5 Basic Credit Lessons to Teach Your Kids

Your parents may have prepared you as best they could for the financial realities of adulthood, or they could have left you to figure it all out for yourself. But if you were taught the basics of finance and credit before you left the nest, you may have encountered less of a learning curve than your clueless counterparts. No matter your level of understanding, you likely have to do some learning yourself.

But now, if you’re the parent, one of your priorities is to prepare your kids for adulthood. Just as you would teach your children to dress themselves, ride a bike or do their laundry, you may want to impart lessons about credit to them to help them become successful and financially independent.

Here are five credit lessons you may wish to impart.

1. It’s Important to Regularly Check Your Credit Reports & Credit Scores

Credit reports and credit scores may seem like abstract concepts to teach your children. But you can use simple metaphors. School-age children can understand the concepts of grades and report cards, and these concepts apply to credit. The work you put into your credit is reflected in your credit report and credit score, which “grade” your performance. These grades can then be used to help you get “rewarded,” like by getting the best rate on a credit card or a loan, like for a car or home. (You can check out your free credit report summary on Credit.com, which includes grades on how you’re doing in the five key areas that make up your scores.) This brings us to our next lesson …

2. Credit Affects Their Life

Once your child understands the concept of a credit report and credit score, you can demonstrate how credit has affected your lifestyle. Many of your possessions — your home, car or credit card, for instance — were obtained using credit, and are examples of the power of credit. Of course, credit is not just a way to get “things.” It’s a tool that can help provide shelter, comfort and freedom.

3. There Are 5 Main Influencers of Credit

As your kids get older and have a firmer grasp on these concepts, they may be able to better understand how they can make credit work for them. You can show them credit is determined by five main factors:

  • Payment history
  • Debt usage
  • Age of accounts
  • Types of accounts
  • Credit inquires

If you own credit cards, have loans and monitor your credit report, you have teachable moments built into your financial routine. When your children are old enough, you can involve them as you pay a bill or check your credit report, explaining the process as you go.

4. Mistakes Can Cost You

Mistakes can be valuable life lessons for young people. But when it comes to credit, mistakes can be costly and their effects can be long-lasting. One late payment can cause your credit score to drop dramatically. And negative items such as accounts in collections and judgments can stay on your report for at least seven years. To a young person, seven years can be a long time to have difficulty obtaining loans or credit cards. You can also show them how errors on your credit report can be fixed by using this guide.

5. Credit Cards Are Merely Tools

Credit cards are not a magic wand for reckless spending, but they are also not inherently risky items to be avoided. They are tools. They can be invaluable to build credit and financial independence, but they can also be damaging if wielded incorrectly.

It’s no secret that young people can have trouble with impulse control. But you may want to impart that credit cards can be used responsibly or irresponsibly. The results will depend on the user.

Image: Liderina

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Stop Living Paycheck to Paycheck

A 2015 study by SunTrust Bank found that it’s not just those in a lower-income tax bracket that are living paycheck to paycheck. According to the online study, which was conducted by Harris Poll, nearly one-third of households earning $75,000 annually found themselves with more month than money. Perhaps even more worrisome, according to the study, a whopping 71 percent of millennials making $75,000 also had difficulties with their monthly spending.

One of the biggest factors to which these survey respondents attributed their spending problems wasn’t related to transportation or housing—or even medical expenses. More than two-thirds of retiree households earning $75,000 or more blamed their issues on dining out, and the same went for 70 percent of millennials making more than $75,000. Money spent on clothing, entertainment, and hobbies also made up a large portion of the drain on monthly cash flow.

If you’re finding that you don’t have as much left at the end of the month as you want, here are a few ideas to consider that may stretch your paycheck dollars further:

  1. Stop dining out as much.

You don’t have to be a financial expert to figure out that this approach can help put your spending on a diet, but the key phrase here is “as much.” You can still dine out, but instead of eating out every night, consider cutting back to once or twice a week. The same goes for weekends. Don’t go out on both Saturday and Sunday; instead, pick one day. The key is to go out less than you are now because a restaurant meal usually costs significantly more when compared to going to the grocery store and then fixing a meal at home.

  1. Spend less when eating out.

If you enjoy adult beverages consider switching to water. Not only will you leave the restaurant with more money in your wallet but also your body will likely appreciate it because you will be ingesting fewer calories. You can also consider ordering lower-cost lunch or appetizer portions instead of the larger dinner portions or splitting a meal with your friend or significant other. Finally, consider order desserts for special occasions only.

  1. Be smarter when clothes shopping.

Even though you may have been out of school for many years, you can still take advantage of a tax-free weekend in the dog days of summer. Depending on your state, sales tax is usually not collected on selected items, such as clothing, typically the weekend or a few days just before school starts. You may also want to consider other clothing options such as consignment stores, which often offer budget-friendly options.

  1. Find alternatives for entertainment and travel.

Instead of paying the big bucks watching professional sports at an overpriced stadium, consider visiting a local minor league, college, or high school football or basketball game. Tickets can be substantially cheaper or even free, as are the items at the concession stand. If you like traveling and consider yourself a little adventurous, take a train trip. Trains can be comfortable, you can see the sights, and the trips usually won’t be too hard on your pocketbook. If you like reading or watching movies, check out your local library. Find your nearest beauty school for a discounted haircut, manicure, or perhaps even a massage.

  1. Make hobbies pay.

If you’re retired and you have more time than money, consider turning a hobby into a fun side job. For example, if you enjoy home renovations, woodworking, painting, or do-it-yourself activities, you might be able to turn those hobbies into some extra money from your friends and neighbors. If you have a talent in stained glass, jewelry making, sewing, or knitting, you may be able to sell your unique goods to local craft stores or online using marketplaces like Etsy.

If you enjoy an expensive hobby like golf, you might consider exploring a cheaper alternative, such as biking, swimming, or tennis. You could take up chess or cards and join a local group, or you may want to try bird watching and nature walks, which usually don’t cost a thing. Whether you are retired or are just starting out your career, living on a budget doesn’t mean you can’t have fun!

Steve Repak is a CERTIFIED FINANCIAL PLANNER™ professional, CFP® Board Ambassador, and financial literacy speaker. He is also an Army veteran and the author of 6 Week Money Challenge: For Your Personal Finances. Follow him on Twitter: @SteveRepak

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

The post 5 Fumbles That Can Seriously Mess With Your Credit appeared first on Credit.com.

Move Over Black Friday: Holiday Retail Activity Expands Beyond the Day After Thanksgiving

If you can believe, the holiday shopping season is officially under way and with seasonal decorations appearing in some stores as early as October, we all feel like it starts earlier ever year.  Equifax was curious to know just when the holiday season starts and decided to look at  four years of data around consumer debt to understand consumer behaviors during the holiday season.

So what did they learn? First, consumers are continuing to focus their shopping around the days before and after Black Friday, although the day after Thanksgiving does continue to be a highly active. In fact, for the past four years, the Sundays before and after Black Friday have seen a fairly consistent 50 percent increase in the opening of retail credit card accounts over an average day in November or December. New retail credit card openings peak on Black Friday, when consumers on the average have continued to open nearly 3 times more retail credit card accounts.

They also found learned that since 2012, on the average, in November and December, furniture stores have been the top issuer of store credit ($851M), followed by department stores ($790M), jewelry ($451M), electronics ($365M) and clothing ($241M).

Gunnar Blix, Equifax Deputy Chief Economist, says that furniture stores tend to have high-value incentives linked to store credit which drive purchases and this likely accounts for their leading position in terms of credit issuance in the retail credit space.

He also points out that even with compelling incentives across all the shopping categories, since 2012 Equifax has been noticing a modest trend toward consumers showing more restraint in credit card usage.

To view an infographic with the full analysis, visit: Black Friday Historical Trends

How Long Might it Take for Credit Behaviors to Impact Your Credit Score?

If you’ve put a lot of work into establishing good credit habits—you’ve been making sure to pay every bill on time and you’ve been paying down your credit card debt—you might be wondering just how long it’ll be before you see these actions reflected in your credit score. The time between when you exhibit positive credit behavior and when credit for that behavior shows up on your report depends on many factors.

While there are some basic timelines for certain items on your credit report, every consumer’s experience is different. What follows are some things to think about if you’re wondering how long it might take to see your actions impact your credit score, and how long certain items might remain on your report.

Understanding your credit behavior

“Establishing a timeline will be unique to each consumer and dependent on what shape their credit report is in,” says Jo Kerstetter, spokesperson for Money Management International.

The reason behind this individual variation lies with your lenders—the credit card companies, banks, and mortgage companies who report your data to the CRAs. Lenders track and share your payment history, including a record of whether your payments were made in full and on time, but there is no universal date for when they share this information with the CRAs. Additionally, while some lenders may report behavior to all of the CRAs, others will report to only one CRA or to none at all, which accounts for the variations seen between your three credit scores.

Tom Coates, director of Consumer Credit of Des Moines, agrees. “Nothing significant is going to help you overnight,” he says, but adds that positive behaviors may add up over time.

Regularly reviewing your credit report may help you gain a better understanding of your past and current behavior and how your payment history may already be impacting your score. You are entitled to one annual free copy of your credit report from each of the three major CRAs. To request a copy of your report, visit Annualcreditreport.com.

Healthy credit habits

Your credit score may change daily, weekly, or only a few times throughout the month depending on how often your lenders report data to the CRAs. The important thing is to make sure you have been consistent in meeting payments.

“The key is to pay your bills on time every month,” says Kerstetter. Your payment history accounts for around 35 percent of your credit and is the largest factor in determining your score. While there are many factors that determine your score, one of the most important things to consider is to pay your bills on time, everytime.

“Positive information usually stays on your record as long as the accounts are open and in good standing,” Kerstetter says.

The next biggest contributing factor to determining your score is the amount owed across each of your accounts. Amounts owed account for about 30 percent of your score, which means that paying down a debt or carrying a lower total balance on your various lines of credit may also impact your score.

Late payments or bankruptcy

Negative information, such as late payments or a bankruptcy, may impact your score just as often as positive items, but where positive behavior is unlikely to fall off of your credit history, negative credit behavior has the opportunity to disappear—but only after varying lengths of time:

  • Hard inquiries. Hard inquiries typically fall off of your report after two years, but it may impact your score for even less time.
  • Late payments or similar negative behaviors are likely to remain on your credit report for up to seven years. An account left in collections can stay on for even longer, usually seven years and 180 days from the start of the payment delinquency, and unpaid tax liens can remain on you report for up to fifteen years.
  • Bankruptcy, generally remains on your credit history for up to 10 years however the exact amount of time will depend on the type of bankruptcy.

While it can be difficult to pinpoint exactly how long it may take for certain behaviors to impact your score, by establishing positive credit habits and maintaining them consistently, you may be in a better position to better understand your entire personal financial picture.

“Sometimes people get so lost on trying to get a better score, they don’t have their basic finances and their budget where they ought to,” Coates says.

Credit Steps to Take after the Death of a Spouse or Partner

The period following the loss of a spouse or partner is an overwhelming time that carries with it many difficult decisions and issues to deal with. Getting a copy of your loved one’s credit report may not be one of the first things you’re thinking about, but doing so may help thwart identity theft and alert you of any financial responsibilities and commitments you may not have been aware of.

“The common question is, ‘Am I responsible for [my spouse’s] debt?’” says Kathryn Bossler, financial counselor for Greenpath Debt Solutions.

Surviving partners and spouses may be confused by which debts or benefits they might inherit. The answers to these questions may impact your life moving forward, so it’s important to take stock of your remaining financial commitments and work to get yourself started in a new direction.


Review your partner’s credit

When a spouse passes away, their credit file will not be closed automatically but will remain active, along with any open lines of credit.

When someone dies, a family member or an appropriate person such as an executor should send a notice letter to one of the three credit reporting agencies, Equifax, Experian, and TransUnion and request that they update the credit record to indicate that the person is deceased. The CRA will then share that information with the other two CRAs so that they can update their records.

You’ll need to send the CRA copies of certain documents, including: your partner’s name, birthdate, their social security number, their most recent address, a copy of their death certificate, and your contact information as well. Identify yourself as their spouse and explain that their credit file will need to be closed.

According to Bossler, it’s important to obtain several copies of your spouse’s death certificate for this purpose and send them by certified mail to be sure they are received.

At Equifax, once proper documentation is received and validated, a ‘death notice’ is added to a deceased person’s credit report and a permanent promotional block is also added to the credit file. The ‘death notice’ may provide protection for that deceased consumer’s identification information and prevent another consumer from trying to use the deceased consumer’s ID information to obtain credit or services.

If the CRAs are not notified of the person’s death, the credit file remains inactive and accounts purge off as they reach their purge date.

Bossler recommends starting by determining amounts that may be owed. “And determine from there, what was in [your] spouse’s name only.” This may require that the surviving spouse or partner contact lenders and creditors directly.

“Follow that particular creditor’s policy about what to do,” Bossler says. This may include closing any open but paid-off lines, such as a credit card.

Determine your responsibility

If you had any jointly-owned accounts with your spouse or partner, you might be taking over responsibility for them. The deed to your house, for example, may need to be transferred into just your name and any outstanding debt may now fall solely to you. But if you aren’t a joint owner of their credit card debt, you may not be responsible for paying it.

“Just because you’re married to someone doesn’t mean you’re going to need to pay back their debt,” Bossler says.

If your partner maintained a separate estate from your own, you may be able to use this estate to pay for any remaining debts. If this is the case, you may need to notify the executor of their estate of any amounts owed, Bossler says.

And, don’t forget to consider any benefits your partner received prior to his or her passing. If your spouse was receiving or would have soon received benefits from the Social Security Administration or the Department of Veterans Affairs, you might also need to work with these agencies to receive survivor’s’ benefits and secure any future benefits you may be entitled to.

Consider additional help

You may find the process of shutting down your partner or spouse’s credit account difficult or confusing, especially after such a difficult loss. The situation can become even more stressful if you find yourself the sudden target of collection calls for debts you aren’t responsible for. According to Bossler, there are both professional and non-profit options that are available to consumers who find themselves in this situation.

The FTC also offers information on working with creditors or debt collection agencies that may contact you including sample letters you can send them and ways to submit complaints.

You may feel lost and unsure of which actions to take after such a devastating loss, but these steps and resources might be able to help you feel more confident about closing out your spouse’s credit file and moving forward on your own.

How To Talk To Your Kids About Student Loans

Student loans are much more of a reality for kids today than they were for their parents and other previous generations of college students. The cost of education has risen so quickly that in 2014 almost seven out of 10 students graduating college had loan debt—nearly $29,000 each, on average.

This means discussing student loans needs to be a key part of family discussions on college. The earlier these talks happen, the better. I know this first-hand, as my eldest daughter is a college freshman this year.

Affordability is key

The conversation about how student loans work can include talks about what your family can afford in terms of college. At one end, a family may decide that they will find a way to pay for the best colleges to which their college-bound student is admitted—no holds barred. Even if both parents have to get second jobs, they will pay for their child to attend the most prestigious college to which he or she is accepted.

In our family, the chat was quite different: We told our daughter what we could afford and invited her to apply to colleges that were reasonably within our budget range. There was no sense in having her look for her “College Charming” and then tell her we couldn’t afford it.

We also talked early—during her sophomore and junior years in high school— about student loans and the importance of limiting them as much as possible. Why? Heavy student loan debt can be a tremendous burden on new college graduates. It can limit their choices of jobs because they often must earn enough to pay off their debt, especially if they can’t count on financial help from parents or other family members. In the long run, significant student loan debt, like any other debt, might also delay or limit the borrower’s ability to buy a home, start a business, or even begin a family.

How much is too much?

Syndicated author and radio talk show host Clark Howard suggests students not take out more in student loans (in total over four years of college) than the entry-level salary they can expect to earn their first year after college. If the student expects to earn $30,000 in their first job, that number should be the ideal student loan limit in total. (College students can estimate entry-level wages in their field with online tools such as salary.com.) Of course, seeking advice from financial aid consultants might be helpful (if pricey), and many colleges offer financial aid resources.

Learning about loans

The U.S. Department of Education requires students to enroll in online counseling when they first take out federal student loans. Sitting through it with your student may provide opportunities to help explain the concepts covered, such as accruing interest and repayment rules.

The repayment calculator was a huge eye-opener for my daughter, as she was able to see what her student loans could cost her in actual monthly payments. Making the loans real is a great way to discourage overborrowing.

More things for students to consider

Emphasizing a few key factors may be helpful to your student in understanding the essentials of college loans. For instance:

  • Personal expenses. Loans aren’t intended to cover personal expenses. Your child could cover pocket money by working during college, even if that’s just five to 10 hours per week.
  • Quitting college. If your student leaves school or drops down to less than part-time status, there is only a six-month grace period before your son or daughter must begin paying back federal student loans.
  • Credit score. Paying loans on time and as agreed to helps your student keep his or her credit score healthy, which is important when attempting to rent an apartment, get a car loan and much more. Credit reports are available for free one time each year at annualcreditreport.com.
  • Declaring bankruptcy. It’s very tough to walk away from unpaid student loans. Even if other debts are discharged during a bankruptcy, you will usually remain responsible for any federal student loans. Again, this underscores the importance of not overborrowing.
  • Charging college expenses. Using credit cards is not a good choice for paying for college. A close relative of mine charged his entire senior year of college on credit cards. As you might imagine, the interest rates make paying back the loan amount incredibly challenging.
  • Private student loans. These loans should be considered carefully, and perhaps only as a last resort. According to Howard, private student loan interest rates may be much higher than federal loans, and a student often has little flexibility on repayment plans. Like other school loans, private loans are not usually discharged during a bankruptcy. Students short on money might be better off attending a less expensive community college for their first two years to satisfy many general education requirements. Others might consider working more hours and attending school part-time if necessary. Borrowing from family members such as grandparents might be another option.

 

Post-college plans and opportunities

We emphasized to our daughter that paying off student loans should be her first priority after college. Our family places a high importance on living free of debt, and she’s getting the message that student loans are no exception to this rule. We are encouraging her to plan on “living like a student” for several years after she graduates so that she can put every dollar possible toward paying off her student loans.

Depending on your graduate’s line of work, he or she may also want to look into student loan forgiveness programs. Many teaching and public service jobs offer this as a benefit to encourage college graduates to work in underserved communities.

As Mary Hunt, author of the book Raising Financially Confident Kids, wrote: “It’s not as if student loans and big credit card balances are mandatory graduation requirements. … It is possible to graduate debt-free, but it does take a lot of work. And you’ll have to buck a financial system that encourages students to take the easy way out by diving into a lifetime of debt.”

 

6 Ways You Can Wreck Someone Else’s Credit

wreck-someone-else's-credit

You do a lot to make sure your credit is in decent shape. More often than not, you’re paying your bills on time and you do your best to keep your debt utilization ratio where it should be (experts recommend keeping your debts at 30%, ideally 10%, of your total credit limit). So, when you check your credit scores — you can see two of them for free on Credit.com — you usually see the positive results.

But what about the time you slipped up and forgot to pay a few bills? Or moved without giving your roommate that last rent check? These things may not be showing up in your credit history, but they could be damaging the credit of others. Here are six things you could be doing that could destroy someone else’s credit, whether you realize it or not.

1. Not Paying on a Co-Signed Loan

You know that shiny set of new wheels you got when you graduated, thanks to Mom or Dad co-signing an auto loan with you? When they put their name on the dotted line, they guaranteed they’d pay the debt if you didn’t, even though it was deemed your responsibility.

If you were late on a payment for a co-signed loan, even if you eventually sent in the check, that has consequences for the co-signer. If the loan was ultimately written off, that means your co-signer took even more of a hit. If you’re going to be late, or can’t make your car payments, it’s a good idea to talk with your co-signer to see if they can cover you so you don’t get hit with late fees and they avoid seeing any damage to their credit. And you certainly don’t want to skip out on paying altogether.

2. Racking Up Debt as an Authorized User on a Credit Card

Having an authorized user is a risk that can backfire if they run the charges over the assigned limit or run up an unmanageable balance, leaving the primary cardholder to deal with the consequences that include a damaged credit rating,” according to an email from Bruce McClary, vice president of communications for the National Foundation for Credit Counseling.

Authorized users aren’t held accountable for paying the balance the same way the primary user is — and that spending is also reflected on the primary account holders’ credit. So, if you’re racking up charges, it’s affecting their debt-to-credit ratio, which makes up 30% of their credit score. It’s a good idea to talk about expectations for spending and repayment before becoming an authorized user, but if you already are one, it doesn’t hurt to have that conversation now.

3. Not Paying Your Portion of the Rent

If your name wasn’t on the lease, you may not have heard about that last rent check never making it to the landlord. Or you may not have given the money to your former roommate before you headed out of town. No matter what the situation, not paying your portion of the rent could be damaging for the person whose name was on the lease. Your former landlord could notify a consumer reporting company, like RentBureau, about the missed payment or could even go directly to the credit bureaus, which could ding the lease holders’ credit.

4. Returning Library Books Late (or Not at All)

Doing this on your own card can be damaging, as the late fees can potentially send your account to collections. But doing this on someone else’s library card can have the same effect, only that would lead to a debt collector knocking on the library card owner’s door (figuratively speaking). If you borrow someone’s library card, all you have to do is make sure you’re fair and return the items you borrow by the due date. And, if you just couldn’t finish reading that book in time, go in and pay the fine — it’s usually just a few cents each day you’re late.

5. Bailing on Shared Debts After a Breakup

If you’ve been sharing the responsibility of paying a loan — whether for a mortgage, car, student loan or something else — and then something ends the relationship, that won’t end the debt. Same goes for shared credit card accounts, but if only one of your names is on the account, despite who you’ve deemed in charge of paying. Communication is key here. You don’t want to wait until a past-due notice shows up in the mail, alerting your ex that you aren’t paying their debt and have harmed their credit in the process.

6. Getting a Ticket in Someone Else’s Car

Whether you get a ticket for speeding, a parking violation, running a red light or something else, it’s your mistake. However, if you do this in someone else’s car and don’t pay the ticket, your mistake will cause the car owner’s credit to suffer, not yours. The debt may not even be on the car owner’s radar until it reaches collections or receives a judgment. As if that isn’t bad enough, the owner of the vehicle could see their car insurance rate skyrocket because of all this, too.

Image: orbandomonkos

The post 6 Ways You Can Wreck Someone Else’s Credit appeared first on Credit.com.

5 Surprising Things That Can Impact Your Credit

surprising-things-that-affect-credit

Hopefully you already know the five factors that can impact your credit — payment history, mix of accounts, amount of debt, history of credit inquiries and the age of your accounts. But did you know some of your other behaviors can have far-reaching consequences as well? It’s true — even your cable bill can come back to haunt you. Here’s a look at five of the lesser-known factors that can affect your credit.

1. Parking Tickets 

Parking tickets are one of those things that can easily slip through the cracks. But let those tickets slide for too long, and your credit could get dinged. The ticket could be reduced to judgment, John Heath, a credit expert with Credit.com affiliate Lexington Law, said via email. “The judgment is a public record that can be picked up as a derogatory mark on your credit report.”

2. Credit Report Errors 

“Consumers, on average, across all the [credit] agencies have some sort of error on their credit file,” Michael Bruemmer, vice president of consumer protection at Experian, said. Typically, they don’t have a clue about it because they haven’t checked their credit in awhile. (You can pull your credit reports for free each year at AnnualCreditReport.com and view two of your credit scores for free, updated monthly, on Credit.com.) Not sure how to go about disputing any errors you’ve found? This handy guide can help you get started.

3. Applying for Too Much Credit 

There’s nothing wrong with shopping around for good credit offers (and some credit scoring models are built to allow for a certain amount of comparison-shopping for a particular type of loan). But apply for too much credit at once and your score could take a nosedive, Bruemmer warned. Some people think adding a new card will increase their credit utilization, or level of debt compared to their credit cards’ available credit limit. But, while this is correct in theory, applying for too much credit at once can create several hard inquiries — each application for a can trigger a credit pull — which can make you look risky in lenders’ eyes.

4. Public School Fees 

Failing to pay public school fees for things such as labs, library books, athletics and so on can result in a referral to a collection company, Heath said, so don’t forget to take care of them. If you don’t, and they end up in collections, it can reflect poorly on your credit history and stick with you for years, even after you’ve repaid the debt.

5. Utility Bills 

As with parking tickets, not paying your utility bills can also do a number on your credit, Heath said. “These past-due bills can result in a referral to a collection company, which in turn can result in a derogatory mark on your credit report.”

Image: Highwaystarz-Photography

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Can Alternative Credit Scores Hurt You?

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We’ve written quite a bit on alternative credit scores at Credit.com over the years — and on how these non-traditional scores based on things like utility and rent payments can help consumers with “thin” credit files qualify for credit cards and loans. But can the opposite also be true? Can people who have healthy “traditional” credit scores be stymied by the use of alternative scores?

There’s emerging evidence that it is, in fact, possible.

A recent article in the Los Angeles Times recounts the experience of one such man, Joseph, who applied for a travel rewards card through Bank of America only to be rejected because of the bank’s use of an alternative credit score from a company called Credit Optics.

Now, keep in mind that Joseph told the Times that his traditional credit score from FICO is an 820. That’s an excellent score based on FICO’s scale of 300-850 (learn more about what counts as a good credit scores here). And Joseph told the Times that his debt-to-income ratio is below 20%, which you might already know means he carries very little debt based on his ability to repay. While FICO doesn’t measure debt-to-income, the amount of debt you’re carrying compared to your total credit availability is a critical part of your FICO score.

Joseph’s alternative score through Credit Optics was a 374 on a wide scale of 1 to 999, which, a company representative reportedly told the Times was a “pretty good” score. But it wasn’t good enough for Bank of America to approve his request for a new credit card. (Bank of America did not immediately respond to Credit.com’s request for comment.)

The rest of the details around Joseph’s rejection aren’t clear, but it begs the question: Can it happen to you? The short answer is yes.

It Could Happen to You

“When alternative credit data first started to be used, the idea was that this was going to fill in thin files for people who didn’t have a lot of credit history with traditional financial products,” said Thomas Bright, a writer with Clearpoint Credit Counseling Solutions. “That was the idea early on, and this looks like more of a trend toward using these scores for even the traditional consumer who has a positive traditional credit history. That’s a new trend that brings a whole new set of concerns.”

Specifically, those concerns revolve around not knowing what information will be used to make up your alternative credit scores. It could be your utility bills, your rent — essentially every single bill you might receive. Bills for not returning library books on time. Or even your driving and arrest records, as some alternative scores include information from public records. Nearly anything could be fair game when it comes to determining your creditworthiness.

“It’s really comes down to transparency,” Bright said. “When you look at FICO, it’s very clear. There are five categories that make up your score, and then it’s one step from there to figure out how you can influence these five categories. And then you can really take your destiny into your own hands and shape your credit score and credit profile. But when we talk about alternative data, that’s not possible for most people because … it’s not clear how much alternative data there is on them, and they don’t have access to see it.”

What You Can Do

Broader use of alternative scores in conjunction with traditional credit scores means you’ll need to make certain you make timely payments on every financial commitment you have to avoid any blemishes that could negatively impact you, Bright said. You’ll also need to appear stable, so having direct deposit from your employer can be helpful, as can moving infrequently.

Setting up auto-pay for your monthly bills can help ensure you don’t miss or make a late payment. Also, avoiding overdrafts on your bank accounts can also help because some alternative data takes that information into account when determining your credit score.

If you’re ever denied credit, it’s good to review the denial to find out what credit reporting agency the financial institution used. If it’s one of the big three agencies, it’s a good idea to pull your credit reports, which you can do for free every year at AnnualCreditReport.com. You can then begin to clean up any blemishes and improve your credit scores. Likewise, if you see errors on your reports, you can dispute those errors so they are removed.

If you were denied because of a report issued by an alternative credit scoring company, you can contact them and see if they will explain to you what is included in their calculations so you can attempt to dispute, correct or mitigate that data. But that could be easier said than done.

[CREDIT REPAIR HELP: If you need help fixing your credit but don’t want to go it alone, our partner, Lexington Law, can manage the credit repair process for you. Learn more about them here or call them at (844)-346-3295 for a free consultation.]

Image: PeopleImages

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