If you spent last week living under a rock that was buried under another, much larger rock, then you might have missed our big announcement: We’ve launched a new video series called “How to Money”!
Every episode we talk about a different financial topic. Some of these will be everyday terms, while others will be a little less common.
If you haven’t watched episode one, you can check it out here. It covers the basics of Annual Percentage Rates, also known as APR. Check back for new episodes every Monday.
Enjoy!
What are credit cards?
Okay. So we’re pretty sure you know what a credit card is. These days, they’re pretty much inescapable.
But they can also be pretty dangerous. According to a recent study, the average American household has over $16,000 dollars in credit card debt. Plus, credit cards come with an average annual percentage rate of 16.5%, which basically means that that the average household is paying over $2,500 in credit card interest alone every year.
Yikes, right?
How do credit cards work?
Credit cards operate as a revolving line of credit, which means that they’re a little bit different than a regular personal loan. With a regular loan, a lender gives you a set amount of money. You then pay that money back to the lender over a set period of time through a series of regularly scheduled payments.
With a credit card (or a revolving line of credit) the lender doesn’t give you a set amount of money. Instead, they give you a set amount that you can borrow up to. This is referred to as the card’s “credit limit.”
You can then borrow as much or as little money as you like–so long as what you borrow doesn’t exceed the credit limit. Your credit card balance is a “revolving” balance, which means that amount you have to spend against your credit limit replenishes as you pay your balance down.
With a credit card, you’ll still get charged interest–because that’s how the lender is making money on your loan. However, with a credit card, you’ll only get charged interest on the amount of money that you actually borrow, not on your total credit limit.
Once you’ve spent money on a credit card, you’ll have to make a minimum payment every month. It’s usually something like two to four percent of your total balance plus whatever interest has accrued.
These monthly minimum payments are pretty small, which means it could take you several years at least to pay the card off making only the minimum payment. And that’s by design. The longer it takes you to pay off your card, the more interest you get charged, and the more money the credit card company makes.
How to use credit cards properly.
One of the great things about credit cards is that a lot of them come with points and rewards. By spending money your card, you can rack up those points and use them for air travel, discounts, gift cards, etc.
But in order to use a credit card properly, you should be paying off your full balance every single month. Do you spend $500 on that card? You pay that $500 off immediately. That way, you get the rewards without accruing interest.
Wait. Why wouldn’t you accrue interest, again?
Well, that’s because credit cards come with a one-month grace period–which means that a purchase made on the card doesn’t start accruing interest until one month after that purchase is made. So paying your balance off in full every month basically means you get the rewards for free
Remember, a credit card isn’t an excuse to spend beyond your means. While they can be handy in the case of absolute emergencies, you should otherwise only be using your card to spend money that you already have. What topics would like us to cover in future episodes of How To Money? You can email by clicking here or you can let us know on Twitter at @OppLoans.
Secured Credit Cards: 3 Ways to Use One to Rebuild Bad Credit
Secured credit cards are available for folks with bad credit, and using one responsibly can help fix your credit score.
There’s a saying in sports that “the greatest ability is availability.” Basically, if you aren’t available to play—usually because you’re either injured or suspended for fighting/using PEDs/refusing to like your coach’s Instagram posts—then you’re not of much use to your team!
The same feeling can hold true for folks who have bad credit and are trying to apply for a loan or credit card. Who cares if this American Master Double Obsidian Super Card gives you 10,000 miles for every dollar spent? If your credit score won’t let you get approved for it, then it’s pretty much useless.
Meanwhile, being able to use credit responsibly is an important part of fixing your credit score. Making payments on time on a loan, credit card, or utility bill will show up on your credit report, which will, in turn, be reflected on your score. In fact, your payment history makes up 35 percent of your total score—more than any other factor!
That’s where secured credit cards come in! They are a much more limited product than your traditional credit card, but you’re much more likely to qualify for one—even with bad credit. The best ability is availability, and secured credit cards are available as all heck.
What is a Secured Credit Card?
A secured credit card is like a combination of a credit card and a debit card. Whereas unsecured credit cards approve you for a credit limit based on your creditworthiness, a secured card has you make a cash deposit to back up that limit. If you deposit $500, you get a $500 credit limit, etc. Many cards simply link to your savings account to use those funds as your deposit.
These cash deposits allow lenders to make these cards available to people with not-so-hot credit. Remember, a low credit score means that you have a history of using credit irresponsibly. By using your deposit as collateral, a lender is able to greatly reduce their risk in approving you. If you fail to make a payment, they can just take the payment out of your deposit.
“When you’re shopping around for a secured card, don’t expect to see lots of rewards or other benefits,” says John Ganotis, founder of CreditCardInsider.com (@CardInsider). “A secured card serves a very specific purpose: to help you build credit.”
And if you want to use a secured card to improve your score, there are three things you need to do
1. Make your payments on time
Rod Griffin is the director of public education for Experian (@Experian), one of the three major credit bureaus. These are the companies that create and maintain your credit reports.
According to Griffin, “A secured credit card can help you improve your credit scores by giving you a chance to demonstrate that you can manage credit responsibly. By making all your payments on time, you will be able to start building a positive payment history.”
“In time,” says Griffin, “your lender may be willing to convert your secured card to a traditional credit card account.”
While a secured card can help you build up your credit score, Grifin says that the rate at which your score improves will depend on how much negative information is already on your report:
“Just how much a secured account will impact your credit rating depends in part on your unique credit history. If you are just starting out and this is your first credit account, it will be easier to establish a positive credit history than if you have had credit difficulties in the past.
“If your report shows negative credit history such as delinquencies, collection accounts, or bankruptcy, it could take longer to see substantial improvement in your credit scores.”
2. Keep your credit utilization low
Remember, when you get a credit limit on a card, it’s not an invitation to spend up to that limit. You don’t have to spend that much. In fact, it is highly encouraged that you do the opposite.
According to Ganotis, “The percentage of your credit limit that you’re currently using can have a big impact on your credit scores.”
In order to maximize your score, Ganotis recommends that you maintain a credit utilization no higher than 10 percent:
“For example, that means if you have a $1,000 credit limit and you want to maximize your credit scores, make sure you don’t have a balance of over $100 when your statement period closes. You could achieve that by either not spending more than $100 over the statement period or by paying down part of your balance early.”
People who practice strong financial discipline are able to spend a lot on their credit cards and then pay off the whole balance immediately before any interest is due. They never spend more on their card then they have in their bank account. They just use their card to rack up points and maintain their high credit rating.
Someday, you might be able to be like them. But until then, it’s best to focus on keeping your credit utilization ratio low—if not paying off the card entirely.
3. Make sure your payments are being reported
Your credit score is based on the information in your credit report. Any time you missed a payment, took out a new loan, or got sent to collections, those actions got reported. Similarly, every bill you paid on time and every credit card you paid off got reported as well.
If you have a secured card with a company that doesn’t report to the credit bureaus, then it won’t matter how many on-time payments you make and how low you keep your balance. None of that will end up on your credit report, so none of it will help your credit score.
“If you are considering opening a secured account,” says Griffin, “first make sure it will be reported to at least one of the national credit reporting companies. While most lenders do report secured accounts, you may come across some that do not. If the account is not reported, it won’t help you build a credit history.”
And before you get too clever, it doesn’t really work the other way around. While late payments might not be reported to the bureaus either, an extremely delinquent account will likely end up getting sold to a debt collector… a collector who will then report you to the credit bureaus, hurting your credit score even further.
Secured credit cards can be a great tool for fixing a bad credit score, and they’re a much better option than bad credit loans. But that’s all they really are: a tool. Just like a hammer that can’t work without someone to swing it, a secured card can’t fix your credit all by itself. It’s still up to you to use the card responsibly.
Have you used a secured credit card to improve your credit score? We’d love to hear about it! You can shoot us an email by clicking here or you can find us on Twitter at @OppLoans.
Contributors
John Ganotis(@CardInsider)is the founder of CreditCardInsider.com John comes from a diverse background of software development, web publishing, and personal finance. He knows firsthand what it’s like to accumulate credit card debt, pay it off completely, and then start using credit to his advantage. His passion for technology and attention to detail have made Credit Card Insider one of the premier credit resources on the Internet, and he is eager to help others tackle debt and use credit as a powerful tool rather than fear it.
Rod Griffin(@Experian) is Director of Public Education for Experian. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft. He works to help all consumers be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”
How to Use Credit Cards: 3 Basic Tips
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.”
“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.
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.
6 Common Credit Myths Debunked!
Rod Griffin, the Director of Public Education for Experian, sets the record straight about what does—and what definitely does not—affect your credit score.
Ever heard that getting 10,000 followers on Twitter can raise your credit score by 50 points? Or that your income determines your credit score?
There’s a lot of so-called “information” about credit scores, credit reports, and loans that you can find online. And—shocker—a lot of it isn’t true.
We asked expert Rod Griffin (@Rod_Griffin), Director of Public Education for the credit bureau Experian to sit down with us and debunk some of the most common myths because, when it comes to your credit, it pays to separate the fake and the factual.
MYTH #1: If You Pay a Bad Debt, It Will Be Deleted from Your Credit Report.
Rod says: “That’s not true. If you have a collection account and you pay it off, it will be updated on your credit report to show that it’s been paid, but it’s going to be on that credit report for seven years from what we call the “original delinquency date” of the debt.
The original delinquency date is simply the date that the account first became late, and it’s the most important date in the credit report because it determines when negative information is deleted. So if you have an account that becomes late, and you never catch up on it, it will get charged off as a loss, and you get sent to collections. Under federal law, the collection agency must report the original delinquency date, so it comes off at the right time.”
MYTH #2: You Should Only Pay 95% of Your Credit Card Balance Each Month.
Rod says: “The myth here is that you need to keep a balance on your credit card in order to help your credit score—and that’s just not true.
The ideal thing to do is pay your balances in full each month if you can. When you pay a balance in full each month it keeps that credit utilization rate [how much of your credit limit you’re using] at essentially zero, which is a low as you can keep it. And you don’t have to pay interest on your remaining balances, so it saves you money.”
MYTH #3: A Divorce Decree Separates Joint Accounts and Removes You from Responsibility for That Debt.
Rod says: “It does not. A divorce decree does not break the contract with the lender. A divorce decree just says that “I am taking responsibility for paying this debt” and “my ex-spouse is taking responsibility for that debt.” And it’s an agreement between you and the court. It doesn’t change the contract with the lender.
So if your ex doesn’t pay a debt that they’re supposed to pay, but it’s joint account, it can still hurt your credit history. In order to change a contract with a lender when you’re going through a divorce, you must go to the lender, and they must agree to change that contract. They won’t necessarily do that. They’re not bound to change it.
So for example: If you have a mortgage, and it’s joint with the spouse that you’re divorcing, you might have to essentially get a new mortgage to pay for that home to separate your spouse from that account. A lender might not agree to do that if you don’t qualify. This myth can really get people into a lot of trouble. Since it’s an angry bitter time, quite often, one spouse or the other will decide they’re going to hurt the spouse they’re divorcing and run up their credit card bill. Then they find out that they’ve hurt themselves as badly as they’ve hurt the other person.”
MYTH #4: You Can Pay Someone to Remove Accurate Negative Information from Your Credit Report.
Rod says: “You cannot. If someone says that they can remove accurate information if you pay them, they’re actually violating federal law. So be very cautious about some who says, ‘If you pay me, I can fix your credit.'”
MYTH #5: Disputing Information on Your Credit Report Will Hurt Your Credit Scores.
Rod says: “That too is false. And a relatively common myth. If there is something in your credit report that you believe is inaccurate, you should dispute it. It’s free. Go to www.Experian.com/dispute and follow the instructions. If you have a personal copy of your credit report, you can enter your number for that report and it will pop up and you can go through it. If you don’t have a report, you can give us some information and we will provide you with a free report right there on the spot. It’s very easy and free and does not affect scores or credit decision in any way.”
MYTH #6: Employers Get Credit Scores and Use Them to Decide Whether You Get a Job.
Rod says: “Absolutely false. Employers never get credit scores. They get what we call an ’employment insight report’ which is a truncated version of a credit report, but they never get a credit score. That’s a very common myth. The employment insight report doesn’t include account numbers because they don’t need that kind of information. They use the information on that report to verify the information you provide in your app. They use it as an identity verification tool.
They will also use the information on that report, for example, if you are applying for a job that involves handling the company’s money. If you’re going through financial difficulties and you’re going to be handling a company’s money, it might be an indicator that they should look further into your background so that they can understand that you wouldn’t be tempted to commit fraud, for example. The other reason that businesses use credit reports is that they can verify your identity for security purposes. So, important and valid reasons to use a report. But employers never get a credit score.”
If you want to know more about how the information on your credit report affects your credit score, check out Rod’s answers in our blog post, “Let’s Get Creducated!”
About the Contributor:
Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.
Rod says, “My goal is to help people use a credit report to be a financial tool instead of a mysterious thing that lenders look at and take into a back room and tell you you’re approved or you’re not. I work to help any consumer be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”
Let’s Get “Creducated”!
Learning the Basics of Credit with Rod Griffin, the Director of Public Education for Experian.
What’s your level of credit education? Do you know your credit utilization ratio at any given moment, or are you more of an “I just maxed out my $1,000 credit card on lottery tickets—that’s investing, right?” kind of person?
No matter what your financial status, being educated about credit and its uses is important. Having good credit can save you money and protect you from payday loan debt traps. If you aren’t happy with your credit score, it can be improved—you just need to know how to start.
We spoke with Rod Griffin (@Rod_Griffin), Director of Public Education for Experian, one of the major credit bureaus, for a high-level refresher on the basics of credit and how you can best use it to improve your financial life. So whether you’re new to the world of personal finance and credit, or you want to revisit the fundamentals before taking on a major purchase (or taking out a loan), here’s a quick guide to the credit basics that can impact your life.
Lesson 1: Your Credit Score Matters
What is a credit score?
Rod says, “A credit score is a tool that lenders use to analyze the information on a credit report and determine lending risk. It’s kind of like a grade on a school paper—the school paper is a report that represents your credit history. The grade on the paper is your credit score. It’s what represents that information in that credit report. And a credit score is used by lenders to determine the risk of lending to a person.”
Why are credit scores so important?
“The better your credit scores are, the lower the risk of lending to you—meaning you’ll repay that loan as agreed. This means that you will qualify for lower interest rates in most cases, which will save you money and help you get the credit you need. So a credit score is important because it shows lenders that you are a good credit risk based on the information in your credit report.”
Lesson 2: The Key to Your Credit Score is Your Credit Report
Are credit reports and credit scores the same thing?
“It’s important to distinguish between a credit report and a credit score, because they’re not the same thing. And a credit score is not part of a credit report—that’s a very common myth. A credit report is the information about how you pay your debts. So it has info about your credit cards, installment loans, and so on, and whether you paid them on time or not. When a lender asks for a credit report, they can also ask that a credit score be calculated, or they can calculate it themselves, using that information from the credit report. The score is a representation of that information at that moment in time.
When you get your credit score you should also get a credit score report, a document or explanation of what that score means in terms of risk. This will show you if you are a good credit risk, a bad credit risk or a marginal credit risk. And it should include the risk factors that go with that score from your credit report, so you can go back to that credit report and identify those issues.”
Lesson 3: Checking Your Credit Report is Easier (and Cheaper) Than You Might Think
Should I check my credit report? Will it cost me anything?
“I would say, first and foremost, get your credit report. It’s free once every twelve months at AnnualCreditReport.com. And the credit report is what’s really important because that’s the information that you can own and manage and control. Get that credit report free once every 12 months. When you do that you can purchase a credit score, that’s one way. At Experian, you get the free report, and get the score, an explanation of what’s on that score in terms of risk, the scale that is used, and the risk factors in your credit report that most affected that score. You can purchase scores in other places, typically between $15-$20.”
I’ve heard checking my credit report will actually hurt my credit score. Is this true?
“That’s absolutely false. You can check your own credit report as often you like and it will never affect your credit scores or your creditworthiness, or your ability to qualify for credit. When you check your own credit report—and when I say check your own, I mean go to Experian.com, AnnualCreditReport.com, FreeCreditReport.com, those kinds of sites. Not from a lender. If you apply for credit or go to a lender who has to meet the Fair Credit Reporting Act for permissible reporting purposes, or if they have to enter it as if you were applying—then it would result in a hard inquiry, and that would affect scores, minimally. But if you get your own report, that will not affect scores in any way. That will result in a soft inquiry. That soft inquiry is simply a record that you looked at your report. Never be afraid to check your own report.”
Lesson 4: Your Credit Score Can be Repaired
What can I do to help my credit score?
“For most people, particularly in the subprime category, (if their credit scores or poor or won’t qualify them for the best rates), what we typically see are two common issues for their credit scores:
Delinquency Making Payments. With poor credit scores the delinquencies are worse. It’s all related to payment history. For most people, catching up on late payments is the first thing they need to do. Bring those accounts current.
High Credit Card Balances. If you have high credit card balances and you’re maxing them out, that’s going to hurt your credit score significantly.
In most cases, if people can do those two things, their credit scores are going to start to improve.”
What are some of the other factors that can hurt my credit score?
“Other things might hurt a credit score would be:
Applying for a lot of credit all at once. If you have a number of inquiries in a short time, that might drag your score down a bit. Although it typically rebounds pretty quickly.
The length of your credit history. This is just a matter of patience in some cases. If you have a very short credit history, you may have to wait six months or a year or maybe two depending on how you’re using credit. In order to build that score if you’re doing everything else well.
That’s why the risk factors on your credit report are so important. They’ll tell you exactly what the risk factors are that you need to address.”
About the Contributor:
Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.
Rod says, “My goal is to help people use a credit report to be a financial tool instead of a mysterious thing that lenders look at and take into a back room and tell you you’re approved or you’re not. I work to help any consumer be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”
10 Tips for Winning at Black Friday
As you’re sitting down to Thanksgiving dinner today surrounded by your family, just make sure you don’t forget the most important thing of all: your detailed, 19-point plan to leave as soon as possible so you can be ready for Black Friday.
But the planning shouldn’t stop there. In order to maximize your savings tomorrow, you’re going to need a strategy. With that in mind, here are 10 tips and tactics you can use to make sure you come out of Black Friday a winner.
Shop Around
Just because your local Best Buy is advertising a deep discount on Samsung TVs doesn’t mean that it’s the best deal available; the Target down the street could be offering an even steeper discount. But if you don’t shop around, you’d never know it. Make sure you compare prices from different stores and online outlets. A great tip here is to always compare them to the prices being offered from Amazon and Walmart&mdashthose two stores generally offer the lowest prices period. You can also utilize websites like PriceGrabber.com, Google Shopping, and BlackFriday.com, which even has its own mobile app!
Work Together
If you are really serious about your Black Friday shopping, you know that you can’t do it alone. So don’t! Get a group of friends together and start plotting. By figuring out what you all want beforehand and dividing up the different stores, you can take advantage of even more deals. One person hits up Kohl’s, one person hits up Dick’s Sporting Goods, etc. Just make sure that you all figure out how the finances are going to work, so that no one has to spend their holiday season tracking their friends down to the pay them back. That’s no one’s idea of a merry time.
Set a Budget
Here’s a super-secret pro tip: there is nothing in life that can’t be made better by adding a budget. With that in mind, look at your finances and figure out what you can reasonably afford to spend this Black Friday. Don’t just put everything on credit and make solemn promises that you’ll pay it off “later.” Guess what? By the time all that credit card interest accrues, you probably won’t have saved any money at all. Set a budget beforehand and then stick to it. It might be a good idea to include a “random splurge” line on that budget as well. That way, when you’re tempted by that random $5 DVD bin, you won’t feel too much guilt.
Ask About Return Policies
At some stores, the return policies for items bought on Black Friday are … less than generous. For instance, a lot of them add on an extra “restocking fee” for returned items, which means you lose money when you bring the item back. Make sure you do the proper research to find out what these policies are before you buy anything at the store. And if you’re not sure if an item is right—especially when it comes to clothes and electronics—maybe hold off on buying it. You don’t want to get stuck with something you can’t use, even if you did buy it for a discount.
Plan Ahead for Price-Matching
This is another area where you will want to check out the store policies before you decide to shop there. While most stores now have price-matching guarantees, some of them will suspend those guarantees during Black Friday, especially for certain popular items. And even if there are price-match guarantees, make sure you know what kind of evidence of a competitor’s lower prices you’ll have to provide in order for them to match. If you have to go so far as printing out an ad and bringing it with you to the store, so be it!
Bring your Phone
Okay, let’s be honest. You were probably going to do this anyway. Still, your phone is your best friend in situations like this. You can use it look up price-shopping websites and apps, as well as store-specific apps that often hold the key to even greater savings. Many of those apps will let you scan QR codes to help discover or unlock additional discounts. Don’t just head out the door with your phone at 45 percent battery and assume you’ll be fine. This is Black Friday. It’s a jungle out there. Come prepared, or be prepared to leave disappointed.
Beware of Doorbuster Deals
Basically, these are the completely ridiculous discounts that they put right at the front of the store in order to get people in and get them shopping. Doorbusters often feature heavily in the store’s Black Friday advertising, and it can be all too easy to talk yourself into one even if you don’t really need it. And here’s another thing about doorbusters: sometimes there’s a reason that those items are super discounted. You wanna know that that reason is? (Whispers) it’s because they’re kind of lame. Again, to research these items heavily before you leave the house tomorrow. Sure, you might need a new laptop, but you might end up really regretting buying that particular off-brand, refurbished laptop. Savings are important, but they’re not everything. Owning good, quality items is important too.
Shop Online
If you’re not the adventurous type, this is the perfect strategy for you. A lot of the Black Friday deals being offered in-store are also being offered online, so … why bother with the hassle? Now, there are some folks out there who relish the experience of jostling through crowds and fighting for items with complete strangers and standing in hour-long lines and dealing with insanely packed parking lots and … wait, why aren’t we all just doing our Black Friday shopping online? The same price-matching strategies apply, and, sure, you might miss out on a few “only in-store” deals, but you’ll still probably come out on top. Oh, and if this is your preferred strategy, make sure you don’t forget about Cyber Monday.
Shop on Thanksgiving
This might sound sacrilegious but here us out: if you want the very best deals, you might want to cut Thanksgiving dinner a little short. Tons of retailers now are opening their doors on Thanksgiving and offering Early Bird or Night Owl discounts for shoppers who just can’t wait. And who says you actually have to ditch your family in order to go? Heck, bring them along! You can cover more ground that way anyhow, all the while fighting off that post-meal, tryptophan-haze and leaving less room for angry political discussions to break out. It’s a win-win!
Don’t Shop at All!
In all seriousness, Black Friday is kind of like an optical illusion. People are so concerned about “saving” money, that it’s all too easy to forget that they’re still spending money—sometimes a lot of it. Just because it’s Black Friday doesn’t mean you actually have to go shopping. The holiday season doesn’t have to be about flatscreen TVs, designer handbags, or state-of-the-art camping equipment. Plus, the worst way to kick off the holidays is to spend money that you don’t have, racking up credit card bills that you’ll be stressing about for months (maybe even years) to come. Perhaps the best way to enjoy Black Friday would be spending at home, relaxing with your family and enjoying their company. Total cost: $0.
Happy Thanksgiving, everyone! And have a safe, responsible, and enjoyable Black Friday!
PRO TIPS: Answers From Real Personal Finance Experts
Let’s say you have a question about your personal finances. Maybe it’s about how to find a copy of your credit report—is that something you have pay for? Or maybe you want to learn more about building a great monthly budget, like how much room should you leave for unexpected expenses?
With your question firmly in mind, you sit down at your computer, open up Google and type it in. Google responds by delivering you page after page of tips, tricks and … cute panda videos? How do you know that these random web pages delivered to your digital doorstep contain the best advice? Are you really going to put your future into the hands of an algorithm?
Well, we’ve reached out to real life financial professionals from all across the country and asked them what kinds of questions they most commonly received, and what answers they give to them!
Think of it as your “personal finance crib sheet.” Enjoy!
Mark Kantrowitz, Publisher and VP of Strategy, Cappex.com, @cappex
The most common questions I hear about how to pay for college, especially questions about student loan debt. For example, how much student loan debt is reasonable and affordable?
I find that people want short answers, and are more likely to follow the advice if it is encoded as simple rules of thumb. In this case, I usually say that the student loan debt should be kept in sync with income. Total student loan debt at graduation should be less than the annual starting salary, and, ideally, a lot less. If total debt is less than annual income, the borrower should be able to repay their student loans in ten years or less.
Angel Radcliffe, MBA – CEO, CAS Consultants, @Cas_Dallas
Some of the common questions I receive are:
Why do I have three credit reports & scores? Equifax, Transunion & Experian are the largest credit reporting agencies in the US. Years ago, the bureau's only reported by region, they now all report country-wide. A creditor is only required to report to 1 credit bureau, although some creditors may report to all 3, hence why data on your report may vary. (Example: Credit Card A with a 2 year payment history is reporting to Equifax & Experian. You apply for a new card 'Credit Card B' which checks your Transunion report. Transunion is showing no payment history for any account (assuming credit card A is your only credit account) Credit Card B denies you)
How do you budget? When budgeting you want to look at your NET income. Many make the mistake of budgeting from their gross, NET is what you actually bring home AFTER taxes. I teach my clients the 50/30/20 rule, no more than 50% of net income should be spent on needs, no more than 30% on wants, and save at minimum 20% of net income.
What should I look for when applying for credit? When applying for credit, always look for the lowest interest rate. If you are applying for a credit card, look to see if you will be charged any type of annual/program fee, what the interest rate is and if the card has any perks such as cash back or mileage offers. If you are applying for a loan or line of credit, shop around for the best interest rate, be cognizant of the loan terms/length.
How much of a balance should I carry? If you ever have to carry a balance, be sure it's below 30%. 30% is a magic number when it comes to your available credit ratio. Staying below this number will help keep your credit score up, if you should ever carry a balance greater than 30% , you will see your credit scores slump at the drop of a dime. Creditors see you as a risk when you carry high balances and you may be denied credit or your credit limits may be reduced if you carry a high balance for long periods of time.
How to balance one’s long-term debt to asset ratio is the most common question I get.
Just like corporations that take on loans to fund their growth, people can take out 1-3 years loans to fund personal projects such as home improvement, large purchases, and starting a personal business. Especially given the low-interest rate environment we are in, personal loans has never been as affordable. The question is, what is the right amount of loans for you?
My advice is, create a personal budget to assess what amount of principal and interest payment you can afford each month. Use the interest you could afford and work backward to calculate the total amount of loans you can take out. If your project produces income in the future, the cost of the loan would be more than covered by your future cash flows.
Katie Ross, Education and Development Manager, American Consumer Credit Counseling, @TalkCentsBlog
Many of the questions we frequently get from clients are related to common financial myths or where to access certain information. When it comes to credit and personal finance, there is a lot of misinformation floating around. Here are the three most common questions we get:
1) Can I close a credit card account if there is still a balance on the card? Yes, you can! It is a commonly held belief that an account with an outstanding balance cannot be closed until the balance is paid. The money does have to be paid back, of course, but borrowers can close their accounts at any time. While closing an account is not always beneficial to a credit score, it is often necessary to discourage unwise spending habits and preventing deeper debt problems.
2) How can I access my credit report/score? Many consumers want to know what creditors see when they assess creditworthiness. Any consumer can receive one free copy of their credit report each year from each of the three major credit reporting agencies (Transunion, Equifax, and Experian). To access their free credit reports, consumers should go to www.AnnualCreditReport.com. Each credit report is requested separately, so it is recommended to spread out the three free requests throughout the year in order to monitor for identity theft or fraud. Credit scores are a little trickier. Many banks and credit card companies are beginning to include credit scores on monthly statements. If this service is not offered by a consumer’s account holders, they can buy their score directly from www.MyFICO.com. It is possible to get access a credit score for free, but many sites will only package the “free” score with a credit monitoring subscription service, so consumers should read all conditions before accessing their score.
What’s the difference between debt consolidation and debt settlement? If a consumer is looking for help with their debt, there are a lot of “debt relief” services available that offer different methods of solving debt problems. Debt Settlement or Debt Resolution services are generally considered riskier because they require consumers to allow their debt to go into default so that creditors will accept a lump sum payment to settle the debt. This has severe credit implications as well as tax liabilities. Debt Consolidation or Debt Management on the other hand usually allows those with debt to safely pay down their debt gradually by reducing interest rates and structuring a repayment plan that is designed to fit the consumer’s budget.
To learn more about the ins and outs of personal finance, you can follow these experts on Twitter. And check back next week when we’ll have even more expert advice on the OppLoans Blog.
Cash advance. The name sure makes it sound like a good thing. Who doesn’t like cash? And “advance” means that cash is on the way right now! Sure sounds like they’re a great deal, right? Well actually, not so much…
In fact, a cash advance is just a short-term loan that comes with some unexpected—and pricey—strings attached. So when is a cash advance a good idea? Well, for most borrowers, the answer is almost never.
What is a Cash Advance?
The term “cash advance” is sometimes used to refer to payday loans. If you see a “cash advance” advertised at a storefront lender, watch out! A real cash advance is a service offered through your credit card company. Anything else that’s called a “cash advance” is probably a payday loan in disguise.
With a realcash advance, you use your credit card to take out a cash loan. This can be done at an ATM or a bank, and the money is charged to the credit card balance rather than taken out of your bank account. So if you borrow $100, your credit card will show a $100 charge—plus a fee for the withdrawal.
Most credit card companies don’t allow cash advances for the entirety of a borrower’s line of credit. For most people, cash advances are capped at a few hundred dollars.[1]
Why should I avoid a Cash Advance?
Charging a purchase is better. You need a credit card to get a cash advance, and if you have a credit card, you’ll fare much better charging a purchase than taking out a cash advance to pay for it. So why opt for a cash advance? Good question. With “cash only” businesses quickly becoming a thing of the past, there is rarely any reason to.
They come with high APRs. For credit cards, a purchase comes with an average APR of 15 percent. But with cash advances, a 2015 survey found that 86 percent of them charge an APR above 20 percent.[2] Among the 100 cards surveyed by CreditCards.com, the highest rates were:
Credit Cards
Cash Advance APR
First Premier Bank credit card
36 percent
BP Visa and Texaco Visa
29.99 percent
ExxonMobil SmartCard
29.95 percent
Shell Platinum MasterCard
27.99 percent
You’re immediately charged interest. With credit cards, interest typically isn’t assessed if the bill is paid off within a grace period—usually 30 days. But with a cash advance, interest is tacked on immediately, and a borrower isn’t free from it until the advance—and the interest—is fully paid.
Costly Fees. Another strike against cash advances is that, unlike a charge on a credit card, users are hit with a transaction fee—typically five percent of the amount borrowed.[2]
When should I consider a Cash Advance?
Cash advances are rarely a good idea. They might make sense in an emergency where cash is the only accepted form of payment—say if your car breaks down and the mechanic won’t take anything else. But these situations are rare.
For some borrowers, cash advances are used as an alternative to forms of predatory lending like payday loans and title loans. Some financial analysts view them as “the better of multiple evils,”[2] but the debate about whether they’re better or worse than payday loans is ongoing. The Consumer Federation of America, however, notes that they are less expensive.
Bottom line
Cash advances are expensive and often unnecessary. They should be avoided except in rare circumstances.
A Crash Course in Credit Card Cash Advances (3 of 3): Better Alternatives
There are options far more affordable than cash advances — options that won’t leave you in worse financial shape than you were before. Here are OppLoans’ recommended alternatives to credit card cash advances.
As with other financial products, credit card cash advances have advantages and disadvantages. While you can use a credit card cash advance to access cash quickly, they carry extremely high rates, charge additional fees, and offer no grace period—which means interest starts accruing immediately.[1] If you do your research you can decide, with confidence, whether a credit card cash advance is right for you and your financial situation.
Borrowing from Friends or Family
This option is completely dependent on your specific situation. Do you have a friend or relative that’s able to lend you the money you need to tide you over until payday? If so, this may be a good idea. Odds are that if you’re borrowing from a loved one, they’ll either give you a good deal or not charge you any interest.
When approaching a friend or family member for a loan, be prepared with details. You should be professional, know exactly how much you need, and set a firm date by which they’ll be repaid. Being prepared with all of the details will make it easier for them to help you out. It’s recommended to have a written agreement. If you want things to be official, you can get the agreement notarized, which makes it a legal document. Whether or not you choose to do that, it’s important to treat a family loan just as you would a bank loan and pay it back on time.
This can be a risky option as failing to fulfill the terms of the agreement could have a negative effect on your relationship. Keep those family get-togethers pleasant, or at least less awkward than normal!
Find a Credit Union
Taking out a loan from a credit union can be another good alternative to credit card cash advances. Credit unions are small, non-profit, local banks that are controlled by their members rather than shareholders. You have to apply to become a member, but if accepted you may be rewarded with lower rates than you would find at a normal bank.
The rates on a credit union loan will undoubtedly be better than a payday loan, title loan, or credit card cash advance. You can learn more about credit unions in our Financial Smarts Glossary.
Rely on OppLoans
If you’re in a financial bind and you’re looking for a fast loan that’s safer and more affordable, then OppLoans is the place for you. You’ll get better rates (up to 125% lower than payday loans) and a caring and helpful experience. Our personal installment loans offer as much as $10,000 and come with regular, fixed-rate payments. You’ll always be able to find a loan amount that fits your budget, and there will never be any surprise fees.
OppLoans is the alternative to credit card cash advances that offers you fast funding, lower interest, and a more personal experience. Click “Apply Online” below to get started today!
[2]“How to Borrow Money with Bad Credit” WikiHow.WikiHow.com Accessed May 14, 2016.
A Crash Course in Credit Card Cash Advances (2 of 3): Know the Dangers
“Fast cash” products like credit card cash advances may seem like your only option if you’re facing a tough time financially, but do a little research and you’ll quickly see that credit card cash advances should be high on your list of things to avoid.
There’s plenty to say about the dangers of predatory payday and title loans—but did you know that credit card cash advances can be almost as expensive? Just like predatory loans, credit card cash advances can damage your financial future.
The most common dangers you can expect to encounter with a credit card cash advance include:
Sky-High Interest Rates
You’re probably used to using your credit card the traditional way: buying a big ticket item like air travel or a home appliance and then paying it off. But using your credit card to get a cash advance works differently, and has much more dangerous consequences.
A standard credit card purchase carries about 18% interest. The longer the debt is outstanding, the more interest accrues, and the more expensive that purchase you made becomes. But with credit card cash advances, the interest rate is much higher: 24.4% on average.[1] Credit cards are already an expensive tool. Why make it more difficult for yourself by using credit in this much riskier way?
Additional Fees
Okay, so you’ll be paying higher-than-normal interest with a credit card cash advance. Maybe you can live with that—you might not like it, but hey, this is an emergency, right? Well, hold on … because it actually gets worse.
On top of those enormous interest rates, you’ll also be on the hook for additional fees and charges like a cash advance fee of 3% with a minimum fee of $5-$10.[2] These fees may seem small but they add up. And frequently, they’re disguised with vague names like “finance charges” and “convenience fees”. If you opt to use an ATM to take out your advance, you’ll also be hit with an ATM charge.
So now you’re not only paying more interest to have this cash on hand, you’re also paying fees to be able to get it! It’s easy to see how quickly the value of a credit card cash advance slips away. Read more in Cash Advance Loans: Payday Loans Under Another Name.
No Grace Period
Okay, so now we’re borrowing against our credit limit at higher-than-average rates plus fees. It can’t get worse than that, right? Well let’s take one last look at the ugly truth about credit card cash advances and see…
A grace period is the amount of time between making a purchase, or taking out a loan, and when interest starts to accrue. For instance, when you make a purchase with your credit card, the interest won’t begin adding up immediately. You may have a month or so to pay off that purchase before you’re charged any interest at all. That means if you pay off your balance before the interest starts to build, then the cost of borrowing is zero.[3] When you use your credit this way—correctly—credit cards seem like a pretty useful tool. But this isn’t the case when you take out a cash advance.
With credit card cash advances, interest begins accruing the second you have that advance in your hand. Remember that higher-than-average interest rate. Now you’re paying it immediately!
At the end of the day, credit card cash advances are a misuse of credit cards. People turn to them when they think they have no other options. But often, they do! If you’re facing a financial hardship and need cash in hand quickly, don’t turn to a destructive credit card cash advance. Instead, consider a safe and strategic personal loan from OppLoans. Our installment loans and line of credit products are fast, easy, and transparent—you’ll always know exactly what you’re getting—and we never charge pre-payment fees.
Click “Apply Online” below to get started today!
References:
[1]Parker, Tim “How A Cash Advance Works” Investopedia.com Accessed May 14, 2016.
[2]Steele, Jason “5 Credit Card Fees You Should Never Pay”Credit.com Accessed May 14, 2016.
[3]Konsko, Lindsay “What Is A Cash Advance?” NerdWallet.com Accessed May 15, 2016.
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