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What You Need To Know About Medical Debt And Your Credit Score

stethoscope on top of coinsDid you know that medical debt is one of the reasons why a lot of Americans are having troubles with their credit scores? We all know how important credit scores have become in our society today. This score measures your creditworthiness. Before you are approved of a loan application, the creditor or lender will always check your credit score to determine how risky you are when it comes to payment behaviour. The idea is, when your credit score is low, there is a higher chance that you will not pay back what you borrowed from creditors and lenders.

But recent studies have shown that not all individuals with low credit scores are entirely irresponsible when it comes to debt. According to an article published on CBSNews.com, over half of the overdue balance on consumer credit reports is caused by unpaid medical debt. Most of them are unpaid because of reimbursement delays from health insurance companies. Other causes include medical billing errors and disputes that have yet to be resolved.

Apparently, there is some shady business going on when it comes to collecting medical bills. When the hospital, health facility or medical professional have unpaid receivables, they turn it over to medical debt collectors. These collectors go after consumers for payment – even when it is clear that the payment should be coming from health insurance companies. To pressure consumers into paying their bills from their own pockets, debt collectors file an unpaid report to the major credit bureaus. This results in a low credit score for a lot of consumers.

These findings came from the Consumer Financial Protection Bureau or CFPB. They have been compiling reports, complaints and observations with the intention to protect consumers from this seemingly unfair practice of reporting medical debt.

Based on the article from CBS News, the efforts of the agency is effective because a medical debt collector had been apprehended because of these shady practices. A settlement with Syndicated Office Systems had resulted in a $5.4 million payout to more than 23,000 consumers who had been wrongly hounded for medical bills. This payout is in checks of $100 to $1,000 – depending on how each consumer is affected by the illegal practices of the medical debt collection industry.

New rules when reporting health-related debt to credit bureaus

If you are currently burdened with medical bills, you need to understand the new rules that should protect you from getting a bad credit score.

Based on the December 2014 report published by the CFPB in their website, ConsumerFinance.gov, an estimate of 43 million Americans are found to have overdue medical bills. Most of these consumers are found to have ruined credit reports because of this debt.

According to the findings of the agency, there is something wrong with the way the system incurs, collects and reports medical debt. Among the things that was discovered to be wrong includes the following:

  • Confusing billing process for medical expenses. Some consumers incur a lot of bills – from the hospital, separate treatment sessions, professional fee, etc. These multiple providers can be quite confusing. Not only that the cost sometimes vary from one client to the next because of factors like the insurance, etc. This is why some consumers are unaware of how much they really owe in terms of their medical bills.
  • No standard practice in reporting overdue bills. The lack of standard procedure when reporting overdue medical debt is another reason why this is a big problem for consumers. There is no clear indication when their unpaid medical bills will end up in their credit report. Other debts will wait until after a pre-determined period passes before they report the unpaid debt to the major credit bureau. For medical bills, it can vary from 30 to 180 days. It depends on the health care provider when they will send the report.
  • Practice of “parking” unpaid debts on credit reports. This means the debt collector reports the unpaid medical bill and does not inform the consumer about it. This practice puts the consumer in danger of damaging their credit report without being given the chance of doing something to prevent it.

To deal with these problems, the CFPB required credit reporting companies to provide them with accurate reports on a regular basis. This will help them examine how to deal with the problems that consumers are facing when it comes to their medical debt. The agency would like to make the credit reporting market accountable for the accurate credit reports that consumers have. This market includes the credit bureaus (Equifax, Experian, and TransUnion), and the creditors and collectors providing the report.

Apart from the CFPB, a group of State Attorney Generals are also working on this problem too. According to an article published on Time.com, it will soon be easier for consumers to correct any errors on their credit report – especially if it involves their medical debts. The article mentioned how the three major credit bureaus have agreed to improve how they report medical debt and how they will deal with any errors that customers are complaining about. This change is part of their response to the settlement with Eric Scheiderman, the New York State Attorney General. The changes will be implemented six months from March 2015. The credit bureaus are expected to provide trained employees that will review the complaints of consumers and investigate accordingly.

Not only that, the credit bureaus are required to wait 180 days before they are allowed to add any unpaid medical debt in the report of the consumer. This is meant to give the consumer enough time to work on their unpaid debt before it damages their credit report.

According to the CBS News article mentioned earlier, some of the problems need to be put into law and thankfully, legislators are also working on it. In May of 2015, US Reps. John Carney (D-Delaware) and Andy Barr (R-Kentucky) introduced a bill known as the Medical Debt Relief Act. This bill seeks to allow the erasure of paid medical debts from credit reports within 45 days after full payment. It might be a long time before this is passed but the step in that direction is already taken.

How to keep medical bills from ruining your finances

While all of these steps are being taken, it is important for consumers to take their own steps to keep their medical debts from ruining their personal finances. According to the report from CFPB, there are 15 million consumers who only have medical debt on their credit report – nothing else. 20% of credit reports have at least one overdue medical bill. There are too many consumers being affected by the bad credit reporting practices for unpaid medical bills. You need to make some effort to keep your debt from ruining your financial life.

Of course, dealing with big medical bills is easier said than done. It takes dedication, self control and constant vigilance to help keep your debt from ruining you. Here are four things that you can do.

  • Keep yourself healthy. Prevention is better than cure. If you can avoid it, do not incur the debt. Live a healthy lifestyle so you do not have to spend on medical expenses.
  • Get insurance. If you know that your family is prone to certain illnesses, have yourself insured. It is better to be prepared by buying the right health insurance for you and your family as well. That way, you do not have to break the bank every time someone in the family falls ill.
  • Save up for emergencies. Apart from a health insurance, you can also avoid medical debt if you save up for these unexpected expenses. Grow your emergency fund so you have something to dip into when you need it the most.
  • Deal with your other debts. One way that you can also keep your medical debt from ruining you is by paying off your other debts. In most cases, people with too much debt are stressed. We all know how stress can cause a lot of health issues. Do not let stress rule your life so illness can stay away from you too.

Getting Your Credit Score Is Now Easier Than Ever

Man climbing range of credit scoresYour credit score is that three-digit number that rules your credit life. If you have a number above 660 you should be able to easily get a new credit card, a personal line of credit or an auto loan. You will be able to rent a house or an apartment and you will save money on your auto insurance premiums. On the other hand if you have a score of less than 500 you may have a very hard time getting any kind of credit.

A deep dark secret

Credit scores used to be a deep, dark secret known only to lenders. FICO, the company responsible for developing credit scoring, provided credit scores only to lenders and the three credit reporting bureaus. You could get your score by paying FICO or free from Experian, TransUnion or Equifax. However this would not be your FICO score but your Vantage score, which is based on a model developed by the credit bureaus.

Now easier than ever

Nearly half of us have checked our credit scores within the past year. According to a Bankrate Money Pulse survey another 14% have checked their scores within the past three years. Unfortunately not everyone has done this. Many Americans have never gotten their credit scores. In fact, a 2013 study from the American Bankers Association found that 56% of us did not know our credit scores.

The good news is that over the past few years credit scores have become easier to access than ever before. If you have a certain type of Discover card you’re probably getting your credit score every month. US Bank recently began providing its customers with their TransUnion credit scores. Bank of America is beginning to provide FICO scores to its consumer credit card customers and Chase is providing FICO scores at no cost to its Slate cardholders. Citi now provides free FICO scores monthly to those that have Citi-branded cards.

Even FICO is getting onboard

FICO recently said that it would provide versions of its score free to customers that are financially strapped. This will be done through certain nonprofit credit counseling agencies and government organizations that participate in the program`.

Websites that provide credit scores

In addition to the three credit reporting bureaus there are several websites that provide free credit scores. The most popular of these are Credit.com, Credit Karma, Quizzle and Credit Sesame. If you sign up with one of these websites you’ll get a good idea of your score with each of the three credit bureaus. And if you combine the twice yearly free Equifax credit report from Quizzle with Credit Karma’s free credit reports. plus the free credit reports available at www.annualcreditreport.com you should be able to spot any identity theft early on.

How lenders view youpoor credit score

While getting your credit score is a good idea it’s even more important to understand how lenders view it. They generally look at credit scores in ranges as follows:

• Excellent Credit: 781 – 850
• Good Credit: 661-780
• Fair Credit: 601-660
• Poor Credit: 501-600
• Bad Credit: below 500

How credit scores are calculated

FICO calculates credit scores using a proprietary algorithm. Vantage scores are based on an algorithm developed by TransUnion, Experian and Equifax. No one outside these four companies knows exactly how their credit scores are calculated but it’s known that FICO scores are based on five factors.

  • Credit history
  • Credit Utilization ratio
  • Length of credit history
  • New credit
  • Credit mix

Of these five the most important is credit history or how you have used credit in the past as it accounts for 35% of your score. Credit utilization is sometimes called your debt-to-credit ratio. It accounts for 30% of your score and is computed by dividing the amount of credit you’ve used by the total amount of credit you have available. Length of credit history is how long you’ve had credit. It makes up 15% of your score while new credit and credit mix each accounts for 10%. Your credit mix is the different type of credit you have – for example an auto loan, a mortgage and credit cards. New credit is sort of a misnomer because what it really means is the number of accounts you’ve opened recently. This can be important to potential lenders because it suggests you might be having financial problems and are desperately seeking new lines of credit.

To improve your score

If you have a low credit score and would like to improve it there are only several things you can do. If you’ve seen ads that scream, “Increase your credit score to 700 overnight” or “We’ll get those negative items off your credit report,” we have three words for you: Don’t believe them. There is absolutely no way to get a credit score increased overnight and while it’s possible to get negative items removed from a credit report it’s not something that any third-party can do.

There’s obviously nothing you can do about your credit history because it’s history. What’s done is done. You could improve your credit utilization ratio using one of two options. First, you could pay down your balances so that you would have a better debt-to-credit ratio or you might be able to get one or more of your credit limits increased – although this is generally easier said than done.

You could also improve your credit mix. For example, if you only have one credit card and an auto loan you could open a second card or take out a personal line of credit. The reason why this accounts for 15% of your credit score is that potential lenders like to see that you’ve successfully managed different kinds of credit. Of course, it will take time for this to improve your credit score because you’ll need to show you can handle that new credit card or personal line of credit sensibly.

If you have bad credit

If you have a credit score of 500 or below, you have some hard work ahead of you. The first thing you will need to do is get a free copy of your credit reports either from the three credit reporting bureaus or all at once on the site www.annualcreditreport.com. Go over your reports very carefully looking for the items that have sabotaged your credit score. These include late payments, missed payments, accounts that have gone to collection and defaults. You may be able to catch up on late payments and you could, of course, take care of missed payments. Just because you’ve defaulted on an account doesn’t mean you no longer owe the money. If you pay off the balance of a defaulted account it will still be listed as a default but as paid in full. The same thing is true of an account that has gone to collection. You will need to pay it off or negotiate a settlement with the debt collection agency to get square on it. As you can imagine all of this takes time as well as money. Beyond this you might get a secured credit card. Use it sensibly and this will be reported to the three credit bureaus, which will ultimately help improve your credit score.

Credit Lessons Your Parents Forgot To Teach You

choosing between good and bad creditDid your parents have two “little talks” with you? If so, the first undoubtedly had to do with, well, we don’t have to tell you what it was about. But if you were lucky there was a second “little talk” about personal finance. Your parents might have warned you about not creating debt, about saving and investing and maybe even about the importance of budgeting. But even that talk about personal finance probably did not include some very important lessons about credit. Or maybe they did talk to you about credit but you just sort of tuned them out because it was boring or you didn’t feel it was really something you needed to know. In either event, here are six credit lessons that your parents probably forgot to teach you that you really should know.

Just a half-a-percentage interest rate reduction does matter

Your parents might not have told you this but when it comes opening a line of credit it’s possible to negotiate a better interest rate. You might not get exactly what you ask for but you and your lender could end up with an interest rate lower than what you were originally offered. This is a case where just a .5% interest rate reduction can actually make a difference. As an example of this, if you applied for a $1000 loan at 17% but then negotiated this down to 16.5%, you would save five dollars a month. That’s a beer, a latte or in 12 months, a pair of shoes.

Paying interest can be really, really painful

It’s just not fun having to make monthly credit card payments. But it becomes much more painful when you add interest to your balance. Most credit cards today have an interest rate above 12%. If you make just the minimum payment or, worse yet, carry balances forward from month-to-month it can get really painful. As an example of this if you owed $5000 on a credit card at 15% and paid just the minimum each month it will take you 56 months to pay off that $5000 and will cost $1974 in interest.

Using a credit card can protect you from fraud

If you are asked to name the safest way to make a purchase and your choices were credit, cash or debit what would be your answer? The odds are that you would say a debit card. But you’d be wrong. The best way to protect yourself from fraud is by using a credit card to make your purchases. The reason for this is if you became the victim of identity theft most credit card issuers will remove those fraudulent purchases as soon as you alert them to suspicious activities. Plus, they generally limit your liability to $50. If you use a debit card then filing a claim could be much more complicated and it might be two weeks or more before you’re reimbursed for those fraudulent purchases.

man jumping with a chart behind himGood credit doesn’t just happen

The harsh truth is that good credit doesn’t build itself. You need to be proactive. Getting and keeping a good credit score can save you a lot of money over the long run. If you have a good credit score you can lock down lower interest rates and make larger purchases such as taking out a mortgage. If your goal is to build good credit, you should start soon and start small. Make a few small purchases with your credit card and then immediately pay for them. When you make small purchases and pay them off immediately this will help you build good credit habits early on as well as a good credit score.

An even better idea is to start with a secured card. If you’re not familiar with this type of card it’s where you deposit money with a bank – usually $300 or $500 – and then use the card to make purchases until your balance reaches zero or near zero. At that point if you want to keep using the card you will need to deposit more money. There are two good things about a secured card. First, it prevents you from creating debt. Second, how you use the card will be reported to the three credit reporting bureaus and, assuming you use it sensibly this will help you build a good credit score.

Your credit limits aren’t just suggestions

When you got that first credit card and saw it had a limit of $2500 that was pretty exciting. Just imagine! You instantly had $2500 at your disposal, right? Well, yes and no. Just because you have a credit limit of $2500 doesn’t mean you should use it. Most financial experts say that you should keep your credit utilization or how much of your limit you’ve used below 30%. This means is that you should use only 30% of that $2500 or $1500 total. The reason for this is because your credit utilization counts for approximately 30% of your credit score. If your credit utilization were 40% or even 50%, this would definitely ding your credit score. Do the math. If you find that your credit utilization is above that magic 30% you need to either get to work paying down your balance or open another credit card so that your credit limit would go up accordingly.

Your credit score will ultimately depend on your financial philosophy

Whether you have a good or bad credit score will ultimately depend on your financial philosophy or whether you’re an ant or a grasshopper. If your approach to finances is that of an ant where you’re saving money, paying off your balances on time every month and have an emergency fund, you’ll ultimately have a very good credit score. It may take a while but it will happen. On the other hand, if you’re more of a grasshopper – if you spend money as fast as it comes in or if your approach to debt is that of Scarlett O’Hara and “I’ll worry about that tomorrow” – it’s absolutely certain that you will end up with a poor or bad credit score. And a bad credit score will cost you money in the form of higher interest rates, higher insurance premiums and might even prevent you from renting an apartment or house.

Don’t Think Credit Is Critical To Your Everyday Life?? Better Think Again

Whether you think about it this way or not credit can have an incredible effect on your life and even on your employment. One good way to think of it is as a cloud that follows you everywhere you go. It can be a nice, fluffy, little cloud or a big, black cloud.couple going over bills

Learning where you stand

Your credit score, which is a little three-digit number, tells where you stand and how potential lenders will view you. If you don’t know your credit score one good place to get it is using Credit.com’s Credit Report Card. This tool will even divide your credit score into sections and show you a grade for each of them. For example, when you access it you will be able to see how your payment history, your debt and the other factors affect your score.

Automobile loans

When you apply for an auto loan your credit score will dictate the interest rate you get. Most auto lenders won’t review your financial history or read your complete report. They will rely instead on your score and the data on your application. If your score is 750 or above you will get the best interest deal available, which can be 0%. What happens if you have a low credit score? You’ll still be able to get that loan but it will come at a very high interest rate. Where can you get the best auto loan interest rates? The answer is generally from credit unions and online lenders and not auto dealerships.

Cell phones

You’re probably not aware of this but cell phone companies generally check your credit before they give you a service plan. If you have bad credit you may be required to put down a larger down payment or pay extra for your contract. Some cell phone companies don’t require a credit check so if your credit is bad your best bet would be to hunt down one of them. Also be aware that some service contracts give the company the right to review your credit at any time.

Renting in apartment

Perspective landlords and rental agencies usually will review your credit report. What they look for are missed payments and other negative information on your report that shows you might not be a reliable tenant. People that have bad credit are often required to put down a much larger deposit or to get a co-signer. In a worst-case scenario your application might be turned down. Unfortunately, if you have been making your rent payments on time this won’t help your credit score because this is not reported to the credit bureaus. However, this may change. More and more property management companies and landlords will now report a positive rental history, which can help you build your credit. One good tip is to ask your landlord if it currently reports your rent payments. If not, you could suggest that it use a service such as RentTrack where you pay your rent online. Your payments would then be reported at least to the credit bureau Experian.

Checking and savings account

Banks and credit unions don’t check credit reports when you apply for a checking or savings account. However they will use ChexSystems to review your history of banking negatives such as bounced checks before giving you an account.

poor credit scoreCredit cards

Make no mistake about this. If you apply for a credit card, the issuing company will review your credit score to determine whether you qualify and the terms you will receive. There are credit card offers that actually have different interest rates for borrowers depending on their credit scores. As a general rule cards with low APR’s or that offer rewards require high credit scores. While you might know that credit card companies will check your credit score when you apply for a card you might not know that some of them review your credit scores even when you are an existing customer and may then adjust their rates accordingly.

Potential employers

More and more employers now routinely check the credit reports of prospective employees. However, they must get your permission in writing before they can do this. What employers generally look for are major negatives or discrepancies. In the event a prospective employer takes “adverse action” based on your credit report, it must first notify you and then give you a copy of your report.

Insurance

When you submit an application for home or auto insurance, the company will use your credit information to determine your terms and rates. While the scores and reports that insurance companies use are a bit different than those used by creditors and lenders, your basic data and standing will be the same. The insurer must ask for permission to access your credit reports and may use that data to determine your “insurance risk score.” If you have a high score your rates will be better.

Utility accounts

You will probably need to give your permission but cable, electricity and other utilities companies will check your credit report. If you have a problem with your credit you will probably need to put down a bigger deposit, pay higher rates for your utilities or get a co-signer. If you live in a state that has community property laws such as California, Texas and Arizona, the utility companies might even check your spouse’s or partner’s credit history.

Mortgages

If you apply for a mortgage the lender will review all three of your credit reports and credit scores. Since a mortgage loan is typically much bigger then a student or auto loan, the review process is much more comprehensive. You’ll need to have a credit score above 700 to get a standard mortgage interest rate.

Child support

Agencies that enforce child support routinely check the child support payment and credit histories of delinquent parents. When they make an inquiry about your credit history this will not appear on your credit report and will not change your credit score. However, if you don’t pay child support this will be reported by the child-support enforcement agencies to the credit bureaus and can damage your credit score.

Student loans

If you or your parents apply for a private student loan the lender will check your credit report. However, the interest rates on federal student loans are set based on national rates so these loans do not require a credit check.

Omnipresent is the word

As you can see from what you’ve read in this article your credit is totally omnipresent or threaded throughout your entire financial life. If you have a good score of 750 or above, the world is your oyster. You should be able to rent an apartment, get a credit card, open a checking account or get a cell phone plan with no problem at all. Unfortunately, the opposite is true. If you have a poor score that big, dark cloud hanging over your head is going to make your life much more difficult.

Is The Idea Of Credit Repair True Or Just A Scam?

Man in ski maskWe heard a radio commercial just yesterday by a company that promised it could repair your bad credit. We have also seen promises such as:

“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever“!”

“Create a new credit identity — legally.

“Credit problems? No problem!”

“We can erase your bad credit — 100% guaranteed.”

Is this really possible or are these just the false promises of scam artists?

First, let’s get one thing straight. No company can get your credit totally repaired if your credit reports are riddled with judgments, a bankruptcy, liens and items that have gone to collection. Once those types of items are on your credit reports they will stay there for seven years – all those promises to the contrary.

Know what can be done

There are some things that can be done to your credit reports to help repair your credit. But here’s the good news. You don’t have to pay a company to do this. These are things that you could do yourself and that are not all that complicated or time-consuming.

Do first things first

Maybe this goes without saying but we will say it anyway. There is nothing you can do in credit repair until you’ve seen your credit reports. The first thing you need to do is get the latest copies of your reports so you can see what it was you did that resulted in your current fix. You actually have three credit reports, as there are three credit-reporting bureaus. You can get them free on the site www.annualcreditreport.com. or from the three credit reporting bureaus –Experian, TransUnion and Equifax. In the future you may want to get each of your credit reports at four-month intervals so that you can continually monitor your credit. But for now you need all three of your reports because the credit bureaus typically don’t share information and it’s possible that there is different information in each of your reports. When you get all three, this will give you a total view of your credit situation and will enable you to repair your credit at all three of the credit-reporting bureaus instead of just one. You might also want to make a copy of your reports in the event you need to dispute some information on them. That way you could send a copy of your report to the appropriate credit bureau but would still have one for your records.

Correct any errors

As you review your credit reports look carefully for errors. These could be purchases you don’t remember having made, wrong amounts or merchants you don’t remember having done business with. If you find errors and believe they’re having an adverse affect on your credit score you need to dispute them with the appropriate credit bureau. You’ll need to tell it in writing the information you think is inaccurate. You will need to identify each thing in your report that you are disputing and the reasons why you are disputing it. And you’ll need to ask that it be corrected or removed. It’s good to enclose a copy of the credit report and circle the items that you’re disputing. Be sure to send your letter by certified mail return receipt requested.

When the credit reporting bureau receives your letter it must investigate the items you have questioned within 30 days. It must forward to the organization or business that provided the information all the relevant data that you sent it. When the business or organization receives that information from the credit bureau it must review it and then get back to the credit-reporting agency within 30 days. If it cannot verify the information or fails to respond within the 30 days, the credit-reporting bureau must remove it from your credit file. The credit bureau must give you the results of the investigation in writing and if it has corrected your credit file it must send you a new credit report free.

Tackle your past due accounts

If you have any past due accounts that are less than 180 days past due you can save them from being charged off. You will want to do this because a charged off account is one of the worst things that can happen to your credit score. To save that past-due account from being charged off you will need to contact your creditor to figure out what you will need to do to get current. In some cases, your creditor might be willing to waive some of the late penalties or even spread your past due balance over several payments. It’s important to let the lender know that you’re anxious to avoid a charge off but will need some help.

Pay charged-off accounts

If you find that you have accounts that have already been charged off you should pay them, too. You’re still responsible for them. The only good news is that as they get older they will not have as much an effect on your credit score. However, if you have a charged-off balance, it will make it difficult – and in some cases impossible – to get new credit or loans. When you pay a charged-off account in full it will show on your credit report as having a $0 balance and that the account was paid but the item will still stay in your credit files for seven years.. Alternately, you might be able to talk the creditor into settling for less than the original balance. Or you might talk the lender into deleting the status of the account as charged off if you agree to pay it.

What to do if an account has gone to collection

Many lenders will sell your unpaid account to a debt collection agency after six months. If this happens to you your approach should be about the same as for a charge-off. You’ll need to pay your balance in full or try to settle the debt for less than the original balance. Be aware that collection agencies cannot change what was on your credit report before they received your account. However, they can change any information they added to your account after they received it. Before you pay your balance in full you need to determine what information was added to your account and make sure the agency agrees to delete it.

Where to put money toward repairing your credit

Since it’s likely that you will only have a limited amount of money to put towards credit repair each month you’ll need to prioritize where you put it. You should first focus on any accounts that are close to becoming past due. Try to get as many of them current as you can. Next, go to work bringing down the balances on your credit cards. Third, work on any accounts that have already been charged off or have gone to a collection agency.

man jumping with a chart behind himGet new credit to help your credit score

Once you’ve done all you can to repair your credit, your next step should be to work on getting new credit. When you get new credit and make your payments on time this will help your credit score. You may not be able to get a major credit card so try applying for a retail store card. Retail merchants have the reputation for approving those applicants that have a bad or limited credit history. A second option would be to get a secured credit card. This is where you make a deposit to secure the card. Just make sure that the bank that issues the card reports how you use it to the credit reporting bureaus – to help you build a new and better credit history.

Advice About Low Interest Credit Cards That May Totally Shock You

Here’s a piece of advice you likely won’t read anywhere else except in this article – you may not want to get a low interest credit card. Despite what you may have been told or read getting a low-interest credit card is not necessarily your best option. This is not to say that you should rush to apply for a credit card with a high interest rate but there are reasons why this sometimes makes sense. Of course, if you pay off the balance on your credit card every month it probably doesn’t make any difference whether it has a high or low interest rate because you’re not paying any interest anyway. But there is a case to be made for passing on those low interest credit cards and here it is.Multiple credit cards in one hand

1. Low interest credit cards offer fewer benefits

A good rule of thumb is that credit cards with low interest rates generally offer fewer benefits than those with higher interest rates. As an example of this, airline rewards cards that have high interest rates not only come with frequent flyer miles but they often have other perks such as priority service, checked baggage fee waivers and even an airport lounge membership. Of course, you could always have one of these cards for its benefits but then charge most of your purchases to a low-interest credit card, which would give you the best of both possible worlds.

2. Low interest credit cards offer no rewards

If you choose a credit card that offers no rewards you will have a lower interest rate than other cards that offer miles, points or cash back. This means that if you generally carry a balance forward from month-to-month then a low interest card might make better sense. On the other hand if you hardly ever carry a balance, and rarely have to pay any interest charges, you might be better off with a higher interest rate credit card they would offer you a return on your spending.

3. You may not qualify for the lowest possible rate

A lot of credit cards have a range of interest rates and the one that you get will depend on your creditworthiness. When you see an offer with a very low interest rate this might actually apply only if you have excellent credit. If not, your rate won’t be that low. If you don’t know your credit score make sure that you get it before you apply for a new credit card. The three credit reporting bureaus – Experian, Equifax and TransUnion – will give you your credit score free though you may have to jump through some hoops to get it. There are also websites such as Credit.com and CreditSesame where you can get your score free.

4. You’ll miss out on any sign-up bonuses

The credit card business is very competitive. Banks often offer new customers hundreds of dollars in miles or points just for signing up. However, when you choose a low-interest credit card you probably won’t get one of these generous offers. This is because if the bank knows you won’t be paying much interest every year, there’s no incentive for it to offer you a big sign up bonus because you will never be paying enough interest to offset the cost of the promotional offer.

5. You won’t get 0% interest

It doesn’t take a mathematical genius to realize that a card with 0% interest is better than even a very low interest credit card. Many of the higher interest credit cards offer interest free financing on both balance transfers and purchases. While there are cases where these cards might also offer a low interest rate, those that have the very lowest interest rates generally do not offer this type of promotional financing.

6. You could end up carrying a balance

If you were able to get a credit card with a very low interest rate this could encourage you to start carrying a balance. Of course, you’ll always save money if you pay your statement balance in full every month. But if you get a low-interest card and feel that it’s now okay to carry a balance forward, then the card probably isn’t worth it.

7. You could get hit with a penalty interest rate

If you fail to make a payment on time you could get hit with a high interest rate even if the card has a low interest rate. This is called a penalty interest rate and it can be as much as three times higher than your normal interest rate meaning that this could end up being incredibly costly. Fortunately, there are some credit cards that have no penalty interest rates such as Citi Simplicity and the Discover it Card. While these cards have competitive interest rates, they may not be the lowest you could find.

man jumping with chart behindWhat’s the difference between a good and bad credit score?

As mentioned previously if you do want a credit card with a very low interest rate you must have a very good credit score. But what is a good credit score? Lenders often 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

What this translates into is that if you have a credit score of 620 or higher you should be able to get whatever credit you apply for. However, to get the very lowest interest rate you would need to have a credit score above 700. And, of course, the higher the score the better. The overwhelming percentage of lenders use what’s called your FICO score. It’s available only on the site www.myfico.com. However, it would cost you $24.95 a month to get your FICO score monthly as well as your credit reports from the three credit- reporting bureaus. As mentioned previously, you can get your credit score free from a variety of sources and while it might not be your true FICO score it should be close enough that you would be able to see how creditworthy you are. It should also tell you whether or not you would be able to qualify for a very low interest credit card.

The net/net

If you’re in a financial position where you need to carry a balance forward from month-to-month then a low interest credit card might be your best bet, as it would save you the most money. Conversely, if you never or rarely carry a balance forward you might be better served getting a higher interest rate credit card that comes with perks such as cash back, airline miles or points. We know of people that will put a big ticket item on their credit cards to earn cash back but then turn around the next day and send a payment to the credit card issuer to cover the cost of the item to avoid having to pay any interest. If you could afford to do this then a higher interest rate might be a better deal than a credit card with a very low interest rate.

Best News Ever For People With Low (Or Zero) Credit Scores!

poor credit scoreDo  you know how lenders view credit scores? They view them in ranges as follows:

• Between 700 and 850 – Very good or excellent credit score. One
• 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.

What this means is if you have a credit score of 700 or above you should be able to get just about any credit you would want whether it’s a new credit card or auto loan. On the other hand, if your credit score is below, say, 500 good luck. You’ll have a problem getting a new credit card and if you are able to get one it will likely have a very high interest rate.

What if your credit score is zero?

A credit score of less than 350 probably means you’ve been a reckless spender but a zero doesn’t mean this. What it means is that potential creditors just don’t know what to do about you. In the past if you wanted to have any sort of a score you would need to have had a debt and paid if off. We know this might sound counterintuitive but the fact is that you need to have debt to have a good score. To have any score at all, you need to play by the rules, which includes having and paying off some sort of debt. If you have a credit score of zero you haven’t proven your ability to borrow money and pay off loans as quickly as possible.

It will soon be a whole new ballgame

There is the best news ever for people with low credit scores or a credit score of zero. A new plan is being rolled out that will make it easier for these people to get a Visa or MasterCard.

FICO, the company that invented credit scoring and whose scores are used by 90% of all lenders, has a pilot program designed to help millions of us get easier access to credit. This is because it will be based on their record of paying utility bills and not their history of making loan repayments. It is estimated that 53 million Americans don’t have a credit score and could be reached by this program. That’s about one fourth of the US adult population. Banks typically deny credit to anyone that doesn’t have a credit score or they charge them dramatically higher interest rates because they are viewed as being risky.

Immigrants and the young

As you might guess the majority of these consumers are very young people that don’t have an established credit history or immigrants that are new to the US. And many of the “unscorables” are members of a minority – especially Hispanic and black consumers

Two years in development

It took two years to develop this new program. It’s based on the idea that people that have a history of paying their utility bills on time would also pay credit card bills on time. The way it will work is that FICO along with LexisNexis and a credit bureau Equifax will use a person’s utility bills and public property records to create a payment history profile. This pooled data will then be used to determine what’s being called an “alternative” credit score that will be applied when a person with a zero credit score or a poor credit history applies for a Visa or MasterCard. While it is known that FICO will make the scores available to the 12 largest credit card issuers it is not known at this time, which banks will be participating.

Quick tips for improving your credit scorehow debt relief affects credit score

If you have a bad credit score this new program might help you get a new credit card. If you have a poor or bad credit score there are some things you could do fairly quickly to improve it.

Dig out that old card

The first is to start using that old card that’s just been sitting in a drawer. The older a credit history you have the better. If you had stopped using that old card your card issuer might choose to close your account or not update it to the credit reporting bureaus. The accounts will still be there but won’t have as much weight in the credit-scoring formula as your active accounts. You could improve your credit score by charging a recurring bill to that old card or by taking the family out for dinner and a movie occasionally. Of course you will need to pay off your balance in full every month.

Dispute negative items

Second, you should dispute old negative items in your credit reports. Let’s suppose you got into an argument with your utility company regarding a bill several years ago and as a result the account went into collection. This gets a bit sneaky but you could dispute a bill like this as “not mine.” If it’s an old and a small account and you dispute it, the collection agency might not take the time required to verify it when it’s investigated by the credit reporting bureau.

If you have significant errors in your credit reports you need to focus on them. The things that are really worth the time and effort to correct include late payments, collections, charge-offs or other negative items you believe aren’t yours. You should dispute it if you see credit limits that were reported as lower than they really are, as well as any accounts that were listed as “paid derogatory,” “settled,” “settled for less than owed” and any other items that isn’t listed as “paid as agreed.” You should also dispute negative items that are more than seven years old (or 10 in the case of bankruptcy) as they should have dropped of your reports automatically.

Improve your credit utilization

The second most important factor in your credit score is your credit utilization or debt-to-credit ratio. It accounts for 30% of your score and is something you can control – unlike your credit history. The way your credit utilization is calculated is by dividing your total credit limits into to the amount you’ve used up. Let’s say that you have total credit limits of $10,000 and total balances of $2000. This would yield a credit utilization score of 20%, which would be considered very good. On the other hand, if you had balances totaling $5000 of that available credit your debt-to-credit ratio would be 50% and would be having a very negative effect on your credit score. There are two ways you could improve your credit utilization. The first would be to pay down some of that debt. Again going back to our example of $10,000 in total credit limits with total balances of $5000 if you were to pay it down by $2000 your debt-to-credit ratio would drop to 30%, which would definitely have a positive effect on your credit score. If you are unable to do this you might be able to get your credit limits increased, which would have the same effect as if you had paid down some of your debts.

Finally, here’s a helpful video with more good tips for quickly improving your credit score.

Boost Your Credit History Without A Credit Card

credit historyEveryone needs to build a credit history. It is very important that you have yours as early as possible. This history is indicated in your credit report. It simply records your credit behaviour – how much you owe, how you pay them off and how responsible you are with all your credit accounts. If your record is good, you can get a high credit score. A high score will help you secure a lot of financial opportunities that are not available to those who have lower scores.

Some people actually think that this is a ridiculous requirement in our society. Why is there so much importance in building your credit reputation? After all the difficulties experienced during the Great Recession, is it really a wise idea to continue to care about credit? Wouldn’t it be better to just eliminate it from your life?

This is actually what some Millennials are doing. According to an article published on FoxBusiness.com back in 2014, 63% of Millennials have decided not to own a credit card. This was based on a survey done by Bankrate. In comparison, only 35% of 30-year olds and above do not have credit cards. If you think that this will help you stay out of debt – it is not entirely accurate.

Sad to say, our society, or the financial industry in particular, feel differently about credit. They view the use of credit as an important indication of your financial success – especially in relation to your credit report. A six figure income with a bad credit report to match is not something to be proud of. You may actually be better off earning a simple salary but with a good credit history.

One of the easiest ways to build your history is to use a credit card. After all, you need some credit input in your report. However, this is where people are having a hard time coming into terms with. Credit cards may be a common payment method but a lot of consumers have been burned by the debt that they went through in the past. This is why most of them are having a hard time building their credit reputation. There is some hesitation in using it for fear of falling further into debt – since credit card use come with high interest rates.

5 ways you can build your credit report without a credit card

Fortunately, there are ways for you to build your credit history without succumbing to the dangers of high interest credit cards. It is the easiest, but if you are not comfortable with it, that are other options. Here are some of them.

Use existing companies that you pay each month.

We all make monthly payments outside of our credit cards. These include utility bills and subscriptions like cable or the Internet. The companies providing these services to you are not required to report your payment behaviour to the three major credit bureaus (Experian, TransUnion, Equifax). However, they can submit a report if they want to – and if you ask them to report on your behalf. Simply call them and ask them to submit a report just so you can have a record of good payment behaviour. If you are renting, you can even ask your landlord to submit too. Any consistent and recurring monthly payment may be submitted to help add to the data in your credit history. Take note that since this is not a requirement for them, they could deny your request.

Get a small loan from a credit union.

Credit unions, although they provide almost the same financial services and products as banks, are actually quite different. Credit unions revolve around their members. This is why a lot of them have membership restrictions. If you find a credit union that you can join, open an account with them and apply for a small personal loan. They offer lower interest rates compared to the traditional banks. This will help you put some credit data in your credit history so you can show that you are responsible with your payments. In case, you find it hard to get an approval for a loan, you might want to open a secured loan wherein you will use a savings account that you have with them as collateral. This will lower your credit risk and thus increase your chances of getting an approval.

Apply for an installment loan from a retailer.

Retailers of expensive items allow customers to take out an installment loan on purchases. This will require you to make timely payments for a specific period of time. This is important if you cannot even apply for a loan with a credit union. Not only will this be a record in your credit history, it could also help increase your credit score because having variety in your type of credits will affect 10% of your score. Sometimes, in an effort to get customers to pay, retailers offer these loans with little or even no interest rate for the first few payments.

Opt for peer to peer loans.

This is a relatively new way to borrow money. It is usually done online so you need to explore this via the Internet. The popular companies offering peer to peer loans are Prosper and Lending Club. These are simply platforms where investors from the community meet with borrowers. That means, the financing for the loan that you apply for will be coming from investors in the community. The risk is lower so the interest rate for peer to peer loans are smaller compared to traditional banks. The chance of you getting a loan approval is higher here. And since peer to peer lending companies are required to report to the credit bureaus, your credit behaviour will be recorded in your credit history.

Utilize your student loans.

If you have existing student loans, you can use this to help display how responsible you are with your credit accounts. According to NOLO.com, these loans can help you build a payment history. Make sure you practice proper payment behaviour as it will be recorded in your credit report accordingly. And in case you are planning to go to graduate school, you may want to use your federal student loans to help you get more data into your credit report.

All of these options should give you a chance to build your credit history. Just remember that it is not ownership of the loan that will give you a good credit reputation. It is how you behave in relation to that debt. If you stick to your payment schedule and you always pay the right amount, then you can be assured of a credit history that can reflect a high credit score.

Tips to practice proper credit management

The truth is, it is all about proper credit management. Even if you have a high amount of debt (which is really not recommended), as long as you can keep up with payments, you will have a good record in your credit history.

The thing about your credit report is it needs consistent good behaviour. Even if you start with a good report, one mistake can ruin that good record. It is something that you need to take care of for as long as you want to make financial transactions work in your favour.

To help you practice credit management, here are some tips that we can give you:

  • Only borrow what you can afford to pay. This does not mean you should look at your income to determine how much you can borrow. You need to also consider how much debt you currently have and the expenses that you need to pay for every month. If you have to base it on your income, make sure that it is on your disposable income. This is the income that is left after all your other expenses and payments have been paid off at the end of the month.
  • Practice the right payment behaviour. This is 35% of your credit score. If your credit history shows that you do not pay on time and you fail to meet the minimum payment requirement, you will be viewed as an irresponsible credit holder. That will make you a high credit risk because lenders will view you as someone who cannot be trusted with credit. You will either be denied of your loan application or given a higher interest rate.
  • Monitor your credit report. Sometimes, people end up with ruined credit reports after being a victim of identity theft. CNN.com reported that in 2014, the top complaint from Americans (as compiled by the Federal Trade Commission) involves identity theft. The only way that you can detect this is by looking at your credit history every now and then. You need to look at the records to ensure that everything reflected there are all your financial transactions. If there is one entry that you are not familiar with, then you may want to check that out and have it removed.

Credit management will help you maintain a good credit history. But to practice proper credit management, you also have to practice the right financial management habits. This includes budgeting, saving and smart spending. Being cautious with your financial decisions will ultimately help you improve your current financial standing.

Here is a video from the Bank of America to help you build a better credit report.

Do You Really Need Any Of Those Store-branded Credit Cards?

man holding multiple credit cardsIf you get a store-branded credit card from a store such as Target or Sears you may get reward points and exclusives such as access to sales events and coupons. These perks can definitely help you keep more money in your pocket. But does it really make sense to sign up for one of these cards?

If your goal is to save money than the answer to this question is a definite “yes.” However, when it comes your credit standing the answer is a strong “maybe.”

What to expect with store-branded cards

In terms of saving money, credit cards from Lowe’s and Target both offer 5% off in-store and online purchases. Store-branded credit cards often come with other money-saving bonuses from the initial discount you get when you open the account to special deals and greater rewards when you reach a certain spending threshold. They may also include financing options for big-ticket items.

There are two types of credit cards. Store-branded cards can generally be used only at the associated store and maybe at a few other retailers that are part of the same corporate family. Then there are cards such as MasterCard, Visa, American Express and Discover that can be used practically anywhere. Of the two types the ones that can be used anywhere are more practical and may even come with more benefits than a store-only card.

If you’re trying to repair your credit

If you’ve had a problem with credit and are working to repair it then a store-branded card may be your best choice. The reason for this is that it’s usually fairly easy to get approved for one of them. Of course, once you get the card you need to use it responsibly or you’ll never get your credit fixed.

poor credit scoreYour credit score

Any time you apply for a new card, whether it’s a general-purpose card such as Visa or a store-branded card this will affect your credit score. This is because when you apply for a new credit account this turns into what’s called a “hard inquiry” into your credit history and this will cause your score to drop anywhere from 1 to 5 points. One or two of these hard inquiries won’t have much of an effect on your score but if you trigger several of them within a short period of time this will definitely affect your credit score and not in a good way.

If you do opt for a store-branded credit card to get a special discount or some other important perk don’t just turn around and close the account. Fifteen percent of your credit score is based on the length of your credit history or how long you have had credit. When you close an account that will interrupt your history and may shorten the average age or duration of your accounts. In addition, a full 30% of your score is based on how much money you owe versus the amount of credit you have available. Most experts say that you should use only 10% to 30% of the total credit you have available. When you close an account, there is less credit associated with you so the percentage of your credit in use – known as your utilization rate – rises. And this is one case where an increase is not a good thing. If you do get a store-branded credit card keep it open and then use it occasionally to make sure the store does not close it due to your inactivity. Plus, this can help boost your credit score.

If you’d like to know more about boosting your credit score, watch this short video courtesy of National Debt Relief …

Outrageous interest rates

One of the things you definitely don’t want to do with a store-branded credit card is carry much of a balance from month to month. These cards generally have shockingly high interest rates. These can range from 18% to as high as 25%. Many of them are linked to rewards programs designed to get you to spend. When you couple this with high interest rates on your outstanding balances this can be a slippery slide into financial problems. If you’re not careful, you could dig yourself into a hole that will be very hard to get out of.

The cards to get

If your goal is to get as much cash back as you can on credit card purchases then you would be best off choosing one of the general purpose cards instead of a store-branded card. The perks offered by store-branded cards generally work only with the specific store. This is even true of cards affiliated with the store that are not store branded. Your better choice would be one of the general-purpose rewards cards. As an example these, the Chase Freedom card currently offers a 0% APR for 15 months and the interest rate after this introductory period starts as low as 13.99%, depending of course on your credit score. The Freedom card also offers a 5% rebate up to $1500 worth of purchases on categories that rotate every three months. For example, Freedom cardholders could recently qualify for money back on purchases at more than 45 department stores as well as Amazon.com.

When to use a general-purpose credit card

There is no question but that it’s always better to use cash than a credit card. If you see something you want to buy on impulse it’s just a lot harder if you have to pull money out of your wallet instead of using that little piece of plastic. Plus, it’s just flat impossible to get in trouble with debt when you pay cash for everything. But there are times when it does make good sense to use a credit card.

For example, in some cases if you buy an extended warranty plan with a credit card the issuer may add a year of coverage at no cost. Second, most credit cards will protect you against fraudulent charges and ID theft by limiting your liability to $50.
If you are traveling abroad, it’s just much easier to use a credit card then carrying a wad of traveler’s checks. There are a few places that favor cash above a credit card but in general the easiest way to pay is with a credit card. However, if you use a card for foreign travels make sure there’s no foreign transaction fee.

When you rent a car with a credit card it will save you money because it should allow you to opt out of the car rental company’s rental insurance. Another good place to use a credit card is for airfare. When you buy your ticket with a card and your bags or their contents are lost, stolen or damaged this will probably be covered. You may also be given money for clothing and toiletries while you’re waiting for your baggage to arrive. Buying your groceries with a credit card can also pay off because many of them offer bonus points for purchases that you make at the supermarket. As an example of this, the Blue Cash Preferred Card issued by American Express offers 6% back when you use it to buy groceries. And finally there are those online purchases. While there is still a bit of risk involved in using credit cards to buy stuff online many credit card companies offer liability protection so that you’re not responsible for any unauthorized transactions so long as you keep your account in good standing. However, it’s important to review your statements every month and if you find unauthorized usage report it immediately.

Why Repairing Your Credit Could Be Easier Than You Think

You’ve trashed your credit. Maybe it wasn’t even your fault. You could have had a medical emergency that cost you thousands of dollars. Maybe you were in an automobile accident and your car was totaled. Or it could be that you lost your job and didn’t have enough money to both pay your bills and keep a roof over your head. Of course, it could have been your fault. Did you charge wildly on a two-week dream vacation without considering how you’d repay the credit card company? Did you quit making payments on your cards because you just didn’t have enough money to make even the minimum payments?

The embarrassment of being declined

You know for certain you’re in trouble with your credit cards when you’re trying to checkout at your favorite store and your credit card is declined. That can be a horrible feeling. Fortunately, there are things you can do to repair your credit, which is not as difficult as you might think.

First, if you find that you’re in trouble with debt don’t apply for any more credit. Maybe that’s a sort of well duh, but if your credit is already poor the last thing you need to worry about is more credit. It’s likely that the application system will auto decline your application anyway. However, the more times you try to get new credit the more this will damage your credit report. This can bring down your score even further (more on this later).

Review your credit reports.

You have three reports because there is three credit reporting bureaus. They are Experian, Equifax and TransUnion and they are obligated by law to give you your credit report free once a year. You can also get your credit reports individually or simultaneously on the website www.annualcreditreport.com. But whichever you choose it’s important to get your reports and read them carefully to see what the lenders are seeing that’s damaging your credit. This could at least help you do better in the future.

If you would like information on how to read your credit reports watch this short video courtesy of National Debt Relief.

Pay down your accounts

A third way to help resuscitate your credit is to pay down your accounts. One of the biggest factors in your credit score is your debt to credit ratio. In fact, it accounts for 30% of your score. If you have a high debt to credit ratio it’s because you’ve used up a large percentage of the credit available to you. When you pay down one or more of your accounts this will improve your ratio, which ultimately will help your credit score

Dispute errors on your credit reports

Another reason to review your credit reports regularly is that one or more of them could contain errors. Your credit card company or a business could have reported something to the credit bureaus by mistake. If you do find an error it’s important that you dispute it. You could do this online but it’s much better to write the credit bureau a letter disputing the item you think is an error. Once the bureau receives your letter it will contact the company that provided the information and ask for it to verify it. If it is unable to do so or if it fails to respond within 30 days the credit bureau is supposed to remove the item from your credit report, which might be able to improve your credit score.

Open an account at a credit union

If you have a good job and need to prove yourself in terms of your credit you might want to join a local credit union. This is because credit unions tend to be a bit more liberal with credit. Or it might offer a secured credit card that would help you get started. If you use that secured card wisely, you might be able to eventually convert it into a normal credit card.

Did you know that it’s important to have different kinds of credit? Having a credit card or credit cards is only half the battle. If you have an installment loan, a line of credit, a mortgage, an installment loan or some other form of credit this can help your credit score considerably. This shows potential lenders that you are responsible with multiple kinds of credit. Of course, being responsible with all those different kinds of credit means making all of your payments on time every month going forward.

Get a secured card

As mentioned above, if you’re trying to rebuild your credit a good way to start is with a secured card. This is where you deposit some amount of and then use the card to charge against that balance. Once your balance reaches zero, you could deposit more money and continue to use the card. You need to be careful which type of secured card you choose, as there are two types. One is a prepaid debit card, the other a secured card. In both cases, you deposit money and then charge against the balance you’ve created. If you were to choose a prepaid debit card, you would load it with money just as with a prepaid cell phone.

However, with a secured card you deposit the money with the card issuer and then draw against it just as if it were a checking account. Of course, you can’t overdraw the account, as you could with a checking account because when your balance reaches zero the card can no longer be used. Prepaid cards are called cash centered transactions because you’re not using the bank’s money. In comparison, with a secured card you’ve actually deposited money with the card issuer (a bank) and are drawing against it.

What this means is that the biggest difference between these cards is that how your use a secured card will be reported to the credit bureaus but not how you use a prepaid card. This means if you’re trying to rebuild your credit it’s important to get a secured card. Naturally, you will want to use it sensibly which means adding money before your balance reaches zero and not trying to use the card when there is no money left in your account.

Understanding your credit score

If you are serious about repairing your credit it’s important to understand how your credit score is computed. As mentioned earlier in this article 30% of your credit score is based on your debt to credit ratio. Your credit usage or how you’ve used credit in the past accounts for 35% of your score. If you have misused your credit there’s nothing you can do about it because, well, history is history. Another important factor is length of credit history as it accounts for 15% of your score. This is basically how long you’ve had credit. The different types of credit you’ve had accounts for 10% of your score as we covered in the section about signing up with a credit union. The final 10% of your score is based on what are called hard credit inquiries or how many times you applied for credit. Your score is actually dinged two points every time you apply for credit. These stay in your credit report for two years though their significance diminishes at six months and then at one year.

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