Topics:Personal Finance Credit Score Credit Cards 101 Home and Credit Relationships and Finance Credit and Debt Credit Repair 101 Children and Finance Expert Advice Credit Repair Companies
August 21st, 2020
March 22nd, 2021
This is part one of our two-part credit retirement series. Read part two here. Odds are, you won't have too much to worry about after you retire. Retirement allows you to trade in your work deadlines and heavy-traffic commutes for sun-soaked vacations and new hobbies. It’s something you’ve likely been dreaming about since you started your professional career. And, in general, retirement is the ultimate goal that allows you to truly enjoy your golden years. Although retirement can be full of sunshine and daisies, it doesn’t mean you can leave behind all of your responsibilities, especially your credit. And we get it. No one really wants to worry about finances or credit when they retire, but it’s important to keep in mind that your credit doesn’t retire when you do. In fact, as long as you are living, your credit could affect your choices. So, if you make bad financial decisions during retirement, your credit will likely suffer. In this article series, we will discuss a few reasons why you should continue to actively manage your credit and what you need to do to make sure you have a good credit score throughout retirement. Now, let’s dive into part one. Why your credit still matters You may age like fine wine, but your credit might not, especially if you decide to throw it on the back burner when you retire. We asked a few experts why they think credit still matters after an individual reaches retirement. Here’s what they had to say: Randall Yates, Founder and CEO of The Lenders Network “Maintaining good credit in retirement is important because your credit affects more than just the interest rate you get on loans and credit cards. For instance, insurance companies often check credit to help determine your insurance rates. Cell phone companies also check credit before offering phone service. Even if you don't plan on using your credit in the future, it's always a good idea to maintain credit in the event of an emergency, or if you want to cosign on a loan for a grandchild.” Jacob Dayan, CEO and Co-founder of Finance Pal and Community Tax “It is important to maintain a good credit score following retirement as it influences your ability to refinance mortgages if your rates drop, get credit card approvals, obtain lower insurance premiums, and get auto loan approvals. This can affect hobbies and activities you might wish to pursue during retirement, so it’s always a good idea to keep them in good shape even to be safe.” Freddie Huynh, Vice President of Credit Risk Analytics with Freedom Financial Network “Once they reach their fifties and sixties, some people think that they won’t be borrowing money again, so there’s little need to worry about credit profiles and scores. This can be particularly so if they own their homes. But credit scores have a major impact on the ability to borrow any money — and the interest rate on the loan. Maybe the need for a personal or business loan will arise, or the need (or desire) to buy a different — perhaps smaller home. Credit profiles and credit scores can affect the ability to rent an apartment or lease a car. Many auto insurance companies also take credit into play when setting rates.(Additionally,) many people who have retired find that they want to, or have to, return to work, whether it’s full-time or part-time. Employers today can and do check credit reports.” Sean Messier, Credit Industry Analyst at Credit Card Insider “There are plenty of benefits to maintaining great credit scores after retirement. Though retirement may be the end of your full-time working career, you still have years upon years left to enjoy. That can often involve buying things, like vehicles or homes, that you would rather not purchase in full. Taking meticulous care of your credit scores during retirement can help ensure you’re still able to secure the best possible interest rates and offers when it comes to loans and credit cards, which you may very well use on a regular basis. Credit cards are great for earning cashback or rewards on staple purchases, like gas and groceries, that you likely buy on a regular basis whether you’re working or not. If you’re ever looking to get a different credit card that earns rewards and provides benefits that complement your post-retirement lifestyle, you’re going to want great credit scores, as this helps keep your approval odds high. Adiel Gorel, CEO of International Capital Group (ICG) “Just because someone retired, doesn’t mean they don’t need good credit. They may still wish to buy a car, an appliance, or any other purchase that will be better financed with good credit. In fact, I would argue that it is even MORE important for a retiree to maintain good credit since traditionally, retirees try to spend as little as possible. Good credit will enable them to pay less when purchasing anything on credit.” Dan Gallagher, Personal Finance Expert at ScoreSense “While a well-thought-out cash reserve and a disciplined budget is a better practice for seniors (everyone) than using credit, there are reasons why retirees should maintain good credit. Among these are possible needs for credit and credit-score affected services. A retiree may need emergency credit to help an adult child or to maintain a business in retirement. One might need to rent a home or even a car, or live where there are ongoing obligations such as Homeowners Association dues and assessments; even cable/internet and club/golf agreements can be affected by poor credit scores. One might benefit from incentives given with store cards as well. So, credit scores and availability are important.” Richard Best, Personal Finance Expert and Writer at dontpayfull.com “With your mortgage paid off and your retirement account flush, you may think you can leave your credit score behind. You should think again. While you may not have any foreseeable borrowing needs to speak of, there are good reasons why it would be important to maintain a good credit score in retirement. Refinancing your mortgage — an increasing number of retirees are carrying a mortgage into retirement. If you happen to be one of them, you may want to keep your options open for refinancing your mortgage. A good credit score would allow you to more easily refinance if mortgage rates should drop. Or, in the unlikely event your financial circumstances should worsen, you could access your equity through a cash-out refinance. Moving or downsizing your home — It may dawn on you after you are in retirement that you may want to move to a different location (closer to the kids), or you decide you want to downsize for simpler and more affordable living. If your move entails leasing a place temporarily or permanently, you will need a good credit score to get the approval of the property owner. If the move requires any financing or refinancing, your credit score will dictate the terms of the loan. Paying for emergency expenses — if you have planned well for retirement, you should have at least six months’ worth of living expenses set aside as a cash reserve for emergencies. But, if you don’t, or if you should run through your cash reserve, you would need to borrow money to pay for unexpected events such as a major car or home repair, or a major medical expense. You need to keep your credit score up to ensure your credit card issuers will approve a sufficient credit limit.” The bottom line As you’ve read above, credit is clearly an important part of life, even after retirement. Maybe you want to downsize and buy a new home that’s closer to your grandkids or maybe you want to get that snazzy car you’ve always wanted and take your spouse on a road trip adventure.Regardless of what you want to do after you hang up your office clothes for good, there are a few things you need to keep tabs on in order to maintain a good credit score in retirement. Make sure to check out part two of this article series to find out what the experts say you should be doing to keep your credit score up while you enjoy your work-free years.
It can be challenging to successfully manage your personal credit, even if you are aware of what you should be doing. Just like personal credit, business credit is something that can be difficult to manage. You’ve probably heard the term “business credit,” but haven’t been given the information you need to understand how it works. As stated on Investopedia, “a business credit score is a number that indicates whether a company is a good candidate to receive a loan or become a business customer.” If you are planning on becoming a business owner/entrepreneur at some point, you should probably start reading up on business credit. To help you start, we asked a few business and finance industry experts to explain what they believe you should know about business credit. Gerri Detweiler, Education Director for Nav “Most business owners don’t even realize business credit reports exist. The three major commercial credit reporting agencies are Dun & Bradstreet, Equifax, and Experian, though there are others. These companies sell millions of business and personal credit reports each year, so just because you haven’t heard of business credit, that doesn’t mean it won’t impact your business. Here are a few things that often surprise business owners when they learn about business credit: Anyone can check your business credit without your permission or without telling you they have done so. Business owners are not entitled to a free copy of their business credit report because there are no federal laws covering business credit. Lenders are not required to tell you if they turned you down for financing because of information they saw in your business credit report. Business credit reports don’t list the names of companies reporting payment history. Instead, they list the type of account such as bank card or utilities. Personal and business credit are kept in completely separate databases at the credit bureaus. However, some types of business credit require personal guarantees and may report to the owner’s personal credit.” Sean Messier, Credit Industry Analyst for Credit Card Insider “Business credit, much like personal credit, is a fairly complex topic, and there are numerous similarities and differences between the two. In the earliest days of your business, your ability to get funding through loans and similar means will likely depend on your personal credit. You'll often have to provide a personal guarantee in order to get a business loan or credit card.It’s essential for your company’s growth that you establish a business credit file and begin building business credit as soon as possible.Though business credit is calculated differently and reported by different bureaus than personal scores, it can be built in many of the same ways. Once you’ve established a business credit file, open a business credit card, even if you have to provide a personal guarantee. Use your business card to fund essential purchases, and pay off your balance by the end of the month as you would with a personal credit card, and your scores should rise over time. Many business cards boast generous rewards programs, allowing you not only to build your credit, but to garner savings and helpful benefits.You can also bolster your business credit scores by establishing trade lines with vendors, suppliers, and lenders. It’s not universal, but some business-to-business merchants report tradelines to business credit bureaus — and if they don’t already, you can ask them to do so.” Brock Blake, CEO and Founder of Lendio “Similar to personal credit, business credit is built over time. Business credit reports are based on business demographics, public records, trade payment history, financial payment history, corporate family trees and identifying information for each business level, and small business owners and/or guarantors associated with the business. The problem is that it takes a long time for it to be an accurate depiction of a business’s creditworthiness. For personal credit, certain financial activity is required to be reported, but for business credit, that’s not the case. Lenders and credit bureaus aren’t required to report activity. A business could be open for years and not have much, if any, business credit history. Here are some basic things to know about business credit:It takes a long time to build business credit. Creditors and vendors are not required to report payment performance, but if they were, it would still take 10-20 years to have an accurate and thorough business credit report for a lender to review.Lenders more frequently pull personal credit. More often than not, creditors pull personal credit and not business credit. From the lender’s perspective, the business owner’s personal credit profile has many years of payment history while the business credit data is incomplete or inaccurate.Instead of pulling business credit, lenders focus on the cash flow of the business. Lenders are primarily interested in the financial health of your business and often ignore the business credit profile. As such, the main data points analyzed are the cash flow analysis and the transaction history of the business’s bank account. Business credit isn’t utilized by lenders in the same way that personal credit is, but there are many instances where business credit is helpful. Business credit can get your business approved for trade credit. If you’re building out inventory and want better payment terms, many trade vendors may also pull business credit to see if your business is worthy of a 60-day extended term. Trade credit and extended terms can both assist with cash flow management and provide relief in times of need.” Jenn Garbach, Head of Brand Marketing, Small Business Card at Capital One “Business credit is a critical component of a company’s ability to secure financing, yet our research shows less than half of business owners have ever viewed their business credit reports. By proactively managing their credit, businesses gain other important benefits such as better access to funding; becoming trusted partners, suppliers and vendors; and growing their businesses to capitalize on market opportunities. One way they can do this is to take advantage of free tools such as Business CreditWise which provides every business owner in the United States an in-depth view of their business credit report and the ability to make corrections to it without impacting their credit.” David Gafford, Co-founder of Shift Processing “Personal and business credit is a topic that's confusing for many business owners, and rightfully so. Many business owners will open up a business credit card during the launch phase of their business. Depending on the type of business they set up, that card can affect their credit score.Simply opening a new business credit card can be cause for a hard pull on personal credit, which might drop a personal score by a few points.Since credit score is heavily influenced by a person's credit utilization ratio, opening a new business card along with current personal cards can dramatically change how much available credit an individual is using. If the institution that you're applying for the new business card with requires a personal guarantee as a part of the application, the individual would then be liable for any unpaid debts the new business card might incur. When it comes to accepting credit cards as a form of payment at a business, a merchant's personal credit is taken into consideration before a merchant account is issued. Many times business owners with poor credit will apply for a new merchant account for their business and leave out their social security number, and try to get a merchant account that isn't tied to their personal credit. It isn't always possible to separate business and personal credit, but in the case of a merchant services account, there are special considerations that can be made on an individual basis.” Daniel Gillaspia, Founder of UponArriving.com “Your personal credit score has a huge impact on obtaining credit for your business when it comes to small business credit cards. While not every business credit card will report to your personal credit profile, if your personal credit score is subpar, it could prevent you from being approved for many small business credit cards.” Nishank Khanna, CMO at Clarify Capital “Similar to how your personal credit score has a big impact on your financial life, your business credit helps you get better interest rates and terms when seeking a business loan or line of credit. Most alternative lenders will approve you for a business loan if your credit is over 600. But if you decide to pursue an SBA loan, the requirements are even more strict. SBA-approved lenders require a credit rating of at least 640.If you're looking to get a traditional term loan, lenders will factor in your personal credit score to make their approval decision and also to decide what APR and terms to offer you. That being said, there are other forms of financing available where your personal credit is not a deciding factor. Invoice factoring is one such option.” Lisa Chu, President and CEO of Black n Bianco “Every business should be aware that their personal credit score will affect their ability to obtain a business loan. While a business credit score may be important, most lenders do look at personal credit scores when deciding whether to grant a business loan. Personal credit scores are very often linked with your business credit score as missing payments, late payments, or overdues will usually show up on your business credit report. It's critical to protect both your business and personal credit score. Doing a yearly routine check of your business credit report is also critical, because it will give you the option to dispute any errors before it affects your score. Understanding what is on your business credit report is only a partial part to running your business.” The bottom line Clearly, business credit can be an important part of your business-owning journey. Therefore, it’s important that you manage your business credit the right way. According to a U.S. Small Business Administration (SBA) article, when you build credit for your new business, you can "improve your company’s image, protect your personal credit, limit your liability," and more.
For most people in their early to mid-twenties, life can be challenging. After all, by the time you turn 25, you’re expected to have life figured out — where you live, what job you have, what car you drive, etc. Probably one of the most important factors of life that you are expected to figure out by the time you are 25 is credit. According to a recent poll conducted by Branded Research, 68 percent of those between the ages of 18-24 said they currently have a credit card they use regularly. That number increases to 78 percent for those in the 25-34 age range. The poll results also showed that approximately 41 percent of those who are 18-24 who do have a credit card, used their credit card primarily to build up credit. Meanwhile, 35 percent of those in the 25-34 age range used their credit cards to primarily earn rewards and only 29 percent of them used their credit cards to build up credit. If you are approaching your mid-twenties and still have a ways to go to establish a strong credit foundation, you should know you’re not alone. Here’s what the experts say you should know about credit by the time you turn 25: Why credit is important “Your credit can affect your everyday life far more than you might think. Credit scores are instrumental in helping lenders determine your interest rates, and your likelihood of being approved for credit cards also depends on your credit history. What’s less commonly discussed is how negative credit can even affect your ability to rent desirable properties or get certain jobs.” — Sean Messier, Credit Industry Analyst at Credit Card Insider “By the age of 25, everyone should be aware that their credit score is crucial to set themselves up for financial success because most people typically need to start out borrowing money to get themselves through the early years when cash outflows are high compared to cash inflows. People need to understand that the basis of borrowing money from banks begins with an assessment of their credit score. Banks typically are highly reluctant to lend money to someone with a low credit score. Additionally, just because someone has a high credit score doesn’t necessarily mean that banks will lend to them. Banks want to see a track record of credit history and that the track record is scored within an acceptable range using the FICO scoring system.” — Michael J Bús, CEO and President of PNW Financial“Your credit score is the most important factor in your entire financial life. It determines the mortgage rate you’ll pay, the car loan you’ll receive, and whether you’ll get approved for an apartment or credit card. It can literally be the difference between spending an extra six figures over the life of your mortgage or saving six figures.” — Mike Pearson, Founder of Credit Takeoff “A healthy credit report and score can help you out considerably in the future and save you a lot of money over a lifetime. Credit is used to determine many things that lie ahead, such as auto loans, mortgage, qualifying to rent an apartment, in some cases employment, etc. Maintaining a healthy credit will grant you lower interest rates, lower deductibles, higher credit limits, etc.” — Jacob Dayan, CEO and Co-founder of Community Tax and Finance Pal What makes up a credit score “Although they each use their own mathematical formula, credit rating companies...base their scores on the same criteria: Payment history, length of credit history, debt to credit limit ratio, number of credit inquiries, and type of credit accounts. Any late payments, collections activity, high account balances, and credit inquiries can lower your score." — Richard Best, writer for Dontpayfull.com“You can’t win the game unless you know the rules. To get and maintain a good credit score, you have to know how your credit score is calculated in the first place — most people have no idea. Study up on things like payment history, credit utilization, and credit inquiries. Know what goes into your score so you can take action to stack the odds in your favor.” — Pearson“You should know how your credit score is calculated. Too many people think that their credit score is just some magical number that is vaguely related to how many missed payments you have. While paying your bills on time is certainly a part of your credit score, the whole story is a bit more complicated than that.There are actually five factors that go into calculating your credit score: Payment history: Your payment history — that is, how responsible you've been with paying your bills, especially on credit cards and installment loans — makes up an enormous 35 percent of your credit score. Utilization rate: Your utilization rate, or the ratio of your credit balance to your total credit limit, makes up 30 percent of your credit score. Ideally, you don't really want to be carrying a balance on any of your credit cards. If this isn't possible, aim to keep your total utilization of any one card's credit limit to 30 percent. So if you have a credit card with a $10,000 credit limit, do your best to keep your credit utilization under $3,000. Length of credit history: Your length of credit history comprises 15 percent of your credit score. There's not much you can do about this credit scoring factor other than to continue to handle credit responsibly, year in and year out, and also make sure that you don't close your oldest credit card. New credit: New credit is a factor based on how many loan applications, credit pulls, and new credit accounts that appeared on your credit report in the past six to twelve months. This factor accounts for 10 percent of your credit score. The more loan applications, credit pulls, and new credit accounts that appeared on your credit report recently, the more this "new credit" factor will work against you. Credit mix: Credit mix is a factor based on the variety of credit accounts appearing on your credit report. Revolving credit accounts such as credit cards would be one kind of credit account. Installment loans such as a car loan would be another. Like the new credit factor, this factor accounts for 10 percent of your credit score. Like it or not, the theory here is that if someone has experience handling different kinds of credit responsibly, the more responsible of a borrower they are overall.” — Logan Allec, CPA and Owner of Money Done Right What affects your credit score “Hurting your credit score is easy. Rebuilding your credit score is hard. A single late payment on your credit report will be visible for seven years. It's critical to pay your bills on-time because 35 percent of your credit score is based on your payment history.” — James Garvey, CEO of Self Lender “[...] a lot of young individuals don't realize just how many things affect credit score. For example, items such as parking tickets, medical bills, cable bills, library fees, and even gym memberships can affect your credit score believe it or not. A lot of millennials just brush these bills to the side not knowing they might come back to bite them later on when they apply for a loan.” — Matthew Ross, Co-owner and COO of RIZKNOWS and The Slumber Yard How to check your credit reports and credit score “The Fair Credit Reporting Act requires that all borrowers receive a free credit report from each of the three credit bureaus. It is important to get into the habit of requesting a report from each throughout the year. Order one every three months so you can monitor your credit all year long. Go to www.Annualcreditreport.com and register for your free copies.” — Best “There are no reasons to pay for a credit report. You can check your credit reports and scores for free with Credit Karma or Credit Sesame.” — Elise Nguyen, Personal Finance and Lifestyle Blogger for Little Seeds of Wealth How to use a credit card and how to build credit “Credit cards allow you to build credit history, which is important for your financial health. Having a credit history allows you to take out a loan, finance a car or even buy a house. Establishing a trail shows lenders that you’re able to make payments on a frequent basis. Paying your credit card bills on time will allow you to obtain a strong credit score, apply for items that require credit and receive lower interest rates. Building credit takes time and patience, but it’s worth the wait.Overspending can lead to a high balance or not enough available credit. Your utilization rate, or the amount of available credit you have, can also negatively affect your score. In addition to your overall balance, pay attention to the amount you have. Make it a rule to keep your utilization rate below 30 percent on your credit card at all times. Maxing out your credit cards or leaving a part of your balance unpaid won’t work in your favor.” — Erin Ellis, Accredited Financial Counselor at Philadelphia Federal Credit Union (PFCU)“You should know what the credit utilization ratio is and understand that you should only be using 30 percent of the credit you have access to. Many young adults are maxing out their credit cards and don’t understand the damage they are doing.” — Jacqueline Devereux, Credit Expert for SproutCents“Making only the minimum monthly payment can hurt you in the long run. Making the minimum payment on your credit card accounts will help you avoid late fees, but it has its fair share of consequences. You’ll still accumulate interest, which can cause debt to spiral out of control faster than you might expect. Plus, a high utilization ratio — your balance versus your overall credit limit — can damage your credit scores.” — Messier“Here are my three rules for young adults who want to start building their credit. Do these before applying for credit.1. Have a budget in place and use it for at least six months2. Have a bank account with a debit card and go 12 months without having a purchase denied for insufficient funds3. Build an emergency savings fund equal to one month of your incomeDon’t try to start building credit with the big, national bank credit cards. Start smaller and closer to home. A tire shop, retail store or gas station card is easier to qualify for.” — Todd Christensen, Education Manager at Money Fit and author of Everyday Money for Everyday People“Credit cards have very high-interest rates because the loans are not secured by any tangible asset. Pay off your credit card debts on time to avoid accumulating interests. Start working on improving your credit score as early as possible. Bankers and lenders use credit scores to know if you are a good borrower and pay on time. You don't want to miss out on a home you want because of poor credit scores.” — Nguyen “High-interest rates will make it much more expensive to pay back the money you borrow. So remember, making minimum payments on credit cards is fine, but a big chunk of those payments will be going toward interest, not toward paying back your debt.” — Gerri Detweiler, Education Director for Nav Key Takeaways: Make sure to know these things about credit by your 25th birthday. • Why credit is important • What makes up a credit score • What affects your credit score • How to check your credit reports and credit score • How to use a credit card and how to build credit The bottom line Credit is clearly important. Your age shouldn’t be the only thing that motivates you to start building your credit, even though you may experience a financial reality check the closer you get to your mid to late 20’s. Facing your credit head-on at a younger age can help you in the long run. Work on building good credit and fixing your bad credit before you hit your 25th birthday, so you’ll have one less thing to worry about.
Building good credit can be difficult, and building good credit from scratch may seem like an even greater challenge. Most people start learning how to build credit when they are in high school or college, but some will avoid anything credit related out of fear or ignorance. Those who wait to build credit eventually realize that they should have started earlier in order to enjoy the benefits, like better mortgage or car loan rates. Although building credit may be difficult, it's definitely not impossible. We asked a few financial experts for tips on how to best build credit from scratch. Look into getting a secured credit card "Apply for a secured credit card. A secured card is backed by a cash deposit. If you place a $500 deposit for your card, you can charge up to that amount. A secured credit card can be a great way to build a positive payment history and works the same as a normal credit card. You can use your secured card to make regular purchases, and you’ll receive a statement to be paid by the due date. One key difference with a secured card is that if you fail to make payments, the card issuer may take your deposit." — Megan Robinson, Financial Coach and Personal Finance Reporter for DollarSprout.com "Get a secured credit card. There are plenty of secured credit cards that don't require a credit check and help you build credit using a card with funds you've already put on the card." — Sarah Moe, Money Coach at Flauk Pay your bills on time "One way to build your credit from scratch is to pay your monthly bills on time. Some folks don't know this, but that helps you build a credit score." — David Bakke, Credit Expert at Money Crashers "The first step to building a good credit score is signing up for a credit card and making on-time payments every month. However, qualifying can get difficult when you may already have a low score. I would then recommend looking into alternative methods for building up your score, like reporting your on-time rent payments to a credit bureau through a credit tracking service or making sure to consistently pay off a car or student loans that can also have an impact on your credit score." — Jason Hill, Financial Advisor and Founder of Client Focused Advisors "Paying any doctors' or utility bills in a timely manner is very important, as unpaid bills could be sent to collections which could seriously damage your credit score. To build your score fast, save enough money to pay off your credit card bill in one payment and keep a $0 balance, or at the very least, do not allow your balance to exceed 30 percent of your credit limit. If you don’t have a credit card, be sure to set a calendar reminder to mail in a check or pay over the phone with your debit card before your balance is due." — Jill Caponera, Consumer Savings Expert at Promocodes.com Be smart when you use credit cards “Look no farther than two to three credit cards. The trick is to only use them for occasional purchases already in your budget and keep the balance under 30 percent utilization. There is no need to take on large debt such as auto loans, to build credit. Credit cards will do it faster and with much less debt load!” — Carla Blair-Gamblian, Credit Expert at Veterans United Home Loans "Don't apply for too many cards right away because it will have a negative effect on your score. After you get the first one, wait eight months before applying for anything else." — Joyce Blue, Money Relationship Expert at Empowering You Life Enhancement Coaching LLC Consider getting a co-signer "If you have a responsible family member whom you trust, ask them to cosign on a small loan or unsecured credit card. With a co-signer, you are still legally required to make payments to your loan or credit card. If you fail to do so, however, the financial burden falls on your co-signer. This option is best if you have a consistent income and are confident you can make your payments on time. If not, it can negatively impact the credit score of both you and your co-signer." — Megan Robinson, Financial Coach and Personal Finance Reporter for DollarSprout.com "Getting an auto loan or personal loan and making on-time payments could really help to jump start your credit, but getting such with no credit history in the first place could be tricky. Asking someone with good credit to co-sign your auto lease, for example, could be your answer for not only getting the lease approved but also getting a better deal on the monthly payments and interest rate. Keep in mind, if you are unable to make the lease payment, your co-signer will be on the hook for the expense, so be sure to have a stable job and an emergency fund saved that can be tapped to cover these payments should you lose your job." — Jill Caponera, Consumer Savings Expert at Promocodes.com Stay on top of credit reports "Always check your credit reports for errors and discrepancies and correct the issues immediately. This can make a huge impact on your credit in a short period of time." — Jeffrey Bumbales, Director of Marketing at Credibly Become an authorized user "Is there a member of your family whose credit is already well-established? Consider asking them to add you as an authorized user on one of their credit cards. As long as they continue to make purchases and repay their balance to maintain good credit, you’ll also reap the benefit of watching your credit score climb." — Ennie Lim, Co-founder and President of HoneyBee "As an authorized user, you get a credit card with your name on it through someone else’s account. You can use your card to make purchases, but you are not responsible for paying the balance. Legally, the primary account holder is the only one liable for charges to the account. This is a good option for teens and college students who don’t make a consistent income to keep up with payments, but still want to be proactive about building their credit." — Megan Robinson, Financial Coach and Personal Finance Reporter for DollarSprout.com Key Takeaways: There are several steps you can take to build credit from scratch • Look into getting a secured credit card • Pay your bills on time • Be smart when you use credit cards • Consider getting a co-signer • Stay on top of credit reports • Become an authorized user The Bottom Line Clearly, credit is important in today's world. Your credit scores can either open doors for you or close them. If you have bad credit, you might want to consider looking into credit repair services. If you have no credit history, try doing your own research regarding good credit habits and follow the tips mentioned above to start your credit-building process.
Most friends, family, and coworkers love to give advice. If you've asked them for credit advice, however, you've probably heard some pretty terrible suggestions. There's nothing wrong with seeking advice about your finances, but make sure you do your research before you start implementing others' ideas into your own financial game plan. After all, following bad credit advice could dig you into a deep hole of debt and regret. Fortunately, you can fix your bad credit if you do happen to follow someone's bad advice. To help you determine the difference between good and bad credit advice, here are a few real accounts of the best and worst credit advice people have received: Adam Jusko — Founder and CEO of Proudmoney.com Best Credit Advice: "When I bought my first car, I was determined to pay it completely in cash. I mentioned my plan to an older co-worker, and he suggested that I instead make a big down payment but take out a small loan to pay the rest. That way, I’d have a track record of making payments responsibly. He’d paid for a car outright in his 20's and regretted it because when he went after a mortgage, later on, his lack of a strong credit history made the process more difficult. He also knew I was using almost every penny of my savings to buy the car, leaving me with little cash in case of an emergency. I followed his advice because rates were low and his experience made sense to me. I still paid for over 50 percent of the car upfront, though. Even with the low rates, I hated the idea of paying interest." Worst Credit Advice: "The worst credit advice I’ve ever received (and I still hear people give this advice) is that you need to carry a small balance on your credit cards to improve your credit score. The theory seems to be that carrying a balance shows you are using your credit without overusing it, thus showing some level of self-control and responsibility. In reality, carrying a balance is worse for your credit score because higher credit utilization is worse than lower credit utilization and you pay interest for no good reason." Makenzi Wood — Personal Finance and Frugality Blogger at Picky Pinchers Worst Credit Advice: "The worst credit advice I ever received came from my dad. To establish my credit, he helped me get several store credit cards in my name. He then instructed me to blow through the cards and spend up to my credit limit. I was 18, so he didn't have to beg me to splurge on myself with some retail therapy. Anyway, once I racked up all the charges, he said I could only pay the minimum payments moving forward. It took MONTHS to pay off all the debt with the minimums. He said it's important to 'let the companies make a little money on you' to boost your credit score." Janice Lintz — Freelance Writer at janicelintz.com Best Credit Advice: "The best advice I received was to pull all three credit reports for free to confirm the accuracy of the information before applying for a credit card. My statements incorrectly stated that I worked at a pizza shop and had a lien filed against me which I didn't. My FICO score dramatically increased after the data was corrected. The credit card companies could have denied me a credit card based on wrong information.” Dan Wesley — Founder of CreditLoan.com Best Credit Advice: "The best piece of credit advice I’ve heard is to not max out your card and make each payment in full and on time. Unfortunately, there is no quick fix to improving your credit. However, showing that you are a responsible borrower by keeping your utilization at a minimum and not carrying a balance is one of the easiest ways to improve your credit score." Worst Credit Advice: "One of the worst pieces of advice that I’ve heard is that you have to max out your credit card to show that you are able to pay it back. This is not sound advice. Your credit utilization rate makes up roughly 30 percent of your credit score, so you want to keep your overall use below 30 percent. If you have a $300 credit limit, try not to use more than $90/month." Jesse Harrison — Founder and CEO of the Employee Justice Legal Team Best Credit Advice: "The best credit advice that I got came from my best friend, and the advice was, "you need credit to live in this country." I am an immigrant and in my country, there is no credit, everything is cash. To buy a house, you need to have the entire price in cash. Since I did not grow up in the United States, I did not understand the value of having a credit history. I was still a believer in all cash. I did not want to buy anything unless I could pay for it in cash. I thought buying something on credit is irresponsible behavior, because after all if you don't have cash, why are you buying? My friend changed my mind by explaining to me that everything here works on credit and I could improve my financial situation by improving my credit. I finally got a credit card in my late 30's (before I only used my debit card) and slowly built my credit. I ended up purchasing my favorite luxury car and several properties based on my credit. Had it not been for my friend's advice, I would be struggling to buy my first property because I wouldn't have enough cash on hand to completely pay it off.” Sacha Ferrandi — Founder and CEO of Source Capital Funding, Inc. and Texas Hard Money Best Credit Advice: “The best credit advice I have received and given is to pay more than the monthly minimum whenever possible. With the average credit card interest rate being about 15.59 percent in 2017, paying the monthly minimum can quickly put you into a hole. According to NerdWallet.com, the average household with debt owes just over $15,500 on credit cards. That being said, if you were to pay a minimum 3 percent of the balance each month at an interest rate of 16 percent, it would take you nearly 21 years to eliminate the debt. In that time you would have paid almost $12,000 in interest. However, if you were to pay even just 2 percent more (5 percent) of the balance each month, you would pay just over $5,000 in interest and eliminate the debt in 19 years. Although this is still a significant amount of time spent paying off the debt, it can help cut the amount of interest paid over that time in half.” Holly Wolf — Director of Customer Engagement at Solo Laboratories, Inc. Worst Credit Advice: "Don't pay off your mortgage because it's tax deductible. Why pay a penny more interest than you need to and the government doesn't give it all back to you (from friends and coworkers). I ignored this advice and paid off our mortgage in five years for the first house and seven years for the second. Manage to a payment. So, instead of negotiating the price, say, 'I can only afford $X per month.' Okay, they'll finance those appliances for 10 years at 20 percent interest and your payment will only be $50 per month (from a coworker and a relative). I never took this advice." Jeff White — Staff Writer at Fit Small Business Best and Worst Credit Advice: "The best and worst credit advice I was ever given was to use a credit card every month. On the one hand, this builds my credit as I pay it off every month. However, if I were to lose my job then it would become very easy to continue the habit of using that credit card since it helps me get things I now can't buy any other way. That could easily put me in a hole when I'm using a card without the funds in my bank account. Using credit cards can be great for people to build their credit or overcome extremely short-term cash flow gaps that they know they can pay off in a week or two. However, they also can be damaging to your future if you misuse them in any way. You should treat that responsibility the same way you treat a 16-year-old getting their driver's license for the first time — it's a great responsibility." Your Credit Future When it comes to taking and following credit advice, first determine if the person giving you the advice is actually good with credit. For instance, if an aunt or uncle with a poor credit history gives you credit advice, let it go in one ear and out the other. Although it may be difficult to ignore bad advice coming from family members or close friends, your credit future will be much brighter if you only follow advice from those who expertly manage their credit and finances and if you do your own credit research.
Spring is on the way, and that means it's time to start airing out the house and dusting every surface in sight. While you're getting your home in proper order, why not take advantage of this cleanliness-oriented mindset to remove blemishes from your credit rating? A clean credit report is just as important as a clean house, after all. If you're ready to roll up your sleeves and go to work cleaning up your credit, these six strategies will make it shine and give your credit report that fresh, springtime feel. Break the Problem Into Manageable Pieces One of the biggest mistakes that people make with their debt is allowing the full extent of the problem to weigh on them until they are paralyzed in denial. Stay positive and believe that you can get your debt under control. Why? Because you actually can. Rather than thinking of debt as one big impossible problem, break it down into bite-size pieces. Visit a non-profit debt counselor who can help you make sense of your debt and how to deal with it. Pick One Debt and Attack It Head On If you are carrying balances on several cards or lines of credit, choose the one with the highest interest rate and pay down as much of it as you can afford. Why? Because paying off one debt could help your credit score. More importantly, it will get you out of the trap of paying mostly interest, reduce your overall debt and give you a sense of accomplishment. It will also get you into the good habit of making real payments as opposed to just moving debt around. After paying off the first debt, you can apply your new good habits to eliminating the next one, and so on. Make a list of your debts in order of interest rate from highest to lowest, and pay them off in that order. Raise Your Credit Limit Did you know that using a small portion of your credit limits can help your credit scores? As a general rule of thumb, keeping your balances below 30 percent of your credit cards' limits could be a good idea. Paying down balances, limiting how often you use credit cards, and making early payments on your card accounts can help. Another quick way to boost your credit score is to raise your borrowing limit. If possible, raise the limits on your credit cards and other lines of credit - but only if you can avoid using the extra credit, which will only add to your debt and render this strategy useless. Don't Cancel Credit Cards You may be tempted to cancel cards that are paid off or aren't being used. Sadly, this is not a good practice, because it increases your utilization rate -- the ratio between your debt and your available credit -- and could lower your score. You should always aim for as large a gap as possible between your balance and maximum credit limit. When you cancel cards, you are lowering your overall credit limit, which only decreases this gap. For example, if your total limit is $10,000 and you owe $3,000, you have a utilization rate of 30 percent. If you cancel a card with a limit of $2,000, your credit limit shrinks to $8,000. If your balance stays at $3,000, you are now using 37.5 percent of your available credit. Unless you're canceling the card because it has an annual fee or you tend to overspend with it, a better strategy may be to leave it in a drawer at home or cut it up but leave your account open. Communicate with Your Creditors When dealing with creditors, nothing is worse than dropping off the map. Remember that financial ups and downs are normal and common. Try not to think of credit repair as a personal failure, but simply as a task to be completed. Communicate with creditors and let them know you are sincerely trying to meet your financial obligations. Sometimes it makes no difference, but in other cases, it can get you an extension on a deadline, a lower interest rate, or some other kind of break that helps keep late payments and other negative marks from hurting your credit score. Just think - a single conversation could save you hundreds of dollars down the line. Isn't that worth it? Pay on Time Being late on your payments is a surefire way to lower your credit score - sometimes by as much as 100 points, according to FICO. Get organized with a calendar or reminder system. The single best thing you can do to clean up your credit is to establish a spotless history of on-time payments. This spring, clear out more than the closets - clean up your credit score! Remember that credit repair is a marathon, not a sprint. Credit repair is an opportunity for you to develop a credit report that can serve you well in the years to come. Develop a solid strategy and always be diligent in repairing your credit, and you'll quickly see the benefits of financial responsibility.
The average American's FICO score is at an all-time high of 695. Fewer people than ever (12.5 percent) are below a 550 credit score, and 19.9 percent of Americans are now over an 800 credit score. This trend from poor credit to good credit is likely due to the increased awareness of financial health best practices and more people experiencing the benefits of a higher credit score. So how can you improve your credit score? Follow these six tips and watch your credit score rise. 1. Keep your debt to credit ratio below 30 percent Your debt to credit ratio is the relationship between the credit offered to you and the amount of debt you owe. Credit utilization accounts for 30 percent of your credit score and is the second biggest factor. Keeping your debt to credit ratio below 30 percent will help raise your credit score. Having a difficult time paying down your credit cards? The following tips might help you pay them off sooner: Lower your interest rates Increase your credit limits on existing cards Pay more than the minimum payment Don't acquire new debt *Note that your credit score, the age of your account, and your payment history may be the deciding factor for lowering your interest rate or increasing your credit limit. 2. Don't close old credit lines The length of your history is 15 percent of your credit score. Keeping your oldest lines of credit open is important to keep the average length of history high. 3. Correct any errors on your report Make sure to get your free credit report every year and check for errors. If you believe there are errors on your report, you have a couple of options. You can try to correct these errors alone, which is tedious and requires a great deal of paperwork and time, or you can use a credit repair service. You may want to research these options before making your decision. If you are ready to contact a credit repair company for a free consultation, check out this list of top credit repair companies across the nation. 4. Pay on time every time Your payment history makes up 35 percent of your credit score and is the largest factor of your score. Your payment history is kept for seven years through the three credit bureaus. Making your payments on time is crucial to maintaining good financial health. 5. Acquire a variety of credit types Your credit mix is 10 percent of your credit score. A good credit mix has credit lines and loans. These loans could be auto loans, mortgages, student loans, or personal loans. If you don't have high enough credit to be approved for one of these loans, a credit builder loan or a secure credit card could help you build your credit. A credit builder loan is just what it sounds like, a loan to help build credit. These loans are typically between $200 and $1,000 and are considered easy to pay back. These loans help to build or boost your credit score by creating a mix and establishing some credit. A secure credit card is a card that requires a cash collateral deposit that becomes the credit line for the account. For example, if you put in $300, you can charge up to $300. This is a great way for people with no or bad credit to start improving their score. 6. Avoid applying for new credit Applying for new credit can shorten your length of history which hurts your score. Hard inquiries that come with acquiring new credit can also hurt your credit score for 24 months.
Debt, especially credit card-related debt, continues to plague most Americans, threatening to lower their credit scores. Credit scores, often known as FICO scores, are broken down into five factors. Payment history makes up 35 percent of the overall score, amounts owed makes up 30 percent, length of credit history determines 15 percent, credit mix averages 10 percent, and new credit makes up the remaining 10 percent of the score. Because amounts owed covers 30 percent of the overall score, credit card debt can seriously lower the overall score. It is important to maintain little to no credit card debt if you want the benefits to show on your credit score. Keeping your credit report clean is another way to make sure your credit score doesn't take a negative plunge. If your credit score is lower than you'd like it to be, there are many companies and services that can help you repair it. Online resources like BestCompany.com can help you find the right company to repair your credit.
Guest Post by CreditRepair.com The financial realities of living in modern America just don’t quite add up for an ever-increasing percentage of the population. Among America’s working poor—folks in financial need who are just simply unable to access traditional avenues like bank loans or credit cards—the often cruel world of the payday loan industry is a grim reality. Even worse, for those who have to rely on short-term, high-interest loans to make ends meet, the implications are particularly bad for their credit scores and, ultimately, their ability to interact with banks and legitimate credit cards. Recent research from the Pew Charitable Trust suggests that the scope of payday loans is even more severe than imagined, with some 12 million loans taken out each year, amounting to more than $7 billion in fees. On average, a typical payday loan user ends up being in debt approximately five months out of the year, with fees that boil down to approximately $575 to take out and repay an average of $375, over and over again. Studies suggest that typical payday loan customers earn an average of $30,000 or less a year, and of those, some 58 percent are having difficulties meeting their monthly expenses. Quick Money Is Often a Necessity We all face unexpected money issues from time to time: medical costs, a broken-down car, appliances that suddenly go out of service or travel costs. But for those folks who live paycheck to paycheck, the appeal and relative simplicity of a payday loan keeps them caught in the loop. It’s a matter of basic finances in action: If the money you have coming in is smaller than the money you owe, the cycle never ends, and you’ll always be left scrambling to try to keep up with the costs. The particularly cruel part of the payday loan business, besides its reliance on customers who have run out of other options, is the high interest rates charged for those loans, small as the loan amounts may be, all things considered. The Obama Administration passed rules creating the Consumer Financial Protection Bureau, which sought to help limit the often outrageous interest fees charged by payday lenders; but as the avenue of last resort for so many consumers, even the more limited fees can create insurmountable financial issues. Long-term Impacts on Credit For those trying to break free of the borrow-repay-borrow cycle, the biggest issue is credit, and a positive credit score. Those with poor credit already are more likely to end up using payday loans rather than traditional banking resources. And by using payday loans and scrambling to pay all that extra money in interest, fees and service charges, those consumers are unable to address their underlying financial issues. Good credit depends on factors including your ability to pay back loans on time, but is also contingent on demonstrating a responsible balance of credit, low credit utilization rates and even maintaining credit card accounts for an extended period. Caught in the cycle of borrowing more than they earn to stay in the black, payday loan users find it difficult to make the steps necessary to rebuild their credit and getting their heads above water. Help is available, however, and a credit repair company can offer some management tools and advice, as well as assistance in clearing up items that might be dragging down your credit score.
Say you've just been offered the job of your dreams! You're excited! The employer's excited! But just before your new employer can officially offer you the job, he or she asks you to fill out a background check form, and included in that form is the authorization for the employer to view your credit report. While checking a potential employee's credit history is not as popular as it was once, the practice is not altogether uncommon. According to a 2012 report from the Society for Human Resource Management (SRHM), approximately 47% of employers conduct credit background checks on potential employees. They do this for a number of reasons: sometimes to check for criminal history, but mostly to see how well you manage your personal finances, which can say a lot about you. What Potential Employers Can See Currently, 11 US states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington) restrict or prohibit employers from conducting credit-based background checks in most circumstances. The credit reports potential employers can access (with your written consent) do not contain any personal information such as your age, credit score, or financial account numbers; however, he or she can see the sources and types of credit that compose your profile. What Derogatory Items Say to Potential Employers Having a negative item on your credit report does not necessarily disqualify you from consideration for most jobs-in fact, nearly 80% of employers polled in the SHRM's survey reported hiring someone in spite of derogatory marks; however, depending on the industry, the quantity and quality of negative credit items on your credit report sends certain messages to an employer that your resume does not. Among other things, a healthy credit report speaks to your integrity, not just as a potential employee but also as a person. Negative items on your report such as bankruptcies, judgments, and delinquent payments can suggest varying levels of irresponsibility, untrustworthiness, and overall high risk. Jobs Where Credit History Really Matters As mentioned before, not every employer requires a background check before considering you for a job; however, some industries rely on the integrity of their employees far more than others-especially when it comes to money or security. Mortgage Professionals One of the most lucrative positions in the mortgage industry is the mortgage loan originator; however, this position requires a license. And according to the Nationwide Mortgage Licensing System and Registry, your credit and debt history can play a major role in your licensure. If you have poor credit, you could be denied a license; if your credit has been damaged after the fact, your license could be revoked. Good credit is an important indicator of financial responsibility and character-and in light of the 2008 mortgage crisis, these have become crucial qualities in this profession. Finance If your goal is to become a CPA, auditor, or any profession in which you will have access to sensitive financial information, your own credit history must be above reproach. Simply put, good credit shows that you're actually good at handling money. It also implies integrity, a major requirement in the finance industry. Bankruptcies and late payments on your record, meanwhile, make you a risky hire in the eyes of most financial employers. Military/Government Any job that requires a government security clearance is going to require a thorough background check-and your credit history does play a role in your chances of getting hired. These jobs include all the branches of the military, the Transportation Service Administration (TSA), and other positions in both state and local government. According to the TSA's job application form, if you have more than $7,500 in delinquent debt, delinquent student loans, tax liens, judgments, or child support, you might as well not apply. Law Enforcement Speaking of security, law enforcement is another area where background checks, including credit-based background checks, play a significant role. Infrequent and occasional hits to your credit report do not usually warrant denial or termination from a law enforcement position, but a pattern of irresponsible behavior (particularly when it comes to debt) is a red flag. According to Richard Weinblatt, dean of the School of Public and Social Services at Ivy Tech Community College, law enforcement officials under incredible financial duress are more open to bribes and other forms of corruption. What You Can Do Whether or not your future plans involve any of the industries above, your credit report is still an important part of your future success. It can affect your ability to get a loan, to buy a house, and so much more. So before you start sending out your resume, here are some steps you can take to ensure that your credit status is healthy. Get to Know Your Credit Report According to a 2013 report from TransUnion (one of the three major credit bureaus), one-third of Americans have never checked their credit reports, with another 25% reporting they haven't checked their reports in at least a year. If you don't know your credit score or what shows up on your credit report, find out today! You can access a free credit report every 12 months through AnnualCreditReport.com. Your credit report will tell you a few things: A list of companies that have given you either credit or a loan The total amount of each loan, and the size of each credit limit The frequency, amount, and timeliness of each loan or credit payment you've made Foreclosures, bankruptcies, tax liens, late payments, judgments, and other delinquent payments Checking your credit report is also important in the event of identity theft. If someone else is using your identity, your bank accounts, or other personal information to start new accounts, you're credit report will reflect that. Start Building Good Credit Today To know how to build good credit, it's important to know what goes into your credit score. According to Mint.com, your credit score is determined by a number of factors: Credit Usage What percentage of your credit limit are you actively using? Do you regularly max out your credit cards? In order to build good to excellent credit, you'll want to keep this number below 40 percent (ideally under 20 percent). A higher percentage indicates that you have little control over your spending habits. Payment History Your payment history records the number of total payment you've made versus the number of those payments that are late. Minimizing late payments demonstrates your reliability (both to lenders and future employers). If you make 100 percent of your payments on time, you're in good shape; anything less than 97 percent and you're in trouble. Average Age of Credit While the age of your credit accounts has a medium impact on your score, it's still a pretty important indicator of your creditworthiness. An average credit age of nine years or more is ideal; if you are opening and closing several credit accounts in a short period of time, tells creditors and employers that you are a high risk borrower/employee. Account History Meaning, the number of accounts (both open and closed) under your name. Having 22 or more accounts over a long period of time (e.g. credit accounts, loans, or investments) is a good indicator of creditworthiness. BUT BE WARNED: opening several credit accounts at once can drive your score down. Credit Inquiries A large number of "hard" credit inquiries (where you give a lender permission to pull your credit report) can drive your score down. Meanwhile, "soft" inquiries (where you provide the credit report yourself) do not affect your credit score at all. Derogatory Marks As mentioned above, derogatory marks will negatively affect your credit score, your ability to secure loans, and potentially your livelihood. Derogatory marks, unless disputed, can stay on your credit report for seven years or more. If Necessary, Seek Credit Repair If after looking through you credit reports-one each from Equifax, TransUnion, and Experian-you discover inaccuracies or outdated information, you have the option to dispute these items, either on your own or through a professional credit repair company. While credit repair is no guarantee that you can raise your credit score by deleting inaccuracies from your report, it does provide an opportunity to clean up your credit history, and in some cases, land that job you've been looking for.