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8 Actionable Tips on Raising Your FICO Credit Score

May 21st, 2019 · Credit Rebuild, Credit Repair, Credit Scores

There are no two ways about it; raising your FICO credit score is hard. It can actually seem like an insurmountable task for the many unfortunate individuals saddled with a history of poor financial decisions.

There’s no way to game the system. There are no fancy tricks that make the process easier. But there is good news: It is possible to raise your credit score. It’s possible to shave away the impact of poor past financial decisions bit by bit, until you’ve proven to creditors you’re no longer a liability.

It’s also worth noting that you aren’t alone. The average credit score in the United States is 695, meaning that half of the people within the United States have a credit score below that. It’s estimated that 30 percent of Americans have what would be considered “bad” credit. This means that you aren’t a mere anomaly in a sea full of financially sound folk.

What it does mean is that you have a lot of work to do to demonstrate you’re financially responsible, like many other Americans.

Help Creditors Believe You’re Financially Reliable

Here are eight steps you can take to raise your FICO credit score.

1. Check for Mistakes

It’s wise to check to ensure there isn’t incorrect information on your credit report. Incorrect information can be detrimental enough to impact your score and limit your financial options. And unfortunately, it’s not uncommon.

A study by the Federal Trade Commission showed that 1 in 4 Americans have identified mistakes on their credit report. Furthermore, 1 in 5 was able to get these mistakes corrected by disputing them.

Common mistakes include wrongly attributed or duplicate accounts, incorrect information regarding late or missing payments, and erroneous personal information. There may also be outdated information regarding your credit utilization or balance. 

There are several steps to follow when trying to dispute information on your credit report. The first step is to get a copy of your credit report.

Next, you should contact any one of the major credit bureaus: Equifax, TransUnion or Experian. You will need to explain the error, include information that supports or validates your claim and send the letter to one of the bureaus. Sample letters available online can help you do so.

2. Pay on Time, Every Time

It might seem obvious, but it bears repeating: pay your bills on time. It’s not something that will transform your credit report overnight. What it is, however, is something that has the greatest impact on your credit score overall. Your payment history is 35% of your score.  

You can demonstrate a shift toward financial responsibility by proving you can consistently pay your bills on time. Various things can help you achieve this. This includes things like payment reminders and automatic billing. Give them a try if you have a tendency to miss your payments from time to time.  

3. Avoid Late Payments, Especially Beyond 30 Days

Again, late payments are very bad. Even paying a few days late can be bad, but it won’t be nearly as bad as paying beyond 30 days late. This is because a lot of creditors don’t report late payments if they are under 30 days old. Still, creditors will report debts of at least 60 days old.

The way credit scores are calculated make 90-day late payments appear as much worse than 30-day late payments. This is especially true if those 30-day late payments are infrequent.

Many credit card companies now allow you to pick a due date that works better for you. This is another way to avoid failing to make your payment on time. 

4. Aim for a Higher Limit Instead of a New Card

Your credit utilization is a number that indicates how much of your available credit you are currently using. Creditors like to see this number kept below 30 percent, and ideally below 10%. If you are worried about your credit utilization, you might think it best to apply for a new credit card. The problem with this is that attempting to open a new credit card will generate a hard inquiry that will impact your credit score negatively.

Therefore, it is better to ask for a credit limit increase as opposed to opening a new card for the sole purpose of raising your credit score.

5. Keep Your Oldest Accounts

When deciding to close a credit card account it makes sense to close your newest rather than your oldest account first. An older, well-managed account is a better indicator of financial responsibility than a newer account you’ve barely used. The age of your credit history factors into your credit score. This is the average of your newest and oldest accounts. The idea is that an older credit history means you have accumulated more experience with using credit. This is seen by creditors as a good thing. 

6. Pay Down Your Credit Cards and Revolving Debt

Credit utilization makes up 30% of your credit score.  There are some accounts that don’t factor in credit utilization.  These accounts are installment loans like mortgages or auto loans.  It would be unfair to ding a consumer for having a mortgage that covers 80% of the value, for instance.  Only revolving debt, typically credit cards, have their credit utilization count towards this part of your credit score.  If you have a maxed out card, this can drop you up to 45 points (if you have a good score). If you have an average score, you can lose up to 30 points.  

Not only do you save on paying interest each month (at usurious rates of up to 29%) , but paying down your cards to an optimum rate of 7%.  Another little known fact is that having an equity line of credit on your home counts toward your credit utilization. Surprised? Well, an equity line of credit is a revolving loan, despite the fact that it is secured by your home.  If you have one of these, and your balance is high, you might consider refinancing your equity line of credit into your first mortgage.

7. Take Advantage of Score Boosting Programs.  

In general, things like rent, utilities and phone bills do not appear on your credit report, which is unfortunate if you make the payments religiously on time.  If you have a limited credit history, there are two programs, Experian Boost, and UltraFICO, that can help you build a meager credit report with helpful payment records.  

Experian Boost allows you to get credit for phone and utility bills, putting the payment information directly on your credit report.  

UltraFICO allow you to add banking information to your credit score, things like savings rates and evidence that you do not bounce checks or have other negative balances.  

8. Time Your Applications Carefully

Every time someone pulls your credit report, an inquiry is recorded on your credit history.  There are two types of credit inquiries, soft and hard. A soft inquiry happens when an existing creditor or you pulls your credit report.  These do not have any negative consequences. However, if you apply for new credit with a bank, credit card company or auto financing, you receive a hard inquiry on your credit report.  In general, the effects of a hard inquiry last between 6 and 12 months.

In Conclusion

The thing to remember is that these aren’t “hacks” that will improve your score overnight. Rather, they involve learning more about how your credit score is determined and then changing your behavior to secure a higher score. If you have a low credit score, time truly heals all, as long as you practice financially sound behavior that will reflect that you’re a safe bet for creditors.

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A Guide to Rebuilding Bad Credit with Secured Credit Cards

March 13th, 2019 · Credit Cards, Credit Rebuild, Credit Repair, Prepaid Cards

Having a good credit score is not only crucial for making large purchases for things such as homes, vehicles, and high-end appliances, but it’s also necessary to obtain low-interest loans, employment at specific companies, and some residential renting approvals. Essentially, secured credit cards offer a way for individuals with unestablished or poor credit scores to use deposited cash as collateral for credit card purchases. 

Does this mean that secured credit cards don’t come with certain caveats? Of course not, but if you’re someone who’s run into a low credit score setback, they may be an excellent way for you to get on the road to rebuilding it.

Here are a few of the pros and cons of secured credit cards.

Pros

  • They offer the opportunity to slowly rebuild your credit score by making timely monthly payments (emphasis on the word “timely”).
  • Your credit score will show more credit lines and increase your borrower credit-worthiness in the eyes of lenders.
  • Secured credit cards give you the opportunity to set your credit limit, according to your comfort level.
  • You can qualify for one even if you have a low credit score and unpaid debts.

Cons

  • There are a few credit issuers who report secured cards as “secured” instead of just listing them as credit lines. Make sure to ask about reporting before applying.
  •  Secured credit cards will usually have higher interest rates.
  • Unlike unsecured credit cards, secured credit cards require a deposit.
  • The amount of your deposit determines the amount of your credit line.
  • Some secured credit cards can come with exorbitant fees, which can whittle away the amount you have available to spend.

The bottom line:  how getting a secured credit card helps your credit.  

Not convinced yet?  Here’s the nitty gritty on how getting a secured card will help you.  Your credit score is based on 5 things:

  1. Your payment history (35%)
  2. Your total use of your credit limits. (30%)
  3. The length of your credit history (15%)
  4. The amount of new credit you have (10%)
  5. The “mix” of your credit.  (10%)

We’ll go over how each of these factors can be helped with a secured credit card.  

Payment history. Once you receive a new secured credit card, as we’ve mentioned several times in this article, it is important to make your payments on time.  As you can see, your payment history is the most important part of your credit score.

Credit utilization.  We mentioned that you should keep your balances at 25% of your total limit.  With secured cards, your credit limit is going to be quite low compared to unsecured cards, especially if you can’t afford to make large deposits to open an account.  Many people have $500 limits to start with. (Just so you know, 25% of $500 is $125.) Some experts say that 10% is the limit you really need to stay under, but you should be ok around 25%.  Really, you are using the secured cards to rebuild your credit and they should be looked at as a tool rather than the way an unsecured card is to be used (as a convenience for shopping). You shouldn’t be charging a lot on your secured cards.  

Length of credit history. The total length of your credit history will not change when you get a secured card, unless you have no credit history at all.  However, the older an account is on your credit report, the better your score (if your payment history and credit utilization are good).  Having “seasoned” good credit lines on your credit report will indicate to future lenders that you are now a responsible consumer. There is no time like the present to begin building your credit report.  

New credit. The ability to apply for and receive new credit is an indication of your credit worthiness.  Getting new credit lines looks good to lenders and is reflected positively on your credit score.  

Mix of credit.  Lenders like to see that you have both installment (auto loans and mortgages) and revolving (credit cards, equity lines of credit) on your credit report.  If you only have installment loans on your credit report, applying for a revolving line of credit (a secured card) will help improve your score. If you have no installment loans (you don’t have a mortgage or auto loan), getting a secured card will help you obtain an auto loan or mortgage in the future.   

Helpful Guidelines When Using Secured Cards

Secured credit cards provide a practical way to build purchasing habits that can keep you reined in from impulse or frivolous spending. Ensuring that you use your card wisely is of the utmost importance. Here are some ways to do this.

  • Make EVERY payment on time.  That may seem like a no-brainer, but it’s important to emphasize. After all, this is the foundation of building good credit: paying back what you owe. If you can make payments before your due dates, even better. Payments that are 30 days or more past the due date can get listed on your credit report, which means another setback to the improvement of your score.
  • Keep your balance at a reasonable level. Try not to make massive purchases on a secured card and aim to keep the balance no more than 25 percent of your limit. You’ll want to want to minimize the amount of debt shown on your credit report while you work to rebuild your credit.
  • Use one secured card a time. Establishing several secured credit cards can be a big red flag to issuers. Remember that the more you apply for credit, of any form, the more hits on your credit score, which can have a negative impact. Work on making steady payments on your credit card anywhere from six to eight months before applying for new credit lines. 
  • Ask about reporting. Find a card that reports to all three of the major credit bureaus, so that your credit history will be consistent for each bureau.
  • Set up a monthly autopay. Many issuers offer an autopay option to make payments easier for cardholders. If your card doesn’t provide this, consider setting it up through your banking institution. Auto-payments help you to avoid late payments and may even make you eligible for specific discounts.
  • Go with established card issuers. Apply for secured credit cards with well-known, reputable credit institutions and be leery of unestablished card issuers.

Breaking Down Secured Credit Card Fees

It’s important to understand the fees associated with your card before accepting the terms. If you’re looking to rebuild your credit, the last thing that you need is a new credit card with month-to-month fees that you can’t afford to pay.

  • Application Fees — Some issuers charge an initial fee to apply for a secured credit card, which can be upwards of $50. While most do not, you should always read the application terms before signing up.
  • Annual Fees — Annual fees are deducted from your deposit every year, though the best-secured cards will come with no or low annual fees.
  • Interest Rates — Also referred to as APRs, these fees get deducted from your deposit on a yearly basis, and the percentage amount will vary with each card issuer. While secured cards typically have higher APRs, it’s always best to shop for the best deals.  APR stands for annual percentage rate and is a calculation that is based on the total cost of owning the card.
  • Transaction Fees — Some secured cards come with a small fee attached to every purchase you make, and this small fee can quickly add up to a significant cost at the end of your billing cycle. Remember that the small purchases count, too.

How to Find the Right Secured Credit Card for You

Spend some time checking out the numerous card options that may be available to you, because it’s worth it. Here are a few takeaways that you’ll want to use when making your decision. 

Is the company reputable?

Be wary of unknown or new card-issuing companies. Unfortunately, the financial industry is fraught with scammers and sub-par lenders who thrive on taking advantage of unsuspecting borrowers. Check online reviews, the company’s history (and time in business), Better Business Bureau feedback, and any other sources where you can gather information about their lending practices.  

What deposit is required?

Similar to vehicle purchases, the amount of your deposit will go towards your card balance, but remember that your deposit will determine your limit. It can be as low as $200 or as high as $9,000. 

What interest rates (APR) and fees come with it?

Have a clear understanding of all fees associated with opening and maintaining your account. Saying it’s important to “read the fine print” when it comes to applying for credit cards, secured or not, is an understatement. Trying making a list of at least 10 top card picks and compare their rates to see which offers the best benefits for you.

How do they report your credit? Is it to all three Major Bureaus?

Inquire about your potential cardholder’s reporting details. Remember, it’s essential to choose an issuer that not only reports to all three credit bureaus (Experian, Trans Union, and Equifax), but also reports secured cards simply as “credit” and not “secured credit.” 

Applying for a Secured Credit Card

You can apply for a secured credit card online or at your banking institution or credit union. When you do, you should be ready to supply the following documentation:

  • Name, contact details, and social security number (must be 18 years or older, of course)
  • All income documentation and verifiable employment details
  • Bank or credit union details including history, balance, date opened, and additional account holders

Secured credit cards can be the answer to rebuilding your credit if used in the right way. Make sure to keep a close eye on your credit reports from all three bureaus to ensure consistency and inaccuracy as you work to build your credit scores. And while rebuilding your credit isn’t an overnight process, it’s one that is worth the effort.

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16 Simple Ways to Keep Your Financial Resolutions in the Coming Year

January 10th, 2019 · Budgeting, Credit Rebuild, Credit Repair, Debt Consolidation, Debt Management, Financial Literacy, Saving, Your Money

With the start of a new year comes a rash of resolutions. These promises to do better in the coming year are an annual rite of passage, but making those promises is far easier than keeping them.

Everyone who has resolved to lose weight and get more exercise can sympathize with this situation, but promises to save money can be just as hard to keep. If you have vowed to make this the year you finally get a handle on your finances, you need more than a promise – you need a plan.

If you plan ahead and make the right choices, you can get ahead financially in the coming year. Here are some simple and relatively painless ways to keep those financial resolutions once and for all.

Banish the bank fees. If you are still paying to keep your money in a bank, now is the time to banish those fees. If you look around, you can find a bank that values your business – and does not charge you for it.

Get a grip on your cash flow If you want to improve your personal finances this year, start planning your cash flow in advance. When you learn to develop a budget and stick to it, you get a better idea of how much cash you will have on him each month. Understand what your cash flow will be for the next six months and adjust your spending accordingly. When you reduce your reliance on credit cards and start focusing on how much cash you have on hand each month, you realize how easy it is to reduce your debt load simply by making smart purchasing decisions.

Ramp up your interest. Once you have banished the bank fees, look for ways to make your money work harder for you. Interest rates are on the rise, so take advantage of that free money.

Adjust your withholding. If you get a big tax refund every year, why not put that money to work now? Once you have found a great interest rate on your bank account, adjust your withholding rates for a fatter paycheck – and even more free money.

Pay attention to your debt-to-income ratio. Start paying attention to your debt-to-income ratio if you want to improve your financial situation this year. Understanding your debt-to-income ratio is crucial if you want to improve your liquidity and build your net-worth. Monitor what percentage of your income goes toward paying down debt and make it your mission to decrease that percentage by the end of the year.

Turn your clutter into cash. All that extra stuff gathering dust in the closet could be a source of ready cash. Make this the year you stop collecting, and start selling off your unwanted stuff.

Increase your retirement plan contributions. If you have a 401(k) plan at work, ramp up your contributions and save even more. You can reduce your tax bill and prepare for your future, all at the same time.

Abandon your unused subscriptions. From magazines you never read to services you no longer use, the cost of unused subscriptions can really put a damper on your finances. Review those subscription charges and put the money back in your pocket.

Pay more than your monthly minimum payment. Consider making larger payments on your debts to reduce the time you spend paying off your credit cards and or loans. Paying your monthly minimum payment is not an efficient way to reduce your debt. Even paying an extra $50-$100 per month on your loans or credit card balances can significantly improve your financial situation after just one year.

Set financial goals. If you want to improve your personal finances this year, start setting annual financial goals for yourself. It is not enough to want to be better off financially; you must be willing to put in the hard work. Set long-term goals like saving enough money for a vacation, purchasing a new car, or saving up for a down payment on a home. Be specific with your goal setting and track your progress on a weekly basis.

Pay down student loans. If you’re still going to school, it may make sense to begin paying on those loans right now.  Long gone are the days where student loans come at low interest rates. If you’re out of school and currently paying them down, make throwing a little extra cash to the balances of the loan a priority.  Read about more about student loans here.  

Open a new credit card. While it may seem counter-intuitive, getting a credit card can greatly help your credit:  part of your credit score is the ability to get new credit (the theory here is that your credit is good enough to get new credit).  If you don’t currently have a credit card, now may be a good time to get one – credit standards for new customers are much more relaxed then they were during the last recession.  In addition, there are many rewards cards programs that can save you money, especially if you pay your credit card balance in full each month. For more information on getting a credit card, see our credit card guide.   

If you are renting, request that your payments be reported.  While not all landlords have the capability to report to the credit bureaus, several of the credit reporting agencies do accept rent payment histories via several rent reporting services, some of which are free.  This can be especially important if you are planning to buy a home sometime in the future and you don’t have much credit history already built up.

Consider talking to a financial planner.   Even if you don’t have much money to invest right now, talking to a financial planner can help put your overall long-range money goals into perspective.  Part of what financial planners do is actually calculate the date at which you can retire, based on monthly/weekly/annual savings rates, which can be a great motivator to save.  Read more about financial planners.

Build an emergency fund. All that money you are saving?  It not only helps to pay down existing debt, but having emergency funds can help stave off the financial crisis of having surprise car repairs, medical expenses, or having that home appliance or plumbing break down.  If you don’t have the money to cover emergency expenses, you may find yourself getting into more debt, essentially forcing you to take a step back in your march to improved finances.

Improve your credit scores.  Higher credit scores mean lower loan costs, better access to cheap credit, lower insurance, overall, your financial status is better!  There are some simple things you can do to improve your credit: correct your credit report, pay down credit cards and ask for a credit line increase.  Creditinfocenter has a complete guide to credit repair.  

 

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