Category: Credit

4 Ways to Build Credit without a Credit Card

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Guest Article By: Alayna Pehrson – Digital Marketing Strategist at BestCompany.com

If you haven’t heard already, your ability to build good credit over time can make or break your financial success. Simply put, building good credit is great for your personal lifestyle and the economy. The better your credit, the more you can receive financial benefits and opportunities, including lowered interest rates and loan approvals, so good credit should be at the top of your financial wish list.

If you’re like most people, you’ve probably realized that one of the easiest ways to build credit is through a credit card. Indeed, Statistic Brain claims there were approximately 1,895,834,000 credit cards in the U.S. along with 199,800,000 credit card holders during 2016 alone. Although signing up for a credit card may be the main way most Americans learn to build credit, it isn’t the only way to build credit.

  1. Check the Credit Report

If you want to build credit, but don’t want a credit card, a good place to start is your credit report. Even if you don’t have an extensive credit history, your credit report is a free way to see what, if anything, is already recorded; it’s your baseline. For example, multiple savings and banking accounts may appear on the report along with any past loans. These can all have an impact on your credit score. When you understand what is recorded on their credit reports, then they can begin to make proper credit-building plans.

  1. Make On-Time Payments

Payment history makes up 35 percent of an overall credit score, and that includes whether or not you pay your credit card bills. And this doesn’t just apply to credit card bills, but also to all recurring expenses like rent, utilities, and even cell phone bills. These recurring bills might be reported to a credit bureau if they are not paid on time. In the absence of credit card statements, some businesses will allow for individuals to send their rent or other recurring payment histories to a credit bureau in order to build positive credit.

  1. Apply for a Credit-Builder Loan

Credit-builder loans are typically a starter option for those looking to build credit without getting a credit card. These loans are occasionally offered by banks and credit unions and usually have low interest rates. People who take out credit-builder loans typically borrow a relatively small amount, often a $1,000 or less on the loan, and they pay it off in 12–24 months. This credit-building technique only works if the borrower can make payments on time. Again, this goes hand-in-hand with how much payment history truly affects a credit score.

  1. Become an Authorized User

A popular method that many parents use to help their children build credit is adding their children as authorized users onto their credit cards. Basically, authorized users receive the credit-building benefits of credit cards without actually opening a credit card account. This tactic only works, however, if the person with the card is a responsible card user. For instance, if the primary cardholder makes credit payments on time, understands how credit works, and has a good credit score/history, then the method will most likely succeed. Most parents take advantage of this method simply because they deem themselves responsible enough to add their children’s names on their credit cards. If done responsibly, this option can significantly help a non-credit card user build credit.

Preparing for the Future

Although building credit using the methods mentioned above may be significantly less common than using credit cards, these methods still result in the building of good credit. With similar credit-level results, it is fairly easy to see why many Americans would steer clear of using credit cards. After all, there are many who are still wary of credit cards because of the stark reality of debt-related consequences.

If you, by chance, fail to see your credit build without a credit card and you’re stuck searching for a faster/easier way to achieve positive credit, choosing credit repair services might be the smart option. Credit repair is designed to give credit-raising opportunities to those who fall south on the credit score scale. Consumers that take advantage of online resources when they are conducting credit repair research will ultimately have a better understanding of credit and how credit repair actually works. Overall, the more someone knows about credit, the better off they will be when it comes to building and maintaining their own credit.

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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Why Low Credit Utilization is Key to a Good Credit Score

Good Credit Score

Credit scores aren’t as cut-and-dried as you may think. In fact, there are many factors that go into determining your score, and knowing the weight that is placed on each can help you better understand how to clean up your credit, or how to keep your credit score from falling in the first place.

Your FICO score, the most common score used to determine creditworthiness, is comprised of five factors, with your level of credit utilization accounting for 30 percent. We’ll talk about that more in-depth in a minute. But first, let’s briefly outline the other four factors, and the weight of each when it comes to determining your overall credit score:

  • Payment History (35 percent) – This is the most important factor in your credit score and any record of late payments will have a negative impact.
  • Age/Length of Credit History (15 percent) – The longer you’ve had credit established, the better for your score.
  • New Credit/Recent Inquiries (10 percent) – While occasional inquiries or opening a new account won’t negatively affect your credit, having many inquiries or opening a number of accounts within a short period of time represents a risk and can lower your score.
  • Credit Mix (10 percent) – This factors in the number and types of accounts you have in use. Types of accounts include credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.

Understanding Credit Utilization

Credit utilization is the second-most-important factor behind payment history when it comes to calculating your credit score. To determine this part of the equation, credit bureaus look at your balance-to-limit ratio.

When scoring your utilization, FICO takes into account both individual card usage and total card usage — or the total of all of your credit card balances compared to your overall credit limits. High utilization in either of these categories can cause your credit score to drop. That’s because the credit bureaus view high utilization as a risk that you may be more likely to default on your credit repayment obligations.

Your balance on any given credit card generally should not exceed 30 percent of your credit limit. Staying below 30 percent can make a positive impact on your credit report because it shows that you’re only using a small portion of the credit available to you.

To calculate your own utilization on each of your cards, divide the balance by your credit limit, then multiply by 100.

The best way to keep your credit utilization in check is to pay your balances in full each month. Making payments before the due date can also help. Because credit card information is updated to the credit bureaus based on billing cycles, your credit score may not reflect your most recent balance or credit limit. Instead, the information as of your account statement closing date will be used in calculating your credit score.

Non-usage can hurt, too

While maintaining credit utilization of less than 30 percent is crucial in order to clean up credit reports, it’s also important to understand the role non-usage of open accounts plays in determining your credit score. Overextending yourself on credit will certainly drag your score down, but a lack of credit use can also have a negative impact. A lengthy period of inactivity on your accounts can lower your score, or make it difficult for the credit bureaus to calculate your score at all.

With payment history being the most heavily weighted factor in determining your credit score, it’s important to remember that using your credit after an extended period of non-usage won’t immediately boost or establish your score. Most credit scoring models require several months of usage to calculate a score.

When it comes to credit utilization, being smart about it and never overextending your limits will give you the best chance of maintaining a good credit score, or raising a low credit score.

Understanding all of the factors that affect your credit can be difficult, and if you’re in need of credit repair services, Lexington Law can help. We understand your credit report and can help you leverage your rights to ensure that your report remains fair and accurate. Contact us today for your free credit report summary and consultation.

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You Should Make Good Credit a Priority – Even in Retirement

Good Credit Priority in Retirement

Each month sees thousands of baby boomers joining the ranks of the retired, as one of America’s most significant waves of population finally reaches the age where Social Security benefits and post-work plans start to come to life.

Today’s retirees are a little different from the somewhat simpler times of the past. Fewer are retiring with guaranteed pension benefits from their employers, and many will have to rely on a mixture of savings and Medicare benefits to help them enjoy a long and healthy retirement.

What’s more, longevity rates are at an all-time high for Americans. Many of those retiring today could conceivably live into their late 90s (or beyond), making their financial plans and a positive credit score all the more important to long-term happiness.

The Boomer Debt Burden

Today’s boomer-aged retirees are also leaving the workforce under different circumstances than their parents. According to data from credit bureau TransUnion, the average baby boomer has amassed $100,000 in debt, leaving many questioning whether they can afford to fully retire or if they will have to continue working into their golden years.

The reality of long-term financial issues, even at retirement age, makes it all the more important for those in their late 50s or mid-60s to keep on top of their credit situation.

The uncertainty about retirement-age financial plans means that more older folks will have to consider loans, credit cards, and other financial vehicles to help them cope with the loss of a regular paycheck.

And while it might be nice to think that creditors or banks might be willing to cut a retiree some slack when it comes to paying bills on time, just a few late (or entirely missed) payments can cause a serious impact on your credit score.

As a result, you might face higher interest rates on cards or be denied loan privileges. Poor credit can also impact your ability to get a second mortgage or to pursue the increasingly popular reverse mortgage as a means to help subsidize medical or other senior-living costs.

It Pays to Keep on Top of Your Credit

Experts suggest that retirement-age folks do what the rest of the working public should be doing. That is, paying much more attention to their credit reports and engaging in financial behavior that helps build, not burden, your overall credit picture.

The good news is that it is not impossible to keep on top of your credit situation, though it takes a little bit of extra dedication. Maybe a little extra time on your hands can help, if iyou can examine your purchases and other details in your credit reports and your financial statements.

The three major credit bureaus, as well as many banks and credit cards, now make it easy to get free copies of your monthly credit report. They will let you know what your credit score is and can alert you to any changes, credit inquiries, or changes that might cause a drop in your credit score.

You may want to consider a professional service to help monitor your credit, which can be helpful in spotting erroneous items, or tracking inquiries that have all the tell-tale signs of identity theft.

Don’t Chop Up the Cards

More and more seniors face the same quandary as their younger working peers: How to drive down their personal debt while also maintaining their credit power.

It can be tempting to go to the old standby in do-it-yourself credit repair – chopping up your credit cards – as a way of forcing yourself to make better financial decisions, but that route may not be the best, especially if you have limited resources in retirement.

Your credit score is generated by a number of factors, with almost a third of the value generated by your overall credit utilization. Consumers should try to use less than 30 percent of their available credit, though people often think this suggestion applies to only the credit limit on any particular card.

In fact, credit utilization looks at all of your credit resources, the pooled potential of your credit cards and lines of credit. That’s also measured against your ability to handle other existing debts such as automobile loans, mortgage payments, and outstanding student loan payments. Your mix of credit usage is also a factor.

Cutting up a card means eliminating that extra credit float and shifting the burden onto a smaller available body of credit.

Credit agencies also give credit score points to the longevity of an account, so closing a card, especially one yo have had and kept in good standing for many years, can also produce an accidental negative.

Maintaining a Healthy Credit Picture

Like any other consumer, retirees and pre-retirees are wise to do their best to keep on top of their credit obligations, as payment history is yet another significant factor in retaining a positive credit score.

Paying your bills on time, every time, is key to keeping creditors happy. And checking your credit report on a regular basis can help you know if you’ve accidentally missed a payment or if a creditor has said you have done so, as a billing mistake on their part. Learning to pay bills online or even via a smartphone is also an important skill to develop, and a valuable one even for seniors.

Modern retirement is certainly not always the riding-bicycles-on-the-beach utopia we see in retirement investment companies’ ads, but it doesn’t have to be a financial nightmare, either. By keeping a closer look at your credit score and your use of the credit you have, you’ll have better opportunities to access financial help if you need to do so.

How can I fix my credit? We can help, with an array of professional resources designed to assist you in better understanding and improving your score.

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3 Areas to Keep an Eye on as US Debt Raises

United States Debt

Americans may have learned a sense of frugality in the tough days following the 2008 financial meltdown, but those thrifty ways seem to have gone by the wayside.

According to the Federal Reserve, U.S. consumers now owe almost $13 trillion for car, home and credit card loans, a number that’s even higher than it was before the days of the Great Recession.

Spending may help keep the economy buoyant and be beneficial to the country’s hospitality, service and tourism industries, but there are also some key concerns to watch as that collective debt load grows ever larger.

Student Loan Debt at Record Numbers

While home and car loans do help produce a bit of equity and keep America on the road, our staggering student loan load has become a significant burden for more and more graduates, especially those who haven’t been able to land the higher-paying jobs they’d hoped their degree might help them get.

Americans now owe $1.34 trillion in student loans – a number about the same as the annual gross domestic product of Russia – and with college tuitions on the increase and more students heading to universities or trade schools each year, that number is rising at a fast rate.

Student loan debt can also become a serious burden for workers, most of whom would rather be spending that money on new purchases or rent, and almost 11 percent of student loan holders are now 90 days or more behind on making their payments.

Car Loans Also on the Increase

If there’s one thing Americans love, it’s new cars, and with average transaction prices on the rise and the SUV and pickup truck craze filling the country’s garages with large, high-value, low-mileage vehicles. It’s a $1.17 trillion part of the economy, with record sales.

And as those costs go up, car buyers are also signing much longer and longer car loan agreements to lighten their monthly payments, with the average car loan now 62 months or more.

Making a hefty monthly payment for almost six years can become a strain on many consumers’ budgets, not to mention the ever-escalating prices for car insurance, and about the only respite is low fuel prices – though they are sure to not last forever.

Charging it is Back in Style

Credit card debt is also a major part of America’s overall, escalating debt load, with three-quarters of a trillion dollars now on consumers’ monthly bills.

And with deepening credit card debt comes credit issues – missed payments, total defaults or consumers carrying balances that are too large or spreading their credit too widely with too many bank, department store or gas station cards.

Those who realize that they’ve spent themselves into a spot that they can’t get out of may also want to consider some professional help. Are you looking for credit repair services?

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How Is Credit Card Interest Calculated?

rebuilding credit

If you’re like most people repairing their credit card debt, your credit card’s annual interest rate is a mystery to you. You might even avoid thinking about it or looking at it, because it’s such a large number. Interest rates can make it difficult to get out of debt quickly, because you’re working against a large percentage—as much as 16% or even 20% annual interest.

Credit card interest is calculated using a complicated formula that can be confusing to many people. So it often remains a puzzle to borrowers. But it’s important to understand the basics of credit card interest, because it will help you to repair your credit card debt quicker—and to be a smarter credit card user. Here’s how credit card interest works.

How Is Credit Card Interest Calculated?

If you’ve watched your interest rate closely, you may have noticed that it has changed since you first opened your credit card. Many credit cards offer a low introductory interest rate that increases after the period is over. But even after that, your annual interest rate will often go up and down. That can be confusing, and even a bit unsettling.

Your interest rate changes

The first thing you should understand is that your credit card uses a variable interest rate. That means that the interest rate can change over time. A variable rate is tied to a base index—usually the U.S. prime rate. As the U.S. prime rate goes up or down, so will your credit card’s interest rate.

Right now, the U.S. prime rate is 4.25%. But your credit card’s interest rate is probably closer to 18.25%, or even more. That’s because credit card companies charge an additional amount above the U.S. prime rate—perhaps 14%, but it varies from card to card. So your total interest rate will be closer to 18.25%, annually. If the U.S. prime rate raises or lowers, your annual interest rate will also go up or down by the same amount.

The factors that influence the U.S. prime rate are reviewed every six weeks. The prime rate could stay the same for years, or it could change every six weeks. It all depends on current federal economic conditions and forecasts.

Your interest rate is annual

It’s also important to understand that your credit card’s interest rate is an annual rate. So if your annual rate is 18.25%, that amount is applied per year—not per month. But since you’re billed monthly, your interest is calculated each month, using an average daily balance method.

Calculating your interest rate

Here’s how the average daily balance works:

  1. Determine the daily periodic rate (DPR)—the interest rate you pay each day. DPR is your current interest rate (it varies, remember) divided by 365. So, 18.25 / 365 = 0.05%.
  2. Determine the average daily balance for the month. This is done by adding up the balance for each day of the billing period, then dividing that sum by the number of days (either 30 or 31 days—or 28 in February!). If you had a balance of $0.00 for 10 days, then $500.00 for 10 days, then $1000.00 for the last 10 days of the month, your average daily balance would be $500.00.
  3. Multiply the DPR by the number of days in the billing cycle, then multiply that total by the average daily balance. This is your interest for the month. So, a DPR of 0.05% * 30 days = 1.5%. 1.5% * $500.00 = $7.50.

That might not sound like much, but if you’re an average cardholder in the United States, you’re carrying a credit card debt of $16,000.00. That means you’re paying $2,880.00 per year in interest alone, in this scenario.

How Can I Avoid Paying So Much Interest?

When you’re working hard to repair your credit card debt, it can be frustrating to be fighting against a high interest rate. But there are ways you can reduce—or even eliminate—the amount of credit card interest you’re paying each month.

Pay more than the minimum balance due

Your credit card statement lists a minimum amount that you must pay each month. Your interest for the month is rolled into that minimum payment. But if you pay more than the minimum, every dollar above that minimum goes towards your principal balance. There’s no interest charged on it.

 

In other words, if your minimum payment is $500.00 and you pay $600.00, that extra $100.00 is applied to the amount you borrowed—it’s interest-free. And that benefits you in two ways:

  • You’re paying off debt without paying interest
  • You’re lowering the dollar amount of interest you’ll have to pay next month, because your average daily balance will be smaller.

Open a balance-transfer credit card

A balance-transfer card can be a very helpful way to repair your credit card debt. A transfer credit card has a very low introductory interest rate—often as low as 0%. The card lets you transfer your balance from other debt onto the new card. You can then make monthly payments on the transfer card to pay down your existing debt.

But the low interest rate is only valid for a limited time—usually six to 18 months—so you’ll need to pay off the debt before the introductory rate expires. You should also do your homework: some transfer cards charge a transfer fee. And some charge a penalty APR, which allows the credit company to charge you a high interest rate if you miss a payment.

Pay off Your Credit Card Debt Faster

Your credit card’s annual interest rate doesn’t have to be a confusing mystery, and you don’t need to know everything there is to know about interest rates. But when you understand the basics of variable interest rates and how they’re calculated, you can use that information to repair your credit card debt faster and easier. Paying more than the minimum balance due and using a balance-transfer card can be very helpful ways to use interest rates to your advantage.

A reputable credit repair specialist can help you find other ways to successfully get out of credit debt. If you’re tired of struggling on your own, find out how our advisors can help you repair your credit debt. Contact us today!

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