10 Ways Divorce can Affect your Credit

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As nearly half of the American population already knows, divorce is a difficult, emotional process to go through. This difficulty can be compounded depending on the number of years a couple has been together, the dollar amount of their acquired assets, and whether or not they have any children.

Divorce can also have an impact on your credit, though the proceedings themselves are not the reason for this. In other words, couples shouldn’t expect their credit scores to plummet the second they file for divorce. However, there are things that occur during divorce that can have a negative impact on credit. Here are 10 ways in which a divorce could affect your credit score:

  1. Having to refinance your home

    In order to move a property into one person’s name, it may be necessary to refinance your mortgage. As with any refinance situation, this will require a hard credit inquiry, and may also potentially add a great deal of new debt for one person.

  2. The splitting of the debt was uneven

    When assets are divided, one person may get to take more of the income, property, or assets, but also more of the debt. It all just depends on how the debt is divided.

  3. Going from two incomes to one

    If possible, it’s helpful to examine finances before a divorce and determine new budgets for both parties, so as to avoid falling behind on any bills or payments. Many divorced individuals report that losing another person’s income made the single greatest impact on them financially. Setting up a new budget early on can help avoid this issue.

  4. Not disclosing all debt during the proceedings

    At some point during the divorce process, both parties are required to disclose their financial accounts. However, as former spouses sometimes learn, not everyone is truthful about these assets. Running a credit report is the best way to ensure you’re aware of every account bearing your name.

  5. One party doesn’t pay his or her agreed-upon share

    Most courts are willing to work with couples to help them discuss and agree on a payment plan for shared assets, such as a home or any jointly-owned property.

  6. One party still has access to the other party’s accounts

    In the event that divorcing spouses do not split their joint accounts, both parties will still be responsible for any additional charges. It’s best to split any joint accounts as soon as possible.

  7. Credit limits are decreased

    Many creditors regularly check up on their clients to see if there has been a salary change, and most credit card agreements state that limits can be decreased at the creditor’s discretion. If one spouse was making more money than the other, and the accounts are separated, a credit card company can choose to lower the limits for one or both spouses. This can, in turn, affect credit scores, as well as catapult credit card holders to their maximum limits very quickly.

  8. The divorce turns ugly

    While no one enjoys going through divorce, the best solution is to try and remain civil to one another, lowering the risk of spouses doing financial harm to one another out of spite.

  9. There is confusion over the divorce decree

    People can often be confused about their financial responsibility as stated in the divorce decree. If you are unsure of where you stand or what you must pay, consult your attorney, family court facilitator, or mediator.

  10. Spouses don’t work together

    Sometimes, electric bills can be overlooked or go unpaid. Keeping the divorce process as amicable as possible helps parties communicate with one another over their shared financial responsibility after the households have been completely separated. Working together ensures everyone’s credit remains in good standing.

 

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Help! Should I Increase My Credit Limit?

Well, that depends. How do you plan on using the credit limit increase?

When you apply for a credit card, a couple of things will happen. First, the issuer is going to pull your credit so it can get an idea of whether you’ll be a good borrower. If it decides to issue you a credit card, you’ll be assigned a credit limit.

What’s a Credit Limit?

It’s the amount of money a credit card company will allow you to borrow at any one time. There are several different factors that are considered when assigning a credit limit, but a big one is your credit score. (The other big one is income.) Someone with excellent credit has proven they can borrow money and pay it back on time. This person is likely to receive one of the higher credit limits allowed. However, if you have bad credit or not much credit at all, you might not be quite so lucky. You might even be limited to applying for a secured credit card, which requires you to put down a cash deposit that serves as your credit line.

Time for an Upgrade?

Let’s assume you’re an average borrower, and your credit card has an credit limit of $3,500. You find out that your house needs a new roof and it’s going to cost $7,000 to replace. While you have a $5,000 emergency fund, you don’t want to use the entire amount. Unfortunately, because of the credit limit on your card, you’re not going to have much choice unless you ask your credit card company to increase your credit card limit.

But is it a good idea to ask for one? Let’s go over the pros and the cons.

What Are the Benefits of a Credit Limit Increase?

It should lower your credit utilization ratio. Your credit utilization ratio, or the amount owed compared to your credit limit(s), is the second most important factor among credit scores. If you were to max out your card, your credit utilization ratio would be 100%. — and very, very bad for your credit score. It’s generally recommended you keep your balances below at least 30% and ideally 10% of your total credit limit, so asking for a credit limit increase could put you closer to those thresholds, which should help your credit score. (You can find 10 more tips for improving your credit here.)

It can be your rainy day fund. Not everyone has an emergency fund set up when an unexpected expense pops up. (In fact, most Americans do not.)  When this happens, it’s nice to have a credit card with a higher credit limit. You can use your card to cover the expense, but will hopefully still be able to keep some breathing room between the balance and your credit limit.

You’ll receive added benefits on large purchases. Are you planning to purchase a big-ticket item in the near future? How about a new refrigerator or washer and dryer? If so, there are perks to having a higher limit. It’ll allow you to put these expenses on your credit card, either because you’ll have the extra credit or you’ll have a bigger buffer when it comes to your credit utilization. As such, you’ll not only earn rewards, but also receive several consumer protection perks. Many different credit cards come with purchase protection, price protection, and an extended warranty. Note: The rewards strategy is best employed when you can pay your balance off in full by the end of the month; otherwise, you’ll lose those points, miles or cash back to interest.

What Are the Drawbacks of a Credit Limit Increase?

You might not want the hard inquiry. Each time you request a credit limit increase, your card issuer will most likely pull your credit report. The purpose of this is to make sure you do not have other large, outstanding loans that will make it difficult to pay your bills on time. The credit pull will result in a hard inquiry, which will affect your credit score by a few points. However, the effects shouldn’t last long — hard inquiries stay on your credit for two years but only affect your scores for 12 months. If you already have less than ideal credit and are concerned about reducing your score any more, requesting a credit limit increase might not be the best move. (Not sure you can take a hit? You can view two of your credit scores, updated every 14 days, on Credit.com.)

You can’t be trusted. There are certain people that just can’t trust themselves with additional money. If they have access to a higher credit limit, they see it as a reason to spend more. If this is your reasoning for getting a credit limit increase, it’s probably a good idea to put off the request.

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How Can A Credit Card Company Lower My Limit if I’m Paying on Time?

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Q. Can a credit card issuer reduce your credit limit or available credit that you can borrow? I have a Synchrony Card, and I have used their 12-month, interest-free promotion for three years. Suddenly, my available credit was reduced by 50%. Is that possible? I make my payments on time and paid the balance before the promo ended. — Nestor

A. Let’s start by addressing this question broadly: While the CARD Act prohibits issuers from changing certain credit card terms, like your annual percentage rates, without at least 45 days notice, issuers can change credit limits at any time. It’s usually if a person’s payment behavior changes or there’s a major change to their general profile.

See, many issuers conduct account reviews from time to time, and often these reviews involve a credit pull. (Don’t worry, that credit pull shouldn’t affect your credit — since you’re not requesting financing, it’ll be considered a soft inquiry.) Now the results of that credit pull could wind up working out in your favor: If your score has improved, you may be awarded a higher credit limit, or even a special offer to sign up for a more premium piece of plastic.

But sometimes it can work against you: If your score has gone down, your credit limit may get slashed.

“Most issuers review their customer’s credit at least monthly and adjust credit limits if there is a significant change,” said Eric Lindeen, vice president of marketing for ID Analytics in San Diego, California, which offers fraud prevention tools and credit risk management scores to issuers. “Limit increases require confirmation of ability to pay, which is why they keep asking for your income. Many factors can be considered when lowering the credit limit, including late payments or even high-risk product choices.”

Sometimes, too, issuers are responding to regulatory pressure.

“Issuers may even reduce limits in response to a regulator’s concern that they are overexposed to potential credit losses,” Lindeen said in an email. “Since consumers with lower credit ratings represent a higher risk to the institution, those would be the consumers most likely to see their limit reduced.”

In other words, it’s totally possible for a credit limit to get slashed on a card in good standing due to other negative information on your credit reports, like high balances or missed payments on another card, for example.

Now, we can’t confirm whether a credit score drop is behind the credit limit decrease you say you’ve experienced specifically, since, of course, we don’t know your credit score. (You can see where your credit stands by viewing two of your scores for free, updated each month, on Credit.com.) We reached out to your issuer, Synchrony Financial, and they were able to confirm that, while certain credit card terms, like your payment due date, don’t change due to your credit scores, “credit lines are set/approved/adjusted based on multiple factors, including credit score, use of account and repayment history.”

The spokesperson didn’t immediately respond to a request for comment on how Synchrony may notify a cardholder that their limit has changed. But, in any event, it’s a good idea to call them up and ask about your alleged credit limit decrease.

“We encourage an accountholder to contact us directly with any questions or concerns about their account,” the spokesperson wrote. “This gives us an opportunity to research their specific inquiry.”

That’s actually a good rule of thumb for anyone who encounters a similar problem: If the terms on your credit card account change, you can always call your issuer to find out the specific reason. And, if you’re unhappy with the modifications, you can ask them to reconsider. Just be aware that this request might result in a hard inquiry on your credit report, which can ding your credit scores, since they may want to look at your credit again before making a final decision — and this time, you’re asking.

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Can Asking for a Higher Credit Card Limit Increase My APR?

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Your credit card limit can have a huge impact on your credit score, because one of the most important factors in credit scoring is how much of your available credit you use. As such, requesting a credit-limit increase is an often-cited tip for improving your credit score (assuming you don’t also increase your credit card spending), but this strategy doesn’t come without risks.

One of the most important questions to ask yourself whenever you’re making a move to improve your credit is whether it will end up costing you money. If so, is it worth it?

Requesting a credit-limit increase won’t cost you upfront, like you might encounter if you transfer a credit card balance to a new card and have to pay a fee to do so, but you might end up paying in other ways. For example, if your credit card issuer makes a hard inquiry on your credit report as part of its decision to give you the limit increase, that could ding your credit score, which could result in higher interest rates on other credit you apply for in the near future.

Proper Advance Notice

While credit card issuers can increase the APR on your existing account as long as they give you proper advance notice, it’s not likely that requesting a credit-limit increase would raise the APR on that card, Nessa Feddis, senior vice president and deputy chief counsel at the American Bankers Association, said in an email.

“They can raise the rate for any reason if they give 45 day advance notice, and the new rate only applies to transactions made after the effective date,” she said.

Still, Feddis said she doesn’t know of any bank that uses requests for a higher credit limit to trigger an APR increase.

“The bank cannot automatically raise the rate absent some recent verification of income,” she said. “Thus, they encourage customers to make the request as [they] can then obtain the information from the customer.”

Even if your bank encourages you to ask for a higher credit limit, that doesn’t mean you should do it. There’s still the chance the bank will deny your request, so if you have reason to believe they will, asking for it may not make sense. As we mentioned earlier, it could hurt your credit score if the bank makes a hard inquiry on your credit report as part of the process, and you wouldn’t get the credit-score benefit of a higher credit limit to cushion the blow of the inquiry.

Before you apply for new credit, even with an existing creditor, it’s a good idea to see where your credit stands. You can get two free credit scores, updated monthly, on Credit.com, and if your scores aren’t where you’d like them to be, you can make a plan to improve them.

[Offer: Your credit score may be low due to credit errors. If that’s the case, you can tackle your credit reports to improve your credit score with help from Lexington Law.  Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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How (and why) to Request a Credit Limit Increase with American Express

Pretty Young Multiethnic Woman Holding Phone and Credit Card Using Laptop.

In this first installment of our multi-part blog series about how (and why) to request a credit limit increase with various banks and financial institutions, we’ll examine how to go about requesting an increase with American Express. Perhaps the most important thing to remember as you read this blog (and subsequent ones in the series) is that when it comes to requesting a credit limit increase with any financial institution, it’s not the how part that matters most – it’s the why. There are good reasons to request a credit limit increase, and there are bad ones, and understanding the difference between the two is critical.

Why increase your limit in the first place?

Let’s get this out there right off the bat: Requesting a credit limit increase so you can spend more money each month is not a smart thing to do. As you probably well know, failing to pay off your credit card in full and paying big money in interest each month is not a great way to build wealth. So, if you’re requesting a higher credit limit just to spend more money on non-essential purchases each month, you should probably reconsider.

Now, if you are (and want to remain) a financially responsible borrower, the primary reason to request a credit limit increase is to lower your overall credit card utilization rate. Your credit card utilization rate is a measure of how much of your available credit you use each month. The math is pretty simple – just divide your total credit card balance by your total credit card limit. So, if you have a $5,000 balance and a $20,000 credit limit, your credit card utilization rate is 25 percent. Most financial experts advise maintaining a utilization rate of no higher than 20-30%, across all of your cards.

Lower utilization rate = better credit score

Lowering your credit card utilization rate is important because there’s a strong correlation between your utilization rate and your credit score because it accounts for 30% of your overall credit score. Now, credit scores are based on complex scoring algorithms that take many factors into consideration, so it’s impossible to specify the exact impact of your credit utilization rate on your overall credit score. But what we know for sure is the lower your credit utilization rate, the better your credit score is likely to be, and the easier it will be for you to borrow money at the lowest interest rates. So, going back to the hypothetical example above, if you were to charge the same $5,000 each month, but get your credit limit raised from $20,000 to $30,000, your utilization rate would drop from 25 percent to down under 17 percent. That’s a good thing.

How do banks decide?

Of course, the decision to raise your credit limit isn’t solely yours. Your credit provider has to agree to the request. There’s no great mystery here. If you have a clean credit history, a healthy income (relative to how much you charge each month), keep your monthly balance low, and make your payments on time, chances are you’ll have your request approved. In fact, if you’ve proven yourself to be a reliable borrower over a prolonged period of time, many financial institutions will proactively raise your credit limit without you even having to make the request. On the flip side, if you carry a large balance, have a checkered credit history, and have been inconsistent about paying your monthly bill on time, chances are your lender will be hesitant to increase your credit limit. If you fit into the latter category, you’re best served spending time cleaning up your financial act and proving yourself a reliable borrower before requesting an increase.

Requesting an increase from American Express

The good news is we live in a digital world, one where institutions like American Express have made it fast and easy to request a credit limit increase right online with just a few clicks. Start by logging into your account at www.americanexpress.com.

Step 1

Once you’ve logged in, click on Account Services.

Amex Screen 1

Step 2

Next, click on Credit Management.

Amex Screen 2

Step 3

From there, click on Increase Line of Credit.

Amex Screen 3

Step 4

You’ll then be asked to enter your 4-digit personal code, usually found on the right side of your card, just above your credit card number.

Amex Screen 4

Step 5

Finally, you’ll be taken to a page where you can formally request an increase to your line of credit. Note that you’ll have to enter both your new desired credit limit and your total annual income.

Amex Screen 5

For those who prefer good old-fashioned human interaction, you can also request a credit limit increase by calling the American Express customer service line at 1-800-528-4800.

A few housekeeping items to keep in mind that are specific to American Express:

  • You cannot request a credit limit increase until you’ve had your American Express card for more than 60 days.
  • If your request is approved, you’ll need to wait at least 6 months before you can request another increase.
  • If your request is denied, you have to wait at least 90 days before you can make another request.
  • In order to maximize your chances of approval, it’s generally recommended that the new credit limit you request is no more than three times the size of your current limit.
  • One of the best features of American Express is they don’t do a hard pull of your credit report for credit limit increase requests, meaning your credit score won’t be adversely affected.

Your credit limit was increased. Now what?

Let’s assume all goes well and your credit limit is increased. What should you do next? Ideally, nothing. If you started this process for the right reason – to improve your credit score by lowering your utilization rate – then having your limit increased should have no bearing on your spending habits. Simply continue spending at the same level you were before your limit was increased, and let your credit score reap the benefits.

The post How (and why) to Request a Credit Limit Increase with American Express appeared first on MagnifyMoney.

Help! I Need a Higher Credit Limit

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An ample credit limit can give you lots of spending power and flexibility, so it’s understandable why a person may be looking to get a higher one.

Still, if you’re one of them, be sure you can handle more available credit first. Credit cards are best leveraged by paying your balance off in full each month. Otherwise, interest can really bump up the lifetime cost of your debt.

Plus, high credit card balances can damage your credit — you want to keep the amount of debt you owe below at least 30% and ideally 10% of your available credit limit(s) for best results. You can see how current balances may be affecting your score by viewing your free credit report summary, updated each month, on Credit.com.

Will More Credit Cause More Problems?

Consumers looking for a higher credit limit because they’re already overextended should look to pay existing expensive balances down first. Doing so can keep you from getting (even further) in over your head.

You can pay down credit card debt by looking into a debt consolidation loan or balance transfer credit card. (You can go here to learn about the best balance transfer credit cards in America.) You can also redraft your budget to see where you might be able to find more dollars to put toward those balances.

With that in mind, here’s how you can ultimately score a higher credit limit.

1. Improve Your Credit

Lending decisions — including what credit limit you will be awarded — are largely determined by your credit score. So, before you start looking for a bump, be sure your credit is in tip-top shape. You can generally improve your credit by reviewing your credit reports for errors, pinpointing your credit score killers and coming up with an action plan.

2. Increase Your Net Income

Issuers also take income into consideration when deciding on credit limits, so increasing your monetary intake (or, conversely, lowering your monthly expenses) could make you eligible for an increase. Keep in mind, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) allows banks to consider any household income you have access to, an important consideration for at-home spouses.

3. Call Your Issuer

Issuers routinely review cardholder creditworthiness, so, yes, there’s a chance they’ll up your credit limit all on their own. But if there’s a time-sensitive reason you’re looking for more credit or there are certain circumstances your issuer may not otherwise know about (like your recent raise), you’re better off calling them directly to request an increase. Just remember this request may generate a hard inquiry on your credit report.

4. Comparison Shop

If your issuer won’t bump up your limit or you think your credit score has improved enough to qualify for better terms and conditions, consider shopping around for a new credit card. Premium rewards credit cards, for instance, tend to have higher credit limits associated with them. Just be sure to vet carefully any card you are considering before applying, since these applications, too, will generate a hard inquiry on your credit report and could ding your credit score.

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