Author: Mark Andrus

How to Plan a Summer Vacation you Can Afford

summer vacation

With summer quickly approaching, most of us are itching to get away from the hustle and bustle of daily life, even if just for a few days. However, those of us who are deep in the heart of credit repair might feel the strain on our financial resources if we jet off to Cancun for five days.

However, this does not mean you cannot afford to take a vacation this summer. You just have to be smart about how you plan it, and where you go. Here are some ways to plan an affordable summer vacation that will not leave you penniless.

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Understanding Good Debt vs. Bad Debt

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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Does a Student Loan Deferment or Forbearance Impact Your Credit?

student loans

There’s no denying that getting a college degree is one of the best things you can do to pursue a prosperous future, but this professional head start can come at a steep cost. Over the past few years, student loan debt for the country has topped $1 trillion, leaving over 40 million Americans in a serious financial predicament.

Unfortunately, accompanying the ever-increasing mountain of student debt is the avalanche of loan delinquency. Recent graduates accustomed to the college lifestyle, often without the means to repay debt, are being severely ensnared in an endless cycle of late payments and possible default. While the future of a college education hangs in the balance, today higher education is still a necessity that often leads to significant debt for many Americans each year.

Don’t let student loans ruin your FICO score before you even get a chance to build credit in the first place. If hard times come knocking after graduation, loan deferment or forbearance are viable safeguards against overwhelming loan payments.

Deferment vs forbearance

If you’re having trouble making ends meet due to student loan payments, loan deferment or forbearance can offer some temporary relief. With that said, it’s important to recognize the difference between these two payment reprieves before taking action.

Deferment and forbearance both effectively put your minimum loan payments on hold in instances of economic hardship. A key distinction between these two options is whether interest continues to accrue:

  • Deferment: For government-subsidized loans, interest payments are suspended. Deferment is more difficult to qualify for, but will save you money on interest as it will not accrue during the time of deferment.
  • Forbearance: Your monthly loan payments may be reduced or put on hold, but you will continue to accrue interest on the outstanding balance of the loan regardless of the forbearance.

Both options offer a safety net for individuals in over their heads in a sea of student loan debt, but does this financial relief come at a cost to your credit score?

Does deferment or forbearance negatively affect credit?

If the cost of student loan payments is too overwhelming, don’t hesitate to seek out deferment or forbearance, especially since it will have less of an impact on your credit score than would a reported late pay or defaulted loan status.

A common misconception is that pausing student loan payments will wreak havoc on your credit. In reality, suspending payment through deferment or forbearance should not significantly impact your credit score but may create some volatility once the loan status is updated to reflect the requested change. Meanwhile, not making loan payments that you can’t afford and running the risk of late payments is far more costly to your credit score than putting loan payments on pause.

The importance of credit repair

While loan deferment or forbearance are good options to help you protect your overall credit if needed, chances are there are other financial factors at play that affect your ability to pay your bills and thus threaten your credit score.

If you’re not meeting your financial goals, it might be time to conduct an in depth review of your credit score. After all, a less-than-stellar credit score can negatively impact overall financial security from high interest rates to the inability to secure a loan.

If poor credit is impacting your ability to achieve financial success, consider learning more about the credit repair process. For more than 20 years, Lexington Law has helped consumers improve their understanding of their credit score while distinguishing itself as a leader in the credit repair industry. If poor credit is inhibiting your ability to pay off loans or stands in the way of financial goals, contact Lexington Law today.

 

 

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4 Reasons to Cancel a Credit Card

cancel credit card

If you’ve spent more time in your life learning algebra than you have learning about how credit works (just like many of us), going through the process of credit repair can be very educational. You may have learned that you should never cancel a credit card. However, there are some exceptions to this rule.

In many cases, it’s not necessary to cancel your credit card, even if you never use it. The longer a credit card is listed as an open account on your credit report, the more it can help you maintain a good credit score. We are judged often on our length of credit history, and a low or no balance credit card can help with that. However, there are some good reasons to cancel your credit card. Here are four cases when it’s appropriate to do so:

  • Divorce

    This is one time you probably not only want to cancel your credit card, but you may need to do so, particularly in the event of a non-amicable divorce. Sometimes couples can run into financial hardship when they divorce, leading to a major dip in both of their credit scores. Depending on the divorce decree, one party may agree to pay the credit card debt, or it can be split in various ways. If there is no outstanding balance, then the best solution may be to cancel the card and avoid any potential trouble down the road.

  • Rising Annual Fees

    We always run the risk of incurring fees whenever we sign up for a credit card. However, sometimes those fees can rise to an exorbitant amount, leaving you frustrated with your credit card company. If you check your credit card agreement, the company likely snuck in a note about reserving the right to do this in certain situations, even if it doesn’t seem fair. If this happens, you are well within your right to cancel your card, especially if doing so will save you money in the long run.

  • Self-Control

    Many people experience difficulty when it comes to spending, and if you are one of them, you may want to consider limiting the ways you can spend yourself into debt. If you have multiple credit cards and can’t seem to stop putting charges on them, then save yourself some trouble and consider canceling it. Just make sure that it has a zero balance when you close it, or else it will impact on your credit score by placing a negative item on your credit report.

  • Competitive Rewards

    Even the most responsible among us might not turn down a credit card offer, especially if it comes with enticing rewards such as double miles, cash back on every purchase, or no annual fees. If you’re unhappy with your current credit card company and get a better offer from another, then it may serve you well to cancel your current card after receiving the new one. Some credit cards also offer zero interest on balance transfers, which may assist you with paying your credit debt down more easily, especially on cards with high balances and high interest rates.

So while it may not always be wise to cancel your credit card, there are some times when it’s not only acceptable, but may actually be a better financial option for you. However, the biggest reason for keeping your credit card open is to build a stable, positive credit history. So, make sure to do your research and weigh the pros and cons before you make a decision. For more helpful tips on repairing your credit, visit www.lexingtonlaw.com.

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Realizing Your Credit Repair Resolutions in 2018

credit repair resolutions

It’s a new year once again and resolutions abound. Maybe you’ve decided it’s time to get in shape, or to make this the year you find your dream job. If you racked up a lot of debt over the holidays, improving your credit is probably at the top of your new year’s resolutions list for 2018.

If your credit score is in the low or poor range, improving it can feel like a daunting task, but there are some major benefits to boosting your score. Among the most notable, a better score will make you eligible for lower interest rates on credit cards and loans, in turn helping you to get out from underneath all of that holiday debt. A higher credit score can also factor into many other parts of your life that you may not even be aware of — including helping you to land that job.

So if you’re ready to make better credit a reality in 2018, here are some simple steps to begin boosting your score.

Check your credit report and score

The first thing you need to do before you can begin making meaningful strides to fix your credit, is to find out exactly what’s on your credit report. You are entitled to receive a free copy of your credit report from each of the three credit bureaus annually.

Once you have copies of your credit reports, review them thoroughly and note any items that you believe are inaccurate, or any old items that you believe should have fallen off of your report by now. Anything that is inaccurate and is negatively impacting your credit will need to be addressed, and you may need to initiate a credit dispute. By getting inaccurate negative items removed from your credit report, you’ll be on your way to increasing your credit score.

With a clear picture of all of your accounts and debts, you can use this information to take additional actions to fix your credit, including:

Reducing your spending to pay down debt

Credit cards with high balances are a key factor that will have a negative impact on your credit score. That’s because your debt and credit utilization make up to 30 percent of your credit score. This means that if you have a credit card limit of $1,000 and you are using more than $300 when your lender reports your outstanding balance to the credit bureaus then your score will likely decrease. Even if you’re making your minimum payment on time, you likely won’t see your score rise. If you want your score to improve, you’ll need to find some other areas where you can cut your spending this year and apply that money to paying down high balances. If you’re not sure where to start, list your debts from lowest to highest and start by tackling your lowest-balance accounts first. When you pay off the first account, apply everything you were paying to that card or account to the next-highest balance, and so on.

Make all of your payments on time

Making your payments on time is the most important thing you can do to improve your credit. In fact, payment history accounts for up to 35 percent of your credit score. While some late payments are not reported to your credit account — say, a utility bill that gets paid a week or more late — most other accounts are. Mortgage, auto loans, and credit cards report to the credit bureaus when a payment is 30 days late. You’ll also be hit with a late fee on many accounts that aren’t paid in a timely manner. That’s just more money out of your pocket and that payment ultimately ends up costing you more in the long run.

Determine whether or not you may need to establish credit

If you haven’t established any credit accounts or just have a couple, this can also reflect negatively on your score. Credit history is used to determine future creditworthiness because it provides a record of how you’ve handled credit in the past. It accounts for 15 percent of your overall credit score. If you haven’t established credit, you may want to consider applying for a credit card that has a low limit or even a higher interest rate than you’d prefer because without credit cards you have no revolving credit account history and no utilization ratio. These cards are often easier to qualify for and, when used wisely, can help you build credit and boost your score.

Carefully select which credit applications you submit

Each time you apply for an extension of credit a hard inquiry appears on your credit report. Research which creditor will offer you the best interest rate and the most appropriate line of credit. If you have three or more hard inquiries within a 12 month period, your score will likely drop.

Settle any defaulted loans

If you have any loan or credit card defaults on your credit report, these items need to be resolved as soon as possible. Defaults, foreclosures, or bankruptcies have a severe negative impact on your score and the process for removing them can be complicated. It’s a good idea to work with a legal credit repair professional to find the best course of action for resolving these issues.

Consider enlisting the help of a reputable credit repair firm

If you’re serious about improving your credit in 2018, working with a firm that is knowledgeable and experienced in credit repair is critical to achieving that goal. Lexington Law clients saw 9 million negative items removed from their credit reports in 2016 and learned how to better control their credit. Contact us today at 1-800-608-8004 for a free credit report review and consultation.

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