Author: Sarah

What Happens To Your Credit When You Withdraw Cash From Your Credit Card

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Credit is an important part of financial health. It can help you buy a car or home, pay for college, and even qualify for a new job. While credit can be used as a tool of success, it can also lead to unwise and damaging choices.

Money trouble can be stressful, especially when you need it fast, and you might be considering a cash advance to cover your needs. Is it the right choice? Read on for all the details.

Can I Withdraw Cash from a Credit Card?

Probably. While it depends on your issuer’s policies, most credit cards provide a cash advance option, allowing you to withdraw liquid funds from your account.

Is a Cash Advance a Regular Charge?

No. Cash advances usually come with their own terms and conditions, and you can expect to pay more in:

  • Fees: Most credit card issuers impose a cash advance fee: either a flat rate or a percentage of the cash amount. For example, the Chase Freedom card charges $10 or 5% of the transaction amount.
  • APR Interest Rates: The same Chase Freedom card charges 23.99% on cash advances (the standard rate for all other charges varies between 15.49%-24.24%). Cash advances also have no grace period, which means that interest immediately begins accruing on the balance.

Will It Hurt My Credit?

A cash advance won’t damage your credit on its own, but the aftermath is another story. For example, suppose you use your Chase Freedom card to withdraw a $1,000 cash advance. Your account is immediately charged a 5% transaction fee of $50. You need the money to cover emergency car repairs, and you cannot repay the balance at the end of the month. In fact, six months pass before you have the funds to tackle your debt. By this point, your balance has ballooned from $1,050 to $1,184, increasing your credit utilization ratio. Unfortunately, you must use emergency savings to repay it, once again putting you at risk for surprise expenses and credit damage. If improving your credit score is a top priority, think carefully before pursuing a cash advance.

Are There Other Ways to Secure Cash?

Relying on credit for cash isn’t a wise choice, and should only be used as a last resort. If you need money fast, there are a few ways to get it without going into debt.

  • Quick Delivery Jobs: Delivery services like Amazon Prime Now and DoorDash are always looking for new employees nationwide, and you can earn as much as $25 per hour making simple deliveries.
  • Clean Out Your Closet: Take advantage of unused electronics, clothing, jewelry, etc. by selling it online for a quick profit.
  • Lessen Your 401(k) Contribution: Saving for retirement is a wise choice, but you might consider temporarily changing your 401(k) contributions if you need liquid funds. Talk to your employer’s HR department about how to make changes to your direct deposit accounts.
  • Use Home Equity: If you’re a long-time homeowner, you may qualify for a home equity loan or line of credit. This strategy allows you to borrow against the value of your home and pay it back over time with a variable rate (i.e., home equity line) or fixed interest rate based on your FICO score (i.e., home equity loan). Talk to a financial planner about which choice is right for your situation and credit score.

If you want your credit situation to improve, 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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The Dos and Don’ts of Dealing With a Collection Agency

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No one is immune from credit-related woes—I speak from experience. This week I received a call from a collection agency in Chicago. They claimed I owed $863 in unpaid medical bills, and the representative was eager to get his hands on payment. The call itself was a mistake—I paid the bill months ago—and yet, I was being asked to provide my credit card number over the phone to avoid a vague threat of “further action.”

It’s difficult to know how to move forward in a stressful situation that involves credit. Whether you receive a collection call in response to overwhelming debt, a forgotten bill, or by clerical error, it’s important to take it seriously. An account in collection status can severely damage your credit score and remain on your credit reports for up to seven years. Thankfully, the Fair Debt Collection Practices Act (FDCPA) provides federal guidelines for debt collectors to follow—a law that protects consumers from unfair, deceptive, and abusive actions. Exercise your rights by practicing these do’s and don’ts. They will help you navigate the debt collection process.

Do Ask for a Validation Notice

Debt collectors are required to provide a validation notice within five days of making contact with you. The notice must include several important pieces of information:

  • The name of the creditor you owe
  • The remaining balance owed
  • How to respond to pay the debt
  • How to respond if you plan to contest the debt

Debt collectors that cannot provide this information don’t have the power to collect unpaid funds from you. Learn more about debt validation here.

Don’t Provide Payment Over the Phone

Identity theft is a common occurrence in today’s world, and it’s easy to fall victim to a scammer posing as a debt collector. While you may feel pressured to pay the mysterious balance immediately, don’t provide your credit card number or other sensitive information over the phone. Instead, tell the representative that you’d rather communicate by mail. A legitimate collection agency is required to provide written correspondence when asked, and verifying their legitimacy is your first priority.

Do Assert Your Contact Preferences

The FDCPA provides provisions for consumers dealing with collection agencies, including your preference for how they should contact you. While most people believe harassing phone calls are unavoidable, you actually have the right to communicate by mail only, and a debt collector cannot contact you by phone again if you notify them in writing to stop. They also cannot contact you before 8 a.m. and after 9 p.m. local time or harass you at your place of work. If you receive an unwanted call, make it clear that you would rather communicate via mail or email only.

Don’t Be Intimidated by Threats 

Collection agencies aren’t allowed to threaten you in order to recoup debt, but that doesn’t mean some won’t skirt the law with intimidation. Don’t be fooled. Regardless of your financial situation, debt collectors cannot have you arrested, publish your name in the newspaper as an unpaid debtor, use profane language, threaten violence, seize your property without a court judgment, etc. Restate your contact preference and write down any threats you receive before ending the call.

Do Consider Working with a Lawyer 

Every consumer has the right to represent themselves in credit-related matters, but if you’re feeling overwhelmed, it might be beneficial to seek legal advice. In addition to working with the collection agency on your behalf, a trained credit repair lawyer can assess the merits of the debt collector’s claims, draft responses, and help you minimize credit damage in the process. You have rights and you have options. When it comes to financial health, choosing the best course could make a huge difference.

If you have questions about collections, or are worried about your credit, 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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What’s the Difference Between an Educational Score and a FICO Score?

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Building credit strength is a delicate balance of time, strategy, and information. When it comes to the latter, accuracy is crucial, especially concerning your credit scores. For instance, suppose you plan to buy a new house by the end of the year. Your mortgage broker friend suggests raising your credit score to at least 720 before applying for a loan. She explains that a higher credit score qualifies you for a lower interest rate, which will reduce your monthly payments and the long-term cost of your mortgage. So, which score counts? You’ll find the answers here.

What is an Educational Credit Score?

An educational credit score is based on a private lender or credit bureau’s ranking of your financial information. For example, the PLUS score was designed by Experian and uses your bureau-specific credit report to tally a score from 330 to 830. The purpose of educational credit scores is to provide you with a basic idea of your risk level and creditworthiness.

Are Educational Scores Used By Lenders?

No. Although they are designed to measure credit risk, educational credit scores are not used by lenders. Models like the PLUS score are meant for consumer use only, which means that they are not considered when lenders review your loan application.

What is a FICO Score?

The FICO scoring model is used by more than 90 percent of lenders. Developed by the Fair Isaac Corporation (FICO), your traditional FICO score is graded on a scale of 350 to 850, while industry-specific FICO scores are measured on a scale of 250 to 900. Your score is based on five factors: payment history, debt utilization, credit length, new credit, and types of credit used.

You have several FICO scores, but in general, the average lender will review the three scores based on your TransUnion, Experian, and Equifax credit reports.

Where Can I Check My FICO Scores?

Many websites advertise FICO score purchase options, but when you’re planning a financial move, it’s best to go straight to the source. “MyFICO.com is the only place where consumers can access all three FICO Scores based on Equifax, Experian and TransUnion data,” the FICO team said in a statement. Your scores can be purchased directly from the website.

You may find educational scores that model the FICO scoring method from the following sources:

  • The Credit Bureaus: TransUnion, Experian, and Equifax all sell credit scores to consumers, and some provide regular updates when you sign up for their ongoing credit monitoring services.
  • Your Credit Card: Many credit card members receive access to their educational credit score as a monthly perk.

Which Score Should I Check Before Applying for a Loan or Credit?

When it comes to learning the facts yourself, you should always rely on the credit score used by your intended lender. “Before getting a loan for a major purchase, such as a home, you should check all three of your FICO scores,” the FICO team said. “Most lenders will look at all three FICO scores—one from each major credit bureau—when evaluating your loan application.”

Reviewing your credit scores can be confusing, and it’s a good idea to familiarize yourself with the FICO model and understand how your lender analyzes loan applications. The result could save you a lifetime of excessive debt.
Learn how you can start repairing your credit here, and 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 to Choose the Right Credit Card

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For many, choosing a credit card is a reflection of identity. It can help you pay for the things you need, enhance the things you love like traveling, and with time, it can improve your credit score. So, which credit card is right for you? Choosing a new card depends on a few factors. Take these steps before you apply.

Check Your Credit Score 

The first step is to learn which credit cards you qualify for. “You might want to check your credit score before searching for credit cards, as some are only available to those with good credit,” David Bakke of Money Crashers said. You can view your TransUnion and Equifax credit scores for free on our website here. It’s also wise to check your credit reports to ensure that your accounts are reported accurately and there are no errors that could impact your scores. You can also access your free reports once a year through Annual Credit Report. 

Decide How You’ll Use It

Once you know your credit score and the cards you qualify for, consider how you’ll use your card to narrow your focus. A few ideas include: 

  • Credit Score Improvement: If you’ve struggled with credit damage in the past, it’s a good idea to choose a card that can help you get back on track. Secured credit cards allow you to pre-load cash like a debit card to use for purchases. That said, your account activity is reported to the credit bureaus like a credit card with the same benefits of positive use. A successful trial period may also qualify you to convert your account to standard revolving credit.
  • Rewards for Everyday Purchases: Some cards offer rewards and cash back on necessity purchases like groceries and gasoline. Review your budget to highlight the big-ticket items; you may find a card that can help you save.
  • Investments: Some investment firms offer credit cards that allow you to funnel rewards into a retirement account or a college savings plan. This strategy frees up money in your budget while also helping you to focus on the future.
  • Airline Miles and Travel Perks: Some credit card issuers partner with airlines to provide miles and amenities to frequent flyers. Plan your trips and choose a card based on destinations, preferred airline and other travel factors. “Plenty of cards have generous sign up bonuses,” Bakke said. “And if travelling internationally, look for one with no foreign transaction fees.” 

Choose Long-Term Use

It’s tempting to open a credit card that offers short-term rewards or discounts, but it’s better to choose something that offers long-term benefits. The reason? Closing an account down the road could hurt your score and undo your efforts to improve. A lower credit score could impact your ability to secure a low-interest loan, finance a home or car and even open new credit cards.

Avoid Fees and APR 

The benefits of a credit card can amount to nothing if they are overshadowed by annual fees. Financial planner Jay Schurman of the Lincoln Financial Group advises clients to weigh their options carefully. “Do you really need a credit card that has a yearly fee?” he said. “They have to give you something of greater value than the fee or this is a bad deal.” Do the math before allowing upscale perks to persuade you.

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5 Painless Ways to Cut Expenses in 2017

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Spending money is complicated; at least, that’s what our brains tell us. According to a Capital One Bank survey, 54% of Americans feel happy when they save money, and yet, 25% struggle to keep up with their monthly bills. Feeling motivated to save is tough when your wants and needs are at war, and let’s be honest: You aren’t likely to afford a home or save for retirement by kicking a Starbucks habit. Big changes require bigger savings. The good news is, there are a few painless ways to accomplish your goals.

  1. Track Spending: It’s difficult to cut expenses without a plan. Creating a budget is the fastest way to gauge financial strength and learn how to save. Download your free budget template
  2. Embrace Eco-Friendly Living: Saving money doesn’t always require a lifestyle change. In fact, it’s possible to cut costs and help the environment with a few basic steps. “Get a home energy audit conducted on your house through your energy provider; most do them for free,” David Bakke, financial blogger and owner of Money Crashers said. “Also, only run full loads of laundry and dishes.”

Take your efforts further by investing in a smart thermostat and Energy Star products that provide eco-friendly designs, monthly bill savings and even product rebates for mindful consumers.

  1. Negotiate Revolving Expenses: The average American household spent $103 per month on cable in 2015 according to a survey conducted by Leichtman Research Group. Even if you aren’t willing to cut the cable cord, there’s still room to cut costs. “You won’t get a discount without asking,” Andrew Marshall, a San Diego-based financial planner said. “Call your cable company, your phone provider and other companies with bills you want to pay less for and ask for a discount.  I recently had $80 taken off my monthly cable bill for being a longtime customer.”

Other experts suggest leveraging the competitive marketplace to slash fees in addition to your monthly bill. “There are so many TV alternatives; having a station that only has one program on at a time almost feels archaic. Ditch it,” Michael Newcomer, vice president of Retirement Advisory Consultants said. “Some carriers even eliminate taxes and fees, making it easy to budget phone and internet prices every month.”

The lesson: Everything is negotiable. Contact your service providers and communicate your budgetary needs.

  1. Clear Away Clutter: Financial dissonance can be as stressful as physical clutter. According to Phil Risher, the voice of Young Adult Survival Guide who paid off $30,000 in student loans in 12 months, there are a few ways to spring clean your spending. “As you question your expenses, ask yourself: Why do I have it? Does this fit with my goals in life? Will this change my life if I get rid of it?” Judging expenses based on emotional value could ease the pain of cutting back. Consider changing your perspective as you redefine necessity.
  2. Read the Fine Print: Automated bill pay has made life more convenient, but it has also created a risk of abuse. Mobile apps like FeeBelly sniff out hidden fees associated with paying off loans early, buying a plane ticket, transferring money and other transactions. Once identified, you may be able to have them waived or choose another provider who doesn’t impose the same costs.Similarly, other apps like Prosper Daily take the mindlessness out of spending by illustrating costs by frequency. “It highlights your recurring purchases,” said Jared Franklin, product manager for the financial tech company, Blispay. “It’s a good way to see a bunch of those annual $20-30 services you pay for, but don’t use much. I identified a few services this way that I cut ties with.”

Saving money isn’t always easy, but it doesn’t need to be painful. Take advantage of creative saving opportunities as they arise. The result can help you plan for emergencies, invest for the future and focus on credit health.

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