Do not apply for too many credit cards even though you realize that they are important to have. Life in the modern time is almost unthinkable without the usage of credit cards. Credit cards are not only essential financial tools many do not have ready cash in hand but also facilitate transactions which are otherwise not possible without a credit card such as online shopping, hotel booking, buying airline tickets etc. However, you must bear in mind that you should plan out your credit card applications in a way that you do not apply for more credit cards than you actually require. If you have made a couple of credit card applications you should wait till you get the result of those applications. Applying for too many credit cards all at once in the hope of qualifying for at least a couple is harmful to your credit rating. Paying too many credit applications in a short amount of time is viewed as a risk by the credit scoring model. It signifies financial trouble of a person who is trying to make up for his lack of income by applying for credit. Somebody applying recklessly to credit signifies a person who is liable to get himself under a law to debt in a short amount of time and is thus a risk to the lenders.
If you have made a credit card application and it does not get approved you should typically wait a couple of months before making any more credit card applications. If you’re fairly confident of getting approved of the credit card application you should wait before you actually know if you have been approved or not. Do not apply for more than two credit cards at one point of time.
It is a general rule that a credit check for approval of credit card can lower your credit score by as much as five points. Apart from this having gas credit cards or stored credit cards such as Sears, Macy’s etc has the potential of lowering your credit score even further and by as much as 20 points or credit card. Hence, contrary to popular thinking credit card approval is not necessarily good for your score.
It is thus advised to always check the credit card features and apply for the ones that best it your needs. Store cards and gas credit cards are usually not advice since they only offer savings on shopping on a particular store but then the high interest rate on revolving balance can offset the advantage easily.
Apply for credit cards and seek approval only when necessary.
Although you may get tempted and it may seem exciting to apply for credit cards while the offer is presented, the practice is not healthy for your credit score. Keep your credit applications to the minimum especially if you ready to not need it. Having a higher credit score provides for benefit in the long run and when you need it rather than a credit card that you do not have a require.
A business credit card can affect your personal credit score if the name on the credit card is your personal name and not the name of the business.
If you are responsible for making the payment for that account then it is likely that even a business credit card is listed on your personal credit report even though the business reimburses you for the payment later. If only the business pays for the credit card then it is likely that the card appears only on the business credit report. The easiest way to find out whether a business credit card is affecting your personal credit score or not is to order a copy of your personal credit report and see if the account is listed there. If it is then, yes the business credit card and the transactions made on it are going to affect your personal credit score.
Even in the world of credit reporting there are certain trends and methods that keep changing over time. It was believed at one point of time that one should close unnecessary and unused credit accounts because they enhanced the perceived risk that the consumer poses to the lender. The credit scoring model is also considered this factor into their risk of calculation. It was believed that a consumer who had unused credit available to him was a high risk as he had the potential of running himself under a huge debt that could in turn cause him to default on his existing payments.
However, that thinking has evolved somewhat. Now what is considered more important is the debt utilization ratio. Debt utilization is the ratio between amount of credit that is available to the consumer and the amount he actually utilizes. Credit card companies and other lending institutions now recognize the fact that many consumers may have a lot of open credit card accounts owing to pre-approved offers that result in a consumer getting a lot of credit cards. While you should try and keep only those many credit cards that you require, once you have ended up having multiple credit cards, do not be in a rush to close these accounts even though they are unused. Doing so will increase your debt utilization ratio.
For example, if you have 4 credit cards each with a limit of $1000, then your total credit limit is $4000. Let’s say you use one or two of these credit cards and carry an average balance of $500 on each. Out of the total limit of $4000 you are utilising only $1000. This means your debt utilisation ratio as far as you credit cards are concerned is only can affect is only 25%. Now if you suddenly close 2 of your aunt used credit cards, your total credit limit available will become $2000 and your debt utilisation ratio will jump to 50%. This kind of a change in increase of the debt utilisation ratio does more harm to the credit score than having unused credit accounts open.
For this reason in the current times and in view of how much weightage credit scoring model gives to debt utilisation ratio, a consumer is usually advised to not close open and unused credit accounts.
Bear in mind that every situation is different. If you feel that having unused credit accounts is going to prove detrimental to your situation by being too much in the way of being a temptation to use than perhaps it is a better idea to cancel the extra credit cards. The idea is to have one or two credit cards that you use and a regularly in order to demonstrate your ability to keep and manage credit. If you feel the need to close extra open accounts in order to reduce clutter in your financial portfolio, then perhaps you can take that step. Just make sure that you don’t cause any sudden changes in your credit report right before you are planning to apply for a new loan or credit.
There are many ways in which you can let a friend use your credit card. You can either simply hand over the card to him, make him an authorized user on your credit card account or make him a joint account holder. Either of these scenarios should be considered carefully and after much thought as you risk potential damage to your credit score and credit report in case your friend charges your credit card but does not pay as agreed. Since you are the primary account holder as well you are liable for any debt that he runs up on your credit card in spite of whatever understanding you might have had with him about the repayment. Whether he is a joint account holder or whether you just gave him your card for use on a personal understanding you will need to make the payment of the debt in case he does not to avoid damage to your credit score and negative information of non-payment being reported to the credit bureau.
As for the legal recourse that is available to you you should consult an attorney as to your rights under the situation. In case your friend has used the credit card to make purchases and has refused to make the payment as earlier agreed you might have the option of sewing him in the court recover the money or repossess the items that he chased using your credit card. On the illegal professional can best advise you if you have any authority to claim money or the goods you find a chased using your credit card.
Having unauthorized user on your credit report will not have an effect on your credit score even if the authorized user has a poor credit history.
All credit histories are maintained on an individual basis and only the accounts that are jointly held included both the joint account holders credit reports.
The only effect of having unauthorized user on your credit card will be the inclusion of the concerned account in the authorized users credit report. No inclusion of their credit report or any other kind of association will be made in your credit history as the primary credit card holder.
As to whether or not the inclusion of the authorized account in the credit history of the authorized user will help his/her credit score, the answer is no.
Credit scoring model is no longer considered authorized user accounts in the calculation of the credit score. Owing to the views of authorized user accounts in the past with the practice called piggybacking where one would take advantage of a person’s good credit report to boost their own, the credit score is no longer include data from the authorized user accounts when determining a consumer’s credit score.
While the poor history of unauthorized user will not impact your credit history the risk comes in the fact that the authorized user might make the charges that he or she cannot afford to pay back the thing you liable to make the payments. In case these payments go unpaid and are reported as late than that information will find its way on your credit report and hurt your credit scores.
We have spoken about how debt settlement usually works in a previous column. A debt settlement company might advise you to delay your credit card payment for more than 90 days in order to give you a leverage while negotiating with your creditors. They may also promise that your credit score will not be affected once you have settled the debt along with promising to have the negative information removed from your credit report.
None of this is true. While it is possible for a debt settle meant company to settle the debts with your creditors after you have withheld payments for more than 90 days, to expect your credit scores to benefit from such a transaction would be wrong. Nor can a debt settlement company remove accurate negative information from a credit report.
It is possible for a debt settlement company to resolve some of your debts with your creditors. If they do not charge an upfront fee they will probably pocket the first few payments that you make towards your debts. After that they will accrue to the remaining payments in an account to do it has grown to a sizeable amount. They will not make any payment to your creditors in all this time. Once the payment to your creditors has been substantially delayed which could be anything up to 180 days, they will begin to negotiation with your creditors. Using the accrued amount in the account they will try and such is the account for a one-time single lump sum payment.
What has happened during this whole process is that your creditors have reported your account as late and delinquent to the credit bureau. Once this negative information finds its way on your credit report it will stay there for a period of seven years and continue to impact your credit score. Even if the debt settlement company manages to settle the debt whether the creditors, the debt will be reported as ‘settled’ rather than ‘paid’ which has a severe negative impact on your credit score. Not only will your credit rating go down but any future lender that sees this information on your credit report will seriously doubt your credit worthiness and your ability to pay off future credit. A settled account means that you did not pay the lender what you had initially agreed upon. It becomes difficult for lenders to trust consumers that have used debt settlement in the past and approve them for further credit.
However, other options like debt management plan and credit counseling viewed favorably by several creditors. In fact certain credit scoring models such as the FICO score claims that it does not consider being in a debt management plan into its credit score. Certain banking institutions like Citibank claim that they view a consumer enrolled in that management plan as a positive sign of a consumer trying to get his finances back in order and cultivate responsible credit habits. A legitimate credit counseling agency will never advise you to miss your payment. In fact they may be able to identify methods by which you can get out of debt without having to enter into a debt management plan. If however you do need a debt management plan to pay off your existing debts than they should be able to work out a lower rate of interest enabling you to pay off more of your debts every month. There are legitimate agencies that offer budgeting and debt management services for free or at a minimal cost.
If you have unpaid credit cards, unpaid medical bills or other kind of unsecured debts than these must be paid off before considering to take on a mortgage for a home. For one, being able to qualify for a mortgage on our home requires a person to have a good positive credit history along with a good credit score. Unpaid credit card bills and medical bills is an indicator of mismanaged credit and indicator of risk to the lenders. You should be concentrating on addressing these issues before applying for the mortgage on home.
Taking mortgage to buy a house is a serious responsibility. A mortgage loan involves a large sum of money and should be undertaken when you have a clear and a concrete plan for the payment. Incoming further large debt that they already have a debt problem may result in the development of on present circumstances such as foreclosure of the home loan.
Buying a home not only brings the responsibility of paying off the mortgage loan but also requires additional funds for maintenance and improvements. There is mostly money required for emergencies like repair work, broken plumbing, a new furnace or more medical bills. All these things require a cushion of savings as well as establishing a sound budget. Establishing a budget from today will help you save money not only pay off your existing debt but to save enough for extra expenses that come with purchasing a home. Budgeting can be a difficult process as it should be done on an absolutely realistic basis where you match your expense with your actual income. You identify your absolute needs and requirements and do away with expenses on commodities that you want but do not actually require. There is a fine line between what you need and what you want and many people do away with that difference when they have money available to them on credit. Making non-essential expenses beyond what your actual income permits is what gets people under debt.
Various organizations, city governments, community colleges and non-profit credit counseling agencies offer assistance to people who require with the budgeting and the management. Once you have the budget ready and you need to stick with the plan and the your current debts off. Pay off your credit card debt and here medical bills starting with the credit card debt if that is smaller.
Once you are debt free your credit scores will most likely to have improved owing to improve financial management, giving you a better chance to qualify for the mortgage loans to purchase a house.
There is one obvious advantage of using an installment loan with the low APR to pay off a credit card with a high rate of interest. The foremost advantage will be that your monthly payments are likely to reduce owing to the lower rate of interest. You will have a fixed installment to pay every month. This will reduce the monthly financial burden to you and is an advisable course to take if the monthly payment on your credit card debt is something that you can no longer afford to pay. Using an installment loan to pay a credit card debt may be the only way to get out of debt while being able to meet your other expenses as well.
The question whether you will save any money in the long run by using the installment loan to pay a credit card depends on the tenure of the installment loan. It is typical for a closed ended installment loan to have a longer duration. While the longer tenure of the loan also helps in reducing the amount of monthly installments the amount that you end up paying by the end of it may not be much different than what you would have paid if making the payments directly onto your credit card.
For example, if it takes you three years to pay off a credit card making a payment of $300 each month it will cost you $10,800 to pay off your debt. If the payment for the installment loan is $200 per month owing to the lower rate of interest and it is repaid in the same period of time you will say $3600. However if it takes you five years to pay off the installment loan at $200 per month you will end up paying $12,000 to repay your loan. So at the end of the day while an installment loan will decrease your monthly installments each may or may not save money in the long run.
You can use the debt repayment calculator to get a better idea of where you stand in which option to take to pay off your credit card rate at a given rate of interest.
It is advised to proceed with great caution whenever opening a joint credit card account with someone you are in a relationship with. While at the time it might seem like a good idea since you are very much in love and expect it to last forever, when the relationship ends you are left in a difficult position with no real legal recourse on unpaid credit card debt.
If you have a joint credit card with an ex-boyfriend or an ex-girlfriend you are just as responsible for the debt on the credit card even if you did not make the charges. When you cosign on a credit card as a joint account holder, the contract does not consider the nature of the relationship as pertinent to the terms and conditions which make you just as responsible to pay off the debt as the primary credit card holder.
If the relationship has ended and you are faced with a debt on the credit card non-payment will hurt your credit score as well as the joint credit card account will be reported on your credit reports as well. Negative information concerning nonpayment or a delinquent account will stay on your credit report for seven years and hurt your credit score for months or years.
Having ended the relationship with your boyfriend girlfriend does not provide you with a legal recourse to do away with the debt. If the other person has not paid off the balance and cannot be located then you should call up the credit card company and let them know what happened. Ask for the advice which in most cases will be to pay off the balance. This may be the only way for you to prevent damage to your credit score. Ask the credit card company to close the account if possible after payment.
In case you cannot pay the full amount try and settle the account with the credit card company and requested to be closed so that the balance does not increase and further charges cannot be made on it by your ex-boyfriend or girlfriend. Both missing the payments and settling the account will hurt your credit score differently but it will put an end to the debt from where on you can continue to build a positive credit history.
There is no limit on the number of credit cards that you can have as long as the creditors are willing to approve your application. This does not mean however that it is a good idea to continually keep applying for credit. Apply for a number of credit cards that you feel you might need and not beyond. Two things are important with credit cards.
The total amount of credit available to you with all the credit cards combined and the amount of balance that you carry. Out of this the amount of balance that you carry is of a lot of importance. A high balance has compared to the credit limit is a sign of a higher credit risk.
While the credit scoring model considers low debt utilization ratio as favorable, a large amount of available revolving credit may deter certain lenders from extending you further credit.
This is especially true if your credit report reflects previous problems with meeting the payments on time. A lender will think that you can go ahead and charge of the unused credit accounts at any point of time and get yourself under more debt thus making repayment even more difficult.
So what you need to do is balance your debt utilization ratio with what the lenders might consider to be surplus revolving credit.
If you already have several credit on accounts open, you should consider getting a copy of your credit report and a credit score before applying for new credit cards or closing any of the credit card accounts. But using a credit score will provide you with detailed explanation of the factors that are influencing your credit score negatively and positively. You will be able to see clearly whether having surplus credit card accounts is damaging your credit score or not.
You must also make note of the fact that every time you apply for credit card and the lenders will probably make a request to see your credit report to the credit bureau. This request would be reported as an enquiry. Each subsequent lender that apply to receive this enquiry and will know that you have applied for credit elsewhere as well. Having too many enquiries for credit in a short amount of time can also affect your credit score as it is an indicator of financial trouble. Too many lenders it may mean that you are trying to incur a lot of debt which could be a potential problem in your application getting approved.