credit cards Archives - Live Debt Free

What Types of Debt Affect Your Credit Score? It’s Not Just Your Credit Cards

12.22.2021 by Harry //

Staying informed about your credit score is important. You can easily track your debt while ensuring your financial information is always safe. However, understanding your credit score and how it can change can be confusing.

Misinformation and a lack of education regarding financial literacy can significantly impact your debt management abilities. For example, you might think only your credit card activity determines your credit score. However, your credit score is more than that; your debt accounts for 30% of your credit score.

Having a little bit of debt history is fine, as it lets lenders know whether you pay back what you owe. This also establishes that you were approved for some credit at some point. It is difficult to get more substantial loans and credit amounts for large purchases without an established debt pattern.

The critical thing to remember about debt is that there is no problem having it, but there needs to be an effort made to pay down your debt.

You do not want the debt just sitting there collecting interest. Failure to pay will affect your credit score in a bad way, no matter where the debt came from.

Different types of debt can affect your credit score. Understanding these types of debt and how they relate to your financial situation can ensure you take the proper steps to manage your debt and improve your credit score.

Loans

Regardless of where you get it from, a loan will show on your credit score. A loan may be taken for a few reasons. First, it is considered installment debt, as you take a large sum and pay it off in small payments. Typically, there will be a minimum amount you have to pay against your principal each month.

Interest will also be charged on the amount you owe back for your loan. For most loans, there is a fixed percentage of interest. Your credit history is one of the factors that will determine how much interest you must pay. Furthermore, it determines your approval for a loan.

Car Loan and Mortgages

Interest rates are usually lower for car loans or a mortgage because the lender has less risk. For example, if you were to miss any payments or fail to pay your auto loan or mortgage, the lender would take back the property.

Other Types of Loans

For loans such as a student loan or a personal loan, there is nothing that the lender can take from you to pay themselves back. Therefore, giving you this loan is more of a risk for the lender. This is partially why the lender will review your credit history and potentially give you a higher interest rate.

How Loans Affect Your Credit Score

If you make your monthly payments on time towards your loan, it will positively affect your credit score. In addition, these payments show that you are responsible with your debt and actively have the funds to pay towards your debt.

Missing a payment once or twice most likely will not hurt your score, provided you try to make up the payment as soon as possible. However, making a habit of missing payments or making late payments can impact your credit score. This is because the company or financial institution you owe money to will report missed payments on your credit history. Your score goes down when this happens.

When it comes to getting a loan in the future, if you have a history of missed payments that you do not try to make up or you default on a loan, you run the risk of getting denied.

Charge Cards

Charge cards are not as common as they used to be. They are also much harder to get than other types of credit. A charge card will let you make purchases that you pay for in monthly increments. They will usually have a limit, but that limit can fluctuate.

The debt that you incur on a charge card is considered unsecured, which means it is a high risk for lenders to approve you for these. They can also have higher interest rates than other types of credit and penalties if you fail to pay your monthly amount on time.

Medical Bills

Depending on where you live and if you have any insurance, it is possible to garner medical debt in the case of medical necessity. If you cannot pay your medical debt off right away, you can potentially arrange a payment plan that splits up payments into smaller increments. Click the link below to learn more.

https://www.cnbc.com/select/how-long-does-medical-debt-stay-on-your-credit-report/

If you miss payments towards your medical debt, the medical facility may turn that debt over to a collection agency. If it gets that far, it could have a significant impact on your credit score. You would have to be dormant on payments for quite some time before that happens.

Furthermore, when medical debt is turned over to a collection agency, there is often a waiting period between when it is turned over and when it shows up on your credit report. Because of how these debts are incurred, it allows you to have more time to set up a payment arrangement that works.

Debt Consolidation

Many banks or financial institutions offer debt consolidation loans. These loans essentially allow you to pay off multiple types of debt.

Once those debts are paid, you will then owe the consolidating lender. These loans work like most loans, where you have a monthly payment plus interest and a fixed term to pay it back in.

While this can be an excellent option for getting a good handle on debt, doing so can have a small impact on your credit score. It affects your credit score because a credit report will need to be pulled to determine whether you are eligible for one.

It also affects your credit score because you reduce your credit utilization. Utilization is how much credit you have available versus what you are using.

The only solution for those in an unmanageable financial solution might be filing a consumer proposal or bankruptcy. It could be a necessary solution for your financial situation, but it will lower your credit score substantially. Thankfully, once you manage your debt, there are many ways to build it back up smartly.

Bills

When you purchase items like a cell phone or internet plan, you may not realize that your credit score is checked before being approved for these items. It happens because the issuer wants to know you can pay your bills.

If you fail to pay these bills, the issuer will submit this history to your credit report. Once again, a more extended history of missed payments will be sent to a collection agency. Alternatively, a propensity for paying your bills in full and on time is excellent for your credit score.

Opening and Closing Accounts Frequently

It may be tempting to switch credit cards every time a good offer or incentive comes up. Therefore, it may seem smart to close an old card, so you do not have multiple that you’re tempted to use it.

However, having old cards or accounts open and showing a history of on-time payments on your credit report is good.

When you continuously open new accounts or take on new loans, your credit score will reduce your credit age. In addition, the frequency of credit inquiries that will show on your report will also affect your score. To lenders, all this new activity will look a little dodgy to them. They may think you’re at high risk of mismanaging your debt.

Having a few different types of credit opened, such as a credit card and a couple of loans, is good. This will tell potential lenders that you can handle multiple types of debt. Thus, they may not be as wary when it comes to lending to you. However, this is not to be incentivized to take on more debt than you can manage.

Once again, being cognizant of your credit and your debt is essential to improving your financial situation. In addition, it can help you prioritize how you allocate your budget towards different types of debt. Finally, this awareness and some budgeting efforts on your end can help you improve your credit score.

How to Build Your Credit Score and Stay Debt Free

10.28.2021 by Harry //

Many of us know that being in debt is typically a bad thing from a very young age, but do we know why? Unfortunately, credit scores are not often discussed, so they may come as a bit of a shock to those who have just turned 18 and are looking to start building credit.

Your credit score has a significant impact on many areas of your life. It affects things such as buying a house, getting a credit card, and getting a loan. So, it is crucial always to keep it in mind when going about your everyday business.

Here we will tell you tips to build your credit score without going into debt.

What Is a Credit Score?

Your credit score is a three-figure number that indicates how likely you are to be a safe bet when it comes to loans. Essentially, it lets lenders know whether you are a risk. The higher the number, the better your credit score and the “safer” you are considered.

https://www.cnbc.com/select/how-to-build-credit-and-achieve-a-good-credit-score/

Your credit reports determine your credit score, but if you had never had to pay anything in your name, then it’s common to have little to no credit history.

Building a Credit Score

There are many ways to go about building a credit score, but some are better than others. For example, many people will tell you to get a small loan and pay it off when due simply to prove that you can do so. However, things are not always certain in life. What may not seem like a risk at the beginning can indeed become one.

So, how do you build a credit score without debt?

Sign on as a Co-Holder’s on a Family Member’s Credit Card

One of the quickest and easiest ways to get a credit score is to be a co-holder of a credit card. For example, if your parents are willing to let you do this, you can be added as an authorized user to their account. Once you are approved, the payment history will lend itself to your credit score. Essentially, you get a boost in credit score with no work.

It is better to become an authorized user on a trustworthy person’s credit card.

The last thing you would want to happen in this situation is that they make a late payment or even fail to make one altogether. This would then, of course, negatively impact your credit score through no fault of your own.

Open Your Own Credit Card

Perhaps a safer way to boost your credit score is to get a credit card with just you as an authorized user. This way, you won’t be reliant on anyone else’s spending habits for your credit. Of course, most credit cards will require you to have a good credit score already before they approve you. However, one option is a secured credit card.

A secured credit card needs a security deposit. The amount of money that you deposit with them is your credit limit. Essentially, it’s insuring you against yourself. You need to treat it like a typical credit card and pay the amount off when it’s due to receive your deposit back.

However, remember that failure to pay the sum or even a late payment negatively impacts your credit score. It also means that the lender keeps your security deposit to recover the money that you spent.

Set Up Autopay

The easiest way to quickly accumulate bad credit is to make a late payment. Your payment history makes up 35% of your credit scores, and so paying late does significant damage. In addition, late payment even just once can result in you being reported to the three main credit bureaus.

This report of late payment will then stay on your record for up to seven years. So, to avoid this, you should consider setting up autopay. It means that the amount owed will be automatically deducted from your account each month.

You can always keep a record of the amount spent and check it yourself against the amount automatically deducted to ensure that you are not being overcharged.

Get a Credit-builder Loan

A credit-builder loan is not your average loan, but it is designed to help people build up their credit scores. With this type of loan, you will need to place money into an account every month. When the set period is up, you will receive the total sum of your deposited money (possibly plus interest) minus fees.

What you are doing shows that you can be trusted to pay a certain amount of money by a certain deadline. Additionally, it demonstrates to companies that you are trustworthy and can keep your money in order.

To Sum Up

A credit score has a significant impact on daily life, but it is often overlooked when we are children. The importance of building up a good credit score cannot be stressed enough. However, many people state that getting a loan is the best way to go about this. Unfortunately, that is not always the case, as any form of a loan carries risks.

Instead, we have listed above some of the best alternative ways to build up a good credit score without the need to take out a loan. Each of the methods listed above still carries a small amount of risk, and it is up to you to decide which way is the best for you.

If you need to rely on someone else to get your credit scores, then becoming an authorized user is a great way. However, remember that you are reliant on someone else. Otherwise, lenders will insure you against yourself. Be sure to do you homework before opening a credit card.

Image credit:[Margo Hercules].

How to Pay Off Credit Card Debt

11.14.2011 by Matt Jabs //

The dangers of credit card debt

We could go on and on in the debate on whether credit card use is good or evil or easy or hard or wise or foolish. But – at the end of the day, there are a lot of people in credit card debt who want out… and they want out NOW. This post is written for those people!

Read about how I closed and shredded my credit cards and along with these additional reasons to pay off credit card debt.

If you are in over your head with credit card debt, before jumping into the arms of a credit card debt consolidation relief company, you should consider taking care of the problem yourself. If you have the proper motivation and self-discipline you can do it yourself. It may save you money, help you retain a better credit score, and make you feel better about yourself.

Look at this article as your “How To Handbook” for credit card debt reduction. Know that it is not for the weak or faint-of-heart, so if you are looking for the easy way out – look elsewhere. But… if you have passionate determination to gain control over your debt, on your terms burning inside of you; if you have had enough of the status quo and are ready to turn the tables on the credit card banks… then you are in the right place.

How to pay off credit card debt

First thing’s first. Make sure you listen to what I’m about to tell you… because I know what I’m talking about – I was in your shoes not too far back. I had credit card debt and was living paycheck to paycheck. Now I’m not.

Here’s how I did it, and how you can do it too:

Commitment and Accountability. Since you are reading this post there is little doubt that credit card debt reduction is something you need. Do not feel bad, do not feel overwhelmed, just take a deep breath, get mad at your debt, and commit to doing something about it… for REAL this time! Once you commit, find someone you trust to help keep you accountable. This person should be someone you love and someone who loves you. Someone who has your back… yet isn’t afraid to call your bluff. It’s powerful to partner up… chances are you will need them somewhere in your debt freedom journey.
Know There is Hope. There is hope for you, I promise. NEVER forget this… EVER! Depending on how deep you’re in it will take time and sacrifice – so don’t fool yourself into thinking this will be easy – but as long as you develop a plan you will be just fine. Setting your plan in place gives you peace and hope; because once it’s there… it’s just a matter of time.
Take Inventory. How much do you owe? How many cards do you have? What about your significant other – are your bills together, separate, scattered about? Collect all the following information about each card and write it down: Bank name, bank phone number, account number, credit limit, interest rate, amount owed, due date. If you ever get discouraged while doing this… refer to step one – remember your commitment.
Get on the Same Page. You need credit card help, not more harm. If you have a significant other, it is important for you to view and approach credit card debt together. Being in credit card debt is not a game and if you do not enlist the help of those closest to you, it will be MUCH harder to get out of credit card debt. Having loved ones on board is one of your biggest allies when seeking credit card relief.
Take Control – Negotiate Your Own Debt Solution. Are creditors harassing you? Before you sign up with one of those credit card debt management services know that you can do exactly what they do relatively easily. Cut out the middle man, save your money, and call your credit card companies directly to negotiate your own solution! When you do this, make sure you request all correspondence in writing and never let them shaft you on your written copy… because they will try. Although I did not have to do this, I have been very involved in this process for my sister’s credit card debt reduction program. She is digging her way out of a lot of debt, so I know you can too. Even if it seems overwhelming, it is just a matter of getting a hold on the situation. Once you do that – getting rid of credit card debt is MUCH easier.
Save at least $1,000 in an Emergency Fund. This is VERY important because it will buffer you against any emergencies that you may come up against while in credit card debt reduction mode. Consider the following scenario: You have no money saved, and are putting all available funds toward debt repayment when all of a sudden the transmission on your vehicle fails. What do you do? Having at least a small emergency fund will prevent you from having to put this necessary expense on another credit card. Remember, the goal is credit card debt reduction – and this buffer is necessary! To come up with the $1,000 have a garage sale, deliver pizzas at night for a month, sell some of your stuff, etc… just hurry up and come up with it so you can start repaying your credit card debt ASAP.
Only Pay What You Can Afford. Once you negotiate debt settlements with your credit cards, just pay the monthly settlement amount each month – unless you can afford more. If you did not settle, just pay what you can afford. NEVER let the credit card banks pressure you into going without groceries or paying for housing in order to pay them more. Just figure out what you can afford to pay them, and pay them that much. Period. Be confident, because all of this is well within your consumer rights.
Consider Peer to Peer Lending. If you still have a decent credit score (of at least 660), do what I did, consolidate credit card debt with Lending peer to peer loan. This only furthers and supports your move to take control of your own credit card debt reduction process. Not only does this allow you to bypass questionable credit card debt consolidation scams, it will also combine all your monthly payments into one single debt payment and most likely lower the debt interest rate you are paying. Make sure you only consolidate debt that is at a higher rate than you can get through Lending Club. Another benefit is that you can consolidate all types of debt with Lending Club, not just credit card debt. My Lending Club loan was a consolidation of 3 credit cards and 1 auto loan. Read more about my debt consolidation story by checking out my Lending Club Review.
Reduce Expenses – Increase Income. Do whatever you have to do to start living on less while earning more. Living on less will increase your ability to speed up your debt reduction. Lowering your expenses is crucial because in doing so you are essentially giving yourself a raise. Save money on groceries, save money on TV bills, save money on trash bills. Use ideas like these to increase cash flow, increase credit card debt reduction payments, and increase savings. You will also benefit greatly from increasing your income. Do what you have to do. Keep that pizza delivery job you attained to build up your emergency fund, start a blog, become a dog sitter, house sitter, or baby sitter. If they pay you for it, put in overtime at work. Start a business out of your home doing something you love. As you can see there are many ways to increase income… I have just listed a few here. Be creative, get out there, and work your way out of debt!
Save Money While You Repay Debt. Others may argue with me here, but I believe you work too hard to have 100% of your money leave you every month. Make sure that you always pay yourself something; even if the amount is small… something is better than nothing. Even if you can only save 1%, then save that 1%. Consider following my 75/25 method of debt reduction and emergency savings. I am a believer in the old adage, “pay yourself first”, even if it is only $5/week!
Go on Autopilot. Take a deep breath again… now things are starting to feel better right? Now that you have everything in order, just let all your bills go on autopilot. Use this time to start a budget and take care of other personal finances loose ends. Continue reducing you expenses, start reading some good personal finance books, and really start building your knowledge of personal finance matters so you do not wind up in this position again. Remember that a journey of a thousand miles begins with a single step, and the tortoise always wins the race. This isn’t about huge and fast credit card debt reduction; this is about faithful and consistent credit card debt reduction!
Commitment and Accountability. Yes, step 12 is the same as step 1. Why? Because patience, commitment, and accountability seem to be lost art forms in our modern society, yet those who are patient, consistent, and committed are the ones who always end up winning in personal finance! Do you want to be successful in credit card debt reduction? Do you want to win? Then be patient, follow this guide, stay committed, and sit back and watch as your credit card debts shrink and your savings grow. You are not alone… not only do you have your accountability partner, you also have me! I’m on the same mission as you! You can follow my monthly debt and savings updates for encouragement and motivation to continue on your own debt free adventure.

Free credit card debt ebook

Everything happens for a reason. Although I wish I never would have had to go through my credit card debt reduction experience… I do know that it happened to me so that I could help you.

Make sure you use this handbook to help you get out of credit card debt. Heck, use it as a guide to get out of debt period!

Download this free ebook on how to pay off credit card debt.

Download it, save it, print it, and share it for free. The more people we can help with this information the better!