Planning for a Credit Worthy Future

 

Credit seems like a complicated fickle thing when you don’t understand it. There are many unforeseen and preventable things that can come about and bite you in the rear leaving you in a credit mess when you are not aware of the ground rules to good credit. 

The best way to avoid those messes or recover after coming out of a financial mess is to plan your financial future and set some boundaries for yourself for a better, more solid financial future.

Planning for your future can look like a lot of things and should involve many different aspects, like living within your means, things you want to accomplish financially, what you want out of your future credit, how you will build and maintain your credit and how you will set guidelines for yourself to avoid making common credit and financial mistakes. This blog post will briefly touch on each one of these to offer readers, regardless of age and current situation some insight into how to plan ahead for a credit-worthy future.

Living Within Your Means

What does this mean exactly, well it means not spending more than what you make each month. This is one of the hardest things for most American families to do, especially when your household expenses exceed your income. 

Ideally, you need to be able to pay all your bills on time each month and still be able to buy amenities like food and clothing, while also putting aside 20% to 30% of your income for savings. To live within your means can be making choices between eating out or learning to cook and eat home cooked meals most of the time, including taking lunch to work from home. 

There are lots of ways to creatively shrink your monthly expenses and live within your means.

What Do You Want to Accomplish Financially?

This is a big part of living within your means, because if you are just distraught over the situation and want to have more luxuries in life, then you simply need to earn more money. You should look at the life you would like to live and then estimate what it would take monthly to make that life happen.

Put together a plan to meet those needs before you start living that way. That could be as simple as seeking out additional training in your industry, working towards a job promotion or asking for a raise, changing jobs or taking a second job. The important thing is to always stay within your current means, even if you are looking for a way to increase your income. 

Until you are making that higher income, it is not available to you.

What Do You Want Out of Your Future Credit?

Most will answer buy a house, buy a car, vacations, college for the kids and retirement. These are all valid reasons and should be part of your goals depending on your family and personal situation, but all these things and many like them require decent to good credit and some careful planning to obtain in a secure, responsible way.

Think about the types of things you want in these areas and speak with professionals in those industries to get a clear picture of what it would look like on paper. This will give you a realistic look at what it takes to get both your credit and savings healthy enough to help you afford and finance the things you want. 

Build and Maintain Your Credit

To build and maintain a good credit score you need to stick with the guidelines surrounding the living within your means section and that also includes paying your bills on time consistently month after month, year after year.

This is not always possible but it's what everyone should strive towards. If you have setbacks beyond your control in this area you should work towards getting back on track as quickly as possible building and maintaining good credit because bad credit also increases the interest rates you pay for credit and insurance!

Set Guidelines for Yourself

It’s important to set some spending rules and good habits for yourself. Don’t completely deprive yourself because that will only lead to failure and can have catastrophic results for your finances and future. Instead, set some ground rules with occasional indulgences and stick money aside in savings for the big rewards.

•  Smart money practices will always win out over excess in the long run.

MyCreditSystem is not just a DIY credit repair system for those already in trouble it is a Credit Education Program that helps you repair your credit yourself and also empowers you with the knowledge to keep a good credit score and maintain your credit rating. 

It's a great gift for High School Seniors and College Students so that they learn early one how to avoid the pitfalls of credit recklessness and also how to get out of it if they need to. They can also build a business around it! Who knows maybe your teenager or young adult is the one that fixes everyone's credit in the family or your neighborhood?

To learn how you, your teenager or young adult can build their own business helping their friends and family fix their credit sit with them and watch this video  
 

7 Credit Score Destroyers

Your credit score not only determines whether or not you can  get credit cards, cell phones, utilities, a rental apartment, auto loan, auto insurance and even job security clearance or the job itself and a mortgage to buy a home, it’s also a critical factor in determining the interest rates you have attached to all those items. 

A low credit score can cost you a lot of money over your lifetime.

Not everyone is aware of the many factors that determine a credit score. It’s easy to make assumptions that seem logical but are actually false. Acting on incorrect information is a sure way to make critical mistakes.

Save yourself money and make your financial life easier by avoiding these seven credit destroyers:

 1.     Carrying a big balance on your credit cards. While having a lot of debt is never a good idea, using more than 30% of the available credit on your credit cards hurts your credit score.

• For example, if your credit limit is $10,000, your score drops if your balance is over $3,000. This is commonly referred to as the “utilization ratio.” Keep your credit utilization to no higher than 30% of your available credit limit.

2.     Paying late is a huge factor in your credit score. Experts estimate that 35% of your credit score is determined by your payment history. Any late payments will lower your score.

3.     Closing credit cards is a credit score killer. This is related to your utilization ratio. By closing a credit card, you lower the amount of credit that’s available to you because your credit score is also sensitive to the length of your credit history.

4.     Defaulting is an obvious credit score mistake. When you fail to pay back a loan you owe to a lender, you can lose as much as 100 points from your credit score. Make every effort to pay back your loans and to do it on time.

• If you’re struggling making loan payments, no matter the type of loan, contact the lender and try to negotiate other payment arrangements. They can be very flexible if failing to do so means not getting their payments at all.

5.     Applying for too much credit. Everyone needs to have some credit but applying for too much credit does have a negative impact on your score.

• Each time you apply for more credit, your potential lender makes an inquiry of your credit history. 

• Each one of those inquiries lowers your credit score.

• Avoid accepting every credit card offer that shows up in your mailbox.

6.     Not having a credit card at all. Many people are getting rid of their credit cards in an effort to avoid debt. Unfortunately, this does nothing to help your credit score.

• Experts believe that the ideal credit score includes 2-3 credit cards. 

• Credit diversity can account for as much as 10% of your credit score.  

• Credit cards help to keep your credit history current. 

7.     Co-signing a lease or a loan for someone else can be a huge mistake because if they fail to make on time payments can destroy your credit score.

• When you co-sign a loan or lease you are equally responsible for that debt, so any late payments, defaults or even repossesions will show up on your own credit report as if they were yours.

• You can even be subject to collections and lawsuits. If a lender won’t do business with them, you might want to reconsider before co-signing.

By avoiding these common mistakes, you can protect your credit score and a good credit score guarantees you the lowest interest rates. And don't worry even if your credit score is poor now it is possible to repair your credit and boost your credit score with a good DIY credit repair system. 

Give your credit score the amount of attention it deserves. It makes life a lot easier! If you or someone you know would like more information about MyCreditSystem click on the link. 

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8 Good Reasons to Use a Credit Card

 

Personal finance gurus spend a lot of time and energy attempting to prevent us from using credit cards, usually for very good reasons.

Credit cards are frequently abused and are the cause of a lot of personal debt. However, credit cards bring you a lot of advantages as long as you use them wisely. In fact, credit cards are frequently a better way to pay for things.

Consider these benefits:

1.) Sign-up bonuses. Many credit cards offer significant rewards when used responsibly. For example, consumers with good credit can be approved for credit cards that offer signup bonuses. These bonuses can be worth $50 to $250 or even more. Some credit cards provide reward points that can be used to redeem things like gift cards or airline tickets and much more!

2.) Cash back. With the right credit card, you can earn from 1-5% back on all your purchases. Depending on how much you use it, that can be like getting a raise at work!

3.) Investment rewards. Some credit cards, such as the Fidelity Investment Rewards Card, give a higher rate of cash back. However, that cash back must be deposited directly into an investment account. This is also nice because it encourages you to invest and save.

4.) Frequent-Flyer miles. Nearly every airline has at least one credit card offering. The ultimate value of these cards is really determined by the specifics of the card and the airline tickets you actually receive and use. The details can vary so shop around.

5.) Safety. Using a credit card makes it a lot easier to avoid financial losses due to fraud or unfortuna timing on automatic payments.

For example, if you pay your bills with automatic payments directly out of your checking account, these automatic drafts can also potentially result in insufficient funding fees and late payments, which will have a negative effect on your credit score.

If your debit card is used fraudulently, your money is taken out of your account instantly. It can also take some time to get your money back. By comparison, when your credit card is used fraudulently, you don't lose any money; you simply notify your credit card company and you don't have to pay for those transactions.

6.) Grace period. Credit card usage gives you time to pay, usually a couple of weeks on the average before any interest kicks in. With a debit card, the money is gone instantly. If you have your money in a high-interest checking account, the amount of interest you will earn can be significantly more over time by paying for your purchases with a credit card.

When you put your purchases on your credit card, your money will spend more time in your checking account, where it's earning money for you. If you use a debit card for your purchases, the money is in your account for a much shorter length of time, thus earning less interest. 

7.) Insurance. Most credit cards include a plethora of consumer protections that most people aren't aware of. This includes things like rental car insurance and travel insurance. Some product warranties are also made more advantageous when you pay for the item with your credit card. 

8.) BUILDING CREDIT

If you don't have a credit history or if you need to improve your score, a credit card can help raise your credit score. Obviously, this assumes that you use your card wisely. Debit cards do nothing to help your credit score.

As you can see, credit cards aren't bad provided you use them responsibly. In fact, credit cards have a lot to offer. So dust off that credit card and put it to good use; just be sure to pay it off in full every month or as close to it as you can to maintain a good credit score.

One Quick Way to Boost Your Credit Score

There are many different factors that go into your credit score, also known as FICO score. Your FICO score is calculated based on your credit report by a formula created by the Fair Isaac Corporation. However, FICO does not actually disclose its exact formula. 

Though nobody knows exactly how important each factor is in calculating the credit score, one known factor that plays a large role is your utilization rate. 

Your utilization rate is basically "how much of your available credit are you using?" 

The theory is that if someone has credit lines of $10,000 and they're using $9,500 of that credit, they're a much bigger credit risk than someone who's only using $1,000. Therefore, their credit score would be lower. 

However, there are a few things about the way FICO calculates your utilization rate that are a bit strange. One small loophole in particular can result in you being able to quickly boost your credit score without actually having to reduce your credit balances. 

The Odd Thing about Credit Utilization 

Rather than measuring your average utilization rate, FICO chooses to measure your score based on your highest utilization rate. 

For example, let's say you have two credit cards. Both of them have a $5,000 limit. One card is maxed out, while another card has a balance of zero. 

In this case, your maximum utilization rate would be 100%. In this case, your credit score will be severely negatively impacted. 

On the other hand, if you had distributed your credit balance half and half over the cards, your maximum utilization would be only 50% each. 

Another example would be if you had one card with a $1,000 limit and another card with a $5,000 limit. If you had to charge $800, it's a much better idea to charge it to the $5,000 card. 

A Few More Things to Know about Utilization Rate 

The ideal utilization rate is 35% or under on all your cards. Having even one card above 35% will drag your max utilization up. 

In an independent study of 70,000 different credit scores, researchers found that people with 720 or higher credit scores tended to have utilization rates of 20% or less. 

However, people who had a zero percent utilization rate often had very low credit scores. That's because their credit scores were so low, they couldn't even get a credit card. 

The ideal is not to have a zero percent utilization rate. If you're not using your credit cards at all, you're not demonstrating creditworthiness. Remember - creditors want to know that you'll pay off loans you take out, not that you don't take out loans. 

So try to get your utilization rate between 1% and 35%. If you have a low balance on one card and a high balance on the other, try balancing your cards out to get your maximum utilization rate down. This one technique can very quickly give you a credit boost, literally in just a few days.

Post-Bankruptcy Credit Improvement

 

So you did that dreaded thing people call reputation suicide and you filed for bankruptcy now your credit is likely as low as it's ever been. But it doesn't have to stay that way. The moment you declare bankruptcy, there are actions you can take to immediately start rebuilding your credit. 

You are getting a fresh start and it's important to build a solid foundation of knowledge so you can avoid the pitfalls that led you to bankruptcy in the first place if it was poor personal financial management that led to bankruptcy in the first place. 

Here's how to start improving your credit score right after a bankruptcy event. 

Do a Careful Credit Report Check

 

Look over your credit reports. All three of them, Experian, TransUnion and Equifax. Then look them over again. Carefully check that each and every existing account is being reported properly in all three credit bureaus.

Old debts that were wiped out by bankruptcy should indicate a "BK" status. Debts that aren't reported properly can continue to damage your credit score, so make sure that any debts included in your bankruptcy filing are now "cleared debts" are indeed being reported properly.

 Pay Your Mortgage and Rent On Time

 

If you managed to keep your house in the bankruptcy process, make sure you do everything in your power to pay your mortgage on time. 

Your mortgage has a bigger impact on your credit than anything else. If you can manage to keep it current, that'll really help your credit score. If you go delinquent on your mortgage, the rest of the techniques in this article won't help all that much. 

If you are still struggling to make mortgage payments call your loan holder and try your best to refinance your mortgage loan. It's possible to refinance a mortgage after bankruptcy. If you are living in a rental PLEASE do yourself a favor and pay your rent on time! Your rental payment history can now be used to boost your credit score. 

Get a Secured Credit Card 

Get a secured credit card as soon as possible to start building up your post-bankruptcy creditworthiness. 

A secured credit card entails you putting down a small deposit, usually between $300 and $1,000, to open a cash-backed account. Your money will be held as collateral. You can then use your card as a credit card. Pay it off every month, on time, to start rebuilding your credit.  

Do your research and make sure that Secure Credit Card payment history is being reported to all three credit reporting agencies. 

Cutting Your Spending 

Having to file bankruptcy means that at some point in your life, you spent more money than you really had. In order to prevent that from happening again, you need to make sure that you're regularly making more money than you're spending. 

Any additional cash you earn can be used to improve your financial situation. It can be used on improving credit, paying off debts that weren't wiped out during bankruptcy, or building savings. 

Start by cutting back on auxiliary spending. Move into a smaller house or apartment if you can. Try to save 10% to 20% of your income every month. There is a whole other blog post on that coming soon. 

Make a Small Installment Purchase 

An installment purchase is treated differently on your credit report than revolving credit (e.g. credit cards). They're treated with more weight. 

An installment purchase includes car loans, home mortgages or even furniture purchases that are paid off in installment form. 

Make sure that any installment purchase you make is reported to all three credit reporting agencies. Getting installment loans and paying them off on time can do a lot for rebuilding your credit. 

Don't misunderstand me here, one loan at a time pay it off and then do another. You are rebuilding your credit worthiness not digging another grave.

If you apply these techniques, your after-bankruptcy credit can improve to the point where you can open new unsecured accounts within 2 or 3 years.

GOOD LUCK! 

The Advantages and Pitfalls of Credit Counseling

Credit counseling services receive a lot of mixed reviews. There are many reputable services, but there are also credit-counseling companies with horrible reputations. Credit counseling is now required before filing for bankruptcy. 

If you’d like help with your debt, be aware of the advantages and disadvantages of using a credit counseling company. 

Positive Features of Credit Counseling 

1. They tend to have more clout with creditors. Some creditors are more willing to negotiate pay-offs and payment plans with credit counselors. You might get a better deal and more breathing room with a credit counseling service.

2.    It’s possible to consolidate your payments. Many firms will consolidate your payments into one payment each month. You’ll be making a payment to the counseling company. Understand that the credit counseling firm must then make all the individual payments for you.

3.     It can be easier to get new credit. As part of your credit counseling, it’s common for new credit to be secured for you. They’ll go out and work to have your credit applications approved.

4.     An end to the harassment. When you’re put on a repayment plan, the debt collectors will leave you alone. Remember that you can do this yourself by simply making a request in writing. 

A reputable and honest credit counseling service can be helpful. There are many potential advantages to utilizing the expert assistance they can provide. But there are also several possible negative consequences. 

Pitfalls of Credit Counseling 

1.     They might not actually pay your bills. There are many complaints every year of credit counseling companies taking your money and then failing to make the agreed-upon payments to your creditors.

2.     They often over-promise. Just like any other company vying for your dollars, sometimes the marketing is a little too good to be true. After the counseling company takes their cut, you might not be any better off.

3.   It can possibly make your credit worse. There is one tactic commonly employed that can have a negative impact on your credit score. The credit counselor may advise you to stop paying on your debt and instead put the payments into an account. 

·   Once a large enough lump sum has been accumulated, the counselor would then approach your creditors with offers to pay off the debt at a reduced amount.

·       During this process your credit will suffer due to the non-payment.

·      The account used to store the money is under the control of the counseling firm. Do you trust them? 

The potential pitfalls are serious. It’s very important to do the necessary legwork to locate a reputable credit counseling service. 

Many consumers believe that a service with non-profit status must be reputable. Understand that being non-profit is primarily about not showing a profit at the end of the year. Paying bonuses and higher salaries can accomplish this feat. 

Ideally, you’ll be able to find a counseling service in your state that you can visit in person. Checking with your state Attorney General is an effective way to see if any complaints or legal action have taken place. Doing an online search is also likely to turn up any negative reviews or complaints. 

Inquire about the services offered and the fees. Ask how the employees are paid. Are they compensated more for signing you up for certain services? Get everything in writing. Verbal promises are likely to be conveniently forgotten. 

Credit counseling can be beneficial or counterproductive to your goals of reducing and eliminating your debt. Find a reputable credit-counseling firm by doing the necessary research. Be sure your financial situation will move in a positive direction. 

If you want to save hundreds or thousands of dollars and make sure your credit is repaired correctly you can do it yourself with a DYI Credit Repair System like MyCreditSystem it gives you access to a complete Financial Literacy Program and all the necessary template letters you will need to successfully fix your credit 

Debt Consolidation to Raise Your Credit Score ?

Debt consolidation is a form of debt management that allows you to find a way out from under debt while still avoiding bankruptcy, garnishment and other extreme financial measures. 

Debt consolidation allows for you to use one loan to a pay off all other accounts and loans you have leaving you with one monthly payment and interest rate. 

The way this can help your credit score is by allowing your current accounts, regardless of status, to be considered paid and in good standing. You also open another loan account which shows a certain level of good credit and it then becomes your responsibility to pay the payments on time to keep the debt consolidation as a positive loan in good standing.

There are many debt consolidation companies and with any consumer driven industry there are fly-by-night scam companies to watch out for. When looking for a debt consolidation company and loan take the time to do a little research and learn as much as the company and the people who work for that company as you can. You should also ask for references to talk with real people who have experienced the company and staff members you are considering. The company and employees should be trained and certified to work on debt consolidation cases and offer debt consolidation loans that are reputable and quality.

Before contacting a debt consolidation company you should take the time to get your debt in order. This includes making a list of all the debt you want to include in the debt consolidation. For each of the items you include on the list, the following things should be included: creditor, creditor contact information, monthly payment, interest rate and current balance. This will give you an idea of the debt you have and the basic information about each one. You also need to total it all up and write it in big numbers on top of the list. This is often one of the hardest parts of debt consolidation, as you have to look at the whole picture and if you haven’t been keeping track along the way, it can be overwhelming. But, this is among the first steps to taking control of your debt, instead of letting it control you.

Debt consolidation can also be followed by other debt management tactics, like debt negotiation, that can help to minimize the debt to allow you to take out a smaller loan and save you more money in the long run. Many credit counselors are trained in the art of debt negotiation and should offer that as a service with your debt consolidation. When you negotiate your current debt you have the opportunity to settle at a lower amount than the current balance, which helps your debt consolidation loan and your repayment over the life of the loan.

If you are looking for a way to get out from under debt and help your credit rating and score, debt consolidation could be the right choice for you. Debt consolidation is a smart way to get rid of debt while still preserving integrity on your credit report and can boost your credit rating. When all your debts are paid, this changes the status of the account and when your credit score is recalculated it should reflect this new positive status and boost your credit score. This can bring you hope and instant success in getting your debt under control if and only if you are able to get a loan for debt consolidation. 

If you are struggling with your debt, paying bills and need to repair your credit score before you can get another loan I recommend a DYI credit repair program like MyCreditSystem which can save you thousands of dollars and may even help you remove those collection accounts from your credit report without paying them. 

What is Credit and How Does it Work

Credit may seem like a complicated fickle thing, but it can be demystified and used to help better your credit rating or credit score.  So what is credit? Credit is when you borrow money against your own name in order to make weekly or monthly payments on an item of high value or price. 

The highest forms of credit or loans (borrowing) are often for vehicles and homes, though jewelry, electronics, recreational vehicles and many other items are available on credit including cosmetic procedures, dental care and even home furnishings and home goods can be bought on credit. 

With the expansion of credit over the past decades stores have cropped up their own store credit cards that you can use to purchase items in their stores and on their web sites on credit.

The positive of credit is the ability to finance something you cannot immediately afford and the option to build a solid credit rating, or name, for yourself for future borrowing power for the larger items like a house, which for 98% of people requires a loan. 

This borrowing power can also be extremely useful during an emergency when funds are low due to job loss, medical problems, injury, catastrophe or the death of an income earner. Borrowing allows people to get through these tough times without sacrificing their quality of life.

The negative aspect of credit is that it has allowed people to live outside their means and everyday millions of people find themselves further in debt which is how credit card companies make their money (profits). It can bring great hardship to those experiencing high levels of debt. 

Credit, when used wisely, can offer opportunities where there are none and help you find a greater level of borrowing in the future and help during a present situation, but when used recklessly it can push you into a worse financial situation and negatively affect your future borrowing power.

When you turn eighteen it seems that every bank and financial institution in the country suddenly has your personal information and wants to offer you “free money”, this is a dangerous time and you should avoid a good majority of these offers. 

• It is wise to open one account, but only charge during a month what you are able to pay off completely before the due date. 

One or two open revolving accounts that are constantly in good standing offer a great way to build good credit. This can also be used when someone is bouncing back from bad credit or a bankruptcy but it can also be a slippery slope if you have not broken your bad spending habits.

Your credit reports offer a reporting mechanism through which the  three major credit bureaus  (Equifax, Experian and TransUnion) that gathers account, financial and personal information about you from the creditors and bills you have to form together a credit rating and thus a credit score that represents your ability to pay debt, your timeliness in paying your bills and how often you move or change jobs. 

While, much of this information may not seem connected it is all used to gauge whether or not you are a person worthy of credit, a job or even renting an apartment to. So, it’s vitally important to set a good credit rating and practices from the start as credit impacts you your entire life. For some, bad credit and financial practices can lead to a bankruptcy which allows the debtor to wipe their debt clean, except for a few different areas (like school loans, taxes due and others) and start over. 

While, this may seem like a dream to many, it sets you back and means you not only have a note on your credit report showing the bankruptcy and your inability to pay any of your bills, but now you have essentially no credit and have to start over as if you were eighteen again. Regardless of how you choose to handle your credit and your potential borrowing power, it’s important to take the time to understand the credit rating and reporting process, not to mention the staying power they both have. 

Credit ratings, scores and reports are essential to the quality of life and options available to individuals and can have a direct effect on your status or level of success throughout your life. Take the time to understand these things and work to set yourself up for better financial success. MyCreditSystem is a DYI credit repair and financial literacy program that can help you repair your credit and learn how to maintain a good credit score.