4 Ways Your Credit Card Can Help You Build Credit (For Real)

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For plenty of people — and millennials especially — a credit card is a scary prospect. And we get why: Phenomenal spending power plus itty-bitty charging restrictions equals a major opportunity to go into debt.

But if you’re foregoing credit cards completely, you could be making it harder on yourself when it comes to another important facet of your finances: building a solid credit score. That’s because credit cards are fairly easy to qualify for — there’s actually a whole category of them designed specifically for people who need to build or rebuild. (You can monitor your progress by viewing two of your credit scores for free on Credit.com.)

Plus, while installment loans (think auto loan or mortgage) come with an automatic price tag and, more often than not, automatic interest, you don’t need to take on debt to build credit with a credit card. That’s actually a common misconception, but, trust us, no balance here required.

To help you how to best leverage your plastic, here are four ways a credit card can help you build credit.

1. You’ll Establish a Payment History

And that’s the number one most important factor when it comes to credit scores. Of course, to build good credit, you’ll want to make all of your credit card payments on-time. (One misstep can really cost you and your score.) To avoid any blemishes, set up alerts that reminds you when your due date approaches or even consider setting up auto-payments each month. Just be sure to keep an eye on your statements for any errors or fraudulent charges.

2. Its Limit Can Bolster Your Credit Utilization Rate

That’s how much debt you’re carrying versus your total credit. Experts generally recommend keeping your credit utilization below at least 30% and ideally 10% of your total available limit(s) — which is easier to do when you have a credit card you’re consistently paying off in full.

3. Your Credit Will Start to Age

And that’s a good thing because length of credit history accounts for about 15% of your credit scores. Length of credit history, also referred to as the age of your credit, is essentially how long you’ve had your credit lines. When it comes to building credit in this category, there’s little credit newbies can do, except, you know, wait. But because a credit card represents one of the easier points of entry into the financing world, that plastic in your wallet can help you get started.

4. You Could Be Rewarded for Having a Mix of Accounts

Credit scoring models like to see that you can manage different types of credit. So, if you’ve got an installment loan on your file — like, say, that student loan you took out to pay for college — adding a revolving line of credit, like a credit card or home equity line of credit, could improve your performance in this key credit category. Mix of accounts, or credit mix, accounts for roughly 10% of the points in your credit score.

Of course, there are ways to build credit outside of simply using your own credit card. That includes looking into credit-builder loans at your local bank or credit union or becoming an authorized user on a friend or family member’s credit card. (The account will appear on your credit file and bolster your performance in the aforementioned credit scoring categories, but you won’t be liable for the charges.) And if your credit is kind of shoddy, you can try disputing any errors on your credit report, limiting credit inquiries and addressing accounts in default. You can find a full 11 ways to improve your credit scores here.

Got a credit score question? Ask away in the comments section and one of our experts will try to help!

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The post 4 Ways Your Credit Card Can Help You Build Credit (For Real) appeared first on Credit.com.

9 Signs You’re on Your Way to a Perfect Credit Score

Because we get it: Sometimes you just have to have that A-plus.

Hey, there, overachiever. Are you really trying to attain a perfect credit score? Here’s the thing: You don’t need to. Any score over 760 will pretty much net you a lender’s best rates and terms. Plus, even if you do score that elusive 850, you probably won’t keep it for long. Credit scores are mercurial: They change as new information hits your credit report or, most notably, as your loan balances go up and down. (Translation: Perfection is fleeting.)

But we get it. Sometimes you need that A-plus. So, in the interest of indulging your financial dreams, here are nine signs you could one day see a perfect credit score.

1. You’ve Never Missed a Loan or Credit Card Payment …

Payment history is the most important factor of credit scores, accounting for 35% of most popular scoring models. Plus, one little slip can do big damage once it hits your credit report — and it can stay on record for up to seven years. In other words: Don’t expect to see the highest score ever if you’ve missed a payment (or two) in that time frame.

2. … Or Any Other Bill’s Due Date for That Matter

Sure, utility companies, doctors, gyms and other service providers don’t routinely report missed payments to the credit bureaus, but collection agencies do. And, if you leave any old bill unattended long enough, that’s where the debt might end up, with a credit score fall to follow.

3. Your Debt Levels Are Virtually Non-Existent

The rule you commonly hear involves keeping the amount of debt you owe below at least 30% and ideally 10% of your total credit limit(s), particularly when we’re talking credit cards. If you’re trying to achieve credit perfection, you’ll want to focus on the ideal part.

Expert Intel: It’s a bit of a misnomer that you need to carry debt to build credit — you simply need to have credit accounts on the books that are being managed responsibly. So, for instance, someone could conceivably build a good credit score with a single credit card they pay off in full each month. People with 850s tend to have more than one loan on the books (more on this in a minute), but you’ll be best served in the long run by adding financing as you truly need (and can afford) it.

4. You’ve Had Good Credit for a While …

There’s a reason older demographics tend to have higher credit scores: Credit history, or the length of time you’ve been responsibly using credit, accounts for 15% of most scores. Technically, though, this category doesn’t have anything to do with your age. Instead, your credit history “starts” when you open your first credit account.

5. … But Haven’t Applied for Any New Loans Recently

That’ll boost your credit history, which also factors in the average age of your credit accounts. Plus, loan applications generate credit inquiries, which can ding your score for up to one year and hang out on your credit report for up to two. (More on how long stuff stays on your credit report here.)

6. You’ve Got a Mix of Credit Accounts on the Books

Credit scores give you maximum points for responsibly managing different types of credit. That’s why having, say, a mortgage, an auto loan and a credit card (or two) — all in good standing — tends to be a common characteristic of people in the 850 club. In technical terms, this means you have revolving lines of credit, like a credit card, and an installment loan, like that mortgage, on the books.

7. Your Public Record Is Clean

Judgments and liens can wind up on your credit file, though there are indications that will soon be changing. For now, though, a matter of public record could wind up hurting your credit score.

8. Your Credit Report Is Error-Free

Credit report errors can happen for a number of reasons and most misinformation will needlessly harm your credit. To achieve perfection, your file needs to be pristine — which you can help to ensure by diligently pulling your free annual credit reports from each major credit reporting agency and disputing any error you see.

9. You Keep a Compulsive Eye on Your Standing

You know the old adage “if a tree falls in a forest and no one’s around to hear it, does it make a sound?” Well, the same can be said about an 850 credit score. You’ve got to play all your credit cards right, and then you’ve got to be lucky enough to check your score at the precise moment perfection strikes. (Like we said earlier, that 850 probably isn’t going to stick around for long.) Fortunately, you can view two of your free credit scores, updated every 14 days, on Credit.com.

Image: m-imagephotography

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Are Fast Cars More Expensive to Insure?

Are fast cars more expensive to insure? Not quite, and here's why.

Even just a decade ago, cars weren’t nearly as fast as they are today. In fact, 300 horsepower was expected only from V-8 engines, writes Forbes. But because of “direct fuel injection, turbocharging and other advances in engine technology and design, power and speed can be bought in a range of body styles, vehicle sizes and powertrain configurations.”

Speed — as measured by quickness of acceleration and pure engine power, and not top speed, which only matters on race tracks — is now more accessible than ever, and as Tesla just proved, as cars move to electric power, we might see faster and faster cars on the road. Tesla’s Model S is now the third fastest car in the world, writes The Verge (behind just the Ferrari LaFerrari and the Porsche 918 Spyder — both million-dollar hypercars). Upgrades to the battery allow the Model S to go from 0 to 60 mph in 2.5 seconds, making us wonder: Do the fastest cars cost more to insure?

We looked at cars people might actually drive (we’ll save concept cars and supercars for another list and another day) and calculated insurance premiums based on a standard profile: a 30-year-old single man living in Austin, Texas (ZIP: 78702), who rents his home, owns his car, has a good driving history, a good credit score, and has had consistent insurance coverage for a basic level of insurance with a national carrier. (You can view two of your credit scores, with helpful updates every two weeks, for free on Credit.com.)

Keep in mind, the time it takes for a car to accelerate from 0 to 60 mph can vary widely based on each driver’s skill, so results may vary. In no particular order (because their specs and model years differ), here are 10 of the fastest cars on the road and their stats.

1. 2017 Chevrolet Camaro
MSRP: $37,900
Engine Details: 6.2-liter V8, 455 horsepower
Acceleration Speed: 0-60 in 4.0 seconds
Average Yearly Insurance Premium for a Chevy Camaro: $1,620

2. 2016 Jaguar XJR
MSRP: $118,000
Engine Details: 5.0 Liter V8 550 HP Supercharged
Acceleration Speed: 0-60 in 4.4 seconds
Average Insurance Premium: $2,148

3. 2017 Cadillac CTS-V
MSRP: $85,995
Engine Details: 6.2-liter V, 640 horsepower
Acceleration Speed: 0-60, 3.7 seconds
Average Yearly Insurance Premium: $2,112

4. 2016 BMW M5
MSRP: $94,100
Engine Details: 4.4-liter V8 TwinPower Turbo, 560 horsepower
Acceleration Speed: 0-60 in 4.2 seconds
Average Yearly Insurance Premium: $2,112

5. 2016 Dodge Charger SRT Hellcat
MSRP: $67,645
Engine Details: 6.2-liter supercharged Hemi V8, 707 horsepower
Acceleration Speed: 0-60 in 3.7 seconds
Average Yearly Insurance Premium: $1,512

6. 2017 Audi RS 7
Engine Details: 4.0-liter V8 with two turbochargers, 560 horsepower
MSRP: $110,700
Acceleration Speed: 0-60 in 3.7 seconds
Average Yearly Insurance Premium: $2,268

7. 2017 Volkswagen Golf R
MSRP: $39,375
Engine Details: 4-cylinder turbo, 292 horsepower
Acceleration Speed: 0-60 in 4.5 seconds
Average Yearly Insurance Premium: $1,560

8. 2017 Ford Mustang GT Fastback
MSRP: $33,195
Engine Details: 5.0-liter V8, 435 horsepower
Acceleration Speed: 0-60 in the mid-4 second range
Average Yearly Insurance Premium: $1,512

9. 2016 Dodge Challenger R/T Scat Pack
MSRP: $39,995
Engine Details: 6.4-liter V8, 485 horsepower
Acceleration Speed: 0-60 in the low-4 second range
Average Yearly Insurance Premium: $1,608

10) 2017 Volvo S60 Polestar
MSRP: $60,000
Engine Details: 3.0-liter Turbocharged inline 6-cylinder 345 horsepower
Acceleration Speed: 0-60 in 4.7 seconds
Average Yearly Insurance Premium: $1,428

Compare these insurance prices with the prices of the five most popular sedans for 2017, based on our new State of Auto Insurance Report, for the same insurance customer profile.

Chevrolet Cruze
MSRP: $16,975
Acceleration Speed: 0-60 in 7.6 seconds
Average Yearly Insurance Premium: $1,056

Honda Accord
MSRP: $22,455
Acceleration Speed: 0-60 in 6.1 seconds
Average Yearly Insurance Premium: $1,176

Hyundai Elantra SE
MSRP: $17,150
Acceleration Speed: 0-60 in 8 seconds
Average Yearly Insurance Premium: $1,344

Nissan Altima
MSRP: $22,500
Acceleration Speed: 0-60 in 7.7 seconds
Average Yearly Insurance Premium: $1,260

Toyota Camry
MSRP: $23,070
Acceleration Speed: 0-60 in 8 seconds
Average Yearly Insurance Premium: $1,236

Final Word: Do Fast Cars Cost More to Insure?

Our assessment: We can’t say for sure whether or not all cars with more powerful engines that can accelerate faster always cost more to insure than their slower counterparts, but all of the faster cars above come with more expensive insurance premiums than all of the slower cars we looked at.

Another potential insurance price factor: All of the faster cars also cost more (in some cases, a lot more) than all of the slower cars. We know that price has something – though not everything – to do with insurance pricing (which is still somewhat of a mystery, even to us).

As we’ve seen, equating insurance rates with one definable feature is tough: Insurance rates weren’t strictly correlated with safety rating, either. But while we might not be able to say with absolute certainty that faster cars will mean more on your monthly premium, we do have proof that using that speed illegally is practically guaranteed to cost you.

The Insurance Consequences of Speeding Convictions

If you drive a certifiably fast car, always remember to follow the rules of the road, not only because it’s safer for you and everyone driving near you, but because beyond any traffic citations you might receive for speeding, speeding also has some pretty detrimental effects on insurance rates.

In 2016, if you were convicted of speeding, your insurance rates went up by the following percentages (national U.S. averages from The Zebra’s State of Auto Insurance Report):

  • Speeding in a School Zone: 18%
  • Speeding 6-10 MPH over the limit: 17%
  • Speeding 11-15 MPH over the limit: 18%
  • Speeding 16-20 MPH over the limit: 19%
  • Speeding 21-25 MPH over the limit: 20%
  • Speeding In 65 MPH Zone: 23%

That means if we’re looking at the national average premium of $1,323, a single speeding ticket could raise your rates from $225 to $304. (And that continues for three years after the violation occurs.)

Fast cars with great handling make for excellent driving – but stay safe (and under the speed limit!) – or you could pay in more ways than one.

Image: mevans

The post Are Fast Cars More Expensive to Insure? appeared first on Credit.com.

5 Fumbles That Can Seriously Mess With Your Credit

When it comes to credit, it pays to sweat the small stuff.

Hate to break it to you, but when it comes to your credit, it pays to sweat the small stuff.

That’s because a first fumble can leave a big old blemish on your credit report. And seemingly small missteps can really swing your scores in the wrong direction. Plus, under federal law, negative information can stay on your credit file for up to seven years — 10 years if we’re talking bankruptcy (you can learn more here on how long stuff stays on your credit reports)— and thanks to the agreements most creditors have with the credit bureaus, it can be hard to get certain line items removed ahead of schedule.

But knowledge is power. So, with that in mind, here are five fumbles you should avoid so you don’t seriously damage your credit score.

1. Taking Your Good Credit for Granted

It’s very easy to turn a blind eye to your credit scores, especially if you were at an 850 last time you checked and aren’t looking for any new loans. But it’s important to check your credit reports regularly since errors can crop up unexpectedly. (Here’s what to do if you find one.) Plus, there could be legitimate line items you weren’t aware of (ahem, medical bill) that’ll need addressing.

You can keep an eye on your credit by viewing your free credit report snapshot, updated every 14 days, on Credit.com. You can also pull your credit reports for free each year at AnnualCreditReport.com. If you find your credit score needs improving, consider paying down any high credit card balances, addressing any delinquent accounts and limiting new credit applications until those numbers rebound.

2. Missing Just One Loan Payment

We’ve said it before, but given how important payment history is to credit scores, we’re going to say it again: A first missed loan payment can cause a good credit score to fall by up to 110 points and an average score to fall by up to 80 points. That’s why you’ll want to set up alerts or automatic payments for those monthly bills and, if you do accidentally miss a payment, give your lender a call ASAP. They may be willing to forgive the fumble “this one time.” (P.S. See if they’ll let you skip the late fee, too. Most issuers will accommodate previously perfect customers.)

3. Your Recent Shopping Spree

Retail therapy isn’t going to help your credit much if you charge all those purchases to your credit card — particularly if you can’t even come close to paying them off anytime soon. Credit utilization is the second-most-important factor of credit scores, and, if you’re using more than 10% to 30% of your total available credit limit(s), you can expect your credit scores to take a hit. Keep in mind, too, that credit card interest can quickly accumulate, and the higher your balances climb, the bigger that hit will be.

Be sure to keep your credit card charges to a minimum. And, if you do rack up a big bill, be sure to come up with a solid plan to pay it off. Strategies for getting rid of credit card debt include prioritizing payments (usually by smallest balance or highest annual percentage rate), drafting a new budget to find funds you can put toward your debts or looking into a balance-transfer credit card or debt consolidation loan.

4. An Unpaid Medical Bill

We know. Medical bills are the worst. Half the time you don’t know you have one and the rest of the time, the cost can be hard to cover. But leave any medical bill unattended long enough and it could wind up going to collections — which can end up on your credit reports and do big damage to your credit scores. The same goes, incidentally, for unpaid parking tickets, lapsed gym memberships and even outstanding library fines, so be sure to keep a close eye on your mail. And, if you get an unexpected bill, see if you can negotiate with the creditor or collector before they report it late on your credit reports.

5. That Boatload of Credit Card Applications You Just Filled Out

Sure, credit card churning sounds great in theory. Just think of all those points you can readily rack up. But each credit card application likely generates a hard inquiry on your credit report — and while each one should only cost you a few points, a whole bunch of inquiries in a short time span can really add up. Plus, points aside, the mere presence of too many inquiries can lead to a loan denial. Lenders see it as a sign of money troubles to come, meaning you’ll want to apply for credit cards (and those all-too-alluring signup bonuses) carefully.

Image: Geber86

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5 Easy-to-Forget Things That Influence Your Credit Scores

It's time to think beyond your student loans and credit card statements. You may have some items you forgot about that are damaging your credit.

Your credit scores can have a huge impact on your finances, as they are a major determining factor for getting approved for loans or new lines of credit. That’s reason number one as to why you should know where your credit stands. (If you don’t you can find out now — Credit.com offers two free credit scores, which are updated every 14 days.) Beyond simply getting approved, keeping your scores as high as possible can help ensure that when you go to get a mortgage for your dream home (or any kind of loan), you’ll see good terms and conditions paired with that loan.

Everyone knows that your credit score will take a hit if you’re late paying your credit cards or skip mortgage payments. However, there are some things that could be dinging your scores that may not seem like they should matter — but they do.

Let’s take a look at these five easy-to-forget things that can hurt your credit.

1. Library Fines

While holding onto that copy of “To Kill a Mockingbird” for a few extra weeks may not have seemed like a big deal at the time, it came at a cost. And if you opted to ignore that fee, you may be in for a surprise — not paying your library fine could wind up hurting your credit scores. Libraries can send overdue fines to collections, and then you’re in trouble. The New York Public Library’s policy on fines states: “The Library is obligated to attempt the recovery of all outstanding debt and/or library materials. To that end, borrowers with fines or fees of $50 or more are subject to contact from a collection agency. A non-negotiable collection fee will be applied to the account of any borrower who reaches this threshold.”

Moral of this story: Turn those books in on time! Or at least be sure you pay your fines.

2. Parking Tickets

Like library fines, cities and towns are more frequently turning unpaid parking tickets over to collection agencies, and that can have a huge impact on your credit score. In Houston, Texas, not paying your parking tickets on time can earn you a delinquent fee after 30 days, and you’ll be hit by a $30 fee and wind up in collections after 90 days.

3. Setting Up Your Cable

When you move to a new place and want to get cable, the company may run what’s called a hard inquiry on your credit. Hard inquiries are made when you’re actively seeking credit, whether it’s for a student loan or a mortgage. Sometimes this can extend to when you get HBO, as it’s a way for a company to see if you’re truly able to take on a new financial obligation. Remember: Inquiries don’t have an extremely long-lasting impact on your scores. In fact, according to credit bureau Experian, inquiries “have minimal impact on credit scores, and that impact is even less after three to six months.”

4. Renting a Car

As with setting up your cable, some car rental companies will do a hard inquiry on your credit if you’re renting with your debit card, and that could hurt your credit score. It’s also important to make sure you pay all of your fees and fines — whether from accident damage, returning the car without enough gas, or extra fees that weren’t covered by your insurance company (if they’re covering your rental) — so the outstanding balance doesn’t land your account in collections.

5. Your Gym Membership

From automatic payments that get declined when your credit card information changes (like if you have to close an account that’s been hacked) to cancelled contracts that wind up in collections, your gym membership could be hurting your credit scores. Be sure to pay attention to the conditions in your contract concerning late payments, fees for cancellation, or what happens when you put your membership on hold. Otherwise, it won’t just be your body that needs to get in shape.

Image: Choreograph

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Dating Someone with Bad Credit? Here’s How to Protect Your Score

These tips can help ensure their bad credit doesn't indirectly affect yours.

Building a strong credit score can take years of paying your bills on time, spending wisely and avoiding too much debt. If you’ve spent a lot of time and effort building a great credit score, you may be very protective of your credit.

But if you’re in a relationship with someone who has poor credit and you’re at a point that you’re moving in together or otherwise sharing expenses, your credit score could be in jeopardy. Not because your Valentine’s bad credit will directly impact yours: Credit reports don’t get merged, even after you’re married. But a person’s poor money habits can have an indirect effect of your financial standing and any joint accounts you decide to sign up for will appear on your credit file.

In other words, if your beloved has bad credit, you’ll want to take steps to avoid damaging your own. Here’s how you can safeguard your credit score from your partner’s bad credit.

1. Consider Keeping Your Funds Separate …

There are a number of reasons your partner could have poor credit, including unexpected financial hardship or identity theft.

“Someone with a low credit score could still be responsible with money and pay all the bills on time, but may just have some unexpected medical debt,” says Matt Gulbransen, owner of Callahan Financial Planning Corporation. But your partner could also have poor money-management skills. And, if that’s the reason for their credit score woes, you may want to keep your bank accounts separate for awhile. You can still split expenses while restricting access to your personal bank account.

2. … the Same Goes for Other Accounts

You can apply the same strategy to other accounts, including credit cards, loans and any accounts with monthly payments. Missed payments on shared accounts will inflict mutual damage to both of your credit scores. Your partner’s poor credit could be due to a history of late payments or accounts in collections, so think twice before sharing. (And, if you do decide to share, keep a close eye on those accounts.)

“I suggest you don’t join credit cards until you build the credit of the other party,” says Gulbransen.

It’s also risky to co-sign a loan, which can have the same impact on your credit as sharing a joint account.

3. Avoid Applying for Credit Together

If you want to apply for a credit card or loan, you may be better off doing so independently. If you apply together, your partner’s poor credit could result in higher interest rates, poor loan terms or even an outright rejection. You should use your own good credit to negotiate the best terms.

“Banks remain wary of making loans to borrowers with tarnished scores,” says Gulbransen. “And low scores can deny one access to a mortgage.”

Even adding your partner as an authorized user on your credit cards can be risky if your partner runs up your credit card balances. That’s because the amount of debt you owe can directly impact your credit scores. (Plus, the primary accountholder is the one responsible for actually paying the bills.)

4. Work on a Credit Improvement Plan

Poor credit doesn’t have to doom a relationship. It can be challenging, but you can help your partner by understanding their situation and working together to create a credit improvement plan.

If you’re both committed to the relationship, you may want to merge finances and share financial decisions in the future. The best way forward is to openly discuss what led to your partner’s poor credit, and come up with a plan to improve it together.

The details of the plan will depend on the factors contributing to your partner’s poor credit score. Improving their credit score for your partner could require monitoring his or her credit report, building a solid history of timely payments and paying down debt. There are also a number of tools, such as secured credit cards that are ideal for people who have struggled with managing their credit. And, if your beloved discovers their credit is being affected by a boatload of errors, credit repair could be an option.

Bottomline: By working to improve your partner’s credit, you can both move toward a greater financial future together.

Image: g-stockstudio

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6 Ways Student Loans Could Impact Your Credit Score

ways-student-loans-could-impact-credit

When most 18-year-old college freshmen sign on the dotted line to take out federal student loans, they’re not thinking about credit scores. They’re thinking about class schedules, life goals and avoiding the infamous “freshman fifteen.”

But the truth is that student loans can (and do) impact your credit scores from the very moment you take them out. Whether you’re a brand new college student who hasn’t even started repaying student loans yet or a 30-something still struggling to pay back that debt, you need to understand how student loans can impact your credit scores and your ability to borrow. (You can see how your student loans may be affecting your credit by viewing two of your credit scores, updated every 14 days, on Credit.com.)

1. They’ll Likely Open Your Credit File

Most straight-from-high-school college freshmen don’t have a credit file to speak of before taking out student loans. But because the federal government doesn’t require good credit for most types of student loans, that doesn’t matter. As soon as you take out a loan, you’ll have a credit file opened, likely with all three major credit reporting bureaus. This is the start of your credit history and subsequent numerical credit scores.

2. They Can Help Establish a Longer Credit History

One portion of your credit scores comes from the length of your credit history. The longer you’ve had credit, the higher your score will be. For many students, student loans are their first piece of credit. And because they’re likely to stick around on your credit reports for ten years or more while you’re in repayment, student loans can give your score an automatic lift.

3. On-Time Payments Can Keep Your Score Growing

On-time payments are the most heavily-weighted portion of the credit score algorithm. After all, lenders want to be sure you’ll repay your loans on time each month. Paying your student loans on time from the time you enter into repayment can keep your credit scores growing, slowly but steadily.

One thing to note here is that if you have to put your loans into deferment or forbearance due to financial hardship, this shouldn’t harm your credit scores. Call the lender as soon as you know you’ll be unable to keep making payments. They can put the loan into forbearance, which will stop payments for a while. This doesn’t get you out of repaying the loan, of course, but it will save you from late payment reports on your credit scores.

4. Missed Payments Can Quickly Tank It

Steadily repaying your loan with on-time payments will increase your scores, but slowly. On the flip side, missing payments can tank it, and quickly. However, most federal student loan servicers won’t report a payment as late until it’s been 60 days late by the end of the month. So you often have more grace with these loans than other types. Still, it’s best to get into the habit early on of making on-time payments each and every month.

5. They Can Help You Add Variety to the Mix

A few high school and college students have other debt coming into the student loan process. For instance, you might have a low-limit credit card on your report already. If this is the case, adding student loans as an installment loan can add variety to your credit file. Because variety is one thing lenders look for, this can also help boost your credit scores.

6. Resolving Delinquency Can Immediately Increase Your Score

Resolving delinquency on other types of loans isn’t always easy, and the delinquency reports may take months or even years to recover from. This isn’t always the case with student loans. If you lose your job, for instance, and miss three months’ worth of payments, your score will quickly fall. But if you later work out with your lender to back-date the deferment of your loan, they can forgive those late payments, effectively erasing them from your credit scores.

It’s better to never become delinquent on your student loans, of course. But if you do, resolving the problem as quickly as possible can help you increase your credit scores almost immediately.

Bonus: Your Debt-to-Income Ratio Can Be Important

It’s a common misconception that a person’s debt-to-income ratio — the amount of your minimum payments each month versus the amount of income you make— is a part of your credit scores. It’s actually not. Credit bureaus don’t know how much money you make, and they don’t really care. As long as you’re meeting your obligations each month and your credit utilization rate is in good shape, your credit scores should stay intact. (Note: Your credit utilization rate, also referred to as your credit-to-debt ratio, is essentially how much debt you’re carrying versus the amount of credit extended to you. For best credit scoring results, it’s generally recommended you keep the amount of debt you owe below at least 30% and ideally 10% of your total available credit limit.)

Lenders, on the other hand, care about debt-to-income ratio very much. If 50% of your monthly income is eaten up by minimum debt payments, you’ll likely have trouble obtaining a mortgage.

So even though your minimum student loan payments in comparison to your monthly income don’t affect your credit scores, they can affect your ability to borrow. This is why it’s so important when taking out student loans to examine how much your chosen career is likely to earn you. Then, compare that to what you’re likely to pay in minimum student loan payments before you sign on the dotted line for that loan.

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Here’s What It Costs to Sell a House

Costs-to-Sell-a-House

If you’re in the process of moving out of your current house and into a new one, you may have thought a lot about the costs involved with buying a house. After all, there are many. But as you’re considering your moving budget, it’s important that you remember to factor in what it costs to sell a house. 

According to Carlos Jaime, owner of CTC Brokers & Associates in Corona, California, these expenses can include things like paying the escrow company, title insurance, transfer taxes, home warranty plans, HOA documents, possible credits to the buyer as well as repairs that may need to be made before closing on the house (more on some of these later).

But, Jaime said, real estate commission is the biggest expense a homeowner faces when selling their home. He said these commissions often “range from 2.50% to 7% of the sales price,” and because it is such a major expense, he emphasized the importance of having a good real estate agent helping you during the sale of your home.

“Do your homework and interview two to three agents, not just the local rock star,” Jaime said. “Find an agent that’s experienced, professional and isn’t charging you an arm and leg.”

“The more you pay in commission, the more you must sell for just to recoup the premium you’re paying to a high-commission agent,” Jaime added. “Focus on your bottom line and not just the sales price that an agent is promising you.”

Getting Your House Ready

Before your house is actually sold, it’s a good idea to spruce it up a bit. After all, as a potential buyer yourself, you wouldn’t be interested in a home that looked, well, blah, would you? Of course not.

Keep in mind, this will be another expense in your process, but it can also be factored into your asking price, if you so choose. But where do you start?

“Have [your real estate agent] bring in a home stager for a consultation on what you can do yourself to spruce up the visual appeal of your home,” Jaime said.

Things to consider include painting your home (both inside and out), getting the windows professionally cleaned, landscaping and repairing any problem areas (think scuffs in the floor, broken fixtures, etc.) in and around the home.

After you’ve done this, you may consider using a stager to organize, declutter, decorate and furnish your home to make it look as appealing as possible for any showings your agent lines up.

Arranging Home Inspections

Jaime suggested having an agent “arrange a pre-listing home inspection and pre-listing termite inspection to avoid surprises down the line.” For example, if your inspector discovers standing water that damaged the foundation, you can take action before putting the house on the market. Jaime said that knowing these details in advance can help you decide what your best plan moving forward is, whether you fix the problem, sell the home “as is,” adjust the price or something else.

Getting Title Insurance

Sometimes the homebuyer is the one who covers this cost, but it can be seen as a sign of good faith if the seller purchases the policy. This way, they are showing the buyer that they have a clear title to the home, such as not having a lien or other problem. (Note: If you have a lien on your home, you’ll have to also pay that off before selling your home.) Either way, it doesn’t hurt to allocate this to your home sale budget.

Paying off Your Mortgage

Just because you’re packing up and heading off to a new home doesn’t mean your responsibility for the mortgage on the old house will stay behind. Read over your mortgage agreement to figure out what sort of prepayment penalty fees you may be faced with (meaning you may get charged a penalty for paying more at one time than what your mortgage terms specified) as well as any interest charges. Keep this in mind as you consider what houses you will be able to afford to buy once you’ve sold your home. (You can also use this tool to figure out how much home you can really afford.)

Other Potential Bills

If you’re living in your new house already, you may have to pay two sets of bills for a while. Sure, you can shut off some of your services at the old place, like cable and internet, but you’ll likely still want to keep the power on and the home heated/cooled so it’s comfortable when potential new owners come by. It might also be wise to check your homeowner’s insurance policy, or speak with your agent, to find out if you need different coverage while the home is left unoccupied. Beyond that, consider the costs of getting everything out of your old home and into your new one. (Pro tip: If you’re staying nearby, ask your friends or family to help you move. Paying for dinner and drinks for the group can be a lot less than paying for a team of movers or rental truck.)

Paying for These Expenses

As you think about the expenses you’ll have both in buying and selling a home, it’s a good idea to consider how you’ll pay for them. If you have to put any of your selling expenses on a credit card, ideally you’ll want to pay those statements off in full each month, as doing so won’t harm your credit scores. However, if you are unable to do so, make sure you’re paying off what you can each month and doing so on time (payment history makes up the largest portion of your credit scores). You can use this tool to figure out what your lifetime cost of debt could be.

And if you’re still searching for the right home to buy next, it’s a good idea to review your credit reports (which you can do for free once each year by visiting AnnualCreditReport.com). Knowing where your credit stands will give you a good idea of the terms and conditions you may qualify for on your mortgage. If you discover your scores aren’t quite where you’d like them to be, you can take steps to repair them, like paying down debts, repairing any errors on your reports and limiting inquiries while your scores rebound. You can monitor the effects these are having on your credit by viewing two of your credit scores for free, updated each month, on Credit.com.

Image: Highwaystarz-Photography

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6 Reasons to Think Twice About Co-Signing a Loan

co-signing-a-loan

If your credit and finances are in good shape and you have friends or relatives who are not in such a good credit position, you may have been approached to co-sign for a loan or credit card.

While your friend or relative may deserve the help, it’s not always wise to lend a hand to a sagging financial situation. Here are six reasons why you should think twice before you sign on the dotted line for someone.

1. Risk-to-Reward Ratio Doesn’t Favor You

If you co-sign a loan, the liability lies squarely on your shoulders should your friend or relative not make the payments. They may still be enjoying the home or car they got with the loan while you are left holding the bag on the responsibility of paying it off. And, if you don’t…

2. A Lender May Sue You if Payments Are Not Made

“When a cosigned loan goes into default, the creditor can collect against all who are named on the account since they have an equal share of the responsibility to repay the entire balance,” according to Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. “A creditor can make their own decision to pursue the primary borrower or collect from the cosigner. It is common for a lender to make first attempts to contact from the primary before turning attention to the cosigner.”

3. If a Loan Payment Isn’t Made, Your Credit Is Impacted

The co-signed loan will appear on your credit reports, including the payment history — good or bad — for the loan. While the damage late payments can do is mitigated over time, generally, your credit report can be severely impacted for years. You can see how your payment habits are affecting your credit by viewing a snapshot of your credit report, updated every 14 days, on Credit.com.

4. Your Relationship May Suffer

As the old saying goes, “money and friendships don’t mix.” Placing your credit report and therefore credit scores in the hands of another individual can place a strain on a relationship. You may begin to notice other money behaviors that you previously thought were quirky or endearing that now seem alarming. Your feelings about your loved one may change in a negative way.

“It is not uncommon for relationships to end when cosigned loans slip into default, leaving much more than a financial mess,” McClary said. “This can be prevented if people either avoid cosigning altogether or proceed with a plan that accommodates for keeping the lines of communication open during hard times.”

5. You Could Face Tax Consequences

When autos are repossessed, there can sometimes be what is known as a deficiency balance. This is the result of when the lender has repossessed the vehicle, takes it to auction and is not able to recoup the amount still owed by the borrower.  Some lenders will forgive or write off a deficiency balance if it’s obvious the borrower has no assets, but if you’re co-signing for someone, chances are there are enough assets between you and the person you’ve co-signed for that the lender is not going to be as lenient. In that case, the deficiency balance could be turned over to a collection agency that may be willing to cut a deal to accept less money than is owed and will mark the debt as paid in full.

In the case of credit card debt, once a debt goes 90 days delinquent, a bank is usually willing to talk debt settlement.

In cases where the amount forgiven during debt settlement (or the difference between what is owed and what the lender gets for a car at auction) is $600 or more, a lender must issue a Form 1099-C or 1099-A to the borrower (and the co-signer) and the difference must be reported as income on that year’s tax returns. That’s because the difference between what is paid on the debt and what is owed is considered a net income gain by the IRS, and taxes need to be paid on this gain. If your tax bracket is 28% and the amount forgiven is $2,000, you could wind up owing Uncle Sam an additional $560 come April 15.

6. You May Be Turned Down for Other Loans

Even if your friend or relative makes all the payments on time, your borrowing ability will be affected.

“Provided that the creditor reports account activity to the credit bureaus, cosigning a loan will likely mean that the account will show up on the cosigner’s credit report,” McClary said. “This means that it will impact their debt ratio, which influences a lender’s decision about whether they can afford to take on more debt.”

Image: BartekSzewczyk

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Wells Fargo’s Fake Account Scandal: CEO Vows to ‘Make it Right’ but Doesn’t Explain How

wells-fargo-unauthorized-accounts

A group of senators just spent about an hour and a half grilling John Stumpf, the CEO and chairman of Wells Fargo, about 2 million unauthorized accounts that were opened under his watch and how Wells Fargo was going to make it up to customers. Stumpf’s answers to many of those questions was some variation of, “We’re working on it” and “Let me get back to you on that.”

It’s perhaps unsurprising that the members of the Senate Banking Committee appeared unsatisfied with the answers.

A quick recap: Wells Fargo was fined $185 million by the Consumer Financial Protection Bureau in early September for opening about 2 million unauthorized credit card and deposit accounts. Wells Fargo previously implemented (and touted the results of) ambitious cross-selling goals, in which a banker gets an existing customer to open additional Wells Fargo accounts. The bank incentivized cross-selling with bonuses. Those who didn’t meet sales goals were written up and could ultimately lose their jobs. About 5,300 employees were fired for opening accounts and moving consumers’ money to them without the knowledge or consent of the customers. That happened between 2011 and 2015 — in 2013, now-retired reporter E. Scott Reckard wrote about it for the Los Angeles Times, giving the practices national exposure.

Now, in 2016, Stumpf testified that Wells Fargo has just begun the process of making affected consumers whole, including refunding customers who were charged fees on unauthorized accounts and confirming with customers that the open accounts in their names are in fact products the consumers want. Wells Fargo will also extend the investigation to see if the practices occurred in 2009 and 2010 (thus far, the probe has gone back only to 2011).

The Far Reach of Damaged Credit

But there’s a lot more to making up for what happened, many of the senators pointed out. Sen. Jon Tester, D-Mont., said that opening a new account can affect a consumer’s credit (true for credit accounts, not for deposit accounts), and he asked Stumpf if Wells Fargo would re-establish the credit of all the people whose credit scores were hit by these new accounts.

Stumpf: “I’ve told our people to go back and make it right.”

Sen. Mike Crapo, R-Idaho, followed up: “How do you do that?” Stumpf’s answer: “That is a very good question. We’re just starting that process. I don’t have enough to give you right now.”

It’ll likely be complicated. Tester gave the example of someone whose credit score was hurt by Wells Fargo’s fraud and then applied for a mortgage with another bank — if that person qualified for a higher mortgage rate because of the credit score damage, how would Wells Fargo make up for the extra interest on that mortgage? Sen. Joe Donnelly, D-Ind., demanded a specific answer on that: “Will you pay back every extra dime that these people are going to pay over 30 years?” Stumpf said, “We’ve been thinking about that.”

It can get even messier. Sen. Chuck Schumer, D-N.Y., gave the hypothetical example of someone who was charged a fee on an unauthorized account, causing them to bounce their car payment check and end up with a negative event on their credit report. Unpaid fees on a non-credit account can be sent to a debt collector, and collection accounts can seriously damage your credit standing. Untangling the mess could be quite difficult.

Much of the questioning revolved around three core issues:

  • How long Stumpf or other executives knew the incentive program was a problem? (Stumpf said it came to his attention in 2013.)
  • Why didn’t Wells Fargo disclose the “dark side” of cross-selling incentives when it reported on its successes? (Stumpf didn’t think “it was material.”)
  • Why wasn’t the executive who oversaw the retail banking operation, Carrie Tolstedt, fired? (Stumpf told Sen. Elizabeth Warren, D-Mass., he never considered it.)

Perhaps the most common theme of the interrogation: Calls for Stumpf’s resignation, in addition to executives (including Tolstedt) giving back pay they earned while this was going on.

“You should be criminally investigated by both the Department of Justice and the [Securities & Exchange] Commission,” Warren said. “The only way Wall Street will change is if executives face jail time when they preside over massive frauds,”

Stumpf, for his part, said he disagreed that it was a massive fraud. He apologized repeatedly throughout his testimony and said he will honor and respect any decision the board makes regarding his employment and compensation.

Looking Out for Yourself

Unauthorized financial activity is a real threat to your credit standing, which is one of many reasons to closely and regularly review your credit reports for accuracy. You can keep an eye out for unfamiliar accounts by pulling your credit reports for free each year at AnnualCreditReport.com. You can also get a free credit report summary every 14 days on Credit.com to help put a stop to unnecessary damage. If you see something that doesn’t look right, be sure to contact that creditor and dispute the information with the major credit reporting agencies (you can go here to learn how.)

Image: ProArtWork

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