What is a Payday Loan?

A payday loan is a short-term loan with a high annual percentage rate. Also known as cash advance and check advance loans, payday loans are designed to cover you until payday and there are very few issues if you repay the loan in full before the payment date. Fail to do so, however, and you could be hit with severe penalties.

Lenders may ask the borrower to write a postdated check for the date of their next paycheck, only to hit them with rollover fees if that check bounces or they request an extension. It’s this rollover that causes so many issues for borrowers and it’s the reason there have been some huge changes in this industry over the last decade or so. 

How Do Payday Loans Work?

Payday lending seems like a simple, easy, and problem free process, but that’s what the payday lender relies on. 

The idea is quite simple. Imagine, for instance, that your car suddenly breaks down, payday is 10 days away, and you don’t have a single cent to your name. The mechanic quotes you $300 for the fix, and because you’re already drowning in debt and have already sold everything valuable, your only option is payday lending.

The payday lender offers you the $300 for a small fee. They remind you that if you repay this small short-term cash sum on payday, you won’t incur many fees or any real issues. But a lot can happen in 10 days. 

More bills can land in your mailbox, more expenses can arrive out of nowhere, and before you know it, all of your paycheck has been allocated for other expenses. The payday lender offers to rollover your loan for another month (another “payday”) and because you don’t have much choice, you agree.

But in doing so, you’ve just been hit with more high fees, more compounding interest, and a sum that just seems to keep on growing. By the time your next payday arrives, you’re only able to afford a small repayment, and from that moment on you’re locked into a debt that doesn’t seem to go anywhere.

Predatory Practices

Payday loans have been criticized for being predatory and it’s easy to see why. Banks and credit unions profit more from high-income individuals as they borrow and invest more money. A single high-income consumer can be worth more than a dozen consumers straddling the poverty line.

Payday lenders, however, target their services at low-income individuals. They offer small-dollar loans and seem to profit the most when payment dates are missed and interest rates compound, something that is infinitely more probable with low-income consumers.

Low-income consumers are also more likely to need a small cash boost every now and then and less likely to have the collateral needed for a low-interest title loan. According to official statistics, during the heyday of payday loans, most lenders were divorced renters struggling to make ends meet.

Nearly a tenth of consumers earning less than $15.000 have used payday loans, compared to fewer than 1% for those earning more than $100,000. Close to 70% of all payday loans are used for recurring expenses, such as utility bills and other debts, while 16% are used for emergency purchases.

Pros and Cons of Taking Out a Payday Loan

Regardless of what the lender or the commercial tells you, all forms of credit carry risk, and payday loans are no exception. In fact, it is one of the riskiest forms of credit available, dragging you into a cycle of debt that you may struggle to escape from. Issues aside, however, there are some benefits to these loans, and we need to look at the cons as well as the pros.

Pros: You Don’t Need Good Credit

Payday loans don’t require impeccable credit scores and many lenders won’t even check an applicant’s credit report. They can afford to do this because they charge high interest and fees, and this allows them to offset many of the costs associated with the increased liability and risk.

If you’re struggling to cover your bills and have just been hit with an unexpected expense, this can be a godsend—it’s a last resort option that could buy you some time until payday.

Pros: It’s Quick

Payday loans give you money when you need it, something that many other loans and credit offers simply can’t provide. If you need money right now, a payday lender can help; whereas another lender may require a few days to transfer that money or provide you with a suitable line of credit.

Some lenders provide 24/7 access to money, with online applications offering instant decisions and promising a money transfer within 24 hours.

Pro: They Require Very Little

A payday loan lender has a very short list of criteria for its applicants to meet. A traditional lender may request your Social Security Number, proof of ID, and a credit check, but the average payday lender will ask for none of these things.

Generally, you will be asked to prove that you are in employment, have a bank account, and are at least 18 years old—that’s it. You may also be required to submit proof that you are a US citizen.

Cons: High Risk of Defaulting

A study by the Center for Responsible Lending found that nearly half of all payday loans go into default within just 2 years. That’s a staggering statistic when you consider that the average default rate for personal loans and credit cards is between 1% and 4%.

It proves the point that many payday lender critics have been making for years: Payday loans are predatory and high-risk. The average credit or loan account is only provided after the applicant has undergone a strict underwriting process. The lender takes its time to check that the applicant is suitable, looking at their credit history, credit score, and more, and only giving them the credit/loan when they are confident it will be repaid.

This may seem like an unnecessary and frustrating process, but as the above statistics prove, it’s not just for the benefit of the lender as it also protects the consumer from a disastrous default.

Con: High Fees

High interest rates aren’t the only reason payday lenders are considered predatory. Like all lenders, they charge fees for late payments. But unlike other lenders, these fees are astronomical and if you’re late by several weeks or months, those fees can be worth more than the initial balance.

A few years ago, a survey on payday lending discovered that the average borrower had accumulated $458 worth of fees, even though the median loan was nearly half that amount.

Cons: There are Better Options

If you have a respectable credit history or any kind of collateral, there are better options available. A bank or credit union can provide you with small short-term loans you can repay over many months without accumulating astronomical sums of interest. 

The interest rates are much lower, the fees are more manageable, and unless your credit score is really poor, you should be offered more favorable terms than what you can get from a payday lender.

Even a credit card can offer you better terms. Generally speaking, a credit card has some of the highest interest rates of any unsecured debt, but it can’t compare to a payday loan. It also has very little impact on your credit score and many credit card providers offer 0% on purchases for the first-few months.

What’s more, if things go wrong with a credit card, you have more options than you have with a payday loan, including a balance transfer credit card or a debt settlement program.

Why Do Payday Loans Charge So Much Interest?

If we were to take a cynical view, we could say that payday loans charge a lot simply because the lender can get away with charging a lot. After all, a payday loan lender targets the lowest-income individuals, the ones who need money the most and find themselves in desperate situations.

However, this doesn’t paint a complete picture. In actual fact, it all comes down to risk and reward. A lender increases its interest rate when an applicant is at a greater risk of default. 

The reason you can get low rates when you have a great credit score and high rates when you don’t, is because the former group is more likely to pay on time and in full, whereas the latter group is more likely to default.

Lending is all about balancing the probabilities, and because a short-term loan is at serious risk of defaulting, the costs are very high.

Payday Loans and Your Credit Score

Your credit will only be affected if the lender reports to the credit bureaus. This is something that many consumers overlook, incorrectly assuming that every payment will result in a positive report and every missed payment in a negative one. 

If the lender doesn’t report to the main credit bureaus, there will be no changes to your report and the account will not even show. This is how many payday lenders operate. They rarely run credit checks, so your report won’t be hit with an inquiry, and they tend not to report on-time payments.

However, it’s a different story if you miss those payments. A lender can report missed payments and defaults and may also sell your account to a debt collector, at which point your credit score will take a hit. 

If you’re concerned about how an application will impact your credit score, speak with the lender or read the terms and conditions before applying. And remember to always meet your payments on time to avoid any negative marks on your credit report and, more importantly, to ensure you’re not hit with additional fees.

Payday Loans vs Personal Loans

A personal loan is generally a much better option than a payday loan. These loans are designed to help you cover emergency expenses, pay for home improvements, launch businesses, and, in the case of debt consolidation loans, to clear your debt. 

The interest rates are around 6% to 10% for lenders with respectable credit scores, and while they often charge an origination fee and late fees, they are generally much cheaper options. You can repay the loan at a time that suits you and tailor the payments to fit your monthly expenses, ensuring that they don’t leave you short at the end of the month.

You can get a personal loan from a bank or a credit union; whenever you need the money, just compare, apply, and then wait for it to hit your account. The money paid by these loans is generally much higher than that offered by payday loans and you can stretch it out over a few years if needed.

What is an Unsecured Loan?

Personal and payday loans are both classed as unsecured loans, as the lender doesn’t secure them against money or assets. Secured loans are typically secured against your home (mortgage, home equity loan) or your car (auto loan, title loan). They can also be secured against a cash deposit, as is the case with secured credit cards.

Although this may seem like a negative, considering a lender can repossess your asset if you fail to meet the payment terms, it actually provides many positives. For instance, a secured loan gives the lender more recourse if anything goes wrong, which means the underwriters don’t need to account for a lot of risk. As a result, the lender is more likely to offer you a low interest rate. 

Where cash advance loans and other small loans are concerned, there is generally no option for securing the loan. The lender won’t be interested, and neither should you—what’s the point of securing a $30,000 car against a $1,000 loan!?

New Payday Loan Regulations

Payday lenders are subject to very strict rules and regulations and this industry has undergone some serious changes in recent years. In some states, limits are imposed to prevent high interest rates; in others, payday lenders are banned from operating altogether. 

The golden age of payday lending has passed, there’s no doubt about that. In fact, many lenders left the US markets and took their business to countries like the UK, only for the UK authorities to impose many of the same restrictions after a few years of pandemonium. In the US, the industry thrived during the end of the 2000s and the beginning of the 2010s, but it has since been losing ground and the practice is illegal or highly restricted in many states.

Are Payday Loans Still Legal?

Payday loans are legal in 27 states, but many states have imposed strict rules and regulations governing everything from loan amounts to fees. The states where payday lenders are not allowed to operate are:

  • Arizona
  • Arkansas
  • Connecticut
  • Georgia
  • Maine
  • Maryland
  • Massachusetts
  • New Jersey
  • New York
  • North Carolina
  • Pennsylvania
  • Vermont
  • West Virginia

It is still possible to apply for personal loans and title loans in these states, but high-interest, cash advance loans are out of the question, for the time being at least.

Debt Rollover Rules for Payday Lenders

One of the things that regulations cover is something known as Debt Rollover, whereby a consumer rolls their debt over into the next billing period, accruing fees and continuing to pay interest. The more rollovers there are, the greater the risk and the higher the detriment to the borrower.

Debt rollovers are at fault for many of the issues concerning payday loans. They create a cycle of persistent debt, as the borrower is forced to acquire additional debt to repay the payday loan debt. 

In the following states, payday loans are legal but restricted to between 0 and 1 rollovers:

  • Alabama
  • California
  • Colorado
  • Florida
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Michigan
  • Minnesota
  • Mississippi
  • Montana
  • Nebraska
  • New Hampshire
  • New Mexico
  • North Dakota
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Carolina
  • Tennessee
  • Texas
  • Virginia
  • Washington
  • Washington D.C.
  • Wisconsin
  • Wyoming

Other states tend to limit debt rollovers to 2, but there are some notable exceptions. In South Dakota and Delaware, as many as 4 are allowed, while the state of Missouri allows for 6. However, the borrower must reduce the principal of the loan by at least 5% during each successive rollover.

Are These Changes for the Best?

If you’re a payday lender, the aforementioned rules and regulations are definitely not a good thing. Payday lenders rely on persistent debt. They make money from the poorest percentage of the population as they are the ones most likely to get trapped in that cycle.

For responsible borrowers, however, they turn something potentially disastrous into something that could serve a purpose. Payday loans still carry a huge risk, especially if there is any chance that you won’t repay the loan in time, but the limits imposed on interest rates and rollovers reduces the astronomical costs.

In that sense, they are definitely for the best, but there are still risks and potential pitfalls, so be sure to keep these in mind before you apply for any short-term loans.

What is a Payday Loan? is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

How Does Coronavirus Affect Life Insurance?

Coronavirus hasn’t entirely ended life as we knew it, but it’s certainly caused changes, some of which are likely to be with us for a very long time.

For some the coronavirus is literally a matter of life and death, and it raises an important question: how does coronavirus affect life insurance?

No one likes to think about the possibility of losing their life, or that of a loved one to this virus, but for over 150,000 families here in the US, it has turned out to be a reality.

Let’s examine the impact it may have on your existing policies, and perhaps more importantly, how it may affect applications for new life insurance coverage.

How Does Coronavirus Affect Life Insurance You Already Have?

There’s good news if you already have a life insurance policy in place. Generally speaking, the insurance company will pay a death benefit even if you die from the coronavirus. With few exceptions, life insurance policies will pay for any cause of death once the policy is in force. There are very few exceptions to this rule, such as acts of war or terrorism. Pandemics are not a known exception.

If you’re feeling at all uncomfortable about how the coronavirus might impact your existing life insurance policies, contact the company for clarification. Alternatively, review your life insurance policy paying particular attention to the exclusions. If there’s nothing that looks like death due to a pandemic, you should be good to go.

But once the policy is in place, there are only a few reasons why the insurance company can deny a claim:

  • Non-payment of premiums – if you exceed the grace period for the payment, which is generally 30 or 31 days, your policy will lapse. But even if it does, you may still be able to apply for reinstatement. However, after a lapse, you won’t be covered until payment is made.
  • Providing false information on an application – if you fail to disclose certain health conditions that result in your death, the company can deny payment for insurance fraud. For example, if you’re a smoker, but check non-smoker on the application, payment of the death benefit can be denied if smoking is determined to be a contributing cause of death.
  • Death within the first two years the policy is in force – often referred to as the period of contestability, the insurance company can investigate the specific causes of death for any reason within the first two years. If it’s determined that death was caused by a pre-existing condition, the claim can be denied.

None of these are a serious factor when it comes to the coronavirus, unless you tested positive for the virus prior to application, and didn’t disclose it. But since the coronavirus can strike suddenly, it shouldn’t interfere with your death benefits if it occurs once your policy is already in force.

How Does Coronavirus Affect Life Insurance You’re Applying For?

This is just a guess on my part, but I think people may be giving more thought to buying life insurance now they may have at any time in the past. The coronavirus has turned out to be a real threat to both life and health, which makes it natural to consider the worst.

But whatever you do, don’t let your fear of the unknown keep you from applying for coverage. Though you may be wishing you bought a policy, or taken additional coverage, before the virus hit, now is still the very best time to apply. And that’s not a sales pitch!

No matter what’s going on in the world, the best time to apply for life insurance is always now. That’s because you’re younger and likely healthier right now than you’ll ever be again. Both conditions are major advantages when it comes to buying life insurance. If you delay applying, you’ll pay a higher premium by applying later when you’re a little bit older. But if you develop a serious health condition between now and then, not only will your premium be higher, but you may even be denied for coverage completely.

Don’t let fears of the coronavirus get in your way. If you believe you need life insurance, or more of it, apply now.

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That said, the impact of the coronavirus on new applications for life insurance is more significant than it is for existing policies.

The deaths of more than 100,000 people in the US is naturally having an effect on claims being paid by life insurance companies. While there’s been no significant across-the-board change in how most life insurance companies evaluate new applications, the situation is evolving rapidly. Exactly how that will play out going forward is anyone’s guess at the moment.

What to Expect When Applying for Life Insurance in the Age of the Coronavirus

If you’re under 60 and in good or excellent health, and not currently showing signs of the virus, the likelihood of being approved for life insurance is as good as it’s ever been. You can make an application, and not concern yourself with the virus.

That said, it may be more difficult to get life insurance if you have any conditions determined to put you at risk for the coronavirus, as determined by the Centers for Disease Control (CDC).

These include:

  • Ages 65 and older.
  • Obesity, defined as a body mass index of 40 or greater.
  • Certain health conditions, including asthma, chronic kidney disease and being treated by dialysis, lung disease, diabetes, hemoglobin disorders, immunocompromised, liver disease, and serious heart conditions.
  • People in nursing homes or long-term care facilities.

Now to be fair, each of the above conditions would require special consideration even apart from the coronavirus. But since they’re known coronavirus risk factors, the impact of each has become more important in the life insurance application process.

If any of these conditions apply to you, the best strategy is to work with insurance companies that already specialize in those categories.

There are insurance companies that take a more favorable view of people with any of the following conditions:

  • Over 65
  • Kidney disease
  • Certain lung diseases, including Asthma
  • Liver disease
  • Certain heart conditions

More Specific Application Factors

But even with insurance companies that specialize in providing coverage for people with certain health conditions, some have introduced new restrictions in light of the coronavirus.

For example, if you have a significant health condition and you’re over 65, you may find fewer companies willing to provide coverage.

The insurance company may also check your records for previous coronavirus episodes or exposures. Expect additional testing to determine if you’re currently infected. Most likely, the application process will be delayed until the condition clears, unless it has resulted in long-term complications.

Travel is another factor being closely examined. The CDC maintains an updated list of travel recommendations by country. If you’ve recently traveled to a high-risk country, or you plan to do so in the near future, you may be considered at higher risk for the coronavirus. How each insurance company handles this situation will vary. But your application may be delayed until you’ve completed a recommended quarantine period.

Other Financial Areas to Consider that May be Affected

Since the coronavirus is still very much active in the US and around the world, financial considerations are in a constant state of flux. If you’re concerned at all about the impact of the virus on other insurance types, you should contact your providers for more information.

Other insurance policies that my warrant special consideration are:

  • Employer-sponsored life insurance. There’s not much to worry about here, since these are group plans. Your acceptance is guaranteed upon employment. The policy will almost certainly pay the death benefit, even if your cause of death is related to the virus.
  • Health insurance. There’s been no media coverage of health insurance companies refusing to pay medical claims resulting from the coronavirus. But if you’re concerned, contact your health insurance company for clarification.

Action Steps to Take in the Age of the Coronavirus

Many have been gripped by fear in the face of the coronavirus, which is mostly a fear of the unknown. But the best way to overcome fear is through positive action.

I recommend the following:

1. Be proactive about your health.

Since there is a connection between poor health and the virus, commit to improving your health. Maintain a proper diet, get regular exercise, and follow the CDC coronavirus guidelines on how to protect yourself.

2. If you need life insurance, buy it now.

Don’t wait for a bout with the virus to take this step. It’s important for a number of reasons and the consequences of not having it can be severe. Compare the best life insurance companies to get started.

3. Consider no medical exam life insurance.

If you don’t have the virus, and you want to do a policy as quickly as possible, no medical exam life insurance will be a way to get coverage almost immediately.

4. Look for the lowest cost life insurance providers.

Low cost means you can buy a larger policy. With the uncertainty caused by the coronavirus, having enough life insurance is almost as important as having a policy at all. Look into cheap term life insurance to learn more about what you can afford.

5. Keep a healthy credit score.

Did you know that your credit score is a factor in setting the premium on your life insurance policy? If so, you have one more reason to maintain a healthy credit score. One of the best ways to do it is by regularly monitoring your credit and credit score. There are plenty of services available to help you monitor your credit.

6. Make paying your life insurance premiums a priority

This action step rates a special discussion. When times get tough, and money is in short supply, people often cancel or reduce their insurance coverage. That includes life insurance. But that can be a major mistake in the middle of a pandemic. The coronavirus means that maintaining your current life insurance policies must be a high priority.

The virus and the uncertainty it’s generating in the economy and the job market are making finances less stable than they’ve been in years. You’ll need to be intentional about maintaining financial buffers.

7. Start an emergency fund.

If you don’t already have one place, start building one today. If you already have one up and running, make a plan to increase it regularly.

You should also do what you can to maximize the interest you’re earning on your emergency fund. You should park your fund in a high-interest savings account, some of which are paying interest that’s more than 20 times the national bank average.

8. Get Better Control of Your Debts

In another direction, be purposeful about paying down your debt. Lower debt levels translate into lower monthly payments, and that improves your cash flow.

If you don’t have the funds to pay down your debts, there are ways you can make them more manageable.

For example, if you have high-interest credit card debt, there are balance transfer credit cards that provide a 0% introductory APR for up to 21 months. By eliminating the interest for that length of time, you’ll be able to dedicate more of each payment toward principal reduction.

Still another strategy for lowering your debts is to do a debt consolidation using a low interest personal loan. Personal loans are unsecured loans that have a fixed interest rate and monthly payment, as well as a specific loan term. You can consolidate several loans and credit cards into a single personal loan for up to $40,000, with interest rates starting as low as 5.99%.

Final Thoughts

We’ve covered a lot of ground in this article. But that’s because the coronavirus comes close to being an all-encompassing crisis. It’s been said the coronavirus is both a health crisis and an economic crisis at the same time. It requires strategies on multiple fronts, including protecting your health, your finances, and your family’s finances when you’re no longer around to provide for them.

That’s where life insurance comes into the picture. The basic process hasn’t changed much from the coronavirus, at least not up to this point. But that’s why it’s so important to apply for coverage now, before major changes are put into effect.

The post How Does Coronavirus Affect Life Insurance? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Things Break. How to Make Sure Your Emergency Fund Can Cover Them

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Your washing machine. Your car. Your front tooth.

If any of those broke right now, would you be able to get it fixed immediately? Or would you have to walk around with a gap in your smile for months until you could get the money together?

If you can’t afford to pay to fix it today, you’re not alone. Most people don’t have $400 saved in case of an emergency either. So before your car breaks down on the side of the road on your way to an interview, make sure you have a solid emergency fund of at least $500.

Don’t know how to get there? Having a budget (that you actually stick to) can help you get there. Here’s one budgeting strategy we recommend, and four other tips that can help you keep your expenses in line.

1. The 50/30/20 Budgeting Rule

The 50/30/20 rule is one of the simplest budgeting methods out there, which is why you’ve probably heard us talk about it before if you’re a regular TPH reader. There are no fancy spreadsheets or pricy apps to download (unless you want to), and it’s very straightforward.

Here’s how it shakes out: 50% of your monthly take home income goes to your essentials — your rent, your groceries, your minimum debt payments, and other necessities. 30% of your cash goes to the fun stuff, and 20% is dedicated to your financial goals. That could be paying more than the minimum on your debts or adding to your investments. And it definitely includes building up your emergency fund!

If you take a look at your budget and realized you don’t have enough leftover to contribute to your emergency fund, here are a few ways to help balance your budget:

2. Cut More Than $500 From One Of Your Must-Have Bills

You’re probably overpaying the bills you have to pay each month. But you can cut those expenses down, without sacrificing anything. Maybe even enough to cover that window your kid just smashed with a ball. Definitely enough to grow your emergency fund a meaningful amount.

So, when’s the last time you checked car insurance prices?

You should shop your options every six months or so — it could save you some serious money. Let’s be real, though. It’s probably not the first thing you think about when you wake up. But it doesn’t have to be.

A website called Insure.com makes it super easy to compare car insurance prices. All you have to do is enter your ZIP code and your age, and it’ll show you your options.

Using Insure.com, people have saved an average of $540 a year.

Yup. That could be $500 back in your pocket just for taking a few minutes to look at your options.

3. Earn Up to $225 in Easy, Extra Cash

If we told you you could get free money just for watching videos on your computer, you’d probably laugh. It’s too good to be true, right? But we’re serious. You can really add up to a few hundred bucks to your emergency savings with some mindless entertainment.

A website called InboxDollars will pay you to watch short video clips online. One minute you might watch someone bake brownies and the next you might get the latest updates on Kardashian drama.

All you have to do is choose which videos you want to watch and answer a few quick questions about them afterward. Brands pay InboxDollars to get these videos in front of viewers, and it passes a cut onto you.

InboxDollars won’t make you rich, but it’s possible to get up to $225 per month watching these videos. It’s already paid its users more than $56 million.

It takes about one minute to sign up, and you’ll immediately earn a $5 bonus to get you started.

4. Ask This Website to Pay Your Credit Card Bill This Month

Just by paying the minimum amount on your credit cards, you are extending the life of your debt exponentially — not to mention the hundreds (or thousands) of dollars you’re wasting on interest payments. You could be using that money to beef up your emergency savings, instead.

The truth is, your credit card company is happy to let you pay just the minimum every month. It’s getting rich by ripping you off with high interest rates — some up to nearly 30%. But a website called AmOne wants to help.

If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

AmOne keeps your information confidential and secure, which is probably why after 20 years in business, it still has an A+ rating with the Better Business Bureau.

It takes two minutes to see if you qualify for up to $50,000 online. You do need to give AmOne a real phone number in order to qualify, but don’t worry — they won’t spam you with phone calls.

5. Get a Side Gig And Make More Money

Let’s face it — if your monthly income is less than what your monthly expenses are (and you’ve run out of things to cut), you need more money.

Well, we all could use more money. And by earning a little bit extra each month, we could make sure we’re never taken by surprise when an ER visit tries to drain our savings.

Luckily, earning money has never been easier with the rise of the “Gig Economy”. Here are 31 simple ways to make money online. Which one could you do to pad your emergency savings?

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Build Credit with Fingerhut

If you’ve been wanting to make a big purchase, but your credit is less than spectacular, you might have looked into Fingerhut as an option. 

Fingerhut is an online catalog and retailer that showcases a multitude of products. On this website, customers can shop for anything from electronics to home décor to auto parts. Fingerhut offers financing through their own line of credit, making it appealing to shoppers with poor credit or a nonexistent credit history. Many consumers have a better chance of getting approved by Fingerhut, than they might have of getting approved through most other credit card companies. It’s an option worth looking into if you want to improve your credit score through credit utilization.  

The major difference between Fingerhut and credit cards that cater to low credit scores is that Fingerhut credit is exclusively available for use with its own company’s products and authorized partners. You’ll also find that the company’s products are pricier than they would be through most other retailers, while also bearing the weight of higher interest rates. While it might seem like a good idea if you don’t have good credit, it’s best to familiarize yourself with the ins and outs of the company beforehand so that you know what you’re signing up for. 

How Fingerhut credit works

When you apply for a Fingerhut credit account, you can get approved by one of two accounts:

  • WebBank/Fingerhut Advantage Credit Account.
  • Fingerhut FreshStart Installment Loan issued by WebBank.

As it happens, by submitting your application, you are applying for both credit accounts. Applicants will be considered for the Fingerhut FreshStart Installment Loan issued by WebBank as a direct result of being denied for the WebBank/Fingerhut Advantage Credit Account. In other words, you won’t have a way of knowing which one you will be approved for prior to applying. Both credit accounts are issued by WebBank and are set up so that customers can purchase merchandise by paying for them on an installment plan with a 29.99% Annual Percentage Rate (APR). These are the only things that the different Fingerhut credit accounts have in common.

The WebBank/Fingerhut Advantage Credit Account

The WebBank/Fingerhut Advantage Credit Account works very much like an unsecured credit card, except that it’s an account that you can only use it to shop on Fingerhut or through its authorized partners. 

This credit account features:

  •  No annual fee.
  • A 29.99% interest rate.
  • A $38 fee on late or returned payments.
  • A possible down payment; it may or may not be required. You won’t know prior to applying. 

If you get denied for this line of credit, your application will automatically be reviewed for the Fingerhut FreshStart Credit Account issued by WebBank, which is both structured and conditioned differently.

Fingerhut FreshStart Installment Loan issued by WebBank

If you get approved for the Fingerhut FreshStart Installment Loan, you must follow these three steps to activate it:

  • Make a one-time purchase of no less than $50.
  • Put a minimum payment of $30 down on your purchase, and your order will be shipped to you upon receipt of your payment. You may not use a credit card to make down payments, but you can use a debit card, check, or a money order. 
  • Make monthly payments on your balance within a span of six to eight months.

You can become eligible to upgrade to the Fingerhut Advantage Credit Account so long as you are able to pay off your balance during that time frame or sooner without having made any late payments. Keep in mind that paying for the entire balance in full at the time you make your down payment will result in you not qualifying for the loan as well as being ineligible for upgrade. 

How a Fingerhut credit account helps raise your credit score

The fact that it can help you improve your credit is one of the biggest advantages of using a Fingerhut credit account. 

When you make your payments to Fingerhut in full and on-time, the company will report that activity to the three major credit bureaus. This means that your good credit utilization won’t go unnoticed nor unrewarded. If you use Fingerhut to improve your credit score, you will eventually be able to apply for a credit card through a traditional credit card company—one where you can make purchases anywhere, not just at Fingerhut. 

Additional benefits of a Fingerhut credit account

Besides using it as a tool to repair your bad credit, there are a few other benefits to using a WebBank Fingerhut Advantage Credit Account such as:

  • No annual fee.
  • Fingerhut has partnerships with a handful of other retailers, which means you can use your Fingerhut credit line to make purchases through a variety of companies. Fingerhut is partnered with companies that specialize in everything from floral arrangements to insurance plans.
  • There are no penalties on the WebBank Fingerhut Advantage Credit Account when you pay off your balance early.

How to build credit with Fingerhut

Fingerhut credit works the same way as the loans from credit card companies work: in the form of a revolving loan. 

A revolving loan is when you are designated a maximum credit limit by your lender, in which you are allowed to spend. Whatever you spend, you are expected to pay back in full and on-time through a series of monthly payments. This act of borrowing money and paying off bills using your Fingerhut account causes your balances to revolve and fluctuate, hence, its name. 

Your credit activity, good or bad, gets reported to the three major credit bureaus and in turn, will have an effect on your credit report. Revolving loans play a large role in your credit score, affecting approximately 30% of your score through your credit utilization ratio. If your credit utilization ratio, the amount of available revolving credit divided by your amount owed, is too high then your credit score will plummet. 

When using a Fingerhut account, the goal is to try to keep your amounts owed as low as you possibly can so that you can maintain a low utilization ratio, and as a result, have a higher credit score.

Alternatives to Fingerhut

If you’ve done all your research and decided that Fingerhut isn’t the right choice for you, there are other options that might serve you better, even if you have bad credit. There are a variety of secured credit cards that you can apply for such as:

  • The OpenSky Secured Visa Credit Card: You will need a $200 security deposit to qualify for this secured credit card, but you can most likely get approved without a credit check or even a bank account. It can also be used to improve your credit, as this card does report to the three major credit bureaus. While this card does come with an annual $35 fee, you can use it to shop anywhere that will accept a Visa. 
  • Discover it Secured:  For all those opposed to paying an annual fee of any sort, this card might just be the one for you. With a $0 annual fee and the ability to earn rewards through purchases, there’s not much to frown about with this secured credit card. One of the best perks, is that it allows you the chance to upgrade to an unsecured card after only eight months. 
  • Deserve Pro Mastercard: This card is a desirable option for those with a short credit history. There is no annual fee and no security deposit required and, if your credit history isn’t very long-winded, that’s okay. The issuers for this card may use their own process to decide whether or not you qualify for credit, by evaluating other factors such as income and employment. This card is especially nifty because you can get cash-back rewards such as 3% back on every dollar that you spend on travel and entertainment, 2% back on every dollar spent at restaurants, and 1% cash back on every dollar spent on anything else. 

Final Thoughts 

Fingerhut is an option worth looking into for those with bad credit or a short credit history. If you want to use a Fingerhunt credit account to improve your credit score, be sure to use it wisely and make all of your payments on time, just as you would with any other credit card.

Even though it might be easy to get approved, the prices and interest rates on items sold through Fingerhut are set higher than they would be at most other retailers, so it’s important to consider this before applying. 

There are a ton of options available, regardless of what your credit report looks like, if you are trying to improve your credit. If the prices of Fingerhut’s merchandise are enough to scare you away, you might want to consider applying for a secured credit card. 

How to Build Credit with Fingerhut is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Benét J. Wilson, TPG credit cards editor: My 10 favorite TPG stories of 2020

The coronavirus pandemic forced credit card companies to make major pivots, not only for travel-related cards, but for cash-back and rewards ones too. They worked hard to offer temporary pandemic-related benefits and perks to make customers’ cards more usable. The Points Guy credit cards team is taking its yearly look back on our favorite stories …

Source: thepointsguy.com

Credit Card Balance Transfers

Credit card balances are crippling households across the United States, giving them insurmountable debts that just keep on growing and never seem to go away. But there is some good news, as this problem has spawned a multitude of debt relief options, one of which is a credit card balance transfer.

Balance transfers are a similar and widely available option for all debtors to clear their credit card balances, reduce their interest rate, and potentially save thousands of dollars.

How Credit Card Balance Transfers Work

A balance transfer credit card allows you to transfer a balance from one or more cards to another, reducing credit card debt and all its obligations. These cards are offered by most credit card companies and come with a 0% APR on balance transfers for the first 6, 12 or 18 months.

Consumers can use this balance transfer offer to reduce interest payments, and if they continue to pay the same sum every month, all of it will go towards the principal. Without interest to eat into their monthly payment, the balance will clear quickly and cheaply.

There are a few downsides to transferring a balance, including late fees, a transfer fee and, in some cases, an annual fee.

What Happens When You Transfer a Balance on Credit Cards?

When you transfer a balance, your new lender repays your credit card debt and moves the funds onto a new card. You may incur a transfer fee and pay an annual fee, which can increase the total debt, but transferring a balance in this way allows you to take advantage of a 0% introductory APR. While this introductory period lasts, you won’t pay any interest on your debt and can focus on clearing your credit card debt step by step.

Why are Balance Transfers Beneficial?

A little later, we’ll discuss some alternatives to a balance transfer offer, all of which can help you clear your debt. However, the majority of these methods will increase your debt in the short term, prolong the time it takes to repay it or reduce your credit score. 

A balance transfer credit card does none of these things. As soon as you accept the transfer offer, you’ll have a 0% introductory APR that you can use to eliminate your debt. The balance transfer may increase your debt liabilities slightly by adding a transfer fee and an annual fee, but generally speaking, this is one of the best ways to clear your debt.

To understand why this is the case, you need to know how credit card interest works. If you have a debt of $20,000 with a variable APR rate of 20% and a minimum monthly payment of $500, you’ll repay the debt in 67 months at a cost of over $13,000 in interest.

If you move that debt to a card with a balance transfer offer of 0% APR for 12 months, and you continue to meet the $500 minimum payment, you’ll repay $5,000 and reduce the debt to $15,000. From that point on, you’ll have a smaller balance to clear, less interest to worry about, and can clear the debt completely in just a few more years.

Of course, the transfer fee will increase your balance somewhat, but this fee is minimal when compared to the money you can save. The same applies to the annual fee that these cards charge and, in many cases, you can find cards that don’t charge an annual fee at all. 

You can even find no-fee balance transfer cards, although these are rare. The BankAmericard credit card once provided a no fee transfer offer to all applicants, in addition to a $0 annual fee. However, they changed their rules in 2018 and made the card much less appealing to the average user.

Pros and Cons of Credit Card Balance Transfers

From credit score and credit limit issues to a high variable APR, late fees, and cash advance fees, there are numerous issues with these cards. However, there are just as many pros as there are cons, including the fact that they can be one of the cheapest and fastest ways to clear debt.

Pro: 0% Introductory APR

The 0% APR on balance transfers is the best thing about these credit cards and the reason they are so beneficial. However, many cards also offer 0% APR on purchases. This means that if you continue to use your card after the transfer has taken place, you won’t be charged any interest on the new credit.

With most cards, the 0% APR on purchases runs for the same length of time as the balance transfer offer. This ensures that all credit you accumulate upon opening the account will be subject to the same benefits. Of course, accumulating additional credit is not wise as it will prolong the time it takes you to repay the debt.

Pro: Can Still Get Cash Rewards

While cash rewards are rare on balance transfer cards, some of the better cards still offer them. Discover It is a great example of this. You can earn cash back every time you spend, even after initiating a balance transfer. The cash rewards scheme is one of the best in the industry and there is also a 0% APR on balance transfers during an introductory period that lasts up to 18 months.

Pro: High Credit Limit

A balance transfer card may offer you a high credit limit, one that is large enough to cover your credit card debt. You will need a good credit score to get this rate, of course, but once you do your credit card debt will clear, you can repay it, and then you’ll have a card with a high credit limit and no balance.

Throw a rewards scheme into the mix (as with the Discover It rewards card) and you’ll have turned a dire situation into a great one.

Con: Will Reduce Credit Score

A new account opening won’t impact your credit score as heavily as you may have been led to believe. In fact, the impact of a new credit card or loan is minimal at best and any effects usually disappear after just a few months. However, a balance transfer card is a different story and there are a few ways it can impact your score.

Firstly, it could reduce your credit utilization ratio. This is the amount of credit you have compared to the amount of debt you have. If you have four credit cards each with a credit limit of $20,000 and a debt of $10,000 then your score will be 50%. If you close all of these and swap them for a single card where your credit limit matches your debt, your score will be 100%.

Your credit utilization ratio points for 30% of your total FICO score and can, therefore, do some serious damage to your credit score.

Secondly, although FICO has yet to disclose specifics, a maxed-out credit card can also reduce your score. By its very nature, a balance transfer card will be maxed out or close to being maxed out, as it’s a card opened with the sole purpose of covering this debt.

Finally, if you close multiple accounts and open a new one, your account age will decrease, thus reduce your credit score further.

Con: Transfer Free

The transfer fee is a small issue, but one worth mentioning, nonetheless. This is often charged at between 3% and 5% of the total balance, but there are also minimum amounts of between $5 and $10, and you will pay the greater of the two.

This can sound like a lot. After all, for a balance transfer of $10,000, 5% will be $500. However, when you consider how much you can save over the course of the introductory period, that fee begins to look nominal.

There may also be an annual fee to consider, but if your score is high enough and you choose one of the cards listed in this guide, you can avoid this fee.

Con: Late Fees and Other Penalties

In truth, all credit cards will charge you a fee if you’re late and you will also be charged a fee every time you make a cash advance. However, the fees may be higher with balance transfer cards, especially if those cards offer generous benefits and rewards elsewhere. It’s a balancing act for the provider—an advantage here means a disadvantage there.

Con: High APR on Purchases

While many balance transfer cards offer a 0% APR on purchases for a fixed period, this rate may increase when the introductory period ends. The resulting variable APR will often be a lot larger than what you were paying before the transfer, with many credit cards charging over 25% or more on purchases.

Which Credit Cards are Best for Clearing Credit Card Debt?

Many credit card issuers have some kind of balance transfer card, but it’s worth remembering that credit card companies aren’t interested in offering these cards to current customers. You’ll need to find a new provider and if you have multiple cards with multiple providers, that can be tricky. 

Run some comparisons, check the offers against your financial situation, and pay close attention to late fees, APR on purchases, cash rewards, and the length of the 0% introductory APR rate. 

You’ll also need to find a card with a credit limit high enough to cover your current debt, and one that accepts customers with your credit score. This can be tricky, but if you shop around, you should find something. If not, focus on increasing your credit score before seeking to apply again.

Here are a few options to help you begin your search for the most suitable balance transfer card:

Discover It

  • Balance Transfer Offer: 18 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 6 months
  • Annual Fee: $0
  • Rate: Up To 24.49% Variable APR
  • Rewards: Yes

Chase Freedom Unlimited

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 5% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.24% Variable APR
  • Rewards: Yes

Citi Simplicity

  • Balance Transfer Offer: 21 Months
  • Transfer Fee: 5% on transfers
  • Purchases APR: 0% for 12 months
  • Annual Fee: $0
  • Rate: Up To 26.24% Variable APR
  • Rewards: No

Bank of America Cash Rewards

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: No

Capital One Quicksilver

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: No

Blue Cash Everyday Card from American Express

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: No

Capital One SavorOne

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: Yes

How to Clear Debt with a Balance Transfer Card

From the point of the account opening to the point that the introductory period ends, you need to focus on clearing as much of the balance as possible. Don’t concern yourself with a variable APR rate, annual fee or other issues and avoid additional APR on purchases by not using the card. Just put all extra cash you have towards the debt and reduce it one step at a time.

Here are a few tips to help you clear debt after you transfer a balance:

Meet the Monthly Payment

First things first, always meet your minimum payment obligations. The 0% APR on balance transfers protects you against additional interest, but it doesn’t eliminate your repayments altogether. If you fail to meet these payments, you could find yourself in some serious hot water and may negate the balance transfer offer.

Increase Payment Frequency

It may be easier for you to repay $250 every two weeks as opposed to $500 every month. This will also allow you to use any extra funds when you have them, thus preventing you from wasting cash on luxury purchases and ensuring it goes towards your debt.

Earn More

Ask for a pay rise, take on a part-time job, work as a freelancer—do whatever it takes to earn extra cash during this period. If you commit everything you have for just 12 to 18 months you can get your troublesome debt cleared and start looking forward to a future without debt and complications, one where you have more money and more freedom.

Sell Up

It has never been easier to sell your unwanted belongings. Many apps can help you with this and you can also sell on big platforms like Facebook, eBay, and Amazon. 

Sell clothes, electronics, books, games, music—anything you no longer need that could earn you a few extra dollars. It all goes towards your debt and can help you to clear it while your introductory APR is active.

Don’t Take out a Personal Loan

While you might be tempted to use a loan to cover your debt, this is never a good idea. You should avoid using low-interest debt to replace high-interest debt, even if the latter is currently under a 0% introductory APR. 

It’s easy to get trapped in a cycle of swapping one debt for another, and it’s a cycle that ultimately leads to some high fees and even higher interest rates.

Focus on the Bigger Picture

Debt exists because we focus too much on the short-term. Rather than dismissing the idea of buying a brand-new computer we can’t afford, we fool ourselves into believing we can deal with it later and then pay for it with a credit card. This attitude can lead to persistent debt and trap you in an inescapable cycle and it’s one you need to shed if you’re going to transfer a balance.

Instead of focusing on the short term, take a look at the bigger picture. If you can’t afford it now, you probably can’t afford it later; if you can’t repay $10,000 worth of debt this year, you probably can’t handle $20,000 next year.

Alternatives to Credit Card Balance Transfers

If you have the cash and the commitment to pay your credit card debt, a balance transfer card is perfect. However, if you have a low credit score and use the card just to accumulate additional debt and buy yourself more time, it will do more harm than good. In that case, debt relief may be the better option.

These programs are designed to help you pay your debt through any means possible. There are several options available and all these are offered by specialist companies and providers, including banks and credit unions. As with balance transfer cards, however, you should do your research in advance and consider your options carefully before making a decision.

Pay More Than the Minimum

It’s an obvious and perhaps even redundant solution, but it’s one that needs to be mentioned, nonetheless. We live in a credit hungry society, one built on impulsive purchases and a buy-now-care-later attitude. A balance transfer card, in many ways, is part of this, as it’s a quick and easy solution to a long and difficult problem. And like all quick patches, it can burst at the seams if the problem isn’t controlled.

The best option, therefore, is to try and clear your debts without creating any new accounts. Do everything you can to increase your minimum payment every month. This will ensure that you pay more of the principal, with the minimum payment covering your interest obligations and everything else going towards the actual balance.

Only when this fails, when you genuinely can’t cover more than the minimum, should you look into opening a new card.

Debt Consolidation

Balance transfers are actually a form of debt consolidation, but ones that are specifically tailored to credit card debt. If you have multiple types of debt, including medical bills, student loans, and personal loans, you can use a consolidation loan to clear it.

This loan will pay off all of your debts and then give you a new one with a new provider. The provider will reduce your monthly payment and may even reduce your interest rate, allowing you to pay less and to feel like you’re getting a good deal. However, this is at the expense of a greatly increased loan term, which means you will pay considerably more over the duration of the loan.

As with everything else, a debt consolidation loan is dependent on you having a good credit score and the better your financial situation is, the better the loan rates will be.

Debt Management

Debt management can help if you don’t have the credit history required for debt consolidation. Debt management plans are provided by companies that work with your creditors to repay your debts in a way that suits you and them. You pay the debt management company, they pass your money on, and in return, they request that you abide by many strict terms and conditions, including not using your credit cards.

Many debt management programs will actually request that you close all but one of your credit cards and only use that one card in emergencies. This can greatly reduce your credit score by impacting your credit utilization ratio. What’s more, if you miss any payments your creditors may renege on their promises and revert back to the original monthly payments.

Debt Settlement

The more extreme and cheaper option of the three, but also the riskiest. Debt settlement works well with sizeable credit card debt and is even more effective if you have a history of missed payments, defaults or collections. A debt specialist may request that you stop making payments on your accounts and instead put your money into a secured account run by a third-party provider.

They will then contact your creditors and negotiate a settlement amount. This process can take several years as they’re not always successful on the first attempt but the longer they wait, the more desperate your creditors will become and the more likely they will be to accept a settlement.

Debt settlement is one of the few options that allows you to pay all your debt for much less than the original balance. However, it can harm your credit score while these debts are being repaid and this may impact your chances of getting a mortgage or a car loan for a few years.

Credit Card Balance Transfers is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Chase IHG Premier 140,000 Points + $50 Signup Bonus With $3,000 Spend, AF Waived (Ends 1/13/21)

Update 12/9/20: Deal is due to end on 1/13/2021 according to people with affiliate links. Make sure to apply through a link with the $50 bonus.

Update 10/1/20: Doing a dummy booking gets you 140,000 points + $50 statement credit with the AF waived. Somebody in the comments reported seeing a $150 statement credit, but I can’t get that to show at all. Updated the direct link.

Update 9/30/20: New direct link available, no longer needed to apply in app (wasn’t showing for everybody anyway). This time the annual fee is waived, making the deal the best ever.

The Offer

Direct link to offer

  • Chase IHG Premier card is offering a signup bonus of 140,000 points after $3,000 in spend within the first three months.

 

 

Card Details

  • Annual fee of $89 waived first year
  • Card earns at the following rates:
    • 25x points per $1 spent on IHG properties (10x from the card + 15x from status and club membership)
    • 2x points per $1 spent on gas stations, grocery stores and restaurants
    • 1x points per $1 spent on all other purchases
  • Free night certificate on card anniversary, this is limited to properties that cost 40,000 or fewer points
  • Automatic Platinum elite status
  • Fourth Reward Night Free on any stay of 4 or more nights
  • 20% discount when purchasing points
  • Global Entry or TSA PreCheck fee credit
  • 10,000 bonus points when you spend $20,000 or more and make one additional purchase each account anniversary year
  • This product is not available to either (i) current cardmembers of this credit card, or (ii) previous cardmembers of this credit card who received a new cardmember bonus for this credit card within the last 24 months. If you have the old IHG card, you’re still eligible to get this bonus/card.
  • Chase 5/24 rule applies to this card

Our Verdict

Best offer we’ve ever seen was 125,000 plus $50 statement credit, this one doesn’t have the $50, but comes with 15,000 more points. If IHG interests you and you are eligible, this one is worth signing up for. We’ll add this to our best credit card bonus page.

If you recently signed up with the targeted 125,000 points offer, you should be able to message Chase and have this 140k offer matched. As always read these things everybody should know about Chase credit cards before applying.

Thanks to all those who sent this in.

Post history:

  • Update 9/17/20: Deal is now publicly 125,000 points. But there is a 140,000 point offer showing up in app for some. Hat tip to Kyle
  • Offer was supposed to end at end of March, but is still alive and well. Hat tip to VFTW

Source: doctorofcredit.com

What Happens If You Make a Late Credit Card Payment?

credt card sitting on bill on keyboard to show late credit card payment

Uh-oh! You just received your credit card statement, and it shows interest charges and a $38 late fee that you didn’t expect. You realize you’re guilty of making a late credit card payment last month. Or worse, you realize you forgot to send your payment at all. Here’s a rundown of potential impacts that your missed payment may have on your account.

  1. You’re assessed a late fee. Most credit cards charge a late fee when you make a late payment. In most cases, the fee is a flat charge of up to $39. In other instances, the fee might be tiered. For example, the late fee could be $15 if the balance is less than $100, up to $25 if the balance is $100 to less than $250 and up to $39 if the balance is $250 or more.

But what exactly does “up to” mean? Federal laws now prohibit credit card issuers from charging late fees that are in excess of the amount due. So if you have a balance of only $12, then your late fee can’t be more than $12.

On the other hand, there are credit cards that charge no late fees at all. In addition, a few cards automatically waive a first late payment. Nevertheless, don’t interpret a late-payment forgiveness policy as an excuse to pay late.

  1. You lose your interest-free grace period. Many credit card users avoid interest charges by paying their balance in full and on time. But if you fail to pay your statement balance on time, the interest charges are applied to your next statement in addition to any fees. In fact, interest charges are assessed based on your average daily balance for each day of the entire statement period. For cardholders who are already carrying a balance, the increase in interest charges won’t be as dramatic, but it can be significant.
  2. You’re charged a penalty interest rate—AKA penalty APR. Not only are most cardholders hit with a late fee and additional interest charges, but a new, higher penalty interest rate can apply when cardholders miss payments. Thankfully, some of the same simple cards, like the Avant Credit Card don’t increase your APR as a penalty for late payments.
  3. Your credit score suffers. Making a late payment on your credit card account can affect your credit score, but it depends. It’s up to credit card issuers how late a payment must be before it’s reported to the credit bureaus, but any late payment can be reported.

Thankfully, most credit card issuers won’t report payments that are less than 30 days late. And some lenders wait as long as 60 days before reporting late credit card payments.

Just because issuers don’t immediately report a late payment doesn’t mean it doesn’t exist. Your credit reports show the payment history for all of your credit cards, so check your reports to see whether a late payment has been reported to the bureaus. You’re entitled to a free credit report from each of the credit reporting agencies once a year under federal law.

In between getting your free annual credit reports, you can see how your payment history is affecting your own credit by getting your free score and credit report card on Credit.com.

What to Do If You Miss a Payment

  1. Pay it as soon as possible.When you realize you missed a payment, make a payment immediately. The quickest way to make a payment is by phone or electronically—not by postal mail. Making sure the payment is received quickly reduces the likelihood that your late payment is reported to the major credit bureaus. It also increases the chance that the card issuer is willing to forgive any late fees and interest charges.
  2. Contact your credit card issuer.Once you’ve made a payment, if you were otherwise in good standing, you’re in an excellent position to request that any late fees and interest charges be waived. Simply call your credit card company and let it know the circumstances that caused you to pay late, such as if you didn’t receive your statement. In most cases, the credit card provider is happy to waive these charges in order to satisfy and retain you as a customer.
  3. Fix the problem.After you’ve done what you can to limit the immediate harm caused by a late credit card payment, take steps to keep it from happening again. For example, if your statement for your last billing cycle wasn’t delivered in the mail, switch to electronic statements. Alternatively, you can see if your credit card issuer offers payment reminders via text or email. Even better, set up automatic payments if you can.

It’s only human to miss a credit card payment sometime. It’s how quickly you address the error that matters to you, your credit score and your credit card issuer.

More on Credit Cards

  • 6 Smart Credit Card Strategies
  • How to Get a Credit Card with Bad Credit
  • 11 Ways to Improve Your Credit Score

Image: Purestock

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

The post What Happens If You Make a Late Credit Card Payment? appeared first on Credit.com.

Source: credit.com