How Long Does Negative Info Stay on Your Credit Report

business woman credit report

Your credit report offers valuable insight into your financial history and affects most of your financial future: everything from whether you get approved for a mortgage or other loan to what your credit card interest rate will be.

Negative information on your credit report can be detrimental for years, but it’s not always clear how long those inquiries and other negative information will stay on your credit report—and affect your score. The length and severity vary, but here are four common types of inquiries and how long they affect your credit score.

1. How Long Do Hard Inquiries Stay on My Credit Report?

What is a hard inquiry?

Hard inquiries are created every time your credit report is accessed by a business when you apply for a line of credit. For example, your credit would receive a hard inquiry when you apply for a car loan, mortgage, student loan, or credit card.

How long will hard inquiries stay on your report?

Inquiries remain on your credit reports for two years (24 months). However, hard inquiries impact your score for only the first 12 months. After that, they have no impact on your score.

How much do hard inquiries affect your credit?

New credit—including inquiries and any new credit accounts—make up just 10% of your FICO score, and a single inquiry will likely drop your credit score by only three to five points. As long as you apply for credit only when you need it, this is one of the lesser hits to worry about

2. How Long Do Credit Accounts Stay on My Credit Report?

What is a credit account?Credit accounts refer to all of the accounts for which you hold credit, including credit cards, mortgages, and car loans. Credit scoring models like to see a healthy balance to the types of credit accounts (or “credit mix”) you have and can manage effectively. Negative information on a credit account includes late or missing payments.

How long will negative credit account information stay on your report?

Negative account information stays on your credit report for seven years from the date it was first reported as late. If you close the account, the entire account will be removed from your report after seven years. If the account remains open, the negative information will be removed after seven years, while the rest of the account information stays on your report.

Positive information, on the other hand, remains on your credit report indefinitely. If you close the account, positive information typically stays on your report for 10 years past the closing date.

How much do credit accounts affect your credit?

Your credit mix accounts for 10% of your credit score: a healthy mix means more points. If you don’t have many credit accounts or if you close your accounts, it could negatively affect your credit score.

Payment history accounts for 35% of your credit score, and making payments on time is the most important factor in determining your credit score: a single 30-day-late payment can drop a good score by 90 to 110 points.

Most lenders don’t report missed payments until accounts are more than 30 days past due, so if you can catch the missing payment in enough time, you might not notice a hit at all. Other lenders will let one late payment slide, especially if you’ve been a loyal customer for many years and have a good excuse for why you missed it.

3. How Long Do Collection Accounts Stay on My Credit Report?

What is a collection account?When you fall behind on making payments on an account, your debt could end up in the collection’s department of that particular company. That creditor may then sell your debt to a collection agency, which also reports it as a collection account. At this point, the original creditor that sold the debt should not continue to report a balance owed, but you should watch out for duplicate collection accounts.

How long will collection accounts stay on your report?

Collection accounts remain open for seven years plus 180 days from the date the account was delinquent leading up to when it was placed for collection. After that time, it must be removed regardless of when it was paid or when it was placed for collection.

How much do collection accounts affect your credit?

Understanding how collection accounts can affect your credit score is tricky. The most important factor that will affect your credit score when it comes to collections is how recently the collections occurred—the more recent the collection, the lower the score. Multiple collection accounts or lawsuits resulting in judgments can also lower your score. Unfortunately, settling or removing a collection may not impact your score positively.

While there’s no way to tell exactly how much a collection account will affect your credit score, it is one of the higher penalties, so the best course of action is to avoid having accounts sent to collection in the first place.

4. How Long Do Public Records Stay on My Credit Report?

What are public records?

Public records include any of your personal information that becomes public knowledge, including bankruptcies, tax liens, and judgments.

How long will public records stay on your report?

The type of public record will determine how long the information stays on your credit report.

Chapter 7, 11, and 12 bankruptcies stay on your credit report for 10 years from the date filed. Completed Chapter 13 bankruptcies are usually removed after seven years from the filing date.

Tax liens remain on your credit report for seven years from the date filed if they are paid, or indefinitely if they are not. If you qualify for the IRS Fresh Start program, you can request a paid or satisfied tax lien be removed from your reports.

Paid judgments remain on your credit report for seven years from the date filed, and unpaid judgments remain for seven years or the governing statute of limitations, whichever is longer. Since unpaid judgments can usually be renewed, these may remain on credit reports for a long time.

How much do public records affect your credit?

There is no way to know exactly how many points your credit score might drop with a public record on file, but the effect of public records on your credit report could be severe.

The best way to keep track of your credit reports throughout the year and to stay on top of any erroneous information is to monitor your credit regularly with Credit.com’s free Credit Report Card.

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What You Need to Know about Home Equity Loans

Mortgage concept by money house from the coins

A home equity loan is a method for borrowing money for big-ticket items, and understanding the facts about these tricky loans is crucial to helping you make the right decision for your finances.

If you’re considering taking out a home equity loan, here are 13 things you need to know first.

1. What Is a Home Equity Loan?

A home equity loan—or HEL—is a loan in which a borrower uses the equity of their house as collateral. These loans allow you to borrow a large lump sum amount based on the value of your home, which is determined by an appraiser, and your current equity.

Equity loans are available as either fixed- or adjustable-rate loans and come with a set amount of time to repay the debt, typically between 5 and 30 years. You’ll pay closing costs, but it’ll be much less than what you pay on a typical full mortgage. Fixed- rate HELs also offer the predictability of a regular interest rate from the start, which some borrowers prefer.

2. What Are Home Equity Loans Best For?

A home equity loan is generally best for people who need cash to pay for a single major expense, like a specific home renovation project. Home equity loans are not particularly useful for borrowing small amounts of money.

Lenders typically don’t want to be bothered with making small loans—$10,000 is about the smallest you can get. Bank of America, for example, has a minimum home equity loan amount of $25,000, while Discover offers home equity loans in the range of $35,000 to $150,000.

3. What Is a Home Equity Line of Credit?

A home equity line of credit—or HELOC—is a lender-set revolving credit line based on the equity of your home. Once the limit is set, you can draw on your line of credit at any time during the life of the loan by writing a check against it. A HELOC is similar to a credit card: you do not need to borrow the full amount of the loan, and the available credit is replenished as you pay it back. In fact, you could pay back the loan in full during the draw period, re-borrow the total amount, and pay it back again.

The draw period typically lasts about 10 years and the repayment period typically lasts between 10 and 20 years. You pay interest only on what you actually borrow from the available loan, and you usually don’t have to begin repaying the loan until after the draw period closes.

HELOC loans also sometimes come with annual fees. Interest rates on HELOCs are adjustable, and they are generally tied to the prime rate, although they can often be converted to a fixed rate after a certain period of time. You are also often required to pay closing costs on the loan.

4. What Are Home Equity Lines of Credit Best For?

Home equity lines of credit are best for people who expect to need varying amounts of cash over time—for example, to start a business. If you don’t need to borrow as much as HELs require, you can opt for a HELOC and borrow only what you need instead.

5. What Are the Benefits of Home Equity Loans and Home Equity Lines of Credit?

Beyond the access to large sums of money, another advantage of home equity loans and home equity lines of credit is that the interest you pay is usually tax-deductible for those who itemize deductions, the same as regular mortgage interest. Federal tax law allows you to deduct mortgage interest on up to $100,000 in home equity debt ($50,000 apiece for married persons filing separately). There are certain limitations, though, so check with a tax adviser to determine your own eligibility.

Because HELs and HELOCs are secured by your home, the rates also tend to be lower than you’d pay on credit cards or other unsecured loans.

6. What Are the Disadvantages of Home Equity Loans and Home Equity Lines of Credit?

The debt you take on from a HEL or HELOC is secured by your home, meaning your property could be at risk if you fail to make the payments on your loans. You can be foreclosed on and lose your home if you’re delinquent on a home equity loan, the same as on your primary mortgage. In the case of a foreclosure, the primary mortgage lender is paid off first, and then the home equity lender is paid off out of whatever is left.

If your home’s value declines, you may go underwater and owe more than the house is worth. The rates for HELs and HELOCs also tend to be somewhat higher than what you’d currently pay for a full mortgage, and closing costs and other fees can add up.

7. How Do I Determine My Equity?

If you’re interested in learning how to qualify for a home equity loan, first you need to determine how much equity you have.

Equity is the share of your home that you actually own, versus that which you still owe to the bank. If your home is valued at $250,000 and you still owe $200,000 on your mortgage, you have $50,000 in equity, or 20%.

The same information is more commonly described in terms of a loan-to-value ratio—that is, the remaining balance on your loan compared to the value of the property—which in this case would be 80% ($200,000 being 80% of $250,000).

8. How Do I Qualify for a Home Equity Loan?

Generally speaking, lenders will require you to have at least an 80% loan-to-value ratio remaining after the home equity loan in order to be approved. That means you’ll need to own more than 20% of your home before you can even qualify for a home equity loan.

If you have a $250,000 home, you’d need at least 30% equity—a mortgage loan balance of no more than $175,000—in order to qualify for a $25,000 home equity loan or line of credit.

9. Can I Get a Home Equity Loan with Bad Credit?

Many lenders require good to excellent credit ratings to qualify for home equity loans. A score of 620 or higher is recommended for a home equity loan, and you may need an even higher score to qualify for a home equity line of credit. There are, however, certain situations where home equity loans may still be available to those with poor credit if they have considerable equity in their home and a low debt-to-income ratio.

If you think you’ll be in the market for a home equity loan or line of credit in the near future, consider taking steps to improve your credit score first.

10. How Soon Can I Get a Home Equity Loan?

Technically, you can get a home equity loan as soon as you purchase a home. However, home equity builds slowly, which means it can take a while before you have enough equity to qualify for a loan. In fact, it can take five to seven years to begin paying down the principal on your mortgage and start building equity.

The normal processing time for a home equity loan can be anywhere from two to four weeks.

11. Can I Have Multiple Home Equity Lines of Credit?

Although it is possible to have multiple home equity lines of credit, it is rare and few lenders will offer them. You would need substantial equity and excellent credit to qualify for multiple loans or lines of credit.

Applying for two HELOCs at the same time but from different lenders without disclosing them is considered mortgage fraud.

12. What Are the Best Banks for Home Equity Loans?

Banks, credit unions, mortgage lenders, and brokers all offer home equity loan products. A little research and some shopping around will help you determine which banks offer the best home equity products and interest rates for your situation.

Start with the banks where you already have a working relationship, but also ask around for referrals from friends and family who have recently gotten loans, and be sure to ask about any fees. Experienced real estate agents can also provide some insight into this process.

If you’re unsure of where to start, here are a few options to review:

  • Lending Tree works with qualified partners to find the best rates and offers an easy way to compare lending options.
  • Discover offers home equity loans between $35,000 and $150,000 and makes it easy to apply online. There are no application fees or cash required at closing.
  • Bank of America offers HELOCs for up to $1,000,000 on a primary home, makes it easy to apply online, and offers fee reductions for existing bank customers, but it has higher debt-to-income ratio requirements than many other lenders.
  • Citibank allows you to apply online, over the phone, and in person for both HELs and HELOCs. It also waives application fees and closing costs—but it does charge an annual fee on HELOCs.
  • Wells Fargo currently offers only HELOCs with fixed rates, but the bank offers discounts for Wells Fargo accountholders, as well as reduced interest rates if you cover the closing costs.

13. How to Apply for a Home Equity Loan

There are certain home equity loan requirements you must meet before you can apply for a loan. For better chances of being approved for a loan, follow these five steps:

  1. Check your current credit score. A good credit score will make it easier to qualify for a loan. Review your credit report before you apply. If your score is below 620 and you’re not desperate for a loan right now, you may want to take steps to improve your credit score before you apply.
  2. Determine your available equity. Your equity determines how big of a loan you can qualify for. Get a sense of how much equity your home has by checking sites like Zillow to determine its current value and deducting how much you still owe. An appraiser from the lending institution will determine the official value (and therefore your equity) when you apply, but you can get a good sense of how much equity you may have by doing a little personal research first.
  3. Check your debt. Your debt-to-income ratio will also determine your likelihood of qualification for a home equity loan. If you have a lot of debt, you may want to work on paying it down before you apply for a home equity loan.
  4. Research rates at different banks and lending institutions. Not all banks and lending institutions require the same rates, fees, or qualifications for loans. Do your research and review multiple lenders before starting the application process.
  5. Gather the required information. Applying for a home equity loan or line of credit can be a lengthy process. You can speed things up by gathering the necessary information before you begin. Depending on which lending institution you are working with, you may need to provide a deed, pay stubs, tax returns, and more.

If you need a loan to help cover upcoming expenses, make sure you’re prepared. Check out our Loan Learning Center for more resources on the different types of loans available.

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Note: It’s important to remember that interest rates, fees, and terms for credit cards, loans, and other financial products frequently change. As a result, rates, fees, and terms for credit cards, loans, and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees, and terms with credit card issuers, banks, or other financial institutions directly.

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6 Signs It’s Time to Revisit Your Budget

Have a student loan? You'll want to read this.

Having a budget is a great start. But life will always throw you changes, and with those changes comes the need to revisit—and perhaps reallocate—your budget. Maybe you recently got a raise, moved to a more expensive apartment, or bought a pet. All of these things would require a change in your monthly financial planning.

Besides those obvious changes, here are six other signs that might mean it’s time to check back in with your budget and recalculate so that it’s working optimally for you.

1. You Have Only a Few Bucks Left at the End of Every Month

If you’re barely scraping by each month with the budget you currently have, it’s probably time to revisit your plan.

How to Fix It: Unless the situation is dire, you can likely pad your budget by cutting back on your spending in certain areas, like groceries, entertainment, or gym memberships. If you are having trouble paying your bills, have no emergency savings, and are also in debt, it might be time to consider something that will save you even more each month—like getting a roommate, moving to a cheaper place, or giving up your own car for public transport.

2. You’ve Never Increased Your Retirement Investments

If you started saving the minimum for a 401(k) match at your company, that was a good way to get your feet wet. But if you’ve had a few raises since then, it’s time to increase what you’re putting away in your retirement accounts as well.

How to Fix It: Chat with your HR representative to see when and how to up your 401(k) contributions. If your company doesn’t offer a retirement plan, fear not: there are plenty of additional ways to save for your future. Evaluate how much you can and should save for retirement, and consider opening an individual retirement account (IRA).

3. You Can’t Come Up with $1,000

If you wouldn’t be able to come up with $1,000 if you needed it, at least take heart in the fact that you’re not the only one. According to a recent poll, two-thirds of people in the US would struggle to gather that amount. But now that you know you aren’t alone, it’s time to fix it.

How to Fix It: Putting money into an emergency savings account every month is a great way to ensure you have money to cover yourself if something bad happens in the future. Experts recommend having at least three to six months’ worth of expenses saved up in an account especially for emergencies.

4. You Aren’t Saving for Any of Your Future Goals

If you’re paying off your monthly bills, travel when you’d like, and even have a bit of an emergency savings started, that’s all good news. If you haven’t thought further down the line, though, now’s a good time to start figuring out how those goals could fit into your budget.

How to Fix It: First, determine the timeline for your goals. If you think your goal of buying a house or starting a freelance business is at least five years down the road, consider a Certificate of Deposit (CD), an account that often provides a higher rate of return than standard savings accounts but that requires you to keep your cash in the account for a certain period of time. If you might need access to your cash faster than a CD would allow, shop around for a savings account with the best rate.

5. You Use Your Credit Card More Than You’d Like

If you find that you often have to use your credit card to pay for things each month and then can’t pay off your bill, that likely means your budget could use a little rejiggering.

How to Fix It: Try going on a “cash diet” for a month to see if that curbs your overall spending. Going on a cash diet means taking out money from the ATM at the beginning of the month and using only that to pay for your expenses; when you run out, you’re done spending for the month. If trying a cash diet doesn’t work, consider a complete budget overhaul to help you make it through the month with more ease.

6. One Gift Purchase Throws Your Whole Month Out of Whack

Birthday parties, weddings, and housewarmings are meant to be fun events, but they’re more stress than necessary if you don’t have the cash to cover all of the expected gifting that goes along with them.
How to Fix It:
Instead of getting thrown off monetarily every time you have to buy someone a birthday or wedding gift, start a savings account specifically for those purchases. As the holidays approach, now might be a good time to siphon off a little extra cash into a new savings account each month so that by the time December rolls around, you won’t need to use your whole entertainment budget on gifts for other people.

Evaluate your current budget for these six signs and implement our recommendations to keep your spending healthy and your wallet happy. If you still need some help cleaning up your budget, visit our Personal Finance Learning Center for additional tips and tricks.

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4 Surprising Expenses I’ve Had Since Becoming a Mom

There are several cards that can help you afford the various expenses that go along with parenthood.

When I was single and kid-free, I could spend my money as I pleased. While I’ve always been relatively responsible with my cash (retirement and emergency savings have always been important to me), back in the days before my daughter was born, there were a lot more dinners out, extravagant travels, and fun household items being purchased than there are now.

These days I’ve found that I’m still spending money on the things that matter most to me, but my priorities have shifted since having my daughter. Here are some common items I’ll regularly pay for now—some of which have surprised even me.

1. A Meditation App

Why I Need It: As a working mom, I’m not the best at always scheduling in workouts or showers. But I know I can find 10 minutes in my day to meditate. Taking just a couple minutes out of each day to do this helps clear my head and keeps me grounded to make it through the rest of my day-to-day business. You don’t have to be a mom to benefit from meditation, though—it can help reduce stress, improve concentration, and may even slow aging. . . . Who doesn’t want that?

How to Budget for It: Type “meditation” into the search bar on iTunes or the Google Play store, and you’ll get more results than you’ll know what to do with. Most come with free trials, which provide a great way to try out a few and find one you like. I used the free version of Headspace for months, and it worked just fine.

If you’d prefer to buy an app that offers more guidance but can’t swing the full price, try signing up for newsletters from the app you like and wait for an introductory or sale offer to come along. Most are pretty inexpensive, though, and you could easily cover the cost by forgoing a latte or two over the course of the month.

2. Organic Food

Why I Need It: While I would never consider myself a foodie, these days I’m much more careful about what I buy at the grocery store because I care about what I’m putting in my daughter’s body. I don’t mind the benefits for myself, either.

How to Budget for It: While it’s true that buying organic could drastically increase your grocery budget, you don’t necessarily need to buy everything organic. Focus on the dirty dozen (or food items for which pesticide content tends to be highest), and go from there if you still have room in your grocery budget.

You may want to check out weekly ads from local markets that stock organic produce—a coupon or two could bring the price down to much more affordable levels, especially on produce that’s in season.

3. Priority Seating on Flights

Why I Need It: Traveling with a child is stressful, to say the least. I’ve found that it can be a little less stressful with the right seating, though. For most flights that means dishing out a little extra cash to pay for the bulkhead seating, which gives us more leg room and space. On airlines like Southwest that board by group and don’t give passengers seat assignments, you may have to pay for early boarding. Paying to board early means I get to pick where we sit, which is essential to everyone’s comfort.

How to Budget for It: On most flights, children under two who sit on your lap during the flight fly for free, so my advice is to take advantage of that while you can. I also suggest remaining loyal to one airline, if possible, and making the most of either their credit card or rewards system to book flights, or else signing up for a regular credit card that offers great miles.

4. Regular Haircuts

Why I Need It: While regular haircuts were never a part of my life before now, these days I find that adding even the smallest amount of effort to my personal appearance helps me feel refreshed, and a good haircut can always do that.

How to Budget for It: Depending on where you live, paying for haircuts every few weeks can really add up. Since I’ve decided to make this part of my regular routine, I’ve opted to find a place that doesn’t charge me an arm and a leg but still does a good job. It helps that I already have a little wiggle room in my budget from other things I’m not spending on these days, like dinners out and lots of travel.

Becoming a mom is one of the best things that’s ever happened to me, and it has affected my outlook on everything, including what I value enough to spend money on. Paying just a little bit extra for the things mentioned above helps me feel healthy and happy—and you really can’t put a price tag on that.

If you’re new to the world of parenthood and are still working out finances, it may be worth looking into credit cards that cater to new-parent needs. Just make sure you’ve checked your credit report before applying, which you can do for free at Credit.com.

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3 Common Alternative Investments: Are They Worth It?

Get your stocks and bonds on.

Whether you’re a novice at investing or have been day-trading your own stocks for years, you’ve probably heard about alternative investments. You might even be curious about whether or not they’re worth buying. If you want to be a savvy investor, you need to learn about alternative investments.

Alternative investments are anything that doesn’t fall under the category of stocks or bonds, says Molly Stanifer, CFP, a financial adviser with Old Peak Finance. This includes anything from gold and real estate to curios and collectibles. Fun though it might be to start buying up real estate in the name of your portfolio, the question remains: is it worth it?

Stanifer walks us through three common alternative investments to explain a little bit more about whether or not you might want to buy them.

1. The Investment: Gold

The Rundown: A few years back it seemed like every red-blooded American was running out to buy gold, and Stanifer even saw this within her own realm of work. “In 2008–2009 when I was working at a retail brokerage company, I heard a lot of interest in gold,” she said. “A very small minority of clients were investing heavily in it—often indirectly with a fund that invested in futures contracts—but gold was certainly something people liked to talk about.”

Is It Worth It: Stanifer says she’s a big believer in diversification and owning everything in the broad market; however, your investment in any commodity, including gold, should never equal more than 3% of your portfolio. “If you choose to own more than 3%, you are communicating that you value gold higher than the broader market does,” she says. When it comes to gold, it’s ultimately best to think of it this way: gold is only a small fraction of precious metals, precious metals are a small fraction of commodities, commodities are a fraction of alternative investments, and alternative investments should be a small fraction (if any part at all) of a diversified portfolio.

2. The Investment: Real Estate 

The Rundown: In the past few years, Stanifer has heard more and more buzz when it comes to purchasing real estate as part of a diversified portfolio. This attraction makes sense, given the explosion in popularity of house fixer-upper shows and how fun and quasi-easy they make the whole process appear.

Is It Worth It: If you’re thinking about using real estate as a way to diversify, you may want to think again. Stanifer says that most investors have enough exposure already if they own one home. “Most people that own a house will already have more real estate exposure than the broad global market,” she says. Keep in mind also that there are a lot of additional expenses that come with real estate, like repairs, maintenance, utilities, and taxes, all of which may decrease the overall value of your investment opportunity.

3. The Investment: Curios

The Rundown: Most collectibles will probably not react to price in the same way or at the same time as stocks and bonds, which adds diversification to a portfolio. “But accessibility and liquidity should also be considered,” Stanifer adds. “Stamps and other collectibles are not traded as often as stocks and bonds, and when things are traded more often, there is less variation in price. As far as accessibility goes, once a rare object is discovered, there could be additional costs to get it and store it.” 

Is It Worth It: If you get enjoyment out of collecting things like stamps and coins, then the investment may be worth it to you. Keep in mind, however, that barriers and small market demand make collectibles an inappropriate investment staple, says Stanifer. In other words, if you like collecting for the hobby of it or if you expect to hand these items down to kids and grandkids, go for it—but you shouldn’t expect to get rich off your stamp collection.

Ultimately, your investments are your choice. But whatever you choose to back, make sure you’re investing in your future. Diversify your portfolio, use credit cards intelligently to build your credit and increase your buying power, and regularly check your credit report.

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6 Surprising Travel Expenses to Watch Out For

Here's how to get the most out of your next getaway.

I love to travel. From the Blue Lagoon in Iceland to the Great Barrier Reef in Australia and the Colosseum in Rome, there’s no adventure I would turn down. In the past, I’ve mostly been able to travel by saving up for trips and finding good deals online. But even with all the planning and research that has gone into my excursions, I have often been surprised by certain expenses that crop up.

The following are six of the costs that surprised me the first time I encountered them. Be aware of these on your upcoming trips so you can plan for them in advance.

1. Vaccines

A few years ago, my husband and I traveled to South America for six weeks. From the tours we’d take to the places we’d stay and the travel expenses between countries, we had everything planned and accounted for—or so we thought.

While we knew that we’d be required to get certain shots for our trip, we didn’t anticipate that those vaccines wouldn’t be covered by our health insurance and that we would have to pay out of pocket for them. The extra $700 we had to pay really put a dent in our budget. Learn from our mistake and remember to think about what additional health costs might be associated with a trip so you can account for that in your planning as well.

2. Travel Insurance

As I’ve gotten older, I’ve come to see the wisdom in travel insurance more and more. Life can certainly throw you curveballs, and when you’ve plunked down hundreds (or thousands) on a trip, it could be worth the added cost to know that you’re covered. Travel insurance can reimburse your expenses if for some unforeseen reason you can’t actually go on your trip or, worse, if something should happen to you while you’re traveling.

Start by checking with your credit card company to see what coverage is offers (some will cover your nonrefundable flight fees if you have a good reason for not being able to fly, for example), then consider outside insurance as well.

3. Tips

There’s so much more to tipping than you might expect. For starters, not all cultures expect consumers to tip for all types of services. Do a little research ahead of time to determine whether tipping is a custom in the countries you are traveling to, and be prepared with cash if you’ll need it. If you’ll be traveling to a country where tipping is part of the etiquette, then it’s best to think outside the box for this practice as well.

For example, it’s a given that you would tip your waiter and cab driver, but don’t forget about hotel staff, the captain of your ship, the sommelier, or the skycap at the airport

4. Taxes

A little bit of tax here and there on things like souvenirs, food, and drink can add up, but what you should really take into consideration is the additional taxes that come with hotel charges and flights. Even small tax percentages on large price tags can really add up quickly, so it’s best to be prepared for these in your travel budget.

5. Resort Fees

Some resorts and hotels (particularly fancy ones) charge additional fees for certain services—things you might not expect unless you read the fine print. I’ve seen hotels charge for Wi-Fi, newspapers, use of the gym or other recreational facilities, cribs, even extra sheets. The best way to be prepared for this is to make sure you read everything before paying to stay somewhere, and never be afraid to call if you have any additional questions.

6. Foreign Transaction Fees

Most credit and debit cards charge a foreign transaction fee every single time you use your card in another country. These fees typically range from 1% to 3%. If you’ll be traveling internationally, you may want to pick a credit card that doesn’t charge foreign transaction fees.

Watch out for these six tricky travel expenses, and you’ll be better able to stick to your travel budget. And if you’ve worked out your budget but you’re still not sure exactly how you’ll actually pay for things once you’re on your trip, we can help you determine the best ways to pay for your travel expenses, too.

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Buying a Home? Ask Your Partner These 4 Questions First

Row of colorful garden homes with two stories and white pillars in suburban neighborhood of Fayetteville, Arkansas

Buying your first home is incredibly exciting, but there’s also more than a little bit of stress that comes with it. A house is a big purchase, and it brings a whole host of new hurdles beyond the initial price tag.

If you’ll be purchasing your first house with your significant other, one way to avoid some of that stress is to have a few important conversations before you even start your house search. Based on my experience buying a house with my husband, these are a few of the questions I’d suggest chatting about before you set out to find your perfect pad.

How Long Do We Plan to Live There?

You don’t have to set an exact time frame on your house purchase, but it’s a good idea to see if you’re both on the same page before you find a place to live. You should try to stay in the home at least until you hit your break-even year to recoup the purchasing costs. And depending on where the house is located, that could be several years down the road.

To determine whether you’ll be able to make that much of a commitment, have a frank conversation with your partner about your plans in the coming years. Do you see yourself building a family in this house? Are you both happy in your current jobs, or do you foresee a job search in the future that could make for a long commute? Life throws curveballs, of course, but talking about these things ahead of time will help you narrow down the type of house you both want based on your future goals.

How Much House Can We Afford?

This is one of the most important questions you should discuss with your significant other before buying a house. It’s not uncommon for people to get approved for mortgages with monthly payments that would, in actuality, be very hard for them to afford. Only you and your partner know how your finances work out on a monthly basis, so sit down and have a solid look at everything to fully understand how much money you can put toward a mortgage each month and still feel comfortable. You may also want to consult with a financial adviser together.

Keep in mind that putting down less than 20% of your overall home cost at closing will likely mean that you’ll have to pay private mortgage insurance (PMI) on top of your monthly mortgage fee. Luckily, there are plenty of resources out there to help you determine an affordable down payment, as well as tools to help you figure out how much house you can afford.

Are We Looking for a Fixer-Upper?

Some people prefer a house they can add their own touches to, while others would rather walk into a house that’s perfect for them without having to change a thing. Talk about this before your house hunt so you’ll know whether or not you’re both willing to put in the effort (and money) for any necessary updates if that’s the route you decide to go.

How Will We Save for Miscellaneous House Expenses?

When you own your own home, there is no end to the list of things you’ll spend money on. From leaks and cracks to peeling paint and clogged gutters, it seems like there’s always something that needs fixing. Of course, some of those things can usually wait, but in order to fix larger issues—especially those that need urgent attention, like plumbing problems—you’ll need an immediate flow of cash. Chat about how you plan to pay for surprises that crop up, and if you don’t already have an emergency savings account, start one today.

After you’ve talked over these four critical questions with your significant other and come to a decision that makes you both happy, it’s time to start looking. And when you’re ready to make an offer, check out our Mortgage Resource Center for more information on how to take that next big step.

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3 Surprising Expenses to Prepare for When You Buy Your First House

Millennials are increasingly becoming homeowners, but in some cities more than others.

When you first buy a house you expect to pay for a lot of things. Increased utility and insurance bills, furniture to fill your rooms, and perhaps even an HOA fee are all par for the course when you buy a home. Take it from me, though: it’s the little purchases that really add up and will take you by surprise.

Learn from my mistakes. Here are three things to watch out for when you buy your first home.

1. Outdoor Accouterments

As a former city apartment dweller, it never occurred to me that it might cost money (and a lot of it, at that) to keep up with the outside of a house. From sprinkler upkeep and landscaping to a lawnmower, patio furniture, and the occasional garden gnome, putting together an al fresco experience that you enjoy can really cost a fortune—and that’s before you get into structural upkeep like painting, roofing repair, and window washing.

If you can stand it, I recommend waiting until the peak outdoor season is over to really cash in on deals for outdoor goodies. Sites like Nextdoor can also put you in touch with people in your own neighborhood who might be selling or giving away exactly what you’re looking for.

2. Incidentals

The occasional paint touch-up here or maintenance need there is pretty common when you buy a new house, but why we needed ours was the big surprise. As it turns out, even though our house was listed as having central air, it did not (a small oversight on everyone’s part when it came to the walkthrough). And once we moved in, we removed two huge bookshelves in the den and discovered that the walls had been freshly painted and the white shag carpet had been replaced with wood flooring—around the bookshelves.

In other words, make sure you go through everything with a fine-tooth comb before signing on the dotted line to minimize the amount you have to spend on things like paint or varnish. In the end, none of these things would have stopped us from buying the house, but we could have asked the previous owners to help cover some of the costs.

3. Tools

My husband and I had always lived in city apartments before moving into our first house, and our hammer and screwdriver were pretty much the extent of our toolbox. As it turns out, home repairs often require more than just those two particular items.

I can’t really estimate how much we’ve spent on additional tools at this point, but taking the time to research the best prices and do some bargain hunting will certainly help you save on these items. I recommend doing the research now, before you desperately need those tools. It’s much easier to find the best deals when you don’t need that item right that very minute.

At the end of the day, it comes down to expecting the unexpected when houses are involved. But hey, that’s what an emergency savings account is for, right? Don’t have one of those yet? Here are three simple steps to starting one.

If you’re still in the market for a new home, check out our Mortgage Learning Center for expert tips and tricks for getting the most out of your mortgage.

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Should You Give Your Children an Allowance? Two Experts Weigh In

pros-and-cons-of-youth-allowance

When it comes to giving children an allowance, you might believe that all experts agree it’s the right thing to do—but that’s not actually the case. Believe it or not, some experts believe that more damage can be done by giving allowance the wrong way than by not giving it at all.

To help you make the right choice when it comes to your own kids, we decided to ask one pro-allowance expert and one anti-allowance expert for their input.

Read their responses and see what you think.

The Stance: Pro-allowance

The Expert: Neale Godfrey, personal finance expert and author of 27 books and financial literacy lessons for kids

CREDIT.COM: For starters, what would you say the main goal of giving an allowance should be?

GODFREY: Kids need to learn the natural consequences of money and that the only way you get money is to earn it. So that’s the first part of why allowance is important—understanding that the way you get money is to earn it. The other part is about teaching them to budget.

CREDIT.COM: How do you suggest parents go about setting up an allowance system?

GODFREY: I recommend setting up two types of chores in your house: citizen-of-the-household chores and work-for-pay chores. Kids don’t get paid for citizen-of-the-household chores. These are just meant to teach your kids to be good citizens of the house, and hopefully later of their communities. For example, in our house we recycled and my kids kept their rooms clean, and they didn’t get paid for those. On the other hand, work-for-pay, to me, are things like setting the table, loading the dishwasher, dusting, vacuuming, and doing laundry. But you are the CEO of your household, so you decide what are citizen of the household chores and what are work-for-pay chores.

CREDIT.COM: Where does the budget part come into play?

GODFREY: Parents should make this very visual and give young kids four clear plastic envelopes or jars to divide their money into. They can teach them that 10% comes off the top for charity and then divide the rest into thirds. The first 1/3 is quick cash (so you teach that if you work hard, it’s okay to spend a little bit of your money on things you want), the next 1/3 is medium-term savings (help them pick something to save for), and the last 1/3 is long-term savings. Parents should go to a bank and open an account and teach their kids about how real money goes into that.

CREDIT.COM: Any final thoughts when it comes to allowance?

GODFREY: Talking to your kids about allowance and money is just as important as giving it. I don’t support an entitlement program, but I believe you should give a set amount each week for chores so you can begin to teach them how to use it.

The Stance: Anti-allowance (to a degree)

The Expert: Dr. Lewis Mandell, professor of finance and managerial economics and dean emeritus, State University of New York at Buffalo

CREDIT.COM: Where does your stance on allowance stem from?

MANDELL: In the 2001 National Jump$tart Survey of U.S. High School Seniors, students were asked to describe the allowance that they received when growing up. Those who received regular, unconditional allowance had the lowest score in the test of  financial literacy, scoring, on average, just 48.9%. Those who were given money by their parents as needed scored highest at 51.9%, followed closely by those who received their allowance upon completion of specified chores at 51.6%. To shed some light on the surprising results, students were also asked about the frequency with which they discussed money matters with their parents. Those who said “never” scored just 42.5% on the test, while others had scores that were about 10% higher.

CREDIT.COM: So it stands to reason that talking with your kids about money is maybe just as important as giving an allowance, then?

MANDELL: Prior studies on the subject of allowances showed that giving a regular, unconditional allowance allowed the parents to minimize the interaction with their children. However, it is just this interaction that appears to be the factor most closely related to the financial literacy of their children.

CREDIT.COM: What should a parent’s main takeaway be from your opinion on allowance?

MANDELL: As long as giving an allowance does not diminish the financial interaction between parent and child, there’s nothing wrong with it. However, that is why giving children money as requested seems to be better than an allowance—at least the parent gets to learn how the child intends to spend it and can intervene, where appropriate.

The Takeaway

In the end, deciding whether or not to give an allowance to a child is something each parent has to personally determine. If nothing else, though, both experts agree that keeping the lines of communication open when it comes to money and finances is a key factor in raising a financially independent child.

Teaching your kids good financial sense doesn’t end with allowance, though. Opening a savings account for your child is a great motivator for them to do well financially, too, as is modeling good financial habits. As your children grow, set an example for how to stick to a budget, know about your credit score (which you can check for free on Credit.com), and more. Remember, it’s never too early to instill good spending habits.

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Here’s Why You Need to Know Your Net Worth

When you know your net worth, your life can improve in major ways.

It’s perhaps one of the most important financial numbers you should know, but many people aren’t even sure exactly what it is. If someone were to ask, would you know your net worth? Would you even know what the question meant? If you’ve never heard the term until today, fear not. Here’s everything you need to know about that pesky little number that is one of the best indicators of your overall financial health.

What Is Net Worth?

In its simplest terms, the phrase net worth refers to the overall value of your goods and possessions minus what you owe. In broader terms, your net worth is the total value of all of your assets. Take your possessions — how much you have in savings, retirement accounts, your home value, checking accounts, etc. Then, subtract your overall debt — credit cards, student loans, debt, etc. Hopefully, when you subtract what you owe from your possessions you get a positive number. The higher the number, the better.

How Can I Build My Net Worth?

A high net worth is a good thing and there are a few different ways to focus on building your net worth.

1. Tackle Debt

The main thing you can do to increase your net worth is to pay off your debt. High-interest credit card debt is a great place to start. If you have multiple cards with balances, consider paying off the smallest balance first. This way you’ll receive a little boost early in your debt payoff schedule to help bolster you through what you need to do to pay off the rest. (Check out more methods for paying down credit card debt.)

The longer you hold on to debt, the more you’re likely to pay in interest rates. There are a lot of strategies to take that might make paying off debt easier. Consolidating your loans into one place might help make your loans more manageable if you have more than one. It might even be possible to refinance to a lower interest rate. Check out all your options before deciding which one is best for your situation.

2. Make More Money

This is easier said than done, but another way to work on your net worth is to simply bring in more cash. Whether that’s asking for a raise at your current job or taking on a side gig to bring in a little extra pocket money, the more you can pad your income, the better your net worth will be.

3. Invest in Retirement

If you have an employer offering to match your 401K policy and you aren’t taking them up on it, you’re lowering your net worth. If you’re taking part in a company match or contributing to a retirement plan but haven’t re-evaluated it in a while, it’s time to reconsider how much you’re putting away, and it might be time to increase it. Remember, you don’t need to have a retirement plan through work to invest in your future, there are other IRA options are available as well.

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