Month: April 2018

How to Overcome Credit Card Anxiety

BY Alayna Pehrson

credit card anxiety

Guest post by Alayna Pehrson – Content Management Specialist at BestCompany.com

You can use credit cards as tools to build your credit, right? Unfortunately, many people fail to see credit cards in that way. Credit cards can have a poor reputation that some people simply can’t overlook. Although credit cards will only cause damage when used irresponsibly, many people still get anxious when they think of using a credit card. Here are a few tips to help you overcome your credit card anxiety:

Do Your Research

One of the best things you can do to lessen your credit card anxiety is independent research. Reading blogs, books, and seeking out other resources can help you understand how to use credit cards wisely. Countless, easy-to-access articles and websites focus specifically on credit cards and how you should use them to your advantage. It’s important to keep your personal spending and financial habits in mind as you do your research. For example, if you know that you often spend over your budget and you are prone to making irrational purchases, then research credit card articles and blogs that relate to your situation. Millions of people use credit cards daily, so there is bound to be at least one person out there who has faced similar situations and who can provide helpful advice about credit cards.

Learn From Others

Another thing you should do is learn from others’ mistakes. Almost everyone has made a credit card mistake at least once since they started using a credit card. If you observe their credit card usage as well as their mistakes, you will be able to understand the best and worst ways to use a credit card. You can learn from parents, relatives, friends, bloggers, etc. Learning from other people’s credit card mistakes can help you avoid making those mistakes in the future. After all, why should you suffer the same fate when you know how to avoid it? Observing both those who have good credit and those who have poor credit will teach you to recognize the difference between good and bad credit habits.

Check Your Credit Report

Not only can you learn from others, but you can also learn from yourself. Regularly checking your credit report can show you what areas you need to improve on when it comes to your credit. Staying in tune with your credit report is also one of the best habits you can develop. Those who check their credit reports on a regular basis are also more likely to catch identity theft before any real damage happens. For example, people who regularly check their report will have a better chance at noticing when any type of fraudulent activity (like unwarranted purchases and accumulated debt) is present. Overall, your credit report can show you how well you are handling credit.

Conduct a Self-Audit

In addition to regularly checking your credit report, conducting a financial self-audit could also help you with your credit card anxiety. Sitting down once a month and going over your credit history, your credit habits, and your debts can confirm that you are in control of your finances or highlight areas for improvement. You may think that a credit card will overrun your life and automatically condemn you to a lifetime of debt, but hopefully, your self-audit will show you otherwise. This self-audit should also be a learning process. You may not have great results after one audit, but that can be seen as an opportunity for personal financial growth. Again, you need to be willing to learn from both your mistakes and successes.

Have Confidence

Handling credit cards and finances with confidence can be a challenge. After all, if it were easy, everyone would have good credit and zero debt. Fortunately, there are ways to become confident with your credit card usage. If you develop and maintain good credit habits, do your research, and learn from both yourself and others, you will see your anxiety and fears disappear over time. You should remember that you are in charge of your financial future. Obviously, life can be difficult and throw challenges your way, but in the end, you are the one who uses the credit card; it doesn’t use you. Although having bad credit can be scary, you should keep in mind that it can be fixed. Fixing your bad credit does take time and money, but will definitely prove worthwhile.

If you’re concerned about your credit, learn about your options. Contact us today to learn more.

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The Difference Between a Bank and Credit Union

BY Ashley Dull

The first US bank was established in 1791 and was, rightly enough, called the First Bank of the United States. Although the First Bank closed its doors just 20 years later, it paved the way for dozens of major banks, hundreds of small community banks, and hundreds more local credit unions in America.

But while both banks and credit unions ostensibly perform the same services — namely providing checking and savings accounts, credit cards, and loans — the quality, variety, and cost of those services can vary greatly depending on the type of institution with which you bank.

Differences in Fundamental Structure

Overall, the main differences come down to the fundamental structure of each financial institution. Banks and credit unions are vastly different types of organizations, with different objectives and methods of reaching them.

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For the most part, banks tend to reflect the American corporate cliché of a business operated by a board of directors with shareholders to whom they must answer — and show a profit. Banks are generally obligated to pay its shareholders and investors, and it’s with those few that the bulk of the bank’s profit typically winds up. The goal of a bank is to make money.

Credit unions, in contrast, are cooperative institutions, meaning each credit union is owned (and controlled) by its members. Profits from credit unions are thus funneled back into the organization — and its members — rather than the pockets of investors. This doesn’t mean members receive a check each year, but rather, profits are returned to them through lower rates and fees. The credit union’s goal is to provide affordable banking services to its constituents.

Each Has Pros and Cons

Lower rates and fees are just one of the pros of banking with a credit union. Because credit unions don’t have to answer to shareholders and consultants with their eyes fast to the bottom line, they also tend to have more flexible credit requirements for their products than larger institutions. This can mean you’re more likely to get approved for auto loans or credit cards from your neighborhood credit union than the Big Bank down the road.

At the same time, since the credit union’s main goal is meeting the needs of its local community, that’s where it’s focus will tend to be. Members often need to meet certain eligibility requirements, such as residency in the community. Additionally, credit unions don’t typically establish branches or ATMs outside of its local area.

The diminutive nature of a local credit union also limits the number of financial products they can offer, particularly for those with larger portfolios to invest. For example, your average credit union may only offer one or two credit cards and may not have high-net-worth wealth management experts on staff.

Banks, on the other hand, have an eye to profit, so they often work toward reaching as a broad an audience as possible. This means your average Big Bank has an abundance of branches and ATM locations to ensure convenient access, some offering services worldwide. Banks are also more likely to participate in online lending networks, like those found on BadCredit.org, which are used by those looking for multiple loan quotes at once.

Additionally, banks tend to provide the widest range of financial products (Chase alone has over a dozen credit card options) and can have a wealth of options for those with, well, a lot of wealth.

Of course, there’s another side to that thirst for profit than just a lot of ATMs. It also means you won’t get the same low rates and fees with a bank as with a credit union. Nor will you typically find that credit-union flexibility in a bank’s credit requirements for its financial products (unless it is specifically a subprime-focused bank).

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Demystifying 11 Complex Credit Terms

BY Dan Francom

demystifying credit terms

Credit can be complex and confusing. When you’re applying for a loan or credit card, the process can be intimidating — especially when unfamiliar terms start getting thrown around. While some terms are self-explanatory, others can be a bit more ambiguous.

Getting familiar with some of the terms you will encounter in the loan or credit card application process can be beneficial in getting the best loan terms and ensuring you are entering into credit agreements that are favorable for you. Depending on your credit score, of course, you will be eligible for more favorable loan terms and lower interest rates.

Let’s take a look at 11 common credit terms you’re likely to encounter in the process of a credit application scenario.

  1. Interest rate

    An interest rate is a percentage of the principal balance your lending institution charges you for borrowing the money. Many factors go into determining a borrower’s interest rate, including credit score, the risk of default and inflation, as well as the length of the loan.

  2. Annual Percentage Rate (APR)

    APR is an annual rate that accounts for the interest and other fees paid on a loan or credit card balance. This percentage varies based on the bank or lending institution.

  3. Billing cycle 

    A billing cycle is essentially the number of days between statements on a credit card or loan account. The length of this cycle is typically between 20 and 45 days and is at the discretion of the credit or loan provider. The credit card company or loan institution provides the borrower with a statement once the billing cycle ends. Some lenders will allow the consumer to request a different billing cycle than what is offered.

  4. Minimum amount/payment due 

    Minimum amount due is the monthly payment a borrower must pay to keep their account current and in good standing, avoiding late fees. The amount of this payment can be fixed or variable based on the outstanding balance on the account. The former is more common on installment loans, and the latter is more common on revolving credit accounts. It’s important to remember, especially with credit cards, that making only the minimum payment won’t yield fast results in paying off a balance, and the longer you carry any balance on a card, the more interest you’ll be paying.

  5. Payoff amount

    A payoff amount is the total dollar amount that has to be paid to satisfy a debt. Payoff amounts are often more than the principal balance because they include any unpaid interest, late charges or fees. If you are ready to pay off a loan, it’s important to contact the lender to get the correct payoff amount, because interest compounds daily, so that figure is always changing.

  6. Mortgage insurance

    Mortgage insurance is completely separate from the insurance borrowers are required to carry on a home in order to secure a loan against it. Mortgage insurance is designed specifically to protect the lender in the event that a borrower defaults on the loan. Mortgage insurance is required in all states for borrowers who have less than a 20-percent equity stake in their home.

  7. Down payment

    Down payments are an initial one-time cash payment that is put towards a loan at the beginning of the application process. For mortgages and auto loans, a down payment is typically a percentage of the full loan amount. While auto loans don’t always require a down payment, mortgages nearly always do. The smallest down payment options are attached to FHA and VA loans, which require between 3 percent and 5 percent down, with special programs available to make down payments as low as 1 percent available to qualified buyers. Conventional loans require 20 percent down in order to avoid mortgage insurance.

  8. Principal balance

    The principal balance is the unpaid portion of a loan or credit account excluding interest and fees. Your loan agreement should clearly define the amount of your monthly payment that goes toward principal and what goes toward interest and other fees.

  9. Refinance

    Refinancing allows you to move debt to a new loan and/or change the terms of an existing loan. For example, many consumers refinance their mortgage loans, using their equity to pay off other loans such as credit cards, and/or to secure a lower interest rate or shorten the term of the new loan. It’s important to calculate the associated fees to ensure that the overall benefit warrants refinancing. In addition to mortgages, consumers can often yield benefits from refinancing student loans and car loans. This is often especially beneficial after credit repair efforts have raised a previously low credit score.

  10. Cosigner

    A cosigner is someone other than the primary borrower who assumes risk for a loan along with the primary borrower. Adding a cosigner to a loan is a way to increase the odds of approval, particularly if the primary borrower doesn’t have substantial income or a high enough credit score to qualify on his or her own. Cosigners are equally responsible for repaying the debt on which they’ve signed and are therefore putting their own credit score at risk if the primary borrower makes late payments or defaults on the loan.

  11. Collateral

    Collateral is the asset or property used to secure loan repayment. Collateral value must be equal to or greater than the loan amount. The asset or property is then at risk of seizure (or repossession in the case of a mortgage or auto loan) by the lender in the event that the borrower defaults on payments.

Understanding these credit terms can remove some of the anxiety associated with the credit application process and help you manage your credit more effectively. If you’re struggling to qualify for any type of loan and wondering how to fix your credit you may benefit from working with a credit repair professional. Lexington Law offers a free credit report summary and consultation. Contact us today to get started.

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Understanding Good Debt vs. Bad Debt

BY Mark Andrus

Good and Bad Debt

Debt. It’s one of those words that has an inherently negative connotation. In fact, it often gets a bad rep. For the most part, we as consumers believe that all debt is bad debt. But that’s not entirely true. Not all debt is created equally, and when it comes to building your credit history — and raising your credit score — some types of debt are more beneficial than others.

Of course, being too deep in debt is never good, no matter what types of credit accounts you have. Let’s take a look at some of the types of debt that can actually be a boon to your credit score and credit history.

What’s in the ‘good debt’ category and why?

Good debts are those that help you establish credit and show that you are financially responsible. For example, a mortgage loan that is paid on time each month is one of the main credit accounts that can help you to build up your credit. Mortgage loans, which are repaid over 15, 20, or 30 years, show longevity in financial responsibility. Because payment history accounts for 35 percent of your credit score, the longer you have a loan and make timely payments, the better it reflects on your score.

Debt that helps you to generate income or increase your net worth is also viewed as good debt. Student loans fall into this category, for example. Education in general increases a person’s potential for better employment opportunities and higher earnings. An investment in a degree is likely to pay for itself within five years or less of the loan recipient entering the workforce. Over the course of a lifetime, there is a huge potential for significant ROI on that educational investment.

Of course, to make a student loan a positive on your credit, it’s imperative to make all payments in full and on time until the loan is satisfied.

Oldies, but goodies

For the same that long-term loans like mortgages are good for your credit, old debt also falls into the category of good debt. Again, this goes back to payment history. Still, many consumers mistakenly believe that they should close a credit account the minute it’s paid off. So, before you call the bank or credit union to close that car loan account you’ve just paid off, keep in mind that closing an established account just because it’s paid off can actually drag your credit score down.

As long as the account has a good payment history associated with it, it will have a positive effect on your credit score. Remember, the longer your history of good debt, the better.

As John Ulzheimer, a nationally recognized credit expert formerly of FICO and Equifax put it, getting rid of old good debt “is like making straight As in high school and trying to expunge the record 20 years later. You never want that stuff to come off your history.”

Credit cards can also fall into the good debt category, so long as they carry low interest rates and you don’t max out the balances. Overall, your credit card balances should never be higher than 30 percent of the total credit limit available. Once they exceed this level it can start to drag your credit score down.

Diversity is also good

No matter how much or little debt you carry, it’s important to have a mix of credit accounts in your name because credit account diversity accounts for 10 percent of your credit score. Smart planning shows financial responsibility, and spreading out your spending is a great way to illustrate this. Lenders want to see your experience with numerous credit types.

Just be sure that you don’t overextend yourself with too much open credit or too many payments to maintain. Payments can add up quickly when you have multiple loans and credit cards. Many consumers quickly get in over their heads and end up damaging their credit. If you are struggling with how to fix bad credit, you can benefit from talking to a respected credit repair company.

At Lexington Law, we offer a free credit report summary and consultation. Even if you don’t need credit repair services, an evaluation can help you to understand what’s contained in your credit report and determine which accounts are helping — or harming — your overall credit score. Contact us today to get started.

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How Marriage Can Impact Credit Score

BY Jenn Hanson

marriage and credit score

Marriage comes with a whole new set of commitments, but does saying “I do” to your betrothed also mean taking on their credit history? Does marriage mean you accept your partner in sickness, in health, and even in low credit score?

The good news is that marriage does not impact your credit score — positively or negatively — even if you change your surname. Credit reports are tied directly to your social security number, which does not change with marriage. So while you may be joining two lives, each partner retains their separate credit history after they walk down the aisle.

But, that doesn’t mean marriage can’t indirectly affect your credit score. Read ahead to learn how marriage can affect your credit score to ensure holy matrimony doesn’t lead to alimony.

Making Joint Purchases

Shopping for big ticket items like a new house means both of your individual scores factor into the loan application. So, if one or both of you have low credit, it can bring down the qualifying amount, increase interest rates, or prevent you from receiving a loan entirely — regardless of how high the other score may be.

Before you start shopping, sit down together and review each other’s credit history. It prevents surprises and gives you an opportunity to resolve any issues. If one or both of you have less than desirable credit, consider deferring the purchase and seek credit help. Improving your credit will net you better loan terms.

Also, when you purchase jointly, it goes on both of your credit reports, so if one of you misses a payment on the shared loan, it will appear on both records. The spouse with the best credit does have the option to secure the loan in just his or her name, but keep in mind this means that one partner will shoulder the burden, and all transactions — for better or for worse — will appear on their report alone.

Merging Assets

Couples often merge finances like bank accounts and credit cards since it’s easier to maintain. Before you go down this road, remember that the health of merged assets appear on both partner’s credit history. So if you have a shared credit card and one of you decides to max it out and skip payments, both of your reports will suffer no matter who’s responsible. If you live in a community property state, the debt acquired while you were a couple is viewed as joint assets and subject to those rules.

If you do decide to merge, consider keeping one credit account in just your name. This gives you options to trigger in an emergency, and, in situations like divorce, provides a foundation on which to build new credit.

No matter what your credit rating is, it’s wise to review your report quarterly and file any disputes with each credit bureau. It’s best to report errors in writing, so you have a paper trail as reference.

Learn more about our credit repair services, as well as 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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