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Wake Up, People! You Absolutely Must Know These Things About Your Credit Score

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeA study done in 2013 revealed some amazing facts about how ignorant many Americans are regarding their credit scores and credit reports. For example, 2/5ths of those surveyed did not know that credit card companies and mortgage lenders use credit scores to determine their eligibility for credit. Another 2/5ths incorrectly believed that personal characteristics such as marital status and age are used to calculate credit scores. Between 25% and 33% did not know when it is that lenders must inform borrowers of the credit scores used in their lending decisions. More than 25% do not know how to raise or maintain their scores. And 36% incorrectly believed that credit repair agencies are usually or always helpful in improving credit scores and correcting errors in credit reports.

Wake up, people!

If you don’t understand credit scoring and credit reports you could be facing big trouble. If you’re not aware of this, you definitely need a good credit score to qualify for an auto loan, a mortgage and other financing. And if you make just one misstep such as forgetting to pay a credit card bill, you could be on the slippery slope to serious credit problems.

Do you know who compiles your credit reports?

Your credit reports are compiled by the three major credit bureaus – Experian, Equifax and TransUnion. The information they use comes from banks and the financial institutions with which you do business and includes every credit contract you’ve ever had related to debt. Debt collectors even report to the credit bureaus. So if you have an old unpaid medical bill, this could pop up on your report and damage your credit score.

In addition, the three credit bureaus collect information from public records on tax liens, court judgments and bankruptcies. Any time you apply for any type of credit (called a credit inquiry), this will be reported to the three credit bureaus. In turn, the credit bureaus provide your credit report to the lenders when you apply for new credit.

Banks and credit card companies aren’t the only ones that access your credit reports either. Cell phone providers, landlords, insurers and utility companies will also ask for a credit report in determining whether or not they want to deal with you.

What about employers?

According to the Fair Credit Reporting Act, employers can check your credit reports but they have to get your permission to do this. Of course, if you’ve applied for that dream job and your prospective employer has asked to check your credit reports, you’ll probably feel pressured to say yes. If you say no this would be as good as saying that you have poor or bad credit. And under no circumstances are employers or prospective employers permitted to check your credit score.

The inverse ratio

There is an inverse ratio to credit scores. The higher your score the lower the interest rate you will be charged on an auto loan, a personal loan, credit card, and a mortgage. Even your auto insurance will cost less if you have a high score. Conversely, the lower the score, the higher your interest rates will be.

One freebie a year

You can get a free copy of your credit reports once a year. This is a perk that was legislated by Congress a few years ago. There is a website, www.annualcreditreport.com, where you can get all three of your credit reports either simultaneously or one at a time. Alternately, you can get your credit report free from each of the “big three” credit bureaus. You should get these reports and review them carefully to make sure they do not contain errors. If you do find an error in one of your reports you need to immediately dispute it with the appropriate credit bureau. What some people do is get their report from one of the credit bureaus every three months, which is a way to monitor their credit and immediately spot any fraud.

Man climbing range of credit scoresThey won’t include your credit score

Your credit reports will contain a lot of information but they won’t include your credit score. While there are a lot of different credit scores floating around the most important one is your FICO score as this is the score that most lenders use in determining whether or not to extend you credit. You can only get your FICO on the website www.myfico.com.

Where else to get your credit score

Getting your credit score used to be a fairly big job. But it’s becoming much easier. You can get your score free on websites such as CreditKarma.com and CreditSesame.com and from the three credit reporting bureaus. These won’t be your true FICO score but should be close enough to give you a good idea of how you stack up. Whatever your number is, don’t fixate on it. The important thing is to understand how you stand in the range being used. FICO scores range from 300 to 850. This means that a score of 800 would put you in the range of very good or excellent credit. However, the VantageScore, which was developed by the three credit reporting bureaus, has a range of 501 to 990. It also assigns a letter grade to scores. If you were to have a VantageScore of 800 you would be ranked as C or Prime, which wouldn’t be as good as an 800 FICO score.

It’s becoming easier

If you have a Discover card you’re probably seeing your credit score every month on your statement. The credit card companies, 1st Bankcard and U.S. Bankcard have said that they will soon be sharing FICO credit scores and related information with their customers. This is in response to the US Consumer Financial Protection Bureau (CFPB), which has been urging the credit card companies to do this because it believes the more information a consumer has, the better a job he or she will do in managing their credit. While this has not yet proven to be true, it certainly can’t hurt for people to be able to see their credit scores every month and whether they’re getting better or worse.

How your score is calculated

No, your age, marital status, number of children or any other personal information is not used in calculating your credit score. It is based on six factors: Your payment history, debts owed, length of credit history, amount of available credit, types of credit and your credit inquiries.

If when you get your credit score you find that it’s either poor or bad there’s nothing you can do about your payment history. History is, after all, history. You also can’t do anything about your length of credit history. However, there is one factor you could get to work on – which is your debt-to-credit ratio. It’s calculated by dividing your debts owed by the amount of available credit you have. For example, if you have available credit in the amount of $10,000 and $5000 in debts owed, your debt-to-credit ratio would be 50%. Since this accounts for 30% of your FICO score this is an area where you could do something to affect it positively. The two alternatives are to either pay off some of your debts or ask one or more of your creditors to increase your credit limits. Do either one of these and you would lower your debt-to-credit ratio and this should have a positive effect on your credit score. If you’d like more tips for improving your credit score, watch this short video courtesy of National Debt Relief.

The net/net

What all this boils down to is that your credit score pretty much rules your credit life. And since your credit score is based on your credit reports – or how well you’ve used credit – the best policy is to always use it sensibly.

Surprising Fact – Secured Credit Cards Are Not Just For Those With Bad Credit

If you’re interested in personal finance you’ve probably read several if not a dozen different articles promoting secured credit cards for people with tarnished credit reports or poor credit scores and are unable to get conventional credit cards. While this is true it’s not the whole truth. The “nothing but the truth” is that secured credit cards can be great for young people that are trying to establish a credit history or for foreign citizens that are living in the US and have no American credit history let alone a credit score.

If you have poor credit

Have you checked your credit score recently? You can get it free from any of the three credit reporting bureaus or from sites such as CreditKarma.com or CreditSesame.com. This will not be your true FICO® score as the only place you can get it is on the site www.myfico.com. You will have to sign up for its Score Watch program that costs $4.95 for the first month and then $14.95 a month thereafter. But you will get two FICO Credit Scores, two Equifax Credit Reports™, FICO® Score monitoring and alerts
The reason why it’s best to get your true FICO score is because that’s the one that 90% of all lenders use in deciding whether or not to grant you credit. FICO scores range from a low of 300 to a high of 850. When you check your score if you find it’s below 580 potential lenders will see you as having a “poor” credit score. If this is the case getting a secured credit card could be a good way to build up your credit so that you will have a higher credit score. And you want to have a higher credit score because there is an inverse relationship at work here. The higher your credit score, the lower the interest rates you will be charged. Conversely, the lower your credit score, the higher will be your interest rates.

How secured credit cards work

To get a secured credit card requires that you make a refundable security deposit that then works as cash collateral in the event you default on your payments. Your credit limit will be based, of course, on how much money you deposit. While it’s possible to get a credit limit of more than 100% of your security deposit it’s more often 50% to 100%. What this means is that if you make a $300 deposit on the card that’s its credit limit. However, if your lender offers only 50% of your deposit then your credit limit would be $150. Clearly this is not as good a deal. It would be much better to find a card where your credit limit is equal to your deposit.

If you’re trying to build credit

No matter what your circumstances might be, it’s a good idea to get a secured card if you are trying to build or rebuild your credit. You are basically guaranteed to get approved because you’re the one that’s taking the financial risk through your security deposit and not your bank or lender.

No one will know

One really good thing about a secured credit card is that no one but you will know it’s a secured card. They are not emblazoned with the word “secured” on them. If you pull out the card on a date or to pay for a business lunch no one around you will know that you have no or bad credit and had to get a secured card.

Choosing the right one

Virtually all banks, major lenders and even credit unions offer secured cards. Before you choose one be sure to read the fine print carefully. This is where you’ll find the card’s fees and APR as well as other important information. But there is one thing to check out that’s more important than any other. Make sure that how you use the card will be reported to all three credit bureaus – Experian, Equifax and TransUnion. You need to make sure your use of the card will be reported to all of these bureaus because not all lenders pull information from all three. You want to create a positive history with a secured card and then make sure it’s relayed to a potential lender regardless of which credit bureau it uses.

What else to look for

Maybe this goes without saying but you should look for the secured card that has the lowest possible fee structure and APR (annual percentage rate). Unfortunately, many secured cards have transaction fees for each purchase, application fees, monthly fees to maintain the card, higher interest rates. no grace period when you make purchases and other fees that unsecured cards just don’t have.

The interest rate

Unfortunately the interest rate on a secured card or its annual percentage rate can be as low as 9.90% or as high as 22.99% or even higher. When the secured card has low or no upfront fees, it often has a higher interest rate. Conversely if the card has high upfront fees or annual fees, it could have a lower interest rate. In addition, there are often many other fees that are determined by the lender and so differ from card to card.

A secured card is not a prepaid card

It’s also important to understand that a secured card is not a prepaid card. When you make a deposit to “secure” a card and make a purchase, your balance is not reduced. Of course, you will still be required to pay for whatever you charge on a secured card each month just as is the case with a conventional credit card. However, the secured deposit balance will remain the same until you close your account – unless the card’s terms state otherwise. In comparison, with a prepaid card your balance decreases every time you make a purchase until you reach a zero balance. At that time you will need to either add money to the card or throw it away.

Note: If you’d like to know more about prepaid credit cards and what they’re good for, watch this video courtesy of National Debt Relief.

 

They aren’t negotiable

If you search carefully you may be able to find a secured card that has few or no fees. However, some cards can have a lot of fees and they can be very high. With secured cards these fees are rarely negotiable and some have fees of more than $14.95 a month in addition to application fees, late fees, over-the-limit fees, cash advance fees, annual fees and more.

You won’t get any rewards

Another downside of secured cards is that they don’t come with any rewards. You won’t get those nice little extras that many regular cards provide such as airline miles or cash back. But remember the reason that you would get one of these cards is not for its rewards. It’s to help you build or rebuild your credit, which could serve you well in the years ahead.

The net/net

The bottom line of a secured card is that it could help you build or rebuild your credit but it can be a slow process. For people that just had a bankruptcy or just completed debt settlement and don’t have good credit, it can be a good to get a secured card to help rebuild their credit scores. But if you don’t have a lot of negative information on your credit report such as late or missed payments or debts that have gone to collection then adding a secured credit card won’t turn things around for you as if my magic. The fact is that a secured card just won’t be an instant fix.

How To Improve Your Credit Score Without Making Yourself Crazy

how debt relief affects credit scoreYou do know what your credit score is, right? If not, now would be a good time to learn what it is. The reason for this is simple. Your credit score rules your credit life. If you have a poor credit score you may not be able to rent an apartment, buy a house or a car or get new credit cards. You may have to pay more for your home and auto insurance and for any loan you are able to get.

So what the heck is a credit score?

For many years the only way a lender could determine whether or not to loan you money was to sit down and plow through your credit reports from the three credit reporting bureaus. As you might imagine this was a very time-consuming process. The people at what was then called Fair Isaac Corporation (now known as FICO) felt there had to be a better answer. Its solution was to turn all of those credit reports into a single three-digit number – your credit score. How FICO pulled this off is based on an algorithm that’s known only to it. If you don’t know your FICO score you can get it at www.myfico.com for $19.95 or for free if you take out a free trial subscription to its Score Watch program. It’s also possible to get a version of your credit score free – though it won’t be your true FICO score – from the three credit reporting bureaus or from independent websites such as CreditKarma.com or CreditSesame.com. If you have a Discover card you’re probably already getting your credit score each month along with your statement.

What lenders look for

When a potential lender checks your credit score it generally views it in ranges as follows:

  • Between 700 and 850 – Very good or excellent credit score
  • Between 680 and 699 – Good credit score
  • Between 620 and 679 – Average or OK score
  • Between 580 and 619 – Low credit score
  • Between 500 and 579 – Poor credit score
  • Between 300 and 499 – Bad credit score

If you have a credit score lower than 580 you need to improve it and you can – by following these tips. And they’re easy enough that following them won’t make you crazy.

Pay your debts on time

On the face of it this may seem too simple but if you create an history of consistently making your payments on time, this will boost your credit score. If you have a car payment, credit card balances, a mortgage or student loans make sure you don’t miss your payments. If you do, your account could be turned over to a collection agency and trust us, you don’t want this to happen. A debt collector can be your worst nightmare as many of them are so tenacious they make a pit bull look like a kitten in comparison

Pay off your credit cards

Here’s another simple thing you could do and that’s pay off your credit cards. If possible, pay off your full balance or balances and then go a month without using your cards. This stops you from having to pay interest, saves you money and will, of course, increase your credit score.

Fix errors

To err is human but to fix mistakes in your credit reports is divine. One recent study revealed that nearly 25% of us have errors in our credit reports that could be affecting our credit scores. You need to get your three credit reports from the credit reporting agencies – Experian, Equifax and TransUnion and go over them with a fine tooth comb. If you find errors you will need to write a letter disputing them to the appropriate credit bureau. Your letter should identify each of the items in your report that you are disputing. You will need to include whatever documentation you have that proves your case and explain why you are disputing the information. Make sure you also request that the erroneous item or items be removed or corrected. It’s best to send your letter by certified mail, return receipt requested, so you can prove that the credit-reporting agency received it. Be sure to keep a copy of your letter and your documentation.

Moderation in all things

This phrase was attributed by the Greek philosopher Aristotle to Chilo, one of ancient Greece’s Seven Sages. It basically means nothing in excess and this is especially true when it comes to credit cards. Most experts say that you should only use 20% or less of your available credit. In other words, if you have credit cards with a total credit limit of $1000, you should keep your balances under $200, which will be very good for your score.

Up your credit limit

If that 20% doesn’t give you enough credit to satisfy your monthly needs, contact your credit card issuer and ask it to increase your limit. This will keep your usage ratio low while allowing you to spend more. As an alternate to this, you could keep smaller balances on multiple cards to maintain the right ratio.

Resist the impulse to open more accounts

One of the problems with credit cards is that it is simply too easy to open new accounts. Just about every time you check out at a store you’ll be offered the opportunity to get a new card. Also, the credit card issuers are offering more and more incentives to open their cards such as cash back and airline mileage. But each time you apply for a credit card it dings your credit score by at least two points. Plus, the more credit cards you have the more tempted you might be to use them.

Adult WomanHang on to your older cards

Here’s a tip that’s pretty darn simple. Just hang on to those older cards. If you have been making your payments on them, this is a good indicator that you are a responsible user of credit. In the event you feel you have too many credit cards and need to close a few accounts, close the newest ones first. Also, make sure you use those older cards occasionally so that your account will look active.

Time will go by

If you were forced to declare bankruptcy because of out-of-control spending or bad luck such as an unexpected illness or loss of a job, you will just need to let time pass. It can take seven or even 10 years for that bankruptcy to drop off your credit report. The good news is that if you let time pass and that bankruptcy drops off your report, your credit score will improve significantly.

How about a secured card?

In the event you are waiting for something to drop off your credit report such as a bankruptcy or an item that went into default, you might get a secured credit card. This is where you make a cash deposit to “secure” the card. You can then use it until you’ve depleted your deposit at which time you can either add more money or simply throw away the card. But the important thing is that if you use it wisely, it will help you rebuild your credit.

The net/net

The bottom line is that it if you follow the simple tips you’ve read in this article, you can increase your credit score and have better credit without making yourself crazy

Minneapolis Tops The Cities With The Best Credit Score

man jumping with a chart behind himWe all know that you could be hurt by a bad credit score. That is why a lot of financial experts say that you also have to keep an eye out for your credit report. You want to always know the state of your credit ranking so you can see if you need to improve it or not.

When you have a good credit rating, that means you have been displaying good credit behavior. It tells others that you are creditworthy – which simply means your debt is at a reasonable level, you pay your dues on time and you know how to manage your debts. Having a high credit score will prompt lenders to give you a good interest rate on any loan that you want to borrow. That is because they are sure that you do not pose any risk – that you will not run away without paying your debts.

Minneapolis have better credit management skills

When it comes to having a good credit standing, Minneapolis ranks as the top city with the highest credit score average. According to the press release published on Experian.com, residents of this city averaged at 702. This score increase by two points since 2010. This is based on the VantageScore that ranges between 300 to 850. The city is followed by Boston with 694, San Francisco with 689, Seattle with 679 and New York with 678. Phoenix is noted to be the city with the highest score increase – jumping from 647 in 2010 to 654 in the latest study done by Experian.

It has to be noted that these cities that ranked the 5 highest credit score does not necessarily have the highest or lowest debt ranking. Of the top 5, Seattle has the highest debt average per consumer at $27,279. It is followed by San Francisco with $25,828, Minneapolis with $25,626, Boston with $25,413 and New York with $25,396.

The fact that Minneapolis does not have the lowest debt average per consumer (a spot held by Detroit with $23,604), and yet has the highest credit score average shows us a couple of truths about credit ratings.

  • A low debt amount does not necessarily give you a high credit score. Detroit has a credit score average of 667 – a far cry from the 702 of Minneapolis. Although the latter has $2,000 more debt, it does not affect how the consumers in this city is properly managing their debts.
  • A high debt amount is still a factor in pulling down your score – but credit behavior still weighs in the end. Seattle, although it has a high debt amount, still landed in the top 5 credit score average. But if you look at the complete top 20 list from Experian, the city with the highest debt, Dallas ($28,240) has a credit score of 648. This proves that a high debt amount may not entirely be the cause of your credit score downfall but it does have a strong pull.
  • The debt amount is still outweighed by the credit behavior in helping you get a high score. Seattle is the perfect example for this. It is only $1,000 less than the highest average debt per consumer in Dallas but the credit score difference is more than 30 points.

Governing.com also provided data about the top states with the best credit score average. On top of the list is Minnesota, the state where Minneapolis belongs to. This state has an average of 718. It is followed by North Dakota with 715, South Dakota with 714, Vermont with 712 and New Hampshire with 711. It is interesting to note that the whole state where Minneapolis is included seems to be doing a good job when it comes to maintaining a good credit score.

How to maintain a good credit rating

But what does it take to get a good score? If you have a bad credit rating now, you do not have to fret because there are ways to fix your credit score.

Here are three important things to remember.

Borrow money wisely.

Being wise about credit goes beyond not borrowing when you need it. You have to learn how to borrow only what is necessary. A lot of people base the amount of loan that they will apply for on how much they are capable of paying. This is wrong. You only borrow what you need, nothing more. If you want to buy a home and you will qualify for a $1 million mortgage, do not take it. If a 3 bedroom apartment only costs $500,000, that is the amount that you should borrow. If your income takes a hit and your monthly cash inflow is lessened, your debt obligations will remain the same. Where will you get the amount that you need to pay off your debts?

Practice proper payment behavior.

Another important habit in credit management is your payment behavior. In the FICO Score, it is 35% of your overall score. When you pay your dues on time, this will reflect well in your score. It can keep your number up and that is always a good thing for lenders. When they see a lot of late payments, that will be a red signal for them that you do not possess the best payment behavior. You are a high risk borrower and that will prompt them to impose high interest rates on you.

Monitor your credit report.

It is not enough that you keep your score low. It is also a must that you make it a habit to monitor your credit report. You might be exhibiting good judgement and the right payment habits but that does not mean your score is already in good condition. One incident of identity theft without you knowing it can make your score plummet. It will also leave you with a huge debt to pay off. This is why you must review your credit report as often as you can.

Here is a video from Bank of America that will help you understand what a good credit score really is.

New way to compute your credit ranking

The way that credit scores are being computed is always being improved. Recently, FICO, the leading provider of consumer credit scores have announced that they refined how medical debts and collections will be computed and reflected in the credit rating of consumers.

The news found on FICO.com revealed the changes in the FICO Score 9. They are as follows:

  • Better way of assessing the collection information of every consumer and those with a thin credit history.
  • Bypassing of any paid collection accounts.
  • Differentiating of medical and non-medical collection accounts.

These changes hope to lessen the impact of medical collections on the credit score of consumers. This change is meant to make the computation more precise for lenders. After all, medical debt is not something that can be compared directly with mortgage loans, credit card debt and student loans. It is a debt that you oftentimes do not have a choice in – because it literally means choosing between life and death.
It is also a great improvement, the way this new formula allows consumers with a thin credit history to be judged more accurately about their payment behavior. It will give the new credit holders a better chance at getting a good deal on their first few loans.

6 Common Causes of Credit Card Debt

Multiple credit cards in one handCharging purchases on a credit card has steadily been the most preferred payment  method of consumers lately. About 1.5 billion credit cards in the country are helping fuel this way of life. According to Statisticbrain.com, there are about 176.8 million consumers who has a credit card in their wallet where the average card ownership per person is 3.5. This goes to show the dependency of the US market in credit card purchases.

The expense item is still in the top four debt item in the country. It is in the league of mortgage loans, student loans, and auto loans. In a consumer driven economy, credit cards play a vital role not only in the private lives of its users but the whole economy as well. It increases the purchasing power of the consumer and extends credit for an otherwise impossible purchase.

But there are a few people that despise credit cards because of all the financial trouble they are in at the moment. Some of them were not aware of the impact of credit cards in the credit score, how late charges worked and other details that dragged them down in debt and interest payments. Though there are those that are able to live off a credit card but still manage to maintain their finances in check .

Common Credit Card Problems

It is important to note that any unfavorable details in your credit score might take approximately seven years to repair. This is in stark contrast with how a consumer can do damage on the credit score in a matter of days or weeks. What is easily put on the report will be a very hard and long battle to recover from.

In most cases, the problem lies with the user and not the card. The consumer gets in all sorts of predicament because the usage of the card was not properly observed. Here are some of the top reasons why a person could walk right into a debt trap using a credit card.

Credit card ready

Most consumers are not ready. This is one basic flaw in the system where as young as high school students get access to a credit card. When they get to college, they see credit cards as an endless source of cash. They then come home to mom and dad pleading poverty with a tidy amount of credit card bill.

It is not only students because there are also professionals who are not ready for the added financial responsibility but still get their hands on a shiny new plastic. One basic requirement of owning a credit card is a steady income to pay off the purchases. It is impossible to pay for the charged items without a good and steady source of funds. It could be coming  from an allowance, salary from employment or even returns from investment ventures. You would need to understand budgeting as well for this.

More than you can handle

Most of the consumers started with one credit card. But not all of them stop at just one. A lot of people are taking in a lot more and sometimes go way in over their head. Assigning a specific function to each credit card is a great idea but only if you can be financially mature to handle multiple cards. If not, it is better to stick to one card.

Some consumers assign a specific card for groceries, gas and other items. This is a budgeting tool that allows them to see how much each cost item is being used through the credit card bill. This is useful but requires a lot of restraint and discipline. Restraint from using the credit card just because you feel like it and discipline in using the card for specific purposes only.

Debt overcomes income

As you make purchase using a credit card, you do not see actual money exchange hands. This could be one of the reasons why overspending with the card is a common occurrence. Plus the fact that the money being used to pay for the purchase is borrowed and not actual money of the holder makes it all too easy to spend.

Consumers need to keep tabs on their expenses to know if their salary or any other sources of income is enough to meet the payments once the bill arrives. For some, it is the longest few weeks of their livers from the time the purchase was made up to the time the statement arrives. It is important to know how much you can spend in your card and keep a close eye on your credit limit as well.

Payment dispute

A late payment and non-payment are reported to the credit bureaus by the lender. But if there are any dispute on purchases on the card, it is best to talk to your lender at the soonest possible time. This is to get to the bottom of the issue and be able to investigate the incident. At this point, it is best to keep an open line of communication with your creditor and to not hold any payments due as a sign of retaliation for the error.

Major life change

Credit.com points out that major life changes affects the finances as well. Getting married, expecting a baby, moving houses and other big ticket item purchases can have an effect on the personal finance of the consumer even up to their credit cards. It is best to be able to anticipate and plan your budget around the new chapter in your life and make the credit card to your advantage rather than a liability.

Understanding the fine print

It is ideal that a consumer knows the basic details of his or her credit card. The credit limit, payment due date and interest rate are just some of the items that is needed to be remembered by the person. But there are more details about the credit card that a consumer must understand in order to enjoy the benefits to the fullest.

With a card, it is best to understand how the late fees and other finance charges work on your loan. Knowing this can alert you even before buying an off-budget item. It is a great idea to understand how the point system works and if there are any fees related to transfers of balances into or out of the current one.

Credit card use

Consumers are not asked to splurge on clothes shopping everyday or to totally stop purchases with a credit card. There should be a fine line between the two and the consumer must be able to strike the balance between too much and too little. Though there are fast credit score fixes, a consumer must not rely in this possibility to lose track of credit card spending.

Proper money management, keeping a steady income source and managing credit card expenses are some of the prerequisites for properly handling the plastic. It is a tough job but the rewards are great. Staying away from debt is one of the top reasons why people are trying to be more aware of credit card usage. Debt is already an all too common circumstance for most people but the better handling of various credit tools such as a credit card, then debt will be kept at bay.

3 Very Big Questions (And Answers) About Personal Finances

young woman looking at credit cardPersonal finances are a bit like your health. You need to keep an eye on them just as you need to watch what happens to you physically. If you’re smart you’ll have a physical exam once a year just as you should give your personal finances the occasional checkup. And you probably have questions about your finances just as you have questions about your health. Recent college graduates were surveyed regarding their questions about personal finances and here are the three that came up most often.

Why not have just a debit card?

Since credit cards can be very dangerous why have one? Why not just use a debit card instead? Yes, credit cards can be troublesome. However, they do come with some benefits. If you have a credit card and use it responsibly, this will help your credit score. Second, merchants sometimes require a credit card rather than a debit card. If your identity is stolen, undoing the damage from a stolen credit card can be easier than with a debit card. If you run into a dispute with a merchant, it’s often better to have used a credit card as your credit card issuer will help you settle the dispute. Plus, almost every credit card now comes with rewards that can be beneficial – assuming you don’t go into debt or end up having to pay high interest.

The cons of debit cards

The money comes out of your account immediately when you use a debit card. In comparison, with a credit card you get a short-term free loan and your money stays in the bank earning a return. In fact, with most credit cards you would get at least a 27-day free loan every month. Given today’s historically low interest rates this may not amount to much but interest rates will go up eventually.

Is it better to have no credit or bad credit?

The problem with bad credit is that it’s very hard to fix. If you have bad credit the first thing you must stop running up more debt. You will need to create an emergency account and a budget that will require you to do and buy only what your income will cover. In addition, you will need to pay all your bills on time and in full, and pay down your debt. This includes everything even any accounts you have that were charged off. As you can imagine, this will require a lot of discipline and commitment – no matter why it was that you developed bad credit in the first place. If you have no credit it’s fairly easy to establish good credit. The reason why you want to do this is so that you will have it when you need it to get a home, a new car or for some other major purchase. You need to responsibly handle your savings and checking account and should get a debit card with no over-limit protection and maybe a secured credit card. If you have a secured credit card and use it responsibly then after six months you should be able to get an unsecured car with a low credit limit and no over limit protection. Of course, while you’re doing this you will have to pay all of your bills on time.

Girl looking worriedWhat’s the best way to pay off credit card debts?

The first thing you need to do is create an emergency savings account to make sure that if something happens you don’t fall into more debt. You also need an honest and realistic budget so you can see what you spend your money on and whether it is a wish, a want, a luxury or a convenience that you could do without. Once you have done these things the next step is to get to work and pay off those credit card debts as quickly as you can. There are several schools of thought as to the best way to do this. The financial guru, Dave Ramsey, recommends what he calls the snowball method of paying off credit card debts. What this amounts to putting your debts in order from the one with the lowest balance down to the one with the largest. You then focus all of your efforts on paying off the one with the lowest balance while continuing to make the minimum monthly payments on your other credit card debts. When you get that first debt paid off you will have extra money you can use to pay off the credit card with the next lowest balance and so on. Dave calls this the snowball method because like a snowball rolling downhill you will pick up more and more momentum as you pay off each debt. However there are other financial experts that believe it’s best to put your credit card debts in order from the one with the highest interest rate down to the one with the lowest. You then concentrate on paying off the one with the highest interest rate first as this will save you the most money. Which of these two methods would be best for you? It really boils down to a matter of personal choice. The important thing is to pick one and then stick to it.

How it used to be

Until very recently it was easy to understand how to handle credit cards to keep from having them negatively affect your credit score. All you had to do was… • Make every one of your payments – at least the minimums due – on time every month • Be sure to keep your balances below 30% of your credit cards’ credit limits. Of course, it’s better to have an even lower percentage but the difference that 10% or 20% make to your score is really very minimal when compared to 30%. • Make sure that you apply for a new credit card only when you need it. Your credit score can be negatively affected if you have a lot of recently opened accounts.

A new factor in credit scoring

But now there’s a new factor in credit scoring as the three credit bureaus are now using the amount by which you pay down your cards each month in calculating your score. It’s likely that other bureaus and scoring companies will soon follow suit. What’s the purpose of this? It’s to differentiate between people who pay down their balances in full each month (“transacters”) and people called “revolvers,” who carry forward their balances from one month to the next. The theory behind this is that people who pay off their balances each month are likely to be more credit worthy and so deserve higher scores. A spokesperson for FICO, the company that invented credit scoring, has said that it is still studying the data and hasn’t yet changed its systems. In addition to having invented credit scoring, FICO is the company whose credit scores are used in more than 90% of all lending decisions made in the US.

How this could affect you

If companies in the credit-reference industry and FICO begin to differentiate between “revolvers” and “transacters,” the “revolvers” could see their scores being downgraded even if they always make the minimum or higher payments on their credit cards on time every month. And this could lead to a significant change in how people view their credit cards and there could soon be fewer “revolvers.”

Bad news for the credit card issuers

In turn, this could be bad news for the credit card companies. Would you use your cards to borrow if you knew that this would probably make your home, auto and other loans more expensive? For that matter, the interest that credit card companies garner from those that roll forward their balances every month is an important revenue stream. One of the best-kept secrets of the credit card business is that people that always pay their balances on time are referred to as “deadbeats,” because they generate little or no profit for the credit card companies.

When Going Into Credit Card Debt Can Be A Good Thing

What You Can Learn From Successful People About Debt FreedomIt’s obvious that there are people who have too much debt. For that matter, one recent study revealed that the average US household has more than $15,191 just in credit card debt not including other debts such as a mortgage, personal loan, business loan or medical debts. And college graduates are now carrying an average of $33,607 in student loan debt.

But did you know there are people who actually have too little debt?

Should you live cash only?

It might sound like a good idea for you to shred all of your credit cards and pay for everything with a debit card, check or with cash. But if you live like this, it can trip you up. The problem is that if you have no debt, you don’t have a credit score. And this can complicate your life considerably.

Credit scores

Your credit score – if you have one – is created from monthly reports that lenders send to the three credit reporting bureaus. It will reflect how many creditors you have, how much money you owe, how quickly you pay, the size of your lines of credit and any defaults. Plus, it will have information from the courts such as tax liens and bankruptcies.

Why credit scores are important

Credit scores are important because lenders depend on them to determine how likely you are to repay a loan. The credit score that is used most widely comes from the company FICO. It ranges from a low of 300 to a high of 850. If you have a score of 750 or above, you generally can get a new credit card or borrow money on the best possible terms. If you have a score of 700-plus, you will still be able to get a competitively priced loan. However, if your score is below 620, don’t bother even asking. And of course if you have no score at all, you don’t even exist – at least so far as lenders are concerned.

Understanding your credit score

While no one except FICO itself understands the algorithm used to create credit scores, it is known that they are made up of five components as follows: your credit history, credit utilization, length of credit, types of credit and recent applications for credit. Of these five, your credit history and credit utilization are the most important as together they make up 65% of your credit score. As you might guess your credit history is just that – how you have used credit in the past. Since it is, well, history there is not much you can do about it. But credit utilization, which makes up 30% of your credit score, is something that you do have some control over. The way it’s calculated is to take the amount of credit you’ve used and divide it by your total credit limits. As an example of this, if you have total credit limits of $10,000 and have used up $3000 of it, your credit utilization would be 30%. Most lenders would see that as good. However, if you had used up $5,000 of your available credit, your credit utilization would be 50%, which would be much too high. You can calculate your credit utilization yourself. If it turns out to be above 40%, there are two things you could do to get it down. First, you might be able to get more credit or second, you could pay down some of your debts.

Here, courtesy of National Debt Relief is a short video with more information about understanding credit scores.

Open some new types of credit

You could also influence your credit score in a positive way by opening some different types of credit. In addition to a credit card, you might open a personal line of credit or take out an auto loan. The fact is that potential lenders like to see that you’ve had some different types of credit and have used them sensibly. But do keep in mind that this accounts for only 10% of your credit score so don’t go hog wild in applying for new types of credit.

Your score could disappear

Let’s say that you had credit cards or loans in the past. In this case you might assume that you always have a credit score – despite the fact that you are currently operating debt free. Unfortunately, this is not so. If you had no activity on at least one line of credit in the past six months, your score could vanish. And this is according to FICO’s Anthony Sprauve.

The disadvantages of being a member of the un-scored

If you find that you don’t have a credit score, this might not bother you – especially if you voluntarily gave up your debt and credit cards. Unfortunately, your credit score will affect your life in a number of other ways. If you don’t have a score or a high enough score, you might not be able to get a discount on your homeowner or auto insurance. When you sign up for utilities such as gas or water, you might have to make a higher deposit. In the event you need to rent an apartment, your landlord will probably require a good score before giving you a lease. Credit scores are even often checked to get cell phone service or cable.

Marrying a credit score

Did you know that if you’re married you get a credit score by by sharing a debt with your spouse? As an example of this, you would get a credit score if you apply jointly for a credit card. In the event that one of you dies, shared credit cards are generally canceled. This means to keep them you would need to reapply. Otherwise, you would lose your credit score.

One isn’t the loneliest numberwoman thinking while holding a credit card

You might remember that song from the 1969 about one being the loneliest number. Well, in the case of credit cards one isn’t the loneliest number – it’s enough. No financial advisor or expert will suggest that you get a mortgage or take out a car loan just to make sure your credit score stays alive. All you really need is just one active credit card. For that matter, if you want to get a good credit score you don’t even need to have multiple credit sources. One card is enough assuming that you’ve had it for several years and use it once or twice a month – at least for small purchases such as gas or groceries – and then pay in full when the bill arrives.

Is it still good?

If you’ve been using cash, checks or a debit card to pay all of your expenses but have one credit card you’ve been keeping in a drawer for emergencies, you need to get it out and make sure it is still good. If you haven’t used the card for 12 to 18 months, the credit card issuer could lower your credit limit or even close your account. If you want to reactivate that card, it’s possible you would have to apply for it all over again.

For those with too much debt

Credit cards can be a trickier issue if you have too much debt. For example, should you cut them up or not? You would be at a danger point if your payments were more than 40% of your monthly income. Among adults aged 55 and up who carried debt in 2010, 8.5% hit that dangerous mark. People age 65 and up are carrying debt and in larger amounts than was true 15 years ago. And here’s an awful statistic – bankruptcy rates have risen to new heights especially among those 75 and up. If you’re trying to dig your way out of debt than cutting up cards might make sense. But make sure you keep one and use it at least once a month to keep your credit score alive.

Money Concerns In Your 20s: Setting Up Your Finances Right From The Start

young woman looking tiredMoney concerns in your 20s may seem like a trivial thing since you have just gotten out of school. But considering the current financial situation in the country, you may want to start being serious about your finances early on. Most people are looking for financial tips for new graduates because they are eager to set up their finances in such a way that will help them avoid the mistakes that their elders made. Millennials, or at least those who are still in their 20s have seen how their parents and grandparents struggled with their personal finances. That experience definitely left a mark and is influencing how people in their 20s are reacting towards financial situations.

According to an article published on Investopedia.com, the spending habits of young adults are influenced by their friends, social media and the latest recession. Different studies reveal that they are inclined to follow the financial habits of their friends and they rely heavily on what goes on in their social media networks. The Great Recession significantly reduced the appeal of credit cards for the young adults – after seeing how it nearly drove their parents and grandparents under.

Whether this is true for you or not (assuming you are in your 20s), you need to put your prejudices aside and figure out how you will set up your finances today. You need to start it right so that your momentum in building up your wealth will not be hampered by mistakes that could have been avoided early on.

Typically, your money concerns can be divided into two: your debts and your financial goals.

Dealing with your debts out of college

Let us start with your debts. Being in your 20s, you know that one of your major concerns right now is your student loans. The really bad news about student loan debt is simple – it keeps on increasing. Chances are, you graduated with a lot of them in your name.

If that is the case, you need to know that dealing with your debt as early as possible is the best course to follow. By prioritizing this, you are lowering the interest amount that your debt is accruing. It can also help you setup your finances so that you do not have to pass up on financial opportunities because of your debts.

According to an article published on TIME.com the student loans debt that is now more than $1 trillion is starting to hurt the economy. Not only is it keeping students from making personal investments, it is also causing the government some serious budget cuts on other programs. That is so they can divert funds to help save the delinquent student loans borrowers.

Given that effect, you know that other money concerns is not as great as your responsibility to pay off your debt. This is true even for those that you have incurred in the past like credit card debt or other personal loans.

So how do you do that? Here are some tips for you.

  • List how much you really owe. Make a list of the debts that you owe – from student loans, credit card debts and other accounts that you have opened in the past. Give the details of each debt: the lender, interest rate, current balance and monthly payments. This will help you categorize which of them requires your attention the most. Ideally, you want to concentrate on those with the highest interest.

  • Calculate your payment capabilities. If you already have a job, you need to calculate your income to figure out how much you can afford to contribute towards your debts every month. That way, you can figure out how you will set up your budget. If you do not have a job yet and the 6-month grace period for your student loans is up, you need to research how your unemployment can be used to delay your billing.

  • Create a budget plan. When you have your income, you should list your expenses and make sure that you have enough money to send towards your debts. If it is not enough, your choices are to earn more or cut back on your expenses.

  • Research on the different debt solutions you can use. There are various debt relief programs that you can use to help make your debt payments more organized. You can use debt consolidation programs to simplify the payment process that you have to go through. Research the processes that you can choose from and figure which is most suitable for your specific financial requirement.

Financial goals that you can set up in your 20s

Apart from getting out of debt, you still have other money concerns to take care of. We have consolidated them into your financial goals. What you have to realize is that as you get older, your priorities will change and so will your financial goals. So you need to be careful about how you focus on each one because while you are working on them, they might not be relevant anymore.

But just to get your started, here are some of the money concerns that you can work on in your 20s.

  • Build up your emergency fund. As important as getting out of debt is, you need to work on your emergency fund too. That way, you do not have to put yourself further in debt in case the unexpected happens. You can start with $1,000 as your rainy day fund and just put more money as you go along.

  • Contribute towards your retirement. You also have to start thinking about retirement – yes even as early as now. If you do not want to wait until you’re 80s to retire, you should start saving up for your future. The thing about starting early is you can make small contributions and you can still reach your target.

  • Raising your credit score. This is an important task for you to work on early in your career. This is not just about having debt, it is more of how you will behave towards your debts. You need to learn how to pay off your credit obligations properly. That is primarily, how you will raise your credit score. To give you some tips, here is a video from National Debt Relief that has some tips on how you can improve your credit score.

  • Establishing your career. This is not really a financial goal but it is still important because it will allow you to reach your targets. In fact, most people in their 20s are usually focused on this. Figure out what you want to do and if it can finance the type of lifestyle that you want to have.

  • Acquiring possessions. According to the MarketPlace.org, student loans, after reaching $1.1 trillion, is starting to affect the ability of young adults to make investments – like buying houses for instance. It ties up around $1,000 per year and any payment made towards interest is actually a lost investment. So as difficult as this may be because of your debts, you need to look into ways to acquire possessions. Do not let your debts keep you from doing that.

The great thing about working on your money concerns as early as when you are in your 20s is you get to have the time to make mistakes. Not that you would not be careful of course. You will still take your time to consider your options but the thing is, you can afford to make risks at this point. So know your options and start working on your finances as early as possible.

In case you need help with your student loans, National Debt Relief recently released their federal student loan product. This is a consultation service wherein they evaluate borrowers in terms of their financial, employment and student loan conditions. They will recommend the right program that you can avail and will even help you with the paperworks. This service will only cost you a one time flat fee that will be placed in an escrow account. National Debt Relief will only withdraw this amount when you are satisfied with the paperwork that was done on your behalf. If you do not get into a program, then the company will not get paid. There will be no maintenance fee or any upfront fees in the service.

What You Need To Know About The New FICO Score That’s Coming Soon

What You Need To Know About Debt ManagementThe Greek philosopher Diogenes once said, “There is nothing permanent except change” and this is true in the world of lending as it is in the rest of our lives. Lending is constantly changing, which means that the way we are scored needs to be updated periodically and in line with this here comes the latest – FICO Score 9.

Does the term “credit score” frighten you?

Even though you may be afraid of the term “credit score” it’s important that you know yours and how it affects your personal finances. Lenders generally look at credit scores as follows:

Between 700 and 850 – Very good or excellent credit score
Between 680 and 699 – Good credit score
Between 620 and 679 – Average or OK score
Between 580 and 619 – Low credit score
Between 500 and 579 – Poor credit score
Between 300 and 499 – Bad credit score

When you apply for any kind of credit, the first thing the lender will do is look at your credit score. As you can see from the ranges shown above, if you have a credit score of less than 580, the odds are that you will be turned down or, best case, charged a very high interest rate. If you don’t know your credit score it’s critical that you get it before you next apply for credit – or you could be in for a very unpleasant surprise.

What a credit score means

Credit scores are a three-digit representation of how creditworthy you are. Landlords, creditors and other creditors use it to decide if you should be given a credit card or a loan and how likely it is that you will repay the money. To put this another way, your credit score is a way for lenders to predict how risky you would be as a creditor.

Now comes FICO Score 9

While there are literally dozens of different credit scoring models, the first and most popular is the FICO score. It was developed by a company then called Fair Isaac Corporation as a way to simplify the whole credit granting process. Prior to FICO lenders were required to sit down and carefully analyze your credit report line by line. Plus, they had to review your reports from the three credit reporting bureaus because they could be and often were different. As you can imagine this was both tedious and time-consuming.

The updated model

The models for scoring created by FICO are considered to be the gold standard in terms of deciding consumer risk. Virtually all the credit granting businesses use them. For example, in 2013 alone lenders bought from FICO an amazing 10 billion scores to decide who would be granted loans or credit cards. However, things change over the years and FICO generally keeps creating new models to tackle these changes and do a better job of predicting how creditworthy a person would be. The newest in this long line of credit scoring models from FICO is FICO Score 9 and is to be released this summer.

Much the same as Score 8

FICO Score 9 will be much the same as FICO Score 8. However, FICO said in a recent press release that it will have better “predictive power” and will consist of a better representation of a person’s creditworthiness. Andrew Jennings, who is FICO’s chief analytic officer was quoted as saying, “Our innovative, multi-faceted modeling approach incorporates a more exhaustive characteristic selection process to build a score that is even more effective across a wide variety of situations.” To put this in simpler terms, FICO Score 9 is to do a better job than FICO Score 8 of predicting how risky you are.

Improved consistency

As noted above, there are three credit bureaus that provide scores to both lenders and individuals. They are Experian, Equifax and TransUnion. One thing that has made it tough for lenders to get the maximum value out of the credit scores they purchase is that there is sometimes a wide variation between the three bureaus regarding an a person’s score. In fact, when a lender orders a credit report it is not uncommon that each bureau provides a somewhat different score. These inconsistencies can sometimes be quite large, which makes it confusing for both creditors and individuals. So, according to FICO one of the biggest improvements that will come with FICO Score 9 is that these differences will be less apparent, which will make it faster and easier for lenders to decide whether or not they want to issue credit to an individual.

Many new scoring models

This change coming from FICO is just one of the many new scoring models that are on their way. The new ones are expected to focus on individual industries. As an example of this, there will be different scoring systems between credit cards, auto loans and mortgages. This is due to the fact that lenders are searching for ways to grant credit to new customers while still adhering to a number of historically important guidelines.

Watch for more news

FICO will have more details about Score 9 as it comes closer to releasing it. You should pay close attention to this so you’ll know how you might or might not be affected by these changes and your ability to get new credit.

Check your credit reportCredit Report

While it’s important for you to know your credit score it’s equally important for you to see your credit reports. The law entitles you to a free copy of each of your three reports once a year. You can choose to get them from each of the credit bureaus or altogether on the site www.annualcreditreport.com. People who are credit wise generally get one of their free credit reports every four months. This represents a way to kind of monitor your credit without having to pay a company to do it. Reviewing credit reports isn’t much fun but it’s important that you look over each one carefully. A study released last year by the FTC (Federal Trait Commission) showed that nearly 20% of us have credit reports that contain errors and that 5% of us have errors so serious they are affecting our credit scores.

What to look for

When you go over your credit report the negative items to look for include late payments, skipped payments, defaults, bankruptcies, charge offs, tax liens and collections. If you find any of these in one of your credit reports it’s important to make sure they are legitimate and not errors. If you do find errors you can dispute them with the appropriate credit bureau by writing a letter and enclosing whatever documentation you have to prove your claim. The credit bureau will then check with the institution that provided the negative item and ask that it be verified. In the event that the institution cannot verify or fails to respond within 30 days, the credit bureau must remove it from your credit report, which could lead to a nice boost in your credit score.
If you do need to dispute something in one of your credit reports, here’s a video on the right way to construct a  dispute letter.

In summary

Your credit life is ruled by that little three-digit number called your credit score. It’s critical that you know your credit score especially before you apply for a big loan such as an auto loan or mortgage. You need to get and review your credit reports so that you can dispute any errors that could be affecting your credit score. And finally, be sure to watch for more information about FICO Score 9 so you will know how it might affect your credit score and your financial life.

Trying To Rebuild Your Credit? Here’s How To Find An Affordable Secured Credit Card

frustrated looking woman looking at a laptopAlmost all of us wreck our credit at some point in our lives – usually when we’re young and not so great about the decisions we make. There is an old saying that good decisions come from experience, and experience comes from bad decisions. If you’re like us you probably made some bad decisions about credit and may even have been forced to file for bankruptcy.

If you did mishandle your credit and find that you can no longer get any credit at all, you need to learn from the bad decisions you made and begin rebuilding it.

You do know your credit score, right?
If you’re not able to get credit it’s probably due to your credit score. Lenders look at credit scores in the following ranges:

• Between 700 and 850 – Very good or excellent credit score
• Between 680 and 699 – Good credit score
• Between 620 and 679 – Average or OK score
• Between 580 and 619 – Low credit score
• Between 500 and 579 – Poor credit score
• Between 300 and 499 – Bad credit score

If you’re being denied credit, you probably have a credit score of less than 500. But the important thing is to learn your credit score. You can get it by going to the site www.myfico.com and either pay $19.95 or sign-up for a free trial of its Score Watch program. The three credit reporting bureaus – Experian, Equifax and TransUnion – offer free credit scores but you may have to jump through some hoops in order to get yours. We like CreditKarma and CreditSesame as good sources for a free credit report. Plus, a site such as CreditKarma offers a lot of other valuable information in addition to your credit score.

Now that you know your credit score

Once you get your credit score the next step is to get your credit reports so you can see why your score is so pitiful. The law mandates that you can get your credit reports free from the three credit reporting bureaus once a year. You can get yours by going to each of the credit reporting bureaus or on the site www.annualcreditreport.com.

What to look for

If you have a very low credit score it’s because there are damaging items in your credit report. The ones to look for are late payments, missed payments, collection accounts, judgments, bankruptcies, defaults and lawsuits. You should also be sure to look for errors. The FTC (Federal Trade Commission) released a study last year showing that 5% of us have errors in our credit reports so serious they are damaging our credit scores. If you’re lucky you might find that there are errors in your credit report that are dragging down your credit score. If this turns out to be the case, you will need to dispute the negative items by writing a letter to the appropriate credit bureau, along with whatever documentation you have that proves your case. If you can get the erroneous items deleted from your account, your credit score should get a very nice boost.

Get a secured cardcredit cards

In most cases you won’t find any errors in your credit report, which means you have basically shredded your credit. In this case you will need to begin rebuilding it and one of the best ways to do this is to get a secured credit card. If you’re not familiar with these cards this is where you make a security deposit in order to get a line of credit. Some of these cards will also have an annual fee and even interest rates that are higher-than-average. Instead of just jumping into the first secured card you find, do some comparison-shopping to ensure that you get one that’s affordable. Here is what to look for.

What’s the annual fee?

All companies that issue secured credit cards have different annual fee requirements. These can be from $29 to $39 or even more, depending on the individual card and its interest rate. For example, you might find that a card that has a low interest rate and low deposit requirements has a higher annual fee. On the other hand, a card with a low annual fee might have a higher interest rate and stiffer deposit requirements.

Check out what’s required for a line of credit

If you search carefully you might find a secured credit card where you could qualify for an increase in your credit line and without having to add more funds for a security deposit. In the event you believe you will be using that secured card for a year or more, think about getting one that offers this advantage. You will need to maintain your account in a good standing by making your payments on time every time to get such a benefit. But this should pay off for you.

Go to a credit union

Membership in a credit union used to be limited to people in a certain group such as the employees of a company or members of a union. However, today many credit unions are open to just about anyone. A lot of them offer secured credit cards and some will even forego the annual and application fees. In addition, the secured cards offered by credit unions usually have lower interest rates and more alternatives for rebuilding your credit – even if you’ve had a bankruptcy, illness, divorce or another life-altering situation that damaged your finances.

If you’re not familiar with credit unions, here’s a helpful video that discusses the differences between banks and credit unions.

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Check out credit-card comparison websites

There are many websites that have reviews of secured credit cards and their current rates. Try to monitor a few of these as this could help you learn the pros and cons of each secured credit card program. This can give you a great birds-eye view of the latest programs and the offers before you begin researching individual cards on your own.

Don’t look just at deposit requirements

The first thing you’ll probably look for in a secured credit card that would be affordable is the deposit requirements you will be required to make before you get the card. But do remember that the security deposit is just part of the card’s total cost . You need to check out annual fees, the interest you will be charged on any balances you carry forward, the application fee and any other required fees. Add up all the costs of the different cards you’re comparing and their terms. What a card costs you over the course of a year will be much higher than just the security deposit. So make sure you account for those other costs.

Be careful you don’t get scammed

This may shock you but not all companies that offer secured credit cards are legitimate. If you’re not careful you could actually run into a scam. Before you sign up for a card, go online and check out multiple sources and look for reviews of the card and the company behind it. If the company passes this test, you can be pretty sure that it’s legitimate.

Watch the fine print

There’s an old saying in the advertising business that the big print giveth and the small print taketh away. Once you boil down your selections to a few secured credit cards be sure to read all the fine print. You need to have a detailed understanding of the card’s annual fee, fixed or variable interest rates, security deposit requirement and any other fees you would be charged over the life of your contract. And don’t be afraid to call the card’s customer service department if you have any questions about the terms or if you need something clarified. There is another old saying that it’s better to be safe than sorry.

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