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July 8, 2023 by Brett Tams

You may not think it’s a big deal, but a bad credit score can turn your life upside down in ways you don’t realize. Think about your daily life — where you live, what you drive, where you work — these can all be affected by a low credit score.

The good news is a bad credit score is something you can fix, although it takes time and careful planning. Maybe you don’t know your credit score or whether it’s good or bad. That’s okay — this guide will walk you through what a bad credit score is, the ways it can affect your everyday life, and what you can do to fix it.

What’s Ahead:

What is a bad credit score?

A credit score is a number used by lenders and other companies to determine your creditworthiness or how likely you are to repay a loan or pay your bills on time. Lending or renting to individuals is a risk. A credit score helps lenders and creditors understand your risk level before they enter into an agreement.

FICO credit scores range from 300 to 850. A bad credit score typically is a score below 660. Credit scores are divided into ranges, with bad credit scores ranging from fair to very poor:

Excellent	781-850
Good	661 – 780
Fair	601 – 660
Poor	500 – 600
Very Poor	300 – 499

Some lenders or industries rely on different types of scores to make decisions, but for the most part, these are the ranges you should consider in relation to your credit score.

How a bad credit score affects you

Unfortunately, having a bad credit score can affect not just your financial life, but also where you can live, work, and shop. Here are some of the ways having a bad or low credit score can affect you:

Securing a loan is more difficult

A low credit score sends up red flags to lenders that you are a lending risk. Bad credit makes it infinitely harder to prove that you are worthy of approval for a mortgage, auto loan, or other loan products.

Higher interest rates

If you still qualify for a loan or line of credit, chances are you will end up with much higher interest rates than someone with good credit. Higher interest rates mean that you’ll pay more interest over your loan term unless you have funds to pay it off early. Depending on the type of loan, you could end up paying thousands of dollars more than you would if you have good or excellent credit.

Fewer options renting an apartment

If you’re on the hunt for a new house or apartment to rent, your low credit score could put a damper on your search.

Landlords and property management companies want to rent to responsible tenants. They use credit checks to determine your ability to pay rent. Poor credit could mean having your application denied or putting down a larger security deposit to secure an apartment.

Higher insurance premiums

Insurance companies sometimes run credit checks when setting premiums. They may also use a credit-based insurance score that’s based on your information from your credit report. The report will reveal the reasons for your low credit score, and you could end up paying significantly higher premiums than you would with good credit.

Trouble purchasing a cell phone

Mobile providers use credit checks to approve new contracts. Your bad credit score makes you a high-risk customer with most providers. Poor credit could mean saying goodbye to the latest iPhone or Galaxy with unlimited data and hello to a prepaid phone plan.

A harder time landing a job

In some states, employers are allowed to run credit checks on prospective employees during the hiring process. Jobs in finance or management that require handling large sums of money are prime candidates for credit checks. You may have a hard time convincing a company to trust you with their money if your credit report reveals a history of poor financial decisions.

You won’t qualify for most credit cards

Having a credit card might seem like a rite of passage, but there’s no guarantee that you’ll be approved if you have a bad credit score. Most rewards credit cards that earn points, miles, or cash back or come with travel and other perks require good to excellent credit.

There are some credit cards for people with bad credit, but they are few and far between and don’t offer the same level of benefits. You could also resort to a secured credit card, which relies on a security deposit instead of a credit check to secure the card. Secured credit cards typically have lower credit limits and high interest rates.

Related: Best Secured Credit Cards

How credit scores are calculated

In most cases, when someone talks about credit scores, they are referring to your FICO score. The FICO credit scoring model was created by the Fair Isaacs Corporation. It’s a three-digit number, ranging from 300 to 850, that gives a snapshot of your credit and your risk level as a lendee or customer. Five factors go into calculating FICO credit scores:

Payment history (35%). Vendors report your payments to credit bureaus. Late payments stand out like a sore thumb on credit reports and make you more of a lending risk.
Amounts owed (30%). Creditors also look at how much on your available credit you’re using at any given time. Using a higher percentage of your available credit creates a picture of someone at risk of defaulting on payments because they are overextended.
Length of credit history (15%). The length of your credit history looks at factors like how long your accounts have been open, the age of your newest account, and the average age of your credit accounts. Each time you open a new account, your credit age may drop.
Credit mix (10%). The type of credit accounts you have open is factored into your FICO score too. Credit types can include mortgage loans, installment loans, credit cards, retail credit accounts, and other financial accounts.
New credit (10%). New credit refers to any time you open a new credit account, or someone runs a hard credit check.

Several FICO score models exist, including models for specific industries like auto lending and mortgage lending. FICO Score 8 is the most widely used credit scoring model.

The difference between VantageScores and FICO scores

FICO isn’t the only scoring model. VantageScore is another model used by lenders to determine creditworthiness. VantageScore was created in 2006 by the three primary credit reporting bureaus, Equifax, Experian, and TransUnion. There are currently four versions of VantageScore, with the latest model released in 2017.

The major difference between VantageScores and FICO scores is the score range. Earlier VantageScore models have a score range of 501 to 990. Your VantageScore can often be significantly higher than your FICO score. VantageScores can vary, too, depending on which credit bureau or model is used, just like FICO scores.

How to improve your credit score

If your credit score isn’t where you want it to be, or it’s becoming a problem for your finances, you can improve it with some hard work and patience. Like anything else, you may have to make some sacrifices, but a good credit score can unlock so many things that it’s worth giving up some conveniences now to improve it.

Here are some things you can start doing right now to improve your credit score.

Related: How To Improve Your Credit Score, Step By Step

Access your credit score and reports

To improve your credit, you first need to know where it stands now. You can do this by getting copies of your complete credit reports from all three bureaus — Experian, Equifax, and TransUnion. Your reports are available for free once a year at www.annualcreditreport.com or by calling (877) 322-8228.

Errors aren’t common on credit reports, but they do occur from time to time. Check your reports for anything incorrect and if you find something, dispute it with the credit bureau. Even small errors can have an impact on your credit.

You can buy your official FICO credit score through myFICO or use free credit score tracking apps Credit Karma or CreditWise to see your score.

Pay your bills on time

Your payment history is a major player in determining your credit score. Your goal moving forward is to make all of your bill payments on time. Late payments are reported to the credit bureaus and will drop your score even further. A record that shows a history of on-time payments, though, will boost your score. Set alerts to remind you of upcoming bill payments or, even better, set up automatic payments for at least the minimum amount due to ensure that you don’t miss any payments.

If you’re having a hard time paying your bills, reach out to creditors to see if they are willing to work with you. You might qualify for hardship or payment programs that will help you pay off any debts.

Pay down your debt

To repair your credit, you also want to lower your credit utilization ratio. You do that by paying off your debt, including revolving credit accounts, like credit cards or lines of credit. Every little bit helps. Make at least minimum payments, but pay extra if you have additional funds available. This will lower the amount of outstanding debt compared to the total credit available to you.

Apply for a secured credit card

Secured credit cards are designed for people with bad credit or no credit. You can qualify for a secured credit card through a security deposit instead of a hard credit inquiry. Your security deposit essentially becomes your credit limit. As you make small purchases on your card and pay the balance off on time and in full, those payments are reported to the credit bureaus.

If you go this route, try to keep a low balance and never carry it over month-to-month. Secured credit cards often come with high APRs, so you could end up paying expensive interest charges if you don’t pay off the entire balance each month. Some credit card issuers will check your credit periodically and switch you to an unsecured card if your credit has improved.

Apply for a credit-builder loan

Another option to boost your score is to apply for a credit-builder loan. Similar to secured credit cards, these are personal loans for people with bad credit. Credit-builder loans work differently than traditional loans, where you receive the loan amount upfront and then pay it back over time. With a credit-builder loan, you make fixed payments each month until the end of the loan term, and then you receive the loan amount. These loan payments are reported to the credit bureaus the same as any loan.

Will you pay interest as you do with other loans? Yes, and you may also have to pay a fee to take out this kind of loan, but that’s the price you might have to pay to avoid another credit inquiry or to qualify for a loan.

Become an authorized user

Have a close family member with good credit add you as an authorized user on their credit card. Although this strategy isn’t likely to cause a massive jump in your score, it could have some impact, especially for individuals with a shorter credit history. Make sure the card issuer reports authorized users to the credit bureaus or this won’t help you.

Summary

Improving a bad credit score can not only save you money but can also open up opportunities in most areas of your life. Use the tips and tools listed above as a guide to understanding your credit score and what you can do to boost it over time.

Apache is functioning normally

June 21, 2023 by Brett Tams

Secured credit cards are good options for those with bad credit (FICO scores of 629 or lower). They’re easier to get approved for because they require you to put down a refundable security deposit, which becomes your credit line and eases the risk that the card issuer is taking by lending you money.

But coming up with that deposit, often around $200, can still pose a hurdle.

The Yendo Credit Card, issued by Cross River Bank, works a lot like a secured credit card, but instead of a cash deposit, it’s secured by an asset: your car.

For those who lack the liquidity for a cash deposit — and can’t afford to tie up that money for months on end — this might sound appealing. But using your car as collateral, even if it’s just for a few months, is a move that warrants careful consideration. After all, your automobile is among your most important assets, as it allows you to get to and from a job. And if you default on your payments with the Yendo card, it’s possible that your car could be repossessed. (More on that later.)

Here are five things to know about the Yendo Credit Card.

1. Your car is your collateral

The Yendo card isn’t the only asset-secured credit card on the market, but it may be one of the only ones specifically tailored for automobile owners. Eligible vehicles that can be used as collateral for the Yendo card include:

Light-duty trucks.
Sport utility vehicles.

Furthermore, the vehicles must meet these requirements:

Must be 1996 or newer.
Must be in working condition.
Must be owned by the card applicant. If you leased the car or took out a loan to purchase it, it can’t be submitted as collateral.

To be approved for the Yendo card, you’ll need to upload pictures of the car in the Yendo app, then drop the title off at one of Yendo’s partner locations or mail it to Yendo via FedEx. (Yendo covers the shipping costs.)

Your credit limit on a Yendo card will depend on the year, make, model and condition of your vehicle and will range from $450 to $10,000. If Yendo determines that the value of your car isn’t at least $450, you can’t get the credit card. Only one vehicle is allowed per credit line.

2. Owning a car isn’t the only requirement

Potential Yendo cardholders have to check a few more boxes to qualify. Applicants must live in the U.S., Washington, D.C., or a U.S. military location and have either a Social Security number or Individual Taxpayer Identification Number (ITIN); however, U.S. citizenship isn’t required.

You’ll also need to provide proof of income to demonstrate an ability to pay your credit card bill, but Yendo doesn’t disclose the minimum income required to get the Yendo Credit Card.

🤓Nerdy Tip

The Yendo card joins a list of credit cards that can be used almost immediately upon approval. Most Yendo applicants, within 30 minutes of being approved, will receive a virtual credit card that can be used to make online purchases or with Apple Pay, Google Pay or Samsung Pay.

3. You can get the title back …

Yendo will return the vehicle title to you as long as you’ve completely paid off the credit card balance and ask Yendo to close the account.

In this way, the Yendo Credit Card acts like a secured card that returns the security deposit to the cardholder if the account is closed in good standing.

4. … Or you could lose your car

Yendo founder and CEO Jordan Miller said in an email that repossession is a possible consequence of missed payments — but only after the issuer has exhausted all other options to recoup the outstanding balance. He also said that one missed payment will not trigger a repossession as long as the cardholder communicates to Yendo about their financial hardship.

Even if losing your car isn’t a likely outcome, some people may still be wary of putting up a vehicle as collateral. For those who don’t want to take that risk, other secured cards may be more appealing. The OpenSky® Plus Secured Visa® Credit Card requires a $300 security deposit, but you can pay that over 60 days. The Capital One Platinum Secured Credit Card also allows cardholders to pay the deposit in installments, and it’s possible to get a $200 credit limit with a $49 security deposit, depending on your creditworthiness.

The point is, you may not need $200 to get started with a secured credit card.

🤓Nerdy Tip

As of this writing, the Yendo Credit Card reports to two of the three major credit bureaus: Equifax and Experian, but not TransUnion.

5. There’s an annual fee

The Yendo Credit Card doesn’t require a cash security deposit, but it does charge a $40 annual fee that’s waived in the first year. And unlike the deposit for secured credit cards, annual fees aren’t refundable.

A solid $0-annual-fee alternative is the Capital One Quicksilver Secured Cash Rewards Credit Card. It earns an unlimited 1.5% cash back on all purchases, and eligible cardholders can eventually qualify to upgrade to a traditional, non-secured Capital One credit card (and get their deposit back).

Source: nerdwallet.com

Apache is functioning normally

May 28, 2023 by Brett Tams

Credit card pre-approval makes signing up for your first credit card a lot easier.

The credit card marketplace is crowded, and every issuer is advertising to get your attention. But they may not tell you (or only tell you in the fine print) which cards you’re actually likely to get approved for, or which will score you the best interest rates.

A little research into good credit cards can help you cut through the noise, and the pre-approval process helps you narrow down which cards are the best fit for your (cloth or virtual) wallet. It’s a low-risk opportunity to pick the credit card with the features you want — and to make sure you qualify.

What’s Ahead:

What is pre-approval?

Credit card companies are always on the lookout for new customers. One way they find potential cardholders is by pre-screening credit reports from the major credit bureaus.

They identify consumers whose credit scores and reports are in the ballpark of what the company looks for — like no bankruptcies, no delinquencies for several months, and a score below the company’s minimum cutoff.

Then they’ll send a pre-approval card offer to these consumers.

It’s important to remember that pre-approval doesn’t mean you’re automatically qualified for the card. But it does mean you’ve made the “first cut” by fitting the credit card issuer’s most basic requirements.

What’s the difference between pre-qualification and pre-approval?

Some issuers use the term “pre-qualified” instead of “pre-approved.” Though these terms are sometimes used interchangeably, they describe different types of offers based on who initiates the process.

Pre-qualification for a card means the customer (you) makes the first request.

If you’re interested in a specific card, you can go to the company’s website and fill out some basic info. The company responds by showing you the cards and offers you might qualify for if you made a formal application. At that point, you’re “pre-qualified” and can decide whether or not to apply.

Or a lender may invite you to find out if you pre-qualify for their card (through an advertisement, for instance). This isn’t pre-approval, since the lender hasn’t screened your credit yet to see if you’ve made the first cut.

Pre-qualification may be the route to take if you’re brand new to credit — without a credit score, you’re probably not getting on pre-approval mailing lists.

Pre-approval means the credit card company reaches out to you first because you meet their basic requirements. Once they’ve scanned consumers’ credit scores, they let certain consumers know they’ve been “pre-approved.”

Lenders often tap into their existing customer base to find people to pre-approve, as well. If your current bank is rolling out a new credit card, for example, they might send you a pre-approval offer.

Which is better, pre-approval or pre-qualification?

Neither of these processes is better than the other, or more likely to get you final approval. They’re just different ways to review your credit card options.

For both pre-approval and pre-qualification, you’ll go through a soft credit check — a check that doesn’t impact your credit score. This means both processes are relatively risk-free.

The hard credit check, the one that knocks a few points off your score, doesn’t happen until you fill out the longer application for the card.

Read more: Soft pull vs. hard pull – how each affects your credit

How do I get pre-approved for a credit card?

Respond to an offer from a credit card company

If you have time to pick a card and don’t have a lender you prefer, you can wait for the credit card company to come to you.

Companies do still send offers by snail mail, though not as much as they once did. So it’s worth taking a look at any mail offers before dropping them in the recycling bin.

Pre-screened offers are different from the general mailings that companies send to everyone on their marketing list. Look for the words “pre-approved,” “pre-qualified,” or “pre-screened.” The offer may include an invitation code you’ll need to apply for the card online.

One advantage to applying for a pre-approval offer is that they’ll sometimes give you an introductory deal associated with the offer, like a sign-up bonus or a few extra months of 0% interest.

These deals aren’t always advertised to the general public, so they’re a nice pre-approval perk.

Request pre-qualification on a credit card company’s website

Inquiring about a pre-qualification offer may be the best way to get credit card pre-approval if:

You’re new to credit and opening your first credit card.
You’re rebuilding a low credit score.
You want to go through a certain bank or apply for a specific card, and you haven’t received an offer.
You want to check out a wider range of card options.

Most major card issuers that offer pre-qualification have an online link to a simple form. Usually, you won’t enter more than your:

Name.
Address.
Date of birth.
Social security number.

Why is it important to get pre-approved or pre-qualify?

If you’re shopping around and considering lots of different cards, pre-qualification is a risk-free way to compare initial offers before you fill out any applications.

The pre-approval stage allows you to:

Rule out any cards or issuers that you don’t qualify for, so you don’t waste time applying.
Figure out the interest rate range you’re likely to get.
Compare potential sign-on bonuses, loyalty rewards, and other credit card features.
Double-check the card company’s requirements for cardholders, which are more detailed than their pre-approval requirements.

When you take the next step of a formal application, you’re officially applying for new credit. This means the company is required to run a hard credit check. They’ll ask your permission first.

Hard credit checks do show up on your credit score, usually knocking it down only 10 or 20 points. That’s not a huge deal if it happens once in a while.

But if you apply for credit pretty frequently — more than two or three times in six months — your credit score takes a bigger drop.

With pre-approval, you can make sure you’re only committing to the hard credit check if you’re likely to be approved for new credit.

Picking the right credit card to apply for

As a savvy MoneyUnder30 reader, you probably know this already, but I’ll remind you just in case: pre-approval or pre-qualification doesn’t mean the card is the best fit for your needs and lifestyle.

First, spend some time figuring out what you want in a credit card. I suggest asking yourself questions like:

Are you likely to use it for big expenses like travel, or everyday costs like groceries?
Do you want a card where the rewards category matches up with the way you spend?
Is your main goal to start building credit?

Once you know what’s important to you, you can use the pre-approval process to find cards that are a good match.

This is especially helpful if your credit card pre-approval offer suggests multiple cards from the same company. These cards will all have slightly different terms, so take the time to do your research about their differences.

Read more: Best credit cards for young adults & first-timers

How do you apply for a credit card after you’re pre-approved?

The pre-approval or pre-qualification process doesn’t require much info.

You’ll usually enter your name, birth date, address, and your social security number (either the last four digits or the whole number) to confirm your identity.

The official application is a lot more thorough. At a minimum, be prepared with:

Income information. You may or may not need to submit proof of income, depending on the issuer. But you’ll at least have to estimate how much you earn every year.
Housing payment information. This should include how much you’re paying in rent or mortgage a month.
Employment status.
Income details for a co-signer, if someone is co-signing for the card with you.

Read more: How to apply for a credit card (and approval requirements)

What credit score do you need?

It depends. There’s no minimum score that applies to all issuers, so if you have any credit at all, it may be possible to pre-qualify for a card. Of course, the better your credit is, the more offers will be available.

If you don’t have a credit history, it’s a little trickier. Some card issuers consider alternative credit data, like income and work history, to determine financial responsibility.

Read more: What credit score do you need to get approved for a credit card?

After you get approved

If you make the final cut and get approved, not just pre-approved, it’s time to double-check your card terms.

Credit card companies are required to provide the same terms listed in the initial pre-approval offer if they accept you. This means you should get the same interest rate, fee, or bonus that was stated in the offer. Many pre-approvals show a range of interest rates, so they’re required to give you a rate somewhere within that range.

Read more: The best credit cards – MU30’s top picks

Are you guaranteed approval when pre-approved for a credit card?

Not necessarily. A pre-approval or pre-qualification is an invitation to apply, not a guarantee of acceptance. It means there’s a strong chance you’ll meet the standards for cardholders, but the lender needs to know more before actually extending you credit.

Can you get denied after pre-approval?

Remember, pre-approval is just the first step in the process. You can get denied after submitting a formal application, even if you were pre-qualified or were pre-approved.

According to a 2019 report, only around 40% of credit card applicants made the final cut and got approved for a card.

When you officially apply, you’re giving credit card issuers a lot more information about your financial status than you did in the pre-screening stages. This means they’ll judge you a little more strictly.

Here are some of the most common reasons pre-approved candidates get their applications declined:

Your monthly or annual income doesn’t meet the issuer’s minimum cutoff.
Your reported payments are too high relative to your income.
Your credit data has changed significantly since the pre-approval offer.
You’ve taken on debt or missed several payments since the pre-approval offer.
Your income has dropped since the pre-approval offer.

The lender should send you a letter telling you why they made the decision, so it won’t be a mystery.

What if I can’t get pre-approved for a credit card?

If you don’t get any card pre-approvals or pre-qualifications, don’t sweat it. Credit lenders may be looking for cardholders who fit a particular financial profile, and that doesn’t reflect on your general creditworthiness. You still have a number of options.

Try pre-qualifying with another credit card company. Their terms may be more generous or suited to what you need.
Apply anyway. This is a risk because the issuer will run a hard credit check. But if you have stable employment, good income stats, or a co-signer with strong credit, these factors may make up for a less-than-perfect credit score.
Work on improving your credit. Make rent, bill, and loan payments on time. If you’re brand new to credit, you can take out a credit builder loan (as long as you’re able to pay it back on schedule!). Or ask a trusted family member or partner if you can be an authorized user on their account.

Read more: How to build credit the right way

Apply for a secured credit card

For credit newbies, secured credit cards are a nice bridge into the world of credit, and a lot of major card issuers offer them.

You’ll “secure” the card with a deposit — this amount can vary, but think around $200 — which gives you access to a credit line up to that amount. Then you spend just as you would on any other card.

After several months of responsible use, you’ll usually be eligible to transition to an unsecured credit card from the same company.

Read more: Best secured credit cards

Credit card companies that offer pre-approval

Most of the bigger credit card names have pre-approval or pre-qualification forms that are easy and quick to fill out online.

Keep in mind you may not be able to seek pre-approval for every card in the lender’s collection, but they’ll offer a decent range of cards to choose from.

Summary

Whether you’re getting your first credit card or adding one to your collection, it’s worth going through the pre-approval process first. You’ll save time, preserve your credit, and hopefully end up with a great card that will help you achieve financial stability.

Featured image: Roman Samborskyi/Shutterstock.com

Apache is functioning normally

May 25, 2023 by Brett Tams

Monitoring your credit score sounds about as appealing as writing a term paper.

But having good credit is crucial for everything from getting a loan to getting an apartment. Which means if your credit score is on the lower end, you’ll need to be proactive — not just by monitoring it, but by actively working to improve it.

The problem? There’s a lot of conflicting info out there about what you should do to improve your credit score. Which tactics will actually make a difference, versus the ones that just sound like they’ll work?

Here’s what you really need to know about improving your FICO score, which holds the key to so many financial dreams.

What’s Ahead:

1. Target Collections Accounts First

“If your credit history includes unpaid bills that are in collections, work to pay those off [first] if possible,” says Kelley Long, a member of the National CPA FinLit Commission at the AICPA.

Letting an account get so late it goes to a collections agency is never a good thing for your credit, but the good news is the credit scoring algorithms will reward you for paying these accounts in full.

With collections accounts, the key is to get everything in writing. Request a letter stating that they received your payment in full and that they will update your credit report to show this.

In some cases, a collections agency may be willing to negotiate and settle your debt for less than the full amount. Again, you’ll want to get something in writing showing that the debt was settled and the account closed. But keep in mind this kind of arrangement may appear on your credit report as a settlement, which could be less positive than if you paid in full.

Read more: When Does an Account Go to Collections, and How To Avoid It

2. Pay Off Debts That Are Close to the Credit Limit

Even if you pay your credit card bill on time, it’s never a good idea to hold a balance near the maximum limit. The magic ratio is 35%, says Kevin Gallegos, vice president of Phoenix operations with Freedom Financial Network.

“If you have a credit card with a limit of $10,000 and you owe $3,500 on it, that’s 35% utilization,” he notes. “Anything over 35% is considered high and can [negatively] impact credit scores. Over 50% will have a definite negative impact on a credit score, and a maxed-out card will very negatively impact the score.”

Read more: What’s Your Credit Utilization Ratio?

3. Get a Higher Credit Limit (If You Can)

Believe it or not, requesting a higher credit line with an existing account can actually help your credit score, says Gail Cunningham, a spokeswoman with the non-profit National Foundation for Credit Counseling (NFCC).

“Or, open a new line of credit. The idea is that you’ll owe the same amount of money but it’s against a higher credit line, thus the ratio of credit-to-debt improves,” she explains.

“This option may not help you if you’re already having credit problems, however, because it takes good credit to get more credit. If, however, your credit score is in the high 600s or low 700s and you want to improve it even more, you may be able to find a credit card that offers a good chance of approval for your credit score range.”

She adds, “I’d caution, however, that this strategy only works for a person who’s very disciplined — and knows they won’t charge more simply because they have access to a higher credit line.”

In other words, take it easy at the mall with that credit line increase.

Read more: What Credit Score Do You Need to Get Approved for a Credit Card?

4. Look for Non-Credit Accounts That Will Report Payments to the Credit Bureaus

John Ganotis, Founder of CreditCardInsider.com, makes this remarkable point: “Rebuilding your credit doesn’t always have to involve a line of credit.”

One way is to put a utility service in your name.

“Call your providers to find who reports to the credit bureaus.”

You don’t even need to go direct to the providers if you don’t want to. Experian Boost is a free service that credits you for on-time utility payments — think cellphone, internet, cable, heating, electricity, water, etc. You just connect your bank account and let Experian do the rest.

Another is to report your living expenses to the credit bureaus, including your rent.

“Experian and TransUnion now include rent payments [in assessing FICO scores] when reported through online third party services.”

Read more: Build Credit By Paying Rent

5. Avoid For-Profit “Credit Repair” Companies

Some businesses charge a hefty sum to “repair” your credit, but they can actually do more harm than good, says Carl Robins, Vice President and Mortgage Banker with PrivatePlus Mortgage in Atlanta.

“What they don’t tell the consumer is that they’re signing up for a service to improve their scores that lenders — and current underwriting guidelines for mortgage transactions — won’t accept if there are still unresolved credit disputes on their credit report.”

He adds, “They also don’t explain the cumbersome process to have unresolved disputes removed from credit reports to qualify for a home purchase or refinance their current mortgage.”

If you feel like you need help managing your credit, look towards non-profit counseling options like the NFCC.

How to Get Approved for a Credit Line with a Less-than-Perfect Credit Score

If you follow the steps above and continue to pay all your bills on time, your credit score will improve.

Unfortunately, however, it takes time. Improving your credit score from below average (mid 600s or less) to good (720 or better) may take a couple of years. If you’re hoping to buy a home or take out other new credit in the meantime, it may be a challenge.

Here are some things to keep in mind:

1. Don’t Apply for New Credit Recklessly

The credit bureaus take note every time you apply for credit, and doing it too often will further hinder your efforts to improve your credit score.

Keep in mind that there are factors other than just your FICO score that are taken into account when you apply for a credit card, such as your income and credit utilization ratio.

Avoid applying for new credit unless you absolutely need it or are confident you will be approved.

Read more: Why You Could Be Denied a Credit Card Despite Your Excellent Score

2. Work with a Community Bank or Credit Union

If your credit score isn’t what it should be, a relationship with a community bank or credit union can really come in handy.

“A banker who knows you can perhaps look behind the poor credit history,” says Charlie Crawford, President and CEO of Private Bank of Buckhead in Atlanta. “They’ll look at the big picture rather than just a score or some other stand-alone piece of information.”

Best of all, a community banker can be straight with you and let you know your chances of being approved before you actually apply. Waiting as little as a couple months while you make some tweaks to your credit usage or budget may mean the difference between being approved or denied for a mortgage, and a knowledgable banker can tell you that.

Read more: Credit Unions vs. Banks: Think Local, Save Money?

3. Consider Secured Credit

“Establishing some cash-secured credit is one way to demonstrate your ability to pay while not putting a new bank loan at risk,” says Crawford.

If your credit score is in the low 600s, you may consider a secured credit card to help you establish a new credit line and have timely payments reported to the bureaus.

A secured credit card works just like a regular credit card except you first have to deposit money in a savings account to “secure” your credit line. Most secured credit cards can be converted to traditional credit cards (and you get your security deposit back) after a period of responsible use.

Read more: When To Consider a Secured Credit Card

The Bottom Line

The road to improving your credit isn’t always easy, but it’s well worth it. Consumers with good credit scores pay thousands less in interest over their lifetime and avoid hassles when getting jobs, apartments and, of course, loans.

Featured image: Nataliealien/Shutterstock.com

Apache is functioning normally

May 25, 2023 by Brett Tams

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

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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.

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.

Source: moneycrashers.com

Apache is functioning normally

May 23, 2023 by Brett Tams

.kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-table-of-content-wrappadding:23px 23px 23px 23px;background-color:#f9fafa;border-color:#cacaca;border-width:1px 1px 1px 1px;.kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-table-of-contents-titlefont-size:14px;line-height:18px;letter-spacing:0.06px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:700;text-transform:uppercase;.kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-table-of-content-wrap .kb-table-of-content-listcolor:#001c29;font-size:14px;line-height:21px;letter-spacing:0.01px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;.kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-table-of-content-wrap .kb-table-of-content-list .kb-table-of-contents__entry:hovercolor:#16928d;.kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-table-of-content-list limargin-bottom:7px;.kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-table-of-content-list li .kb-table-of-contents-list-submargin-top:7px;.kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_88a319-9a .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:beforebackground-color:#f9fafa;

I like to think I know more about credit cards than the average person. I’ve written dozens of credit card reviews for Money Crashers and personally tried out more credit cards than I’d like to admit.

So I was surprised and a little embarrassed to learn for the first time recently that the IRS permits taxpayers to make federal tax payments by credit card.

Virtually all individual filers are eligible to pay their year-end taxes by credit card. And freelancers and independent entrepreneurs responsible for quarterly estimated tax payments can pay those with plastic too. With some important caveats, particularly around withholding taxes, business owners are also eligible to pay tax bills on credit. But it’s not as simple as calling up the IRS and giving them your credit card number. There are a few things you need to know first.

Paying Taxes With a Credit Card: Approved Vendors & Costs

Paying your federal taxes by credit card isn’t rocket science. An IRS primer outlines what you need to know about the process.

In virtually every state that collects them, you can pay state income taxes with a credit card as well. Check this nifty cheat sheet from Mastercard for details about individual and business payment portals for state income taxes.

Before we go any further, we should clarify that paying your taxes and paying tax preparation fees are two different things. Tax payments go to the IRS or state tax collectors. Tax preparation fees go to the accountant or service you retain to prepare your taxes. Since taxpayers frequently make these distinct payments simultaneously, it’s understandable when novices get them confused.

IRS-Approved Tax Payment Processing Vendors

Taxpayers willing to file paper returns and forms can choose from three IRS-approved payment processing vendors:

Pay1040.com: 1.87% of the total tax paid or $2.50 minimum (same fees and minimums for debit card payments)
PayUSATax.com: 1.85% of the total tax paid or $2.69 minimum ($2.20 minimum for debit card transactions)
ACI Payments: 1.98% of the total tax paid or $2.50 minimum ($2.20 minimum for debit card transactions)

Note that you don’t need to turn in paper vouchers for quarterly estimated tax payments you make by credit card. All three vendors accept Visa, Mastercard, and American Express plus popular mobile wallet providers.

Taxpayers who prefer to e-file their returns can chose from the same three IRS-approved processors for end-of-year payments, extension payments, and other types of tax payments accompanied by IRS forms.

Check the IRS Frequency Limit Table by Type of Tax Payment for more information on when and how often you can make various types of tax payments.

Paying Taxes With Your Credit Card: Things to Keep in Mind

Note these items before scheduling a credit card tax payment:

Payment Cancellation. Under ordinary circumstances, you can’t cancel credit card tax payments. Check with the IRS for more details and potential loopholes.
New Card Sign-Up Bonuses. Before paying your taxes, consider applying for a new credit card with an attractive sign-up bonus offer. The best sign-up bonus cards on the market have bonuses worth $400, $500, even $1,000. The catch: You have to meet a hefty spending threshold within a preset time frame, usually three months from your account opening date. Paying end-of-year or estimated taxes is a great way to accelerate your progress toward the threshold without spending on stuff you don’t really need.
Federal Tax Liens. If you’re subject to a federal tax lien arising from an unpaid tax liability, tax payments made by credit card won’t automatically release the lien. Speak with the IRS and a tax professional for guidance.
Paying in Full. Unless you qualify for a 0% APR introductory rate on a new credit card, it’s best to pay off your credit card balance in full by your statement due date. Balances carried from month to month accrue interest at an impressive clip: typically, anywhere from 10% APR to 30% APR or more, depending on your card, creditworthiness, prevailing rates, and other factors. If you use your credit card for lots of other purchases already and suspect you’ll have trouble accommodating the added burden of a three- or four-figure tax payment multiple times per year, look for an alternative tax payment method.

Should You Pay Your Taxes on an Installment Plan?

If you can’t afford to pay your full tax liability right away, but aren’t sure that paying by credit card is the best choice, consider an installment plan instead.

The IRS offers immediate, short-term, and long-term online payment plans. An immediate payment plan is just another term for “pay in full.” Short-term payment plans must be paid off within 180 days of the start date. Long-term payment plans are more open-ended, with monthly payments on an agreed-upon schedule.

You can apply online for a short-term payment plan if you owe less than $100,000 in combined tax, penalties, and interest. You can apply online for a long-term plan if you owe less than $50,000 in combined tax, penalties, and interest, and have filed all relevant tax returns. If you don’t meet these criteria, you may need to apply by mail, phone, or in person.

Setup is free for immediate and short-term plans, and payments cost nothing when you elect to direct-debit payments from a linked bank account. Long-term plans cost $31 to set up with direct debit or $130 to set up with manual payment, plus accrued penalties and fees until the balance is paid off in full.

This sounds pricey, but it’s probably cheaper than putting your entire tax bill on a credit card and paying it off (with interest) over a similar timeframe.

Advantages of Paying Your Taxes With a Credit Card

Key advantages of paying taxes with a credit card include cash flow benefits, the potential to build credit, and eliminating extension form requirements.

Helps With Cash Flow

Like other large outlays, tax payments are financially disruptive. If money is tight throughout the year, sending off hundreds or thousands of dollars to the IRS probably doesn’t help matters.

Putting periodic tax payments on your credit card eases the crunch for weeks or months. Scheduling payments for the beginning of your card’s statement period provides up to four weeks of breathing room.

Taking advantage of a long 0% APR introductory financing offer is even better. Some introductory offers last as long as 21 months.

Potential to Build Credit and Raise Your Credit Score

If your near-term goal is rebuilding your credit after an adverse event, such as bankruptcy, consider applying for a secured credit card and using it as a vehicle for your tax payments.

For ideas, check out our list of the best secured credit cards on the market from top credit card issuers like Citi and Capital One.

Fees May Be Tax-Deductible

If you itemize deductions, you may be able to deduct the convenience fees charged by your chosen credit card payment processor. That’s not trivial: On a $3,000 estimated tax payment, a 2% convenience fee adds up to $60.

The convenience fee deduction isn’t guaranteed, so check with a tax professional before assuming you qualify.

Can Set Your Payment Date Well in Advance

If you tend to file your taxes early, you can delay your payment date for weeks or months when you choose to pay with a credit card. This is another cash flow benefit to paying taxes with a credit card.

Estimated Tax Payments Can Boost Spending Power

Estimated tax payments can dramatically boost your credit card spending power, bringing high-dollar sign-up bonus spend requirements within reach.

These one-time spend thresholds, usually set at three months from the account opening date, frequently reach $4,000 or $5,000. Unless you’ve miscalculated your projected income or experienced an unexpected windfall during the tax year, you probably won’t owe that much when you file. But your quarterly estimated taxes could certainly approach or exceed those figures.

Some travel credit cards have even higher spend thresholds for coveted travel loyalty program windfalls. For suggestions, see our list of the best credit cards to pay your taxes.

Partial Payments Negate Extension Form Requirements

When you partially pay your end-of-year taxes with a credit card, you automatically earn an extension without any additional paperwork required. When you opt for another form of payment, you may be required to file IRS Form 4868. The extension deadline is usually six months after the filing deadline: October 15 or thereabouts.

Disadvantages of Paying Your Taxes With a Credit Card

Paying taxes with a credit card does have some drawbacks, including processing fees, higher credit card balances and credit utilization ratios, and higher fees for integrated e-file and e-pay providers.

Carries a Processing Fee of at Least 1.85%

Every IRS-approved credit card payment processor charges a convenience fee. As of the 2022 tax year, the lowest possible fee is 1.87% with PayUSATax, or $2.50 flat (for smaller payments only) with ACI Payments and Pay1040.com.

These fees are high enough to eat up, and potentially exceed, earnings from most cash-back credit cards, whose returns on general spending typically top out around 2% outside sign-up bonus periods.

Paper check and EFT remain the cheapest tax payment methods for cardholders who don’t expect tax payments to trigger point or mile windfalls via sign-up bonuses or ongoing spending thresholds.

Can Substantially Increase Credit Card Balances and Utilization Ratio

Credit utilization is one of several factors used to calculate your credit score. Your credit utilization ratio is your total aggregate credit balance divided by your total aggregate credit limit.

All other things being equal, a high ratio can adversely impact your score. If your aggregate credit limit (available credit) is on the low side, a large end-of-year or estimated tax payment could spike your credit utilization ratio. In turn, this could temporarily affect your ability to secure new loans or lines of credit on favorable terms.

May Result in Hefty Interest Charges

There’s a good chance you won’t be able to pay off your entire tax bill in a single month. Which means the balance generated by your tax payment will accrue interest unless you’re within a 0% APR introductory period.

Your credit card interest rate will almost certainly be higher than the IRS’s interest rate on unpaid tax balances. On larger balances, this could end up costing you more than setting up an installment plan.

Higher Fees for Integrated e-File and e-Pay Providers

E-filing is faster and more convenient than submitting a paper return. Unfortunately, it’s also more expensive. Returns filed using the IRS’s integrated e-file and e-pay function carry convenience charges that are almost certain to exceed your rewards credit card’s cash-back or point-earning rate.

Employers Can’t Make Federal Tax Deposits

The IRS requires employers that withhold employment taxes to deposit federal tax collections once or twice a month using the Electronic Federal Tax Payment System®. They can’t make these deposits with a credit card.

Though this doesn’t affect individual filers directly, you need to plan accordingly if you own a small business with traditional employees.

When Should You Pay Your Taxes With a Credit Card?

Paying your taxes with a credit card can sometimes work in your favor, but it’s not always the right move. See when you should and shouldn’t do it.

When to Pay Your Taxes With a Credit Card

Paying income taxes with a credit card makes sense in these situations:

You’re in the qualification period for a new card sign-up bonus. If you owe a significant amount in taxes when you file, or you pay quarterly estimated taxes anyway, your payment could account for a big chunk of the spend required to earn a new card sign-up bonus. Maybe the whole thing.
You qualify for a 0% intro APR promotion on purchases. If your credit card has a 0% APR promotion, you can carry the resultant balance for many months without paying any interest on it. Just be sure to zero it out before the promotion ends, or you could wind up paying deferred interest.
You can pay off the charge in full before any interest accrues. Even if you’re not eligible for a 0% APR promotion, you can avoid interest by paying off your charge in full during the grace period. This is more feasible when your tax bill is small and the value of rewards earned on the payment is greater than the processing fee.
You have no plans to apply for new credit in the near future. Charging a big tax payment to your credit card can spike your credit utilization ratio and temporarily push down your credit score. Both could make it harder to qualify for a mortgage, auto loan, or new credit card.

When Not to Pay Your Taxes With a Credit Card

You shouldn’t pay income taxes with a credit card in these circumstances:

You aren’t eligible for a sign-up bonus or 0% intro APR offer. If neither incentive applies, the benefit of paying your taxes with a credit card is marginal at best. There’s a good chance you’ll lose money on the transaction, even if you avoid interest.
You can’t afford to pay off the charge in full before interest accrues. If you can’t avoid interest on the charge, you definitely shouldn’t put your tax payment on a credit card. You’ll end up paying a lot more than you owe.
You qualify for an IRS installment plan. For bigger tax bills, an installment plan should be your first choice if you qualify. It’s cheaper in the long run than carrying a balance with interest.
Your tax bill is small enough to pay out of pocket. If your tax bill is manageable enough to pay out of cash on hand — without dipping into your emergency fund or long-term savings — then that’s the way to go. It won’t cost you anything extra.

Your tax bill is big enough for the processing fee to offset a sign-up bonus. On the other hand, if your tax bill is huge, the processing fee could be bigger than any sign-up bonus it qualifies you for. The line depends on the expected bonus value, but as an example, a 1.85% processing fee on a $10,000 tax payment is $185, so you’d need to earn at least that much as a bonus for the payment to pencil out.

Final Word

If you don’t expect to have a major year-end or quarterly estimated tax liability this year, don’t worry. There are plenty of other ways to earn your new credit card’s sign-up bonus offer: making major travel or home improvement purchases in advance, for instance.

Just remember that credit card use is a privilege, not a right. Don’t put yourself in an uncomfortable — and avoidable — financial pickle just to earn a few extra cash back dollars or summit the final hill in your sign-up bonus climb. You could find yourself stuck with the consequences for years to come.

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.

Source: moneycrashers.com

Apache is functioning normally

May 10, 2023 by Brett Tams

Save more, spend smarter, and make your money go further

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Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom Mint.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear).

Each year as you await your tax refund, you face the same question – what to do with that money once it arrives? For some, the money immediately goes to cover basic needs, but for others, the money goes to far less-essential items.

According to a 2020 survey by Self Financial, 44% of respondents said not getting a tax refund this year would completely derail their budget for the rest of the year.

So how do you use your tax refund to plan ahead, build your wealth, financial health, and ultimately, your credit?

Here are 5 ways to put your tax refund to work to build your credit.

But first…

Why use your tax refund for credit-building?

Maybe you’re itching to spend your tax refund to treat yourself. While there’s nothing wrong with using a bit of that money for fun, tax refunds are a great opportunity to get ahead with your finances too.

But why, of all things, focus on your credit?

First, bad credit could cost you thousands of dollars more over your lifetime, since you often get charged higher interest rates (if you can get approved at all). Your credit can also impact your ability to rent an apartment, qualify for certain jobs, or even get a cell phone.

Good credit, however, creates a financial safety net to fall back on if you need it. If you have good credit, you may have an easier time qualifying for personal loans, credit cards, or other credit products if you need to borrow money, often at a lower rate.

If you don’t have an emergency savings fund, credit may be your only other option to lean on if you face job loss, an unexpected medical emergency, etc.

You have to build credit before you need it though. Otherwise, you might not be able to access it when you actually do need it.

5 ways to build credit using your tax refund

Once you have your tax refund in hand, here are some ways you can put it to work to help your financial health.

1. Pay down debt

While paying down your mortgage or other personal loans may help your credit score, it may be a good idea to focus on higher-interest, more expensive consumer debt (like credit card debt) first.

Not only could paying down this higher-interest debt save you the most money in the long run, but it could also have a bigger impact on your credit score. That’s because credit usage, or how much of your available credit you use at any given time, counts for 30% of your FICO® credit score.

While installment loan usage (like personal loans, car loans, or home loans) does count somewhat towards this factor in your credit score, revolving account balances (like credit cards or HELOCs) count more, according to credit bureau expert Barry Paperno.

That doesn’t mean you have to pay your credit card debt off completely to see benefits to your credit score. Even paying your balance down 5-10% may have a positive impact.

According to credit scoring agency FICO, people with the highest credit scores tend to have credit utilization between 6-10% on their revolving credit accounts. While that’s a great goal to aim for, start with paying down what you can, no matter how small that amount may seem at first. Small wins can add up to big ones over time.

Aside from credit utilization, the only other factor that impacts your credit score more is your payment history. Which brings me to my next point…

2. Get your current accounts in good standing

If you have late payments or missed payments on your current credit accounts, make up those payments if you can. While many lenders report a late payment to the credit bureaus if it’s more than 15 days late, how late your payments are can impact your credit score in different ways. A payment that is 30 days late affects your score differently than one that is 90 days late.

For example, according to one FICO score simulation, if you have a 793 credit score and miss a payment by 30 days, your score could drop 60-80 points. In that same situation, if you missed a payment by 90 days, your score could drop 100 points or more.

So the sooner you catch up on a late payment, the better. Besides, making those payments could keep more late fees from adding up.

While catching up on payments may not undo the damage of a late or missed payment on your credit (it can take years for just one late payment to fall off your credit report), it could prevent any more damage from being done.

If the late payments were on property, or loans that were secured by property, like a home loan or car loan, catching up on payments could also prevent you from losing your home or car.

3. Open a Credit Builder Account

This next one is for people who either have no credit history, a limited credit history, or need to rebuild credit after financial hardship such as bankruptcy, foreclosure, or identity theft, to name a few examples.

Unlike a traditional personal loan, credit builder loans don’t give you the money upfront.

Instead, the lender holds the loan amount in a bank account. Each month, you pay into this account and the lender reports your payment history to the credit bureaus, which helps you build credit history.

Once you pay off the loan amount, the money inside the account comes back to you, minus the interest charged on the loan. In other words, these loans give you the opportunity to put some money away for savings while you build your credit.

If you have trouble gaining access to other credit products or want to build credit while you build some savings, a Credit Builder Account could be the right option for you.

4. Use it as a deposit on a secured card

For many, a secured credit card may be a good entry point for accessing credit cards. A secured card works just like a regular credit card, except you put down a security deposit that is usually equal to your credit limit.

For example, you may have a secured card with a $100 credit limit and a $100 security deposit. Like a deposit for utilities, a secured card deposit is used to cover your bill if you don’t pay back what you owe.

Some companies (like Self Financial) provide an option for you to build your way slowly towards a secured card through a Credit Builder Account, no extra deposit or hard inquiry needed. Bonus: Self doesn’t deny you if you have a history of bankruptcy or foreclosure, unlike some other credit card issuers.

There are many different secured credit cards to choose from, so shop around to decide which one is right for you.

5. Work with a credit counselor

Not sure where to start when it comes to your credit? Or what product might work best for you? You may want to use some of your tax refund to hire a qualified professional to help you come up with a credit action plan.

Here are a few reputable places to start searching for a credit or financial counselor:

National Foundation for Credit Counseling (NFCC). This nonprofit provides financial counseling services through their member organizations across the US. Visit their website to connect with free or low-cost help in your area.
Association for Financial Counseling and Planning Education (AFCPE). AFCPE has over 3,200 certified financial counselors, planners, educators, and researchers around the world. You can find local or virtual financial counseling through their online tool.
Operation Hope. Operation Hope is a national nonprofit that provides financial coaches to help people “develop customized action plans around building their own businesses, raising their credit scores, buying homes, or simply making better decisions with the money they have.” Their website also has tons of free resources about financial basics.

These organizations provide access to qualified financial counselors who can help you create plans that align with your financial goals, whether that means building your credit, paying down debt, budgeting, or working towards buying a house, to name a few examples.

Depending on your current income and situation, you may also qualify for no-cost or low-cost help, since many financial counselors offer a sliding scale based on financial need.

Be careful when browsing for professional help with your credit though, especially if you search for credit repair. While there are some good players in the space, you have to be really careful to pick the right one. The Federal Trade Commission provides some guidelines to help you find legitimate credit repair help, which you can view here.

Bonus: Build an emergency savings

Okay, so this one isn’t exactly credit-specific, but having an emergency savings fund could help reduce the amount you need to borrow if you ever did need to lean on credit during times of financial hardship.

Research from SaverLife shows that even just $100-$200 in savings could mean the difference between keeping your housing during hard times or having your utilities cut off.

According to the IRS, the average tax refund in 2020 was $2,741, which for people who make about $30,000 is roughly one month’s salary – a pretty healthy cushion if you lose your job and need time to find something new.

The good news is, there are tools that could help you build both your credit and some savings at the same time.

Bottom line

While credit may not usually be top-of-mind when you get a sudden rush of cash, it’s a key building block for your financial health, and can help open doors to your future.

So if you have a little extra money, whether it’s thanks to a tax refund, stimulus check, bonus, raise, inheritance, or even just finding $20 in an old pair of pants, put that money to work for your future self.

Save more, spend smarter, and make your money go further

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April 29, 2023 by Brett Tams

Should You Become an Authorized User? – MintLife Blog

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establish credit history, consider becoming an authorized user and building your credit in other ways, like getting a secured credit card.

What Is an Authorized User?

An authorized user is someone who can make purchases on your credit card but isn’t legally obligated to pay the balance. It’s easy to sign someone up as an authorized user online or over the phone with a few pieces of information like their address, name, and birth date. You can order a separate card or have them use your credit card. You can have several authorized users on a single credit card, usually up to five. If the person is under 18, they can still usually be an authorized user on a parent or guardian’s account.

You get some privileges as an authorized user, but not the same ones as the cardholder. You can make purchases, find the available balance, and make payments. You can also report a missing card and dispute a fraudulent charge. Authorized users aren’t able to make changes to the account, though. For instance, they can’t close the account, add another user, or change the address.

Authorized Users and Credit

Becoming an authorized user could improve your credit score, but not always, and typically not in a drastic way. Check to see if the creditor sends authorized users’ activity to the major credit bureaus. Most do, but not all. If you’re trying to build your credit, you want to make sure being an authorized user will count toward your history.

When you’re a user on someone’s account who has a solid history of on-time payments and low credit utilization, it can help your credit. On the flip side, if you’re connected to someone with a lower credit score or a spotty payment history, your credit might suffer. For instance, if the cardholder misses a payment, your score could be affected, because it will also be reported on your history. That’s why it’s important to select someone you trust. Choose someone who you know will pay on time and not let their balance lapse. You can even have an upfront conversation about credit history and payments before being added as an authorized user to their credit card.

Just because you won’t be legally responsible for your charges, you may have a different arrangement with family. For example, Asher is an authorized user on his mom’s credit card. She pays for his groceries and utilities, but he is responsible for discretionary spending like going to the movies. Still, if the authorized user like Asher refuses to pay their portion, the cardholder remains responsible for covering it. If the cardholder doesn’t pay or can’t pay the balance, it could harm you more than help you.

Ways to Build Credit

Besides becoming an authorized user, there are other ways to build your credit. Try a combination of different approaches to build your history and show that you’re a responsible borrower.

Try a rent reporting service: Put your monthly payments toward your credit history by signing up for a rent reporting service. Proof of your payments is sent to the major credit bureaus. You’ll have to pay a small fee for the service, but it’s a low-risk way to create a credit history for payments you already make.
Apply for a secured credit card: Most credit cards are unsecured but require an established credit history. Secured credit cards allow you to put down collateral, such as a $500 cash deposit, in case you don’t pay your bills. These cards are for those without much credit history because the deposit guarantees payment to the lender if you don’t make payments. In most cases, secured credit cards carry higher fees and interest rates than normal unsecured cards.
Have someone cosign on a loan: Whether you’re purchasing a vehicle or need more funds for college, having someone cosign on a loan can help build your credit. Banks and lenders will often give out small loans to those without much credit history, as long as they have a solid cosigner backing them.
Choose a student credit card: If you’re in college, build credit with a student card. You may be approved even with no credit history. You might have a lower credit limit, such as $500 or $1,000, but the card allows you to spend on credit and build trust with creditors.

Practicing smart financial habits, like building your credit or having a personal budget, reaps rewards both now and in the future. Being an authorized user is one practical way to go about improving your overall financial health when done correctly. With a higher credit score and stronger finances, you can achieve bigger goals, like buying a home or saving for early retirement.

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