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3 Simple Steps To Improve Your Credit Score

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good credit and bad creditIf you want to improve your credit score, you need to come up with a strategy to tackle this problem. This is not something that you can easily do. The changes you have to make should be implemented consistently. Improving your credit is not something that you can do overnight. It will take time and you have to be consistent with your strategy.

Some people have admitted to being confused with their credit score. In case you are confused, you need to plan your strategy carefully by understanding what you need to learn about your credit report. Let us start by identifying what a good and bad credit score is.

According to the SimpleDollar.com, a bad credit is a score between 300 to 650. Next to that is a fair credit with 651 to 700. A good credit standing is given to those who have a 701 to 759 credit rating. If you have 760 and above, that is considered an excellent credit score.

In case your current credit score is not in the good or excellent standing, then you know that you need to do something about it. You might miss out on a lot of financial opportunities and benefits because you failed to act when you needed to improve your credit score.

3 steps to rebuild your credit rating

According to the data provided by ValuePenguin.com, the average credit score in 2015 is 695. Based on what we know from the Simple Dollar, that is only a fair credit rating. If you want to enjoy more financial opportunities and better interest rates, you need to improve your current credit standing. Fortunately, it will only take 3 simple steps to make this happen.

Step 1: Take a look at your credit situation.

Start by understanding your current credit position. You cannot make plans to improve your credit score if you have no idea where you are right now. You need to pull out at least one credit report from any of the three major credit bureaus. Check the details to ensure that everything is in order. See if your understanding of your credit situation is the same as what was reported.

You can get a copy from the website of the Annual Credit Report. According to the federal government, you can get one free credit report from each of the major credit bureaus. That is three free reports on a yearly basis. You do not have to get from all three. Choose one and get your free copy. To check your current credit score, you can choose among the many credit score calculators on the Internet. Try 2-3 calculators to see the credit score range that you have. Once you have these details, you can proceed to the next step.

Step 2: Find out why your credit score tanked.

The second step involves scrutinizing the details of your credit report. There are various ways that your credit score can be hurt by the details on your report. You need to identify what these are. There are two reasons for this. The first is to verify if these entries are correct. Sometimes, the creditor or lender provides the wrong information to the credit bureau. There are times when the bureau themselves record the wrong information. The other reason to check your credit report is to understand the mistakes that you had been doing to pull your credit score down. Once you have identified the problem, it should be easy to come up with a plan to help you improve your credit score.

Step 3: Create a plan based on the root problem.

The final step to help you boost your credit score is to create a specific plan based on the problem. If you know what you need to fix, it should be easy to come up with a strategy to work on it. For instance, if your score is low because of an error made by either the creditor or the credit bureau, you can file a dispute to have it corrected. In case the low score was caused by your own credit behavior, then you need to identify the habits that you need to change and those that you need to implement. If you can improve your credit score by paying down your debts, then choose a debt solution that you can use to make it happen.

Here are more tips on how you can improve your credit score.

3 ways your credit can go down without you knowing it

If you are not yet aware, there are instances wherein your credit score goes down because of outside factors. You may be making the right choices all the time but because of the actions of other people, it affected your credit history.

Here are the three instances wherein your credit can go down even without you knowing about it.

  • Identity theft. According to the data from the Insurance Information Institute, the amount involved in identity theft amounted to $15 billion in 2015. This was distributed to 13.1 million consumers. The data mentioned that an estimate of $112 billion was stolen in the past 6 years. Make sure you protect your financial and personal data – especially when you are transacting online. Verify the security and reliability of the websites you will visit to ensure that your data will not be used without your permission.
  • Mistaken identity. There are other cases wherein a wrong letter in an application was made and that left you with a credit account that you did not open. This is oftentimes an honest mistake on the part of the creditor or lender – or the original borrower. They may have written the wrong information or encoded the wrong letter. In case you see an entry in your credit report that you do not recognize, call the creditor or lender. You can also call the credit bureau. You need to check who filed for the credit account and you need to do it as soon as possible. The earlier you address this mistake, the more likely you can solve it.
  • Entry errors. Finally, we mentioned earlier that it is possible for the creditor or credit bureau to make a wrong entry in your credit report. For instance, you may have borrowed $10,000 but the creditor entered $100,000 instead. That is just one number that will cost you a lot of money. It is also possible that some of your payments were not recorded. This can bring your credit score down. You need to prove that the payments were made in order to correct the wrong entries in your credit report.

To improve your credit score, it is important that you show the authorities the documents that will prove your innocence. This is why organizing your financial files should be treated seriously. Financial management and organization can be a big help when you are trying to boost your credit score.

Common questions about your credit score

Question: Are all credit scores the same?

Answer: Not all credit scores are the same because there are different formulas being used (eg. Fico Score, VantageScore, etc) and the three major credit bureaus sometimes have different records. The difference is usually very small but it will result in different scores. Sometimes, creditors will only submit your records to one credit bureau and the other two will copy it. This causes a delay in the records of the other two.

Question: How can a credit score affect your mortgage application?

Answer: When you have a high credit score, that indicates that you are a good borrower. You can pay your dues on time and the lender does not have to worry about default or foreclosing on your property. This will encourage them to give you a low-interest rate on your loan.

Question: How can credit cards affect your credit score?

Answer: Credit cards are easily abused by consumers. When you this is why a lot of people end up with so much credit card debt. If you have accumulated a high balance, that can affect your credit utilization and pull your credit score down. In case you find it hard to pay this off, that can also affect your payment behavior. This will also result in a lower credit rating.

Question: Where can you get your credit score?

Answer: You can get your score through any of the three major credit bureaus (Experian, TransUnion, Equifax). You can download a copy of your report – which you are entitled to get for free once a year. When you have your report, you can use any of the credit score calculators online. Just make sure you choose a reputable site.

Question: Why is my credit score different than last month?

Answer: When you make payments or you open new accounts, this will be reflected in your credit report. Any credit transaction will be encoded in your records and that can affect your credit score. Even credit inactivity will affect your score so do not expect that it will remain the same forever. It takes constant work to improve your credit score and maintain it.

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4 Financial Problems You Should Never Deal With At The Last Minute

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piggy bank with lifesaverFinancial problems can quickly turn into a financial crisis. This is why you need to deal with them quickly. Sometimes, these problems are brought about by mistakes that we have made. Sometimes is it just a case of bad luck. Regardless of the cause of your problem, you need to know that there are certain consequences if you choose to ignore it.

Life, as pessimistic as it may seem, will always give you problems. Considering how prominent money is in our society, you can be sure that your finances will be a common issue in your life. That is a fact in our consumerist society. Most of the time, the problem will involve having enough money to meet our needs. When our expenses are beyond our income, that is when we feel stressed about our money.

The thing is, all problems can be solved – but only if you act on it immediately. Although financial problems may be daunting, you have to avoid postponing the solution. You do not have to come up with a quick-fix, but it is very important that you acknowledge the problem so you can go to the next step – solving it.

4 financial issues you should never delay working on

Among all the financial issues that you will encounter in life, there are 4 important financial problems that you should never deal with at the last minute. Some of the issues can be postponed or skipped. For instance, marriage is something that you can postpone for a few years if your finances cannot afford it. Or if your child’s birthday is coming up, you can choose to skip this expense if you cannot afford it.

These are important expenses but you can decide to skip them if it will become a problem for your finances. However, these 4 financial problems should not be postponed. Once you discover these problems, it is important for you to work on solving it as soon as you can.

Low retirement fund

Retirement may seem like a far-off financial issue – especially when you just graduated from college. However, there is wisdom in starting early. If you plan to save up $1 million for your retirement, starting when you are in your 20s will give you 45 years to save up for it. That means you get to contribute smaller amounts. For instance, let us assume that the compound interest is 6%. If you start when you are 25, you need to contribute $6,461.47 each year to reach your goal. If you start when you are 35, you need to make an annual contribution of $12,648.84. When you reach the age 45, the annual contribution will now be $27,184.47. This is the reason why you should not postpone this financial problem. The longer you delay it, the higher amount you have to contribute. That can be stressful. If you do not make contributions, you will miss out on the chance of living a good retirement life. Having no retirement money is not a problem that you want to have.

High student loans

The second of the financial problems that you need to work on immediately. Do not delay it because student loans, especially the one from the federal government, have aggressive collection methods. The government can garnish your wages, benefits, and even your tax refund if you cannot meet your student loan payments. If you have a lot of student loans, it is important for you to determine how you will pay it back. Do not delay this planning until the end of your grace period. It might be tough to enter the repayment plan if you have no idea where you will get the financial resources to pay it off. Not only that, you may be eligible to receive benefits, financial aid or forgiveness. This could lower your monthly payments. This is why you have to make sure that you will think about your payment strategy before your grace period expires. You want to take the fastest route towards paying off your debts so you can free your finances to invest in something else. According to the data from FederalReserve.gov, they found that the higher the student loan debt, the lower the chances of homeownership. This is why you need to think about this problem as soon as possible.

Maxed out credit card

The third of the financial problems that you need to think about involves your maxed out credit cards. The main reason why you should not delay this is because it will worsen if you ignore it. If you fail to pay it off, you might find it hard to catch up. Credit cards are notorious for their high-interest rates. The faster you pay off your balance, the better it will be for you. The less money you have to waste on paying the interest on your debt. A maxed out credit card should also be solved immediately because it can ruin your credit score. A bad credit score is something that you should try to avoid as much as possible.

Bad credit score

Speaking of credit scores, this is the last financial problem that you should not delay. The main reason is that correcting a bad credit score cannot be done overnight. If you find yourself in need of a loan, a bad credit history might keep you from getting a good rate. To correct your score, you need to understand what is at stake first. According to a study done by CreditKarma.com, 69% of people do not understand what a credit score is – at least when they got their first credit card. This is probably why a lot of them were reckless with their spending. In fact, the same data revealed that 73% of their respondents said their knowledge of credit scores could probably help them avoid committing the mistakes that destroyed their credit history. If it is too late and you already have a bad score, you need to work on this immediately. Otherwise, it could delay the financial investments that could have improved your financial position like buying a house. A bad score may not keep you from getting a loan approval but it can increase the interest rate that will be imposed on the loan – increasing the cost of buying a house.

If you deal with these financial problems immediately, you do not have to worry about them. But if you postpone the solution, that can cost you more money. The longer you wait, the riskier it could be.

Two plans that will keep financial troubles away

While nobody is immune to financial difficulties, there are ways for you to keep it from happening. Or at least, you can lower the chances of having problems. The answer lies in two important plans: a budget plan and a financial plan.

Most people are not sure about the difference between the two but an article published on WellsFargo.com provided a great definition for the two. Here are three differences that will help you understand the importance of a budget and a financial plan.

  • Financial position. A budget plan is something that describes your current financial situation. On the other hand, a financial plan will indicate your intentions for your financial future. The latter will help you set your goals and reach it. Your budget will indicate your capabilities in reaching them
  • Financial strategy. The budgeting requires money management while financial planning is all about long-term strategies. When it comes to your strategy, you usually have to consult your budget first before you can finalize your financial plans.
  • Financial timeline. Finally, a budget is all about the short-term while financial plans deal with the long-term. Budgeting tracks your daily expenses while financial planning takes care of the progress of your goals.

Both of these plans are necessary if you really want to avoid financial problems. It can be minimized if you know your current financial position – which is what budgeting will help you do. When it comes to financial planning, it becomes necessary because it allows you to prepare for the future. That way, you can try to prepare for any unexpected events that could compromise your future.

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If Your Credit Score Isn’t Improving This May Be the Reason

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Your credit score – that little three-digit number that controls your financial life – can be incredibly frustrating. You could be paying all of your bills on time only to find your credit score hasn’t gone up. You feel that you are doing everything right but you’re not seeing any improvement in your credit score. Why is this the case? You’re not going to like this answer but it’s … it all depends.

How your credit score is calculatedMan climbing credi score numbers

The way credit scores are calculated is based on complicated formulas. In addition, this may surprise you but there are literally dozens of different formulas used in credit scoring and it’s impossible to keep track of all of them. But here’s the really important part. Your credit history is unique. No credit expert can tell you why your score isn’t improving without actually looking at your credit report.

You have seen your credit reports recently, right?

The first step in trying to determine why your credit score isn’t getting any better is to review your credit reports. You have seen your reports recently, right? If not, you need to get them from the three credit-reporting bureaus – Experian, Equifax and TransUnion. By law, they are required to give you a free copy of your report once a year. Or you can go to the website www.annualcreditreport.com and get all three of them simultaneously.

While it’s impossible to say exactly why your credit score has stayed stagnant there are four things in general that could be causing this.

Your credit card balances are too high

The first is that your credit card balances may be too high. A full 30% of your credit score is based on your credit utilization or how much of your total credit limits you’ve used up. You can check yours by dividing the total amount of your credit limits into the amount you’ve used. A simple example of this would be if you had $10,000 in total credit limits available but had charged up $3000, your credit utilization would be 30%, which is considered acceptable. If you do the math and find that your credit utilization is higher than 30%, this is what may be keeping your credit score stagnant. If it turns out that you do have a high credit utilization ratio, then paying down some of that debt could improve your credit score.

There’s something negative in your credit history

If you’re paying your bills on time and you have a low credit utilization ratio, then there may be some serious negative thing in your history like a foreclosure or bankruptcy. If this is the case, it will take many years for your credit score to recover. In fact, information like this will remain in your credit reports for seven years. The impact it has on your credit score will lessen as the years go by but there’s nothing that you can do about this yourself. The best thing you can do is concentrate on those things you can control such as making your payments on time and keeping your credit utilization below 30%.

There’s something important you’re not seeing

The most important component of your credit score is your credit history or how you’ve used credit in the past. It makes up 35% of your credit score. The second most important component is the one you’ve already read – your credit utilization. But beyond these two there are a number of other factors that could be causing your credit score to stagnate. This includes how many times you’ve applied for new credit, how long you’ve had credit and the mix of accounts in your credit file or how many different types of credit you have.

How long you’ve had credit is important but it’s not something that you can change. Theoretically speaking, the longer that you’ve had credit the better your score should be. Hint: even if you have an old credit card you’re no longer using, don’t close it. The reason for this is because the age of your credit is an average of the ages of all of your accounts. If you have a credit card, you opened five years ago and one you opened two years ago the average age of your accounts would be 3 1/2 years. If you close that five-year old credit card, the average age of your accounts would drop to two years.

The reason why the mix of your accounts is important is because if you have several different types of installment and revolving accounts and maybe an automobile loan, this shows that you’ve been responsibly managing different kinds of credit.

Your credit reports contain errorsmagnifying glass on credit report

Assuming you now have your credit reports and we certainly hope you do, you need to then review them very carefully looking for errors that could be keeping your credit score lower than it really should be. These errors could be anything as small as your name misspelled or as big as Identity theft. If you do find errors that are serious enough you believe they’re having a negative effect on your credit score, you need to dispute them. The way you do this is by writing a dispute letter to the appropriate credit reporting agency. You will need to send it via certified mail so you’ll know it was received. You will also need to include copies of whatever documentation you have to support your dispute. Be sure to send copies and not the originals. And the more evidence you can provide that the information is in error, the more likely it is that the credit bureau will remove the item from your file.

Once the credit bureau receives your letter it will contact whatever entity reported the information and ask it to verify it. If that organization can’t verify the information or if the credit bureau does not get back to you within 30 days, the erroneous information must be deleted from your credit file.

Watch the following video for more information on disputing credit report errors and how to do it properly

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Should You Let a Credit Score Rule Your Love Life?

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Young Couple Looking at BlueprintsA survey done recently by the website Bankrate revealed that nearly 40% of us say that how willing we are to date a person will depend a lot on his or her credit score. And maybe not surprising, this is more important to women than men. In fact, 43% of the ladies surveyed said that knowing a person’s credit score would have either a minor or major impact on their interest in dating that person. In comparison, this was true for just 32% of the men.

What you’re really trying to determine

According to one expert when you ask about a person’s credit score what you’re really trying to learn is how they manage their money. If your partner has a high credit score of, say, 750 or above you can just about bet that he or she is a pretty good money manager. But unfortunately, that little three-digit number doesn’t tell the entire story. If your partner has a low credit score this may mean that he or she is irresponsible about money but not necessarily so. Your significant other could have a really big medical bill that’s dragging down their credit score while they’re current on all of their other bills. In addition to knowing someone’s credit score it’s just as important to know their attitude towards money.

You probably won’t want to have “the talk” on your first date

Looking at that person on the other side of the table on that first date and asking, “So what’s your credit score” might not be a really good idea. In fact, asking this question could bring the date to an abrupt halt.

April Masini, a New York City-based etiquette and relationship expert, says you should trade credit scores within the first three months of dating while you are in the process of learning about the other person and trying to determine whether to continue the relationship. However, there are other financial experts who believe that it’s not necessary to discuss credit scores until you’re considering marriage or buying property together.

Knowing your credit score?poor credit score

Before you ask that person you’re dating about his or her credit history you need to be ready to discuss your own as there’s the old saying, turnabout is fair play. This means you will need to have checked your credit score at least within the past month. It’s become so easy to get credit scores on websites like CreditKarma and CreditSesame or from one of the three credit reporting bureaus there’s actually no reason why you couldn’t get your credit score the day before the “big talk”. For that matter, the credit card company Discover now says it will provide the credit scores of anyone that asks whether or not they are Discover Cardholders. Of course, if you have a low credit score you will need to be prepared to explain why.

Not the whole picture

Of course, just knowing your credit score or that of your partner won’t give you the complete picture. You also need to check your credit reports from the three credit-reporting bureaus – Experian, TransUnion and Equifax –looking for errors and evidence of fraud. A whopping 34% of Americans queried say they have never seen their credit reports. While it’s not necessary to check your credit reports every other month, you should check it at least once a year. Federal law requires the credit bureaus to provide you with your reports free once a year or you can get them altogether on the website www.annualcreditreport.com. If you really want to stay on top of your credit reports you might request one every four months, which would allow you to sort of monitor your credit year-round.

How to have that “talk”

It’s probably not a good idea to be blunt when asking your partner about his or her credit score. Instead of being direct and saying, “How’s that coffee and by the way, what’s your credit score,” it would be better to approach it from the side. For example, you might ask, “If you had to do things again, are there things you would differently in how you handled your money?” This could lead into a discussion where you would eventually get around to the issue of credit scores. It’s important how you ask the question because if your partner feels he or she is being grilled like it was a job interview, this could be a big turn off.

If you have opposite credit scores

What do you do if you find the person you’re dating has a credit score that’s wildly different from yours? This doesn’t mean that the relationship won’t necessarily work but if one of you has a high credit score and the other has a low one you will need to have an honest discussion as to why this is the case. If you’re the person that has the lower credit score you will be in a better position and have a better chance of preserving the relationship if you can explain why this is the case and what it is you’re doing to improve it. If the other person has the low credit score, then he or she should also be prepared to explain why this is true and not just offer a bunch of crazy excuses.

Credit scores are not a be all and end all

As you have, read credit scores all by themselves are not enough to know how that other person handles his or her money. When you have “the talk” you need to be totally honest about your credit history and you should expect the same from your partner. Credit scoring is a complicated issue and just because a person has a low credit score doesn’t necessarily mean that he or she is a bad money manager. In some cases, the reason why a person has a low credit score may not even be their fault. It could be due to identity theft or because they made just one serious mistake in how they handled their credit when they were very young. The important thing isn’t just the credit score alone but also the why.

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5 Rules To Help College Students Build A Credit History

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college student holding a credit cardHave you ever wondered what life will be like if you do not have a credit history? Some college students may not understand what it is all about. According to the article published on CreditKarma.com, there are college students who do not understand the impact that their credit card debt have on their credit scores. In fact, a lot of consumers (69%) revealed that they did not understand what credit scores were when they got their very first credit card. Since the general practice is to give college students a credit card, it can be assumed that these first-time card holders have no idea what a credit score is and how to keep it in good condition.

We all know that credit management is important because it will help make your financial future more secure. After the Great Recession, some people actually tried to live without using credit. When their debts pulled them under after the economy crashed, they made a commitment not to borrow money again. They tried to buy everything in cash. If they did not have the money, then they refrained from buying anything.

It seems like a simple way to go right? Not exactly.

When you do not have a credit score, it will be difficult for you to get a loan with a low-interest rate. Creditors and lenders look at your credit history to determine if you are a responsible borrower. Your credit behavior (how you pay your debts, how much you owe, etc) will be reflected in your credit report. If it is proven that you are responsible with the money that you borrow, they will give you a low-interest loan. If you are irresponsible, they have to protect themselves from the possibility that you will not pay them back by through a high-interest loan.

The thing is, if you do not use credit, there will be no entry on your credit report. How will the lenders know that you are a responsible borrower? If they have nothing to base their judgment on, they will just assume the worst and give you a high-interest loan. This is only one of the things that you have to live with if you do not have a credit history. This is why you need to start building a good credit report even while you are still young. In fact, you can start while you are in college.

5 rules that will help young adults build a good credit report

Even if college students do not earn a steady income, it is possible for them to build a good credit report. It is all about using credit wisely and making the right decisions when it comes to their finances.

According to a study published on ScienceDaily.com, 70% of college students are actually feeling stressed about their finances. Most of the time, this is because they are relying on student loans to get them through college. The mounting debt is worrying them. Half of the respondents revealed that they are worried about their monthly expenses. The financial problems of college students also include the use of credit cards. 55% of the respondents who admitted to having a credit card balance owe less than $1,000. For a college student, this should be a huge deal. The survey revealed that the financial difficulties of college students end up giving them tough choices. This makes it hard for them to study and to keep a careful eye on their finances.

The key to helping college students overcome their financial difficulties is to manage their credit wisely. Learning how to do this is easy if they focus on building a credit history. When you are focused on getting a good credit report, you will be more conscious of your financial decisions.

While this is not an overnight task that can be completed, there are 5 important rules that has to be followed.

Rule 1: Decide to use a credit card.

To build a great history for your credit report, you have to use credit first. As a first-timer, this might be hard to do. Since you are still in college, you need to get permission from your parents. They should be able to help you fill out the application. This card can help you build a credit history because you are borrowing money every time you use it.

Rule 2: Choose the right credit card.

It is very important to choose the right type of credit card – specifically the one that is aligned with your spending behavior. There are different kinds of cards. If there is a store that you go to regularly, getting their merchant credit card might help you earn points. This will allow you to get freebies and discounts even as you stick to your usual spending patterns. If you always spend on gas for your car, then a gas card should be a great idea.

Rule 3: Practice the right payment behavior.

The most simple thing that you can do is to pay your dues on time. This will help you avoid that nasty late payment penalty and will keep bad records from your credit history. To make it even more beneficial, you can choose to pay your balance in full at the end of each month. This way, you do not have to worry about paying more than the value of what you bought. You do not have to worry about any accruing interest rate.

Rule 4: Keep your credit use simple.

Sometimes, people end up making mistakes on their credit history because their credit situation is too complicated. Since you are still in college, limit your use of credit to buying only the necessities. Try not to use it for entertainment expenses because it is easy to overspend. Budget the amount that you are allowed to charge on your credit card. That way, you can put aside the money that will enable you to pay for the balance in full.

Rule 5: Monitor your credit report.

The final rule to follow is to practice credit monitoring. You have to look at your credit report regularly so you can check if your credit behavior is resulting a good history. It is not impossible for credit reports to contain errors. You need to dispute these immediately. You are entitled to receive a free copy of your credit report from the Free Annual Credit Report website. You get one each year from the three different credit bureaus (TransUnion, Equifax, Experian). That means you get three credit reports for free. This habit will also help you monitor if you are a victim of identity theft – something that needs to be reported immediately.

It is important to be conscious about how you spend your money while you are in college. The habits that you develop can be carried over when you graduate and start earning your own money.

Here is a video from Forbes that will give you tips on how to be smart with your spending while in college.

What you do not spend should be saved so you can start strengthening your financial position as early as now. It will not only help improve your credit history (since you do not have to rely on debt for emergency expenses), it will really help you secure your financial future.

Money mistakes in your 20s that can bring down your credit score

There are various mistakes that you are bound to commit – especially when you are a first-time user of credit. Knowing the common pitfalls should help you avoid them. Here are the common financial mistakes that young adults commit – most of which can ruin your credit reputation.

  • Living without a budget. Regardless of your status in life, it is very important that you learn how to use a budget. This is one of the basic habits that you have to develop to keep your credit history in good condition.
  • Overspending on payday. Another popular mistake that young adults commit is overspending – specifically when payday comes. It is understandable to splurge a little when you get your first paycheck but it is not wise to do it all the time. You have to be wise and refer to your budget to know where every penny should go to – like your debt payments or savings.
  • Failing to understand credit. According to an article published on Marketwired.com, some Millennials get the wrong idea about what affects their credit history. In fact, 4 out of 10 of the respondents believe that carrying a credit card balance will help improve their credit score. This is not true. It will actually make you pay more than what is necessary. That money that you waste can be put towards the more important expenses.

Ignoring the need to save. Finally, some young adults make the mistake of delaying their savings. There are many saving goals that you need to focus on immediately. You have to start saving for your retirement – even if you are only in your 20s. You should also build up your emergency fund because that will help avoid the need to borrow money just so you can get out of an unexpected event in your life.

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Should You Sacrifice Your Credit Score To Pay Off Debt Before Retirement?

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mature businessman thinkingDid you know that a lot of Baby Boomers think that they do not need a good credit score in retirement? At least, this is according to the latest survey conducted by TransUnion.com. The result of the survey revealed that almost half of Baby Boomers (those aged 51 to 70) say that they believe it is no longer important to keep a good credit report if they get past the age of 70.

If you think about it, what will a 70-year old do with a good credit rating? They will no longer buy a house or a new car. They do not need a good score to have the best chances of getting a job. What good would a stellar credit report be?

Before we answer that, let us ask this: why do you need to sacrifice your credit score in the first place?

The answer is simple. You may have to sacrifice your score for debt freedom.

One of the things that you need to do in your pre-retirement years is to get rid of your debt. The thing is if you are about to enter retirement, your time to get rid of debt is limited. You need to maximize the time that you have while you are still receiving a steady stream of income from your day job. Once you retire, it will be difficult for you to pay off your debts because your money will now be limited. You cannot use your retirement money to pay your creditors because you need it to finance your basic needs. The best option for you is to pay your debts completely before you enter retirement.

But how can you do that if you will enter retirement in a few years?

You need to opt for debt reduction. This is a debt relief program that will allow you to get out of debt by paying a smaller amount than what you really owe. This will help you save money so you can spend more during retirement.

However, there is a catch. In most cases, debt reduction can help you pay only a portion of your debt and pay it fast – but it comes with a cost. That cost is your credit score.

Now here is another question: should you sacrifice your score so you can enjoy a debt-free retirement?

The answer to that will depend on you.

When is it okay to let your credit report be tarnished by debt?

There are three things to consider if you want to prioritize your debt over your credit score.

Are you sure your debt will be gone if you go through debt reduction?

If you are sure that all your debt will be paid off after the debt reduction, then you can go ahead and let your credit ranking slip. If this sacrifice will result in your debt freedom, then it should all be worth it. Not only will you save money, you can also enjoy the stress-free life of having no debt to worry about. You will feel happier entering retirement without it. But if some of your debts will remain even after this debt relief program, then think twice before you go through with it. There may be a different option available.

If you do not need to get a loan in the near future.

Are you sure that you do not need to get a loan in the future? If the answer is no, then it is okay to let your credit score suffer for now. A debt reduction could result in a bad score but if you have no use for a good score, you can afford to let it go down. Your credit ranking will improve over time. If you do not need it to be high for a couple of years, it is okay to sacrifice it if that means you can retire without debt.

If your retirement money is small.

Finally, if you know that your retirement fund is small, you should not share it with your debt payments. It is important that you use your funds for you basic needs alone. This should give you more motivation to work harder to pay off your debt completely. If you share it with your debts, you might outlive your retirement money. If that happens, you will end up with no money and too old to do any more work.

In case you have to sacrifice your credit score for your debts, that is okay. Remember, you can always rebuild your credit score. You simply have to do three things.

  • Keep on using credit smartly. This does not mean you should bury yourself in debt once more. Use your old credit cards for the things that you need. Instead of using cash, use your card and just put aside the money and make sure you do not spend it. That way, when the billing arrives, you can use that cash to pay off the balance completely – avoiding finance charges. This will keep you from increasing your debts once more.
  • Always pay your bills on time. Since you still have utility bills and if you will continue to use your credit card, make sure you pay it on time. Remember that late payments can have a huge effect on your credit score – specifically in a FICO score. If you pay your dues on time, it is an indication that you are a responsible credit holder.
  • Check your credit report for errors or signs of identity theft. Credit monitoring is a part of your efforts to rebuild your score. You need to be on guard. There are times when you think your efforts have brought your score up but because of a mistake, either by the creditor or the credit bureau, your ranking went down. Worse, you may be a victim of identity theft. According to KrebsonSecurity.com, there was nearly a 50% increase in identity theft complaints in 2015. If you monitor your credit regularly, you can spot these errors or identity theft incidents and report immediately.

When should you take care of your credit history despite your debt?

Of course, there are situations when you need a good credit score even if you are already retired. According to ConsumerCredit.com, there are 4 reasons why you need a good credit history.

  1. You want to pursue a second career. Some people just do not want to stop working. Most of the time, they pursue something that they love to do – like a new business. If you need to get a business loan to support a dream venture, you need a good score for that.
  2. You want to save money. In case you need to refinance your mortgage, you will save a lot of money if you have a good credit score. This will help you get a low-interest rate on the refinancing. If you have a bad score, you will be given a high-interest rate – which will be costly for you.
  3. You want to downsize. If you want to buy a smaller house, you need a good score – if you intend to use a home loan for it. Not only that, if you plan to rent, the landlord will look at your credit history to check if they can trust you to pay them regularly.
  4. You want to travel. Retirees love to travel and having a good credit score will help you get travel rewards. You need a good score to be able to reimburse some of the travel fees that you paid.

If you do not have these plans in your future or you can afford to postpone them for a couple of years, then sacrificing your credit score will not be a problem. It takes a couple of months to increase your score and postponing your plans for two years during retirement should be enough time for you to build a good credit standing once more.

In the end, it is advisable to work on freeing yourself from debt. If you want to live a happier life, then you need to pursue a debt relief program – even if it means you have to say goodbye to a perfect credit history for now.

Do you qualify for debt consolidation?

What To Do If You Just Found Out You Have A Bad Credit Score?

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problem with bad credit scoreWhat if you were trying to buy a home but you just found out that a bad credit score could ruin your chances of becoming a homeowner? We all understand the importance of having a good credit score. This is one of the financial details that will help make the homebuying process cheaper for you.

Let us explain how that works.

When you have a good credit score, it means your credit report shows that you are a responsible credit holder. Most of the time, this means you can be trusted to pay back any loan that you borrow. If you have a bad credit score, the reverse is reflected about you. It means you cannot be trusted to responsibly pay for your loan after you borrow it.

You have to understand that the lending industry profits from the interest that borrowers pay towards their loan. If borrowers run off with the loan without paying it back, the creditor or lender will lose money and that is bad for their business. They protect themselves by imposing high-interest rates. This will allow them to get a bigger profit. Even if the borrower fails to pay back the loan in full, their loss will not be too great.

If you have less than favorable credit score, the lender will not withhold the approval of your loan. You might be granted the loan but it will be with a high-interest rate. And we all know what that means. If you have a high interest on your loan, you will end up paying more in the long run. You will waste more money in the process.

As we enter into 2016, CreditSesame.com shared their report about the credit health of the Americans. Apparently, the average credit score of consumers is 625. This is based on the data taken from their members – specifically 2.5 million of them – which is only a part of the 7 million members of Credit Sesame. According to the data, this is considered by most lenders as subprime for a VantageScore 3.0 (range of 300 – 850). If translated into the FICO score, which basically has the same range, this is 650.

As you can see, this is not really a bad credit score, but it is not a good one either. There is obviously a lot of room for improvement. If you have the same credit score, you need to increase it further if you want to get a good interest rate on your home loan – or whatever loan you are planning to borrow.

3 immediate actions when you have a low credit score

If you just found out that you have a bad credit score, there are three things that you have to do immediately. As much as possible, do not delay in completing these tasks. You need to do these before you can think about boosting your credit score. The quicker you act, the less damage the low credit score can do to your finances.

Check what makes your credit score low.

Start by finding out what is causing your credit score to be low. You can do this by asking for a copy of your credit report. You can get a free copy through the Annual Credit Report site. Once you have a copy of your credit report, you need to look at the details. There are many factors that can affect your score. If you make late payments, that will cause your score to go down. If you have a high balance and it is near your credit limit, that can also be a factor that will give you a bad credit score. Yet another reason is applying for a lot of credit accounts all at the same time. That will cause your score to go down. The reason why you need to check what makes your credit score low is to help you repair it.

Compare your credit report with your financial statements.

The next thing that you have to do is to compare your credit report with the financial statements that you have with you. This is the reason why it is important to file your statements. If they are being sent to you electronically via email, make sure you save a copy of that. Look them up and check if the details are the same as your credit report. Sometimes, our bad credit score is caused by errors in our records. If there are discrepancies, you need to call your creditor or lender so they can investigate the discrepancy. Have it corrected if the error is found to be true. You never know – your credit score might improve if the mistake is corrected.

Know how you can bring your credit rating up.

Finally, you have to immediately research how you can bring your credit score up. Correcting the discrepancy is one thing that you can do. There are other things that you can do in order to turn your bad credit score into a good one. It all depends on what is causing your score to go down. If it is the late payments, you need to pay your dues on time. If it is a high balance, you may want to make huge contributions towards your loan so your debt amount will go down.

It is very important that you work on knowing what you need to take care of your credit score. You do not want to turn it into a bad credit score again.

According to an article published on ChicagoTribune.com, a lot of consumers are confused about their credit score. The article mentioned that 77% of their respondents said they did not know that having a high outstanding balance can ruin their scores. This data is based on the report from Bankrate. It was also revealed that Âľ of consumers did not know that closing their accounts will also lower their score.

Apparently, we need to learn more about our credit scores if we really want to manage it properly. If you do not know the basics surrounding your score, you may end up making the same mistakes that got you the bad credit scores once more.

What can you do to improve your credit score

If there is a need to improve your credit score, that time is now. According to an article published on CBSNews.com, the Federal Reserve is planning to raise the federal-funds rate benchmark. This is the first time they will do it in 7 years. Financial institutions base their respective interest rates on this benchmark. When the Fed decides to raise their rates, you can expect that everyone in the financial industry will follow.

In case you want to keep your loan rate from being high, you need to work on your bad credit score. Improving your credit score is not an overnight task so you need to work on it as soon as possible.

Here are a couple of things that you need to do in order to raise to credit rating.

  • Monitor your credit report. Sometimes, people suffer from a bad score because they become a victim of identity theft. This means someone used your identity to borrow money and left you to pay for it. Since you did not know about it, you will not pay for it. If you do not monitor your credit report, you will not see these unauthorized transactions. If left unpaid, these can bring your score down. But if you find out about it immediately, you can report it and be saved from the trouble of paying for a debt you did not borrow and the consequences of a bad credit score.
  • Correct errors in your report. There are times when people suffer from a low credit rating because of errors in their report. For instance, some creditors fail to report your on-time payments and they are reflected as late ones. You need to correct this so your credit score can improve.
  • Negotiate with creditors to remove negative marks – if you have a valid reason. For instance, you got sick and you have expensive medications. You had to stop making payments because of your bloated expenses. You can explain this to your creditor and even show them your medical records. Ask them to remove the bad credit marks on your report. They may relent if you make your payments current.
  • Pay off your debts in time. This is another way for you to improve your credit score is to pay your dues in time. Late payments have a big factor in bringing your score down. You need to make your payments current so you can score high in your credit report.
  • Lower your credit utilization by lowering your balance. The rule is, your balance should only be a third of your credit limit. That means if your credit limit is $15,000, you should only maintain $5,000 in your balance. or better yet, pay off your dues completely – if it involves credit card debt of course.
  • Do not close your credit cards – just don’t use them. To keep your balance down, you need to regulate your credit card use. Do not use them if you want to bring your balance down. You do not have to close your card. Just keep them where you will not be tempted to use them.
  • Use your credit card, but pay off the balance in full before the end of the grace period. If you have to use your card, make sure it is an amount that you can afford to pay during the grace period. That way, your purchase will not incur interest rates. It will not end up as a credit card debt.

Follow all these tips so you can improve your bad credit score. If you have to borrow money, you do not have to worry about a high-interest rate because you have a good credit score.

Do you qualify for debt consolidation?

When Is Debt Freedom More Important Than A Great Credit Score

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thumbs up to being debt freeWe all want to achieve a successful debt freedom. When we say successful, we do not just mean paying off our debt. We are after a consistent freedom from debt – at least, free from the destructive powers that it can bring our finances.

However, a lot of people are torn between maintaining a good credit score and being debt free. This conflict sometimes causes them to choose the wrong debt solutions that will help them get rid of their debts.

A lot of Americans are too conscious of their credit scores. This is good news, but that depends on what they know about this financial measuring tool. According to a survey done by Bankrate.com, more Americans are checking their credit status. Last March, Bankrate found out that almost half of consumers checked their credit rating within the year. However, the same study also revealed that some people have the wrong notion about credit scores. For instance, 5 out of 10 Americans believe that an account with a high balance will help improve their score – as long as it is paid on time.

Although paying on time will help you with your score, having a high balance will not. Remember that you do not need to borrow too much money for you to have a high score. You can actually be considered debt free and still have a high score. You just have to know how to accomplish this.

Probably that is more troubling about the battle between debt freedom and the need for a good credit score is that it limits the debt relief options of consumers. For instance, some consumers may turn down debt settlement because they feel like their scores will be ruined in the process. They will try to use something else like debt consolidation to keep their scores intact. While there is no problem with debt consolidation, you have to understand that if you need debt reduction, then debt settlement is the right solution for you. Do not force yourself to use a debt relief program that you cannot afford to complete.

When to prioritize being free from debt over a good credit record

We recognize that the concern of consumers when it comes to a high credit score is not unfounded. According to VantageScore.com, you can be denied access to credit if you have a low score. Sometimes, you will be granted the loan but it will cost you more because you will be given a high-interest on that loan or credit account. A good credit rating can help you avoid spending more because the creditor or lender will not think of you as a high-risk borrower. They usually reserve the high-interest rates to the high-risk loan applicants because the chances of them not paying them back is higher. A good credit score means you are a responsible borrower and that creditors and lenders do not have to protect themselves against you through high-interest rates. They know that you can be trusted with the loan.

While this importance is recognized, there are cases wherein you need to let your credit score slide if that means you will achieve debt freedom. Here are the situations that you need to stop worrying about your credit score and just do what it takes to be free from debt.

When your credit score is already damaged.

First of all, if your credit score is already damaged, then you need to prioritize getting out of debt. If you work on rebuilding your score while you are still in debt, your effort might be wasted. You may end up ruining that score again because you have not yet solved your debt problem. Get yourself out of debt first – even if it means your score will suffer for it. Once you are out of debt, you can start rebuilding your score again.

When you do not need to borrow money in the near future.

The next situation wherein you should choose debt freedom over a good credit score is when you do not have plans of borrowing money – at least in the next year or so. If you want to buy a house, you need to pay off your debts first and rebuild your credit so you can have favorable interest rates. Concentrate on strengthening your finances first before you decide on taking on another credit obligation.

When you already have a house or car.

Most of the time, the only time that you need a good credit score is when you need to buy a house or car. But if you already have them, why would you need to maintain your credit score? That is no longer necessary. Work on lowering your debt balance first.

When you are near retirement.

Usually, it is not advisable that you borrow more money when you are nearing retirement. You are about to give up your source of income. It does not make sense to put yourself further in debt at this point in your life. Although you can survive retirement despite your debt, why would you want to subject yourself through that? You will be compromising the retirement fund that should have been financing a comfortable life for you. Do not share it with your debt payments.

2 debt solutions that will get you out of debt but ruin your score

Most of the time, people who are faced with the difficult decision of choosing between debt freedom and a good credit score are those who require a reduction on their balance. Some people do not have enough finances to pay off the whole debt. This means they need a portion of their debt forgiven. In most cases, this is only possible but it will cost them their credit score.

These are the two debt relief programs that will help you reduce the balance that you owe.

Debt settlement

The first option is debt settlement. This debt solution will help you negotiate your balance. The idea is to prove to the lender or creditor that you are in a difficult financial situation. You have to prove to them that your current finances can no longer sustain debt payments according to the original terms. You will then negotiate to pay only a portion of the debt and the rest will be forgiven. You have to be prepared to do some serious negotiations and make sure you will only agree to pay what you can afford. If you fail to follow what you agreed upon, you might end up forfeiting the settlement and pay the whole sum that you owe.

Debt settlement is something that you can accomplish on your own. However, there are some people who do not have the time to go through the negotiations. This is where a debt settlement company comes in. You can get in touch with a reputable company that will help negotiate on your behalf.

Bankruptcy

The other debt solution that will allow you to reduce your balance is bankruptcy. There are two ways that this can go. If you qualify to file for a Chapter 7 bankruptcy, your assets will be liquidated and will be used to pay off your debts. Anything that cannot be paid will be discharged. This is only applicable to borrowers who are going through extreme financial hardship.

The other option is Chapter 13 bankruptcy. If you qualify to file for this type of bankruptcy, your assets will not be liquidated. Instead, the bankruptcy court will provide you with a payment plan that usually covers only a portion of what you owe. Whatever is not covered will be discharged. This repayment plan can take a couple of months or years to complete. That depends on the ruling of the bankruptcy courts.

If you will opt for this debt solution, take note that not all debts can be discharged by bankruptcy. According to FindLaw.com, there are certain types of debt that cannot be discharged through a Chapter 7 bankruptcy. These include what you owe on your taxes, debts not listed when you filed, court fees, child support and alimony, debts from a DUI incident, and other non-dischargeable debts from a previous bankruptcy ruling.

It is important to note that both debt settlement and bankruptcy can lower your credit score – oftentimes, significantly. But if you are really after debt freedom and you can relate to some of the items above, then you need to just let your score slide. Once you are free from debt, then that is the time when you can look into fixing your credit report.

Do you qualify for debt consolidation?

How To Improve Your Credit Situation Effortlessly

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feet propped on a table with clock in backgroundIf you think that the only way you can improve your credit situation is to make sacrifices, you are wrong. The truth is, there are ways that you can improve them without doing anything – literally.

There is a lot of pressure from our society to have a good credit score because there are so many ways that you can be hurt by a bad credit history. If you lived a few decades ago, you wouldn’t even know what this would mean. But since credit has become a norm in this country, the financial industry had to find a way to make borrowing fair for everyone.

A good credit score means a consumer is responsible when it comes to borrowing money. They pay their dues on time, borrow only what they can pay back, apply for one credit account at a time, and keep their credit utilization low. If you have a good score, you can be trusted with a loan because you are a low risk borrower. That means the lender or creditor do not have to worry about you missing out on your payments. Since you can be expected to pay what you owe, they do not have to protect themselves by giving you a high interest on the credit account that you want to open with them.

Now a good credit history means you need to use credit all the time. This where some people end up failing their credit scores. There is a big difference between using credit and being in debt. What some consumers fail to understand is that you can have a high credit score and not be in debt. But of course, that would mean using credit wisely. Unfortunately, this is a hard task for most people. According to a study done by ConsumerFinance.gov, a lot of people are credit invisible. This is probably because some of them choose not to use credit at all for fear that they will end up in debt. The report mentioned that as of 2010, 26 million Americans do not have a credit history – at all. Not only that, there is 19 million who have a credit history but it is so thin it cannot be measured. That is a total of 45 million consumers or 19.3% of the consumers.

If you are one of the people in this statistic, you obviously need to improve your credit. Of course, there are other people who do not have a good credit score because they have too much debt. Bottom line is, there are so many things that could go wrong for you if you do not do anything about your credit situation.

Improving your credit without lifting a finger

Some people are turned off about improving their credit because they feel like it is very hard to do. The truth is, it does not have to be difficult. Believe it or not, it is possible for you to literally improve your credit without doing anything. Here are some of them.

  • Do not use your credit cards. One of the reasons why some people are in a bad credit situation is because of their high credit card balances. If you want to improve your credit situation, you need to stop using your cards while you pay them off. As you pay your balance, you are increasing your credit utilization rate – which is basically your balance to limit ratio. That will help you boost your score. Take note that you can live without a credit card and still have adequate credit history.
  • Do not close your credit card accounts. Some people think that closing their cards will help them raise their credit score. That is not true. You will be getting rid of the temptation to use credit to spend more than what you can afford. However, you are not helping raise your score. In fact, you are making it worse because you will be damaging your credit utilization rate. If you really want to get rid of the temptation, you can keep your cards where you cannot reach it easily. In case you really want to get rid of some cards, you should close them one at a time. Another thing that you need to understand is that old credit accounts will do your history some good. The more old accounts that you have, the higher your score will be. So try not to close your account – at least, until after you improve your credit score.
  • Do not apply for more credit. If you are still paying off other loans, you need to keep yourself from borrowing more money. Even if there is a good deal that makes home buying very appealing, you need to think about your existing debts very clearly. Be wise about opening more accounts because the more debt you owe, the lower credit score you will have.

These tips may leave you inactive but they will help improve your credit situation. We all know that there are various benefits to be gained if you have a great credit history. Fortunately, a lot of people have begun to take their credit situation more seriously.

According to an article published on NYTimes.com, consumer currently have a better credit standing compared to the first few years after the Great Recession. The national average is not 695 – at least, if you use the FICO scoring system. The article also revealed that almost 20% of consumers have a score that is above 800. By FICO standards, that is very good because their range is between 300 to 850.

Benefits of having a good credit score

Working to have a good credit score is simple but it is not an easy task. You need to remember that this is not something that you can accomplish overnight. But to motivate you to make the sacrifices needed to improve your credit, here are the benefits that you will gain.

You can get the best rates when you apply for a loan.

There are some purchases that is best bought with a loan. Take for instance a house. It is oftentimes too expensive to buy in cash. Instead of waiting years and money paying rent, you can borrow a mortgage so you can live in your own home. The money that you will pay on rent can be used to pay for your monthly amortization. As you make monthly payments, you will increase your home equity, thus increasing your personal net worth.

You are able to negotiate your terms.

Another benefit is being able to negotiate your terms for any credit account. This is true for both existing and new accounts that you will borrow. If you have a high interest credit card, you can call your creditor to ask them to lower it for you because you have been displaying good behavior. You are in a better position to say that you can transfer to another creditor who will give you a lower interest rate. Given your credit score, that may be possible. For new accounts, creditors or lenders do not have to protect themselves by imposing a high interest on your loan simply because you are a low risk borrower.

You do not have to give any security deposit.

Most of the time, people who do not have a credit history are forced to give a security deposit just so they can be serviced by utility companies or something similar. Some companies require this of people without credit histories because they want to be sure that their services will be paid.

You have the chance to build better relationships.

This might come off as a surprise but there is a study that can prove this. According to an article published on Credit.com, the Federal Reserve Bank released a working paper that revealed a connection between a stronger relationship and that of high credit scores. The study said that the individual credit scores of a couple can determine if they will break up or not. The lower the score, the higher the chance of them breaking up. There is some logic to this. We all know that monetary problems can be a cause of arguments. Some people admit that money issues drive them to divorce their spouse. If you want your relationship to last forever, then you know that you should improve your credit situation.

Remember that keeping your credit history in good condition takes consistent work. You need to keep on practicing good credit behavior to keep it up. Small mistake can cost you a good credit history. Set up the habits that will help you become a better money manager and you should be able to keep your credit life as good as it can be.

Do you qualify for debt consolidation?

6 Ways Debit Cards Are Better Than Credit Cards

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woman using card for purchasesDebit cards give us the best of both cash and credit cards. When we use it to pay for our purchases, we are using money that is in our bank account – unlike credit cards that use the money of the creditor. You do not have to worry about the high interest rates imposed on the latter because you are using money that you already have. Technically, it is like paying for your purchases in cash – but a lot safer. When you carry cash around and you lose it, you will find it next to impossible to get it back. While good samaritans are still around, it is hard to trace where your cash will end up. A debit card gives us the security that credit cards provide. If you lose your debit card, you simply have to call the card issuer so they will freeze your debit account so no one will be able to use it.

Some people feel like cash is still the best way for you to pay for purchases because you do not have to worry about the bank fees that are usually associated with debit cards. But for those who want to keep their money secure, the clear payment option is a debit card. In fact, an infographic from ConsumerCredit.com reveal that 80% of respondents prefer to use debit to pay for everyday expenses like gas, meals, and their groceries. 100% of respondents between the ages 18 and 24 years old reveal that they use debit for their daily expenses.

There are so many benefits to using this type of payment method and it beats the money that you think you are wasting on bank fees. If you use your debit card correctly, you can even get rewards out of it.

Some people may argue that if you use credit cards and pay off the balance at the end of the month, you do not have to worry about the high interest charges. This makes it difficult for them to decide what to choose between a debit and credit card.

6 reasons why you should use debit more than your credit cards

Of course, there are limits to when and where you can use your debit cards and the same is true for your credit cards. According to the same infographic from Consumer Credit, some people prefer to use debit for small everyday purchases and their credit card for bigger purchases. You need to understand the workings of both cards in order for you to make the right choice whenever you make a purchase.

Let us concentrate on debit cards by discussing the 6 different reasons why it is better than credit cards.

  1. You will not be in debt every time you use it. As mentioned, you will be using your own money when you use a debit card. You need to put money in the account before you can use it for purchases. When you use credit cards, you are using the money of the creditor. They are lending you the money and you need to pay it back sometime. If not, you will be charged and the interest will be capitalized into your balance.
  2. You do not have to be scared of interest rates. As mentioned, credit cards are practically loans that you need to pay with interest if you cannot pay it back within the grace period. These cards are notorious for their high interest rates. According to an article published on CNBC.com, the Federal Reserve is thinking of an interest rate hike that should worry credit card holders – especially those carrying a balance over to the next month. In May of 2015, it is reported that the total credit card debt is now at $901 billion and the average balance per household is $15,863 (as of July 2015). The article revealed that only 37.4% of those using credit cards pay the balance at the end of the month. That means the rest of them are being imposed with high interest rates that are capitalized into their balance. If you are one of them, you need to be cautious if there are news of interest rate hikes. You will certainly not encounter this problem if you use your debit card instead.
  3. You can enjoy rewards. If you think that rewards are exclusive to credit cards, you are mistaken. Using your debit can land you a couple of rewards from merchants and retailers. Most creditors charge merchants with processing fees and that is why the latter prefer that you use debit in paying for their products or services.
  4. You are guaranteed that payments are received immediately. If you pay utility bills through credit cards, you need to wait for a certain period to have that amount delivered to company. If you paid on your due date, you might end up being late on your payment. Since debit cards are practically like cash, your payments are usually sent faster.
  5. You can pay less on your taxes. This is something that consumers are not really aware of. If you want to save on taxes, you should pay it with your debit card. Using your credit card will result in a 2% charge – depending on your payment.
  6. You have the opportunity to earn interest. Instead of paying your creditor interest, did you know that debit cards can make you earn interest? There are banks, credit unions and other financial institutions that will allow you to avail of an interest-bearing checking account. As you use it, you will get annual percentage yields that will help you accrue dividends. If your debit card is connected with this type of account, you will really benefit from it.

These reasons, if it rings true in your financial situation should help you decide if you should use your credit card or your debit card.

How to use debit and still get a high credit score

The thing that makes it difficult to completely choose debit over a credit card is the fact that you need the latter to help you build up your credit score. The thing with this score is that once you have a good rate going, you have to continually use credit so you can maintain that high credit score. It can be a dilemma for those who want to stick to using debit cards so they can avoid debt.

According to an article published on TheStreet.com, the credit score of consumers are getting better. More consumers have a FICO score that is 800 or higher. Fewer consumers have a score that is lower than 550. The average score is higher than 10 years ago (695 in 2015 compared to 688 in 2005).

This bodes well for consumers but you need to understand that you should use credit so you can maintain that improvement on your score. But if you want to avoid credit cards, that is alright. There are others ways that you can keep your credit score up while you avoid debt or stick to your debit cards.

  • Ask your landlord to report your rental payments. If you are consistent in paying your rent, you can ask your landlord to report this to the three major credit bureaus (Equifax, TransUnion and Experian). These can be included in your credit report to reflect your payment behavior. It is not a factor in your credit score but it will show how good you are with payments. There are also companies like RentalKharma that will help you with this report even if your landlord refuses to participate.
  • Check your credit report for mistakes. Sometimes, your score is low because of an error. You need to check your score so you can be sure that the info in it is correct. This is also a great way for you to check if there are unauthorized transactions recorded in your credit history. You may already be a victim of identity theft and you do not even know it.
  • Use a secured credit card. This is not like credit cards that will endanger you into accumulating too much debt. A secured credit card will allow you to use credit but it is backed by a security deposit. It may seem like debit cards but you are using credit when you use it for purchases. That means it will be reported in your credit history and can affect your credit score.

Here is a video from National Debt Relief that discusses when a good credit score or getting out of debt is more important. According to the video, it really depends on your current financial situation. Knowing if you should prioritize your credit score over debt elimination will allow you to determine which among debit cards or credit cards will suit your financial situation.

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