If you owe creditors who keep calling asking you for money, you should think twice. Not about paying. But, about trying to negotiate your debt.
Before you hand them one penny, this is the time to put collections to work for you. Sometimes, you can cut the amount you owe by at least HALF just by offering a lump-sum payment. If that doesn’t work for you, consider negotiating a payment amount you can afford. Of course, you need to make sure that the payment does not negatively affect your budget.
The one thing you must remember is that their debt is not your top priority. No matter what they say.
Read More:
HOW TO NEGOTIATE WITH CREDITORS
KNOW YOUR RIGHTS
There is a law called the Fair Debt Collection Practices Act (FDCPA). This law provides rights to consumers regarding debt collection. The law also advises consumers as to the things which creditors and debt collection companies can and can not do.
Understanding and knowing these rights helps keep you in control and not falling victim to illegal practices. Things you need to know include:
Debt collectors can not use the phone to annoy you. That means that they can not call you several times a day, all week long to try to collect the debt.
They can not use vulgar language nor threaten you in any way. While they may get forceful, they can not they threaten to have you arrested, swear at you nor bully you. They also can not threaten you with violence. If they start to act this way, let them know that the way they are treating you is illegal. Advise them that you will hang up and not speak with them until they can do so with respect.
They must call during decent hours. Collection agencies are not allowed to contact you at inconvenient hours (such as before 8 am or after 9 pm or even on weekends). Also, they can not call you at your employer if you tell them that is not acceptable. If you have hired an attorney, then all calls must be directed to him or her. They are no longer allowed to contact you directly.
They must disclose all of the details about the debt. When you receive a call, the company must let you know the name of the creditor. They must also advise you of the amount of the debt. Finally, they need to disclose the manner in which you can verify the outstanding balance. If they do not do so on the phone, you must be notified in writing within five days of the initial call.
They can’t threaten legal action (without permission). Your creditor MUST permit the collection company to threaten legal action. Most creditors do not want to even go that route due to the added expense it entails.
Debt collectors can not falsely represent themselves. When contacted, collectors are not allowed to misrepresent themselves to get you to pay the debt. This can include claiming to be an attorney, government agency or even credit reporting agency.
They cannot publish your name and debts. They may threaten that this information will be made public, but it will not. They can only report the details to the credit agencies.
Your property can not be seized, nor wages garnished. They can not claim that this will happen to you. It can, of course, but only in the instance of actual legal action. This is something most creditors do not even want to pursue.
Contact you once you have asked them not to. You can write to a debt collector advising them that they are no longer allowed to contact you. They are allowed to send a final letter confirming this. Then, they can not contact you in any way, unless it involves legal action.
If you have an instance of any of these situations, you need to report the company immediately for unfair practices, which go against the law.
BE IN CONTROL
When you get a call from a debt collector, they are often pushy and demanding. Why? Well, they get a commission on the debt they collect. So, of course, they want to try to scare you into paying it all in full. Not only that, since they do not get any money until you pay, they will keep going on and on.
Also, keep in mind and know your rights (above) so that you can voice that to the agency if they start to push the limits. That alone shows them that you know what they can and can not do and that you will not be a victim.
Make sure that you inform them that you can not make the payment in full and there is no way that you can. This will open the door to allowing you to negotiate your debt.
NEGOTIATE LIKE A PRO
When you negotiate your debt, it is a great way pay less than what you owe! Once you know that the company is willing to negotiate the balance due, start by making an offer well below what you can afford. Doing so allows you room to increase what you will pay – without paying more than you need to. Then, do nothing.
Example:
YOU: “I will pay you $0.30 on the dollar?” THEM: “We want $0.75 on the dollar.” YOU: Silence. Say nothing. Wait.
Make them budge first. Once they come back with another lower offer, you now have the upper hand and are more likely to get a payment amount you can afford (perhaps even less than you want).
Why does this work? Debt collectors pay PENNIES on the dollar for debts. That means that they will make a profit on any payment made – even if it is 50% or less than the original amount owed.
GET EVERYTHING IN WRITING
Once you’ve agreed to an amount, it is essential that you get it all in writing. Keep detailed records of the call and the amount. Some of the information you should write down includes:
Date.
Time.
Name of person (and badge number if applicable).
Original debt owed.
New agreed to terms.
The thing to keep in mind is that most debt collectors are not going to be in a hurry to get this to you. That means you may need to draft an agreement and mail it to them.
What should be in your agreement? You need to include all of the above details. It should also include wording advising that once you pay the debt, they agree to report that to all of the three credit reporting agencies. The agreement should also provide a time in which they must respond to dispute the terms and that failure to respond at all, means they agree with what you have sent to them.
Make sure you retain copies of any and all letters between you and the company. You need to have proof of the discussions should the need arise.
PAY AS AGREED
Once you have agreed to the terms, it is imperative that you pay as indicated. If they included a new monthly payment, make sure you pay on time.
If you do not pay on time or by the agreed upon date, you have instantly broken the terms of the agreement, and it can be considered null and void. Many times, you will not get the same deal if you try to negotiate again. In fact, they may not even agree to any lowered rate.
It is not fun to deal with collections, but you can do it. Just know your rights, and how to negotiate your debt and you’ll be in control of eliminating that debt once and for all.
As a new homeowner, I recently had to buy a homeowners insurance policy. And as a personal finance writer, I tried to take my own advice and “shop around.”
To be honest, it was a pain, and the rates I was getting on my own were way too high. Maybe it wouldn’t have been so bad if I wasn’t also trying to close on a house. In the end, I found an independent insurance agent, and she saved me hundreds of dollars and lots of headaches.
But I also learned that there were things I could do to help her keep my premium low year after year. For instance, I had planned to install an ADT security system, which I later learned would lower our premium.
So if you’re in the market for a new policy, here are six ways to make sure you’re getting the best possible rate:
1. Make sure you aren’t over-insured.
Being under-insured can be a big problem when disaster strikes. But being over-insured means you’re wasting your hard-earned moolah. So the ideal situation is to have just the right amount of coverage. So how do you do that?
Review your policy when it’s up for renewal each year. Specifically, make sure to review any floaters, which are extra insurance for items not fully covered in a standard homeowner’s policy. Examples include things like expensive electronics or equipment, valuable jewelry and artwork. If you no longer own the item or if its value has lowered, cancel or reduce the floater.
2. Reconsider your deductible.
A deductible is the amount of money you have to pay before your insurance policy kicks in and pays the claim. And the lower your deductible, the higher your insurance premium. According to the Insurance Information Institute (III), today most insurance companies recommend a deductible of $500 or more. But if you can afford to raise your deductible to $1,000, you could save as much as 25 percent. And, advises the III, don’t forget that you might have more than one kind of deductible. For instance, if you live in a disaster-prone area, like one prone to windstorms, hail or earthquakes, your insurance policy may have a separate deductible those specific types of damage.
3. Clean up your credit report.
Like it or not, when it comes to insurance, your credit report is up for grabs. The Fair Credit Reporting Act (FCRA), states that insurance companies have a “permissible purpose” to look at your credit information without your permission. And since insurers have found that credit history is a reliable predictor of how risky someone is to insure, they use that information to determine whether or not to offer you a policy, as well as how much to charge for your premium.
So besides all the other important reasons to monitor your credit report, doing so can also yield you a lower premium on your home insurance, or at least prevent your premium from going up. And be sure to order copies of your credit reports once per year, since you can be sure insurers are checking it before you renew. For instance, a 2007 report by the Arkansas Insurance Department found that in 2006, a total of 457,982 policies in the state were written or renewed that involved the use of credit as one of the factors weighed in determining the premium. Of those, 32.3 percent resulted in the premium being decreased, and 9.2 percent resulted in the premium being increased. In the remaining 58.5 percent, credit was a neutral factor.
According to the III, in most states the insurance company has to advise you that they’re raising your premium because of red flags on your credit report. But it’s best to just check your credit on a regular basis and correct errors quickly to make sure your record is always accurate.
4. Make your home Fire Marshall Bill-proof.
Fire Marshall Bill was a Jim Carrey character on the sketch show In Living Color, and his safety lessons, which he demoed on himself, resulted in fires, explosions, and loss of limb.
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You probably know better than to toss lighter fluid on a burning pipe, but you might not know about less ridiculous safety measures that could lower your insurance premium. Talk to your insurance agent or rep to find out if you can save money by doing things like:
Making your home more windstorm-resistant, such as adding storm shutters.
Updating your plumbing and electrical systems to reduce the risk of water and fire damage.
Increasing your home security with smoke detectors, burglar alarms or dead-bolt locks.
These aren’t cheap updates, so make sure they’ll lower your premium enough to make it worthwhile and that your updates will qualify for the discount. For instance, an insurer might have a list of qualifying alarm systems. Realistically, expensive updates like these aren’t usually done solely to save crazy money on insurance premiums. They’re typically things you want to do to make your home safer, or as Fire Marshall Bill would say, less “Dtuhhh-dthuhhh…DEADLY!”
5. Shop around every year.
We talked about this earlier, but really and seriously, you have to shop around if you want to make sure you’re getting a great rate. Ask your network for recommendations, and check out the National Association of Insurance Commissioners (www.naic.org) for help finding an insurer in your area. Pay special attention to the consumer complaint information, since price isn’t the only thing you want to consider when deciding on an insurer.
Or find an independent insurance agent, who shops around for you. Before finding my agent, my auto and home insurance quotes were in the $1,000-$1,300 range. Then I employed her services and she found a great policy from a reputable company for just $700. That’s some serious savings.
And speaking of auto and home insurance…
6. Consolidate to save more.
Some companies that sell multiple types of insurance, such as homeowners, auto and liability, will knock a percentage off your premium if you buy two or more policies from them. It can save you anywhere from 5 to 15 percent, according to the III. Just make sure the combined price with a discount is actually lower than buying separate policies from different companies.
Readers, can you add anything to this list? How have you saved money on your home insurance policy?
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When you are trying to tighten down the hatches on your spending, you are doing everything possible to stick to your budget.
You are determined to stick to your budget this time around. But, you always hear that budgeting can be hard.
Well, here are some quick budgeting tips that will make sure to stick to your budget.
As most new budgeters learn, they struggle to stick to a budget for their monthly expenses. It is a natural process everyone goes through.
Budget, if you are looking for an easy button, then learn which payment type is best if you are trying to stick to a budget.
Especially if you spend a lot of time on social media, studies have shown you are more likely to overspend. So, you must learn which payment type will have you stick to a budget.
Then, you may be wondering and wanting help deciding which payment type is best for you.
The Optimal Solution Payment Type Solution
The most efficient payment type is something that is instantaneous and there are no fees associated with the transaction.
Cash is the most efficient payment type: Cash payments are usually the most efficient and convenient way to pay for goods or services.
Credit cards can be a less favorable option: Credit cards tend to have high-interest rates and can lead to financial disaster if used irresponsibly.
Debit cards are a great way to keep your spending within your budget: Debit cards should be considered a top priority for budgeting because they keep you within your spending limits.
Developing a budget will help you avoid financial disaster: A budget helps you stay organized and make informed decisions about which payment method works best for you.
Today, there are so many options on which payment type to use in today’s online world.
1. Cash
Cash is a payment type that can be used to reduce debt spending. It is versatile and can be used for a variety of expenses, such as groceries, medical bills, and gym memberships.
Cash is an excellent choice for people just starting to budget and save.
It is more restrained than credit or debit cards. The envelope method of cash budgeting can be used to train your brain to reduce spending. Cash is the most traditional payment method and has the fewest drawbacks. However, you need a safe place to store your cash, and some stores may not accept it.
Benefits of Cash:
Cash is an excellent payment type when your financial goals are to reduce debt spending.
Cash is a finite payment method that prevents you from overspending.
You have a set amount of money to spend each month, so there’s no chance of overspending.
Easy to track with the envelope method: Utilizing the envelope method ensures that you are tracking your spending (i.e groceries, gas, medical bills) and making sure that you aren’t overspending.
Cash is a quick and easy way to pay for goods and services.
No Fees. No maintenance fees or interest rates as credit cards. Cash is just plain cash – printed paper of currency.
You can avoid high fees associated with card transactions: There are no associated fees when paying with cash, making it the cheapest option overall.
Cash discounts may be available. Since you are paying with cash many small businesses offer a cash discount of 2-5%.
You can use cash at any store: No need to carry around extra cards or checks.
It’s easy to get cash: You can easily get cash and make extra cash.
There’s no need for bank account details: No need for bank account details means you’re free from identity theft risks and other inconveniences that come with having a bank account.
Cash allows you to skirt some financial regulations: Because cash payments don’t fall under the purview of many financial regulations, businesses can take advantage of loopholes in the law that allow them to charge higher interest rates on loans or engage in shady business practices. (highly recommended to stay above book)
Cons of Cash:
Possibility of losing or stolen cash: Keep your cash in a safe place!
You need a safe place to store your money: Another disadvantage of using cash is that you may need a safe place in which to keep it – some stores don’t accept it as a payment method.
Why Choose Cash?
Total control over your money, so there’s little chance of unexpectedly running out of funds.
Cash is a great way to stay on budget, as you can easily track your spending and see where you need to cut back.
Unpleasant to spend money with cash, which can help train your brain to reduce spending.
Cash is a quick and easy way to pay: Using cash eliminates the need for banks, credit cards, or other forms of payment.
Verdict: Paying with cash is the best method for budgeting and saving.
Overall, cash is a great payment type when it comes to budgeting. You can immediately see how much money you’ve spent and what needs to be cut back.
You can’t make impulsive buying decisions with debit cards or credit cards.
With a finite amount you can spend, cash is an excellent choice to prevent overspending. According to research, paying with cash can feel unpleasant, which can train your brain to reduce spending as much as possible.
2. Credit cards
Credit cards offer a number of benefits, including convenience, cash back, and the ability to make large purchases or pay bills in case of emergency. However, credit cards also come with credit card debt and can lead to overspending and financial problems if not used carefully.
For many, credit cards are the easiest way to blow your budget because you don’t have control over how much money you spend.
It is possible to overspend with credit cards if you are not mindful of what you charge.
On the flip side, this is a preferred method as many credit cards also offer rewards programs that give you cash back or points for purchases. If you make the conscious decision to use credit cards, you must make payments on time to avoid penalties.
Benefits of Credit Cards
Credit cards are convenient: Convenient to use and don’t have to worry about losing cash.
Use a credit card if you are disciplined and have strict spending habits: If you are disciplined and have strict spending habits, then using a credit card can work well for budgeting purposes.
Flexibility on larger purchases: Some benefits that come with having a credit card include more cash flow as well as being able to make larger purchases.
Credit cards provide support in times of crisis: Many credit cards offer extended services that can help like 24-hour fraud protection, lost wallet services, traveler’s insurance, and many other benefits – check each issuer for details.
$0 Liability on Unauthorized charges: Your credit card company will not be held responsible for any charges that were not authorized by you. This means that if you did not authorize a charge in person, online, or otherwise, you will not be responsible for it.
Fraud protection: Check your credit card issuer, but many offer fraud protection.
New card introductory APR is helpful to pay down debt: The introductory APR for the new card may not last long.
Payments on balance transfer should be manageable: Make sure that the payments on your balance transfer are manageable.
Points: You can accrue points along with your spending which can be a great perk.
Credit card interest rates are significantly lower than payday loans: Interest rates on credit cards are usually much lower than payday loans.
Due Date is After your statement closes. Since your bill cycle is at least another 21 days between the closing date for your statement and the due date, it gives you flexibility. Personally, I still account for the credit card bill in the same month that it was accrued.
Cons of Credit Cards
Potential for credit card debt: When using a credit card, be aware of your credit limit and the interest rate that you will have to pay on your debt. Also one of the categories of debt.
Credit limit often leads people to spend money: The credit limit often leads people to spend money by giving them a false sense of security, when they should stick to a budget and pay attention to their credit card statement and the billing cycle.
Credit card overspending can lead to debt: Consider the purchase if it is essential or delay it if possible.
Ability to easily purchase something you cannot afford. Buying something that you don’t have the money saved up for will cost you interest fees associated and maybe even with a credit card balance transfer.
There are a number of fees associated with a balance transfer: Transfer fee, interest on new purchases charged to the card.
Your introductory APR may not be valid if you make too many payments late: If you fall more than 60 days behind on payments your introductory APR might be canceled and you may face higher interest rates.
Credit score can suffer from debt: When you carry a credit card balance or don’t pay your monthly bills on time, you will lower your credit score.
Avoid carrying a balance: Pay your statement in full each month to avoid paying interest and maximize your grace period.
Key Takeaways on Credit Cards
Make sure to pay attention to the dates: Don’t spend more than you can afford, and make sure you’re making your minimum monthly payments on time so that your debt doesn’t increase over time.
A credit card can be used for budgeting only if you’re very disciplined: If you know that overspending is NOT an issue and you pay the credit card’s monthly balance in full, then using a credit card is fine.
Credit card transactions usually take several days to register in the feedback system: Something to look out for!
You can step back into debit cards or cash if needed: If credit cards are not for you, there are other options available such as debit cards or cash
3. Debit cards
Debit cards are a good option if you want to stick to a budget because the predetermined amount of funds can help you stay within your means. Additionally, debit cards are more convenient than cash and just as accepted as credit cards in most places.
A debit card works more similarly to cash than to credit cards.
They provide an easier way to track your spending and avoid having to carry a lot of cash.
Pros of Debit Cards:
No Need to Carry Cash: A debit card is better than cash because you don’t have to carry a lot of paper money and change around, and they’re also safer.
Debit cards are faster and easier to use: Debit cards work just like credit cards – withdrawing cash, making purchases, and paying bills – but they are linked directly to your bank account, so there is no need to carry around a separate cash envelope wallet or purse for them.
A debit card is a good option if you want to stick to a budget: Debit cards come with a predetermined amount of funds that you can spend from your bank account just like cash.
Tracking payments is easy with debit cards: Your debit payments will appear on your issuer’s dashboard, which you can monitor anytime from any location.
Convenience: Debit cards are more convenient to use and faster than needing to write a check or carry around cash. Plus they don’t add to your debt.
Shopping online is easy. You can use your debit card to make online purchases with your bank account, and digital banking tools make tracking your spending easy.
Points: Some debit cardholders can earn points for spending on their cards, which can be redeemable for rewards such as cash back or gift cards. This is new to compete with credit cards.
Fraud protection is typically offered for free with most debit cards—meaning if your card is stolen or used without your permission, you can get your money back.
No impact on your credit report. When you use a debit card, the funds are actually withdrawn from checking or savings accounts so there is no credit reporting occurring.
Cons of Debit Cards:
An overdraft on a debit card can happen when a purchase exceeds the amount of money in the checking account, leading to overdraft fees.
Funds on hold with fraudulent charges. If your account gets hacked, your losses will be limited since most banks protect their users against fraudulent charges and online purchases with their accounts. However, those funds will be held while they investigate and you may be liable for $50.
No chance to improve your credit score. Since you are not borrowing money, you are unable to improve your credit score.
Debit cards are a great way to keep your spending within your budget and avoid overspending which can lead to many detrimental issues.
Regardless of the overdraft fee, debit cards are still better than cash because they’re safer and easier to carry around.
4. Checks
Checks… do people still write checks? Why yes they do!
Checks offer a few benefits as a payment method, even though they are slowly being replaced by more modern options.
This can help you keep track of your spending and make sure you do not overspend. Additionally, if you ever need to dispute a charge, having a check can be helpful in proving what you paid for.
What is a check?
A check is a written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer from the check writer’s account. The date is usually written in month/day/year format. The signature of the check writer is usually on the line below “Pay to the order of.”
There are three main types of checks:
A cashier’s check is a check guaranteed by a bank, drawn on the bank’s own funds, and signed by a cashier.
A certified check is a personal check for which the bank has verified that there are sufficient funds to cover the payment.
A personal check is one that you write yourself and that is not guaranteed by the bank.
Pros of Checks
Checks are still a payment option: Checks are one of the traditional payment methods, but it is slowly dying out because of modernization.
Physical written record. It can be helpful to have physical copies of checks in addition to digital records through the bank.
You need to make both digital and physical copies of the check: Save check stubs but also transfer the information to a budgeting system.
Cons of Checks
Saving check stubs is helpful, but you still need to transfer the information to a budgeting system: Useful for tracking spending, but you’ll likely want more detailed records than just check stubs.
Not as convenient as credit or debit cards.
5. Apple Pay or Apple Cash
Apple Pay is easy to use and convenient since you only need to connect your smartphone to your cards and bank accounts via the app.
It is easy to use since you just hold your phone up to the reader and wait for the payment screen to appear.
You can even get cash back with apple pay.
Pros of Apple Pay:
Apple Pay is easy to use and convenient: You only need to connect your iPhone to your cards and bank accounts via the app.
You don’t need to carry any extra cards or cash: No need for additional cards or cash when you’re out and about
You can use Apple Pay on different devices: You can use Apple Pay on your iPhone, iPad, and Mac.
Transactions are secure: Your transactions are secured with Touch ID or a passcode.
Set up Spending Limits for each user. This way you can make sure you (or others with authorized access) are not spending more than you intended. Learn how.
Protection of Data during transactions. Your actual credit card number is changed to a different digital number, which allows limits your card number’s exposure.
Cons of Apple Pay:
Not widely accepted (yet). This method of payment is 100 percent guaranteed. While many stores offer apple pay, not all do quite yet.
The same rules apply if you load apple pay with a debit or credit card drawbacks include late fees, interest rates, and overspending: Keep that in mind when choosing Apple Pay as your payment method.
6. Mobile wallets like Google Pay, Samsung Pay, Venmo, or Zelle
Mobile wallets are digital payment systems that allow you to pay for items with your smartphone. Many people find mobile wallets are very convenient and becoming a traditional method of payment (such as credit cards).
With mobile wallets, you are making digital payments without having to carry around cash or cards using just your smartphone.
Mobile wallets are easy to use and provide instant payment convenience, making them perfect for shopping online.
Pros of Mobile Wallets:
Mobile wallets use credit cards and debit cards: Connect your smartphone to your bank accounts and use it for digital payments.
Mobile wallets are easy to use and convenient: Instant payment convenience makes them perfect for shopping online as well.
No need for cash or cards: No need for cash or cards.
Strong secuirity features provide privacy and security features that ensure your personal information is safe from data breaches and unwanted charges.
You can make purchases without having to show your identification: You can make purchases without having to show your identification.
Additional Layer of Security. Additionally, mobile wallet data is protected with verification, such as fingerprints.
Cons of Mobile Wallets:
With Zelle and Venmo, it is easy to send money to the wrong person or add an extra zero and send more money from planned. More often than not, it is difficult to recover your money.
You need to be disciplined when using a mobile wallet: Pay attention to late fees and interest rates, as well as the amount you spend in a month.
7. Prepaid Cards or Gift Cards
A prepaid card or a gift card could be right for you. The advantage of these is the mere fact that you reached the limit is enough to deter overspending.
It can make you think twice about whether you need to purchase an item or not.
Pros of Prepaid Cards and Gift Cards
Easy to use: Prepaid and gift cards are easy to use and manage your finances with.
The mere fact that you reached the limit is enough to deter overspending: It can make you think twice about whether you need to purchase an item or not.
No strings attached: No need to worry about any fees associated with the prepaid card once activated.
Privacy: The prepaid card does not track your spending or use any personally identifiable information.
Credit Score Doesn’t Matter: Your credit score does not matter when obtaining a prepaid card.
Cons of Prepaid Cards or Gift Cards
Losing a prepaid card is not a fun experience. Contact the prepaid card issuer right away to protect the funds on the prepaid card.
Fraud protection: Consider whether your prepaid card issuer offers any theft or fraud protection, as not all providers offer this feature.
Prepaid cards have limits on how much money you can load onto them, which can be frustrating if you need to make a large purchase.
8. PayPal
PayPal is a very convenient way to pay for items online or in person. It is widely accepted and used by many people.
PayPal is a digital payment service that offers convenience and ease of use. You can use them to send money to people or pay for online purchases.
However, because these services can only be used online, they should not be relied on as your sole method of budgeting and tracking expenses. Instead, consider Paypal in combination with another budgeting tool, like a spreadsheet or app, to get a fuller picture of your spending.
Pros of PayPal:
PayPal is one of the most popular online payment methods: Widely accepted and used by many people.
You can use them to send money to people or pay for online purchases: Help you review your spending prior to purchase.
Cons of Paypal:
EasyTarget for phishing scams. A phishing scam is when someone tries to trick you into giving them your personal information, like your password or credit card number. They might do this by sending you an email that looks like it’s from PayPal, but it’s not. Or they might create a fake website that looks like PayPal. If you enter your information on these sites, the scammers can then use your account to make purchases or send money to themselves.
Reputation for poor customer service. This is evident in their customer service ratings, which are some of the lowest in the industry. The majority of complaints against PayPal revolve around poor service received when asking for assistance with fund freezes and account holds.
9. Cryptocurrency (ie: Bitcoin)
Cryptocurrencies offer a new and innovative way of handling payments. They’re not yet widely accepted, so there’s potential for businesses to get in on the ground floor with this new technology.
However, because cryptocurrencies are so new, it’s uncertain if they will be regulated or not. This could pose a challenge for businesses down the road.
Pros of Crypto
Not subject to the same regulations as traditional currency, which makes them appealing to those who want to avoid government intervention.
The valuation of Crypto changes rapidly. If you are smart with crtyple this is a great way to spend your crypto coins.
Cons of Crypto
Cryptocurrencies are not accepted everywhere: Cryptocurrencies are not accepted by most organizations yet, which it makes it difficult to use them in day-to-day life.
It’s unclear if cryptocurrencies will be regulated: It’s uncertain if cryptocurrencies will be strictly regulated or not. This poses a challenge for those who want to use them as a payment method.
Bitcoin and other cryptocurrencies are still in their infancy: Bitcoin and other cryptocurrencies have only been around for a few years, so they may still face challenges in the future.
Here are the most popular budget apps today:
Other Payment Methods:
ACH payments
ACH Payments is an excellent way to pay bills and other financial obligations: You can easily set up a billing cycle for recurring payments, making it safe and convenient.
Fewer people are aware of your transactions when using ACH payments, reducing the chances of fraud or theft.
Key Facts:
Fewer people know about your transactions when using ACH payments, reducing the chances of fraud or theft.
Your checking account information is not shared or accessed by the system in any way.
You can quickly pay bills and other expenses with ACH payment: Financial institutions offer this as part of their deals.
When setting up recurring bills with ACH payment, you are aying your bills on time is important for maintaining a good credit score.
Pay attention to your check account balances: Make sure you have enough funds in your check account to avoid paying overdraft fees.
Money orders
A money order is a document that orders the payment of a specified amount of money. Money orders are convenient because they can be bought at many locations, including post offices, banks, and convenience stores.
To get a money order, you will need to fill out a form with the payee’s name, the amount of the payment, and your contact information. You will then need to purchase the money order with cash or a debit card.
To cash a money order, you will need to take it to a bank or post office. You will need to show identification and sign the back of the money order. The teller will then give you the cash for the payment.
More secure than cash: Money orders are more secure than cash because they don’t require a bank to make the transaction.
Less convenient: money orders are less convenient because you must purchase them in person.
Able to trace. They are also more secure than cash because they can be traced if lost or stolen.
Wire Transfers
Wire transfers are a more secure way to transfer money than traditional methods like checks and cash. These are sent through the banking system and are usually processed within two business days.
Typically, wire transfers are used when sending and receiving large sums of money (over $10000).
More secure than cash: Wire transfers are more secure than cash as the bank verifies there is enough money to make the wire transfer.
Fees involved with using a wire transfer. Most institutions charge for handling a wire transfer.
What method of payment is best?
Cash is the most widely accepted form of payment, but debit and credit cards are very popular.
The payment method that is best for you depends on which one helps you to stick to your budget and spend less money. The goal is to be financially stable.
What method is best for sticking to a budget?
There are several different types of budgeting methods that people use in order to manage their finances. Many people focus on using the 50/30/20 method, in which each percent corresponds to a different category of expenses.
There are plenty of budgeting tools available today to make sure you stick to your budget.
You need to find what works best for you. At the end of the month, you want to spend less than you make. That is the winning combo!
1. Budgeting App
There are many budgeting tools available online, which can be helpful as it can be easier to track your progress and budget over time.
You can use various popular budgeting apps like Quicken, Qube Money, or Simplifi.
These apps can help you track your spending, set goals, and stay on track with your budget.
2. Paper and Pen or Simple Spreadsheet
Some people find that they prefer using a simple spreadsheet or paper budget. This may be due to personal preference or because they find it easier to understand and use.
Additionally, using a paper budget may help you stay more organized as you can physically see where your money is going.
Options to get you started include our own budgeting spreadsheets or using an automated system like Tiller.
3. Envelope budgeting method
The cash envelope system is a good way to stick to a budget because it is rigid and based on envelopes and cash. You can’t get more money until your cash payday. So, this system helps you track your spending and budget better.
However, using only cash can have drawbacks as having large amounts of cash on hand can be risky.
The envelope method gives you a sense of control over your spending and makes it more tedious to write down your transactions. If you find writing down your transactions tedious, the envelope method may be too much for you.
4. Know Your Budget Categories and Track expenses
Tracking expenses is essential to move ahead financially: Knowing what you have spent in each category will help you make better financial decisions.
Be specific with your budgeting categories. Don’t make it too complicated. Always remember to include household items, clothing, and groceries when tracking expenses.
5. Prioritize your Budget Plan
A budget can provide a realistic picture of your finances, help reduce stress related to money matters, and guide you toward achieving your goals.
Creating a budget can help ensure that you are able to meet your financial obligations and still have money left over for savings and other goals. A budget can also help you track your spending so that you can make adjustments if necessary.
Make a budget plan: This will help you stay on track and make sure that you are spending your money wisely.
You decide where to spend money: A budget helps you set future goals and achieve your financial goals.
Creating a budget can help reduce stress: If you tend to get stressed about money matters, creating a budget can give you peace of mind.
A budget has other benefits beyond financial ones: If you want to achieve something in life, creating a budget can help guide you in the right direction.
See where to cut back spending. You can also look at your past spending habits to see where you can cut back. Sometimes it may be necessary to save more in order to achieve long-term goals, like buying a house or having a wedding. Always be mindful of your budget when making payments and spending money.
It’s a three-step process that involves basic math: Making a budget is simple and requires only basic math skills.
Stay on track: Making a budget plan will help you stay organized and keep track of your expenses.
A budget plan will help you stay on track and make sure that you are using the best payment type for your budget.
Making a budget is an easy way to save money. By following a few simple steps, you can keep track of your expenses and make sure that you are spending your money wisely.
Which type of payment is best for sticking to a budget?
One of the main pros of using cash as a method of payment is that it is the most efficient way to keep track of your finances. This is because it is very easy to budget when you are only dealing with cash.
However, many people prefer debit or credit cards are the best type of payment. They are more convenient than cash and can help you keep track of your spending. However, if you have a bad credit history or a low credit score, credit cards may not be the best option for you.
Cash payments are the most efficient: Most convenient and easiest to keep track with cash envelopes.
Credit cards allow you to accrue points along with your spending: These are a great benefit and one that can be a perk if handled well as part of your budgeting process. As long as pay them off in full each month to avoid credit card debt, high-interest rates, and other negative consequences.
Debit cards are also a good option for sticking to a budget. They can be used like credit cards but with less risk of debt.
Cash-based payments are a newer option and are more reliable: May not have as many negative consequences as other payment methods such as credit cards or loans.
What Not to Use when you are Trying to Stick to a Budget
You need to steer clear of these types of payments if you want to be financially stable person.
Personal loans
Personal loans are a risky way to budget. However, if you need the money for an emergency or unexpected expense, a personal loan can be a lifesaver.
There are many risks to consider and other ways to lower your spending before resorting to a personal loan.
Loans can cause budgeting problems: Loans can mess up your budget and make it difficult to stick to spending plans.
Taking out a personal loan just for the sake of having money can disrupt your budgeting: Consumers often borrow money in order to pretend they’re doing better financially than they really are.
Borrowing money is usually not a good idea: When you borrow money, you may find that you cannot handle seeing low checking account balance, which can lead to deeper debt problems.
Payday Loans
Payday loans are a bad option for someone looking for a long-term solution. They are expensive, and there is a high chance that the person will not be able to pay back the loan.
The interest that is charged is also high, and it can add up quickly.
Write bullet points about what happens with a payday loan
Payday loans can trap people in a cycle of debt, as they are often unable to pay back the loan in full on the due date.
When someone takes out a payday loan, they are borrowing money from a lender in a short amount of time, usually two or three days.
Payday loans are often expensive, with interest rates that can be above 300%.
Debt Consolidation Loans
Debt consolidation can be a good way to manage your debt because it can result in a lower monthly payment and extended payments may impact your financial plan. You can use a debt consolidation calculator to estimate how much debt you can afford before taking out a consolidation loan.
Debt consolidation loans also provide convenience because they have lower interest rates than payday loans. However, be careful when consolidating your debt because it is possible to overspend and lose your introductory APR.
You may be able to pay off your debt with one monthly payment: A consolidation loan often results in a much lower monthly payment than all of your previous monthly payments combined.
Extended payments may impact your financial plan: Take a look at how these extended payments will impact your financial planning.
You can estimate how much debt you can comfortably afford: use this tool – Tally .
It is possible to overspend with debt consolidation: If you spend more money than you planned on your day-to-day expenses, this could increase your debt. Consider if the purchase is necessary or if it can be delayed.
You may lose your introductory APR: If you fall more than 60 days behind on payments, you will likely lose your introductory APR and may even trigger a penalty interest rate.
You need to be careful when transferring a balance: Transferring a balance can also forfeit your grace period and you’ll need to pay interest on new purchases charged to the new card.
What type of payment method is best for sticking to a budget?
There are a variety of payment methods available, and each has its own benefits and drawbacks. It’s important to choose the payment method that’s best suited for your business and budget.
A payment method that allows you to stick to a budget is the best option.
FAQs
There are three main types of payment methods: cash, debit cards, credit cards, and cash-based payments.
The envelope budgeting method is a simple way to create a budget. You will need envelopes and divide your money up into the different categories that you spend money on. You will then put the corresponding amount of money into each envelope. This method can be helpful if you have a hard time sticking to a budget.
The zero-based budgeting method is a more methodical way to create a budget. With this method, you track every penny that you earn and spend. This can help you to see where your money is going and make adjustments accordingly.
A debit card is a plastic card that is linked to a checking account. Customers can spend money by drawing on funds they have already deposited. An overdraft on a debit card can lead to overdraft fees, which have high-interest rates.
A credit card is a plastic card that allows customers to borrow money up to a certain limit in order to purchase items or withdraw cash. Using a credit card can help build credit or improve your credit score.
There are a few different ways to use a credit card. You can use it to check your balance and review your spending history, which can be helpful in staying accountable.
Credit cards also offer online tools which make the analysis of your spending easier which can be helpful in tracking your budget.
Finally, you can use a credit card to rebuild your credit score by using it responsibly and paying off the balance in full each month.
Which payment type can help you stick to a budget?
When it comes to choosing a payment type that will help you stick to a budget, there is no one-size-fits-all solution.
The best payment method for you will depend on your specific needs and preferences.
When you are creating a budget, it is important to consider which payment type will help you stay on budget. Different payment types work better for different people, so it is important to experiment and find the one that works best for you.
As I stated for me, I have learned how to use credit cards to maximize cash back. But, I learned how to budget with cash when first starting.
Please pay attention to your budget and how it changes over time, as different payment types may work better at different stages of your life.
Consequently, I hope that this guide has given you a better understanding of the different payment types available and helped you narrow down your options. There are a variety of payment types that can help you stick to a budget, so it’s important to research each one carefully.
I highly recommend using an app to track your expenses and know where you spend your money. By developing a budget and choosing the right payment type, you can stick to your financial goals.
Know someone else that needs this, too? Then, please share!!
If you’re building or rebuilding your credit, you’re probably looking into a secured credit card like the U.S. Bank Secured Visa® Card. And as a potentially useful bridge to a more rewarding card, it’s one of the better secured credit cards on the market.
Like all secured credit cards, U.S. Bank Secured Visa requires a security deposit before you can begin using it. Don’t worry: You get it back when you pay off your balance and close or upgrade the account. And in the meantime, you build credit — as long as you use the card responsibly.
U.S. Bank Secured Visa isn’t perfect, though. Before you rush out to apply, understand its ins and outs.
What Is the U.S. Bank Secured Visa Card?
The U.S. Bank Secured Visa Card is a secured credit card with no annual fee. Once you make the initial security deposit, you use the card as you would any other, paying off your monthly statement or carrying a balance with interest.
The U.S. Bank Secured Visa Card has no notable incentives, such as a rewards program or sign-up bonus. It’s not meant for long-term use but rather for building or improving your credit until you’re in a position to apply for a more generous cash-back credit card.
What Sets the U.S. Bank Secured Visa Card Apart?
The U.S. Bank Secured Visa Card shares a lot in common with other secured credit cards and has no unique features of note. To the extent that it stands out at all, it’s because it has:
No annual fee. Without an annual fee, you don’t have to worry about losing money each year you keep it.
No preset credit limit. Your credit limit is always equal to your security deposit, but U.S. Bank doesn’t set a minimum or maximum. If you have the means to make a big deposit, you enjoy greater spending power than with competing cards that set low initial limits.
No need for a FICO score. U.S. Bank considers your credit history if you have one, but you don’t have to have a FICO score to apply. So this card could work as your very first.
Key Features of the U.S. Bank Secured Visa Card
The U.S. Bank Secured Visa Card is very straightforward. The most important things to know about it are the rules around security deposits, credit limits, and credit reporting.
Security Deposit
Before you can begin using this card, you must make a security deposit into a special FDIC-insured bank account controlled by U.S. Bank.
Your deposit remains locked up until you upgrade to an unsecured card or pay off your balance and close the account. You make monthly payments from your regular bank account, not your security account.
If you stop making at least the minimum payment on your account, U.S. Bank may use your security deposit to cover the shortfall. If that happens, U.S. Bank closes your account and you get a serious black mark on your credit report.
Credit Limit
Your credit limit is always equal to your security deposit. You can charge up to your limit, but you can’t exceed it without first paying off previous charges.
Credit Reporting & Monitoring
U.S. Bank reports your payment history and credit utilization to the three major credit reporting bureaus: TransUnion, Equifax, and Experian. You have access to your FICO credit score in your online account dashboard, so you can track how these reports affect your credit score (hopefully for the better) as time goes on.
Overdraft Protection
You don’t need a U.S. Bank checking account to qualify for this card, but if you have one, you can use your U.S. Bank Secured Visa Card as a backup to cover negative balances in that account. U.S. Bank charges the negative amount to your credit card to make your bank account whole.
There’s no additional fee for this service, but overdraft protection charges begin accruing interest right away. You should pay them off as soon as you can to reduce your net cost.
Important Fees
This card has no annual fee. Foreign transaction fees cost 3% of the transaction amount. Balance transfers cost the greater of 3% or $5.
Ongoing APR
There’s no introductory promotion. The APR for purchases and balance transfers is 28.99% from day one.
Credit Required
If you have enough credit history to have a FICO score, you need fair or better credit to qualify for this card. You probably won’t qualify with a recent bankruptcy on your record.
But if you have no credit history at all, U.S. Bank may consider noncredit factors like income and assets when assessing your application. You don’t absolutely need a FICO score to qualify.
Advantages
The U.S. Bank Secured Visa Card’s biggest advantages concern its relaxed underwriting standards, flexible credit limit, and credit-building capabilities. It doesn’t hurt that it has no annual fee either.
No annual fee. This card has no annual fee. Many other secured cards charge recurring fees, so this is a notable and positive feature.
Relaxed standards. You can qualify for this card with fair or better credit. Some secured credit cards have surprisingly strict standards, requiring FICO scores close to 700.
May qualify with limited or no credit. If you don’t have a FICO score due to limited credit history, you may still qualify for this card based on noncredit factors like income and occupation. That’s another advantage over some competing secured cards that strictly require FICO scores.
Deposit sits in an FDIC-insured account. Your security deposit is safe in an FDIC-insured account until you close your credit card account. You’d expect this from a major bank, but it’s still nice to have the peace of mind.
You can control your credit limit. Your credit limit depends on the size of your initial deposit, which means you can boost your spending power if you’re willing to lock away more cash upfront.
Comes with free credit monitoring tools. With this card, you always know where your credit stands. That’s a nice perk if you don’t already have a credit monitoring service.
May offer a path to unsecured status. After several months of responsible use, you may qualify for an unsecured credit card from U.S. Bank. U.S. Bank is vague about how long that takes and how it determines who’s eligible, but it’s something to aspire to nonetheless.
Disadvantages
This card’s downsides revolve around its total lack of cardholder incentives. That isn’t surprising for a basic secured credit card, but it’s disappointing nonetheless.
No sign-up bonus. This card has no sign-up bonus for new cardholders who hit an early spending target. Such an incentive would be nice right out of the gate.
No APR promotion. The U.S. Bank Secured Visa doesn’t have a 0% intro APR promotion. This feature is uncommon in the secured credit card space, but it’s increasingly popular on unsecured entry-level credit cards for people with fair or limited credit.
Few perks. This card has few extra benefits to speak of. If you can qualify for a card with more perks, don’t waste your time with this one.
No rewards program. This card has no ongoing rewards program. While it’s still not necessarily common in the space, some competing secured credit cards do, including a few without annual fees. Look into those if you qualify.
How the U.S. Bank Secured Visa Card Stacks Up
The U.S. Bank Secured Visa Card isn’t the only no-annual-fee secured credit card from a major U.S. financial institution. Before you apply, see how it compares to another popular option: the Citi Secured Mastercard.
U.S. Bank Secured Visa
Citi Secured Mastercard
Annual Fee
$0
$0
Credit Limit
Depends on deposit
Up to $2,500
Rewards
None
None
Sign-up Bonus
None
None
FICO Score
Yes
Yes
Final Word
The U.S. Bank Secured Visa® Card has a lot of advantages relative to other secured credit cards. It has no annual fee, which is relatively rare, and it doesn’t require a FICO score to qualify. The credit limit is flexible too — based on your initial deposit.
But it’s not perfect by any means. With few extra perks, it offers little in the way of incentives for cardholders. It’s best used as a stepping stone to better credit, which is probably your plan, anyhow.
The Verdict
Our rating
U.S. Bank Secured Visa® Card
Annual Fee: $0
Security Deposit: Yes, required
Initial Credit Limit: Depends on deposit amount
Sign-Up Bonus: None
Rewards: None
Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.
When you swipe a credit card or take out a loan to make a purchase, you probably don’t think of the experience as a test of your personal integrity or reliability. You’re more interested in how you’ll feel behind the wheel of your new car, walking through your new home’s kitchen, or sitting in front of your new flat-screen TV.
But your creditors don’t care about how your purchasing habits improve your personal happiness or quality of life. They just want to recover the money they lent you — with interest. And they know from experience that it’s more difficult to recover said money (and interest!) from some borrowers than others.
The risk that you won’t repay your loans is known as your credit risk. Lenders assess credit risk using three-digit personal credit scores. The lower your credit score, the more trouble you’ll have qualifying for a credit card, mortgage, and many other types of credit.
There are also many less well known consequences of a low credit score. Find out what they are and how they can affect your life in unpredictable, unwelcome ways.
How Your Credit Score Works
Your personal credit score is based on the information in your credit report, which is a comprehensive look at your recent financial history.
Credit reports include data on:
Past loan payments, including late or delinquent payments
Credit utilization (how much you borrow as a percentage of your approved credit lines)
Recent credit applications, generally stretching back two years
The different types of credit accounts you have, like credit cards, personal loans, auto loans, home loans, and more — with information about the credit limit, lender, and other details for each
Recent adverse financial events, like bankruptcies and foreclosures
In the United States, most consumer credit reports are issued by the three major credit reporting bureaus: Experian, TransUnion, and Equifax. Keep in mind that although your credit score is derived from the information in your credit report and history, your credit score is not your credit report.
Your credit score is a number that summarizes your credit risk. Consumer credit scores generally follow a scale ranging from 300 (riskiest) to 850 (least risky), although there are exceptions. The most popular credit scoring methodology was devised by FICO and is known as your “FICO score.”
Lenders often segment credit score ranges into quality classifications, such as “A,” “B,” and “C.” They may use qualitative descriptors, like “Good,” “Very Good,” and “Excellent.” They may also draw a line separating “prime” and “subprime” borrowers at a particular score — usually somewhere in the 600s, depending on the lender.
Because each bureau’s report contains slightly different information at any given time, a credit score based on your one report is likely to vary a bit from the score based on another. That said, all three bureaus are considered reliable sources of credit-related information, and your score shouldn’t vary more than a couple dozen points at any given time.
The Possible Costs of a Bad Credit Score
Your credit score and, by extension, your overall credit profile don’t just affect your personal finances. Your credit influences many aspects of your personal and public life, including plenty that don’t involve borrowing.
This list covers seven well-known and not-so-well-known consequences of bad credit, such as difficulty getting approved for a loan, higher rates and terms on approved loans, costlier insurance, and difficulty qualifying for a traditional cellphone contract.
1. Getting Approved for a Loan Can Be Difficult
You probably know already that your credit score directly affects your likelihood of securing approval for a new loan or credit application. The lower your score, the less likely you are to find a willing lender. Many lenders simply don’t make loans to subprime borrowers or those who fall below a particular quality level or numeric score.
This can feel unfair because practically speaking, a credit score of 698 isn’t much different from a credit score of 702. But 700 is an important level to many lenders, which means those four points often make a real difference — with real-world consequences for your ability to invest in your future.
2. Higher Rates and More Restrictive Terms on Approved Loans
Getting approved for a loan counts as a victory. But if your loan comes with an unfavorable interest rate or restrictive terms, it could soon feel like a hollow one.
Every lender is different, and for competitive reasons, most are reluctant to disclose exactly how they set interest rates. But most are upfront about the fact that lower credit scores mean higher interest rates. According to Bank of America, one of the biggest lenders in the United States: “A higher credit score may help you qualify for better mortgage interest rates … and some lenders may lower their down payment requirement for a new home loan.”
The impact of higher rates and more restrictive terms can be enormous. An interest rate difference of a single percentage point can add tens of thousands of dollars to the total cost of a mortgage, depending on how the loan is structured. I used a free mortgage calculator to find the lifetime interest cost difference for a 30-year, $400,000 mortgage at 6% vs. 7% interest:
Total Interest at 6%
Total Interest at 7%
30-Year Difference
$463,352.76
$558,035.59
$94,682.83
A single percentage point higher and you pay nearly $100,000 more over the 30-year life of the loan. Astounding! And although the numbers aren’t quite as large, the same effect applies to auto loans, home improvement loans, personal loans, and credit cards.
In many cases, the difference between a good credit score and a not-so-good credit score is less obvious for inexperienced borrowers. For example, if you’re a first-time homebuyer with a 615 credit score, your only realistic chance at getting a mortgage might be to a FHA home loan. But FHA loans take longer to close than conventional mortgages, which can scare off sellers. They also come with expensive mortgage insurance requirements that may last the entire life of the loan, adding hundreds to your monthly payment.
3. Trouble Renting an Apartment
If you’re applying for an apartment lease and local laws don’t explicitly prevent them from doing so, the landlord is likely to run your credit. Which makes sense. Like it or not, applicants with lower credit scores are statistically less likely to make timely rent payments. Landlords are especially wary of applicants with patterns of late payments, delinquencies, foreclosures, and bankruptcies in their credit reports.
But if you’re an applicant, this arrangement may not feel fair — and it can have a major impact on where you end up living. Landlords who own well-kept, modern properties in desirable neighborhoods typically hold renters to higher credit standards because high demand for their properties affords them the luxury of picking and choosing who they rent to. I’ll never forget one of my ex-landlords telling me that he wouldn’t rent his best properties to anyone whose credit score came in below 640, but that he was more lenient about places on what he called “the wrong side of town.”
He’s not the only one. Small-time landlords like him and bigger management companies alike follow the same general pattern. So if your credit score is below prime, you could find yourself in a shabby rental in a neighborhood you’re not crazy about.
4. Trouble Getting a Job or Security Clearance
According to a study cited by the Association of Psychological Science (APS), there’s little if any correlation between employee credit and job performance. Worse, APS found that credit checks during the hiring process appeared to reinforce racial disparities in employment by disproportionately disadvantaging Black applicants.
But that doesn’t stop employers from checking applicants’ credit during the hiring process. In fact, unless you live in one of the handful of states where the practice is banned or severely restricted, you should expect to have your credit checked when applying for a job. According to a survey by Demos — a think tank that focuses on consumer finance issues — one in four job applicants have had their credit run, and one in seven has been advised that they were denied a job due to poor credit (such disclosures are required in some jurisdictions).
Applicant credit checks are especially common in government and the financial industry. And the credit check process can rear its head even after you’re hired. Government agencies and contractors may run credit checks when you apply for a promotion that requires a new or higher-level security clearance, which means your boss could pass you over for reasons that have nothing to do with your job performance.
5. Trouble Getting a Cellphone Contract
Getting a cellphone contract sounds trivial when you’re worried about finding a job or place to live. But these days, living without a cellphone isn’t really an option. Do you even have a landline anymore?
Unfortunately, cellphone carriers pay close attention to new customers’ credit when determining whether to approve a new contract. As in rental housing, they know that higher-risk customers are less likely to make timely payments or have enough money in their account on the auto-debit date. Even if you’re only interested in a month-to-month phone plan, your carrier is still likely to run your credit because they know how easy it is to rack up excessive data, roaming, and international calling charges in a single month.
If you’re disqualified for a traditional cellphone contract due to a bad credit score, you still have options. They’re just likely to be costly or inconvenient.
Some carriers accept security deposits in an arrangement similar to a secured credit card. If you make timely payments, you generally get your deposit back after a year or two.
A prepaid phone plan is another option. The catch is that you often have to pay out of pocket for your new phone or find yourself choosing from older, less fun models. Prepaid plans are more likely to have restrictions on talk and data usage, though these aren’t as common as in the past.
6. Higher Insurance Premiums
The federal Fair Credit Reporting Act allows auto and homeowners insurance companies to pull consumers’ credit reports when making underwriting decisions. Most states further govern this practice, though few outlaw or severely restrict it.
Timely payment histories and outstanding debt levels are particularly important to insurers. If you don’t stack up well on these metrics, you’re likely to pay higher premiums than someone with better credit on an otherwise identical policy.
7. Potential Strain on Personal Relationships
Your credit score and overall credit profile can put tremendous strain on your personal life, especially the relationships that matter most to you. Although your credit profile doesn’t actually merge with your spouse’s after marriage, their credit can affect your ability to qualify for or afford new loans that you’re applying for together, such as auto or home loans.
Say you have excellent credit and your spouse’s is just so-so. When you apply for a mortgage, the lender looks at both profiles and assesses your household’s overall credit risk as the riskier of the two (your spouse’s). So even if your risk is low enough to meet the lender’s qualification standards, you’re likely to pay a higher interest rate or larger down payment together than you would were it just you applying for the loan.
To take another example, if you and your spouse jointly apply for a credit card with you as the primary user and they as the authorized user, their card usage and payment history (or lack thereof) can affect your credit. Should they fall behind on payments or rack up irresponsible charges, both of your credit profiles suffer the consequences.
Situations like these can lead to tension at home — possibly threatening the relationship’s very existence.
Bad Credit Score FAQs
Still have questions about what your credit score means for your finances, career, and personal life? See our answers to some common questions about bad credit — and what to do about it.
What Counts as a Bad Credit Score?
It depends how you define “bad credit score.”
The lowest FICO credit score considered “prime” by U.S.-based lenders is 660. Scores between 620 and 659 are considered “near-prime.” On the qualitative scale, near-prime scores are considered “fair” or “average.”
Verge below 620 and you’re getting into bad credit territory. Precise cutoffs vary, and many lenders prefer “bad” to poor, but suffice to say that if your credit score is below 600, it needs work.
Can You Get Insurance If You Have a Bad Credit Score?
Yes, you can get insurance if you have a bad credit score. But you’ll probably have to pay more for it via higher premiums.
To find the best possible deal, follow the age-old rule of buying insurance and shop around. It takes only a few minutes to get multiple quotes using an online insurance broker, and you could save hundreds per year on big-ticket auto or home policies.
Can You Lose Your Job Due to a Bad Credit Score?
No, you’re unlikely to be fired from your job due to a bad credit score alone. It’s more likely that you won’t get the job in the first place or that you’ll be denied a promotion that requires a higher security clearance. Not that those outcomes are much better.
Can You Get Evicted If You Have a Bad Credit Score?
No, you probably won’t get evicted from your apartment just because you have a bad credit score, or because your credit score drops due to a missed loan payment.
But you certainly can get evicted from your apartment for missing multiple rent payments, which is statistically more likely for folks with bad credit.
This is why many landlords avoid renting to people with low credit scores and why you’ll likely have to work harder to find a place if your credit isn’t where you’d like it to be.
Does Your Spouse’s Credit Score Affect Yours?
Not exactly. Your spouse’s credit score has no direct bearing on yours, but their actions can affect your credit and vice versa. For example:
You take out a joint loan (like a mortgage) and your spouse stops paying their share. Eventually, you default on the loan, damaging your credit.
You cosign your spouse’s loan application and they stop making payments at some point down the road. Your credit score drops along with theirs (unless you step in to make payments for them).
You make your spouse an authorized user on your credit card and they rack up a ton of charges they can’t pay back. You know the drill by now.
Trust is always important in a relationship, but so are boundaries. If you don’t trust your spouse to make financial decisions in your own best interest, think carefully before merging your finances completely.
How Long Does It Take to Improve Your Credit?
It depends on your starting point and on the details of your credit profile. It’s often easier and faster to build credit from the ground up than to recover after a major financial setback, like bankruptcy.
Final Word
It’s hard to overstate the importance of your personal credit. At the same time, it’s not the end of the world if your credit score isn’t exactly where you want it to be at the moment.
With such an incredible range of online credit-tracking resources, it’s easy to monitor your credit and learn how to improve it. Tracking your credit is also a great way to boost your financial self-confidence. Every incremental credit score improvement due to a timely payment or reduction in credit utilization is a minor cause for celebration. And the sooner you begin, the sooner you can start racking up those little wins.
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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.
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Many Americans have income that fluctuates from week to week. When incomes are unsteady, any unexpected expense can leave you coming up short. If you don’t have a fully funded emergency fund, you may find yourself looking around for loans to bridge the gap and get you to your next paycheck. Payday loans are out there, but at a high cost to borrowers. Before taking out a payday loan you may want to first make a budget. You can work with a financial advisor who can help you make a long-term financial plan that you can budget your finances to meet.
Payday Loans: Short-Term Loans with a High Price
What are payday loans? Say you’re still 12 days away from your next paycheck but you need $400 for emergency car repairs. Without the $400 your car won’t run, you won’t make it to work, you’ll lose your job and possibly lose your housing too. High stakes.
If you go to a payday lender, they’ll ask you to write a future-dated check for an amount equal to $400 plus a financing fee. In exchange, you’ll get $400. You’ll generally have two weeks or until your next paycheck to pay that money back. Say the financing fee is $40. You’ve paid $40 to borrow $400 for two weeks.
If you pay back the money within the loan term, you’re out $40 but you’re not responsible for paying interest. But the thing is, many people can’t pay back their loans. When that happens, the money they borrowed is subject to double-digit, triple-digit or even quadruple-digit interest rates. It’s easy to see how a payday loan can lead to a debt spiral. That’s why payday loans are illegal in some places and their interest rates are regulated in others.
When your loan term ends, you can ask your payday loan lender to cash the check you wrote when you agreed to the loan. Or, you can roll that debt into a new debt, paying a new set of financing fees in the process. Rolling over debt is what leads to a debt spiral, but it’s often people’s only choice if they don’t have enough money in their account to cover the check they wrote.
Are Payday Loans a Good Idea?
Not all debt is created equal. An affordable mortgage on a home that’s rising in value is different from a private student loan with a high-interest rate that you’re struggling to pay off. With payday loans, you pay a lot of money for the privilege of taking out a small short-term loan. Payday loans can easily get out of control, leading borrowers deeper and deeper into debt.
And with their high-interest rates, payday loans put borrowers in the position of making interest-only payments, never able to chip away at the principal they borrowed or get out of debt for good.
Payday Loans and Your Credit
Payday loans don’t require a credit check. If you pay back your payday loan on time, that loan generally won’t show up on your credit reports with any of the three credit reporting agencies (Experian, TransUnion and Equifax). Paying back a payday loan within your loan term won’t boost your credit score or help you build credit.
But what about if you’re unable to repay your payday loan? Will that payday loan hurt your credit? It could. If your payday lender sells your debt to a collection agency, that debt collector could report your unpaid loan to the credit reporting agencies. It would then appear as a negative entry on your credit report and lower your credit score. Remember that it takes seven years for negative entries to cycle off your credit report.
Having a debt that goes to collections is not just a blow to your credit score. It can put you on the radar of some unsavory characters. In some cases, debt collectors may threaten to press charges. Because borrowers write a check when they take out a payday loan, debt collectors may try to press charges using laws designed to punish those who commit fraud by writing checks for accounts with non-sufficient funds (these are known as NSF checks).
However, future-dated checks written to payday lenders are generally exempt from these laws. Debt collectors may threaten to bring charges as a way to get people to pay up, even though judges generally would dismiss any such charges.
Alternatives to Payday Loans
If you’re having a liquidity crisis but you want to avoid payday lenders, there are alternatives to consider. You could borrow from friends or family. You could seek a small personal loan from a bank, credit union or online peer-to-peer lending site.
Many sites now offer instant or same-day loans that rival the speed of payday lenders, but with lower fees and lower interest rates. You could also ask for an extension from your creditors, or for an advance from your employers.
Even forms of lending we don’t generally love, like credit card cash advances, tend to have lower interest rates than payday loans do. In short, it’s usually a good idea to avoid payday loans if you can. Instead, consider working on a budget that can help you get to your next paycheck with some breathing room, and make sure you have a rainy day fund.
The Bottom Line
When considering a short-term loan, it’s important to not just look for low-interest rates. Between fees and insurance policies, lenders sometimes find ways to bump effective interest rates to triple-digit levels even if they cap their APRs. The risks of taking a payday loan bring home the importance of working hard to build up an emergency fund that you can draw on.
Tips for Retirement Planning
If you’re not already preparing for retirement then it’s a good idea to create a retirement plan and make sure you’re contributing to it regularly. If you’re overwhelmed or don’t know where to begin, a financial advisor can help you map it all out. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Not sure how much you need to save for retirement? Consider using our free retirement calculator to get the number you need so that you can start making the right progress.
Amelia Josephson
Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia’s work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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It’s been drilled in our heads for the last 36 months: “lender’s standards are going higher, while our FICO scores are headed lower.”
This divergence in underwriting standards and scores is bad news for a whole lot of people, roughly 70,000,000, who now score below 650. And those of you who are smart have made some effort to increase your scores so you can enjoy the most “shopper friendly” credit environment in 20 years.
If you’ve already found yourself in the land of the 780s, it’s time to take your foot off the accelerator because you’re good — really good. Any further efforts have you officially beating a dead horse and attempts to take the magic number any higher could land you back in the land of the 720s.
Here’s what you need to hear (though you may not want to):
There is no incremental value to being higher than 780
Other than bragging rights, there’s really no reason to stress out about your scores if they’re already over 780. Even in today’s credit environment a 780 puts you about 20 points to good and you’ve now found yourself squarely among the credit elite. You will likely get whatever you’re applying for at the best rates and terms the lender or insurance company has to offer.
As of September 2010, a 780 FICO score gets you a credit card at 7.9% (issued by a credit union). It also gets you auto financing from a captive lender (the manufacturer’s finance arm) for as low as 0% on selected models. And even if captive financing isn’t an option for you, a 780 gets you rates as low as 5.2% for a new car. And if you’re trying to buy a home, a 780 (along with satisfying other non-credit criteria) gets you a rate around 4%, which is crazy low.
The point is, your rates, premiums and terms will be no better at FICO 810, 830 or 850 than they are at 780.
You can do more harm than good
If I’ve said it once I’ve said it 1000 times…credit scores move like water. They’re going to take the path of least resistance. That means a score of 780 is easier to turn into a 680 than it is to turn it into an 800.
This is especially true for people with young (age) or thin (number of accounts) credit files. The good people at Mint.com have told me that many of their MintLife readers are in their 20s.
Something that you won’t see from reading online stories about credit scoring models is the fact that young people generally have younger credit reports (duh). That’s determined by calculating the average age of the accounts on your credit reports by looking at the “date opened” of your accounts. And the younger the credit file the more volatile the score. In English this means your scores are going to react to changes in your credit data more significantly than someone who has had credit for decades. So this story is especially meaningful to Mint readers because of their age and their younger credit files.
If you apply for and open a new account, apply for a credit line increase, max out a credit card, miss a payment, have a collection show up on your credit report, or experience a variety of other credit incidents, your scores are likely to be damaged disproportionately to someone who has a well-aged credit report. This is because you don’t have as much positive compensatory information to offset the bad stuff.
Yes, your scores can actually be too high
Some lenders don’t want an abundance of customers whose scores are too high. Stratospheric scores, those well into the 800s, generally belong to people who don’t use credit. And those who don’t use credit don’t generate income.
For the first time ever there’s now a sweet spot, credit score wise. You really want to fall between 760 and 810, give or take a few points in either direction. The 760 means you’re a very good credit risk. It also means you’re probably using credit, have credit card balances, and have installment loans. This means you’re generating revenue for your lenders and credit card issuers.
If you score too high it means you are probably not using credit cards. You’re a very good credit risk but that’s not good enough in today’s credit environment. The lender wants and needs to make some dough and if your score indicates that you’re a great credit risk but have poor revenue potential then they might just decline you. Yes, you can get declined for having too high of a score. It’s called a “high side override”, meaning you scored higher than the lender’s low-end criteria but they still declined you.
So for those of you who are at 760-780, your journey has ended. Sit back and enjoy the view from atop the FICO score mountain!!
For The Haters
Save it. This isn’t score obsession. As long as lenders, insurance companies, utility companies and landlords use credit scoring to determine rates, premiums, deposit requirements and terms (and employers use credit reports as part of employment screening) it’s something we have to take seriously, and you should regularly check your free credit report to keep tabs on your financial health.
You can’t “choose” to not be under the influence of your credit reports and credit scores. That’s not possible. Having good credit reports and scores, and paying less for things (your mortgage, your car loan and your insurance) is a “Top 5” wealth building tool. Trying to earn a great FICO score is no different than checking the performance and allocation of your investments. The minute credit reports and credit scores cease to have importance, I promise I’ll start writing a weekly knitting column.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.
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By Peter Anderson1 Comment – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited September 5, 2013.
About 2 weeks ago my wife and I closed on the sale of the house we had lived in for the past 7 years. We loved our old house, but we knew it was time to do a slight upgrade since the rates were starting to go up, and we had an opportunity for my in-laws to build us a custom home on a beautiful tree lined lot, in a neighborhood we loved. We would also now have a yard, which was something we didn’t really have at our old house. So this summer we built that new house and then closed on it the same day as we sold our old house.
When we started the process of trying to find a new home loan with which to buy the new house, we realized that we would want to make sure that we stayed on top of our credit situation, that we only did things to maximize our credit score, and that we got the best rate possible on the house. For the most part we were able to do that, and we got the lowest possible rate at the time because our excellent credit scores put us in the highest tier for the best rates.
Now that we’ve closed on the house, and we don’t anticipate using any further credit anytime in the near future, should we even care about or keep track of our credit scores?
Maintaining And Improving Our Credit In Preparation For A Home Loan
Checking our credit scores on a regular basis was something we did through the spring and summer this year as we prepared to buy a new house. Some of the places that we checked our credit scores and got our credit reports include:
Credit Karma: They will give you your TransUnion credit score for free, along with a suite of other credit tools.
Credit Sesame: They will give you an Experian credit score for free, along with a bunch of other financial, credit and loan tools.
Quizzle: They’ll give you an Experian credit score, along with your full credit report for free!
Equifax: Get your Equifax score for free by signing up for a free 30 day trial. Don’t forget you’ll need to cancel.
MyFICO: Get your actual FICO credit score and credit report with a free trial. Just don’t forget to cancel! I almost did!
AnnualCreditReport.com: Get your credit report annually for free from each of the big three credit reporting agencies. If you want to, you can pay a little bit and get your FICO score as well. (Or just do a free trial at MyFICO to get it for free)
We stayed on top of our credit by doing the things they say to do in order to improve your credit scores. We did things like making sure our payments got in on time, we didn’t sign up for a bunch of new cards, we maintained existing aged accounts, we didn’t over-utilize our credit and we used and paid off several different types of credit.
Home Loan Closed, Best Rate Received
Our hard work over the years means we both had great credit scores, and we knew we would most likely be approved for a loan, in the best rate tier.
We ended up finding and working with a mortgage company that ended up giving us the lowest rate possible at the time, 3.875%. Our credit scores showed we were responsible with credit and were a good risk for them to take – without adding any points to our rate.
Mission accomplished.
Now That We’ve Closed On Our House, Should We Even Care About Our Credit?
We’ve now closed on that loan, and we got the best rate available. Since we won’t need to take out any new loans or credit in the foreseeable future, should we even care about or focus on our credit anymore? Does it even make a difference if we aren’t going to need a good credit score for anything?
I don’t think we’ll be as hyper vigilant about our credit now, but that isn’t to say that we won’t continue our responsible use of credit.
Things A Good Credit Score Can Help With
Here are some reasons you may want to stay on top of your credit:
Good credit can help get better insurance rates: You can sometimes get lower homeowners and auto insurance rates if you have good credit.
Good credit help you get a job: Sometimes employers will check an applicant’s credit to get an indication that they’re reliable and responsible.
Good credit help you when signing up for new accounts: Some utilities may waive hefty deposits or lower rates if you have good credit, or cell phone companies may offer a better plan.
Good credit will help you if you need to move: If you need to move to a new house, or end up renting, having good credit will help you to get a loan, or to be approved as a renter.
What are your thoughts? Do you care about your credit score, and do you take steps to ensure that your credit stays good, or that it improves?
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Everyone knows the story. Unemployment is up. FICO scores are down. Home values are down. And because home values are down, home equity has disappeared for millions of homeowners. And since home equity was the financial safety net millions of consumers used to pay off their credit card debt, well, you know the rest. Let’s just agree that, right now, millions of consumers have no way to pay off all of their credit card debt.
There are a variety of ways to get out of credit card debt, right? You can budget your way out of debt. You can file bankruptcy. You can enroll in a debt management plan (DMP) through one of the member organizations of the National Foundation for Credit Counseling, commonly referred to as Consumer Credit Counseling Service (CCCS). You can work with your credit card issuer directly and seek help through one of their hardship programs. You can attempt to settle the debt on your own. Or you can enlist the services of a debt settlement company.
Opinions vary on these options. They all have their pros and cons. The purpose of my article isn’t to explore each option. I’ll do that soon.
The purpose of this article is to explore debt settlement as an option.
Settlement is quite an easy concept to understand. You agree to pay your credit card issuer an amount of money less than what you really own them and they consider the debt to be paid in full. So, if you owe John Ulzheimer’s Bank $10,000 and I agree to accept $5,000 as “full payment” then you have settled your debt with John Ulzheimer’s Bank. The bank reports the settlement to the credit reporting agencies and sends you a 1099 for the forgiven amount. Settlement, incidentally, is considered one of FICO’s Seven Deadly Sins.
Settlement can be accomplished by working directly with your bank. You do not have to hire someone to do this for you. That’s a myth. In fact, many credit card issuers won’t even work with debt settlement companies so you have no choice but to deal with them directly. This is okay because all creditors have their version of a “Remediation” department, which is where you’ll likely end up if you call them asking for a settlement deal.
Now, let’s move on to the debt settlement companies. You’ve all seen their commercials. Distraught couples staring at their credit card statements magically turning into happy families playing with puppies in their front yard, all thanks to ye ole friendly debt settlement company. Heck, there’s even a version that has excerpts from one of President Obama’s speeches and a picture of a government building in the background. It’s clearly intended to come across as a governmental program. Of course, it’s not a government program.
Here’s how they work. First they find out how much debt you have. This is to determine if you’re even worth doing business with. If you have too little debt then they won’t make enough money working with you. That’s why their ads contain statements like “If you have more than $10,000 in credit card debt call now…” If you have enough debt, in their eyes, then they’ll sign you up.
When you sign up they’ll tell you to stop communicating with your credit card issuers. I’m not kidding, they really tell you this. That means no more payments and no more return calls. The hypothesis here is to get your credit card issuer so desperate for payment that they’ll accept a settlement offer.
At the same time you’ll be asked to make monthly payments to the settlement company. Why? Because you’re creating a war chest that serves two purposes. First, this is where their fees will come from. Second, this is where the settlement offer will come from.
After several months, or longer, there will be enough money for them to make some sort of offer to the credit card issuer. The issuer may accept the offer, or they may decline the offer. Either way, your fees to the settlement company have been paid.
So what happens during the period of time you’re paying the debt settlement company (and ignoring your creditors)? Well, since that’s not a part of the commercials I’ll have to be the one who breaks the bad news.
1.Your credit will be trashed.
The credit card issuer will report the ascending level of late payments to the credit bureaus, which remain on your credit file for seven years. Now the debt settlement guys will say “well, your credit is probably already trashed so no big deal.” Wrong, new (and numerous) late payments help to lock in lower scores for additional time. And it gets worse…
2. The card issuer will likely enlist the services of a 3rd party collection agency to collect the debt.
This means a brand new collection will be reported to your credit files. Again, this remains for seven years. And, these guys can pull your credit reports to find you and determine your ability to pay them. That means you’ll have to explain collection inquiries. You’re supposed to ignore these guys as well. And it gets worse…
3. That knock at your door…yeah, that guy is called a process server.
Your credit card company or a collection attorney has sued you for nonpayment of the debt. You can’t ignore him like you’ve been ignoring your credit card issuer. If you do choose to ignore the summons you’ll lose by default for not showing up to court. This is called a default judgment. And yes, the judgment can show up on your credit report for seven years. And it gets worse…
4. Become familiar with the term “Writ of Sequestration.”
In English this is either legal garnishment of your wages or seizure of your assets. If your wages are garnished your employer will now be made aware of your defaulted debt problems because they’re the ones who will hold back a portion of your salary.
You’ve totally lost control of the situation because you chose to ignore your creditors, at the request of a company trying to profit off of your debt situation. Smart? Or not?
And, just to tie a nice bow on the top of this one, the Attorneys General in the states of Florida and Alabama have shut down major debt settlement networks because, and I quote, “they’re a scam because consumers get no value for their fees.” I’ll write soon about the DSCPA (Debt Settlement Consumer Protection Act), which will put most of these guys out of business.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.
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What’s the difference between a credit report and a credit file? Is there a difference between a credit score and a FICO score? And what’s a consumer-reporting agency? Is that the same as a credit-reporting agency?
Many media outlets and people who pretend to be credit experts have made a living off of improperly using credit terms interchangeably. By far the most prevalent example is the confusion between the terms “credit report” and “credit score”, especially when it comes to their use in employment screening. Here’s a hint: credit reports are not credit scores and credit scores are not credit reports.
Here are seven pairs of seemingly interchangeable credit terms that are most often misinterpreted by consumers and even “experts.”
Credit Report vs Credit Score
A credit report is a collection of information memorializing most of your financial liabilities. This includes your auto loans, mortgages, credit cards, student loans, collections, judgments, liens and bankruptcies. A credit score, which is not a permanent part of your credit report, is the interpretation of that data on your credit report. Think of it this way: one is the test and the other is your grade on the test. They’re two very different things.
Credit Report vs Credit File
A credit report is a fully compiled list of information that matches your identity and is maintained by a credit reporting agency. Think of it as a final product, which is scored and delivered to lenders and anyone else who has a right to see and use it. A credit file is the “universe” of information floating around the credit bureau’s databases waiting to be compiled into credit reports.
Credit Reporting Agency vs Consumer Reporting Agency
“Consumer reporting agency” is a legal term. It means any organization that regularly compiles information about a consumer for the purposes of selling it to a 3rd party. A credit reporting agency is an example of a consumer reporting agency, but isn’t the only type of consumer reporting agency. I wrote about LexisNexis, another consumer reporting agency, here.
Credit Score vs FICO Score
A credit score is a category of products. It’s like saying cars, beer, shoes, or soft drinks. FICO is a brand of credit score. It’s like saying Ford, Budweiser, Nike, or Fresca. If it doesn’t say “FICO,” then you’re not getting a FICO score. Simple enough.
Home Equity Loan vs Home Equity Line
Despite the similar names these are actually two very different credit product types. A home equity loan is an installment loan, meaning you have a fixed payment for a fixed number of months. A home equity line is a revolving line of credit, just like a credit card. Your payment is dependent on the interest rate and your balance for that month (like a credit card). The only similarity between the two is the fact that the loan/line is secured by equity in your home, which means if you default on your payment obligation you could lose your house.
Credit Card vs Charge Card
Again, very similar names but very different credit products. A credit card is a revolving account, which means you have a variable payment depending on your outstanding balance for the month. It’s a perpetual account as long as you and the credit card issuer agree to keep it open. This means it could be open indefinitely. A charge card is a “pay in full” credit product, which means you can’t “roll” a balance from one month to the next. If your balance is $300 you have to pay $300 to exhaust the full balance. The American Express Green Card is a good example of a charge card.
Chapter 7 vs Chapter 13
These are both types of consumer bankruptcies under the U.S Code. A Chapter 7 bankruptcy is referred to as a “straight bankruptcy” or “liquidation.” Under Chapter 7 any statutorily dischargeable debt is eliminated. A Chapter 13 is referred to as an “adjustment of debt” or a “wage earner plan.” Under Chapter 13 the consumer, who has an income, pays into a trustee who then distributes the money to the consumer’s creditors.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit.
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