The average couple has a number of topics to discuss on their to-do list before heading to the altar. The least romantic topics, if they even make the list at all, are probably concerning debt and the possibility of divorce. If you foresee a divorce in your future or are currently going through one, itâs safe to say that you have some burning questions about your finances. Perhaps you and your spouse acquired some debt during the course of your marriage and youâre now wondering who is going to be responsible for what. While itâs important to note that each situation is unique, there are some ground rules in the Divorced with Debt arena. In the below sections, weâll address the usual ways in which debt is divided up between each spouse.
Community Property vs. Common Law Property Rules
If youâre trying to figure out what debts you will be responsible post-divorce, you will first need to know if you live in an equitable distribution state that follows common law or if you live in a community property state. When it comes to debt and the divorce process, most states follow common law for property, meaning that following a divorce, each ex-spouse will be held responsible for the debt that they took on. In a community property state, both spouses, considered to be the âcommunity,â may both end up equally responsible for debt that incurred throughout the marriage, known as âcommunity debt.â The following states are Community Property States:
Most of the time, the banks arenât interested in how the courts decide to split up your debt. Even after a divorce, the original contract or credit card agreement will typically overrule a divorce decree. This means that if the original agreement was set up under your spouseâs name, the banks are going to expect the payments to be as such. As you can imagine, this could potentially cause problems with an ex-spouse who is being asked to pay off debt that is not under their name, or at least under a joint account.
To put it into perspective, letâs imagine that the court orders your ex-spouse to make payments on credit card debt under your name. If your ex neglects to make the payments on time, itâs going to have an effect on your credit report. The good news is that if this happens, you have a right to pursue legal action against your former spouse for not following court orders. However, itâs possible that by the time legal action is taken, your credit score may already be damaged.
Prenuptial agreements will affect these outcomes as well. Depending on yours and your spouseâs marital assets, the debt in question will vary. Here are the typical categories of debt that are affected during divorce proceedings:
Credit Card Debt
Auto Loan Debt
Credit Card Debt
Itâs possible that you could be responsible for your former spouseâs credit card debt, but itâs not likely. If you have a joint account, then the outcomes may vary. Usually, marital debt is considered to be any debt that was created during the time of the marriage. So if you racked up credit card debt under a joint account, expect that both of you will be equally responsible for paying it off.
If both spouses have their names on the mortgage, the easiest way of solving the mortgage debt is to sell the house and divide the earnings between both parties. It might be tempting to keep the home for a multitude of reasons, but at the end of the day, selling the property and splitting the money is usually the least complicated solution for everyone involved.
Once the house is on the market, itâs time to start communicating with your former spouse about who is going to be responsible for what amount. Come up with an agreement on who will pay which portion of the mortgage, so that neither partiesâ credit score is negatively affected.
If selling the home and dividing the earnings isnât a viable option for you and your ex, then one of you will end up fully responsible for the debt. In most cases, mortgage debt following a divorce is assigned to:
The spouse with the higher annual income.
The spouse who gains full custody of the children.
When this happens, one spouse will have to buy out the other spouseâs equity in the property.
Car Loan Debt
When it comes to car loans, things become more complicated. If the car loan has both names on it, here are the two best options:
Refinance the car without your ex.
Propose automatic payments to come directly from your former spouseâs account.
Letâs say one person ends up with the car loan debt, but the other person was also on the loan as a cosigner. Unfortunately, if one spouse is held responsible for picking up the tab on a debt, and they neglect their payments, both parties can suffer those consequences.
Each state has different laws surrounding medical debt and divorce agreements. If you live in a Community Property state, you might have to pay for your former spouseâs medical debt. However, if you live in a state that follows common law, the court will ultimately make the decision about who is responsible for what debt.
Pay off your debt before the divorce is finalized
Â If you and your spouse can find a way to work out the kinks of your debt issues before the divorce is finalized, itâll make things a lot easier in the long run. Work together to figure out who should be responsible for which debt, so that you can lower your chances of having to pay off a debt that isnât yours.
If youâre working with credit card debt, one of you may need to transfer your credit card balance to a separate card. Consolidating your credit card balances is another common option when dividing debts.
Generally, credit card debt is going to be easier to deal with than the big things, like home loans and car loans. In many cases, couples who are going through a divorce will have to consider refinancing their loans under one partyâs name.
Keep in mind that the original loan agreement supercedes the divorce agreement, so if you wait until your divorce is finalized, you might have a harder time moving things around. You can ask your lender to take your name off of an account and have it replaced with your former spouseâs name, but be prepared to provide the divorce decree as evidence. If it doesnât work out this way, then seek legal advice from your divorce attorney about your options. Another common solution is to sell the asset in question and use the earnings to pay off the debt.
How your former spouseâs bankruptcy can affect you
If your ex-spouse isnât able to keep up with the payments on their share of the debt, they might decide to file bankruptcy. This could cause problems for you if you didnât choose to file as well.
Filing for bankruptcy does not erase the debts, instead it erases your ex-spouseâs liability for the debt. In this instance, you could find yourself in a situation where the creditor is now pursuing you for the debt. Itâs also important that you check your credit report. Even if you werenât the one who filed bankruptcy, it could still end up on your credit report.
Be cautious about any joint accounts you may still have open post-divorce. If you leave joint accounts open and your former spouse has access to them, he or she could potentially transfer balances from other accounts onto those ones. Safeguard your credit by paying off any debts you can manage to pay off ahead of time, so that you donât have to worry about it later.
Marital Debt After Divorce: Who is Responsible? is a post from Pocket Your Dollars.
If you have bad credit and need a car loan, there are some challenges when compared to obtaining a standard car loan. However, pick your head up because there are a handful of great lenders that specifically tailor their programs to people with bad credit. We researched the landscape of lenders that can help you get a car loan even if you have a below-average credit score.
Based on our study, OneMain Financial and LightStream are two of the top lenders offering bad credit card loans. This is due to factors including loan options, requirements to qualify, and interest rates offered. Of course, we offer in-depth reviews of all the top lenders who offer bad credit car loans further down in this piece.
Apply now with our top pick: OneMain Financial
In this guide we also help you understand the factors that go into selecting the right auto lender, and how to get the best rate you can.
Most Important Factors for Bad Credit Car Loans
If youâre in the market for a bad credit car loan, there are a plethora of factors to consider and compare. Here are the main loan details we looked at in our study, and the ones you should prioritize as you select the best car loan for your needs.
Check your credit score. And understand what is in your credit report.
FICO scores under 579 is considered ‘poor’. But you may need a bad credit loan with a score as high as 669.
Interest rates and fees matter. These can make a huge difference in how much you pay for an auto loan each month.
Compare loan terms. Consider your repayment timeline and compare lenders with this in mind.
Getting prequalified online can help. Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report.
Watch out for loan restrictions. Some lenders impose restrictions on what car you can purchase. Keep this in mind to avoid unpleasant surprises later.
The Best Bad Credit Car Loans of 2021
The best bad credit car loans make it easy for consumers to qualify for the financing they need. The following lenders made our list due to their superior loan offerings, excellent customer service, and reputation in this industry.
Car Loan Company
Best for Flexibility
Best Personal Loan Option
Best Loan for Bad Credit and No Credit
Best Loan Comparison Site
Best Big Bank Loan for Bad Credit
Best for Fast Funding
Why Some Lenders Didn’t Make the Cut
While the lenders we are profiling are the best of the best, there are plenty of bad credit car loans that didnât quite make the cut. We didnât include any lenders that only offer auto loan refinancing, for example, since we know many people need a car loan in order to purchase a new or used car or truck. We also stayed away from bad credit car loans that charge outrageous fees for consumers with the lowest credit scores.
Bad Credit Auto Loan Reviews
We listed the top companies we selected in our study above, but we also aim to provide readers with more insights and details on each. The reviews below highlight the highlights of each lender that made our list, plus our take on who they might be best for.
OneMain Financial: Best for Flexibility
OneMain Financial offers personal loans and auto loans with interest rates that range from 18.00% to 35.99%. You can repay your auto loan in 24, 36, 48, or 60 months, and you can use this lender to borrow up to $20,000 for a new or used car. You can apply for your auto loan online and from the comfort of your own home, and itâs possible to get approved within a matter of minutes.
While OneMain Financial doesnât list a minimum credit score requirement, itâs believed they will approve consumers with scores as low as 600. You should also note that auto loans from OneMain Financial come with an origination fee of up to 5% of your loan amount.
Sign Up With OneMain Financial Today
Why This Lender Made Our List: OneMain Financial offers a lot of flexibility in terms of your loan terms, including the option to repay your auto loan over five years. OneMain Financial also has pretty decent reviews from users for a bad credit lender, and they have an A+ rating with the Better Business Bureau.
Potential Downsides to Be Aware Of: OneMain Financial charges some pretty high rates for its bad credit loans, and donât forget that you may need to pay an origination fee that is up to 5% of your loan amount. Their loans are also capped at $20,000, which means this lender wonât work for everyone.
Who Itâs Best For: This lender is best for consumers with really poor credit who need auto financing but canât get approved for a better loan.
Upgrade: Best Personal Loan Option
Upgrade is an online lender that offers personal loans with fixed interest rates, fixed monthly payments, and a fixed repayment timeline. You can borrow up to $50,000 in an unsecured loan, which means you wonât actually use the car you purchase as collateral for the loan.
You can repay the money you borrow over 36 to 60 months, which makes it possible for you to tweak your loan offer to secure a monthly payment you can afford. Upgrade has a minimum credit score requirement of 620 to qualify, although theyâll consider additional factors such as your income and employment history.
Sign Up With Upgrade Today
Why This Lender Made Our List: Upgrade lets you âcheck your rateâ online without a hard inquiry on your credit report. This makes it easy to shop around and compare this loan offer to others without having to fill out a full loan application. Also note that Upgrade has an A+ rating with the BBB.
Potential Downsides to Be Aware Of: Upgrade charges APRs as high as 35.89% for consumers with the worst credit, and an origination fee of up to 6% of your loan amount might also apply.
Who Itâs Best For: Upgrade is best for consumers with decent credit who need to borrow a larger loan amount. This loan is also best for anyone who wants an auto loan that isnât secured by their vehicle.
AutoCreditExpress.com: Best Loan for Bad Credit and No Credit
AutoCreditExpress.com is an online platform that lets consumers with bad credit and even no credit get the financing they need. Once you fill out some basic loan information, youâll be connected with a lender who can offer you financing as well as a dealership in your area. From there, youâll head to the local dealership and pull the pieces of your auto loan together, including the purchase price of the car you want.
Sign Up With Autocreditexpress.com Today
Why This Lender Made Our List: AutoCreditExpress.com has an A+ rating with the Better Business Bureau. This platform also makes it possible for consumers with no credit at all to finance a car, which is a welcome relief for people who are building credit for the first time.
Potential Downsides to Be Aware Of: This website is a loan platform but they donât offer loans directly to consumers. This means you wonât have any idea on rates and terms until you fill out an application and get connected with a lender.
Who Itâs Best For: This loan is best for consumers with no credit or minimal credit history who cannot get approved for a loan elsewhere.
MyAutoLoan.com: Best Loan Comparison Site
MyAutoLoan.com is a loan comparison site that makes it easy to compare up to four auto loan offers in a matter of minutes. You can use this website to apply for a new auto loan, but you can also utilize it to consider refinancing offers for an auto loan you already have. You can also use funds from this platform to purchase a car from a dealer or from a private seller.
Sign Up With MyAutoLoan.com Today
Why This Lender Made Our List: Comparing auto loans in terms of their terms, rates, and fees is the best way to save money and wind up with the best deal. Since MyAutoLoan.com is a loan comparison site, they make it easy to shop around and compare competing offers.
Potential Downsides to Be Aware Of: Loan comparison sites connect you with other lenders who have their own loan terms and minimum requirements for approval. Make sure you know and understand all the details of loans youâre considering before you sign on the dotted line.
Who Itâs Best For: MyAutoLoan.com is best for consumers who want to do all their auto loan shopping with a single website.
Capital One: Best Big Bank Loan for Bad Credit
Capital One offers online auto loan financing in conjunction with a program called Auto NavigatorÂ®. This program lets you get prequalified for an auto loan online, then work with a participating dealer to coordinate a loan for the car you want. Capital One also lets you search available vehicles at participating dealerships before you apply for financing, making it easy to figure out how much you might need to borrow ahead of time.
Sign Up With Capital One Today
Why This Lender Made Our List: Capital One offers the huge benefit of letting you get prequalified online without a hard inquiry to your credit report. Capital One is also a reputable bank with a long history, which should give borrowers some comfort. They have an A+ rating with the BBB and plenty of decent reviews from consumers.
Potential Downsides to Be Aware Of: You should be aware that Capital One auto loans only work at participating dealers, so you may be limited in terms of available cars to choose from.
Who Itâs Best For: Capital One auto loans are best for consumers who find a car they want to buy at one of the participating lenders that works with this program.
LightStream: Best for Fast Funding
LightStream offers online loans for a variety of purposes, including auto financing. Their auto loans for consumers with excellent credit start at just 3.99% with autopay, and even their loans for consumers with lower credit scores only run as high as 16.79% with autopay.
You can apply for your LightStream loan online and get approved in a matter of minutes. This lender can also send your funds as soon as the same business day you apply.
A minimum credit score of 660 is required for loan approval, although other factors like your work history and income are considered.
Sign Up With LightStream Today
Why This Lender Made Our List: LightStream offers auto loans with exceptional terms, and thatâs even true for consumers with less than perfect credit. You can also get your loan funded as soon as the same business day you apply, which is crucial if you need auto financing so you can get back on the road.
Potential Downsides to Be Aware Of: With a minimum credit score requirement of 660, these loans wonât work for consumers with the lowest credit scores.
Who Itâs Best For: LightStream is best for people with decent credit who need to get auto loan financing as quickly as possible.
What You Need To Know When Applying For A Car Loan With Bad Credit
Interest rates and fees matter.
If you think your interest rate and loan fees wonât make a big difference in your monthly payment, think again. The reality is that rates and fees can make a huge difference in how much you pay for an auto loan each month. Consider this: A $10,000 loan with an APR of 35.89% will require you to pay $361 per month for five years. The same loan amount at 21.99% APR will only set you back $276 per month. At 9.99%, you would pay only $212 per month for five years. The bottom line: Make sure to compare auto loans for bad credit so you wind up with the lowest possible APR you can qualify for.
Take steps to improve your credit score before you apply.
Itâs not always possible to wait to apply for a car loan, but you may be able to secure a lower interest rate and better loan terms if you can improve your credit score before you borrow money. The most important steps you can take to improve your score include paying all your bills early or on time, as well as paying down debt in order to decrease your credit utilization. You should also refrain from opening or closing too many credit card accounts in order to avoid new inquiries on your credit report and maintain the longest average length of your credit history possible.
Compare loan terms.
Some lenders let you borrow money for up to 84 months, while others let you repay your loan over 36 or 60 months at most. If you need to repay your loan over a longer timeline in order to secure an affordable monthly payment, make sure to compare lenders based on this factor. If youâre having trouble figuring out how much can you can afford, gauging affordability based on the monthly payments you can handle can also help in that effort.
Getting prequalified online can help.
Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report. This makes it considerably easier to compare rates and shop around without formally applying for an auto loan. Getting prequalified with more than one lender can also help you determine which one might offer the lowest rate without having to fill out a full loan application.
Watch out for loan restrictions.
As you compare the lenders on this list, keep in mind that not all lenders extend loans for any car you want. Some only let you finance cars with participating lenders in their network, which can drastically limit your options and make it impossible to purchase a car from a private seller. If you hope to purchase a car from someone you know or a website like craigslist.org, you may want to consider reaching out to your personal bank or a credit union you have a relationship with.
Bad credit car loans donât have to be forever.
Finally, you should know that a car loan for bad credit doesnât have to last forever. You may need to borrow money for a car right now regardless of the interest rate and terms you can qualify for, but it may be possible to refinance your loan into a better loan product later on. This is especially true if you focus on improving your credit score right away, and if you use your auto loan as an opportunity to prove your creditworthiness.
How to Get the Best Rate
1. Check your credit score.
Your credit score is one of the most important defining factors that dictate loan costs. Before you apply for an auto loan, it can help you check your credit score to see where you stand. Your score may not be as bad as you realize, but it could also be worse than you ever imagined. Either way, it helps to know this important information before you start shopping for an auto loan.
2. Improve your credit over time.
If your credit score needs work, youâll want to take steps to start improving it right away. The most important steps you can take to boost your credit score include paying all your bills early or on time and paying down debt to decrease your credit utilization. Also, make sure youâre not opening or closing too many credit accounts within a short amount of time.
3. Check your credit reports.
Use the website AnnualCreditReport.com to get a free copy of your credit reports from all three credit bureaus. Once you have this information, check over your credit reports for errors. If you find false information that might be hurting your score, take the steps to have the incorrect information removed.
4. Compare loan offers from at least three lenders.
A crucial step to get the best rate involves shopping around and comparing loan offers from at least three different lenders. This is important since lenders with different criteria might offer a lower APR or better terms than others.
5. Be flexible with repayment terms.
Also consider a few different loan terms provided you can afford the monthly payment with each. Some auto lenders offer better rates for shorter terms, which can help you save money if you can afford to repay your loan over 24 or 36 months instead of 60+.
How We Chose the Best Auto Loans
The lenders on our list werenât plucked out of thin air. In fact, the team behind this guide spent hours comparing auto lenders based on a wide range of criteria. Hereâs everything we considered when comparing the best bad credit car loans of 2021:
Interest Rates and Loan Terms: Our team looked for loans that offer reasonable rates and terms for consumers with poor credit. While higher APRs are typically charged to consumers with a low credit score, we only considered lenders that offer sensible rates that donât seem out of line for the auto loan market.
Ratings and Reviews: We gave preference to lenders who have decent reviews online, either through Consumer Affairs, Trustpilot, or another third party website. We also gave higher marks to lenders who have a positive rating with the Better Business Bureau (BBB).
Online Availability: Lenders who offer full loan details online were definitely given top priority in our ranking, and lenders who let you get prequalified online without a hard inquiry on your credit report were given the most points in this category. But since not everyone wants to apply for a loan online, we also included some lenders that let you apply over the phone.
Approval Requirements: Finally, we looked for lenders that extend credit to consumers with low credit scores in the first place. Not all lenders offer specific information on approval requirements, but we did our best to sort out lenders that only accept borrowers with good or excellent credit.
Summary: Best Bad Credit Card Loans of 2021
Best for Flexibility: OneMain Financial
Best Personal Loan Option: Upgrade
Best Loan for Bad Credit and No credit: AutoCreditExpress.com
Best Loan Comparison Site: MyAutoLoan.com
Best Big Bank Loan for Bad Credit: CapitalOne
Best for Fast Funding: LightStream
The post What Are the Best Car Loans When You Have Bad Credit? appeared first on Good Financial CentsÂ®.
The post The Chilling Truth About Debt Settlement Programs appeared first on Penny Pinchin' Mom.
Debt is a very touchy subject for most people. Feeling the stress of overwhelming monthly payments, many people just look for what seems to be the easiest way out. This is when the salesmen tend to strike. Â The reason is a good deal of your financial information can be considered public knowledge.
Every day, many in debt get phone calls from high energy salesmen talking about the miraculous debt settlement concept. So, I’m going to start by saying, one great lesson we all learn young in life is, âIf it sounds too good to be true, it probably is!â
I made this mistake myself. Â I was so far in debt that I was drowning. In an act of desperation, I used a debt settlement company. Â Turns out, they did nothing to help me. It only made the situation much worse.
Here are a few chilling facts that you should know about debt settlement programs. Â These may just prove that the concept is too good to be true!
Fact #1: You May Be Sued For Not Paying Debts Even As You Make Payments
Did you know the payments you make may not go to your lenders? Â Yep! Â When working with a debt settlement company, your payments are not sent in on a monthly basis. Â Instead, these companies hold the funds from your payments. In most cases, the money is held in special purpose savings accounts until it has reached enough to pay off a debt. Once one debt is paid off, the savings process is started for the next.
Therefore, the last lender or two may wait 3, 4 or even 5 years before they see the next payment. The truth is, if you look at it from their perspective, it’s cheaper to take you to court. They will get the money faster through a settlement because they can garnish your wages. Also, in many cases, you will have to pay the court costs as well!
Fact #2: Your Credit Will Be Destroyed
While talking to a debt settlement agent, you will find that their last interest is in your credit score. Also, if you bring up the topic, they may try to downplay the effects of debt settlement on consumer credit scores. With that said, I’m not going to downplay it at all for you! Here is the truth…Because lenders are not being paid for long periods of time, your debts will be charged off.
One collections agency will sell it to the next and each time, it will damage your credit score! This is why I generally advise against this option if the consumer has good or excellent credit scores. The effects of credit card debt settlement programs will not pass in 6 months either! They will last throughout the term of your settlement and at least a year and a half to 2 years afterwords.
Fact #3: Debt Settlement Costs Thousands Of Dollars In Most Cases
The truth is, if you are going to settle your debts, with a little bit of online research, you can do it on your own. However, when you higher a debt settlement company, chances are, you will pay a percentage of the total amount owed, somewhere around 15%. That means if you have the minimum amount of debt that most companies accept, $10,000.00, your fee will be $1,500.00 minimum in most cases.
This does not include the cost of a special purpose savings account which, usually runs about $25 per month. Add in the cost of paying an attorney when you get taken to curt and, you will now find yourself paying just as much as you did before you hired the debt settlement company in the first place!
Every Dark Cloud Has A Silver Lining
Although debt settlement may not be the option for most, always remember, there is an option for you. As a matter of fact, I recently wrote an article that included a few great options called DIY Alternatives To Debt Consolidation. Trust me, those alternatives only begin to touch the tip of the iceberg when it comes to great, legitimate ways to get out of debt!
This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance and avid personal finance journalist. Join the discussion about this article on facebook and Google+!
The post The Chilling Truth About Debt Settlement Programs appeared first on Penny Pinchin' Mom.
Credit cardÂ billsÂ can be confusing. If everything was straightforward and clear,Â credit cardÂ debtÂ wouldn’t be such a big issue. But it’s not clear, and debt is a massive issue for millions of consumers.Â
One of the most confusing aspects is theÂ minimum payment, with few consumers understanding how this works, how much damage (if any) it does to theirÂ credit score, and why it’s important to pay more than the minimum.
We’ll address all of those things and more in this guide, looking at howÂ minimumÂ credit cardÂ paymentsÂ can impact yourÂ FICOÂ scoreÂ and yourÂ credit report.
What is aÂ Credit CardÂ Minimum Payment?
TheÂ minimum paymentÂ is the lowest amount you need to pay during any given month. It’s often fixed as a fraction of yourÂ total balanceÂ and includes fees and interest. Â
If you fail to make thisÂ minimum payment, you may be hit withÂ late feesÂ and if you still haven’t paid after 30 days, your creditor will report your activity to the majorÂ credit bureausÂ and yourÂ credit scoreÂ will take a hit.
When this happens, you could lose up to 100 points and gain a derogatory mark that remains on yourÂ credit reportÂ for up to 7 years.Â MakingÂ minimum paymentsÂ will not result in a derogatory mark, but it can indirectly affect yourÂ credit scoreÂ and we’ll discuss that a little later.
Firstly, it’s important to understand why you’re being asked to pay aÂ minimum amountÂ and how you can avoid it.
How Much is aÂ MinimumÂ Credit CardÂ Payment?
Prior to 2004,Â monthly paymentsÂ could be as low as 2% of the balance. This caused all kinds of problems as most of yourÂ monthly paymentÂ is interest and will, therefore, inflate every month so that every time you reduce the balance it grows back.Â
Regulators forced a change when they realized that some users were being locked into a cycle ofÂ credit cardÂ debt, one that could see them repaying thousands more than the balance and taking many years to repay in full.
These days, a minimum payment must be at least 1% of the balance plus all interest and fees that have accumulated during that month, ensuring the balance decreases by at least 1% if only theÂ minimum paymentÂ is met.
Do I Need to Make theÂ Minimum Payment?
If you have a rolling balance, you need to make the minimumÂ monthly paymentÂ to avoid derogatory marks. If you fail to do so and keep missing those payments, your account will eventually default and cause all kinds of issues.
However, you can avoid theÂ minimum paymentÂ by clearing your balance in full.
Let’s assume that you have a brand-newÂ creditÂ cardÂ and you spend $2,000 in the first billing cycle. In the next cycle, you will be required to pay this balance in full. However, you will also be offered aÂ minimum payment, which will likely be anywhere from $30 to $100. If this is all that you pay, the issuer will start charging you interest on your balance and your problems will begin.
If you spend $2,000 in the next billing cycle, you have just doubled your debt (minus whatever principal theÂ minimum paymentÂ cleared) and your problems.
This is a cycle that many consumers get locked into. They do what they can to pay off their balance in full, but then they have a difficult month and thatÂ minimum paymentÂ begins to look very tempting. They convince themselves that one month won’t hurt and they’ll repay the balance in full next month, but by that point they’ve spent more, it has grown more, and they just don’t have the funds.
To avoid falling into this trap, try the following tips:
Only Spend What You Have:Â AÂ credit cardÂ should be used to spend money you have now or will have in the future. Don’t spend in the hope you’ll somehow come into some money before the billing period ends and theÂ credit cardÂ balanceÂ rolls over.
Get an IntroductoryÂ Interest Rate:Â ManyÂ credit cardÂ issuersÂ offer a 0% intro APR for a fixed period of time, allowing you to accumulate debt without interest. This can help if you need to make some essential purchases, but it’s important not to abuse this as you’ll still need to clear theÂ full balanceÂ before the intro period ends.
Use aÂ Balance Transfer:Â If you’re in too deep and the intro rate is coming to an end, consider aÂ balance transfer credit card. These cards allow you to move yourÂ full balanceÂ from one card (or cards) to another, taking advantage of yet another 0% APR and essentially extending the one you have.
Pay the Minimum:Â If you can’t pay the balance in full, make sure you at least pay the minimum. AÂ missed paymentÂ orÂ late paymentÂ can incur fees and may hurt yourÂ credit score.Â
Why Pay More Than the Minimum?
You may have heard experts recommending that you pay more than the minimum every month, but why? If you’re locked into a cycle ofÂ credit cardÂ debt, it can seem counterproductive. After all, if you have a debt of $10,000 that’s costing you $400 a month, what’s the point of taking an extra $100 out of your budget?
Your interest and fees are covered by yourÂ minimum paymentÂ and account for a sizeable percentage of thatÂ minimum payment. By adding just 50% more, you could be doubling and even tripling the amount of the principal that you repay every month.
What’s more, your interest accumulates every single day and this interest compounds. Imagine, for instance, that you have a balance of $10,000 today and with interest, this grows to $10,040. The next day, the interest will be calculated based on that $10,040 figure, which means it could grow to $10,081, which will then become the new balance for the next day.Â
This continues every single day, and the larger your balance is, the more interest will compound and the greater theÂ amount will be dueÂ over the term. By paying more than yourÂ minimum paymentÂ when you can, you’re reducing the balance and slowing things down.
Does Paying the Minimum Hurt MyÂ Credit Score?
Paying theÂ minimum amountÂ every month ensures you are doing the bare minimum to avoid hurting yourÂ credit historyÂ or accumulating fees. However, it can indirectly reduce your score via yourÂ credit utilizationÂ ratio.
YourÂ creditÂ utilizationÂ ratioÂ is a score that compares theÂ credit limitÂ of allÂ availableÂ creditÂ cardsÂ to the total debt on those cards. It accounts for 30% of yourÂ credit scoreÂ and is, therefore, a very important aspect of theÂ credit scoringÂ process.
The moreÂ credit cardÂ debtÂ you accumulate, the lower yourÂ credit utilizationÂ rateÂ will be and the more your score will be impacted. If you only pay the minimum, this rate will become stagnant and may take years to improve. By increasing theÂ payment amount, however, you can bring that ratio down and improve yourÂ credit score.
You can calculate yourÂ credit utilizationÂ score by adding together theÂ totalÂ amountÂ ofÂ creditÂ limitsÂ and debts and then comparing the latter to the former. A combinedÂ credit limitÂ of $10,000 and a balance of $5,000, for instance, would equate to a 50% ratio, which is on the high side.
CanÂ Credit CardÂ Fees Hurt MyÂ Credit Score?
As withÂ interest charges,Â credit cardÂ fees will not directly reduce your score but may have an indirect effect. Cash advance fees, for instance, can be substantial, with manyÂ credit cardÂ companiesÂ (includingÂ Capital One) charging 3% with a $10 minimum charge. This means that every time you withdraw cash, you’re paying at least $10, even if you’re only withdrawing $10.
What many consumers don’t realize is that these fees are also charged every time you buy casino chips or pay for some other form of gambling, and every time you purchase money orders and other cash products.Â
Along with foreign transaction fees and penalty fees, these can increase your balance and yourÂ minimum payment, making it harder to make onÂ time paymentsÂ and thus increasing the risk of aÂ late payment.
Does Paying the Minimum Hurt Your Credit Score is a post from Pocket Your Dollars.
When you are considering leasing a car, your credit history and credit score are critical determinants on whether or not you get approved and the kind of deal you get. Scores of 720 and over translate to the best terms. As the scores get lower, the terms of the lease get less and less favorable. […]
The post What Credit Score Do You Need To Lease a Car? appeared first on Credit Absolute.
Your minimum monthly payment is the lowest amount that you need to pay on your credit card balance. Any less could result in a derogatory mark, any more will clear more of the principal.Â
Your monthly payment is one of the most important aspects of your credit card debt and failure to understand this could seriously impact your credit score and leave marks on your credit report that remain for up to 7 years.
With that in mind, letâs take a closer look at how these payments operate and how you can quickly clear your credit card debt.
How Minimum Payments on a Credit Card are Calculated
The minimum payment is calculated as a percentage of the total balance at the end of the month. This percentage ranges from 2% to 5%, but it has been known to go lower.Â
As an example, if you have a $5,000 credit card balance and are required to pay 5% a month, then your monthly payment will be $250. However, this only covers the principal, which is the money that you borrowed. It does not cover the interest, which is where things get a little complicated and expensive.
What Influences Your Minimum Monthly Payment?
The reason credit card interest is so high is because it compounds. This means that if you have an annual percentage rate of 20% and a debt of $20,000, that debt will climb to $24,000, at which point the next billing cycle will commence and this time youâll be charged 20% on $24,000 and not $20,000.
However, credit card interest is calculated daily, not yearly. To arrive at your daily percentage rate, simply divide your interest rate by 365 (the number of days in a year) and then multiply this by your daily balance.
For example, if we stick with that 20% interest rate, then the daily rate will be 0.00054%. If we multiply this with the daily balance, we get an interest rate of $2.7 for the first day. Multiply this by 30, for the total days in a billing cycle, and itâs $81. Thatâs your total interest for the first month.
So, when we calculate the 2% minimum monthly payment, weâre calculating it against $5,081, not $5,000, which means we get a total of $101.62, reducing the balance to just $479.38.
In other words, you pay over $100, but reduce the balance by a little over $20 when you make that monthly payment. If penalty fees and interest rates are added to that, it will reduce in even smaller increments.
Pros and Cons of Only Paying the Minimum Payment on your Credit Card
As discussed above, itâs imperative that you make the minimum payment, avoiding any late payment charges or credit score reductions. However, if you only make those minimum payments every month then it will take a long time to clear your balance and you may struggle to keep your head above water.
The Benefits of Paying More Than the Minimum
Many borrowers struggle to pay more than the minimum not because they donât have the money, but because they fail to see the benefits. They focus on the short-term and not the long-term, seeing an extra $100 payment as a lost $100 in the present, as opposed to a saved $500 in the future.
However, if you can get over this mindset and start paying more than the minimum, you will do your future self a huge favor, helping with all of the following:
Shorten the Term and Lessen the Interest
Every extra dollar that you add to your minimum payment can help you get out of debt quicker than if you simply stick with the minimum. This is true for all debtsâa higher monthly payment means that more money goes towards the principal, which means there is less interest to compound.
Credit card debt is like a snowball gathering momentum as it rolls, and this is exacerbated every time you miss a payment and are hit with penalty fees. By paying more than the minimum, youâre taking a giant chunk out of that snowball and slowing its progression.
Youâll Improve Your Credit Utilization
Your credit utilization ratio is one of the most important parts of your credit report, counting for 30% of your total. This ratio takes your total available credit (such as a credit limit on a credit card) and then compares it to total debt (such as the balance on that credit card). The higher the number, the more of your credit has been used and the more your credit score will suffer.
Every time you pay more of your credit card balance, youâre reducing this score and significantly boosting your credit score.
Avoid Maxing Out Your Balance
Not only will a maxed-out credit card do some serious damage to your credit utilization score, but it can also have a direct impact on your credit score on the whole. Lenders donât want to see it and credit bureaus will punish you for it. If youâre still using the card and only paying the minimum, you may be stuck in a cycle of persistent debt, but by paying more and using it less, you can prevent that.
You May Get a Better Credit Limit
Credit card issuers monitor their customerâs activities very closely. If they clear their balances every month without issue, they are more inclined to increase their credit limit, offer them rewards, and generally provide them with good opportunities. If they are accumulating large amounts of credit card debt and only meeting their minimum payments, theyâll be less inclined to do any of those things.
It always helps to get on a creditorâs good side, because you never know when you will need that improve credit limit or access to that generous rewards scheme.
What Happens if you Only Make the Minimum Payment?
If you only pay the minimum, the debt will take a long time to clear and youâll repay huge sums of interest in that time. If we go back to the previous example and assume an APR of 20%, a balance of $5,000 and a minimum payment of 2%, you will repay over 400% in interest alone and it will take you decades to repay the debt.
Thankfully, very few credit card providers will actually let you pay such a small amount on such a substantial debt. But even if we increase the minimum payment to 5%, it still looks abysmal for the borrower. It would take them about 9 years to pay the balance, requiring $250 a month and paying close to $2,500 in interest.
Although itâs more realistic, this is still a poor option, especially when you consider the card will still be active and you may still be using it, which means that every time you make a repayment, youâre adding more debt and offsetting all your hard work.
Your credit score will not suffer if you only make the minimum payment. Providing you make it on time then you will build a respectable payment history, a stable credit report, and a credit score that is sure to impress lenders. However, it wonât look great for your finances as youâre giving yourself an expensive liability that will cripple your debt-to-income ratio and your credit utilization ratio for years to come.
Are There Any Advantages to Just Paying the Minimum?
The only advantage to paying just the minimum is that you will have more money in your pocket at the end of the month, which will allow you to make additional investments and purchases that would otherwise not be available to you. However, this is a pretty narrow-minded way of looking at it, because while you will have more cash in the long-term, it comes at the expense of many additional risks and obligations, not to mention thousands of dollarsâ worth of additional interest paid over the term.
What Happens if you Canât Pay the Minimum Payment?
If there is a late payment or a missed payment, your creditor may charge you a penalty fee or a penalty rate. If your payment is due for more than 30-days they may also report you to the credit bureaus, at which point a derogatory mark will appear on your credit report and your credit score will drop.
This can happen even with a single missed payment, which is why you should never simply skip a payment on the basis that youâll just double-up next time around.
Instead, contact your creditor, explain your situation, and see if there is anything they can do to help you. They may say no, but it doesnât hurt to ask, and, in most cases, they will offer you some kind of reprieve. After all, they want their money, and if they can increase their chances of getting paid by providing you with some leeway, theyâll often be more than happy to do it.
Some people believe that you can simply pay a few dollars and it will count as a minimum payment and not show on your credit report. This is a myth. Technically, any payment that doesnât meet the full minimum requirement can be classed as a late payment and can lead to fees and derogatory marks.
Resources to Lower Minimum Payments on a Credit Card
Itâs important to keep a close eye on your credit card statement and activity at all times. Monitor your spending, making sure it doesnât go overboard, and if you find yourself struggling to make payments at any time, checkout the following resources and options to get the help you need:
Credit Counselors: Speak with a trained expert who has helped many individuals in a similar position. They will discuss your finances and your debts and will help you to find a solution.
Debt Management: A debt management plan can help when youâre struggling to meet your debt obligations and have a huge debt-to-income ratio. They will provide assistance and help you swap multiple debts for a single consolidation loan.
Debt Settlement: An option that works best for individuals with multiple debts and missed payments. Itâs one of the cheapest ways to clear personal loan and credit card debt, as well as other forms of unsecured debt.
Debt Consolidation: Another consolidation loan option, this time with a long term, ensuring that you pay less per month but more over the term. This is a good option if youâre stuck in a tricky spot right now and need to reduce your outgoings.
In all the above cases, you can use the NMLS Consumer Access site to find a legitimate and reputable company or professional working within the financial sector. You can also use resources like the Better Business Bureau as well as the many guides, reviews, and help files right here on the Pocket Your Dollars website.
How to Reduce the Balance on a Credit Card Debt
One of the best ways to reduce your balance is to initiate a balance transfer. As the name suggests, this entails moving your balance from one card to another. Balance transfer cards entice you by offering a 0% APR on all transfers and this lasts for up to 18% with the best providers.Â
In that time, you wonât pay any interest on your balance, which means all your monthly payment will go towards the principal and you can reduce your debt in huge leaps as opposed to small steps.
These cards are not without their issues, however. You will need a good credit score to get a card that has a good APR and balance transfer offer. If you donât, and you fail to clear the balance during that introductory period, you may be paying more interest than you were before.
In most cases, though, these cards will be just what you need to ease the burden of mounting credit card debts and get back into the black. Take a look at our guide to the best balance transfer cards to learn more and discover how you can move your current balance to a card that has more preferable terms, in the short-term at least.
The Bottom Line: Clear that Balance
A minimum payment is the least amount you need to commit to a credit card balance. If credit card debt was a house party, the minimum payment would be the equivalent of showing up, saying your introductions, and then hiding in the corner for the rest of the night. If you really want to make an impact, you need to be proactive.
It doesnât have to be twice or thrice the size of your minimum payment. It doesnât have to be a consistent sum that you pay every month, but it does have to be something. Donât worry if itâs only 1% or 2% of the balance, because every additional payment helps. Just pay whatever you can afford, whenever you can afford it. A small amount of money today can save you a huge sum of money in the future.
Minimum Payments on a Credit Card is a post from Pocket Your Dollars.
According to a YouGov Parent Survey in 2019, a quarter of parents entered the 2019 holiday shopping seasonstill paying down debt related to 2018 holiday spending. Deloitte numbers put holidayretail salesgrowth in 2019 at 4.1% year-over-year. In 2020, Deloitte predicts growth of between 1% and 1.5% year-over-year for the holiday season.
It might be that some people no longer want to pay for holiday gifts, decorations and food a year down the road. But it’s also true that the COVID-19 pandemic has hit consumerwallets and some people might be cutting back this year.
That doesn’t mean that people aren’t shopping. Google and other thought leaders note that changes to shopping habits and the need for social distancing and other measures will likely spread the holiday shopping season out longer. Shoppers are also likely to turn to online shopping.
With a ton of shopping opportunities, a longer holiday shopping season and pent-up pandemic energy, it might be easy to overspend and create debt you’ll deal with into the future. Follow these tips to prepare for holiday shopping so you can protect your financial standing, save money and make the most of the resources you have this season.
1. Check your credit scores
Begin by checking your credit scores and reports. They tell you where you stand if you want to apply for credit. They also give you a baseline of where you are so you know if your score goes up or down later with no explanation.
An unexplained drop in your credit score can be a sign your financial information is compromised. Unfortunately, the holidays are prime time for many scammers. Using a service, such as ExtraCredit’s Track It feature to keep tabs on 28 of your FICO scores, helps you know when you need to act to protect your credit.
2. Ask for a credit limit increase
If you have existing credit cards and you’re a cardholder in good standing, the months prior to the holidays can be a good time to ask for a credit limit increase. You’re not asking so you can spend more-it’s typically advisable to keep spending in line with your budget no matter how much credit you have.
You’re asking for a higher limit so you can spend what you already planned to without hurting your credit utilization. Credit utilization is the second-most important factor in determining your credit score-second only to payment history. It’s the ratio between your credit limit and how much of that credit you have used.
If you have a card with a limit of $1,000 and you spend $300, that’s a utilization rate of 30%. But if you get approved for a credit limit of $2,000 and you spend $300, that’s a utilization rate of only 15%, which is better for your score.
3. Apply for a credit cardwith a 0% APR introductory offer
Those with good or excellent credit might want to consider applying for a card with a 0% APR introductory offer. If you qualify for such a card, you typically have one or two years to pay off purchases made during the introductory period without accruing any interest.
This can be a way to finance your entire holiday without paying anything more for the privilege of doing so. However, it’s still important to maintain your budget and not overspend just because you won’t be paying the balance off until later. Otherwise, you make this season’s holiday festivities next season’s problem.
4. Pay down debt before-and after-the holidays
Speaking of last season’s debt: If you can pay it down before you start spending this season, that’s a great accomplishment. It also frees up your credit and your budget so you can better enjoy the current holiday season. If you’re paying $100 a month on your debt, that’s $100 a month that might go toward gifts or celebrations that you don’t have to put on a card this year.
If you do use credit to pay for the 2020 holidays, have a plan for paying it down as soon as possible. That’s especially true with 0% interest cards. The longer you wait, the greater the chance you’ll miss the introductory period and potentially be on the hook for a lot of interest expense.
5. Create a holiday spending budget
Whether you’re using cash or credit-or a mix of both-enter the 2020 holiday shopping season with a plan. Take an honest look at your personal budget. If you don’t have a budget, create one before you move forward. Then decide how much you can realistically spend during the holidays.
Consider which gifts you want to buy and which events you want to host or attend. You might not be able to do everything, and that’s OK. Be honest with yourself, your family and your friends about what you can afford to do with your time and money this year.
Then make a list and assign each item a monetary budget. That can include:
Gifts as a total
Gift extras, such as wrapping and tags
Shipping, both for receiving items you buy and for shipping gifts to others
Food and drinks
General festivities, such as tickets to holiday events
Once you assign a dollar amount to a category, stick to it. That’s a good idea even if you’re spending with credit.
6. Align budgeted spendingwith credit cardrewards
Once you know how much you want to spend, decide how best to spend it. If you’re using credit cards for the holidays, check your accounts to see if any offer cash back or rewards points. If they do, double-check which categories or stores you can shop in to earn the most points with each card.
For example, some travel rewards cards offer 6x points when you shop at supermarkets. You could use such a card to cover the food-and-drink portion of your holiday budget and reap the biggest rewards possible from that spending. You might also be able to maximize rewards when purchasing gift cards.
7. Guard your financial information and identity
As you enjoy holiday shopping, be on guard. Don’t use debit card PIN numbers unless you have to, and shield the keypad when you enter your information. Keep a close eye on your wallet or purse, and check your credit card statements regularly to ensure all charges are yours. You can also use ExtraCredit’s Guard It feature to help keep your identity and account information safe during and beyond the season.
Sign up for ExtraCredit today!
The post Prepare for Holiday Shopping with These Timely Credit Tips appeared first on Credit.com.
Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the authorâs alone, and have not been reviewed, approved or otherwise endorsed by the issuer.
Credit card companies typically offer a plethora of rewards options for their cardholders to take advantage of. But cash back has long been a favorite of many, as it gives you the chance to earn cold, hard money for making everyday purchases. If youâre confused about how cash back works, read on for a full explanation.
How Cash Back Works
At its core, cash back refers to a predetermined percentage of a purchase you make being returned to you as cash rewards. Cash back rates typically range between 1% and 5%, though there are some outliers to be mindful of. Credit card issuers will usually clearly label what types of purchases earn what level of cash back. But like anything in the credit card industry, you must read the fine print.
This is mainly because all purchases and cash back rewards are governed by merchant category codes, or MCCs. Credit card companies ultimately determine these designations, with Mastercard, Visa, American Express and Discover calling the shots. Some common codes are ârestaurant,â âdepartment store,â âairlineâ and âentertainment,â among others. So if you earn 5% bonus cash back at restaurants and you go to Burger King â which has a restaurant MCC â youâll get that 5% back.
But what these limiting MCCs sometimes donât take into account are businesses that could fit into more than one category. Included in this group are hotels, superstores like Walmart, tourist attractions like museums and other multi-faceted establishments. In turn, you could lose out on cash back if youâre confused about which category a purchase you made falls into.
As an example, letâs say your family orders room service while on vacation in The Bahamas. You pay with your credit card thinking youâll get the advertised 3% cash back on dining. When your credit card statement comes in the mail, however, youâve only received the base 1% earnings. This is because the MCC of your hotel is just that, a hotel, which leaves your credit card issuer blind to what you really bought.
Unfortunately situations like these often offer very little recourse, as your cardâs issuer has no ability to change these codes. In fact, only the major credit companies can change their own code selections.
New cardholders will often receive cash back promotions and bonuses. These offers can either be recurring â monthly, quarterly, yearly, etc. â or simply for just one period of time, usually at the beginning of your accountâs life. Hypothetically, a recurring bonus might look like this: âEarn 3% cash back at supermarkets and wholesale clubs, up to $1,500 in purchases each quarter.â On the other hand, a one-time promotion might allow for 5% cash back on airfare purchases made during the first three months youâre a cardholder.
Depending on your card, cash back may be capped or it could expire after a period of time. While some cards feature both an earnings limit and expiration dates, others may have no restrictions. All cash back cards have their own, unique system surrounding them. So itâs important to refer to your documentation whenever you have a particular question.
Using Your Cash Back Earnings
The vast majority of cash back credit cards offer variations of the same choices for redeeming rewards. Most often, youâll see statement credits, checks, bank account deposits, gift cards and charitable donations available to you.
Statement credit â Instead of receiving your cash back in-hand, you can apply it to your upcoming monthly bill, saving you money in the process.
Check â As one of the more direct ways of redeeming cash back, checks allow you to basically do whatever you want with its value.
Bank deposits â Eligible accounts usually include checking accounts, savings accounts or investment accounts.
Gift cards â With this option, you can convert cash back into retail credit at a store or website at which you want to shop.
Donations â Many card issuers have open relations with charities. These partnerships open the door for you to aid your favorite causes with real money.
Itâs by far the easiest to redeem cash back through your card issuerâs website that it provides. Here youâll not only see your rewards status, you will also know every possible redemption you could make. If youâd rather talk to a real person, most companies still have rewards phone lines you can call, as well.
Those whoâd rather not have to worry about where their rewards currently stand will find that a redemption threshold might be helpful. Not all cards offer this feature. But if yours does, set a threshold at which your cash back is automatically redeemed in any manner you desire. Additionally, some cards require you to attain a certain amount of cash back before redeeming is possible.
Cash Back With Each Major Credit Card Company
There are tons of different cash back cards, depending on your credit score you may be eligible for some but not others. While itâs impossible to give universal specifics for each credit card company, below weâve provided overviews of some of the most popular cash back cards.
Citi Double Cash Card(Mastercard)
Cash Back Rate: 1% at the time of purchase, 1% when you pay them off
Limit or Expiration: No limit; Expires if no eligible purchases are made for 12 months
Redemption Options: As a check, statement credit or gift card
The âdouble cashâ nature of the Citi Double Cash Card means you effectively earn cash back twice: first when you make the initial purchase and again when you pay your credit card bill. The 12-month expiration is fairly standard and the lack of limits on how much cash back you can earn is generous. Statement credits, checks and gift cards are three of the most common redemption choices, so itâs no surprise to see them offered here.
Bank of AmericaÂ® Cash Rewards credit card (Mastercard)
Cash Back Rate: 3% in the category of your choice, 2% on purchases at grocery stores and wholesale clubs, 1% on other purchases
Limit or Expiration: Cash back on choice category, grocery stores and wholesale club purchases is limited on up to $2,500 in combined purchases each quarter; No expiration dates
Redemption Options: Once you have $25 or more, you can redeem as a statement credit, a check or a deposit to an eligible Bank of AmericaÂ® or Merrill LynchÂ® account
Take note of the combined $2,500 quarterly limit on 3% and 2% cash back in category of choice and at grocery stores and wholesale clubs, respectively. The Bank of AmericaÂ® Cash Rewards credit card also requires cardholders to have a minimum of $25 in earned cash back before they can redeem.
Blue Cash Everyday American Express Card (American Express)
Cash Back Rate: 3% on U.S. supermarket purchases, 2% on U.S. gas stations and select U.S. department store purchases, 1% on other purchases
Limit or Expiration:3% rate at U.S. supermarkets is limited to $6,000 a year in purchases then drops to 1%; No expiration dates
Redemption Options: After earning at least $25, redeem as a statement credit in $25 increments; Gift cards and merchandise redemptions from time to time
Amex offers some of the strongest rewards cards around, and the Blue Cash Everyday American Express Card is no exception. It does come with some limits; namely the 3% cash back rate on U.S. grocery store purchases is capped at $6,000 in purchases a year. At that time, cardholders earn 1% in cash back on groceries.
Discover itÂ® Card (Discover)
Cash Back Rate: 5% in rotating categories like gas station, supermarket, restaurant, Amazon.com and wholesale club purchases, 1% on other purchases; Full cash back match at the end of your first year
Limit or Expiration: $1,500 cap on purchases that earn the 5% rate each quarter; No expiration dates
Redemption Options: Statement credits, deposits to a bank account, gift cards and eCertificates, pay with cash back at select merchants and charitable donations
Discover cards offer great first-year cash back matches and distinctive cash back categories. These traits are on full display with the Discover itÂ® Card. This includes 5% cash back on purchases ranging from dining to Amazon.com. However, there are limits for this rate and you have to opt in to categories each quarter to qualify. This card also offers five redemption options â the most on this list.
Tips to Maximize Cash Back Potential and Minimize Credit Risk
Cash back is one of the most prolific perks that the modern credit card market has to offer. But itâs important that you donât overspend outside of your means just for the sake of rewards. Because many cash back cards come with higher annual percentage rates (APRs), this could force you into large, unsustainable interest payments.
Whenever possible, swipe your card for purchases in bonus categories. Not all cards have these to offer, but most do. So make sure you know which cards in your wallet offer bonuses at places like gas stations and supermarkets.
Know what types of redemptions â statement credits, bank account deposits, gift cards etc. â work best for you. This will drastically narrow down your card options, making the decision process much simpler.
Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the authorâs alone, and have not been reviewed, approved or otherwise endorsed by the issuer.
Advertiser Disclosure: The card offers that appear on this site are from companies from which SmartAsset.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). SmartAsset.com does not include all card companies or all card offers available in the marketplace.
The post How Does Cash Back Work? appeared first on SmartAsset Blog.
Since the National Consumer Assistance Plan went into effect in 2017, public records must meet strict requirements in order to appear on consumer credit reports. Civil judgments and tax liens do not meet these new requirements, so they were removed from credit reports. At this point, the only derogatory public record that should appear on your credit report is bankruptcy. If a tax lien or civil judgment still appears on your credit report, you should dispute that record with the credit reporting agencies.
How Much Do Public Records Affect Credit Scores?
Bankruptcy can cause a FICO score to drop by 200 points or more. A filing may lower credit scores for seven to 10 years and be difficult to remove from a credit report unless any information is inaccurate.
The decision to exclude other public records slightly increased FICO scores for many consumers and resulted in increases of 20 to 40 points in some cases.
Bankruptcies and Your Credit Report
Bankruptcies are the one public record that are still included on your credit report. In most cases, they will remain on your report for seven to 10 years.
You can dispute an inaccurate report of bankruptcy or one being reported beyond the statute of limitations. Review your report for any inaccuracies and contact the credit bureaus to dispute inaccuracies if need be. If a credit bureau claims to have court verification of a bankruptcy, you should send a procedural letter to determine how they verified the public record on credit report. Follow up with the courts to determine whether the bankruptcy was actually verified.
âªÂ Learn more about when and why you should file bankruptcy and how doing so will affect your credit.
Civil Judgments and Your Credit Report
Civil judgments result when a creditor sues you for an outstanding debt and wins. That creditor then has more avenues for pursuing payment: they may now satisfy delinquent or outstanding debt through wage garnishment or by seizing funds from checking or savings accounts.
Judgments are no longer factored into credit scores, though they are still public record and can still impact your ability to qualify for credit or loans. Lenders may still check to see whether any outstanding judgments against a potential borrower exist. You should pay legitimate judgments and dispute inaccurate judgments to ensure these do not affect your finances unduly.
âªÂ Learn more about how to deal with civil judgments.
If a civil judgment is still on your credit report, file a dispute with the appropriate credit reporting agencies to have it removed.
Tax Liens and Your Credit Report
Tax liens are filed by the IRS when you donât pay your taxes. A lien is automatically filed when you owe more than $10,000. When the IRS files a tax lien against you, it essentially gives the agency first dibs on any payment you receive from selling or liquidating your assets to pay your debts.
While tax liens are no longer reported on credit reports, they can significantly impact your financial situation in ways that indirectly affect your credit score.
âªÂ Learn more about tax liens.
If a tax lien is being reported on your credit report, file a dispute.
How to Deal with Derogatory Public Records
Although judgments and tax liens are no longer filed on credit reports or factored into credit scores, these penalties can undermine your financial standing. If a derogatory public record is filed against youâ you should monitor the effects on your credit and ensure that information pertaining to your filing is accurate.
Check your reports regularly to ensure they are fair, accurate and up-to-date. You can watch for changes by getting your free Credit Report Card and credit score monitoring from Credit.com.
âªSign up now!
The post What Does Having a Derogatory Public Record on My Credit Report Mean appeared first on Credit.com.
In a recession itâs common for many people to rely on credit cards and loans to balance their finances. Itâs the ultimate catch-22 since, during a recession, these financial products can be even harder to qualify for.
This holds true, according to historical data from the Federal Reserve Bank of St. Louis. It found that during the 2007 recession, loan growth at traditional banks decreased and remained deflated over the next four years.Â
Credit can be a powerful tool to help you make ends meet and keep moving forward financially. Hereâs what you can do if youâre struggling to access credit during a weak economy.
Lending becomes riskier in a weak economy. Does this mean youâre completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.
How Does a Financial Downturn Affect Lending?
Giving someone a loan or approving them for a credit card carries a certain amount of risk for a lender. After all, thereâs a chance you could stop making payments and the lender could lose all the funds you borrowed, especially with unsecured loans.
For lenders, this concept is called, âdelinquencyâ. Theyâre constantly trying to get their delinquency rate lower; in a booming economy, the delinquency rate at commercial banks is usually under 2%.
Lending becomes riskier in a weak economy. There are all sorts of reasons a person might stop paying their loan or credit card bills. You might lose your job, or unexpected medical bills might demand more of your budget. Because lenders know the chances of anyone becoming delinquent are much higher in a weak economy, they tend to restrict their lending criteria so theyâre only serving the lowest-risk borrowers. That can leave people with poor credit in a tough financial position.
Before approving you for a loan, lenders typically look at criteria such as:
Co-signers, if applicable
Down payment size (for loans, like a mortgage)
Does this mean youâre completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.
5 Ways to Help Get Your Credit Application Approved
Although every lender has different approval criteria, these strategies speak to typical commonalities across most lenders.
1. Pay Off Debt
Paying off some of your debt might feel bold, but it can be helpful when it comes to an application for credit. Repaying your debt reduces your debt-to-income ratio, typically an important metric lenders look at for loans such as a mortgage. Also, paying off debt could help improve your credit utilization ratio, which is a measure of how much available credit youâre currently using right now. If youâre using most of the credit thatâs available to you, that could indicate you donât have enough cash on hand.
Not sure what debt-to-income ratio to aim for? The Consumer Financial Protection Bureau suggests keeping yours no higher than 43%.
For those with poor credit, a trusted cosigner can make the difference between getting approved for credit or starting back at square one.
When someone cosigns for your loan theyâll need to provide information on their income, employment and credit score â as if they were applying for the loan on their own. Ideally, their credit score and income should be higher than yours. This gives your lender enough confidence to write the loan knowing that, if you canât make your payments, your cosigner is liable for the bill.
Since your cosigner is legally responsible for your debt, their credit is negatively impacted if you stop making payments. For this reason, many people are wary of cosigning.
In a recession, it might be difficult to find someone with enough financial stability to cosign for you. If you go this route, have a candid conversation with your prospective cosigner in advance about expectations in the worst-case scenario.
3. Raise Your Credit Score
If your credit score just isnât high enough to qualify for conventional credit you could take some time to focus on improving it. Raising your credit score might sound daunting, but itâs definitely possible.Â
Here are some strategies you can pursue:
Report your rent payments. Rent payments arenât typically included as part of the equation when calculating your credit score, but they can be. Some companies, like Rental Kharma, will report your timely rent payments to credit reporting agencies. Showing a history of positive payment can help improve your credit score.Â
Make sure your credit report is updated. Itâs not uncommon for your credit report to have mistakes in it that can artificially deflate your credit score. Request a free copy of your credit report every year, which you can do online through Experian Free Credit Report. If you find inaccuracies, disputing them could help improve your credit score.Â
Bring all of your payments current. If youâve fallen behind on any payments, bringing everything current is an important part of improving your credit score. If your lender or credit card company is reporting late payments a long history of this can damage your credit score. When possible speak to your creditor to work out a solution, before you anticipate being late on a payment.
Use a credit repair agency. If tackling your credit score is overwhelming you could opt to work with a reputable credit repair agency to help you get back on track. Be sure to compare credit repair agencies before moving forward with one. Companies that offer a free consultation and have a strong track record are ideal to work with.
Raising your credit isnât an immediate solution â itâs not going to help you get a loan or qualify for a credit card tomorrow. However, making these changes now can start to add up over time.
4. Find an Online Lender or Credit Union
Although traditional banks can be strict with their lending policies, some smaller lenders or credit unions offer some flexibility. For example, credit unions are authorized to provide Payday Loan Alternatives (PALs). These are small-dollar, short-term loans available to borrowers whoâve been a member of qualifying credit unions for at least a month.
Some online lenders might also have more relaxed criteria for writing loans in a weak economy. However, you should remember that if you have bad credit youâre likely considered a riskier applicant, which means a higher interest rate. Before signing for a line of credit, compare several lenders on the basis of your quoted APR â which includes any fees like an origination fee, your loanâs term, and any additional fees, such as late fees.
If youâre trying to apply for a mortgage or auto loan, increasing your down payment could help if youâre having a tough time getting approved.
When you increase your down payment, you essentially decrease the size of your loan, and lower the lenderâs risk. If you donât have enough cash on hand to increase your down payment, this might mean opting for a less expensive car or home so that the lump sum down payment that you have covers a greater proportion of the purchase cost.
Loans vs. Credit Cards: Differences in Credit Approval
Not all types of credit are created equal. Personal loans are considered installment credit and are repaid in fixed payments over a set period of time. Credit cards are considered revolving credit, you can keep borrowing to your approved limit as long as you make your minimum payments.
When it comes to credit approvals, one benefit loans have over credit cards is that you might be able to get a secured loan. A secured loan means the lender has some piece of collateral they can recover from you should you stop making payments.
The collateral could be your home, car or other valuable asset, like jewelry or equipment. Having that security might give the lender more flexibility in some situations because they know that, in the worst case scenario, they could sell the collateral item to recover their loss.
The Bottom Line
Borrowing during a financial downturn can be difficult and it might not always be the answer to your situation. Adding to your debt load in a weak economy is a risk. For example, you could unexpectedly lose your job and not be able to pay your bills. Having an added monthly debt payment in your budget can add another challenge to your financial situation.
However, if you can afford to borrow funds during an economic recession, reduced interest rates in these situations can lessen the overall cost of borrowing.
These tips can help tidy your finances so youâre a more attractive borrower to lenders. Thereâs no guarantee your application will be accepted, but improving your finances now gives you a greater borrowing advantage in the future.