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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.

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.

How To Rebuild Your Credit After Divorce

man jumping with a chart behind himGetting divorced can be one of the most stressful things you’ll ever have to endure. If you have children there’ll be the issues of who has custody and maybe visiting rights. You or your attorneys will need to determine how to split your finances as well as your furniture and personal possessions. And, of course, the more stuff you have and the more you and your spouse earn, the more complicated things will be. But there is one piece that’s easy to overlook and that’s your credit score.

Why your credit score will take a hit

Despite what many people think a divorce per se will not damage your credit score. This is because your credit score and your spouse’s credit score are different. It’s not like you had a joint credit score and getting divorced will cut your score by 50%. However, there are several reasons why a divorce will damage your credit score. First, your expenses will likely go up since you’re no longer splitting them. This will make it more difficult for you to keep up with your bills. Second, it’s likely that you and your spouse had some debts when you divorced. If they are not paid off immediately they will end up being the responsibility of one of you. If that person doesn’t pay them off then both your credit reports and ultimately your credit scores will be damaged. And third, the harsh truth is that there can be identity theft. It’s unfortunately very common for one spouse to “borrow” the ex’s personal information to get new utility services, new credit cards, an auto loan, etc.

Divorce can lead to bankruptcy

It’s also sad but true that a divorce can lead to bankruptcy. If this happens to you it might be because your finances just got stretched over the limit, as you’re now required to pay for new expenses such as alimony or childcare. But some people are actually pushed into filing for bankruptcy by his or her former spouse. As an example of this let’s suppose that you owned a house with your ex spouse but you can’t sell it because it’s upside down. Your ex agrees to pay the mortgage but then doesn’t do so. If you want to keep the house you could end up having to file for bankruptcy in order to save it. Or just to get rid of the responsibility of having to pay on it.

Making your credit score a priority

There are numerous things that need to be taken care of as the result of a divorce. This could make it easy for you to miss paying a bill. And believe it or not just one late or missed payment could cause what would otherwise be your excellent credit score to fall by 50, 75 points or more. After your divorce you will need good credit to get a place to live and to get new utility service without having to make a deposit. Plus, the stain on your credit report of having missed a payment can come back to haunt you as it will stay in your credit reports for seven years.

Get your credit reportsmagnifying glass on credit report

One of the most important things you should do post-divorce is to get your credit reports. They are available free from the three credit reporting bureaus – Experian, TransUnion and Equifax. They are also available free on the website www.annualcreditreport.com. While this site makes it possible to get all three of your credit reports simultaneously most financial experts say it’s better to get them one at a time every four months. This becomes a way to monitor your credit year round without having to pay a credit monitoring service.

There are several reasons why you should be getting your credit reports. First, it’s so you can see all your debts. Any debts that were the joint responsibility of the two of you should be paid off as quickly as possible. This is because you are legally responsible for paying off any joint debts and getting divorced doesn’t change that.

It’s also possible that there are errors in your credit reports that are dragging down your credit score. When you review your credit reports look for purchases you don’t remember making or companies you don’t remember having done business with. If you find errors be sure to dispute them with the appropriate credit bureau. You should do this in writing so that you will have a paper trail. If you are able to get erroneous items removed from your credit reports your credit score should get a nice bounce.

Rebuilding your credit

If your credit was damaged due to the divorce, take heart. While you can’t change the past, you can make sure that you pay all your bills on time going forward. Recent information about how you handle your credit tends to have a greater impact on your score then older information. This means that paying your bills on time should ultimately lead to a significant improvement in your credit score. If you lost your credit cards for some reason or just don’t have one then get a new, secured credit card. This is where you deposit money at a bank or credit union and then can use the card so long as you have a balance. If you do get one of these cards make sure that if you use it sensibly this will be reported to the three credit bureaus, as you need this in order to rebuild your credit score. You might also be able to get a personal line of credit secured by a savings account. This would be yet another step in rebuilding your credit.

If your financial circumstances are really bad

If you have a 401(k) and are in dire financial circumstances you could borrow from it to clear up your debts and get a jump in your credit score. While this is never an ideal solution it’s better than cashing in your retirement account early, which would mean having to pay taxes and penalties. There is also a relatively new way to borrow money that could help. It’s called peer-to-peer lending. Two of the most popular sites that offer these loans are Lending Club and Prosper. The way this works is that you fill out and submit an application with your name, Social Security number, address and the amount of money you need and why you need it. Once your application has been verified, your request will be put online for lenders to review. If you write a good enough “pitch” or reason why you need the money a lender or group of lenders might decide to take a chance on you and fund your loan even though you have a poor 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.

Small Mistakes That Are Costing You A Good Credit History

credit history definitionIf you are confused about your credit score, then the best place to start is to understand your credit history.

Simply put, this is a record of all your credit transactions. Take note that it does not record all your financial transactions. It will only record credit that is under your name. So no matter how much money you have in your bank account, it will not matter in your credit report. All it will really care about are the debts that are piling up and being borrowed under your name.

Although this is not the end all and be all of your financial situation, whatever is on your credit history will have a huge impact on your personal finances. This is why it is very important that you take care of what is placed in this report. You need to make sure that there is adequate information and that it will show how you are responsible with your credit accounts.

Unfortunately, there are statistics that show how illiterate some people are when it comes to their credit report and everything connected to it. According to CreditCards.com, the survey done by the American Bankers Association revealed how people are confused about their credit report and credit scores. They think that they are the same.

Well they are not. Your credit history and your credit report can be likened with each other but a credit score is an entirely different concept. Your credit report contains the history of your debts. Whatever is on your history will be the basis when computing for your credit score. This score will determine the financial opportunities and products that you can avail.

It is very important that you educate yourself about your credit report, because any confusion that you may have about it might jeopardize the credit score that will be derived out of it. There are many things that you need to know and let us start with the financial habits that could be ruining your credit history.

These little mistakes may be bringing your credit score down

When something ruins the history stated in your credit report, you can bet that it will affect your credit score. Although the bulk of the information you will get from the Internet involves credit card debt and how it can ruin your credit history, you should know that it goes beyond that. There are so many other causes of your credit downfall. So let us identify the entries that could be viewed as credit report problems. Knowledge of what they are could help you avoid committing these mistakes.

  • Late home rental payments. Although they are not required to submit reports to the major credit bureaus, they are not banned from it. If you are regularly late on your rent, your landlord might report you – that can taint your credit history.
  • Making car rental reservations. When you plan on renting a car, one of the requirements that will be asked of you is your debit or credit card. Either of the two will help guarantee that any damage that you will inflict on the car can be covered. However, you need to know that using any of the two have different effects on your credit history. If you use your debit card, the rental company will be prompted to conduct a credit inquiry on you. The same is not true if you use your credit card. An inquiry on your credit report will have an effect on your score so be careful about this. The best way to go about this is to reserve the vehicle using your credit card and then settle the bill with your debit card.
  • Unpaid medical bills. This is actually not a small mistake but given the frequency of this debt, it deserves to be mentioned. According to WashingtonPost.com, 43 million Americans are currently burdened with delinquent medical bills. This data came from a report released by the Consumer Financial Protection Bureau (CFPB). It revealed that one out of five credit reports are tainted by outstanding balances on medical debt. This type of debt is something that you cannot avoid when you need it the most. But despite that, it can be just as destructive as an unpaid credit card debt. Do not ignore this debt and try to negotiate how you can pay it off.
  • Unreturned library materials. This may come in as a surprise. If you borrow a book or even a DVD from the library and you fail to return it, you will be charged with penalties. Some people know about this penalty but do not think twice about it because it is actually quite small – $0.25 a day. However, if your fine reaches $25, it will be fined further with $7.95. Most people, by the time it reaches this amount would have forgotten about it. But the library will make sure you will not because this is about the same time that they will forward your account to a collections agency. That could end up being a bad mark on your credit history. Think about it. If the lender sees that you cannot even pay a small amount, how do you think they will feel about lending you a bigger loan?
  • Delinquent tax payments. We all know how aggressive the IRS can be when it comes to collecting taxes. You can be sure that even if you run from your tax obligations, the IRS will track you and make you pay. Not to mention the record that they will place on your credit report. It can really take a downward spiral very fast.
  • Unfulfilled gym memberships. When it is time to cut back on expenses, one of the most common suggestions include gym memberships. If you fail to fulfill the terms of this contract, you will just be opening another way for your credit history to be tainted. Just pay off your obligations from this membership contract and cancel it. There are so many ways to stay fit without having to pay anything.
  • Ignored traffic tickets and violations. Whether it is a traffic violation or a parking ticket, these can be a cause for your credit report to receive bad marks too. While it will not be a devastating downfall, it will still reflect a great deal about your credit behavior.

How to rebuild your credit report

A lot of us have gone through financial hell in the past few years and we have our ruined credit reports to show for that. The good news is, this is one problem that you can recover from. Here are some tips that we can give you to help build, or rebuild a good credit history.

  • Choose the type of credit you will use. If your intention is to work on having a good credit history, then you need to use the right credit accounts. One of the accounts that you can use is an affordable secured credit card.
  • Understand the simple rules of good credit behavior. When you start using credit again, you need to implement the right credit behavior. This includes paying on time, paying no less than the minimum requirement, etc.
  • Be selective of how you use your credit. If it is not necessary, then do not buy it using your credit card. Also, make sure that you can afford to pay your dues and able to minimize the interest that you will pay on it.
  • Monitor your credit report every now and then. According to MyFICO.com, your credit repair should begin with this. Make sure you get a copy of your credit report and check if there are errors on it. If there are, you need to dispute it. Sometimes, you exhibit the right credit behavior but after becoming a victim of identity theft, you end up with a botched credit history.

Here is a video from the Bank of America to help you with tips on how to build your credit from scratch.

Charge Cards And Credit Cards

woman thinkingYou might think that credit cards are the only way to make purchases using plastic. but you’d be wrong. When it comes to those little pieces of plastic, there are credit cards and charge cards. Both offer certain features but if your goal is to increase your credit score without adding on more debt, a charge card might be your best option.

The similarities

There are a number of similarities between charge cards and credit cards. They both represent a line of unsecured credit provived to you by the company that issued the card. Both mean that you’re essentially being given a short-term loan whenever you use the card and it’s expected that by the end of the month you will repay this loan.

Both charge cards and credit cards are fairly comparable when it comes to offering rewards. You could be getting cash back, points or miles every time you spend a dollar. Which one of these you’d get earn will depend on the card you choose.

Both credit cards and charge cards have very similar fees. This could be an annual fee, a late fee or a fee for a foreign transaction – again depending on the card you choose.

The differences

While charge cards and credit cards can be very similar, they are also very different in some respects. As an example of this, credit cards typically have a limit on how much you can spend. The amount will depend on which type of card you choose and your personal finances. It’s possible that your credit line could be increased over time but other than that it will remain the same as long as you have the card.

In contrast, there is no predetermined credit limit on charge card. The company that issued the card might set some limits on as to how you use it but this is this not set at the time of approval. If you charge a lot this could be a good thing as it means extra flexibility.

Here comes the most important difference. With a credit card you can pay just the minimm and roll the rest of your balance over to the next month. With a charge card you are required to your full balance every month or be charged a fee. The good news is that this means you’ll never have have a balance on which you’ll be charged interest. A credit card provides more flexibility because you’re only required to pay the minimum to avoid problems with the credit card issuer. This means if you have a month where your a little short on money you could pay the minimum payment required and then pay off your remaining balance the next month – of course with interest.

Your credit score and a charge card

Using a charge card will have a different effect on your credit score then when you use a credit card. The reason for this is that 30% of your score is based on your debt-to-credit ratio. This is the total amount you’ve charged on your cards as compared with your overall credit limit. For example, if you have an overall limit of $5000 and have charged $1000, your debt-to-credit ratio would be 20%. Your credit score could take a hit if this ratio creeps above 30% and especially above 40%.
If you don’t know a lot about credit scores, watch this brief video courtey of National Debt Relief.

Not nearly as much of an impact

As you have read charge cards don’t have a conventional credit limit. As a result FICO, the company whose credit scores are most widely used by lenders, looks at them differently. In fact, in terms of the debt-to-credit ratio, charge cards are totally excluded from your credit utilization. This means the amount you put on a charge card won’t have nearly as severe impact on your FIC) score as the same amount put on a credit card. If you were the type of person that runs up a high balance every month, this would be very convenient. You wouldn’t have to worry constantly that a high balance would damage your credit.

You would build a good credit history

Your FICO score will be affected in other ways by a charge card. A full 35% of your credit score is based on your payment history and length of credit. If you were to get a charge card as soon as you can and then make your payments on time every month, this will help you build a solid credit history and a higher credit score. Of course, if you pay off all your credit cards every month this will have the same beneficial effect. But you would still have to watch your debt-to-credit ratio.

Using those credit cards sensibly

If the idea of having to pay off your balance every month doesn’t appeal to you then a credit card would be a better choice. However, if you want to keep from getting in trouble with a credit card you need to use it sensibly. This means making your payments on time.
Every time you’re late making a payment or miss a payment you will not only accrue late fees and additional finance charges but these will show up on your credit report and can significantly reduce your credit score.

Don’t pay just the minimum

Using a credit card sensibly means paying more than the minimum. When you pay just the minimum each month your balance will grow even if you don’t put any new charges on the card and you will end up much more interest. For instance, if you have a credit card with a balance of $5000 at 19% and a $130 minimum payment it would take you until 2020 to pay off the debt and would cost you a total of $7771 including interest. But if you were to pay $200 a month you would have the debt paid off in two years and nine months at a total of $6415.

Read your agreement carefully

To use a credit card sensibly also means carefully reading your agreement and any other materials the credit card issuer sends you. The agreement you sign will spell out things such as your interest rate, when your payments are due and what will happen if you’re late or miss a payment. Your credit card issuers will also send you “changes in terms” notices around 45 days before they actually make changes to your fees, interest rate or other important things about the card. If you read your agreement and those notices very carefully it help you determine whether or not you want to change your spending habits.

Review your monthly statements.

Mistakes can happen and your identity could be stolen. It is important to carefully review your monthly statement as soon as they arrive. Call your credit card company right away if you spot an error. One of the best things about credit cards is that if your identity is stolen they generally cap your liability of $50. And in some cases they won’t even require you to pay that.

Don’t exceed your credit limit

Remember how we said that credit cards have credit limits. If you did read your agreement carefully you will know what your credit limit is and it’s wise to stay below it. If your balance grows to 70% to 75% of your credit limit, this will be a daner sign on your credit report and could damage your score. If you believe there is some reason why you would need to exceed your credit limit, opt in for overdraft protection. If you don’t do this and a charge would take you over your limit, it could be turned down. Plus, you may be hit with one fee per billing cycle.

5 Credit Score Myths That You Need To Stop Believing

It is true that what you don’t know about your credit score can hurt you. But it is also equally destructive if you had been believing the wrong things about credit scores all this time.

Some people are probably still confused about their credit report and the score that is derived from it. While the calculation is actually difficult to guess, those in charged of computing it are transparent about the factors that can affect it. All you really need to do is to make sure that these factors are taken cared of for you to have a great score.

The important thing that you need to know is that your credit rating is an important measurement of your credit behavior. By behavior, we mean your ability to manage your credit and pay it off responsibly. The more you lack in terms of credit management, the less appealing your score would be. That could affect your chances of getting a loan to buy a home, finance your business or secure financial aid for a higher education. If you wish to avoid any problems in case you need any of these loans, you need to pay attention to the condition of your credit score.

Here is a video that will briefly define what this credit rating really is.

5 myths about credit rating that you need to forget

After having defined what a credit score is, let us now discuss the popular misconceptions about this financial term. It is easy to be confused about this score. Some people are so baffled that they end up not trying to understand it at all. Well that could cost you in the long run because ignorance is never bliss – especially when it comes to your finances.

There are so many myths concerning your credit rating and here are 5 that you probably haven’t heard of before.

Myth 1: You only have to worry about 1 credit score.

Let us get one thing straight – there is more than one source of this credit rating and they are handled by different companies or agencies. Each of them have different formulas and you need to be aware of the varying credit score ranges. Sometimes, you think that you are in great shape but you are actually looking at the wrong range. For instance, a FICO score range is 300 to 850. The PLUS Score made available by Experian is only for consumers and has a range of 330 to 830. If you look at the latter and you got a 700, you would think that everything is well. But what if the lender used the FICO Score and the what you thought was sufficient was actually lower? You need to know what score the lender will be using so you can understand and probably negotiate a better loan term with them.

Myth 2: Credit elimination is the key to increase your credit score.
When the Great Recession happened, people suffered so much because of the debts that they owed. Some American consumers said to themselves that they would never put themselves in that position again. They worked hard to get rid of their debts and they thought everything will be okay. But while you may think that a life without any credit is great, the same cannot be said about your credit score. As defined earlier in this article, this is how you can measure your credit behavior. If you do not have any credit, how can you have a credit score? Paying for cash will not improve your credit rating. You need to use credit and then display good behavior in paying it back. The best way to improve your credit rating is to use your credit cards and pay it back in full each month. According to CreditCards.com, you can understand how closing credit cards may seem like a good idea to improve your score. But that is not the case. You will actually cause the credit utilization in your credit report to rise. That can pull your credit score down.

Myth 3: Your assets will affect your credit score.

man with shovel and thinking about moneyThis is not true. The credit bureaus who are collecting your credit information will never look at your bank accounts. They do not care how much you earn and how many assets you have. All they care about is how you behave when it comes to your credit obligations. The only time that your bank account will have an effect is when your checks are starting to bounce. But if it is overflowing with funds and yet you are still missing out on your payments, your credit score will really suffer. Your savings will have an effect if you know how to use it in relation to your credit. For instance, if your funds are suddenly compromised, you do not have to delay debt payments if you have sufficient reserve funds.

Myth 4: Your educational background will affect your credit score.

Your college degree will not help your credit score if you do not know how to manage your debts. The ones computing your score will not care if you have a masteral or not. As mentioned, your assets will not be a part of your credit report. So the high income that you are earning because of your educational background will not matter if you cannot pay your dues. In fact, some college graduates have a low credit score because they are having a hard time paying off their student loans. If you can use your education to help you understand how to manage both your money and your debts, that can help improve your score – if you can implement it correctly.

Myth 5: A bad credit score can compromise employment opportunities.

In the past, this was a problem. But legislators realized that this is not a fair way of finding great talent. According to an article from Forbes.com, Senator Elizabeth Warren (Massachusetts) will work to end this practice of being biased to job applicants with a low credit score. She believes that this is unfair and through the Equal Employment for All Act, seeks to eradicate this practice. While there is no law prohibiting employers from looking at the credit report of applicants, it should not be the reason for a job applicant to be turned down for the job.

How to avoid ruining your credit report

According to the latest State of Credit published on Experian.com, there is an improvement in the credit score of American consumers. Compared to 2013, the 2014 State of Credit revealed that there is an increase of 2 points in the average credit score in the nation. Now, the score is 666. This is great news but that does not mean you should be relaxed already. Taking care of your score takes constant effort.

Your credit score needs attention and you can expect that this will be necessary for the rest of your life. Here are a couple of tips that you can follow to make sure your credit rating will never be ruined.

  • Do not eliminate credit. As explained earlier, eliminating credit will not help your score. You need use credit every now and then so the credit bureaus can record that activity and your behavior in paying it off. Using your credit card and paying off the balance in full at the end of each month is the best way for you to do that.
  • Pay your dues on time. Late payment is a big factor in your credit score computation. You do not want them to bring your score down. Not only that, you will be saving money by avoiding the charges incurred by a late payment.
  • Always check your credit report. You may be responsible with your credit management but if you fail to check your credit report, you may not realize that you are already a victim of identity theft. Someone may already be using your name to borrow money and not pay it off. If you cannot report this immediately, you might end up with a bad credit score and a debt that you never benefited from, but you need to pay.

The 5 Most Important Things To Know About Your Credit Score

Credit Score highlighted in yellowThe most import thing you need to know about your credit score by far is … your credit score. That’s because it’s what rules your credit life. If you have a good credit score (more about this later), the gates of credit will open wide to welcome you and you’ll get the most favorable interest rates – whether it’s a credit card, a mortgage or a personal loan. But if you have a poor or bad credit score, ouch! You may have a tough time getting any credit and when you do it’s likely to come with an interest rate that could cause you to fall over in shock.

While you may know your credit score, did you know it’s only one of your many credit scores and that no single credit score is your “real” one? If you’re really on top of things you might know that if you have a high balance on one of your credit cards this will lower your credit score – even if you pay off the balances on your other cards every month. And you might even know that if you miss just one payment it can lower your credit score by 25, 50, 75 points or more.

All this is important but they’re not necessarily the most important things you should know about your credit score as they are:

1. Your credit report(s) is the key

Your credit report from Equifax, TransUnion or Experian is what’s used to calculate your credit score — whether the information is right or wrong. This is why it’s critical that you get and review your credit reports to make sure all the information in them is correct. You can get your reports free from each of the credit bureaus once a year or all at once on the website www.annualcreditreport.com. Since the credit bureaus don’t share information it’s very important that you get all three. Also, you can’t know which report will be used to compute your credit score so you need to make sure all three reports are accurate. Data breaches and identity theft have become a way of life these days. If you don’t review your credit reports regularly you may not know you’ve been victimized. It’s also possible that one (or more) of your reports contains errors. If you spot this or anything that looks like identity theft you need to contact the relevant credit bureau immediately and dispute the information.

2. Your credit score isn’t engraved in steel

Your credit score can change as information can be added or removed very quickly. And the changes can be either positive or negative. If you have a poor score this can a reason for hope that your score will change. On the other hand it also means you need to be alert.

It’s always possible that a mistake could damage your score or, worse yet your score could be trashed by identity theft. If either of these happen you need to know about it immediately so that you can take the appropriate action.

3. Your can rebuild your credit

Have you had serious problems with your credit in the past? Then the good news is that you can rebuild your credit. While this can be seriously frustrating there are almost always things you could do to move your credit in the right direction. For example, you could get a secured credit card with a small limit and use it carefully. Also, as negative information about how you’ve used credit becomes older it generally has less of an impact on your credit scores and will eventually disappear from your credit score calculation.

Man climbing range of credit scores

4. You can know if you have a good or bad credit score

As you read earlier in this article you don’t have just one credit score. Lenders can choose from among many different credit scores and each has its own credit score range. The reason this is important is because when you get your credit score you need to know the various ranges so you can understand how your number fits in. For example, your FICO score ranges from a low of 300 to a high of 850. You also have a VantageScore with the same credit scoring range. However, the VantageScore Scale (versions 1.0 and 2.0) ranges from 501 to 990 and your PLUS score goes from 330 to 830. But in any case, regardless of which scoring model your lender chooses, the simple fact is that the higher your score the better. As an example of this if your FICO score is 830, this puts you just 10 points away from the highest possible score and you would be considered “super prime.” On the other hand if your VantageScore Scale score is 840 that’s not as great because it leaves you 150 points shy of the maximum score. But given the fact that both your FICO score and VantageScore basically range from 301 to 850 is possible to see where you stand by category as follows.

• Excellent Credit: 750+
• Good Credit: 700-749
• Fair Credit: 650-699
• Poor Credit: 600-649
• Bad Credit: below 599

So the answer to the question what is a good credit score is any score above 700.

5. You can improve your credit score

Since a bad credit score will cost you thousands of dollars in interest, increase the cost of your auto insurance and maybe even keep you from renting a house or apartment it’s important to know what you can do to improve it.

a. Make sure your credit reports are accurate

As noted above, there could be erroneous information in one of your credit reports or even worse you could be the victim of identity theft. If you do find errors in one of your reports you need to dispute it immediately. Each of the three credit bureaus has a form on their website for this purpose but it’s much better to do it in writing. You should send your letter certified and return receipt requested so that you will have proof you disputed the information. When you file a dispute with a credit bureau it will contact the company that provided the information and ask that it be verified. If the company that provided the information doesn’t respond within 30 days or can’t verify it, the credit bureau must remove it from your credit report.

b. See where you stand

Once you’ve learned that your credit reports are accurate the next step is to get your credit score – assuming you don’t already have it. The only place you can get your true FICO score is on the website www.myfico.com but it will cost you as you will be required to sign up for its monitoring service at $19.95 a month. But it’s not critical that you get your FICO score. You could get your score free at sites such as CreditKarma.com and CreditSesame.com. And no, neither of these will be your true FICO score but they will be close enough for you to know where you stand.

c. Determine why you have a low score

All credit scoring models include a “reason code” or “score factors” that explain why you lost the most points in your credit score calculation. If you check these out you’ll know why you have a low score and can create a plan to improve it.

d. Create a plan and stay with it

Once you know why you have a low credit score you can make a plan to improve it. There are usually three reasons why you have a low credit score. The first is that you have a lot of credit card debt. The second is negative information in your report because you did not use your credit wisely and three is a mixture of these.

If your problem is that you have more credit card debt than you should, there is a quick and easy answer – providing you have enough money to pay down some of your debts. The second biggest component in your credit score is called credit utilization or your debt-to-credit ratio. If you can improve that ratio by reducing your credit card debt you should see an improvement in your credit score practically overnight. Unfortunately, if the problem is that you have negative information in your credit report it’s going to take time and changes in the way you handle credit to improve your score. If you have unpaid debts or debts that have gone to collection you’ll need to address them. You’ll also want to start adding new more positive information to your credit reports to make up for the damage you’ve done in the past. What this amounts to is making sure you keep your credit card balances low and always make your credit card payments on time.

To know more about all five components that make up your credit score and which ones you could work on, be sure to watch this short video courtesy of National Debt Relief.

2 Ways Your Credit Score Is Compromised By Your Kid

poor credit scoreNot everyone makes the connection between their credit score and their kids. And when it comes to your credit, what you don’t know about your credit score can really hurt you. This is why you may want to pay attention to what this article will try to tell you.

Some people may be surprised to know how much their kids can do to harm their credit report. Of course, they can only do that with your consent but sometimes, we fail to realize how much of our credit history they can actually influence.

This is the reason why you need to view parenthood as a financial decision too. While you need to be physically and emotionally ready to have kids, you also have to consider your finances as well. Not only will you experience a bigger expense list, you will also be responsible for the financial well being of the child. You need to instill in them the right values and behavior so they can take care of their finances well.

Your kids will really start out not knowing how to take care of credit in general. If you are not careful with that, you may not only jeopardize their future, but also your very own credit report.

According to StatisticBrain.com, the national average credit score in the country is not too great to begin with. Based on the FICO score, the average is at 691, from a range of 300 to 850. Based on VantageScore, the average is at 749, from a range of 501 to 990. While the average is not really bad, it is not great either. And if you want to maximize your future financial opportunities, it is best for you to be on your guard when it comes to your credit report.

2 ways your children can ruin your credit history

So you may be thinking, how can your kids affect your credit history? How can they destroy your score if you are the one making financial decisions at home?

You would probably think that it is all on how your kids influence what you need to buy. Any good parent would want to provide their child with the best things that money can buy. In fact, there is a survey that revealed how some parents are willing to be in debt just so they can buy their kids new items this Holiday. The debt here is none other than credit card debt. While the intention may be good because gifts will make our kids happy, the means is could be better. For some parents, they experience a lot of financial difficulties because they failed to learn how to say no to their child.

It is true that this particular scenario could ruin your credit score but it is not one of the two ways that your kids can really trash your score. There is actually something much worse than that.

Cosigning loans

First is co-signing loans. Here is the background about these type of loans. You as the older one is sure to have a great credit history behind you. Since you have used your credit cards in the past or taken other loans and paid it off responsibly, your score would reflect that you can be trusted with debt. That means you will most likely be approved of a loan. That is not the same for your child. As young as they are, they do not have a credit history yet. That means the lenders have no data to look at to gauge whether your child will be a responsible borrower or not.

This is where you, the responsible parent with the great credit history will come in. You will co-sign the loan with your child so they can be granted the loan that they need. In most cases, this is the scenario of parents with children who are about to enter into college.

While helping out your child with loans is a great support to give them, it will put your credit score in danger. In a page about co-signing loans on the website of the Federal Trade Commission, FTC.gov, it is explained that this will make you responsible for the debt as well. In case your child is not able to pay it back, you will be expected to pay the full amount plus any late charges or fees associated with it. And if your child fails to tell you that they are not able to pay off the co-signed loan, your credit score may have already dipped without you knowing about it.

Credit card use

The other way that your credit score can suffer is through your credit card. Some parents make their kids a supplementary user of their card – especially when they reach their high school years. This is a great way to teach your kids how to manage credit. However, it can put your own score in danger. After all, you are still the primary card holder. If you do not monitor what your child buys through the card, you might be in trouble already. We all know the devastating effects of credit card debt on credit reports. Do not let your kid ruin yours by racking up too much debt on your card. Let this be a great lesson for them and not are lesson to you about trusting your kid with your credit card.

How to teach kids about credit reports

The very first financial lesson that your child will learn is going to come from you. Whether this is something that you will sit down and talk to him about or let him see through your habits, they will get the first lesson from you.

It is even possible for you to teach them about credit reports yourself. This is especially true if you have a joint account with them or you listed them as authorized users of your credit card. You may want to show them a copy of their credit report. According to ConsumerFinance.gov, minors are allowed to get a copy of their credit report by the time they reach 13 years of age. Parents can also request this as long as they provide proof that they are the legal guardian of the child.

The main reason why you want to do this is because of child identity theft. It is rare that kids will request a copy of their credit report. This is probably why some criminal choose to use their identities. You want to avoid this by checking on your child’s credit report every now and then.

But even without the report that is on your kid’s name, you can show them your own credit report. Then explain to them the importance of having a good record on your report. You need to tell them that your credit score is an important qualification to have for the future.

This is only one of the personal finance lessons for kids that you need to go through to prepare them for adulthood. If you teach them about credit, you can help them understand the value of money. It helps to go through a couple of videos on the Internet to help you explain things to them.

National Debt Relief have a couple of videos that you can use – like the video below. Here are some tips that will help you lower your credit score by 100 points.

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