representation in most areas except for verticals related to food/beverage and cosmetics/toiletries, where women dominate. Of those who subscribe to food and beverage services, 68 percent are women, compared to male subscribers representing 33 percent.

Cosmetics and toiletries have a similar gender representation of subscribers. 69 percent of respondents who subscribe to services of this nature are female, compared to only 31 percent of men.

What benefit of subscription services retain the most customers?

Subscription services, like most business models, thrive on customer retention. If you cannot retain customers, the cost to acquire those customers can reduce, if not eliminate, the chances of success. Our findings indicate which benefits Americans find the most important resulting in a higher rate of retention.

68 percent of Americans want convenience or better deals from subscription services

priorities when subscribibg to a service

Nearly 40 percent of Americans choose to use subscriptions because they are convenient and easier to use than alternative means of buying products and services.

Interestingly, the only cohort that prioritizes better deals over ease and convenience is the 35–44 age range. For each decade of age increase after age 45, price sensitivity declines 20 percent on average as convenience becomes increasingly most favored by the 65+ demographic.

11 percent of Americans want additional features or products from subscription services

Surprisingly, a unique service or offering does not retain customers –– only 22 percent of Americans find this important. Additional features or products are even less favorable in the minds of Americans, with only 11 percent finding this significant.

Consumers have spoken: ease and convenience are the most important factors when deciding to purchase a subscription service. How will these subscription services remain relevant in the lives of Americans?

Are Subscription Services a Good Thing For Americans?

Although introductory deals and convenience can be alluring, subscription services can be a convenient way to accumulate unnecessary monthly expenses. This is much like how easy access to financing can be an easy way to accumulate debt, which can negatively impact your credit.

Credit card debt within the US is on the rise. Between 2016 and 2017, the total credit card debt increased 7 percent to $834 billion. Debt accumulation can creep up and compound entirely from trivial amounts, like $9.99 per month on a subscription service.

Americans make it clear in this survey: ease and convenience are more important than getting a better price. The following visual represents the findings from our survey of 2,000 Americans about their preferences when buying subscription services.



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Two New Studies Examine Student Loan Default

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The student loan conversation will not likely end soon. An article published by Forbes showed that student loan debt had increased drastically. It has become the second highest consumer loan debt category trailing behind mortgage debt and above credit cards and auto loans. This means that the average loan debt of a member from the class of 2017 increased by $39,400, an increase of 6% from just the previous year.

The report states that over 44 million borrowers across a wide age gap currently owe over $1.5 trillion in student loan debt across the United States.

New Information

Two new studies provide more insight into the student loan debt crisis. The studies are “Underwater on Student Debt: Understanding Consumer Credit and Student Loan Default” by Kristin Blagg of the Urban Institute and “Federal Student Loan Defaults: What Happens After Borrowers Default and Why” by Jason D. Delisle, Preston Cooper and Cody Christensen of AEI.

According to Deanne Loonin, a staunch supporter of low-income student loan borrowers and an attorney with the Harvard Law School Project on predatory student lending Congress needs to begin a comprehensive forgiveness process for student loan borrowers.

The Urban Institute study claims that every quarter about 250,000 borrowers of federal student loans default. It also claims that between 20,000 – 30,000 borrowers who had rehabilitated their student loans slipped back into defaulting again.

Although these studies said little to nothing on why borrowers default, both studies were clearer on who was most likely to default: students of color and lower-income students.

Student Loans and Credit Score Data

Blagg’s research into federal student loan defaults considers credit score data. Blagg’s research unearthed a link between a student and being in debt in other areas of his/her life and the probability of defaulting on student loans.

student loans and credit score data

The report said:

“About 59% of borrowers who defaulted on their student loans within four years had collections debt in the year before entering student loan repayment.” The report referenced the average credit rating of a defaulting student drops on an average of 50 – 90 points within the year or two before the default.

Recommendations Included in Blagg’s Report for Lawmakers

  1. Examine the repercussions of debt and collections on student loan repayment as most defaulters are more likely to be financially distressed than their non-defaulting borrower counterparts.
  2. Incorporate the use of credit scores to run a more precise student loan repayment assistance plan. Low credit scores should not be a barrier for students who wish to get a loan for their education, and the credit scores could be used as a tool to ensure additional help is provided for borrowers at a higher default risk as repayment approaches.
  3. A complete restructuring to the way deferred, delinquent and defaulted loans can cause a surge to a borrower’s total loan balance due to the fact interest does not stop aggregating on the loans, and it could potentially lead to higher debt for the student.
  4. Develop new discharge remedies that cover the borrowers with the highest need. Examples of these include full or partial discharge for student borrowers who spent several years in a government safety net program after school.
  5. Create new ways to measure student loan acquisition and repayment trends, analyzing data from more than one group of borrowers.

Repayment Options

According to the author of the second study, Jason Delisle, borrowers need to be made aware of all repayment options, and a more transparent process needs to be implemented to ensure everyone is treated equally regardless of their repayment plans.

The study released by the team at AEI approached the problem by looking at what happens when students default and how policy reforms relating to the collection process can be made better with the use of data.

But some argue that, like the study put together by Kristin Blagg of Urban Institute, their study brought about more questions than answers. Here is an excerpt from the report:

“Overall, our findings suggest that the popular impressions of borrower outcomes after default, even among policymakers and researchers, are overly simplistic. There is no one typical path borrowers follow after defaulting on a federal student loan. While some borrowers stay in default for years, others leave default quickly. Some borrowers see their balances rise throughout their time in default, while others pay down their loans in full.

repayment options

“These outcomes do not always correlate the way one might expect: A borrower who has exited default often has not repaid his loan (although he may eventually), and a borrower still in default is often making rapid progress toward fully repaying his debts.”

The United States student debt loan industry is reaching a dangerously unsustainable point. But now the question is what should be done about it. For some people like Blagg, the government should consider a full bailout of everyone who has ever been affected by the system and others simply do not think that should be done.

Irrespective of personal views on the growing student debt loan, one thing is important to bear in mind as a prospective student, choosing the right school and the right majors could be the slim difference between living a life of repaying loans or a much more successful one.

Lastly if your credit has been impacted by student loan debt resulting in inaccurate, unfair, or unverified accounts, call the credit specialists at Lexington Law Firm for a free credit consultation. We’ve been helping clients for over a decade helping them fight for their right to fair and accurate credit reports.

 

 

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Income Is Not a Family Affair for Americans

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Discussing salary with friends and family is not easy for Americans, as only 11 percent say they would feel comfortable sharing their salary dinner party. Personal finance is largely considered taboo; however, modern families are changing how they approach the topic of income by teaching their children about money at a younger age. As a child can learn about the true value of money and the impact of a salary, we polled Americans to see how income is and should be discussed.

Our poll of over 4,000 Americans revealed that:

  • Only 16 percent knew how much their parents made while growing up.
  • 1 in 5 think children should know how much their parents are making.
  • 76 percent say it’s best for parents to hide financial distress from children.
  • Even as adults, only 17 percent currently know how much their parents make.

Although 87 percent of parents think financial literacy should be taught in school, only 16 percent of Americans knew how much their parents made while growing up.

chart showing only 16 percent of americans who knew parents income as a child

Income can be a difficult topic to discuss with children, as they lack a basis for comparison. Disclosing an exact number can open up the larger topic of budgeting, which can be a helpful starting point. However, there can be some drawbacks to disclosing your salary to a child without the proper context.

“Most kids really don’t understand the value of money” says Dr. Jason Cabler of Celebrating Financial Freedom. “To a child, a below average salary of $30,000 might sound like a huge amount of money! Conversely, a $200,000 salary may seem like poverty wages to a kid living in the smallest house in a neighborhood full of mansions.” Dr. Cabler says.

Historically, parents leave money conversations to schools where the topic can be approached with additional insight and comparison. Although most Americans did not know their parent’s income growing up, do they think kids today should?

1 of 5 Americans say children should know parents’ income

As parents are spending more time on educational tasks with their children, including discussing personal finances, we expected to see more Americans considering it appropriate for a parent to disclose their income to their children.

When asked if children should know how much money their parents are making, only 22 percent of Americans responded that income was appropriate to disclose to a child. Not all too far off from the number of Americans who knew their parents income growing up.

chart showing 22 percent of americans think children should know how much their parents are making

A survey by T. Row Price found that 52 percent of American parents did not disclose family financials to their children simply because they did not want to worry them. An additional 32 percent responded that their children would not understand and 13 percent responded that it was none of their children’s business.

Even as adults, Americans still don’t know how much their parents make

Although the majority of Americans agree that children should not know their parents income, do parents eventually open up to their children about salary? As children lack the understanding which lets them compare income, surely as a teenager, early adult, or an adult, parents find the opportunity to share their salary.

Our survey found only 17 percent of Americans over the age of 18 with parents that are currently employed know how much their parents are making.

illustration showing only 17 percent of americans with working parents know how much they currently make

As such a low number of adults know what their parents currently make, it seems American parents are not finding the right time to truly discuss financials with their kids.

“As children near their college years this should be a family discussion in regards to college planning.” says State Bank Vice President Kameron Helmuth when asked if children should know how much their parents are making. “Parents setting expectations for their children and talking through that they may/may not qualify for financial assistance because of their income and or assets is important” Helmuth says.

1 of 4 Americans say you should tell your child when money is tight

Losing a job, going into debt, taking on medical bills or any form of financial hardship can cause a lot of pain to the whole family. As many aspects of a child’s life will change as parents go through financial hardships, there is a debate on whether a child should know or find out themselves. Telling a child when their family is experiencing money problems is upfront but could cause unwanted stress.

Although financial hardships can be a great teaching moment, only one of four Americans say children should know if a parent is experiencing financial distress.

chart showing 24 percent of americans think children should know if their parent is in financial distress

“Moments of financial distress can be used as excellent teaching tools after they have been circumvented.” Says Commonwealth Financial Advisor Parker Babbe. “I strongly believe that parents should share with their children the mistakes that they have made financially and what they learned from it, to hopefully give their children an example of what not to do.”

Making your way out of financial distress is a great teaching experience, showcasing positive budgeting habits and the true value of money. Although small financial setbacks could quickly be averted, most American parents agree that children should be shielded from any financial stress.

chart showing percent of americans comfortable disclosing financial distress with children by age group

Our data shows that older Americans are more open to disclosing financial distress to children than younger Americans. With more experience though economic recessions and downturns, it shows wisdom does affect how open Americans are about financial distress.

With income inequality becoming a more readily discussed topic in America, there can be a large benefit to parents being upfront about salary with their children. Finding the right age and time to discuss income can completely depend on what feels right, but it is most importantly about education. With changing expectations for the American dream and what it means to be middle class in America, passing on important financial lessons and advice to children can have a largely positive impact on their future choices.



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How to Get a Home Loan When You Don’t Have a W2

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In today’s economy, side hustles and gigs have become popular – so popular in fact that this is how some people are making a living. Many people are also starting their own businesses. However, this poses the issue of not having access to a conventional W2. Getting a home loan without a W2 can be a hassle. When applying for a mortgage, most banks want to see a W2, so if you do not have one, you might wonder what you can do to qualify for a home loan.

This article will cover some of your options.

No W2 Because You are Self-Employed

If you receive self-employment income, then you will not receive a W2. This also applies to contractors that receive a Form 1099 instead of a W2. Banks do not typically like loaning money to people that are self-employed because their self-employment income can fluctuate too much, and there is a possibility of defaulting on the loan. There’s a possibility of higher interest rates and a higher down payment if you are self-employed.

self employed

There are still a few options for qualifying for a loan if this is case. We’re going to go over a few of them.

Submit All Your Business Documents

This can be a great option for getting a home loan because it is considered full documentation. The bank will know your income and know a lot about your business, which means that they have a better idea of the likelihood that you can pay off a loan.

You can expect to submit tax returns, a business license, profit and loss statements, balance sheets, receivables, and client references. Basically, the bank just wants to see that you have an actual business that generates the amount of income that you claim.

Banks usually like this documentation and may extend you a home loan at a lower interest rate and require a lower down payment if you have the necessary income, credit score, and debt-to-income ratio. However, keep in mind that if your business doesn’t generate enough profit, this may not help you as much.

Stated Income/Stated Asset Mortgage (SISA)

The bank relies on exactly what you tell them your income is and they don’t always take steps to verify it. Even if they don’t verify your income, they still might want to verify your income source and any investments that earn you money. Furthermore, sometimes they want to verify your taxable income. Once your income is stated, the lender comes up with a debt-to-income ratio for you and uses that to decide whether or not you qualify for the mortgage.

No Documentation Loan

The other option is to get a no documentation loan, which means that the bank will not verify any information. People will often use this if their business makes little to no money or if their income, and assets are difficult to verify. Many self-employed people will have a low profit because they write off many of their expenses to lower their tax burden. However, it also lowers their income, which can make applying for a loan difficult. Basically, with a no documentation loan, the applicant signs paperwork for a home loan stating that they can pay it off.

No documentation and SISA loans usually have a higher interest rate than a normal W2 loan. Again, this makes sense because these loans require little to no verification from the bank. However, they are still considered less risky for the bank than a subprime loan, which means that the interest rate can be lower for low documentation or SISA loan.

loan

Overall, these are three options for getting a home loan without a W2. Ideally, the best option is to verify your income. However, this option might not work if your profit is too low or if you do not have an established business. If this is the case, your other options would be one of the loan types that require less documentation. You should always start with the maximum number of documents that you think are necessary to qualify. More documents can mean a lower interest rate, which can save you thousands over the life of the loan.

Don’t Forget About Your Credit

Your income and debt-to-income ratio are not the only things that you need to qualify for a home loan. Regardless of your employment, if you have any type of credit history, you should have a credit score. This is another factor that impacts your ability to qualify for a mortgage. Even if you can’t verify your income, having a good credit score can still play in important part in qualifying, getting a lower interest rate, and being asked to make a lower down payment.

Final Thoughts

Overall, not having a W2 is not a reason to panic about getting a home loan. It might require some more work and extra steps, but most people without a W2 can still qualify for a loan. The specifics of the loan depend on a lot of factors, and the only way to know for certain is to discuss this with the loan officer. They will have the resources to guide you through the process and get you qualified for a loan. Lastly, if you want to buy a home and want to work on repairing your credit, give our credit experts a call today for a free credit evaluation.

 

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7 Surprising Things That Won’t Affect Your Credit Score

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Paying your bills on time, not maxing out your credit cards, and having a good track record of managing debt responsibly are some basic and obvious things that affect a credit score.

Some other financial transactions, however, don’t hurt it at all. You may even be surprised by them.

Here are seven things that don’t affect a credit score, which is a score worth improving so you’ll have access to the best loan rates and terms:

Creditors and lenders obviously want you to have an income, and information about your employer may be listed on your credit report, but your actual income isn’t reported as part of a credit score.

Your income will be used to decide how much you can afford to borrow, but a high salary won’t boost your credit score and a low salary won’t hurt it. How you manage your bills is what you should be concentrating on to improve your credit score.

Overdrawing your bank accounts can be costly, but they won’t hurt your credit score — as long as you clear them before they go to collections.

If your checking account remains overdrawn for weeks and the bank sends it to a collection agency, then expect your credit score to be dinged. It’s not the overdraft account that’s causing the credit score to drop, but the fact that it went to a debt collection agency.

What’s more likely to happen is with your information ending up in ChexSystems, a consumer reporting agency that collects information on closed checking and savings accounts. If you overdraw your bank accounts often, you could be flagged as a problem and have difficulty opening new accounts or writing checks.

A credit score can be used by an insurance company to calculate your insurance premium. But your insurer won’t report your insurance premium payments — whether on time or late — to credit bureaus.

If you miss just one insurance payment, your insurance company could cancel the policy entirely or until payment is made. But it’s unlikely to send it to a collection agency.

You can check your credit report or score as much as you want without being penalized for it. Start at AnnualCreditReport.com for a free report each year from three of the major credit reporting agencies.

If a lender checks your credit score, that will likely hurt a credit score, though only a little and not for long. That’s known as a “hard inquiry” that can drop a score by five points and can stay on your credit report for two years. Too many queries in a short time could drop it a little more. New credit determines 10 percent of a FICO credit score.

Checking your own credit is known as a “soft inquiry” and has no impact on your score. Why would you want to check it? To catch errors or potential fraud before applying for a loan.

If you’ve sought help from a credit counselor to help manage your credit card payments, it may show up on your credit report. It won’t, however, hurt your credit score. If you’re put on a repayment plan, that could be part of your credit report but it won’t change your score.

As long as your creditor is getting your payments on time — either through you or the credit counselor — then the fact that you’re getting credit counseling won’t hurt your score. But if the payments arrive late, then expect to see your credit score drop.

If your partner has a low credit score, it won’t affect yours when you marry them. Credit histories aren’t merged at marriage. Each person retains their own credit score, and having joint accounts together won’t affect that.

A joint account will, however, affect each person’s credit profile on their own credit score. If the wife doesn’t pay the credit card bill on time that the couple uses together, it will hurt both of their scores. The same goes for buying a house together or filing taxes jointly and any problems in those areas.

Credit scores are a reflection of how you manage debt. Checking, savings and other such bank accounts that are assets aren’t factored into a credit score.

Liabilities such as credit card balances are considered. Only your creditors actively report to the credit bureaus.

Having a rotating balance on a credit card can hurt a score, especially if you use too much of the credit available to you. The higher your credit utilization ratio — your credit card balance divided by your credit limit — the more it can drop a credit score. Keeping it below 30 percent is best.

About Author

Aaron Crowe

Aaron Crowe

Aaron Crowe is a journalist who specializes in personal finance. He has written for AOL Real Estate, HSH.com, US News & World Report, Wisebread, LearnVest, AOL Daily Finance, AARP, Wells Fargo, Allstate, the USC Marshall School of Business, and Credit.com, as well as other insurance, credit and investment websites. Check out his website at AaronCrowe.net.



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Voluntary Repossession – Is it a bad idea?

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Voluntary Repossession – Is it a bad idea?

Posted by Erica Steeves on November 7, 2018


Your Credit Minute Show Notes:

 

  • 00:01                                   What’s going on, guys? This is Nik Tsoukales with Key Credit Repair. So, today we’re going to talk about car repossessions or voluntary car repossessions. So, the question I get a lot is, I owe too much on my car, I can’t afford the payment, I want to give it back. What should I do, Nik? Well, let’s talk about that. So, let’s say you do give the car back, okay? Um, and I’m going to give you a short little, uh, uh, example of w- what the worst thing that could happen is, okay?
  • 00:23                                   So, let’s say you owe $25,000 on your car, okay? You give it back, uh, you call the car company, you call Chase or Bank of America, whoever it’s going to be, and you say, “Come and pick it up.” They’ll gladly do it, okay? But let’s realize they’re not in the car business, so the second you do that, they’re going to turn around and they’re going to get it over to a wholesaler. They’re going to give it off to an auction, okay? That auction, for a fee, is going to sell it back to the marketplace to probably a used car dealership, okay? That used car dealership, obviously, needs to make a profit, so they’re going to buy that car pretty cheap.
  • 00:55                                   So, let’s say in this scenario you owed $25,000, okay? And you turn around, you voluntary or had it voluntary repossessed, okay? Car goes to auction and they sell it off for $15,000. Now keep in mind, now that you have or the bank has collected that $15,000, they can come after you for the difference, okay? Uh, not in every state, but probably half the states in the U.S. So, you got a $10,000 deficiency balance here, and this is scary, okay? That deficiency balance in half of the states in the U.S. can be collected, okay? And they will collect on it, and what they’ll do is they’ll, typically they’ll hire a collection agency that’ll start to solicit you and they’ll try to get that deficiency balance from you.
  • 01:37                                   Now, if they can’t collect on it, a few things could happen. It could turn into a judgment. They could try to take you to court, okay? In some cases, they will forgive the debt, in which case they’ll send you something called a 1099-C document, okay, where that $10,000 will be considered taxable income. I obviously prepare … I- I- I prefer to pay the taxes on $10,000, um, versus, uh, the entire $10,000, okay. Also, there are some laws in place regarding taxation where you can claim insolvency. Obviously, speak to a tax professional if this does happen to you, and it could be the case where you wouldn’t pay much of anything, okay?
  • 02:12                                   Um, but obviously they can come after you for the difference, so it’s not just, hey, let me hand the keys back and- and it’s all over, okay? If you do find yourself in a situation like this, there are other alternatives, guys. Let’s say you only have a year left in the car loan, okay, or it’s a car lease, in fact. You could turn around and swap it out to somebody. Find someone that only needs a car loan for a year that’s willing to pay the premium. Maybe sublease it to them. Find a friend. Try to sell it yourself, okay? Maybe in a case like this, if wholesale was $15,000, it’s possible that this car in the open market would go for $20,000, and then you’d only be making up a $5,000 deficiency versus $10,000, okay?
  • 02:50                                   Also, another thing to keep in mind is if it does get to the point where it does go to a debt collector, okay? If the debt collector has bought the debt for, as you hear, 10, 20, five cents on the dollar, you are in the position in a lot of cases to negotiate, uh, some debt relief on that and get a settlement on that debt. So, that always is an option, but that’s always something that we want to keep kind of as a back up plan. It’s not something we want to strategically approach because while we take that strategic approach, our credit really is going to take a bath, okay? So, there is no, uh, clean getaway from these, uh, uh, companies, unfortunately.
  • 03:23                                   Also, in regards to the deficiency balance in your state, that’s definitely something you want to speak to a professional about, okay? Because if it is a predatory loan you’re in, if it’s a 20 per- 20% interest rate, you got sold a lemon, there are some laws that protect you. Some states are a little bit more consumer-friendly in regards to deficiency balances, so you might not, this might not even going to be applicable for you, okay? Something to keep in mind and something you can actually ask us here at Key Credit Repair and we can help break down for you.
  • 03:50                                   So guys, this is Nik Tsoukales with Key Credit Repair. Thanks again for checking out our Credit Minute, and if you need anything else, feel free to email me at Nik, N-I-K, at keycreditrepair.com. Have a great day.
Voluntary Repossession – Is it a bad idea?

 





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Catching Up on Retirement Contributions

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Unfortunately, many people do not contribute to their retirement during their working years. As they approach this milestone, many worry that they will not have enough saved to survive. It is a basic principle: the more money that you save during your working years for your retirement, the more money you will have to live off of and spend after leaving the workforce.

If you fell behind on saving for your retirement or want to find a way to steadily increase your retirement amount, there are different options. Specifically, you can take advantage of the “catch-up contribution” that is offered by the IRS. This type of contribution allows you to save slightly more than you normally would before once you hit the age of 50.

If you are 50 years old or older, it is not too late: you will also be allowed to contribute even more to certain types of tax-favored retirement accounts (e.g., IRA accounts). Doing so will ensure that you have enough money when you retire, even if you did not add many contributions when you were younger.

Contribution Amounts

retirement contribution

The type of retirement plan you have will affect your catch-up contribution amounts:

  • Traditional IRA: You can get a tax deduction on your contributions to the traditional IRA This type of account makes it easier to save money because you will not have to take away from your contribution to pay for taxes.
  • Roth IRA: You will not have any up-front tax savings, but you will be able to make a tax-free withdrawal from the account later. Along with a traditional IRA, you can potentially contribute an additional $1,000 per year as a catch-up contribution.
  • 401(k): This retirement plan is offered through your employer. These types of accounts allow you to make extra salary reduction contributions that can amount up to $6,000 per year. For 2018, you can potentially contribute $24,500 into your 401(k) account–all of which is tax-free. You will not have to pay a federal income tax on your contributions to your employer-sponsored 401(k), making it easier for you to save for retirement on a budget.

If you have both an IRA account and a 401(k) retirement plan, you can potentially save the maximum amount allowable in both types of account each year. You could be saving an additional $7,000 every year in catch-up contributions to help get you ready for retirement. 

What Should You Do Now?

retirement planning

If you are serious about saving extra money so that you can be prepared for retirement, you should consider consulting with a fiduciary financial planner to get started. A financial planner can help you determine how much you need to be saving every year to reach your financial goals and allow you to feel assured that you will be set for retirement.

Regardless of age, the sooner that you get started adding to your retirement plans the better. By starting as soon as possible, you can take advantage of compound interest. Compound interest occurs when the interest that you accrue on your account then accrues interest itself. This approach can potentially generate wealth that will rapidly snowball, giving you a large final balance.

Not everyone can or needs to max out their retirement plans to feel ready for the next chapter of their life. With that being said, increasing your savings rate by even a little bit can be the difference between meeting your financial goals and running out of money during retirement.

One other way to make sure your finances are in order for retirement is to make sure your credit is in good standing. Staying out of debt can also potentially lead to a financially stress-free retirement. Lexington Law can help you monitor your credit reports so that if you see any unfair, inaccurate, or unverified information, you can begin repairing your credit.

 

 

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.





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