Living Debt-Free Can Be Bad For Your Credit Score

Imagine working so hard to pay off all of your debts only to discover that living a debt-free life is bad for your credit score and other aspects of your financial life. As bad as it sounds, it is exactly what happens to many who have done away with credit cards and paid off their loans. Unfortunately, for as hard as people work to get out of debt, the world seems determined to keep people in debt in order to reap financial benefits.

Why Does It Happen?
Credit scores are based on the different factors of your financial life. The score is supposed to be a reflection of how responsible you are for paying back debts in a timely manner and how well you manage your financial obligations. When your credit report has no information to gauge, your score goes down considerably. In theory, a person with lots of debt who still pay on time may have a better score than someone without any debts at all. The credit score formula involves a mix of credit card account activity, mortgage loans, student loans, and other types of extended credit. If you have none of those account types, you have nothing to calculate.

Why Does It Matter?
There are many who feel a credit score is worthless because they are living debt-free and have no plans to apply for a line of credit or a loan in the future. However, that assumption can be a costly one. Nowadays, there are many situations were a credit score will make a big difference in your life such as when applying for a job, renting an apartment, or when you purchase vehicle insurance. These companies will often pull a credit report and base rates or job offerings on your credit score because the score is meant shed light on credit risk factors. For someone who is responsible enough to have no debts, an increase in insurance premiums is boldly unfair.

What To Do About It?
If your credit score is suffering because you are debt free, there are things you can do to help the situation. It may not be the most desirable way for you to fix your finances but when it comes to necessity for insurance purposes, you may not have many other choices. Here are some things to consider for upping your credit score:

Get a Credit Card
You may have closed your credit card accounts long ago but using a credit card for normal, everyday purchases and paying off the balance in full at the end of the billing cycle can signal a jump in your score in a few months time.

Apply for a Loan
It sounds crazy to apply for a loan when you haven’t a need for a loan but it can help you get your credit score back on track. You can visit with your bank or credit union and apply for a small personal loan.  A loan officer may be able to advise which is best for your situation. The money loaned can then be deposited into an account and all monthly payments can be automatically withdrawn each month. This may not be the best solution for everyone but it is an option.

Credit Repair Scams- Don’t Take The Bait

There are millions of people who have been affected by the recession. As consumers work to get their finances back on track, the prospect of dealing with credit repair can seem a bit overwhelming. There are companies out there that know how frustrating the process can be and offer services to consumers who want help repairing their credit. Unfortunately there is no “easy fix” for damaged credit and companies that promise otherwise are selling lies. Here are a few tips to avoid being the victim of a credit repair scam.

 

• Do not pay for services upfront. It is against the law for credit repair companies to charge a fee before services are rendered.

• Understand your rights- Each person has the right and ability to repair their credit on their own. If you are considering a credit repair company and they have not disclosed this information, they are more than likely up to no good.

• Avoid the “new identity” pitch- Some credit repair companies will encourage clients to create a new credit report or identity by applying for an Employer Identification Number (EIN) that will be used instead of your social security number. Do not fall for this pitch and avoid working with a company that offers this advice.

• Stay involved- Review your credit report and contact the credit reporting company if you have any questions regarding the information contained on your report. Fraudulent credit repair companies often recommend you avoid contact with credit reporting agencies which leaves you in the dark in regards to the activity on your credit report.

• Do not dispute accurate information- Inaccurate information reported on your credit report can and should be disputed in order to have it removed. Avoid companies that suggest you dispute all negative information regardless of the accuracy.

 

Many consumers find the process of repairing their credit long, confusing and disheartening. In truth, it can be a long process but one that each person can and should do on their own. Their are legitimate credit repair companies out there, however they do not do anything that you can not do yourself. This is one situation where you can eliminate the chances of being scammed by an illegitimate company by simply learning how to repair your credit on your own and committing to the process. It may take time, however you will have the satisfaction of knowing the right steps are being taken and the end result will be a credit report and score that reflect your true credit worthiness.

 

 

How to Get A Credit Card With Bad Credit

With consumer debt on the rise, it’s not surprising that many people’s credit scores have dropped. Even worse is that changes in the credit industry have made it even harder to achieve and sustain a good credit score. What once was considered a great score is now, at best, mediocre. Consumers who are interested in obtaining a credit card but who have problems with their credit may not be eligible for the best credit card offers on the market but there is still hope.

Here are some tips for getting a credit card with bad credit:

Shop Carefully
There are many companies that will advertise credit cards especially for people with bad credit. However, consumers need to be wary of these promotions and read the fine print. There may be creditors willing to give you a credit card but at an interest rate or with terms you can not afford. Do a search and comparison shop for offers of credit for people who have low credit scores and read the agreement carefully before committing any card.

Go Secure
Secured credit cards are a good way to not only obtain a credit card but also to help rebuild your credit if used responsibly. A secured credit card typically requires that an account hold deposit money upfront into an account with the credit card company. The amount deposited into the account initially is your line of credit. You need to use the credit card responsibly and be sure not to overspend. Regular deposits and active use will be reported back to the credit reporting bureaus which can actually improve your credit score. After regular use of a secure credit card, you can build your credit back up enough to qualify for a traditional credit card.

Get A Signer
If your credit is in bad shape or have not established any kind of credit history, you may consider asking a parent or other relative to cosign the application. The co-applicant needs to have great credit and with their credit rating can help you become eligible for your own credit card.

The drawback to having or being a cosigner is that you have to stay on top of your game and use your credit card wisely by making payments on time each month and never going over the credit limit. Otherwise, not only will you suffer credit-wise, your co-signer will too. This arrangement can put a lot of strain on a relationship and it is advisable you look at all your alternatives before asking for a co-signer.

Re-Work Your Credit
Patience is a virtue. If you can adapt to the mindset that you can wait to re-establish your credit, fixing your credit before applying for new credit. Pay off your debts, review your credit report for inaccurate information, and stop spending. Little steps now can lead to big credit fixes in the long run, enabling you to get better deals and interest rates when you are ready to apply for a new credit card.

Rebuild your bad credit easily with these credit cards

How To Get A Prepaid Visa

A prepaid Visa is a reloadable credit card that can be used just like a regular credit card, only you prepay the available balance on the card. The credit card itself contains the Visa logo and looks just like a standard credit card. These prepaid cards are accepted where other Visa credit cards are accepted and each purchase total is deducted from the balance on the card. Unlike a traditional credit card, there are no finance charges, late fees or accumulating debts.

Why Would You Use a Prepaid Visa
One of the obvious reasons for using a prepaid Visa is the ability to control your spending and not go over your credit limit. You can establish a card balance based on your own budget. For people who like the convenience of credit cards but either don’t have the credit score to be eligible for a traditional credit card or for those who would rather avoid the responsibilities of maintaining a credit card account, a prepaid Visa is a great option. Since they can be used like a regular credit card, a prepaid Visa is a great back up for emergency purposes.

Keeping in line with the budget concerns, a prepaid Visa can also be a great money lesson for the younger generations. Parents who are not completely comfortable giving their children a traditional credit card can use the prepaid credit cards to teach kids how to use credit properly. Spending on the card can be monitored without debt consequences. Learning personal finance basics at a young age can better prepare kids for their financial future.

Another reason you may want to get a prepaid Visa is for traveling purposes. It is safer than carrying cash with you. If you lose your cash, you likely won’t get it back. If you lost or have your prepaid Visa stolen or lost, you will be protected by the policies of Visa and not incur liability.

Who Should Get a Prepaid Visa
Any consumer can benefit from a prepaid Visa card but there are a few specific groups of consumers who can use a prepaid card to keep their finances in order. Beyond teens, college students just starting out on their own would benefit from the financial lessons. Also, consumers who are not interested in a traditional credit cards or who have bad or no credit histories that prevent a traditional credit card would like the convenience of a prepaid card. Plus, for occasions and holidays of all kinds, a prepaid Visa is a sound gift idea for anyone.

Where to Get a Prepaid Visa
There are many credit card companies that offer both prepaid Visa and prepaid MasterCards. You can do an online search and apply right on the website. Applying for a prepaid card requires no credit check. In fact, many prepaid cards do not even require a lengthy application. You will also find that many prepaid cards can be purchased from your banking institution. Be aware that not all cards operate as simply as sending in money to load the balance of the card. Many companies charge fees that can eat away your balance if you are not paying attention. One such fee is referred to as the maintenance fee, which can range from $0 to $10 monthly fee or even a yearly fee. Some card issuers will also charge a one-time activation fee that can range from $0-$40. If you plan to use your prepaid Visa at the ATM, you can expect to also pay fees from both the prepaid card company as well as your bank each time you make a withdrawal.

Yes, Debt Consolidation Will Affect Your Credit Score

It used to be that debt was a hush-hush subject that no one liked to talk about aloud. However, in light of the recent economic instability and the surge of consumers losing their jobs, homes, and life savings, it’s no longer a taboo subject. Debt is discussed and is a much sought-after subject and affects many more people than we might have even realized. It is no wonder that more and more individuals are now seeking the help of a credit counselor or debt consolidation company to help them dig out from under weighty financial problems.

Debt Consolidation is An Option
Debt consolidation is a popular option for consumers to lower the total amount owed, making debt issues become resolved faster and more efficiently than if no debt options were used at all. Debt consolidation involves the individual or a third party negotiating with creditors to eliminate penalties, lower interest rates, and negotiate a lowered monthly payment for all debts the consumer incurred. At the end of the consolidation term, you are essentially free and clear of your debts that were consolidated. Most creditors will agree to such negotiations in an effort to avoid you filing for bankruptcy, which in turn would net the creditor nothing.  However, while resolution of the debt is good for you and your finances, it may not always be kind to your credit.

What Happens to Credit Scores Immediately?
Unfortunately the debt negotiation process is not one that will be over and done with in a single day. While your debt is negotiated, your open balances are still required to be paid. If you can not afford the monthly payments, creditors may begin suspending or closing your accounts. If you are late on payments or miss them entirely, your credit score will take another hit. This may continue to happen for the first few months until your account can be reported as being back on track once you have paid regularly for a few months through the consolidation program. Additionally, the closed accounts will alter your debt to credit ratio which can also have a negative influence on your loan.

What Happens To Credit Scores In the Future?
Since the process of debt consolidation negotiation can take months to complete, your credit will suffer for a bit during the down time. Once the process is well under way and you are making regular payments as per your agreement, you may start seeing an increase in your credit score, proof that your accounts are back on track. As you continue to have good payment history information reported back to the credit bureaus, your credit will continue to improve. If you learned a lesson and adopt better money management habits after you’ve considerably reduced your debts, you can continue to up your credit score and eliminate other debts on your own.