Month: March 2018

3 Easy Ways to Avoid Identity Theft This Tax Season

identity theft during tax season

Now that we’re almost into March, we all have our W-2s from our employers and are well on our way to being ready to file. Some well-prepared individuals have already done so. However, if you still have yet to file, beware: there are many ways to find yourself at the wrong end of a stolen identity this tax season. There are many different ways to protect yourself and maintain your good credit standing or your journey through the credit repair process. Here are some things to keep in mind as you make your way through tax season.

The IRS Doesn’t Call

Every year, we hear the same story and the same warnings are issued by the IRS. Scammers have been using the same tactics for a while now. They call someone’s home or cell phone claiming to be from the IRS and inform the call recipient that they owe thousands of dollars in back or overdue taxes. They even go so far as to provide fake badge numbers, names, and more. They will then ask for a credit card number. Never give out your credit card number to someone claiming to be from the IRS. If you aren’t sure if the person calling you is legitimate, simply call the IRS to find out if you owe taxes, and if so, how much.

Shred Documents with Your SSN on Them

Since most of us wouldn’t rifle through other people’s trash bins looking for documents to steal, it’s easy to think that no one does. Unfortunately, that is not true. Many people have fallen victim to monetary or identity theft simply through carelessness with their refuse. Any piece of paper with your personal information on it — especially your social security number — should be shredded immediately and placed in the trash. Shredders today do a fine job of turning sensitive documents into paper confetti and are relatively inexpensive. It’s definitely worth your investment.

Keep an Eye on Data Breaches in the News

If you find yourself involved in one of the major data breaches (such as the Target breach in 2013) then you’ll need to do some investigating to find out to what extent your information has been compromised. In some cases, victims of data breaches may need to contact the IRS to request an IP PIN, or a six-digit identification number that helps identity theft victims ensure their tax returns are processed safely and accurately.

All of these tips can help you further protect your identity from fraud and theft this tax season, which helps keep you on the right track with credit repair. To learn more, speak with the experts at Lexington Law. They can be reached at 844-259-3482.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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How Cryptocurrency Affects Your Credit

cryptocurrency and credit

Bitcoin, Litecoin, Ethereum, Dash, Ripple, Monero. No, they’re not movie superheroes from another galaxy. They’re cryptocurrencies. And these days, it seems like they’re all anyone is talking about.

Cryptocurrency is defined as a digital currency that uses encryption techniques to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. If you have gotten into the world of Bitcoin, or you’re considering investing in cryptocurrency in general, you may be wondering how using it for payments might affect your credit score.

The short answer is that in its current format, it really won’t make much of an impact. To explain, let’s take a look at how credit and cryptocurrency transactions differ.

Understanding cryptocurrency transactions

Whenever a transaction is not conducted in person via cash — which is most of the time — some extension of credit is required. Even when we’re making payments using services like Venmo and PayPal, credit is extended until those payments go through a clearinghouse. These services cannot offer instant clearing due to the technological limitations of international money. In this way, paying through Venmo or PayPal isn’t all that different than paying with a credit cards like Visa or MasterCard.

Cryptocurrency payments, specifically Bitcoin, are comparable to a wire transfer or cash transaction, where payments are sent directly between parties, without going through another financial institution. Instead, payments are processed through a private network of computers, and each transaction is recorded in a blockchain, which is public. Blockchain is essentially a digital ledger where transactions made in cryptocurrency are recorded chronologically and publicly.

Credit card transactions require the buyer to authorize a payment to be taken from their account by the seller. With cryptocurrency payments, however, no personal identification information is required and the transactions are made via an alphanumeric address that changes with every transaction, and a private key.

So what does this mean for your credit?

Cryptocurrency essentially adds anonymity to payments, by removing the financial institution and the buyer’s personal information from the process. Furthermore, its value is not tied to a nationalized currency and it has no value as a commodity or asset.

Unlike credit cards, cryptocurrency transactions are sent to and from electronic wallets that are stored on your computer, smartphone, or in the cloud.

Aside from the anonymity factor, even if cryptocurrency were tied to your personal information, it is still a very new form of currency and not widely used or accepted. However, there are compelling reasons for merchants to accept Bitcoin and other cryptocurrencies in terms of the potential savings on credit card fees, which that can range anywhere from 0.5 percent to 5 percent, plus up to 30 cents per transaction. Cryptocurrency payments, on the other hand, are based on the amount of data sent and can therefore be sent and received for a much lower cost, or no cost at all.

And many of the companies in this space are working for its expansion. In fact, one of the more well-known cryptocurrencies, Ripple, recently announced that it is working with more than 100 banks to overhaul how it handles payments for its clients.

Ripple is based on a digital token called XRP, which has seen more growth in value that its counterparts, including Bitcoin. XRP’s claim to fame is that it can help banks move cash faster than other cryptocurrencies. Still, banks have been slow to take the bait.

The big picture

Even if cryptocurrency could make an impact on your credit, most Americans would be hard pressed to find ways to use it in their day-to-day lives, considering that relatively few companies and retailers accept it as a form of payment.

Credit-based exchanges are irrelevant for cryptocurrency because it largely removes the role of the financial institution, thereby removing the need for trust or creditworthiness, as well as the need for clearinghouses.

For the time being, the use of cryptocurrency will be more akin to cash transactions for those using it, and therefore the only impact it will have on credit scores is that using cryptocurrency does not help to build positive credit like paying a credit card on time every month would. Nevertheless, cryptocurrency will continue to combine the advantages of cash transactions with the convenience of digital payment technology.

Where cryptocurrency could impact a consumer’s credit would be in terms of smart investing and making enough money to pay off other credit cards or high-interest debts. To date, approximately 7 percent of Americans own some form of cryptocurrency. Those who have been fortunate to get in and out at the right time have reaped some big financial gains. It remains to be seen if there may be future implications for the lending and repayment of cryptocurrencies.

If you’d like to learn more about what impacts your credit score, or how you can build or improve your credit standing in the traditional credit economy, Lexington Law can help. Contact us today for a free credit report summary and credit repair consultation at 1-844-259-3482.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Should You Save Your Tax Refund or Pay Down Debt?

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After diligently filing your income taxes, you’re greeted by a pleasant surprise: you get a refund. And where others may see a surprise windfall as an excuse to go out on the town or pick up that must-have gadget they’ve been eyeing, you make the smart decision to be responsible with your unexpected bonus, choosing instead to put it toward your personal financial stability.

First off, good choice! But now it comes time to make another important decision: do you save that extra money, perhaps for retirement, or use it to pay down debt?

All in all, this decision has no one right answer, as the best thing to do with your tax refund will depend strongly on your individual financial situation. To help narrow down the smartest way to use your refund, ask yourself the following three questions to see where your finances stand.

  1. Are You Behind on Any Debts?

The very first question to ask yourself is whether you are behind on any of your bills or debts, which includes everything from utility and housing payments to credit card and loan payments. If the answer to this question is, “Yes,” then you can stop right here. Your tax refund is best used to catch up on those debts to prevent them from damaging your credit or, worse, becoming charge-offs.

If you have any of your tax refund left once you’ve brought all of your delinquent accounts back into good standing, you may want to look at ways to avoid falling behind in the future. For example, credit card balance transfers can be a good way to lower your interest rate (and, thus, your payments), but there are only a few no balance transfer fee credit cards. The money you spend paying a balance transfer fee can often be recouped by the interest rate savings.

  1. Do You Have Any High-Interest Debts?

If you don’t have any delinquent bills or debts, or you have a portion of your refund leftover after catching back up, you’ll next want to look at any high-interest debts that you currently owe. Start by listing all your debts by interest rate to see where you stand. Any debts with double-digit interest rates should be your first priority, including short-term loans or high-interest credit cards. The debts with the highest interest rates are costing you the most money, so they’ve got to go.

What generally won’t be included on the high-priority debt list are longer-term installment loans, like auto loans and mortgages, that typically have much lower interest rates. Even bad-credit mortgage loans tend to have single-digit interest rates, making them typically the least expensive type of debt to carry.

Once you’ve identified your most expensive debt, focus your tax refund on paying it down. If your refund happens to be enough to pay off that debt entirely, put the remainder toward your next-highest-interest debt (and so on).

Instead of paying off your highest-interest debt first, it can be tempting to instead focus on your smallest debt so that you can enjoy the satisfaction of crossing it off your list entirely. While this method (often called the “snowball method”) can be an effective debt repayment strategy overall — studies say snowballing your debt can have good long-term success — focusing on the highest-interest debt (also called the “avalanche method”) is the more cost-effective plan.

  1. Do You Have an Emergency Fund?

The final question to ask yourself before dumping your tax refund into your retirement savings is whether you have a healthy emergency fund set aside to deal with any unexpected financial events. Most experts suggest having at least three to six months’ worth of emergency savings to cover your necessities in the case of job loss or injury, but even a few hundred dollars to pay for a sudden car or home repair can save you from taking on unnecessary debt in the future.

Once you’ve paid down your outstanding and high-interest debts and built up a solid emergency fund, you’re now ready to focus what is left of your tax refund on more general savings. This may mean a retirement account, such as a 401(k) or IRA, or if your retirement accounts are already in great shape, a personal investment account.

Other than your emergency fund and whatever monies you use for bills, avoid keeping excessive amounts of money in a standard savings account. These accounts tend to have interest rates of 1% or less (more often less), meaning a typical savings account won’t even keep up with the rise in inflation, let alone help you build wealth. Focus instead on investments that will net at least a higher rate of return than the current rate of inflation to avoid losing out on potential income.

If you’re concerned about your credit this tax season, learn how you can start repairing your credit here. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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5 Reasons to Say “No!” to Opening a Store Credit Card This Year

store credit card

The holidays are a distant memory and now that the bills have mounted, we find ourselves in need of a few things for that we’ve been neglecting. Maybe you can relate. Perhaps the new year brought with it a new job or some necessary home repairs, and you find yourself in need of a wardrobe makeover or some supplies from your neighborhood home-improvement store. Thanks to the holidays, you may be tapped out and tempted to open a department store or Home Depot card to make these necessary purchases.

To make this an even more tempting option, the cashier says, “Would you like to open up a store credit card today? You’ll get 15 percent off this purchase and a 10 percent discount every time you use it!” With a big smile and fingers hovering over the keyboard she says, “It’ll only take two minutes to get you approved and you can be on your way.”

What do you do?

Based on the figures, many people in this situation will say “yes.” The Nilson Report (an annually published report on the world’s top card issuers) confirms that private store credit cards made up over 7 percent of the total annual credit card debt carried in the United States. While 7 percent may sound insignificant, it accounted for over $184 billion in 2014 and was the third consecutive rise in store credit card debt in as many years.

A survey conducted by a popular credit card ranking service found that 9 of the top 20 most-used credit cards in the nation are store credit cards from retailers such as Sears, Macy’s, JCPenney, Kohl’s, and Walmart.

Is there really anything wrong with taking advantage of store credit cards, especially considering the discounts and perks they generally offer to sign up? Despite the appeal of these offers, there are at least five good reasons to steer clear of opening additional store credit card accounts this year:

Those discounts are only half the story

It is important to remember that retail stores are not in business to lose money. If they offer you a discount, it’s because they ran the numbers and know they can afford to do so, meaning you very well may be paying too much for your purchases to begin with.

To test this theory, before you get to the checkout line, take a few minutes to search online for the products you’re considering buying and see if they’re available elsewhere for less. In many cases, you can get the same exact item for a lower price, even factoring in shipping.

But, surely if they’re giving you 15 percent just for signing up, it’s worth it, right?

The discounts and perks are covered by the interest rate

Beyond the simple math, retail stores have also done their research and understand human nature and spending habits.

They know most Americans go overboard during the holidays, leaving them strapped in the early months of the new year and continuing to spend beyond their means. They also know it is highly unlikely that most of their customers will be able to pay off the balances they accrue within the first few months. Because of this, many of these store credit cards come with enticing introductory offers, including “zero interest for 3 months” or “no payments until…”

If you read the fine print, though, you’ll see that these too-good-to-be-true offers carry a dangerous caveat: If you don’t pay off the entire balance during the introductory period specified, ALL the interest you would have accrued on your full balance is instantly added to your debt.

Which brings us to a third serious consideration:

The interest rates are usually higher

In 2017, the average annual percentage rate (APR) for all credit cards issued in the United States hit an all-time high of 16.15 percent. In comparison, however, the average store credit card APR is 24.99 percent!

Based on a 24.99 percent APR, you would pay $125 for every $100 you spend on that card over the period of a year, causing the initial discount and other perks to lose their luster. It only takes a few months of minimum or no payments before your initial discount is completely erased and your higher-than-average interest continues to pile up.

That low credit limit hurts your credit score

Another danger that comes with store credit cards is the negative impact they can have on your credit score.

These instant-approval cards often only offer a few hundred dollars in available credit to begin with. Because of the low credit limit, your very first purchase is likely to use a significant portion of your available credit on that account.

Your credit utilization ratio is one of the factors used in determining your credit score, and the higher that ratio is, the more it tends to negatively impact your score. To avoid negative effects, you should be striving for a credit utilization ratio under 30 percent. However, if your Big Box Store Credit Card only has a $300 credit limit, that first purchase of $185 immediately puts you at a ratio of 62 percent.

By itself, one low-limit card with a high utilization ratio probably isn’t going to sink your credit. But, if you’ve been lured into signing up for this one, how many others do you already have in your wallet? It is important to know how much of your overall credit is made up of low limits, elevated interest rates, and high utilization ratios.

Store credit cards are designed to encourage overspending

Finally, let’s call these store credit cards out for what they really are: clever means used by retail stores to encourage their customers to overspend.

Even looking beyond the introductory promotions, the low credit limits and high interest rates, consider this: why are we hit with the credit card offer at the worst possible time for us to make a rational decision — either during or immediately after the holidays? During these times we may be mentally struggling with pulling out the cash or debit card to handle our purchase and that’s when we’re offered a shiny new piece of plastic that can make this entire situation faster, easier, and 100 percent pain free.

There’s a lot of psychology involved in how that’s set up. And, not surprisingly, if you’ve ever worked the cash register at one of these retailers, you know how hard they push the credit card offers. In many cases, employees can lose their jobs if they don’t rack up a high enough number of new accounts per week or month. That kind of pressure isn’t focused on your best interests or your long term financial health.

Credit should be a tool for strategic spending that’s part of a planned budget. Or, if absolutely necessary and with clear limitations, as a safety net when an emergency arises. Credit cards should be chosen wisely and should never be a vehicle for impulse purchases or a thoughtless add-on obtained for convenience.

As you’re weighing the need for the card, be aware of the potential harm store credit cards can do, and remember these five reasons why you should say, “no!”

The best way to understand how different types of accounts impact your credit score is to regularly review your credit report. If you’d like a free credit report summary and credit consultation, contact a credit repair company today.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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How Joining a Credit Union Can Boost Your Credit

joining a credit union

When it comes to establishing or repairing credit, one of the first things you’ll need is a checking or savings account. If you can join a credit union, that’s even better. Credit unions are member-owned banks (sort of like a banking co-op) that tend to offer better perks than a large corporately owned bank. Furthermore, since they’re owned by members and not stockholders, customer service tends to be better and more personal.

Credit unions are not-for-profit, which means service will always take a higher priority than bottom line, because there are no profit margins to worry about and no stockholders to whom they must answer. Joining a credit union can do wonders for your credit. Here’s why:

Credit unions genuinely want to help you

Since credit unions are member owned, it’s beneficial to them if their members have good credit across the board. It’s for this same reason that it’s a better banking situation for those who are working on credit repair than a traditional bank. When credit union members have better credit scores across the board, not only does it help lower fees for everyone, but it also helps better the community in which the credit union is located.

Credit unions have lower fees

Since credit unions aren’t trying to appease stockholders or increase profit margins, fees and interest rates tend to be considerably lower for members. For those who are working to build or repair credit, every penny matters, so lower fees and interest rates are especially beneficial in such instances. If you’re looking for a small auto loan, secure credit card, or other credit building tool, you may want to consider joining a credit union.

You might be able to get a small loan from them

Credit unions are more likely to work with a member on a small loan, even if that member has a poor credit rating. These are usually referred to as “credit builder loans” and can really help those with bad or no credit get a leg up on building their credit. They also have other offerings designed to help members improve their credit, so it’s worth your time to do the research and find a credit union that you can qualify for.

How to join a credit union

The one drawback of a credit union is that they have specific rules about who can join. Many credit unions exist to cater to a specific demographic (such as Naval Credit Union, which serves military members and their families). Credit unions may also accept members based on where they live or work, where they went to college, or for many other reasons. Many people might think it’s difficult to join a credit union because of their strict eligibility rules, but there’s a credit union out there for everyone. You may even be able to join one based on your religious affiliation, as many churches have started credit unions to help their parishioners.

To learn about other ways to repair your credit, contact Lexington Law today at 1-844-259-3482 or click here.

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