Bad Credit Helper: Does Moving Back Home Make Sense.

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There’s a definite stigma against moving back home once you’ve left the house. It’s seen as setback or even total failure if an adult child moves back in with their parents, which is unfortunate, given that whether or not society approves of it, more and more college grads are moving back home.

But what if the alternative is getting behind on your payments? That would leave you with bad credit, and bad credit is not a great place to start your financial journey.

We talked to the experts to find out if a “failure to launch” might just be a chance to refuel. After all, getting more money in the bank and getting ahead of your payments so you aren’t haunted by bad credit for the rest of your life doesn’t sound so bad.

Ignore the haters.

We don’t have to tell you that there’s a stigma attached to moving back home, although we did anyway in the first line of this article. Other people’s opinions about the decision should be the last thing on your mind. The only important question is if it’s the right thing for you.

That’s what we think, and certified financial educator Maggie Germano (@MaggieGermano) agrees: “Sometimes when you fall on hard times financially, the only option is to move home. (Not everyone has this option, so it’s important to keep in mind the privilege of this opportunity.) I definitely think there is no shame in moving home if you need to. It’s a great opportunity to save money in rent and get back on your feet. If your parents don’t charge you any rent, you can end up saving thousands of dollars. You should take advantage of this time to pay off debt, build up savings, and work towards other financial goals. Once you feel more financially stable, it may be time to go back out on your own. There’s no right or wrong amount of time to stay home; whatever works for you and your parents is the right thing.”

Moving back home (if you have the privilege to do so, as Germano clarified) can indeed be a smart financial choice. And we even have the experts with the first-hand experiences to prove it!

Homeward bound.

Phil Risher is the founder of the Young Adult Survival Guide (@yasurvivalguide). He was kind enough to share his personal experience with us:

“I paid off 30k in student loans in 12 months making 48k. After, I saved up and bought my place with cash at the age of 25.

“Without moving back home after college I would not have been able to do these things.

“I always recommend for young adults to live somewhere inexpensive while they are building good financial foundations. If it isn’t at home, it could be a basement or a 1 bedroom, 1 bath apartment.

“I never lived with my Dad until I asked him if I could move home after college. I sweetened the pot by telling him I would cut the grass, clean the gutters, and be an on call baby sitter for my younger siblings. (What a deal!)

“Some steps you can take to get back on your feet are to start budgeting and creating goals. A goal could be when you want to move out again. And a budget is imperative to control your money and reach your goal.”

Kelan Kline of The Savvy Couple (@TheSavvyCouple) wrote about his experience moving back home at Millennial Money Man (@GenYMoneyMan): “We all know moving back home with your parents is not the most glamorous thing in the world. Reverting back to following their rules and having a chore list to complete was not an easy transition.

“The biggest piece of advice I can give you is to remember it is temporary. Most things in life take time and sacrifice to reap the rewards. Be patient. The financial gain you can make while living at home is second to none, trust me!

“I was not only able pay off my student loans ($8,000), but save enough money for a down payment on our first house. My expenses were next to none living at home, and I have always been extremely frugal. You can’t beat free room and board! Almost all my income went straight towards my loans to get debt free as quick as possible. Then I focused on stacking the Benjamins in the bank. My net worth went from -$8,000 to +$12,000, a $20,000 swing!”

But what about the “landlord’s” perspective?

Meet the parent.

So we’ve got the “kids”’ perspectives, but what about a parent’s take on it? Financial coach and fiscally conscious father Brad Kingsley (@maximize_money) gave us the dad’s directive:

“When I’ve tackled this topic in the past it has always been an “it depends” situation.

“The first thing that comes to mind is a recent college graduate coming back home. Sometimes it takes a little longer than expected to land a job that aligns with their education. But working part-time somewhere just to bring in money can hurt them in the job search. In that case moving back in with their parents for a short transition period might be the best short term option.

“The second thing is an older child who wants to come back home. If there has been an unforeseen emergency or life situation outside of anyone’s control, then I’d certainly want to be sympathetic and support that child through the specific challenge.

“In either case there should be a plan though. Having a child move back home should never be an open-ended stay-as-long-as-you-want-for-free type of situation. It can be a bridge from one point to another, but it should not be the destination. And without a plan in place, it can quickly turn into the destination by default.

“I recommend the parents and child agree on timing, responsibilities, expectations, and ‘the plan.’ Yes, the child should share the plan because it impacts the parents and they have a right to know and agree – or disagree and encourage other options.”

In conclusion, moving back home for a while has helped other people and it could help you too. Some people might give you a side-eye, but as long as your parent(s) and or guardian(s) are on board, the side-eyers will be feeling silly when you’re in a better financial situation down the line.


Contributors
Maggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit MaggieGermano.com.
Brad Kingsley (@maximize_money) is a certified financial coach helping people create a plan for their finances to achieve big goals like becoming debt free, paying for college, and preparing for a comfortable retirement. Visit his site at MaximizeYourMoney.com.
Kelan and Brittany Kline aka The Savvy Couple (@TheSavvyCouple) are two thriving millennials that are daring to live differently. They started their personal finance blog September 2016 to help others get money $avvy so they can live a frugal and free lifestyle. Brittany is a full-time 4th-grade teacher and Kelan runs The Savvy Couple full-time and works as a digital marketer. You can follow them here: FacebookTwitterPinterest, and Instagram.
Phil Risher is the founder of YoungAdultSurvivalGuide.com. Phil paid off $30,000 in student loans in 12 months making 48k. After, he saved up and bought his first place with cash at the age of 25. Phil now speaks with college students and young adults around the country about his 5-Step Guide to help them on their financial journey.

Did Your Bad Credit Score Just Go Up? Here’s Why.

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New rules from the three major credit bureaus mean rising scores for millions of US consumers.

If you’ve got bad credit, then you know perfectly well how powerful a credit score can be.

Credit scores determines what kinds of loans, credit cards, and interest rates you qualify for, and they can affect where you live and work, as some landlords and employers check your credit before offering you a job or apartment.

Having bad credit means that you are shut out from financial opportunity, from affordable loans and interest rates, from credit card rewards and from owning your own home. It feels like no matter what you do, your score is never going to get any better.

Well, guess what? There’s a good chance that your credit score is going up.

Recent changes announced by the three major credit bureaus—Experian, TransUnion, and Equifax—will lead to millions of debts and liens dropping off people’s credit reports–causing their scores to rise.

According to Howard Dvorkin (@HowardDvorkin), CPA and Chairman of Debt.com (@debtcom), “These changes are some of the best financial news for average Americans in quite some time.”

“Everyone likes talking about the unemployment rate and the stock market, but the sad truth is: If you don’t have a job, the unemployment rate is 100 percent. And you definitely aren’t playing the markets.”

“This is the best news that most folks don’t really understand,” says Dvorkin. “The Big Three credit bureaus—Equifax, Experian, and TransUnion—have a big say over your life. They create credit reports on you that affect your mortgages, auto loan, and maybe even your rent.”

Got that? Okay. Here’s what you need to know.

What’s changing?

One of the major changes that’s occurring is to how the credit bureaus enforce their rules regarding public records—a major source of financial information.

According to nationally recognized credit expert Jeanne Kelly, (@creditscoop), “The credit bureaus have to verify four points of consumer data in order to use a tax lien or judgment as part of a consumer’s credit score. If 3 of the 4 points don’t match up, they cannot use the negative item as part of your credit scoring.”

“They are now required to correctly have: 1. Name; 2. Address; 3. Social Security Number; 4. Birthdate. If they can not verify it will be removed from your report and you will see a score increase.”

Kelly adds, “If the item was entered years ago you won’t get as much of an increase as if it was recent… If it is still due, you want to still resolve.”

“Starting this month, if you have civil judgments or tax liens, they’ll be removed from your credit report,” says Dvorkin. “Moving forward, those two things will need to be updated every 90 days, which means if you settle those, they’ll get updated much faster.”

And those aren’t the only changes.

“Starting in mid-September, the credit bureaus will wait 180 days before including medical debt on their reports,” says Dvorkin. “This is a big deal because, in six months, you might be able to pay off or negotiate payment for expensive medical procedures, as well as dispute those charges with your insurance company.”

“Even better,” he adds, “those credit bureaus will delete medical debt from your reports when your insurer pays it off. So it’ll be like it never existed. The government says 15 million Americans have only one black mark on their credit report, and it’s medical debt. This will definitely help them.”

“The credit bureau changes are fantastic news for all consumers,” says attorney, author, and  advocate, Alexis Moore (@AlexisMooreLaw). “It’s one less piece of data that the credit bureaus can store and furnish which is great news, since the majority of Americans today experience inaccurate data on their credit report and never get it completely resolved even with litigation.”

“I know,” says Moore, “I was one of the persons victimized by inaccurate data. And even with litigation, there are still errors that remain and continue to be at issue for which I have to litigate again and again.”

Why are these changes happening?

These changes have been a long time coming. Consumer and government advocates have been pushing for years for the credit bureaus to be more accurate with the data they included on people’s reports.

Simply put: too many people were ending up with inaccurate information on their reports, needlessly damaging their credit.

“Inaccurate data being furnished became too common in this area, so the public officials finally got busy and said no more,” says Moore, adding that this is “exactly what needs to happen in other areas of the data that they store – way too many pieces of information are inaccurately stored and furnished by these agencies, jeopardizing consumers financially—which in turn wreaks havoc on their lives in all ways from employment, housing, insurance, credit lines you name it.”

“The credit bureaus control it and we need them to store and furnish less data.”

How will your score be affected?

It depends. Your score might not be affected at all if you don’t have any tax liens, civil judgements, or medical debt on your report.

But if you do…

According to Dvorkin, “All this can mean you might gain 10 to 20 points on your credit score.”

“That may not sound like a lot when those scores go up to 850,” he says, pointing out that, “in fact, it won’t make the difference between getting a low mortgage interest rate or a steep one.”

“But any move upward is the right direction,” he adds, “and depending on how it all shakes out, millions of Americans might benefit.”

Moore says that some of the clients she works with have seen even larger bumps:

“My clients have experienced 24-35 points since this change, getting better car loans and mortgages because of it—a win-win for consumers!

And consumers aren’t the only ones who will be seeing benefits. A rise in credit scores means a rise in qualified applicants for lenders nationwide.

“The lenders are loving it,” says Moore. “They can offer mortgages to clients that they perhaps couldn’t—so another way for them to cash in, especially in northern California where my office is located. There is a housing shortage here and lenders are more than happy to lend more money and be able to help more consumers than they otherwise would not have been.”

What that means for you is simple: be careful. There are lots of sketchy lenders out there who would be happy to sign you up for a mortgage, car, or personal loan that you actually can’t afford!

After all, your credit score just went up. The last thing you need is for a bad credit loan from a predatory lender to send it back down again.

Is your score going to be affected by these changes? If so, we’d love to hear about it! You can shoot us an email at by clicking here or find us on Twitter at @OppLoans.


 Contributors
Howard S. Dvorkin (@HowardDvorkin) is a two-time author, personal finance expert, community service champion and Chairman of Debt.com. As one of the most highly regarded debt and credit expert in the United States and has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!
Alexis Moore (@AlexisMooreLaw) is an Attorney, Author and Advocate in El Dorado Hills, CA.  Part of her law practice is devoted to providing clients legal advocacy who have inaccurate data on their credit reports or that are experiencing debt collector abuse.  She also serves as a Risk Management Consultant worldwide for clients who are experiencing cyberabuse and stalking. Her upcoming book;  Surviving a Cyberstalker: How to Prevent and Survive Cyberabuse and Stalking is due out September 1, 2017.

Simple Steps to Help Your Credit Everyday!

Is being a landlord worth it
Fixing your credit isn’t as easy (or as fun) as breaking it. The worse your credit score, the more impossible it can feel to overcome it. If only there were small, simple steps you could start taking every day to get your credit back in order.
Good news! There are!
We spoke to the experts to find small habits you can start right now. The long journey begins with the first step, and better credit starts with these tips.

First, reflect.

The first step towards getting your finances to a better place is actually taking the time to look at them. You can’t make a battle plan if you don’t know where the war is happening. Or, for a more peaceful approach, you can’t bake a cake if you don’t have the recipe.

And this isn’t making mental notes you’ll forget in five minutes every time you spend too much. You might have to make some time in your schedule to find out about your finances. Here’s what nationally recognized credit expert Jeanne Kelly (@creditscoop) told us:

“If you do want to improve your credit, I do think you need to carve out some time from your already busy schedule. I say this because if you want to improve your credit, you need to learn more about it. Many times people have reached out to me for help, not because they had recent late payments or a collection, but because they saw a score drop and did not understand why, and usually it was before a major purchase like a home so they were freaking out. It can be as simple as opening up a new account, going over a credit card limit, closing credit card accounts or having too many companies pulling your credit. Whatever the reason has been, it was just because they did not know some of these things can drop their score. So, be in the know when it comes to your credit.”

It’s also important that you’re tracking your spending habits. Ashley Feinstein Gerstley, money coach and founder of The Fiscal Femme (@TheFiscalFemme), put it this way: “First, I think lack of awareness is one of the most common issues I see. Very few of us actually know where our money is going. I recommend that each of my clients keep a money journal where they write down or type out everything they spend and earn. This brings a consciousness and awareness to our spending that we wouldn’t have otherwise.”

There might even be credit issues you’re facing that aren’t your fault at all. Credit bureaus make mistakes, and it’s important to catch them. It’s hard enough to fix your own mistakes. You shouldn’t have to deal with anyone else’s. That’s why Kelly suggests you get your reports to look over:

“My #1 rule is to pull your credit report at least twice a year and now is a great time with it being mid-year. Get out a highlighter and anything that is wrong or does not make sense to you, highlight. Once you have completed that with each credit report, Experian, TransUnion, and Equifax, you can dispute the information. You could be walking around with an account on your credit report that is not yours and have no idea it is on your report. You know why? Because only you know what accounts belong to you or not. That is why I think if you get in this habit to review these reports twice a year, it can get easier and easier to make sure they are correct. You wouldn’t want to be paying a higher interest rate on a car loan because you never checked your credit and you had a lower score over an error, right? Invest into your credit and spend time to make sure you have the best score you can for the way you handle your finances.”

Once you know what the problem looks like, you’re ready to move on to the next step.

Create a plan you can stick to.

The most important part of any plan to turn your credit around is making sure you can actually follow it. You can promise yourself that you’ll only get takeout once a week, but if that’s not a realistic possibility for you, you might as well just claim you’ll start spending negative money that actually adds value to your bank account every time you buy something. After all, both may be just as likely to happen. That’s why it’s urgent you find the most responsible plan you know you’ll be able to stick to.

And whatever goals you set, it’s important that you don’t procrastinate them. “I also recommend that people put aside time every week or even every two weeks to deal with their financial to-dos,” Gerstley said. “I call them money parties. It’s a great time to check in on your spending, negotiate away any fees, look at your goals, etc. It’s easy to put our financial to-do list on the back burner but that creates more stress and hardship.”

Aaron Norris (@AaronNorris), vice president of the Norris Group (@thenorrisgroup), offered a metaphor for your daily financial growth: “Take a clue from those that succeed in diet and weight loss and plan. Don’t only focus on what you’re spending, focus on what you’re about to spend.

“A few moments in the morning or the night before can prepare you for the day ahead. What are your likely costs? How can you play the game to bring the cost of your day down? This will have you doing simple things like packing a lunch, breaking out that coffee mug that’s collecting dust and using it instead of paying for coffee out, or even just rummaging through seat cushions for loose change to deposit in your bank. Make it a game. How can I save $20 today? Then, place your saved earnings into a savings or investment account.

“Going through your mindless spending is a good monthly habit. It’s all tracked on your credit card statement. But, daily mindfulness on money creates habits that will make you wealthy.”

Change up your food habits.

So we already pointed out that you might not be able to get your takeout food down to only once a week, but you should still try and limit it as much as possible. It adds up pretty quickly! Aside from packing your lunch and making your own coffee, as Norris suggested, you should also consider meal planning.

We’ve covered meal planning before. Gerstley even contributed to that piece with a link to her meal planning guide.

You should check out our guide as well as Gerstley’s, but basically meal planning is taking a few hours of cooking to make all of your food for the rest of the week. That way, you won’t have to worry about getting stuck without food and being too tired to make something non-take out.

Keep up maintenance in your home.

No one likes chores. That’s why procrastination was invented, the very first time a caveperson decided they would put off sweeping up the cave until the following morning. But there’s a reason all the cavepeople went bankrupt, and it’s because keeping ahead on your household maintenance can actually save you money. Elizabeth Dodson, cofounder of Homezada (@HomeZada), explained why:

“Track the money you spend on your home, like in-home purchases and maintenance tasks. These areas of home management can add up before you know it. In fact, homeowners spend 31% of their income on household expenses, so staying on top of these areas can help save money. Even changing out a simple air filter could reduce the cost of electricity due to better operating HVAC units. Cleaning out a dryer vent can reduce the time it takes to dry clothes and also give your dryer a longer lifespan.”

All of this also applies to regular maintenance on your car. Any car breakdown is going to be expensive, and if you have bad credit, you might be tempted to turn to a payday loan. But don’t! Keep up regular maintenance instead. It’s much better for your credit.

There’s an app that could help you with that.

The cavepeople had another financial disadvantage: no financial apps. You, on the other hand, live in a golden age of financial apps! In fact, OppLoans recently launched an app database with a bunch of apps you could try out to take your savings game to the next level.

These tips should help you create a daily plan suited to your financial needs. Follow it consistently, and your bad credit will start looking a whole lot better.

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Contributors
Elizabeth Dodson is the co-founder of HomeZada (@HomeZada), an online and mobile home management solution. HomeZada strives to educate and provide resources for homeowners in all areas of home management, including home inventory, home maintenance, home finances and home improvement projects.
Ashley Feinstein Gerstley (@TheFiscalFemme) is a money coach and founder of the Fiscal Femme where she demystifies the world of personal finance and money in a fun and accessible way so her clients achieve their financial goals.
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!
Aaron Norris (@thenorrisgroup) is Vice President of The Norris Group, a California-based hard money lender specializing in flips, rentals, and new construction projects for real estate investors. You’ll catch him speaking at various real estate association conferences talking on technology (robotics, AI, IoT, and FinTech) and its effects on the future of housing and the real estate industry. Aaron is a Certified Specialist in Planned Giving (CSPG) and is passionate about philanthropy and giving back. You can find him on here on LinkedIn.

How to Use Credit Cards: 3 Basic Tips

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Credit cards can be an awesome financial tool, but, if used incorrectly, they also become one heck of a trap.

If you have bad credit, then you probably have a love/hate relationship with credit cards. You love spending money on them, but you hate having to pay your bill.

And while maxing out your credit cards is a great way to tank your credit score, using your cards responsibly can also be a great way to help it!

Here are three credit card tips you should follow in order to use your credit cards responsibly.


1. Don’t carry a balance.

Here’s the thing about credit cards, they’re awesome as long as you pay them off every month. That way, you can avoid interest, rack up points, and help improve your credit.

But carry a balance month to month? That’s when things start to get dicey.

“There’s a long-running myth that carrying a revolving card balance is good for your credit score,” says Monica Eaton-Cardone, co-founder and COO of Chargebacks911 (@Chargebacks911).In fact, it’s exactly the opposite, and the sooner we put this myth to bed, the better.”

Justine Lavelle, Chief Communications Officer of BeenVerified.com (@beenverified), agrees:

“Some will say that you should carry balances on your credit cards so that it has a positive effect on your credit score. This is not a smart financial move as you will continue to pay interest on the balance you carry month to month.”

“While it’s good to wait a few days to allow a purchase to show up on your statement, maintaining a revolving balance from one month to the next costs you more in interest charges and actually damages your credibility,” says Eaton-Cardone.

“Your credit utilization ratio—the amount of debt you possess compared to your total line of credit—determines a considerable portion of your credit score. To have a revolving balance means that you’re using up more of your available credit, which creditors look at unfavorably.”

Lavelle advises that you shouldn’t “carry balances on your credit card if you can avoid it. If you do carry a balance due to a big purchase or an emergency, make sure to figure out the cost of carrying that balance every month. It may shock you and it will also motivate you to make a solid plan to get it paid off as quickly as possible.”

“Emergencies happen, and sometimes consumers simply can’t pay-off their total bill at the end of every month. However, it’s always best to keep your credit usage low enough to cover the entire balance with each billing cycle if at all possible,” says Eaton-Cardone.

2. Choose your rewards carefully.

One of the advantages that credit cards have over other kinds of loans is points and rewards. Spending money on your card can let you save on travel, groceries, or even get cash back.

The only problem is that worrying too much about your points can lead to you spending too much! It’s a tricky balance to maintain. When shopping for rewards, you’ve got to make sure you’re careful.

Benjamin Glaser, Features Editor for DealNews (@DealNews), says that you should “Find a rewards card that suits your purchasing habits. For example, if you’re already a big traveler (like, for business), then get a card that offers more points for travel-related purchases, like the Chase Sapphire card. If you are buying mostly gas and groceries while trying to save up for a family vacation, then the AmEx Everyday Preferred card might be better.”

When it comes to exploiting points or rewards through your card, Lavelle cautions that you must “make sure that you again do the math.”

Buying travel by using your credit card to gain points is not the most cost effective way to purchase travel, especially if you can’t pay the balance each month. Really the only way to make this a “deal” is to use the credit card to get the points, pay the card off each month to avoid interest, and then be able to redeem the points for travel without needing to add cash to the award.”

“If you don’t have large annual fees and reduce the interest, then at least the merchants you shop are the ones paying for your travel,” says Lavelle.

Glaser also recommends finding a card that has a good signing bonus:

“Don’t overspend to meet the minimum to get bonus points, but try to find a card with an easily attainable minimum. If you know your credit card bill is at least $1,300 every month, then spending $4000 in the first three months of having a new rewards card to get a bonus 20,000 points should be easy.”

“Know any additional perks that your card provides, and use them,” says Glaser. For example, lots of cards provide extended warranties when you make a purchase with the card. (It’s rarely a good idea to purchase an extended warranty, and this is more of a reason not to.)”

“Similarly, purchasing airfare and hotel bookings with your card could get you reimbursement if your trip is delayed. And before you purchase additional coverage for a rental car, see if your card provider will offer the coverage if you pay for the rental with your card,” he says.

3. Don’t get greedy!

The reason that credit cards are so dangerous is because it’s easy to forget that spending money on your card has consequences. Spending more than you can afford to pay off each month can leave you carrying a balance. And carrying a balance means that you’re paying interest.

A credit credit used properly can be a great asset. A credit card used poorly can be like an anchor, dragging your credit score down into the watery depths. And the best way to use a credit card properly is make sure you know your limits.

“As your credit history increases and you make payments on time, it is almost as if credit card companies set you up to fail by tempting you with ever increasing credit lines and tempting offers,” says Lavelle.

“Don’t fall into the trap. Carry one credit card and consider carrying only a card with a low limit so that you will not be tempted to make unwise purchase decisions. Using a card for day-to-day spending is becoming more and more common as cash is almost being phased out. It is easy to spend beyond your ability when paying with a credit card, so you may want to only carry a card that has a modest limit so this doesn’t become a problem. As with cash, a credit card with a low limit makes it easy to know when you are done. The money is gone.”

If the secret to using a credit card is to avoid interest, then always remember that there are more ways to avoid interest than just paying off your balance. As your credit improves, you might start getting card offers with low introductory rates—sometimes as low as 0 percent! If you have higher rates on older cards, you might be able to transfer your balances and save yourself some money.

Lavelle says that you should “Absolutely take advantage of ‘low-interest rate offers.’ Be sure to check the fine print and the cost of the ‘transfer fee’ but this is a great way to get back at the credit card company a little.”

But this plan is not without its costs or conditions.

“However, good credit and good income are required, but if you have those it is relatively easy to move balances around so that you can really limit the amount of interest you pay on balances. Just remember the ‘transfer fee’ is interest so jumping too soon or too often can ruin the cost savings plan,” says Lavelle.

If you’re someone who’s recovering from bad credit, credit cards can be a dangerous temptation. you The more your bad credit improves, the more you’ll be tempted to borrow. Borrow too much and those high balances and interest payments could knock your credit right back down again.

So be careful, stick to a plan, and don’t get greedy. That’s the way to use credit cards responsibly.

If you have any credit card tips of your own that you’d like to share, please do! Let us know on Twitter at @OppLoans.

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Contributors

Monica Eaton-Cardone (@Chargebacks911) is the COO of Chargebacks911, a company located in the Tampa Bay area dedicated to helping merchants optimize profitability through chargeback management. She co-founded the company in 2011 after operating as an eCommerce merchant. Through her own first-hand experience, Monica identified the need for proactive chargeback mitigation services in the eCommerce industry. Today, Chargebacks911 operates across the globe with offices throughout North America, Europe, and Asia.
Benjamin K. Glaser (@DealNews) is Features Editor for DealNews, covering the intersection of culture, media, and technology. He joined the company in April 2013 and is based in Brooklyn. Responsible for long-form content ranging from product-buying guides to market-trend analysis, Benjamin maintains the DealNews brand’s distinctive, reliable voice.  In his free time, Benjamin loves binging on Netflix comedy series and finding the best burgers and pizza in New York.
Justin Lavelle (@BeenVerified) is a Scams Prevention Expert and the Chief Communications Officer of BeenVerified. BeenVerified is a leading source of online background checks and contact information. It helps people discover, understand and use public data in their everyday lives and can provide peace of mind by offering a fast, easy and affordable way to do background checks on potential dates. BeenVerified allows individuals to find more information about people, phone numbers, email addresses and property records.

12 Tips for a Bad Credit Makeover (Part 2)

A hand mirror on a blue background with a dollar sign for bad credit repair

OppLoans’ two-part, credit advice blog post comes to a thrilling conclusion.

If it were as easy to makeover your credit score as it was to makeover your friends, then we probably wouldn’t be writing this post. Sadly, your score can’t just take off its glasses and change from a baggy sweater into a well-fitting shirt and be totally transformed. No, making your over score takes patience, determination, and financial discipline.

This is probably why nobody makes movie montages of people paying down their debt, creating a budget, and ordering their credit report.

But where Hollywood has clearly failed you, OppLoans is here to help! If you haven’t checked out Part 1 of this post, then you should totally do that! Once you’ve read tips one through six, you can rejoin us as we continue on with our plan to help you fix your bad credit…


7. Pay your bills on time. Really! 

We talked in Part I about how the amount of debt you have is the second most important factor in your FICO score. Can you guess which factor is the most important?

That’s right. It’s your payment history! This makes up a whopping 35% of your FICO score. (Your “Amounts Borrowed” makes up 30%.) If you can take care of those two factors, you’ll have three-fourths of your credit score on lock, and you’ll be well on your way to good credit!

And what’s the best way to make sure your payment history record is okeedokee? By paying your bills on time.

If you’re someone who has a habit of paying bills late, then you’re going to have to come up with a system. Maybe that means setting reminders on your smartphone. Maybe it means writing in the payment dates on your calendar. Maybe it means tattooing those dates into your forehead so you won’t forget!

(We really don’t recommend that last one. But if you do decide to go the “forehead tattoo” route, just remember to tattoo them backwards so that when you see them in the mirror they’ll read forwards. Don’t ask us how we learned that.)

Even better than just “remembering” your payment dates is to automate your payments as much as possible. Try setting up e-bills through your checking account’s online portal. That way, you can let your debtor’s computer system and your bank’s computer system do all the work for you!

If the reason that you’re having trouble with some of your bills is that they all come due around the same time, leading to shortage of funds, then call your lender or utility company and see if you can have your payment dates changed! This is a pretty common issue, so they’ll likely be able to work something out with you.

“The best way to maintain or build a credit score is to pay your bills on time” says Natasha Rachel Smith, personal finance expert for TopCashBack.com (@TopCashBackUSA). “Before the due date is even better than on the due date. Set reminders for yourself to pay at least the minimum once a month by the due date to avoid late fees or penalties. The more responsible you are with your debt, the better!”

8. Consider refinancing.

Now this is an option that might not work for everybody, but it’s definitely worth a try.

Refinancing a loan means that you take out a new loan to pay off the remainder of your old one. You get a new payment term with a lower interest rate and lower monthly payments.

There are several benefits to refinancing a loan. The lower payments certainly help if you have a budget that’s spread thin. That’s extra money that you could put towards important things like debt repayment. Plus, with a lower interest rate you can save money on your loan overall!

Tracy Becker (@tracybecker), President and CEO of North Shore Advisory, Inc, says that “Refinancing a loan can help credit scores since if the interest rates are lowered more dollars are freed up to pay down other debts.”

“High balances on credit cards and other types of lines can have a dramatic negative impact on credit scores.  Also if a refinance also has cash (cash out) that is being used to pay off debt that can dramatically help.”

(Cash-out refinancing generally only happens with mortgage loans. It can occur when a homeowner refinances the loan on a home that has substantially gained in value since the original loan was taken out. By refinancing for more than they amount they currently owe on the home, the borrower can free up extra cash to remodel, pay off higher rate loans, etc.)

Since making your payments on-time helps improve your credit score, taking out a new loan and making all those payments will give you a longer history of on-time payments, thereby helping to increase your score.

“The only negative is the new loan ( or account) will reduce the average age of credit and drop the score for a year or so.  The balances being paid off (depending on how high) may offset the drop and even bring the score up much higher,” says Becker.

The reason that this option might not work for everyone is that people with bad credit might not have the option of refinancing. If you can’t get a lower rate on your new loan, it’s probably not worth refinancing. Since a refinanced loan often means paying your debt off at a slower pace, you might be better off paying down your debt more quickly and reaping those benefits instead.

9. Open balances are your friend.

Making your final payment on a credit card is a great feeling. Finally, you’re out from under that debt burden and one major step forward towards having good credit.

Here’s the thing though: Even though you might be tempted to close that card, don’t do it!

There’s a couple reasons why keeping those balances open can help your credit.

First of all, there’s something called your credit utilization ratio that’s an important part of determining your credit score. This ratio measures how much of your available credit you’re carrying over from month to month.

The less of your available credit you’re using, the better. It shows that you are using your credit cards responsibly and aren’t just spending beyond your means by maxing them out.

Let’s say you have two credit cards, one with a $6,000 credit limit and one with a $4,000 limit. That means that you have a total credit limit of $10,000. If you are carrying a respective balances of $3,000 and $2,000 on those cards, then you are carrying a total balance of $5,000. Since $5,000 is one half of $10,000 you have a credit utilization ratio of 50%.

Generally, it’s best to keep your credit utilization ratio below 30%. All other factors being equal, getting your ratio below that mark should lead to improvement in your score.

Now, let’s say that you have a third credit card that you’ve paid off entirely but kept open. This card has a credit limit of $5,000. This means that your total available credit is $15,000. All of a sudden, the $5,000 that you’re carrying on those other cards doesn’t equal 50 percent of your total limit. It only equals 33.3 percent.

By keeping the balance on that third card open once you’ve paid it off, you are improving your credit utilization ratio!

The second reason to keep cards open is that it helps improve the average age of your credit lines. The FICO formula likes to see that people have been able to maintain credit accounts over a long period of time. Take two identical credit cards, one of which is brand new, the other of which has been open for three years. The second card will be weighted more favorably than the card you just opened.

Of course, this doesn’t work if you keep that old card open and then spend a bunch of money on it that you can’t immediately pay down. So if you’re going to do this, it’s a good idea to cut up the physical card. That way, you’ll save yourself from temptation.

10. Squeeze every penny.

If you’re serious about paying down debt, sticking to a budget, and improving your score, then you’re going to have to get creative in terms of how you cut back your spending.

“If you’ve been overspending…don’t beat yourself up. It happens. But now, right now, is the time to tackle it,” says Smith. “I recommend sitting down and looking at the areas where you spend more money than you really ought to. If you notice a pattern, consider cutting back or looking for a cheaper alternative.”

“For example: People tend to overspend on food and going out with friends because they want to be social. You can brainstorm a cheap alternative and consider having friends over for a movie night or happy hour.”

And cutting back on spending doesn’t have to mean avoiding the things you like to do or the food you like to eat. It can also mean putting in the extra legwork to find those things for cheap.

Smith encourages people “to learn how to shop for discounted prices and NEVER pay full-whack for products. You can always find coupons and discounts if you do a little bit of digging. On top of sales and deals, sign up for a cash-back site such as TopCashback.com to receive money back on your online shopping. If you’re going to purchase items online anyway, you might as well get paid for it.”

Lastly, you can always save money by avoiding unnecessary costs.

“Another area where money can drain away is in late payment fees. If you pay five bills past their due date each month, that’s more than $100 spent thoroughly unnecessarily. Adjust that bad habit and you’ll have more money in your pocket,” says Smith.

11. Get a second job.

With all this talk about spending less, don’t forget that you can also help pay down your debt faster by earning more! Getting a side gig is a great way to increase your take-home pay and either put extra money towards your debt or build up an emergency fund so that you can steer clear of predatory payday loans. 

With the rise of the sharing economy–where people charge other people to use their stuff–there has been an explosion of opportunities to make money on the side. You can drive for Lyft or Uber on your weekends or off-hours. You could also rent out your car through service like Turo or your parking space through Spot. If you live in a city and own a car, there’s pretty much always ways to make some extra cash.

If you have extra clothes or clutter lying around, don’t forget that you could sell them online on sites like Craigslist or eBay. If you have tools lying around, you could rent them out through Zilok.

Love pets? Why not get some extra work as a dog-walker or pet-sitter through Rover.com. Handy at assembling Ikea furniture or other household tasks? Rent out your services through TaskRabbit. Those skills from your high school days as a pizza delivery man going to waste? Sign up for Postmates.

You can even make money (though not a ton) taking online surveys! And if you have creative skills, then creating an Etsy store and selling your wares could be just the ticket.

We could go on. The point is this: If you want to earn some extra cash, there are a ton of ways for you to do it.

12. Be patient.

Look. Short of winning the lottery, there’s no “silver bullet” solution for improving your credit score. It’s going to take some time, so you’re best off settling in for the long haul.

The information on your credit report, which is used to create your credit score, generally remains on that report for seven years. (Certain kinds of bankruptcies can stay on your report for 10 years.) As time goes by, old information drops off your report.

So as you pay down your debt and start making your bill payments on time, that new positive info is going to make up a larger and larger portion of the information on your report. As older negative info drops off, it will be replaced with better info, and your score will increase.

So don’t think you can fix your credit score in a month or even a year. Find some room in your budget to treat yourself once in awhile so that you don’t get discouraged or burned out.

If you follow the tips laid out in this post, your score will improve. But unlike a movie makeover, you can’t do it through a quick montage. This makeover is going to take awhile.

Thanks for reading! If you have any credit makeover tips of your own, we’d love to hear them! Let us know on Twitter at @OppLoans.

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Contributors
Tracy Becker (@tracybecker) is the President and CEO of North Shore Advisory, Inc., a leading Credit Restoration, Education and Monitoring Company specializing in Business & Personal Credit Services. Tracy is a FICO Certified Professional & Expert Credit Witness, she has been improving both consumer and business credit as well as educating professionals and individuals for almost thirty years. North Shore Advisory has helped thousands businesses and individuals to have the most opportunity and savings great credit can offer.
Natasha Rachel Smith (@topcashbackusa) is a personal finance expert at TopCashback.com. Natasha’s background is in retail, banking, personal finance and consumer empowerment; ranging from sales to journalism, marketing, public relations and spokesperson work during a 17-year career period. She’s originally from London, UK, but moved to Montclair, New Jersey, USA, several years ago to launch and run the American arm of the British-owned TopCashback brand; a global consumer empowerment and money-saving portal company.

12 Tips for a Bad Credit Makeover (Part 1)

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Even if you think your credit score is beyond repair—there are steps you can take to better your financial future!

If you watch any teen movie, there’s always that sequence where somebody undergoes a life-changing makeover. You know that montage of trying on new outfits, getting a drastic haircut and adding (or removing) bangs, and finally a scene where our main character removes their glasses and realizes that yes, they are in fact super hot?

Well, if you have a bad credit—which means a FICO score below 630—then your creditworthiness could probably use a makeover too. That’s why we’re here! We’ve got some fantastic, detailed tips for how you can turn your bad credit from zero to hero. (Is that how teens talk these days. Is that appropriately fleeked?)

This post is only Part I of the list. It includes tips one through six. Keep an eye out for Part II dropping later this week!

1. Stay away from hard credit check loan and credit card applications.

When you apply for a new loan or credit card from a traditional lender, the lender performs a “hard check” on your credit. This means that they pull up a full copy of your credit report to assess your creditworthiness, and that inquiry or check gets noted on your credit history.

“Recent Credit Inquiries” comprise 10 percent of your overall FICO score. Searching for new credit can be a sign to lenders that you might be mismanaging the credit you already have. That’s why these checks can ding your credit score for up to two years after they appear on your report.

So unless a credit application is 100 percent necessary, you should stay away from applying for new loans and credit cards while your credit is already bad. If you’re really in a bind, you should look to get a loan from a “soft” credit-check lender. These checks won’t hurt your credit score, and soft credit check lenders are more likely to lend to folks with not-so-great credit.

2. Find a better credit utilization ratio.

Natasha Rachel Smith, personal finance expert for TopCashBack.com (@TopCashBackUSA) says, “Credit scores are largely affected by your credit utilization ratio (that is, how much of the total credit that’s available to you is in use) and payment history.

Since credit cards have become such a major part of modern personal finance, credit utilization is an incredibly important factor in determining a person’s creditworthiness. Unlike traditional loans, credit card borrowers are given a maximum amount of money—called a “credit limit”—that they can borrow up to with their card. Borrowing far below your credit limit is a good sign to lenders that you are using your credit cards responsibly.

“A good credit utilization ratio is less than 30 percent. Under ten percent is ideal,” says Smith. Once you exceed 30 percent, you may be seen as a risk to a lender and could potentially be denied a loan or credit card.”

“A great, speedy way to raise your credit score is to make sure you are spending within your comfortable means so you don’t slip over a 30 percent credit utilization ratio.”

3. Get rid of your debt with one of these methods.

If you have a bad credit score, then you probably have too much debt. Your “Amounts Borrowed” make up a 30 percent of your FICO score, which means that too much debt is going to have a much bigger effect on your score than most other factors.

So if you’re serious about fixing your bad credit, you’re going to need to pay down some of that debt. Easier said than done right? That’s why you should look at two of the most popular debt repayment methods: the Debt Snowball and the Debt Avalanche.

Both methods involve saving up a chunk of money beyond your monthly minimum payments and then focusing all that extra cash on one loan or credit card. One that debt is paid off, you then take that cash plus the monthly minimum for the now-retired debt, and putting all that money towards your next debt. With each debt that you pay off, you get more money to put towards your other debts.

The difference between Snowball and Avalanche methods come with how you decide to order your debts. With the Snowball method, you pay off your debt with the lowest balance first and then work your way to the debt with the highest balance. With the Avalanche method, you start with the debt that has the highest APR, and then work your way towards the debt with the lowest APR.

Both methods have their benefits and their drawbacks. To learn more about them, check out these OppLoans blog posts:

4. Cut back on your spending by starting a budget.

At its heart, having a bad credit score means that you have had trouble with managing your money. That’s how you’ve ended up with too much debt, or failing to make your bill payments on time. That’s why a lot of the advice we’ve doled out already is really just advice for how to better manage your finances.

So if you are trying to fix your bad credit, one of the best things that you can do is take control of your financial situation through starting a budget. Budgeting will allow you to plan for how your money gets spent; it will let you see areas where you can cut your spending back; it will help you pay your bills on time, and it will help you put money aside to start tackling your debt.

“Sit down and take a hard, deliberate look at your finances and plan your month’s expenses,” says Smith. “Budgeting will allow you to pay down debt while saving smartly.”

She recommends, “Minimize your spending habits by budgeting your costs in three categories that are the most important: bills, savings and living expenses such as rent and food. Cut your spending by not buying things you simply want; focus on the things you need.”

If you want to start a budget but aren’t sure where to begin, then Smith has a good strategy. It’s called the 50/20/30 rule:

“You should spend only up to 50 percent of your after-tax income on essentials, such as housing and food; 20 percent on financial priorities, such as debt repayments and savings; and 30 percent on lifestyle choices, such as vacations. Don’t splurge in other categories as costs can add up quickly!”

Stephanie Stewart, Digital Marketing Strategist for Best Company (@BestCompanyUSA) also has a great piece of budgeting advice:

“A great budgeting tip I have found is to take out all your grocery money for the month in cash, when the cash is gone you have to get a bit creative in the kitchen. This helps with overspending on food every month. This money could then be applied towards paying off your debts to help improve your credit score as well.”

You can also learn more about setting and meeting your budgeting goals in OppU, our online finance course.

5. Check your credit report for blemishes.

If you want to fix your credit score, then you pretty much have to get a copy of your credit report. After all, all the stuff that’s dragging down your score is stuff in that report. You can’t fix your score without knowing what factors are dragging it down in the first place!

However, there’s another reason why it’s good to request a copy of your credit report, and that’s because it might have errors on it that are unnecessarily lowering your score. Credit reports are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax—a process that involves getting information from thousands of different businesses on hundreds of millions of different borrowers nationwide.

So yeah. There are going to be some mistakes.

Don’t worry though! Here’s the good news: you can access your credit report for free and dispute any errors that you find directly with the bureau. Under federal law, the three major bureaus have to provide you with one free copy of your credit report per year upon request. Just visit AnnualCreditReport.com to request a free copy of your report.

If you find an error on your report, you can check out this online resource from the Federal Trade Commission (FTC) for a guide on how to dispute it:

FTC Facts for Consumers – How to Dispute Credit Report Errors

And even if you don’t find any errors, checking your credit report is something that you will want do regularly from now on. That way, you can stay on top of your financial reputation.

Lastly, here’s a credit-monitoring pro tip from attorney and best-selling author of The Plastic Effect, Stephen Lesavich, PHD (@SLesavich):

“Since you are entitled to one free credit report from each credit reporting bureau, consider ordering one of your credit reports from one of the credit reporting bureaus in each four-month period during a calendar year. This way, you can monitor your credit for free throughout the year.”

6. Run from predatory payday loans!

The road to fixing your bad credit can be a pretty narrow one. Walking it successfully means taking a lot of positive steps, but it also means avoiding a lot of negative ones. One wrong move and you can find yourself right back where you started.

Taking out a payday loan could definitely undo all the hard-won progress you’ve made.

These are short-term loans, often meant to be repaid with a single payment only two weeks after they are issued. As these loans are primarily aimed at people with bad credit, the interest rates are high.

How high? Try an APR of 400 percent!

Beyond those ridiculous annual interest rates, payday loans have another problem, too, and that’s their lump sum repayment structure. Instead of paying the loan off in a series of small, manageable payments, payday loans require you to pay the loan off all at once.

Add lump sum repayment up with short terms and high interest rates and it’s no wonder that so many payday loan customers have trouble paying their loans off on time. Instead, they are forced to roll the loan over, receiving another repayment period at the cost of an additional interest charge (read more in our article The High Cost of Payday Loans).

It’s all too easy for payday loan borrowers to end up getting stuck in what’s called a “Cycle of Debt.” This means that they keep extending their payday loan or they pay the loan off and then taking out a new loan immediately after to help cover their costs. They never get close to paying their debt off, they simply pay more and more interest every time the loan comes due. It’s like the loan is slowly bleeding their money dry.

And guess what? Being stuck in a payday debt cycle is not going to help your credit! Either it’s going to be sucking away money that you could put towards better things, or you could default on your debt entirely and get sent to collections! That collections agency would then likely report your unpaid account to the credit bureaus, and they might even take you to court to have your wages garnished, another action that would get recorded on your credit report.

If you have bad credit though and need a loan for emergency expenses, consider looking for a more reputable bad credit lender, like OppLoans, that will offer you lower rates, more manageable payment terms, and better customer service than your typical payday lender.

That’s it for Part I! Keep a look out for Part II dropping later this week to help make your credit makeover complete! In the meantime,  follow us on Twitter at @OppLoans.

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How to Teach Your Kids About Finances and Credit

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Kids aren’t usually the greatest money experts. Depending on how young they are, they might even prefer coins to paper money and, in their defense, coins are shinier. But if you want your kids to grow up with good financial habits, you’re going to have to teach them.

And good financial habits are important. How else can you make sure your kids won’t end up with
bad credit
or trapped by payday loans? Obviously, it’s a lot to ask that you be a financial educator in addition to whatever other jobs you have (unless one of those jobs is a financial educator, in which case you probably have this covered). That’s why we spoke to some experts to get you the tips you’ll want to give your kids.

You can’t always get what you want.

For young children, one of the first financial lessons to learn is a lesson they’ll have to learn anyway. When little kids want something, they make it clear, and when they don’t get it, they get upset. If you have or have had young kids, you’ve (hopefully) learned to say no when necessary.

Financial coach Brad Kingsley (@maximize_money) told us how you can show your kids that when it comes to finance, you can’t have everything: “One of the best ways to teach financial values to your kids is to help them understand you can’t buy everything you want. We set our daughter up with an allowance rather than buying things for her (outside of birthdays and Christmas). She would save her money to purchase things she wanted, but occasionally was short yet wanted something right away. Not coming in and paying the difference was a great lesson on delayed gratification. It helped her understand that sometimes you just don’t have enough money—and it’s okay to wait. Quite a few times she realized by the time she had the money, that she didn’t want to spend it all on that item she thought she previously wanted! Great lessons learned!”

Do as I say…. AND as I do!

They say “monkey see, monkey do” and below a certain age, what are kids really, but less hairy monkeys? You should tell them good financial habits, but it’s also important that you set a good example.

At least that’s what Howard Dvorkin (@HowardDvorkin), CPA and chairman of Debt.com (@debtcom), believes. “Children learn by example. You don’t want your children to smoke? Don’t smoke in the house,” Dvorkin advised. “Don’t want them to text and drive? Don’t do it yourself. Want them to be financially responsible? Don’t run up huge credit card bills buying items you don’t really need. Don’t buy a more expensive house or car than you can afford just to look good to the neighbors and friends. The best thing you can do for your children is lead by example.”

Hands-on education.

In addition to listening and watching, kids can also learn by doing. That’s why it’s important to give them assignments or tasks that will allow them to learn on their own.

“Have them open a bank account,” counseling psychologist Dr. Stacy Haynes (@Dr_StacyHaynes) suggested. “Teach saving and spending habits early. Have them play games like Life and Monopoly that still teach children to purchase items, pay for college and buy real estate. The classic board games are great learning tools for money. Have them pay for things. Many children have no idea what items cost as they never buy things. And use cash, not cards, so children learn what money is and how fast it can go.”

Dr. Haynes even offered a personal example: “An Impact project my 5th grader had to do for school actually had them create a business and sell a product at a trade fair. They had to figure all their costs and profits from the experiment. Great learning tools to have hands on real life application.”

Leadership coach Leslie Elia, of Life Leadership (@LifeLeadrship) found multiple opportunities to teach her kids about finance:

“When our children were about 11, we got them checking accounts with a debit card and savings accounts. Although they did not get an allowance, they always found ways to make money like, marking up pop and candy and selling it at the annual garage sale or squirreling away some birthday gift money. Two of them had opportunities to travel with the People Student Ambassadors, and they had to come up with ways to do their own fundraising. We did everything from selling homemade soaps, to chocolate bars. They raked leaves and even had an ice skating party to raise funds. They understood that money is a privilege and must be earned.”

Elia also told us about a literary lesson she gave them: “As they got a bit older, we used one book that was from the Life Leadership organization that I work for. It was quite instrumental in my own teens’ lives. Financial Fitness for Teens is a book that teaches the offense, defense, and playing field of finances and goes way beyond telling a teen how to mow lawns to make extra cash.

“I purchased the book for each of my teens and gave it to them at Christmas with a $20.00 bill as the bookmark. I told them if they were able to read it during Christmas break and have an intelligent discussion with me about the book, I would gladly give them another $20.00. What a great incentive, and what an interesting way to see just who would benefit the most from the book.

“My entrepreneurial son read it first, and truly blew me away the following summer, by adhering to some of the principals. With each lifeguarding paycheck, he gave me 20 percent of the check and would alternate if he wanted it in his Roth IRA or his Mutual Fund account. He also paid mom and dad up front for his portion of the car insurance for the year. Wow.

“My oldest daughter was second to discuss the book with me as proof that she read it. She has the most expensive taste of the three kids, but I know that she manages her money well as she lives alone off the campus of her law school. I peek at her checking account from time to time (as she never got around to removing my name off of her account when she was a minor) and I see that she is always in the black.

“My middle child was the last to read the book, right under the wire of Christmas break being over. She is the child who is thrilled to wear big sister’s previously worn formal wear to school dances and walks straight back to the clearance rack of any store she shops in. She impressed me the most one day when she was checking out at the register. The sales lady was trying hard to do an upsell or at least get her email information. Katie simply said, ‘Na, I don’t shop much.’ That was truly a parent’s dream.

“Other things we had done as parents included never paying for our children’s cell phones, never giving an allowance (although we occasionally rewarded good grades with some cash when we had some to spare), and always letting our children know where we were financially.

“When all three applied to colleges, they applied to several, so that they could weigh the best deals, even barter with other schools for a better scholarship offer and get the best bang for their buck.

“Finances are nothing to hide from and because schools generally don’t teach anything about finances, we had to teach it at home.”

Entrepreneur and founder of Skubes (@SkubesEd) Bryan Wetzel told us about his personal experience preparing his teenagers and college-age kids for their financial lives:

“First of all, too many parents these days pay for everything their kids get even while they’re in college. I’m astounded by how many kids these days didn’t have a part time job when they were in high school and some while they were in college. So they are entering the real world with no understanding or value for what they’ve earned or what they are spending. My kids were helped with the purchase of their car and they have to pay $100 towards their insurance each month.  This means they are required to maintain a part-time job in order to cover their expenses. One of my kids needed a new car and I bought it for them and they make the payments to me. I’m not doing this to hurt them or be greedy, I’m doing it to teach them responsibility.

“The second thing I did and will come back to occasionally is I had my teenagers sit down at the kitchen table with a notepad as I spouted off all the monthly and yearly bills my wife and I pay.  Then I had them add up the total with their phone calculators. When they were done I told them this is what it takes to have a house, two cars, food and the basics. NO entertainment or savings was added to the list. I wanted them to have a number in their heads that was realistic.  I had watched them be excited about having a $1,000 in savings or that their paychecks were $300 for two weeks work and realized that they don’t have a realistic idea of what kind of money they will have to make to have a comfortable life.

“Bottomline, I’m in the education industry and I feel like kids are not being educated on finances or the value of money enough. Especially where credit is concerned. The fourth month that my daughter was paying her car payment to me she wanted to push back the date that she paid me by four weeks so she could go on a vacation with her friends. I told her that the bank I was paying would not be good with that and in fact, would ding my credit and I would in turn have to take her keys. She rationalized how unfair that was but she’s getting an education about how the world of money and credit work. I have pitched ideas to several school systems about a program that would be ongoing through the high school year that taught about finances and credit but very few administrators have this on their radar. They are too focused on the scores for math and science.”

Through a mix of clever solutions and tough love when necessary, you can make sure your kids are financial masters. Teach them well enough, and maybe they’ll be
lending
you money one day!

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Contributors
Leslie Elia (@LifeLeadrship) and her husband have been married for over 30 years. Her careers have included teaching figure skating, using her Health Coaching Certification to teach people to make healthy food choices and most recently working with a Direct Sales Company called Life Leadership. Most of the Life Leadership products are all geared toward getting people out of consumer debt. She began using the principals in her own home and passed them along to her children as well. A former Ironman triathlete, she still enjoys swimming and biking. When not working her Life Leadership business she also enjoys writing and spending time with her husband.
Howard S. Dvorkin (@HowardDvorkin)  is a two-time author, personal finance expert, community service champion and Chairman of Debt.com (@debtcom). As one of the most highly regarded debt and credit expert in the United States , Howard has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.
Dr. Stacy Haynes (@Dr_StacyHaynes), Ed.D LPC, ACS is a counseling psychologist who specializes in the needs of children, families and parenting concerns. Dr. Haynes has over 15 years experience in the treatment of every day challenging family concerns. She believes in making a difference one person at a time.
Brad Kingsley (@maximize_money) is a certified financial coach helping people create a plan for their finances to achieve big goals like becoming debt free, paying for college, and preparing for a comfortable retirement. Visit his site at MaximizeYourMoney.com.
Bryan Wetzel (@SkubesEd) is an entrepreneur who has started multiple companies. Two of those companies were acquired as a turnkey solution to a larger companies needs, the third was a production company, which he managed for 14 years. The fourth company is Skubes, founded in 2012, which is currently in operation and growing in the education industry today and was recognized by Dig South as one of the best education startups in the country.

Can Bad Credit Keep You From Getting a Job

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You had trouble keeping up with your bills, and it led to bad credit. Now you want to fix your financial life by finding a better paying job.

Unfortunately, we’ve got some bummer news. That new job you’re applying for to help you fix your bad credit? Your bad credit could keep you from getting it!

Is that fair? Not at all. It’s a terrible, vicious cycle. But you’re better off knowing the obstacles you’ll face so you can be prepared. We spoke to the experts to bring you the truth about how your credit can affect your job prospects and what you can do to overcome it.


How big is the risk?

We know that potential employers CAN check your credit history when determining if they want to hire you, but WILL they? According to the experts we talked to, it’s certainly a factor that employers may consider, but isn’t necessarily a standard hiring practice.

Leadership coach Elizabeth McCourt (@ecmccourt) told us that a potential employee’s money situation has always been a factor in her particular sector of experience:

“As a recruiter in the financial services industry, I can tell you that having a clean financial record is very important. If there is a bankruptcy in your past or other credit issues, there is a high probability that this will affect the chances of getting a job offer. Particularly in the financial services business, there are strict compliance rules and firms see credit or finance issues as a potential red flag for problems down the road. Financial issues or bad credit score are almost always a road block into this particular industry.”

Outside of the finance sphere, it’s an issue you’re somewhat less likely to run into. Roy Cohen (@RoyCohen), career coach and author of The Wall Street Professional’s Survival Guide, could only recall one client running into an issue like this: “Only once in my (very long) career has a client been rejected for a job because of a bad credit report. We later discovered that the firm was about to announce a reduction in force. So, we were actually uncertain if, under different circumstances, he could have successfully talked his way out of losing the job offer.”

Cohen did acknowledge, however, that it’s more likely to be an issue when applying for jobs that require money handling. He told us “the only exception” is “jobs in which the employee handles money, has credit authority, or makes decisions about the disbursement of funds.” He went as far as to say “When clients with credit problems reach out to me I typically discourage them from pursuing an option where I know they will be rejected. It simply makes zero sense. So failure and rejection have been mitigated.”

Consumer rights attorney Larry P. Smith (@LarryPSmithLaw) explained that even if a potential employer isn’t looking at your credit history specifically, they may still pull your credit report: “A credit score can affect your job chances by getting you denied employment. There are limited reasons why someone can obtain a credit report or consumer report about a person. One of those reasons is to review an employment candidate. In most instances, employers obtaining reports about employees are not obtaining credit information. Rather, they are obtaining other background information–such as arrest or conviction records. Those reports are similarly governed by the Fair Credit Reporting Act. However, some employers do seek out credit information about job candidates. In some industries, employers are concerned about having employees with a solid credit background. If someone is being hired to handle money or will be around money, then an employer may be concerned that the person is responsible with money or not desperately broke where they can be a danger of stealing. In those instances, an employer can review a credit report, note a low score, and deny them employment based upon that. Note that there are certain legal requirements that come with rejecting a potential employee based in whole or in part on information contained in a credit report.”

Smith did assure us, however, that there are states in which a potential employer is restricted from rejecting you based on your credit: “Some states have enacted laws to cover this and provide that it is illegal to review credit information of a potential employee before hiring. However, there are some caveats to those statutes. First, most of those statutes also provide for an exception to the rule if the person is applying for employment in the financial sector or at a job where money is being handled. Second, the federal FCRA preempts any state law. That is, if it is inconsistent with the federal law, then it is a null and void law. Many states have come into conflict with the federal law, and as such, we caution to rely on the federal law. The FCRA allows potential employers to review credit reports and make employment decisions based thereon.”

How can you protect yourself?

No matter how small or large the risk might be, it pays to be prepared. You’d rather have a strategy in case your credit comes up than try to explain how you didn’t think they would check.

Here’s what Cohen recommends: “Disaster planning is effective. When you anticipate the very worst that could happen and prepare various likely scenarios, you are in a better position to either present the problem up front or offer up a reasonable explanation. Most credit problems have a legitimate origin, like a medical problem or divorce. Many of the companies that use credit reports are willing to overlook the issue as long as it doesn’t appear to be a pattern of behavior. Besides, in at least 10 or more states it is illegal for companies to request or use credit history in making a decision to hire a prospective employee.”

Life coach Jeff Altman (@TheBigGameHuntr) told us what you should do if you’re worried your bad credit might keep you from a job:

“If you know there is a risk of a problem (for example, if you are interviewing for a job with a bank or a financial institution that you know will do a review of your credit score), it is better to be proactive with HR during your interviews to see whether or not the impact of having a poor credit score is, ‘terminal.’

“After all, why go through so many interviews and the heartache of rejection at the end if you will be turned down no matter what you do or say?

“You can talk about how your wife/husband/partner had a business fail and how it affected the two of you. You can talk about how the two of you have been working to get out from under. You can speak about the effects of medical bills, being unable to find the job for a lengthy period of time, or any other cause that has resulted in poor credit showing up on a report.”

And if they don’t listen?

“If a firm is going to be heartless at the beginning, I can assure you they will be heartless at the end.” (You can also read more of Jeff’s thoughts about credit and job hunting in our previous blog entry “How Fixing Your Credit Can Fix Your Future“.)

You can’t repair bad credit in a night. But you shouldn’t let it stop you from trying to get a better job if you’re aspiring for one.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN | Google+


Contributors
Jeff Altman(@TheBigGameHuntr) The Big Game Hunter, has helped organizations achieve their objectives by hunting down leaders and staff as employees or consultants since 1971.
Roy Cohen (@RoyCohen) is a career counselor and executive coach, and recognized as one of the country’s leading experts in Wall Street career management.  In addition to numerous media appearances including The Today Show and CBS This Morning, he serves on the advisory board of Men’s Fitness Magazine and he was selected in 2013 as the official career coach for the movie, Lee Daniels’ The Butler.  He is also the author of the best-selling career book, The Wall Street Professional’s Survival Guide.
Elizabeth McCourt(@ecmccourt) JD, MFA, CPCC, ACC is the President of McCourt Leadership Group.  She has been a financial services recruiter for 17 years and is also an executive coach, certified by the Coaches Training Institute (CTI), in addition to certifications in the Hogan Leadership Assessment and in Systemic Team Coaching. Prior, she was a trial lawyer in New Mexico with a JD from Loyola University and an undergraduate degree in Finance from the University of Maryland.
Larry P. Smith (@LarryPSmithLaw) is a consumer rights attorney, concentrating his practice in the areas of Fair Credit Reporting Act and Fair Debt Collections Practices violations, as well as consumer fraud claims and lemon law.  He is the Managing Partner at SmithMarco, P.C. in Chicago, Illinois.

Discussing Finances With Your Partner: How to Talk About Credit as a Couple

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Fixing your own bad credit is hard enough, but adding another person to the mix can just make things even more complicated. On the one hand, working on financial issues as a team can help you both stay dedicated and allow you to assist and support each other. On the other hand, money can be a sensitive subject, and the last thing you want is for your money situation to negatively affect your relationship.

But not talking about your credit and your finances, in general, could lead to even bigger relationship issues down the line. Just imagine if a financial emergency comes up, and neither you or your partner can qualify for a good loan because of bad credit. Better to have these difficult conversations now, before things are bad because it’ll only be more stressful if you try to kick the credit can down the road.

So how can you have the credit conversation without hurt feelings? We spoke to the finance experts as well as the relationship experts to bring you all the advice you need.


Put the credit reports on the table.

Relationships are built on trust, but you can’t share something you don’t know. That’s why your talk about finances should start with both of you finding out your current credit scores. Here’s what Kristin McGrath, editor of CreditCardForum.com (@CreditCardForum), had to say on the issue:

When you’re ready to have the credit talk, both parties should go to AnnualCreditReport.com and pull their credit reports. You can get one free report per year from the Big 3 credit bureaus. Then sit down and show each other your reports. This is a great starting point because credit reports don’t lie. One partner can’t fudge the amount of their outstanding student loans. The other can’t ‘forget’ to mention that they have been carrying a credit card balance that’s $5,000 and growing. It’s all out there on the credit report. It can be difficult and embarrassing to say out loud that you have more debt than you’d like—so pulling your report and handing it over to your partner does the work for you.

“I suggest meeting in a neutral, public location, like a coffee shop, for this reveal. Finding out your partner has more debt than you thought can be shocking, and admitting you have a lot of debt can be difficult emotionally. Meeting in public can help mute any unhealthy knee-jerk reactions and keep the conversation civil and focused.”

And what do you do once it’s all literally and figuratively on the table?

“Once you have the numbers in front of you, you can start prioritizing debts to pay down. Schedule regular credit check-ups at the coffee shop going forward. I suggest putting an end time on these meetings, just as you would with a business meeting. Have plans immediately following the meeting to enforce the end time. This helps ensure you make productive use of your time and prevents these credit check-ups from becoming emotional and drawn out. Put the work in and then enjoy the rest of your day together.”

Remember that you’re on the same team.

Talking about finances can require some hard truths, so it’s important you and your partner do everything you can to make sure no one’s feelings get hurt.

Whitney Shayo (@WhitneyShayo), writer and editor at Live Your Best Marriage, suggests a couple “attack the issue as a team and to agree that it’s not ‘his money, his mistakes’ or ‘her money, her mistakes.’ It’s about the two of them attacking the problem, not one another.”

Brett Graff (@BrettGraff), The Home Economist and author of “Not Buying It,” urged couples to think of financial conversations as discussions about their futures and shared desires: “A couple shouldn’t look at money as though it’s a tacky subject or a business matter. Money is what you need to achieve your goals in life—do you both want to lay roots and own a home or does one of you want to rent and be mobile, moving around the country and exploring new lifestyles. Do you want to have an early retirement or work into old age? These are lifestyle goals that involve your hopes, your dreams, and your credit. So discuss them as you would any other matter.”

Justin Lavelle, chief communications officer and editor of PeopleLooker.com (@PeopleLooker), had this to say: “Review spending patterns and correlate those spending patterns with items and the person that buys most for the two of you, i.e., groceries, laundry, medical, etc.. This type of skewed spending needs to be identified so as not to unfairly allocate excess to one person. After ‘necessaries’ have been removed, do an audit of what is left. Each person should justify why they spend what they spend. If this causes a fight or some pushback, you have probably identified wasteful spending.”

Bola Onada Sokunbi, finance expert and founder of CleverGirlFinance.com (@CleverGirlCGF), offered her own set of tips:

“Tip 1: Be honest with each other about your finances. If you are in a serious relationship, you want to be honest with each other about your finances and financial situation so it doesn’t come back as a problem later on. Talk about your overall financial picture including your credit and your debt and lay things all out so you are both aware of each other’s financial obligations. It’s also important that in your conversations you talk about your goals and ambitions, particularly around improving your finances together as a team. This will help you guys develop a joint focus on where you want to get to with your finances.

“Tip 2: Remember it’s not a fight. Talking about money is not synonymous with getting into a fight, so don’t make it one. Plan a nice dinner, go for a long walk… basically, create a comfortable environment where you can both talk about your finances. Discuss your future plans and dreams together. Set goals for how much you intend to save and how soon you want to pay down debt or improve your credit together. Keep in mind that you don’t need to talk about all your entire financial situation in one conversation. You can talk about one topic over dinner and save the other topics for a separate occasion. This way things don’t get too overwhelming or stressful. Remember, it’s a conversation so be sure to listen to your partner’s perspective, ideas, and thoughts as well.

“Tip 3: Budget and set goals together. Put some time on the calendar once a month to budget as a team. This could include talking about your spending for the next month, any major expenses coming up and your savings and investment goals. You can also create fun money challenges to do together each month. Remember your significant other is on your side (they are basically your built-in support person) and planning out your finances together will help you accomplish your goals faster.

“Tip 4: Don’t get on each other’s nerves about every single cent. You don’t have to be on top of each other for every single penny that you each spend. This can be really annoying especially if you were used to doing your own thing with money before you got into a relationship. One way to get around this is to set spending limits with each other and decide that if you intend to go over that particular limit then you both need to talk about it and agree on things”

Watch your language.

If you’re having to constantly watch your language around your partner, you may have some relationship issues to work on. But when it comes to sensitive subjects like finances, even the closest of couples can risk hurt feelings if they aren’t expressing themselves in the best way possible. That’s why certified financial expert Maggie Germano (@MaggieGermano) gave us a crash course on how to choose the right words when you’re talking cash as a couple:

“It’s so important for couples to talk about money, especially early on in their relationship. It’s just as important as whether or not you want to have children, so couples definitely need to be on the same page.

“If you’re going to understand and be understood by your partner, you both need to know where you’re coming from regarding money. You need to know if there’s debt, avoidance, differing savings goals, or confusion around money. You need to know each other’s financial hang-ups and dreams.

“Whether it’s splitting the bill, spending less on activities, or saving for the future, making money demands inside a romantic partnership still feels taboo and awkward for many people. But a ‘money talk’ is the only guaranteed way you’ll understand your partner’s—and your own—needs better! Mutual understanding is a double win.”

Here are Germano’s top tips:

“1. Be honest: It’s really hard to be vulnerable. Money can come with so much baggage and shame, but it’s essential that you’re honest with your partner. This is presumably the person you love and are committed to being truthful with. Ask them to listen to your money story without judgment, and tell them about any hang ups or negative history you have with money. Tell them about your financial dreams. This will help them to understand you better, and hopefully be more open to what you need financially.

“2. Use ‘I’ statements: I’m sure you know how easy it is to feel defensive during difficult conversations. If the conversation is about your partner’s money habits, you want to take extra care to avoid accusatory ‘you’ statements; they’ll tune you out right off the bat. Awkward conversations tend to go better if you approach them in terms of what your own needs are, rather than what the other person is doing wrong. Simply put, use ‘I’ statements.

“3. Frame the conversation around your goals: Instead of just saying that you want to ‘spend less in order to save money,’ be specific. Explain that there is a true end goal (or several!) in mind. Are you trying to save money so that you can fulfill your dreams of traveling abroad? Do you want to save so that you can buy a house some day? Do you want to avoid interest rates by paying down your credit card debt? Explain these things to your partner! When you talk about your goals (instead of your failures or insecurities), you’re living in an abundance mindset, rather than in a scarcity mindset. Not only is that better for you, but it will make your partner more receptive to what you’re saying.

“4. Ask what your partner’s goals are: Your partner might not have concrete financial goals yet. But everyone should! Once you have defined your goals and written them down, it becomes much easier to create a plan and work towards reaching them. If you encourage your partner to set their own goals, then the two of you can support each other on your plans and accomplishments. Just like it’s easier when you have a workout buddy, it’s easier when you have a saving buddy. Creating and comparing goal lists will reveal how compatible your goals are and help you determine whether you can work towards your financial dreams as a team.”

First comes love, then comes…

Marriage isn’t for everyone. But if it is in the future (or present) for your relationship, then it’s all the more important to have your shared finances in order. Better to have some awkward talks with your significant other now than to find yourself having an awkward (and expensive) talk with a lawyer one day.

Susan Trombetti (@Exclusive_Match), matchmaker and owner of Exclusive Matchmaking, offered up some advice for anyone who might be married or looking to get married and needs to have the finance talk:

As a matchmaker, clients want financially sounds matches. This is an issue as a matchmaker and relationship expert that I have clients come to me frequently about. From taking on someone else’s debt, to wanting to know if a new partner is financially okay, to discussing your own issues, it is a touchy subject. But with the right tools, you can make sure it ends up being a topic to bring you and your partner closer together.

“Prenups address financial issues at times and have nothing to do with a split. A prenup when you are getting married helps discuss your finances to make sure you and your partner are on the same page. It doesn’t need to mean that you are planning on a divorce; it can just be a step in the marriage to make sure your financial situations are on the right track.

“It’s a necessary part of becoming a couple when you are merging bank accounts to discuss your credit issues and financial issues. Their history is important because it affects your current financial pic. Higher interest rates mean less money to fund your lifestyle. So be open with your partner if you have some issues and be open to asking your partner about their issues! By asking and accepting their issues you will establish an even deeper trust in the relationship.

“Sometimes if you feel too awkward asking, see a financial advisor, take some financial workshops, and make sure you totally agree on how the money will be spent prior to marriage. For example, if you have leftover money after paying your bills, is it going to savings or is one of you going to be buying a boat? Your expensive handbags can add up as well. These can be huge arguments if they aren’t discussed prior to marriage or living together. Make sure you are on the same page when it comes to saving and paying off the debt you have prior to getting together. Is your partner going to help with your debt? Or is your own paycheck just going towards that? Being on the same page from the start is vital.

“A financial advisor is a neutral third party that can spell it all out and help you make educated decisions. It’s a touchy subject, but ask a couple other friends what they do that works for them! Hearing other’s ideas might help!

“I see many people come to me after first marriages break up over money and not being honest about money issues. You don’t want to be fighting over money. This is a huge topic so don’t skip over it.”

These aren’t fun conversations to have, but they’re conversations any serious relationship requires. So as our experts said, stop putting them off, get through them together, and you’ll be even stronger for it.

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Contributors
Maggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit MaggieGermano.com.
Brett Graff (@BrettGraffhas been seen writing and reporting on money and personal finance in The LA Times, Yahoo! Finance, Cosmopolitan, The New York Times and the Fiscal Policy Institute, to name a few. Brett also provides her insight in the column, The Home Economist, which is nationally syndicated and published in newspapers all over the country. Her book “NOT BUYING IT: Raising Happier, Healthier & More Successful Kids” is now available!
Justin Lavelle (@PeopleLooker) is the Chief Communications Officer and blog editor for PeopleLooker.com. PeopleLooker is a leading source of online background checks and contact information. It helps people discover, understand and use public data in their everyday lives and can provide peace of mind by offering a fast, easy and affordable way to do background checks. PeopleLooker allows individuals to find more information about people, phone numbers, email addresses and property records.
Kristin McGrath (@CreditCardForum) is the editor of CreditCardForum.com, a one-stop resource for and by consumers seeking in-depth information, opinions and advice on credit cards. CCF features an active discussion forum as well as card ratings, expert interviews and credit-building guides.
Whitney Shayo (@WhitneyShayo) is a writer/editor for liveyourbestmarriage.com and provides encouragement for couples as they go through the ups and downs of life. You can find her podcast on: iTunes and SoundCloud
Bola Onada Sokunbi (@CleverGirlCGF) is a Certified Financial Education Instructor (CFEI), finance expert and founder of clevergirlfinance.com, a platform that empowers and educates women to make the best financial decisions for their current and future selves and to pursue their dreams of financial independence in order to live life on their own terms.
Susan Trombetti (@Exclusive_Match) is a leading celebrity matchmaker, relationship expert, and CEO of Exclusive Matchmaking. Susan has helped discerning singles across the country discover long-term relationships and partnerships that are both rewarding and fulfilling. Susan also specializes in assisting the rich, famous, and Hollywood’s A-Listers in their romantic life and has been seen on Fox, ABC, NBC, ABC, Cosmopolitan, Shape, and as a guest contributor of The Wall Street Radio, to name a few.

How Bad Credit Can Affect Your Utilities

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A utility bill is a form of credit, which means that utility providers will take your credit score into account.

If we told you that having bad credit would make it harder to get a loan, you’d probably say “yeah, that makes sense.” People with low credit scores usually expect to be turned down for loans from traditional lenders and to have to pay more for the loans they can get approved.

But what if we told you that bad credit could affect more than that? Because guess what? It can. From landlords to some employers, having a spotty credit history can make you seem like a not so great candidate.

It can even affect something lots of people take for granted: your utilities. That’s right, a bad credit score could mean that even the water coming out of your tap is going to cost you extra.

Utilities are a kind of credit.

When we talk about utilities we’re talking about basic services for the home like water, gas, and electricity, as well as the internet, phone and cable. If you move into a new home or apartment and have bad credit, you might find that hooking up your utilities is a little bit harder than normal—and more expensive.

“Like many creditors, utility companies prefer customers with good credit rather than bad credit given they will be using the business’s product in advance of paying for it,” says Natasha Rachel Smith, Personal Finance Expert at TopCashBack.com (@topcashbackusa).

“Having bad credit will affect how reliable utility companies perceive you to be, as a shaky payment history could make you look like a liability.”

Technically, utilities are a type of credit—like a loan. They’re called “open accounts.” Every month you have an open balance that is to be paid in full. These accounts do not involve any interest and the cost of lending is included in the prices charged.

Still, there is a risk to the utility providers that a service-user might not be able to pay off their account in full. To account for that risk, utility providers do take into account a person’s credit score and history when determining how much to charge them.

Bad credit will increase your costs.

When you’re applying for a loan from the bank, having bad credit usually means that your application is turned down flat. However, some lenders will still be happy to lend to you with bad credit. The difference is that the interest rates these lenders charge will be much higher than the loan you get from a traditional lender.

With utilities, it’s pretty much the same. While there’s a much lower risk of your being denied outright, there is likely going to be an additional cost.

According to Jim Chilsen, spokesman for Citizens Utility Board (@cubillinois), “Keeping a good relationship with your utility avoids a lot of headaches—but a bad credit score is like a bad first date. You don’t want to start off on the wrong foot. That’s because utility companies are allowed to assess you a deposit if you have a low credit score. (Not all of them do it. Also, low-income customers are exempt from this possibility.)”

“Remember, if you are assessed a deposit based on a low credit score, you have a right to get a copy of the credit info that the utility used to make its decision, the same as you would with any other entity that runs your credit history,” says Chilsen.

If you’re applying for utilities with bad credit, Smith says that utility company might ask for a guarantee.

“Many utility companies require a ‘letter of guarantee’ to cover their end in case you become overdue. A letter of guarantee can be a deposit amount or formal confirmation from someone that they are willing to take legal responsibility to pay your bill in the event you don’t,” she says.

Chilsen also warns that “you might have to pay a deposit even if your credit score is good currently. For example, if in the past you’ve gotten your power or gas shut off or if your utility account ‘went into collections,’ the utility can ask for a deposit, even if your current credit score is decent and you do not currently owe it money.”  

Lastly, if you unpaid accounts with a utility company, they could disconnect your service until you pay what you owe.

How do these deposits work?

Smith says, “Many new customers of utility companies have to provide a deposit amount within their first bill, which is usually the set or approximate cost of one month’s service; but if you have bad credit this deposit amount could be even higher—perhaps in the hundreds.

“After you’ve shown you’re a reliable payer, usually after a year, the deposit is given back to you.”

And how big can these deposits get? Chilsen offers an exact amount:

“It’s one-sixth of your annual bill, or if you don’t have a usage history at the property, one-sixth of the property’s previous annual bill. For commercial customers, it’s one-third.”

He also says that you can get the deposit back after one year, but it’s a little bit more complicated than that.

“How do you get back that deposit? Over the next year, you have to pay at least nine bills on time. Then you can get the deposit back, with interest.”

“The moral of the story is: Do whatever you can to keep current on your electric and gas bills. On the flip side, if you do not use credit much, a utility account can be one way to start establishing a credit history,” says Chilsen.

And he’s right. Your credit score doesn’t just affect your utilities. How you handle your utilities can also affect your credit score.

How your utility bills can affect your credit.

Paying your bills on time is important. Really important. In fact, your payment history makes up 35% of your credit score. It is the single largest factor in determining your creditworthiness. (Your amounts borrowed is also very important, making up 30% of your score.)

And when it comes to your utilities, some of your payments can be included in your score.

“We counsel utility customers to do everything they can to keep current or to show the company that they want to keep current with electric and gas bills,” says Chilsen.

“Gas and electric utilities will report your account to the major credit bureaus—so that means habitually late utility payments can hurt your credit score. The data utilities report to the bureaus is how many days past due you are or were, and what the dollar amount owed was at that time.”

Chilsen warns that “getting behind on your bills can set you on a spiral that leads to disconnection.”

“And once you get disconnected it’s difficult and expensive to get turned back on. Utility companies can make you pay the entire debt, plus a deposit of at least one-sixth of your annual bill, plus a reconnection fee.”

There’s another way that utilities can negatively affect your credit. According to Smith, “If you fail to make utility payments on time, your provider can pass the bill to a debt collector to chase you for the payment. That can lead to a negative impact on your credit standing.”

Having outstanding debt collections on your credit report is never a good thing. Fail to pay your utility bills and these “derogatory marks” on your report could really drag your score down.

In the end, your utility bills are like any other bill: failing to pay what you owe (and pay it on time) could have serious effects on your credit score and general financial wellness. While no overdue bill is ever worth taking out a predatory payday loan, it’s always good practice to have an emergency fund or some safer borrowing options if you find yourself short on cash.

Utilities exist to make our lives easier. Don’t let utility bills make your life more difficult.

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Contributors
Natasha Rachel Smith, Personal Finance Expert at TopCashback.com (@topcashbackusa), is based in Montclair, NJ. Natasha’s background is in retail, banking, personal finance and consumer empowerment; ranging from sales to journalism, marketing, public relations and spokesperson work during a 17-year career period. She’s originally from London, UK, but moved to Montclair, New Jersey, USA, several years ago to launch and run the American arm of the British-owned TopCashback brand; a global consumer empowerment and money-saving portal company.
Jim Chilsen (@cubillinois) is the spokesman for the Citizens Utility Board, a nonprofit, nonpartisan organization that has been representing the interests of residential utility customers across Illinois since 1984.