Freezing Your Credit

In the age of paperless transactions, identify theft is something that virtually all of us are susceptible to. If your identity is stolen, the consequences can be severe, and in some cases, can take years to recover from. One way to be proactive against fraud and defend yourself from identity theft, is to freeze your credit report with each of the three major credit bureaus—Experian, TransUnion, and Equifax. 

Placing a credit freeze on your credit report will stop identity thieves from being able to open new accounts, lines of credit, or make any large purchases in your name, regardless of whether or not they have your Social Security number or any other sensitive information. 

What a credit freeze means

A credit freeze is a process that shuts off access to your credit reports at your request. Without your verified consent, your delicate information cannot be acquired. This means that if someone were to attempt to apply for credit in your name, your report would come up as “frozen,” and therefore the creditor would not be able to see the information needed for the application to be approved.

You can unfreeze your credit at any time by using a PIN or a password. 

Reasons to freeze your credit

It might be a good idea to freeze your credit if you’re experiencing any of the following situations:

  • Your data has been compromised in a data breach: It happens. If you’ve been a victim of a data breach and personal information related to your identity has been leaked or made vulnerable to cyber criminals, a credit freeze can offer you some extra protection. 
  • You have reason to think you’ve been a victim of identity theft: Perhaps you’ve checked your credit recently and noticed open accounts that you don’t recognize. Maybe you’ve been getting phone calls from collections agencies requesting payments from accounts you know you didn’t open. While a credit freeze won’t be able to stop them from using accounts a thief has already opened, it can stop them from opening any more. 
  • You want to protect your child from identity theft: According to the Economic Growth, Regulatory Relief and Consumer Protection Act, parents and legally guardians of children 16 years old and younger have the right to open a credit account for their child with the sole purpose of putting a freeze on it to protect them from identity theft. 

How to freeze your credit 

The process of freezing your credit is simple but does require a few steps. You will need to get in touch with each of the three major credit bureaus one by one and request a credit freeze:

  • Experian: Contact by phone at 800-349-9960 or go to their website.
  • Equifax: Contact by phone at 888-397-3742 or go to their website.
  • TransUnion: Contact by phone at 888-909-8872 or go to their website.  

The credit bureaus will ask you for your Social Security number, your date of birth and other information to verify your identity.

Once you freeze your credit, your file will be unattainable even if a thief has sensitive information such as your social security number or date of birth. If you need to use your credit file, you can unfreeze your credit report at any time. 

How to unfreeze your credit

Once you’ve frozen your credit file, it will be remain blocked until you decide that you would like to unfreeze it. You will need to unfreeze your credit report in order to open a new line of credit or make a major purchase. 

Unfreezing your credit file is simple. All you will need to do is go online to each credit bureau website and use the personal identification number (PIN) that you used to place the freeze on the account. If you don’t want to complete this task online, you can also unfreeze your credit file over the phone or through postal mail. 

When the unfreezing process is done online or by phone, it is completed within minutes of submitting the request. However, if you send your request via mail, it will take much longer. 

Keep in mind that you don’t necessarily need to unfreeze your credit through all three of the major credit bureaus if you don’t want to. For instance, let’s say you plan to apply for credit somewhere. You can ask the creditor which credit bureau it will go through to pull up your report, and only unfreeze that one credit bureau. 

You may also have the option to unfreeze for a specific amount of time. Once the time is up, your credit file will automatically freeze again. 

Credit freeze pros and cons

There are a few reasons why you might want to freeze your credit in this day and age, but just like with anything else, there are pros and cons to credit freezing. Here is a general breakdown of the benefits and downfalls of putting a freeze on your credit report:

Pros:

  • It prevents thieves from opening new lines of credit: With a credit freeze placed on your account, no one will be able to open a new line of credit or any other type of account requiring a credit check using your personal data. Anyone trying to commit fraud will be stopped in their tracks as soon as lenders notice that the report is frozen. 
  • It won’t affect your credit score: Freezing your credit report will not damage your credit score. Additionally, if you’ve been a victim of identity theft, freezing your credit report could actually protect your credit score from being damaged due to fraud. 
  • It’s free: It used to be the case that some credit freezes would cost a fee, but that is no longer the way it works. 

Cons

  • It requires some effort: Putting a credit freeze on your credit report takes some effort. You will need to get in touch with all three credit bureaus. 
  • You will need to remember your PINs: A PIN is required to lift or freeze your credit report. If you lose it, you will need to jump through extra hoops to create a new one.

It can’t stop thieves from accessing your existing accounts: Credit freezes can only stop fraudsters from opening new accounts using your information. If you’ve already been a victim of identity theft, a credit freeze can’t block thieves from committing fraud with your current accounts. This means that thieves can still make a purchase using a credit card they stole from you.

Freezing Your Credit is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Unemployment Benefits Explained: Terms, Definitions and More

Since the start of the pandemic, mass unemployment has rocked the nation. To help mitigate the damage, two economic stimulus packages allotted unprecedented sums of money to create new benefits programs that assist people who are out of work.

Millions of newly eligible folks now have access to benefits. But the new programs put state unemployment agencies in a tricky position. They are receiving record-breaking surges in applications at the same time that they are tasked with creating and paying out brand new benefits. The result: overburdened websites, unclear instructions and lots of jargon.

Take, for example, this update to applicants on Arkansas’ unemployment website after the second stimulus package passed:

“Some extensions and changes to federal UI programs will include the reinstatement of the FPUC program, extension of PUA program and PEUC program for those who qualify,” the notice states.

After reading that sentence, you may have a couple choice acronyms yourself. Maybe, “OMG — WTH does that mean?”

“Understanding the difference with all these programs and acronyms is going to be confusing,” said Michele Evermore, an unemployment benefits policy analyst at the National Employment Law Project.

Our plain English guide will help you make sense of it all. Consider bookmarking this page and referencing it as you trudge through the process of getting your benefits.

The 2 Unemployment Programs You Definitely Need to Know

The overwhelming majority of people relying on unemployment benefits are receiving aid from two key programs. According to figures from the Department of Labor, more than 13 million people are collecting Unemployment Insurance and Pandemic Unemployment Assistance benefits.

These two foundational programs provide the bulk of unemployment aid through weekly payments. Once you understand the difference between them, a lot of the other programs will start to make sense.

Unemployment Insurance (UI)

Also referred to as Unemployment Compensation, UI is the longstanding benefits program run by each individual state. It’s for people who are out of work at no fault of their own. To qualify for UI, you have to have made a certain amount of money in the recent past  — typically from a W-2 job with an employer that paid into the unemployment system through payroll taxes. Specifics like previous employment duration or earnings vary.

Depending on your state, average UI payments are between $180 and $490 per week, according to the latest data from the Department of Labor. The duration of UI programs also depends on your state. They last between 12 and 30 weeks (without any extensions). The most common duration is 26 weeks.

Additionally, to collect UI, you have to be able to work, available to work and actively seeking work. Some states have waived the “actively seeking work” requirement during the pandemic.

Pro Tip

Use this tool from the Department of Labor to find your state’s unemployment website and start a UI claim.

Pandemic Unemployment Assistance (PUA)

Pandemic Unemployment Assistance is a new federal unemployment program. It’s up and running in all 50 states. The first stimulus package created PUA in March 2020. Throughout the pandemic, PUA has been a lifeline for tens of millions of jobless people who don’t qualify for regular UI benefits.

For the first time nationally, gig workers and freelancers, who are considered 1099 independent contractors, have been able to receive unemployment benefits through PUA.

Beyond helping those who were laid off, PUA offers benefits to people who can’t go to work or lost income due to a variety of coronavirus-related reasons. Some examples include contracting COVID-19, caregiving for someone who has COVID-19 or staying home to take care of your kids whose school closed due to COVID-19 lockdown rules.

Because PUA is a federal program, all states must offer it for a maximum of 50 weeks. The minimum weekly payments vary by state, however, because they’re calculated as half your state’s average UI payment. With average state UI payments between $180 and $490, you can expect minimum weekly PUA payments between $90 and $245 depending on your state.

Our guide to filing for Pandemic Unemployment Assistance includes an interactive map to help you find your state’s application rules.
A woman holds hands with her infant while looking for something on her laptop.

7 Quick Definitions to Important Unemployment Terms and Programs

Now that you have a better understanding of the two major unemployment benefits programs, let’s look at extensions, payment enhancements and other important programs that you may be eligible for.

Here’s a primer on seven key terms that you’re sure to come across as you apply for benefits.

CARES Act: The Coronavirus Aid, Relief and Economic Security (CARES) Act was the first coronavirus relief package passed in March 2020. It expanded unemployment assistance, authorized $1,200 stimulus checks and provided relief for small businesses, among several other things. Under this law, those who are partially or fully unemployed as a direct result of the coronavirus may receive up to 39 weeks of federal unemployment benefits.

CAA: The Continued Assistance Act, aka Continued Assistance for Unemployed Workers, is part of the $900 billion stimulus package that became law on Dec. 27, 2020. It extends many of the unemployment programs created by the CARES Act.

DOL: The federal Department of Labor oversees all states’ unemployment systems. Your state may have its own agency named the Department of Labor that administers its unemployment benefits. Generally speaking, DOL refers to the federal agency.

DUA: Disaster Unemployment Assistance is not Pandemic Unemployment Assistance. You may come across this long-standing natural disaster assistance program on your state’s unemployment website. Do not apply. Despite their similar names, they are very different.

EB: Extended Benefits are available in every state except South Dakota. EB is a state-level benefit that extends Unemployment Insurance by six to 20 weeks — depending on your state and your local unemployment rate. To qualify during the pandemic, you may have to exhaust a federal unemployment extension first. (See PEUC below.)

FPUC: Federal Pandemic Unemployment Compensation boosts unemployment benefits by $300 a week for up to 11 weeks between Dec. 27, 2020, and March 14, 2021. Anyone who is approved for at least $1 of unemployment benefits will automatically receive this bonus. No separate application or action is needed. This program previously paid out $600 per week under the CARES Act, but that version expired in July 2020.

PEUC: Pandemic Emergency Unemployment Compensation extends the length of Unemployment Insurance aid for a maximum of 24 weeks. The first stimulus deal extended UI benefits for 13 weeks, and the second stimulus package added an additional 11 weeks. New applicants (after Dec. 27, 2020) are only eligible for the 11-week extension. This program does not extend Pandemic Unemployment Assistance.

Adam Hardy is a staff writer at The Penny Hoarder. He covers the gig economy, remote work and other unique ways to make money. Read his ​latest articles here, or say hi on Twitter @hardyjournalism.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

By: L Maea

I did a payday loan for almost $4,000 and with the interest and fees it totaled almost $6,000. I could not repay after so long due to my spouse loosing his job. Tried to work with them and do some kind of payment plan. Efforts of that failed because she was a difficult person. The owner would call and text me at random times and threaten me and call me names. Finally I received a letter stating I owe $5000. 30 days later I received a letter stating I now owe $10,000. 30 days after that I received a judgement that my wages are going to be garnished for total amount of $10,600. What can I do to go after this loan company.

Source: credit.com

Credit 101: What Is Revolving Utilization?

Aerial view of a young woman with brown hair contemplating her revolving utilization. She has a pen in her mouth and an open notebook on her desk.

According to Experian, the average credit score in the United States was just over 700 in 2019. That’s considered a good credit score—and if you want a good credit score, you have to consider your revolving utilization. Revolving utilization measures the amount of revolving credit limits that you are currently using, and it accounts for a large portion of your credit score.

Find out more about what revolving utilization is, how to manage it, and how it impacts your credit score below.

What Is Revolving Credit?

To understand revolving utilization, you first have to understand revolving credit. Revolving credit accounts are those that have a “revolving” balance, such as credit cards.

When you are approved for a credit card, you are given a credit limit. If you have a credit card with a limit of $1,000 and you use it to buy $200 worth of goods, you now have a $200 balance and an $800 remaining credit limit.

Now, if you pay that $200, you again have $1,000 of open credit. If you pay $150, you have $950 of open credit. But your credit revolves between balance owed and how much open credit you have available to use. How much you have to pay each month—known as the minimum payment—depends on how much your balance owed is.

Other forms of revolving credit include lines of credit and home equity lines of credit. They work similar to credit cards.

What Isn’t Revolving Credit?

Unlike revolving credit, installment loans involve taking out a lump sum and paying it back in an agreed-upon fashion over a set term of months or years. Typically, you agree to pay a certain amount per month for a certain number of months to cover the amount you borrowed plus any interest.

With an installment loan, the amount of your monthly payment is determined by your loan agreement, not the balance due. Common types of installment loans include vehicle loans, personal loans, student loans, and mortgages.

What Is Revolving Utilization?

Revolving utilization, also known as “credit utilization” or your “debt-to-limit ratio,” relates only to revolving credit and isn’t a factor with installment loans. Utilization refers to how much of your credit balance you’re using at a given time.

Here’s how to determine your individual and overall credit utilization:

  1. Look at your credit reports and identify all of your revolving accounts. Each of these accounts has a credit limit (the most you can spend on that account) and a balance (how much you have spent).
  2. To calculate individual utilization percentage on an account, divide the balance by the credit limit, and multiply that number by 100.
    1. $500/$1,000 = 0.5
    2. 5*100 = 50%
  3. To calculate overall utilization (all revolving accounts), add up all of the credit limits (total credit limit) and all of the balances (total spent) on your revolving accounts. Divide the total balance by total credit limit, and multiply that number by 100.

If you have a credit card with a $1,000 credit limit and a balance of $500, your utilization rate is 50%, for example. For the same card, if you have a balance of $100, your utilization rate is 10%.

When it comes to your credit score, revolving utilization is typically calculated in total. For example:

  • You have one card with a limit of $1,000 and a balance of $500.
  • You have a second card with a limit of $4,000 and a balance of $400.
  • You have a third card with a limit of $3,000 and a balance of $600.
  • Your total credit limit across all three cards is $8,000.
  • Your total utilization across all three cards is $1,500.
  • Your revolving utilization is around 19%.

How Can You Reduce Revolving Utilization?

You can reduce revolving utilization in two ways. First, you can pay down your balances. The less you owe, the less your utilization will be.

Second, you can increase your credit limit. If you apply for a new credit card but don’t use it, you’ll have more open credit, and that can reduce your utilization. You might also be able to ask your credit card company to review your account for a credit increase if you’re an account holder in good standing.

Find the Right Credit Card for You

What Is Revolving Utilization’s Impact on Your Credit Score?

Your revolving utilization rate does impact your credit. It’s the second-largest factor in the calculation of your credit score. Your utilization rate accounts for around 30% of your score. The only factor more important is whether you make your payments on time.

Why is credit utilization so important to your score? Because to lenders, it can say a lot about you as a borrower.

If you’re currently maxed out on all your existing credit, you may be struggling to pay your debts. Or you might not be managing your debts in the most responsible fashion. Either way, lenders might see you as a riskier investment and be less inclined to approve you for loans or other credit.

How Do You Know If You Have a Revolving Utilization Problem?

Sign up for Credit.com’s free Credit Report Card. It provides a snapshot of your credit report and gives you a grade for each of the five areas that make up your score. That includes payment history, credit utilization, age of credit, credit mix, and inquiries. The credit report card makes it easy for you to see what might be negatively affecting your credit score.

You can also sign up for ExtraCredit, an exciting new product from Credit.com. With an ExtraCredit account, you get a look at 28 of your FICO scores from all three credit bureaus—plus exclusive discounts and cashback offers as well as other features—for less than $25 a month.

Sign Up Now

The post Credit 101: What Is Revolving Utilization? appeared first on Credit.com.

Source: credit.com

How To Add Positive Accounts To Your Credit Reports

Most people focus on removing negative items from their credit reports in order to improve their credit scores. While clearing up damaging items is an effective means of improving your credit score, you can also…

The post How to Add Positive Accounts to Your Credit Reports appeared first on Crediful.

15 Numbers You Need To Know To Make Smart Financial Decisions

The Wall Street Journal lists 15 important numbers that everyone should know to make better financial decisions. Here they are, broken down by category.

The post 15 Numbers You Need To Know To Make Smart Financial Decisions appeared first on Bible Money Matters and was written by Peter Anderson. Copyright © Bible Money Matters – please visit biblemoneymatters.com for more great content.

Source: biblemoneymatters.com

How Long Does It Take To Get a Credit Card?

Generally speaking, it takes seven to 10 business days to get a credit card once you’re approved. The specific amount of time can vary as many factors throughout the process affect how fast you receive your card. Getting approved can happen in a matter of seconds or days, depending on what kind of card you apply for. Whether you apply online or in person may also affect how fast you’ll receive your credit card in the mail.

How Long Does It Take to Get My Card in the Mail?

The longest step in getting a credit card is waiting for it to come in the mail. Shipping time frames can vary depending on which credit card you apply for. Here are the average time frames of many popular credit card companies today:

  • American Express: seven to 10 business days
  • Wells Fargo: seven to 10 business days
  • Discover: three to five business days
  • Capital One: seven to 10 business days
  • Bank of America: seven to 10 business days
  • Chase: three to 5 business days
  • Citi: seven to 10 business days

Unfortunately, the time it takes for the credit card to go through the mail can be impacted by many factors out of your control. You may get your card sooner than stated above, or later if there are external mail carrier issues.

How to Get a Credit Card Right Away

Unfortunately, most credit cards aren’t made available to you the same day you apply. Even though you can get approved for a card almost instantly, you must still wait for the card to come in the mail. However, credit card companies sometimes offer options to help speed up the process.

Most banks offer expedited shipping if you need your card delivered faster than usual. Depending on what type of card and bank you apply with, they may charge you an extra fee for this option. Some banks will make things easier for you by giving you your credit card number right after approval. This allows you to start making purchases while waiting for the physical card to arrive. American Express typically allows this with all of their cards to increase their user satisfaction.

What to Do If You Haven’t Received Your Card Yet

If you notice that you haven’t received your card after some time, reach out to your bank or credit card company. By reaching out, you minimize the risk of the card getting lost or stolen. Your bank may also be able to provide you with a temporary card while they sort everything out. Not all lenders, but if they do they may charge you an additional fee.

How To Apply for a Credit Card

To get a credit card, you must first apply either online or in person for approval. Receiving the credit card itself and waiting to be approved are two separate steps. Therefore, the time it takes to receive your card can vary from person to person.

What Do Creditors Look for in Applications?

Credit card applications typically ask for your personal information as well as your financial background. To determine your financial background, they’ll ask for your Social Security number and source of income.

Your Social Security number will allow the creditors access to your credit report. After close evaluation, you’ll either be approved or declined for the card. When looking at your report, creditors typically pay close attention to data such as your debt-to-income ratio, hard inquiries, and any delinquent accounts you may have.

What Do Creditors Look for In a Credit Report?

Your debt-to-income ratio refers to how much of your card’s limit is spent. Consistently using too much of your limit may cause creditors to view you as more of a high-risk borrower. Similarly, too many hard inquiries can make you seem risky. Finally, a delinquent account is another red flag. This shows that you may not have been paying off your credit card bills on time. Lenders won’t be as willing to approve you for a credit card if you have a history of account delinquency, as it’s not a good sign for them that you’ll be a reliable borrower.

Some credit card companies pre-approve users who they think may be a good fit based on a soft version of their credit report. A soft version of your report gives lenders a glimpse of your financial background, but won’t affect your credit score. When your report shows that you meet a few requirements, they’ll send a card in the mail for you to use if you apply. Receiving the card in the mail doesn’t mean that you are automatically approved. It just helps speed up the process of getting a credit card. Pre-approving users is a way companies market their cards to users, in hopes of them applying later on.

How to Build Credit With a Credit Card

When you use a credit card, you build credit simultaneously. The way you manage and use your card can have either a positive or negative effect on your credit score.

How Long Does It Take to Build Credit?

If this is your first time using a credit card, then you are most likely building credit from scratch. Building a credit score doesn’t happen overnight. It usually takes about six months or so to build enough credit to have a credit report. Beginning early can be of great benefit to you down the line. A major factor in the calculation of your credit score is the length of your credit history. The longer you’ve spent building your credit, the more of a positive impact it can have on your score.

Ways to Keep Your Credit Score Healthy

When using a credit card, it can pay off in the long run to follow some best practices. You can do this by having a good understanding of what exactly factors into your credit score. The following are good habits to establish for maintaining a healthy score:

  • Make on-time payments to avoid a delinquent account.
  • Aim to only use 30 percent of your credit limit at a time to show you can manage your card wisely.
  • Avoid applying to too many cards or loans in a short time, as it can result in a hard inquiry. Too many hard inquiries can be the reason you are getting declined for your financial requests.
  • Stay on top of monitoring your credit score and report, so you can identify any mistakes before it’s too late to fix.

Buildig Credit Best Practices

While the most common time frame for getting a credit card is seven to 10 days, it can vary from person to person. If this seems like a long time, try reaching out to your bank. They may be able to expedite shipping or give you access to your credit card number in advance. Each credit card lender is different, so it’s important to do your research before applying. Take a look at our guide on the best credit card offers to help start your search.

The post How Long Does It Take To Get a Credit Card? appeared first on MintLife Blog.

Source: mint.intuit.com

Does Paying the Minimum Hurt Your Credit Score

Credit card bills can be confusing. If everything was straightforward and clear, credit card debt wouldn’t be such a big issue. But it’s not clear, and debt is a massive issue for millions of consumers. 

One of the most confusing aspects is the minimum payment, with few consumers understanding how this works, how much damage (if any) it does to their credit score, and why it’s important to pay more than the minimum.

We’ll address all of those things and more in this guide, looking at how minimum credit card payments can impact your FICO score and your credit report.

What is a Credit Card Minimum Payment?

The minimum payment is the lowest amount you need to pay during any given month. It’s often fixed as a fraction of your total balance and includes fees and interest.  

If you fail to make this minimum payment, you may be hit with late fees and if you still haven’t paid after 30 days, your creditor will report your activity to the major credit bureaus and your credit score will take a hit.

When this happens, you could lose up to 100 points and gain a derogatory mark that remains on your credit report for up to 7 years. Making minimum payments will not result in a derogatory mark, but it can indirectly affect your credit score and we’ll discuss that a little later.

Firstly, it’s important to understand why you’re being asked to pay a minimum amount and how you can avoid it.

How Much is a Minimum Credit Card Payment?

Prior to 2004, monthly payments could be as low as 2% of the balance. This caused all kinds of problems as most of your monthly payment is interest and will, therefore, inflate every month so that every time you reduce the balance it grows back. 

Regulators forced a change when they realized that some users were being locked into a cycle of credit card debt, one that could see them repaying thousands more than the balance and taking many years to repay in full.

These days, a minimum payment must be at least 1% of the balance plus all interest and fees that have accumulated during that month, ensuring the balance decreases by at least 1% if only the minimum payment is met.

Do I Need to Make the Minimum Payment?

If you have a rolling balance, you need to make the minimum monthly payment to avoid derogatory marks. If you fail to do so and keep missing those payments, your account will eventually default and cause all kinds of issues.

However, you can avoid the minimum payment by clearing your balance in full.

Let’s assume that you have a brand-new credit card and you spend $2,000 in the first billing cycle. In the next cycle, you will be required to pay this balance in full. However, you will also be offered a minimum payment, which will likely be anywhere from $30 to $100. If this is all that you pay, the issuer will start charging you interest on your balance and your problems will begin.

If you spend $2,000 in the next billing cycle, you have just doubled your debt (minus whatever principal the minimum payment cleared) and your problems.

This is a cycle that many consumers get locked into. They do what they can to pay off their balance in full, but then they have a difficult month and that minimum payment begins to look very tempting. They convince themselves that one month won’t hurt and they’ll repay the balance in full next month, but by that point they’ve spent more, it has grown more, and they just don’t have the funds.

To avoid falling into this trap, try the following tips:

  • Only Spend What You Have: A credit card should be used to spend money you have now or will have in the future. Don’t spend in the hope you’ll somehow come into some money before the billing period ends and the credit card balance rolls over.
  • Get an Introductory Interest Rate: Many credit card issuers offer a 0% intro APR for a fixed period of time, allowing you to accumulate debt without interest. This can help if you need to make some essential purchases, but it’s important not to abuse this as you’ll still need to clear the full balance before the intro period ends.
  • Use a Balance Transfer: If you’re in too deep and the intro rate is coming to an end, consider a balance transfer credit card. These cards allow you to move your full balance from one card (or cards) to another, taking advantage of yet another 0% APR and essentially extending the one you have.
  • Pay the Minimum: If you can’t pay the balance in full, make sure you at least pay the minimum. A missed payment or late payment can incur fees and may hurt your credit score. 

Why Pay More Than the Minimum?

You may have heard experts recommending that you pay more than the minimum every month, but why? If you’re locked into a cycle of credit card debt, it can seem counterproductive. After all, if you have a debt of $10,000 that’s costing you $400 a month, what’s the point of taking an extra $100 out of your budget?

Your interest and fees are covered by your minimum payment and account for a sizeable percentage of that minimum payment. By adding just 50% more, you could be doubling and even tripling the amount of the principal that you repay every month.

What’s more, your interest accumulates every single day and this interest compounds. Imagine, for instance, that you have a balance of $10,000 today and with interest, this grows to $10,040. The next day, the interest will be calculated based on that $10,040 figure, which means it could grow to $10,081, which will then become the new balance for the next day. 

This continues every single day, and the larger your balance is, the more interest will compound and the greater the amount will be due over the term. By paying more than your minimum payment when you can, you’re reducing the balance and slowing things down.

Does Paying the Minimum Hurt My Credit Score?

Paying the minimum amount every month ensures you are doing the bare minimum to avoid hurting your credit history or accumulating fees. However, it can indirectly reduce your score via your credit utilization ratio.

Your credit utilization ratio is a score that compares the credit limit of all available credit cards to the total debt on those cards. It accounts for 30% of your credit score and is, therefore, a very important aspect of the credit scoring process.

The more credit card debt you accumulate, the lower your credit utilization rate will be and the more your score will be impacted. If you only pay the minimum, this rate will become stagnant and may take years to improve. By increasing the payment amount, however, you can bring that ratio down and improve your credit score.

You can calculate your credit utilization score by adding together the total amount of credit limits and debts and then comparing the latter to the former. A combined credit limit of $10,000 and a balance of $5,000, for instance, would equate to a 50% ratio, which is on the high side.

Can Credit Card Fees Hurt My Credit Score?

As with interest charges, credit card fees will not directly reduce your score but may have an indirect effect. Cash advance fees, for instance, can be substantial, with many credit card companies (including Capital One) charging 3% with a $10 minimum charge. This means that every time you withdraw cash, you’re paying at least $10, even if you’re only withdrawing $10.

What many consumers don’t realize is that these fees are also charged every time you buy casino chips or pay for some other form of gambling, and every time you purchase money orders and other cash products. 

Along with foreign transaction fees and penalty fees, these can increase your balance and your minimum payment, making it harder to make on time payments and thus increasing the risk of a late payment.

Does Paying the Minimum Hurt Your Credit Score is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

By: Angela Evans

I just received an advertisement letter from lawyers stating a recent lawsuit was filed against me. I went to that counties magistrate record search and saw there was a continuing wage garnishment for a daycare debt from 2001. I never knew of this debt or judgement until now and it is not on my credit report. I never received any notice about the debt verbally or in writing. The status of limitations in my state is 7 years. Is this even possible? What should I do?

Source: credit.com