Month: November 2017

Can Asking For a Credit Limit Increase Affect My Credit Score?

credit limit and credit score

You might think that asking for an increase to your credit limit on an existing account would not impact your credit score. After all, it’s not like you are applying for a new loan or establishing a new line of credit. This creditor knows you, and they checked your credit when you first applied. They also know your payment history on this account, right?

Even though increasing your credit limit may feel like a no-brainer to you, it may not seem that way to the creditor. This is why asking for a credit limit increase may actually damage your credit.

What is my credit limit?

Your credit limit is how much a creditor will allow you to charge to a particular account. Some credit cards have preset limits, some limits are based on your credit score, and some may be based on your history with the particular creditor. For example, if you have a history of exceeding your credit limit, your creditor may decide to decrease your limit. If you have a history of making consistent, timely payments, your creditor may automatically increase your limit.

But don’t assume your credit limit will automatically increase — even if your payment history and credit are in good standing. If you want a credit limit increase, you will most likely have to contact your card issuer and ask directly.

However, consider the pros and cons before making the request, including what it could do to your credit score.

How can asking for a credit limit increase impact your credit score?

When you ask for a credit limit increase on an existing account, the creditor may want to do a hard inquiry on your credit before they approve the change.

A hard inquiry is when a lender pulls your credit report in order to look into your history of borrowing and paying back debt. Hard inquiries occur whenever you apply for new credit cards, car loans, mortgages, etc. They will appear on your credit report and can result in a loss of several points off of your credit score.

While a few points may not seem like a big deal, if you are applying for multiple credit accounts during the same time frame, those points can quickly add up. From a lender’s perspective, multiple hard inquiries in a short period of time could make you look like a high-risk borrower.

And that’s not all: a hard inquiry can stay on your credit report for up to two years and may impact your credit score for a year. The impact can be even greater if you have a limited credit history. If you are considering a credit limit increase, seriously think about your request before making it and ask your creditor if it will result in a hard inquiry on your credit report.

Keep in mind that even if you request a credit limit increase, your request could be denied due to a low credit score or a less-than-stellar history with the creditor. If you need help repairing your credit in order to increase your credit limit, consider a consultation with a credit repair expert.

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How Does an Unpaid Credit Card Affect My Credit?

unpaid credit card

Sometimes life gets messy. You spend more than you should one month and realize you cannot pay your credit card bill. Maybe an emergency expense puts you in a tight spot. Or maybe you simply forgot to pay your bill. Whatever your circumstances may be, not paying your credit card can have a negative impact on your credit.

One, two, or a few missed payments

Missing one payment is not the worst thing that can happen to your credit, but you do need to take steps to fix it:

  • Call your creditor right away to explain the mistake. Often creditors are understanding if you do not have a history of being late on payments. Many will work with you to avoid or minimize the impact to your credit.
  • Pay at least the minimum due as soon as you can. Creditors can report payments that are 30 days late to the credit bureaus. Paying before then is best.
  • Be prepared to pay a late fee and interest on the unpaid amount, unless your creditor has made other arrangements with you.

Missing one payment can be easy enough to rectify, but what if you miss more than one payment? The consequences can be far more serious:

  • You may be charged additional late fees and interest.
  • Your interest rate could go up.
  • Delinquent accounts that are 60 to 90 days past due will likely be reported to the credit bureaus, further lowering your credit score.
  • Your account could get sent to collections.

It is also important to understand that credit mistakes affect credit scores differently. For example, late or missed payments can actually drop more points from a good credit score than a bad one. Knowing your score at the time of the delinquency can help you anticipate how much it might be affected.

Six months or more of missed payments

After six months (180 days) past due, your credit card issuer must write off the debt, sending your account to debt collections. The amount you owe increases as well because you will be responsible for six months of late fees and interest on top of the balance. You may also have to deal with aggressive debt collectors seeking payment.

If you truly cannot pay off your balance in full—including all the financial penalties incurred—then you could face lawsuits or a bankruptcy. Debt management is one alternative process that allows you to pay your debt over a longer period of time. Debt settlement is another option to tackle excessive debt by paying a lump sum portion of your debt and the rest being forgiven. No matter how you deal with your debt, being delinquent for six months or more will cause significant damage to your credit score.

If your credit card remains unpaid long enough, the statute of limitations becomes an important factor. Generally, the statute of limitations is a period of four to six years after your last debt payment. During this time, creditors and debt collectors can sue you or try to collect your debt. After the statute of limitations has run out, however, the debt does not automatically disappear. For instance, a persistent debt collector may even try to convince you to pay a time-barred debt. Being aware of the applicable statute of limitations may help protect your credit future from your past problems.

Mitigating credit problems

Before you reach the severity of the six-month mark, pay off what you owe as quickly as you can to avoid more interest, late fees, and damage to your credit. If you are a few months behind, contact your creditor to explore payment plan options. If you do have a delinquent account that went into collections, check to see if the information is old enough to be removed.

Lexington Law can help fix damaged credit and address problems on your credit report. Carry on the conversation on our social media platforms.

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Hard Credit vs. Soft Credit Inquiry

hard and soft inquiry

If you’ve ever applied for a credit card or a loan, you are probably familiar with the term “inquiry.” An inquiry is basically jargon for a credit check, which is when a company, institution, or some other party looks into your credit report.

There are two types of inquiries you should know about: a hard inquiry and a soft inquiry. One of them can affect your credit.

Let’s talk about the differences between the two types of inquiries and in what circumstances you would need either. We’ll also explore the additional impact too many hard inquiries can have on your credit score.

What’s a soft inquiry?

A soft inquiry occurs in a few different scenarios:

Depending on the credit bureau, sometimes a soft inquiry will get recorded in your credit report. But the good news is that soft inquiries do not actually affect your credit score. However, hard inquiries will.

What’s a hard inquiry?

Credit card issuers, banks, lenders, and other financial institutions perform a hard inquiry before approving you for new cards, mortgages, and other types of loans. Looking at the information in your credit report helps creditors know if your credit is in good standing and how much interest to charge. If you’ve got a clean credit report, your chances of being approved and paying low interest rates are pretty good.

But there is one minor tradeoff: every time a hard inquiry is performed, you lose a few points from your credit score. It can vary, but most people lose less than five points, which isn’t significant enough to be concerned about.

Hard inquiries don’t have a long-term impact on your credit. Unlike other forms of negative information, which can stick around for seven years, a hard inquiry only stays on your credit report for two years. Plus, it will no longer get factored into your credit score after the first year.

There are certain circumstances, however, when hard inquiries do have more of an impact on your credit score.

How many hard inquiries are too many?

Multiple hard inquiries in a short amount of time can stack up and hurt your credit score.

Let’s say you apply for five different credit cards in the span of a few months. You may be innocently shopping around for a good offer. But remember that every credit card application you submit will result in a hard inquiry. Not only do you lose a few points from your credit score each time, but the credit bureaus also take notice. Too many applications for “new credit” can be a red flag, signaling reckless spending or financial trouble on your part, and resulting in a ding to your credit score.

It’s better to space out your applications for new credit by several months to give the hard inquiries time to fade from your credit report.

What’s on your credit report?

In the event you notice inquiries on your credit report and don’t understand what they mean or where they came from, check with a professional credit repair service. These credit experts can help you understand your report and address any errors to keep them from further impacting your credit score.

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How Self-employment Affects Credit and Finances

self-employment and credit

Guest article from

Self-employment allows people to have flexible hours, a chance to put their ideas into action, and overall freedom in their work lives. According to a U.S.Bureau of Labor Statistics report, 15 million people in the United States were self-employed in 2015. That’s 10.1 percent of all of those who are under U.S. employment. Although self-employment may seem like a perfect version of the modern American dream, many people fail to think about how self-employment affects things like credit and personal finances.

Higher Income Levels

Those who are self-employed often make more money than if they were working in traditional occupations. This increase in revenue attracts many people to the idea of self-employment. However, the amount of money earned during self-employment can change depending on how well people manage their finances and how well their business is doing. Although self-employment is known for having higher revenue levels, it doesn’t necessarily mean that those who are self-employed are better off in all financial aspects than those who are not.

Lower Credit Scores

Since self-employment is known to lack stability in comparison to traditional jobs, those who are self-employed are often seen as less reliable when it comes to their credit and finances. Therefore, the self-employed tend to have lower credit scores than others, especially if their revenue has significantly fluctuated, resulting in late payments or exceeded credit limits. Those who fall behind in payments to creditors and fail to check their credit reports are the most likely to obtain a lower credit score while self-employed.

Mortgage Qualification Difficulties

Many self-employed people have run into difficulties when trying to qualify for mortgages. Due to the instability and fluctuation that comes with self-employment, lenders tend to not see the income of the self-employed as reliable enough to pay off home loans. Low credit scores can also be an issue when applying for mortgages.

How to Overcome the Challenges

Although those who are self-employed often come across a variety of financial challenges, there are ways they can avoid these issues. Due to fluctuating incomes, the self-employed should focus on saving money. Devoting money to savings can help them stay on top of their payments, as well as build a more reliable money management foundation.

While it’s always easier to maintain a good credit score than it is to repair a bad one, there are a few options when it comes to avoiding lower credit scores. For the self-employed who have bad credit, seeking the help of professional credit repair services may be the best option for a second chance to establish good credit habits for the future. To build credit and maintain a good credit score, the self-employed should focus on paying their bills on time, keeping track of what they owe, striving to use a variety of credit types, having a new form of credit, and maintaining the credit accounts they already have.

For the self-employed to increase their chances of getting approved for a mortgage, they should keep their business records and accounts organized and accurate, save funds to make a larger down payment that decreases their monthly mortgage payment, make sure their personal bank accounts and their business bank accounts do not intermingle, and make sure they are paying off as much of their accumulated debt as they can before applying for the mortgage. The self-employed should keep in mind that credit scores can show lenders their level of financial responsibility. Overall, people should do their research to see if the self-employed lifestyle is right for them.

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How Minimum Monthly Credit Card Payments Affect Your Credit

credit card monthly payment

For many people, paying the minimum on a credit card bill is common practice. But there’s often confusion associated with it, too. Is the minimum payment just an arbitrary number? Can it really make a dent in your balance?

The CARD Act of 2009 helped to solve some of the confusion by requiring credit card issuers to be more upfront with consumers. Issuers now have to alert you how long it will take to pay off your balance with just the minimum. And while banks and issuers vary in how they determine minimum payments, most formulate it as a small percentage of your balance plus interest and fees. With this information, you can figure out your approximate monthly minimum and how long before you reach a zero balance.

But that still leaves one unanswered question: how does paying the monthly minimum help or hurt your credit?

Boost your credit with a positive payment history

If you make a credit card payment every month, you’re building a positive payment history, which is a huge plus.

Payment history is the biggest factor in your credit score, accounting for 35 percent. That means if you can make all your payments as expected, you’ll earn big points on your credit score.

But if you’re worried that paying the minimum is all you can afford, think about this: credit scoring models don’t take into account the amount of the credit card payments you make. Whether it’s $25 or $250, as long as you’re paying at least the minimum every month — on time, every time — then you’ll keep your payment history on track.

Watch your credit utilization ratio

That’s not to say that making the minimum payments while continuing to rack up credit card debt is a good idea.

The second-largest percentage of your credit score is attributed to your credit utilization ratio. This ratio is calculated based on how much of your total available credit you’re using. The closer you get to reaching your credit limit, the higher the ratio, and the more it negatively affects your credit score. Minimum payments won’t reduce your ratio or your balance enough if you’re just canceling them out with more spending.

The idea is to pay down your balance as quickly as you can to keep your credit utilization ratio low. Even better, aim for a zero balance by paying off your bill in full every month.

Pay more if you can

Paying the minimum every month means it might take years, or even decades, to pay down your balance — especially if the bill was high to begin with.

For some, due to financial hardship, this may be the only option for awhile. But, if you can afford it, there is a faster way to pay down your balance.

Instead of the minimum set by the credit card issuers, set your own, higher minimum. For example, if your issuer’s minimum is roughly $25, aim for double or triple that amount. Then continue to pay that same, higher amount every month.

Not only will you substantially subtract from the time it would otherwise take to pay off your balance, you’ll also save money on interest. Just be sure you don’t continue to make multiple, expensive purchases that would undo the progress you have made.

Care for your credit

While you’re paying down your balance, make sure your credit report is in a good place too. Past errors and inaccuracies can affect your credit score and hinder your debt-relief goals. Consider using a professional credit repair company which will uncover and remedy credit errors. The first step toward establishing a healthy credit history is making sure all items are listed fairly and accurately — professional credit repair is an easy, effective way to get your credit score back on track and start tackling credit card payments in earnest.

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