Author: Sarah Szczypinski

10 Habits of Financially Secure People

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Income isn’t a direct factor in credit scoring. That said, financial management plays a vital role in your ability to pay bills, reduce long-term debt, save, and avoid credit damage. If you crave the taste of financial freedom, adopt these habits followed by the financially secure.

  1. Save As Much As Possible:

    It’s not flashy or even fun, but saving as much as possible can help you create financial safeguards now and in the future. Begin with:

    • Income: Saving for emergencies and for long-term retirement is crucial. Talk to your financial planner about how to split your savings into liquid and growth accounts, and consider using direct deposit. This strategy allows you to automate the saving process in order to achieve your annual goals.
    • Necessities: The financially savvy aren’t blessed with luck: they simply know how to use their resources. From negotiating lower service prices to using coupons for every purchase, there are several ways to save on your monthly bills. Don’t miss an opportunity to preserve your income.
    • Interest Rates: Borrowing money is usually unavoidable when it comes to buying a home or car, but it’s a good idea to think twice about paying interest on affordable items. For example, rather than charging a $1,500 sofa on your credit card, why not save and pay cash rather than accruing unnecessary interest?
  2. Change Your Credit Perspective:

    You view credit as a tool rather than a bottomless bank account. You don’t carry revolving balances from month to month and you pay attention to your budget. You understand that a high credit score can open financial doors and provide savings where none existed before. You’re no stranger to ordering free annual copies of your credit reports and reviewing your credit scores to spot room for improvement.

  3. Pay Off Your Credit Balances:

    As a tool, you understand that credit use should never become a burden. You are committed to assigning expenses to each credit card and paying off your balances every month to establish positive habits.

  1. Be Proactive…About Everything:

    When it comes to life, nothing gets past you. You visit the doctor for annual check-ups. You never miss a car tune-up. When your bills arrive, you pay them immediately. Put simply, you are proactive about everything. While this may sound exhausting to some, it also eliminates your chances of losing money to unexpected circumstances.

  2. Live Below Your Means:

    Affordability is relative, and it’s wise to keep an eye on your long-term goals rather than using all your extra cash on unnecessary expenses. Sure, you can afford a 3,000 square-foot home, but 2,500 square feet will suit your family just fine. You’d rather give your budget a little wiggle room to avoid financial risk and potential credit damage.

  3. Don’t Be Enticed by Labels:

    Keeping up with the Joneses is an expensive pursuit, and it’s easy to drown in debt in the process. Financially secure people understand that living large comes at a greater cost. You temper expensive taste by mixing affordable things with a few prized items to create balance in your life.

  4. Prioritize Health:

    Less than 3% of American adults live a healthy lifestyle according to a 2016 Mayo Clinic study. Diet, obesity, alcohol abuse and smoking all contribute to poor—and costly—health conditions. While you may not be a star athlete, you take care of yourself and seek preventative and active treatments for your ailments. You also keep tabs on short and long-term disability benefits provided through your employer.

  5. Focus on a Pay Raise:

    A steady and lucrative job is important, and you pursue career mobility as another way of maintaining financial strength. An annual raise can help you keep up with inflation and upgrade your lifestyle without threatening your budget.

  6. …But Don’t Fear a Pay Cut:

    You won’t fear financial collapse if you are laid off or suddenly forced to work for less income. In fact, you’ve saved six months’ worth of liquid income to prepare for life’s financial surprises. This safety net allows you to find a new job without worrying about overdue balances and feeding your family.

  7. Take Control:

    The value of control can be felt when you plan expenses, learn to invest and generally feel comfortable in your lifestyle. While you may not live a life of opulence, you understand that living well is the ultimate goal.

If you’re looking to improve your credit situation, learn about our services 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 You Need to Know About Credit Utilization

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Credit scoring is a mystery to many people, and for good reason. The average consumer has more than 50 scores to their name, and it’s not easy to understand the grading process or which factors matter most.

While every lender has their own method of deciding which customers are worthy of financial trust, and more than 90% of businesses rely on the FICO score when reviewing credit and loan applications. Of course, you have more than one FICO score, so you might be feeling confused all over again, but there’s good news: When it comes to credit health, it’s best to narrow your focus to five main factors:

  • Credit length
  • Payment history
  • Account diversity
  • Inquiries
  • Credit utilization

Why Is Credit Utilization So Important?

Every factor of credit scoring is crucial, but credit utilization is responsible for 30% of your overall score, second only to your payment history’s weight of 35%. Credit utilization measures your revolving balances against your total credit limit. Lenders and credit card issuers rely on credit utilization to predict risk and future behavior. In general, the higher your utilization ratio, the greater your risk of defaulting on your balances. Risky behavior isn’t rewarded in the world of credit scoring, and you may see a decrease in your scores as your utilization ratio goes up.

To understand credit utilization, you first need to understand your line item and aggregate calculations.

Line Item Utilization

Line item utilization measures your individual credit card balances against your individual limits. For example, suppose you have three credit cards, each with a $10,000 limit. Based on your current balances, your line item utilizations break down like this:

  • Card A:
    • Balance: $4,500/$10,000=0.45×100=45% utilization
  • Card B:
    • Balance: $2,000/$10,000=0.20×100=20% utilization
  • Card C:
    • Balance: $3,300/$10,000=0.33×100=33% utilization

Aggregate Utilization

The average of your credit card utilizations is called aggregate utilization. Calculate yours by combining your current balances and dividing them by your total credit limit. In the example above, your total balance is $9,800 and your total limit is $30,000; therefore, your aggregate credit utilization is $9,800/$30,000=0.32×100=32.6%

Which One Matters? 

Line item and aggregate utilization are both important factors in overall credit health, and FICO recommends keeping yours as low as possible.

How to Benefit from Credit Utilization

Credit utilization has an undeniable effect on your credit score, and there are ways to harness its influence in your favor:

  • Keep Your Balances Low: If you struggle to curb spending or rely on credit cards to make ends meet, overhauling your budget is the first step. A few monthly changes could help you avoid overwhelming debt and related credit damage. Download our free template to help you get started.
  • Check Your Credit Reports for Accuracy: Your credit reports tell the larger story of financial history and responsibility, and accuracy is key. For example, suppose Card A’s $10,000 credit limit is mistakenly listed as $6,500 on your credit reports. While it may seem like a small issue, an incorrect credit limit can drastically alter your utilization ratio and damage your credit score in the process. In this case, your line item utilization would increase from 45% to 69.2%, and your aggregate utilization would increase from 32.6% to 39.6%. You can’t afford to ignore the details. Order free copies of your credit reports to ensure that they accurately reflect your credit card balances and limits.
  • Request a Limit Increase: If you’re working on debt reduction but need a quick fix, consider asking your lenders for limit increases on each of your cards. For example, increasing Card B’s limit to $15,000 would automatically lower your line item utilization from 20% to 13.3%, and your aggregate ratio from 32.6% to 28%. Requesting a limit increase could place a hard inquiry in your credit file, costing you a few score points, but the benefits of lower credit utilization are usually worth the temporary ding.
  • Change Your Bills’ Due Dates: It’s difficult to benefit from credit utilization if you are constantly battling with the clock. If your credit card issuers report customer balances to the credit bureaus before you pay your bill, it may seem like your utilization ratio is constantly high. The fix? Contact your issuers and ask them when they typically report to the credit bureaus, and then move your bill’s due date to the week before. This strategy allows you to take full advantage of low credit utilization by giving you time to pay your balances before the reporting date.

If you’re interested in learning about credit repair, click 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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How to Overcome Your Personal Finance and Credit Fears

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Personal finance isn’t limited to money in your bank account or your credit card statement: it’s an emotional subject. Your financial standing and creditworthiness affect everything in your life, from the home you live in and the food you eat to your family’s well being. When life feels unstable, the sum of these factors is often avoidance. If this sounds familiar, consider these tips to help you overcome your fears and improve your lifestyle.

Fear #1: Checking Your Credit Report

A credit report can feel like a grade school report card you’d rather forget. It includes current and past information like your mortgage balance, credit card balances, late payments, collections, judgments, and more. If your past was rocky, it’s natural to feel hesitant about reviewing it.

The Fix: Focus on Your Potential. Sure, you never want to think about that collection account again, but summoning the strength to check your credit reports can actually change things for the better. For example, the credit bureaus—TransUnion, Experian and Equifax—recently issued a statement saying that certain information will no longer appear on credit reports, including settled tax liens and civil judgments. Verifying your credit reports’ accuracy and adherence to new standards is the best way to ensure positive change.

Fear #2: Checking Your Credit Scores

Credit scores…plural? Already, you’re feeling overwhelmed, and it’s true, the average consumer has about 50 credit scores grading their financial prowess, and it isn’t always clear which one a potential lender will use.

The Fix: Go Straight to the Source. Educational credit scores are helpful when you want a general idea of your creditworthiness. That said, it’s a good idea to go straight to the source—FICO—for the credit score used by 90 percent of lenders.

Fear #3: Debt

Believe me, I get it. Outstanding debts can take over your life and cause unwanted stress. Whether it’s a high credit card balance, student loans, an expensive mortgage, or medical bills, it can be tempting to adopt an out-of-sight, out-of-mind philosophy. That said, the problem with this strategy is compounding interest that can accrue over time on your existing balances, causing them to become more overwhelming and unmanageable.

The Fix: Financial Counseling. Take a deep breath and meet this challenge head-on. Consult a financial planner or a credit repair professional for a fresh perspective. They will help you clarify the situation, prioritize and create a repayment strategy.

Fear #4: Savings

If you don’t have enough savings, you aren’t alone. According to a recent Equifax survey, 42 percent of Americans don’t have the liquid funds to cover a $1,000 emergency.

The Fix: Start Small. You don’t need an enormous income to make saving a priority. Cutting as little as 5-10 percent of your monthly budget could help you invest for retirement and build a liquid account for emergencies. If you need some motivation, check out our example of how $5 a day could add up to millions over time.

Fear #5: A Lack of Knowledge

Outwardly successful people seem to have all the answers, and you might feel too intimidated to ask your family and friends financially-centered questions. Credit and financial knowledge isn’t intuitive, and no one has the answers without doing some research.

The Fix: Make Learning a Habit. We may be biased, but learning about credit and finance can be fun. There are so many free resources available (including this blog) for those who want to brush up on the factors of credit scoring, learn how to save for retirement, pay off student loans and generally live a better life. Consider dedicating some time each week to the pursuit of education. Not only can it alleviate your fears, it can help you make well-informed financial choices.

If you want to start repairing your credit click 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 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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