Your Credit Affects More Than Just Your Finances

30. October 2012 · 2 comments · Categories: Career, Financial Health, Insurance, Relationships & Money · Tags: , , ,

Isn’t this recession supposed to be over?

Millions of Americans continue to have their credit trashed as this unofficial recession drags on. According to FICO, a quarter of Americans now have a credit score below 600. Late payments, foreclosures and even mistakes on our credit reports have taken their toll.

Use this as an excuse to check your credit report and dispute any errors.

If you’re not buying a house or applying for a credit card anytime soon, you may think you’re in the clear. The truth is, your credit affects more than just your ability to get a loan or credit card.

Here are six areas of your life that are affected by bad credit:

1. Relationships First, and perhaps most surprising, having bad credit might affect your relationship with your spouse. To all you guys out there listening to your wives complain about how dingy your apartment is and how much she wants a house, you need to get your (financial) lives together. Do it for your marriage, your sanity, whatever. Your credit needs to be in good shape so you can get her that house someday.

Maybe those who need to worry most are the ones who aren’t married yet. I’ve heard stories about one person calling off the engagement after finding out the other’s debt level.

Whether you like it or not, debt attaches to you like a parasite. It is part of who you are. If you owe big bucks, you have a greater chance of falling behind on payments. And when that happens, your credit is trashed. That may make you look unattractive to your future mate. Don’t say I didn’t warn you.

2. Career It’s now common knowledge that having bad credit affects your ability to get a job. The most recent report I saw said that 47% of employers use credit checks to screen potential employees.

Personally I think this is a terrible idea. Credit reports are not good indicators of character or ability to do the job. The only reason employers should be checking your credit is when the job specifically deals with money.

3. Renting an Apartment Every apartment complex I’ve ever applied to live at has checked my credit. For good reason – you’re signing up to pay them over $10,000 a year in many cases. Your landlord wants an idea of how you’ve handled bills in the past.

An extra perk: I once had a landlord waive the security deposit because I had good credit. So make sure to negotiate when signing the lease.

4. Getting Insurance Car insurance companies think that those with bad credit are more likely to cause an accident. Baloney. In some cases they may outright deny you coverage, but it’s more likely that good credit will earn you the best rates. I’m not sure why, that’s just the way they play.

Homeowner’s and renter’s insurance works the same way. These companies believe that you’re more likely to set your house on fire if you have bad credit. You need good credit to play their game and get the best rates.

5. Setting up Utilities If you think about it, utility companies (water, electric, gas, etc.) extend you credit every month. They provide you service then bill you after the fact. If you have bad credit you may be required to pay them a larger deposit to open your account.

6. Cell Phone Service In today’s world it’s difficult to function without a cell phone. Similar to utility companies, cell phone providers bill you for service you’ve already used. Before they let you sign up for an account, they pull your credit. They just want to know if they’ll get their money each month.

Photo by about.com/careers

Ripoff Alert #9 – Credit Repair Edition

29. June 2012 · 7 comments · Categories: Financial Health, Scams & Ripoffs · Tags: , , , , ,

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Credit Repair

It seems like every time I watch late night TV, the ads for these outfits appear in droves.

You’ve heard the pitch: In exchange for a fee, they promise to remove the black marks from your credit report.

There are several variations: “We can raise your score 200 points in just weeks!” or “We can settle your credit card debt for pennies on the dollar!” There’s also the one about reducing the amount you owe to the IRS.

There are hundreds of organizations making promises like this, but they all have one thing in common: They’re just trying to rip you off.

The Federal Trade Commission is actively trying to shut down these criminals. But their efforts are mostly in vain because as soon as one is taken down another one pops up to replace it.

The truth is, repairing your credit takes time. Not weeks, but months and often years depending on what you have going on.

Don’t be fooled by these scam artists who try to get you to believe your credit can be repaired in the snap of a finger.

Here are three things you can do yourself to raise your credit score:

1. Pay every bill on time (35% of your score)

2. Don’t use more than 30% of your available credit (30% of your score)

3. Keep accounts open after you’ve paid them off (15% of your score)

Consistently doing these things will start improving your score in as little as 6 months.

Bonus tip: Use Credit Karma to watch your progress and monitor your credit score as often as once a day.

Should you close a credit card you never use?

16. December 2011 · 1 comment · Categories: Credit Cards, Financial Health · Tags: , , , ,

Say you got a credit card five years ago and you used it a lot during the first couple of years. But you haven’t used it since then and are thinking of closing the account. Should you do it?

You might think that by closing an account, you’re simplifying your life and improving your credit score. You may be right about the first part, but closing a credit card account, especially if it’s an older one, will actually harm your credit score in two ways:

It reduces your available credit, which pushes up your credit utilization ratio. This is a fancy way of saying that you are using too much of your available credit. Your credit utilization ratio accounts for 30% of your credit score. Because this is so important to your score, many experts recommend keeping your balances below 30% of your available credit. For example, if all of your credit limits add up to $10,000, you wouldn’t want a total balance of more than $3,000. But I recommend keeping your ratio at 20% or below to give yourself some breathing room.

It also reduces the average age of your accounts. This makes up a smaller, but still significant portion of your credit score. If you close a recently-opened card it won’t harm your score much. The bad news comes when you close an older account — this can reduce your average age of accounts considerably. Creditors like to see accounts that have been open a long time with a solid payment history. So if you close your oldest account you eliminate a portion of your oldest account activity.

The exception to this rule is a card that carries an annual fee. Especially if you don’t use the card regularly or get rewards from it, it may make sense to close it to avoid paying the fee. Before you do this though, apply and be approved for a second major credit card. You always want to have at least two major credit card accounts open.

A final tip: Use each of your credit cards at least twice a year. Even a $1 pack of gum every 6 months will do the trick.  This keeps them active in your credit mix and helps your overall credit score.