I don’t know about the rest of the world, but there have been times in my life when I have felt as though I was one paycheck away from serious financial peril. Too bad Superman doesn’t come to the rescue for matters such as this. One of my greatest fears has been losing a home because I lost my job, or had an injured child (or injured self) that required me not to work for an extended period of time that exceeded my savings or any of nearly a thousand reasons. The recent movie “Fun With Dick and Jane” struck a chord of sheer terror in my heart because bad things sometimes happen to good people. Good people have their lives ruined through circumstances that are completely and totally beyond their controls and yet the banks have to pay the salaries of their employees too.

With a foreclosure, there really isn’t a bad guy. There is no evil genius, mad banker waiting greedily in the wings to throw your family out on the street. The truth is most of these guys have a great amount of compassion and come across as harsh because the decision to or not to foreclose generally isn’t up to them. Besides we signed the dotted line when we decided to purchase a home. A home is, for most people, the single largest investment we make in our lives. At least as far as a personal investment goes. The process of foreclosure can be frightening if you are armed with knowledge, it is absolutely terrifying if you are uninformed throughout the process.

Here are some things you should know about the foreclosure process.

1)    First of all, a home does not go into foreclosure until you have become 3 months behind on your payments. Of course the goal is to never get behind at all, but we all know that stuff sometimes happens and some things are beyond our control. This means you do not have to exist in constant worry that if you are a few days late on your mortgage payment for a couple of months that the sky will fall. This is unlikely to be the case unless you are seriously behind. The key is to take action to avoid foreclosure before it gets to that point.

2)    Once you are three months behind you will either go into what is called judicial foreclosure or non-judicial foreclosure.  In a judicial foreclosure, a lawsuit is issued to the homeowner who can elect whether or not to respond. If the owner doesn’t respond the home is auctioned off to the highest bidder unless the bid doesn’t exceed the total amount owed on the home. In a non-judicial foreclosure the lending institution would issue a statement of default and notify the owner of its intent to sell the home. The owner at this time can possibly work to arrange an agreement and payment plan that is acceptable to the financial institution or filing chapter 13 bankruptcy in order to stop the foreclosure. If this does not happen then the property will be sold.

3)    Here is where it gets tricky. If the sale of the home doesn’t result in a sum of money that is at least equal to the amount owed on the home, the original homeowner is responsible for the difference. Failure to pay the difference can be just as detrimental to your credit as the foreclosure itself.

The process of foreclosure is not fun, it is not meant to be. I urge you if at all possible to avoid this process like the plague. It isn’t good for you as the homeowner, it isn’t good for your community as a whole, and it isn’t good for all the others who seek home loans or for you the next time you seek a loan.

The problem is that we as Americans tend to live within the razor sharp edges of our abilities without a safety net for the leaner times. This is the recipe for financial disaster. Don’t overextend yourself credit wise. Keep a healthy savings account, at least 5% of every paycheck should be placed into savings. And don’t buy more house than you can afford. Bigger, better, faster more isn’t very much if it lands you on the street.

Here’s a resource to check out if you’re in danger of losing your home.

Today you’ll find that many people are dealing with identity theft. Sadly, once your identity is stolen, your entire life can be ruined for some time. You’ll have to straighten out things with lenders, you may have a hard time getting credit, and cleaning up the mess can be a huge task.

Instead of having to sort out a mess, it’s definitely better to work on avoiding identity theft in the first place. There are many ways that you can be proactive and avoid being a victim of identity theft. Here are six great simple ways that you can avoid identity theft.

Way #1 -- Never Give Out Your Social Security Data -- If you want to avoid becoming a victim of identity theft, then you need to protect your social security data. This means that you should never give out this information unless it is absolutely necessary. Also, make sure your Social Security car is kept in a place that is safe and secure.

Way #2 -- Keep Track of Your Wallet -- Start keeping track of your wallet. If you lose your wallet or purse, this increases your chance of becoming a victim of identity theft. Keep track of your wallet and guarding it will help you to avoid this problem.

Way #3 -- Check Out Bank and Credit Card Statements -- You should be checking out your bank and credit card statements on a regular basis. Look out for any purchases you see that you didn’t make. If this occurs, talk to the bank or credit company as soon as possible.

Way #4 -- Shred Important Documents -- If you have important documents that contain sensitive information, don’t just throw them away. Get a shredder and shred these documents. Otherwise someone may be able to take the documents out of your trash and get access to important information about you, leading to identity theft.

Way #5 -- Check Your Credit Report Each Year -- Each year you should be checking out your credit report. Not only is this good for keeping track of your credit score, but you should be looking to make sure that no strange accounts show up. If you notice a card or account that you didn’t apply for, you need to contact the authorities and the credit reporting agency immediately.

Way #6 -- Use Good Password for Bank, Phone, and Credit Card Accounts -- When you are setting up bank, phone, and credit card accounts, make sure that you use good passwords. Don’t use obvious passwords, such as your birthday, middle name, or mother’s maiden name. A good password can keep your account from being hacked and your identity stolen.

With these tips, you can keep identity thieves at bay. Identity theft can ruin your life. So, it’s time that you do something to prevent it. Make sure you use these tips and you’ll be more likely to avoid becoming a victim yourself.

There is something in your life that is extremely important, but often overlooked. No, it’s not your family or your home. It is, instead, your credit score. Your credit score is really important because it dictates several things for you. It dictates how much of a loan you may get, what your interest rate will be, and how reliable and respectable you appear toward companies. As you can see, your credit score plays a huge role in your life from a financial perspective.

The average credit score in the United States sits around 680. That’s not bad, but it’s certainly not amazing. Chances are, if you’ve got a ton of debt, your credit score is actually considerably lower than that.

Do you know what causes your credit score to decrease? A lot of people don’t, which is why their credit score is hurt in the first place—they do not know what to do to prevent their credit score from dropping. In this article, we’ll go over the seven factors that drop your credit score. These factors are:

• Payment History
• Amount Owed
• Level of New Debt
• Closing Accounts
• Length of History
• Fines
• Bankruptcy

Each of these factors are covered thoroughly below.

Factor #1: Payment History

Payment history makes up 35% of the credit score. That means that if you have a poor payment history, it can have a profound effect on your credit score. For example, if you make a single late payment—be it a credit card, mortgage or car payment—it can lower your score by as much as 100 points. That sounds like a lot, doesn’t it?

What if you are late on not one payment, but two? Then your credit score may go down by another 50-100 points. After losing 150-200 points, your credit score may stand at a poor 500. Repairing such a great loss can be extremely difficult, which is why you should always make every payment on time.

Factor #2: Amount Owed

Responsible credit card use can actually be a good thing for your credit score. What isn’t a good thing, though, is owing a ton of money. Even if you maintain a superb payment history, if you owe a lot of money, your credit score will still be negatively affected. So how much is a safe amount to owe? That depends on what your credit limit is for each credit card.

Let’s assume you’ve got a $2000 credit limit on your card. The same amount to owe is 35% of this limit or less. If you owe more than 35%, it will hurt your credit score. Also, having credit card debt that exceeds $5000 overall can really hurt your score.

Factor #3: Level of New Debt

Every day, people often receive several new credit card offers. This is particularly true if they have a good credit score. Did you know that opening up too many new credit cards in a short period can hurt your score? Well, it can. While it may be tempting to open up as many credit card accounts as possible, you should try to limit yourself to no more than 1 or 2 every 6-12 months. That way, you do not open up too many accounts at one time. It may be hard, but it will save you in the long run.

Factor #4: Closing Accounts

You’ve decided to stop using a charge card or two. Common sense tells you to close the accounts so that you cannot use them again. However, from a credit score standpoint, this is not a logical thing to do. In fact, closing your accounts before they are paid off can hurt your credit score because it signals that you have simply given up on the card. It also takes away a positive reference because you are closing an account that has been kept in good standing. So whatever you do, do not close the account until it is fully paid off. Otherwise, you’ll be doing more harm than good to your credit score.

Factor #5: Length of History

Another key factor that can drop your credit score is the length of history of your card. If you’ve had a card for a year or two, have debt on it and close it before it is paid off, this will negatively affect your credit score. Even if you have paid it off, it is considered bad practice to cancel a card after just a few years of use. What helps your credit score is to have long-standing, good accounts. What hurts your credit score is to cancel accounts prematurely. Don’t make this costly mistake.

Factor #6: Fines

We’re not talking about the typical late payment fines. Instead, we’re talking about everyday fines like parking tickets, library late fees and any other fine. Increasingly, these fines are being turned over to collection agencies. When these fines become delinquent and are in collection agencies, your credit score is negatively impacted. In fact, a single bill placed in a collection agency can shave as much as 100 points off your credit score. So never, ever allow any debt to get to the point where it is sent to a collection agency. Pay your late fines and tickets and you’ll be alright.

Factor #7: Bankruptcy

Bankruptcy may take a load off your back, but it also sends your credit score to the gutter. That’s because the bankruptcy shows that you could not pay off all the debt you accumulated, and so you appear to be someone that has simply given up. This makes you extremely unappealing to potential lenders and potentially decreases your credit score by hundreds of points. The bankruptcy also stays on your record for many, many years afterwards. In essence, a bankruptcy does a whole lot of harm to your score and this harm may never be reversed.

If you are able to take all the above into consideration and avoid making the mistakes mentioned, you can prevent your credit score from dropping. That’s something that every credit holder should strive to do.

With the bad rap that credit cards have gotten, you’d think that they’re pure evil. While credit card use has the ability to destroy reputations and credit, responsible credit card use can actually help you establish good credit. That probably sounds a bit crazy, but it’s actually true. If you use your credit cards responsibly, you are showing perspective lenders that you are a good, reputable person to loan to. As a result, they’ll be willing to give you loans at good interest rates.

One of the pitfalls with credit cards is that most people do not know how to responsibly use them for the right reasons. Thus, they fall into deep debt which harms their credit. You’re probably wondering “how can I avoid this pitfall?” Well, it’s actually pretty easy, provided you are able to use some self-control when reaching for the credit card. We’ll give you seven easy, quick tips for making sure you use those credit cards the right way.

Tip #1: Never Charge More Than You Can Afford

This seems like an obvious tip, but it’s something that most people do not follow. Often times, when we are given a piece of plastic that enables us to charge thousands of dollars and not have to pay that back for a certain amount of time, we are tempted to charge as much as possible. Even if we can’t afford to pay for all the stuff we charge, we still do it because it feels great to buy things. Indulging makes us happy. However, once you receive the first bill and realize you cannot afford it, you are often shocked and unsure how you’ll be able to pay it.

How can you avoid this? By simply not spending more than you can afford! Before you go to charge anything, think about the purchase. Is this something you can afford to pay for within a month or two? If not, do not purchase it.

Tip #2: Pay Back the Entire Balance at the End of the Month

For years many financial experts have recommended this obvious tip. Despite how well-recommended it is, many people neglect to do it. Carrying large debt balances from month to month, even if the payments are made on time, is bad for your credit. That’s why paying off the entire balance at the end of each month is so crucial—it lets creditors know that you are serious about paying back any debt you may incur. To make this tip really work for you, you must make use of tip #1 which is to not overspend. If you spend more than you can afford to pay back in one month, you will not be able to pay it all back at the end of the month.

Tip #3: Never, Ever Use Your Credit Cards to Pay Off Other Debts

A lot of people who cannot afford to pay one bill may use another credit card to pay it. This is really destructive behavior, as it only puts you further in the hole. Even though it may seem like a good idea at first, the debt always catches up to you and it is often worse than the first time. So do not ever use a credit card to pay off another bill, as it will only harm your credit rating and put you even closer to going bankrupt.

Tip #4: Keep Track of All Credit Card-related Purchases

When you use your credit cards to make a purchase, be sure to save every single receipt. This allows you to see how much money you have spent before receiving the monthly statement. It also allows you to potentially spot any errors the credit card company could make in regards to your billing statement. Finally, it holds you accountable—just seeing how much you’ve spent in the past day or week can prevent you from making purchases that you cannot afford.

Tip #5: Always Pay Before Due Date

One of the huge mistakes many people make is to not pay their credit card bills on time. As a result, late fees begin to accumulate, making it even harder for credit card holders to pay back their debt. The simple way to avoid this problem is to pay your bills before the due date—if possible, send out the money a week before the date, so that there is adequate time for the money to reach the company. Doing so prevents late fees from ever happening.

Tip #6: Don’t Use Credit Cards for Every Single Purchase

It is tempting to abandon cash and checks and use credit cards for most, if not all purchases. However, this really isn’t a good idea. You have to remember that on every purchase you make, there is an interest rate. If you’re spending $25 on a t-shirt and use a credit card to pay for it, you may actually be paying $35 on the shirt once interest is factored in. For one item, this may not sound like much. But if you do this several more times, the money begins to add up. That’s why you should avoid using credit cards for every purchase. Try to use credit cards only when absolutely necessary.

Tip #7: Before Making a Big Purchase with a Credit Card, Think About It

Before making a big purchase using a credit card, most responsible credit card users take the time to think the purchase through. They may ask themselves the following questions:

1. Can I afford to pay this back within a month or two’s time?
2. Do I absolutely need this item right now?
3. Would it be better for me to simply wait a month or two to save the cash and pay for the purchase with money and not a credit card?

The answers to the above questions will tell you whether or not you should use a credit card to purchase the item in question. If you can afford to pay it back within a month or two’s time and need the item now, charging is probably a good idea. If not, you should simply wait and save your money to purchase the item without the use of a credit card.

By applying the above tips to your credit card use, you can become a responsible credit card user. Good luck!

Credit cards were once entirely based on credit. Only those who had good credit received offers; those who didn’t have good credit received little to no offers. This has changed over the past 10 years with bankruptcies on the rise and the average credit score in the 600s. Most Americans no longer have stellar credit. In fact, most have below-average credit scores. Still, mail boxes are literally stuffed with credit card offers, regardless of credit history.

Since the credit card is such a necessity in every day life, practically every adult American has one. They’re necessary for everyday tasks like purchasing items online, even opening up an account at the local video store. They’re good to have around in case there is an emergency and you cannot get to your money in the bank.

Even those with bad credit or no credit at all need credit cards. They are sent several offers each week saying that they’ve pre-qualified for the card. It’s very tempting to sign up for these cards as those with bad credit feel like they have no alternative. What they don’t realize is that these credit card offers all have one thing in common: a big pitfall. This pitfall comes in the form of almost outrageous fees and high interest rates.

Don’t Sign-Up So Quickly

People feel important when someone extends a line of credit to them. This is particularly the case with those who have had problems getting credit cards in the past. They want to immediately get any credit card that may be offered to them. It’s important to not get caught up in the excitement of receiving a letter notifying you that you’re pre-qualified for a line of credit when it’s been so hard to get qualified. You must think things through before ever considering filling out the form.

Examine the letter carefully. Look for any fine print. You’ll notice that there are a lot of terms and conditions. Fees are also listed in the fine print because most people fail to adequately read the fine print. Most likely, you’ll find a lot of “hidden” fees in the fine print that you otherwise wouldn’t have noticed until you started using the card. If you’re unsure of any of the terms in the fine print, you should look it up online. Never, ever sign up for something you aren’t completely sure of.

The big problem with these credit cards is the exceptionally high interest rate given for those with bad credit. The rate may be as much as 25%, though the average is about 22%. You might think that 22% isn’t that bad, but think of it this way: if you purchase an item for $100 and use a credit card with a 22% interest rate, you’ll be paying an extra $22 on the purchase. This adds up when you charge thousands of dollars.

Another problem is that there are a lot of hidden fees and terms with these credit cards. For instance, the late fees may be $50-$100. The interest rate may increase when payments aren’t made on time. In some cases, you’ll have to pay an activation fee to set up the credit card. It turns out to be a lot of wasted money when all these fees and the high interest rate are factored in.

Why Do They Do This?

Credit card companies are in the business for one reason: to make money. They aren’t in it to please customers and they aren’t in it to be the nice guys. They’re trying to invest their money (by letting consumers use it) and then reap the profits (by way of interest rates and late fees).

When it comes to customers with bad or no credit, credit card companies are looking to take advantage of the situation as much as possible. Since it’s a big risk for them to extend credit to someone who isn’t proven to be a good choice, they have to account for the risk by protecting themselves. This protection is the high interest rate and big fees.

Even if the credit card companies don’t get the whole balance of the debt paid back to them, they’ll still usually get a lot of money back because of the fees and interest rate. That’s why they are willing to extend credit to people with bad or no credit because they’ll always get at least some money back on their investment.

What Can I Do?

The easy and simple answer is to not sign-up for credit cards with ridiculously high interest rates. While this is something that many people can do, some will need to have something besides a check-book and cash for purchases or emergencies.

It’s important to remember that you do not always need credit cards for online purchases. Many merchants have begun accepting PayPal, a form of electronic payment. With PayPal, you are able to deposit funds (from your bank account) into your PayPal account and pay for services or items online. Other merchants may accept the Visa Check Card or even debit cards.

As far as emergencies are concerned, most, if not all stores, hospitals and repair shops accept debit cards or checks. You should be able to use these in place of a credit card in dire situations.

While these suggestions may work for most people, there are still going to be some (perhaps you) who absolutely need to have a credit card or two. That’s understandable and there is a solution to the problem besides signing up for a card with a high interest rate. Instead of waiting for the offers to pour in, you should seek them out.

Go to your local bank or financial institution and look for credit card forms. You should be able to find at least a few offers with decent interest rates of 9% or so. If you don’t, it’s not time to give up but rather turn your attention elsewhere.

If you plug the term “bad credit credit card” into Google, you’ll wind up with a lot of search results. Try to find the ones that are most appealing to you (and tell exactly what fees/interest rate is involved). Then research whatever company offers the card to make sure they are legitimate. You may want to use Better Business Bureau to ensure that the company isn’t fake and doesn’t cheat its customers.

Hopefully you’ll be able to find a credit card with a decent interest rate by using the suggestions above. If not, you can always sign-up for the high interest rate card. Just be sure not to charge to much and to make payments on time.

You’ve just turned 18 and are beginning to celebrate your new found freedom. Much to your surprise (and perhaps joy) there’s a credit card offer or two in the box. The letter says you can sign-up for this credit card, enjoy a credit line of $1,000 and only have to make minimum payments. Since you’re in your senior year of high school and are already thinking about college costs, this seems like a great deal to you. You can get money that you don’t currently have and not have to pay it back for years. Sounds good, doesn’t it? However, it really isn’t so good, as many other teenagers soon find out.

Debt Doesn’t Pay

Teenagers who end up with credit cards may at first use them to pay for practical things such as gas and food. Soon, though, they begin using them to pay for other things like iPods, clothing etc. Before they know it, they’ve racked up a balance that they cannot pay back. They begin making just the minimum payment or perhaps missing it altogether. Late fees rack up and it feels like the debt will never be paid.

If you’re a teenager reading this, you can probably relate. You have a lot of debt and are stressed out. Or maybe you’re considering signing up for a credit card. Whatever the case is, this article will guide you through the process of responsibly using a credit card or paying off debt.

Before You Sign-Up

It’s important to closely read the terms and conditions of any credit card offer you may receive before signing up for it. Take a look at things like the interest rate, late fees and any other potential fees. If you’re confused by any of it, ask your parent for some guidance. (yeah, that sounds annoying, doesn’t it? But chances are, they’ll be able to answer your questions) If your parent doesn’t know, ask a friend’s parent. Or, if nothing else, do some research online. You should be able to get your questions answered.

Next, you should determine how you will use the credit card. Will you use it to pay for gas? Clothing? Other things? Make clear cut plans for how you’ll use the credit card so that you don’t misuse it.

After that, you’ll want to closely examine your own finances. You should not get a credit card unless you have a consistent job. Further, you should not get a card unless you know for certain that you can pay at least the minimum, if not a bit more than that. One of the biggest mistakes teenagers make when it comes to credit is that they assume they can handle credit card payments with their current salary when, in fact, they cannot. Do not make this same mistake, or else your credit score (and, yes, your credit score IS very important) will suffer.

Finally, you should ask yourself a single question: do I really need this credit card? Could you possibly substitute a debit card (which is a lot like a credit card except the money comes directly from your checking or savings account) for the potential credit card? If you can, then you’re better off simply waiting to get a credit card.

Why Getting a Credit Card is Good

By now you probably think that having a credit card is not a good thing. That’s not the case, however. Credit cards, if used responsibly (and we’ll be going over this in the next section) can be a great tool. They allow you to establish the credit necessary for everything from car loans to student loans to mortgages.

If you make your payments on time and don’t carry too much of a balance, you can establish very good credit which will make you look favorable in the eyes of potential lenders. That’s why getting a credit card can be good for you and your financial situation.

Responsible Credit Card Use

As we previously mentioned, credit cards can be a great thing, provided they are used in a responsible manner. What is responsible credit card use? It’s using them to benefit, not hinder, your credit reputation. Follow the below tips to be a responsible credit card user.

Tip #1: Don’t Spend Without Thinking

A lot of people, teens included, will spend money using a credit card without ever thinking about it. They’ll see a cute sweater and want to buy it. Or they’ll buy a couple of cool CDs. Little to no thought is given, and at the time these purchases seem small. They build up, though, and eventually there is a considerable amount of debt. This can all be prevented by simply thinking before you spend. Don’t make any purchase, big or small, without thinking it through first.

Tip #2: Leave the Card at Home

It’s tempting to charge when the card is constantly with you. That’s why you should not take the card everywhere you go. Leaving the card at home can prevent splurges from ever occurring.

Tip #3: Make Your Payments on Time

Another step towards responsible credit card use is to make payments on time. It seems so simple, but many teens neglect to make their payments on time. By not making your payments on time, you are setting yourself up for two things: (1) late fees and (2) a bad credit reputation. Frequent missed payments can take a lot of points off your credit report, so always make your payments on time.

Tip #4: Make More than the Minimum Payment

Whenever it is possible, try to pay more than the minimum payment each month. This shows potential lenders that you are committed to paying back anything you owe. It also can help improve your credit score.

Tip #5: Try to Keep the Balance Low

In an ideal situation, you would pay back everything charged at the end of each month. You’d start anew each month with your balance. Unfortunately, not all teens can do this. If you cannot, there’s still something you can do: keep the balance low. If you have a credit limit of $1,000, never use more than $350 (35%) of that limit.

Tip #6: Don’t Apply For More Than Two Credit Cards at a Time

If you’re tempted by multiple offers, it’s easy to sign-up for as many as possible. You should not do this, though, as opening up too many new accounts at one time can hurt your score. Only open up one or two accounts and only use those cards.

9 Tips For Improving Your Credit Score

There are many things in life that are very important. Something that many Americans overlook is their credit score. Credit scores are incredibly crucial, as they dictate how much of a loan you may be eligible for, how much interest you’ll pay and what credit cards you may qualify for. They even influence how much of a student loan you or your child could be eligible for.

Most Americans don’t know that they qualify for a free credit report each year. This credit report details any outstanding debts they may have, plus tells them what their credit score is. If you haven’t already taken the time to get your free credit report, please do so now. Once you know what your credit score is, you’ll know what to improve.

If your credit score is less than satisfactory, you’ll probably want to take the steps necessary to improve it. In this article, we’ll be going over the steps to take to improve your credit score. By improving your credit score, you will make your reputation better which will allow you to secure necessary loans at good interest rates.

Tip #1: Pay your bills on time

One of the leading reasons why credit scores are hurt is because bills are not paid on time. Thus, one of the easiest ways to improve your credit card score is to simply pay your bills on time. If you can, you may even want to pay your bills a bit ahead of time. Doing so will tell creditors that you are faithful about paying your debts back and will also increase your credit score.

Tip #2: Don’t Carry A Lot of Debt

The average debt an American carries is around $8,000. While it is assumed that as long as you pay the bills on time, you’ll have a good credit score, this isn’t always the case—especially if you have a lot of debt. Try hard not to carry too much debt and, if you already have a lot of debt, make efforts to pay it back as quickly as possible. By carrying too much debt, you are only making yourself look bad.

Tip #3: Make Payments Above the Minimum

One common assumption is that as long as you make the minimum payment on time, your credit report will be good. That’s not really true. As a responsible credit card user, you should strive to make payments above the minimum. Not only will it help your credit score, but it will also allow you to pay off the debt quicker. By paying just the minimum payment on a $4,000 debt, for instance, it may take you as long as 20 years to pay it off. However, if you pay just $10 above the minimum, it won’t take you that long to pay of the debt. So always try to pay more than the minimum to help reduce your debts quicker.

Tip #4: Take a Close Look at Your Credit Report

Many people assume that the credit report is always correct. Occasionally, though, mistakes may be made which hurt a person’s credit score. Have you noticed any inconsistencies on your credit report? If so, contact the creditor associated with the debt or your local credit agency and report the issue. In most cases, the creditor/credit agency will remedy the problem and your credit score will be raised. Correcting inconsistencies on your report is by far the easiest way to improve your credit score.

Tip #5: Make a Habit of Consistently Paying Bills on Time

Your credit score will not improve overnight. It usually takes a lot of time and good habits to improve your credit score. Establish a history of paying bills on time (and ahead of time) and of making above minimum payments. After a period of time, you will earn the reputation of being a good person to loan to, and, as a result, you will have a higher credit score.

Tip #6: Don’t Apply for Lots of Credit at Once

People are bombarded with new credit card offers all the time. While it may be OK to sign up for a new credit card here and there, it is a bad idea to sign up for several at once. This sends a signal to creditors that you are desperate for credit and are a risk to loan to. This also reduces your credit score. Resist the urge to sign up for many credit cards at once and don’t overextend yourself.

Tip #7: Never Exceed 35% of Balance Limit

When given a $3,000 credit limit, for instance, many people try to use as much of it as possible. That’s really not a good idea, as using as much as possible creates a debt that is unmanageable. One of the keys to achieving a great credit score is to learn how to effectively manage debt. You should never exceed 35% of the credit limit. So if you have a $3,000 credit limit, don’t use more than $1,050 of it.

Tip #8: Pay Off Debt Instead of Transferring It from One Place to Another

Ever seen a credit card offer with a low transfer rate and entertained the thought of transferring other credit card debt to the new card? It’s something that many Americans consider and it is something to avoid if you intend on improving your credit score. This is because transferring one debt to another card makes you look bad because it shows that you weren’t able to pay it back one way and had to resort to moving it around. That’s why you should just keep the debt in one place and pay it off, rather than moving it all around.

Tip #9: Don’t Close Accounts if You Still Have Debt Remaining on Them

Closing accounts before they are fully paid is a huge mistake to make and it hurts credit scores. If you are planning on not using a certain credit card anymore, you should wait to close it until after you have paid it off. In order to keep yourself from charging, simply cut up the card into pieces and keep it in a drawer. One other thing to remember is to never close an account around the time of a loan, as this can also harm your credit score.

By doing the above things mentioned, you can improve your credit score and your reputation.

Education can be paid for up front, during the education process, or after graduation. Only the very wealthy can afford to pay cash for education – the bill could reach around $60,000, or even as high as $100,000 for extended programs, like high-paid professionals. So some kind of a loan is usually in order. If the loan is made during the student’s term in school, it’s rarely paid before graduation. Some parents will mortgage their home with an equity loan to pay for their children’s education.

Promissory Note

Students having to take out loans for college will most likely have to sign a promissory note. A promissory note, also referred to as a note payable is a contract detailing the terms of a promise by one party to pay a sum of money to the other. For example, in the sale of a business, the purchase price might be a combination of an immediate cash payment and one or more promissory notes for the balance.

The terms of a note typically include the principal amount, the interest rate if any, and the maturity date Sometimes there will be provisions concerning the payee’s rights in the event of a default, which may include foreclosure of the maker’s interest. Demand promissory notes are notes that do not carry a specific maturity date, but are due on demand of the lender. Usually the lender will only give the borrower a few days notice before the payment is due. For loans between individuals, writing and signing a promissory note is often considered a good idea for tax and recordkeeping reasons.

Federal vs. Private Loans

The two main categories that student loans fall under are federal and private loans. Both types can be processed by private financial aid companies, but federal loans are guaranteed by the federal government. Because of this reduced risk, federal loans typically have lower interest rates. An interest rate is the cost of the loan, and can be a fixed or variable.

Federal Loans

Federal loans are loans guaranteed by the government at relatively low interest rates. Federal loans have strict borrowing limits, so students often need to supplement their federal loans with private loans. Knowing how the loan process works and what your options are is important in making the right judgements and decisions. Below information has been provided regarding the difference between federal and private loans, components of a loan, and repayment information.

Federal vs. Private Loans

Federal loans are often insufficient for school expenses because there are strict limits on the amount you can borrow annually, as well as cumulative lifetime limits. Also, eligibility for some federal loans is based on need, and is determined by the completion of the FAFSA (Free Application for Federal Student Aid)form.

Private Loans can cost more, but they can fill the gap between what you owe the school and what you are allowed to borrow through federal loan programs. Additionally, private loans can pay expenses that federal loans can’t, such as application and testing fees, room and board, and the cost of transportation and books. The interest rates for private loans are set individually by the companies that offer them. Federal Stafford and PLUS loans have fixed interest rates set by the federal government. It is crucial to understand that for either type of loan, students may choose the company offering them the best rates. Students are not limited to the selection provided by their financial aid office, both federal and private loans are available to all students.

Components of a Student Loan

Like all loans, student loans consist of two components, Principal and Interest. Principal is the amount borrowed, and Interest is the amount charged for lending the money. Often, a student loan also has an origination fee, which is a charge for processing and disbursing the loan.

Different loans have different interest rates. All new federal loans disbursed have fixed interest rates and origination fees. For private loans, the interest rate will depend on a variety of criteria including your credit history and your credit score. Of course, different companies may also offer different rates for their federal and private student loans. In determining your rate loan companies may take into account GPA, test scores, and program of study.

The margin of the loan can be affected by the applicant’s credit history. In general, the more risky a lender believes it is to make a loan, the higher the margin will be in order to make up for that amount of risk.

The APR, or Annual Percentage Rate, is the total measure of what a loan will cost, taking into account the principal, interest rate, origination fee if any, and the timing of all payments. The APR is often used as a way of comparing the cost of borrowing money from one lender to another. By law, a creditor must disclose the APR before issuing a loan to a borrower.

Student Loan Repayment

Student loan repayment plans vary, but there are usually three options: traditional repayment, interest-only repayment, and deferred repayment. In a traditional repayment plan, the borrower begins making payments on the principal and the interest one month after receiving the loan. This option generally has the lowest interest rate. In an interest-only repayment plan, the borrower makes payments only on the interest accumulating on the loan while they are in school. In a deferred repayment plan, the borrower defers all payments on the loan until after graduation. This option requires no payments while in school, but often has higher rates and/or fees. Also, with a deferred repayment plan, the unpaid interest is added to the principal, increasing monthly payments in a process called capitalization.

With subsidized Stafford loans, the federal government pays the interest on the loan while the borrower is enrolled in school. These loans are therefore very desirable for students; however, the subsidized Stafford is only available to those who demonstrate need as determined by the government through the Free Application for Federal Student Aid (FAFSA). Also, the amounts that can be borrowed are capped at limits below the average tuition price of American colleges. Parent PLUS loans do not have deferred repayment options; the borrower must begin paying back the loan sixty days after the funds are disbursed. Most interest-only and deferred repayment options include a grace period of six months after graduation before the interest and principal repayment begins.

Many people hear this term, yet few actually know what it is. This is a number that can control every aspect of your life. The credit score is a number ranging from 300 to 900 that reflects the credit worthiness of a borrower, and is primarily determined by timeliness of past loan payments. Lenders calculate this number with the assistance of computer systems as part of the process of assigning rates and terms to the loans that they make.

Who Is FICO?

FICO stands for Fair Isaac & Co. A FICO score is a credit score developed by Fair Isaac & Co. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrower’s credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. FICO scores are available through the entire major consumer reporting agencies in the United States and Canada: Equifax, Experian and TransUnion. (FICO is a registered trademark of Fair Isaac Corporation).

Credit Score Breakdown

Your credit score is calculated in a very similar manner to how you would earn a grade in a classroom. A teacher calculates grades by taking scores from tests, homework, and attendance, weighting each one according to importance in order to come up with a final total. A credit score, like these scholarly gradings, use a combination of values to achieve a final result.

The number itself can range from 300 to 900. The formula for exactly how the score is calculated is proprietary information and owned by Fair Isaac. Here, however, is an approximate breakdown of how it is determined:

35 percent of the score is based on your payment history. One of the primary reasons a lender wants to see the score is to find out if (and when) you pay your bills. Thus, this is obviously the most important piece of information, and is weighted most heavily. The score is affected by how many bills you have paid late, and if any bills were sent to collections any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.

Late payments are not an automatic “score-killer.” An overall good credit picture can outweigh one or two instances of late payments. However, having no late payments in your credit report does not mean you will get a “perfect score.” 60%–65% of credit reports show no late payments at all. Your payment history is just one piece of information used in calculating your score.

30 percent of the score is based on outstanding debt. How much you owe on car or home loans falls into this category. Having credit accounts and owing money on them does not mean you are a high-risk borrower with a low score, however, when a high percentage of a person’s available credit has already been used, this can indicate that a person is overextended, and is more likely to make payments late or not at all. Credit cards that are at their credit limits also inversely affect this amount. The more cards you have at their limits, the lower your score will be. The general rule of thumb is to keep your card balances at 25% or less of their limits. Even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.

15 percent of the score is based on the length of time you have had credit. The longer you have had established credit, the better it is for your overall credit score. This is because more information about your past payment history gives a more accurate prediction of your future actions. If you have been managing credit for a short time, do not open many new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you do not have a lot of other credit information. Even if you have used credit for a long time, opening a new account can still lower your score.

10 percent of the score is based on the number of inquiries on your report. If you have applied for a lot of credit cards or loans, you will have many inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you have not used the cards or gotten the loans). The more recent these inquiries are the worse for your credit score. FICO scores only count inquiries from the past year.

10 percent of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you should not have. These actually come more into play if there is not as much other information on your credit report on which to base the score. The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don’t intend to use. The credit mix usually will not be a key factor in determining your score – but it will be more important if your credit report does not have a lot of other information on which to base a score.

These are the five factors that determine your Credit Score. Hopefully, by reading this, you will be able to implement greater efficiency in improving your score.