Tag: build credit

Build Your Credit with Do-It-Yourself Credit Tricks

Posted on January 26, 2012 by - CREDIT SCORING


Okay. You want to build your credit score, but you don’t want to pay a bundle.
Here are a few tricks that will help turn a bad score into a good credit score.
An obvious place to start is with your credit cards.
Here’s a little trick that can really boost your FICO score. (By the way, even though it’s perfectly legal, not one consumer in a thousand knows this technique.)
Most credit cards have a limit: a maximum credit line.
You are allowed to borrow against that credit line up to the maximum amount.
But, you should NOT!
Why not?
Lenders don’t like to make loans to consumers who are constantly “maxing out” their credit cards, because they consider them spendthrifts.
In fact, if the balance on any one of your credit cards is more than 30 percent of the credit line, your FICO score will be penalized.
So how do you reverse that trend … and raise your FICO score?
Here are two easy methods that work and won’t cost you a dime:

  • Transfer balances from one credit card to another, so that none of the balances exceed 30 percent of the credit limit. If necessary, obtain another credit card and transfer some of your balances to it. (But keep in mind that you should never have more than five credit cards, and that you should transfer your balance after you have secured the credit card and know the limit.)
  • Ask the credit card companies to increase your credit limit so that your current balance falls under 30 percent. If you can get the credit card company to raise your limit from $10,000 to $25,000, then you can safely borrow up to $7,499 – and not just $3,000 – on it without jeopardizing your credit.

Now here’s another trick …
You probably don’t know this, but credit card companies routinely under-report the limits on their customers’ credit cards – or, even worse, don’t report them at all. Let’s say your true limit is $10,000. The credit card company might report your limit as only $5,000 to the credit bureaus .
So if you have a $4900 balance, you appear to be “maxing out” the credit card, which will hurt your score.
Why do credit card companies do this? Because it keeps their competitors from offering you other cards.
When competing credit card companies see high limits from another card issuer, they have found credit-worthy borrowers whom they can solicit through the mail.
On the other hand, customers with low limits are not as desirable.
So many credit card companies report incorrect limits just to protect their customer base. But this could be hurting your credit score by causing the bureaus to think you are closer to maxing out your cards.
So what should you do? Simple: Just check your credit report to make sure the bureaus have the correct information. If not, call your credit card company and tell them they must correct the mistake – knowingly reporting incorrect limits is illegal. If you raise heck, the credit card companies will report the correct information.
– Philip Tirone

Married or Engaged? Here's the 411.

Posted on September 22, 2011 by - CREDIT BLOG

One of my readers recently sent me a great question:
“If I marry someone who has declared bankruptcy this year, will it lower my credit score?”
She went on to say that her credit is currently golden. So when she marries her fiancé, what is going to happen to that great credit?
It’s a common worry, but the good news is that you and your spouse will retain separate credit files. Marrying someone with bad credit won’t hurt your credit in and of itself. And if you are already married to someone who experiences credit issues, your score will not be affected, so long as you protect yourself.
It works like this: If Joe has a credit card in his name only, his credit score will suffer if he makes a late payment, but his wife Jane’s credit score won’t be affected at all. But if Jane and Joe have a joint credit card, and Joe makes a late payment, both of their scores will suffer.
This is one of the reasons I always tell married people to keep separate credit files. This way, if one person in the marriage defaults, the other spouse still has strong credit, which the couple can then leverage. But if you have joint credit cards, mortgages, and car loans, what one person does on those accounts WILL affect the other person.
So no need to worry about your fiancé’s past mistakes. There’s no way it will hurt your credit score. But to protect yourself from any future credit problems, I strongly suggest that you don’t open joint accounts with your soon-to-be spouse. Instead, have him apply for secure credit cards and start the process of repairing credit after bankruptcy.
– Philip Tirone

10-Minute Pocket Guide to Build Credit: A Free Report

Posted on August 12, 2011 by - CREDIT SCORING

Want a crash-course in how to build credit? Then review this “10-Minute Pocket Guide” every six months or so. I know it’s not really small enough to fit in your pocket … I call it a pocket guide because it’s short. In 10 minutes or less, you can be reminded how to build a 720 credit score.

Step 1: Keep your credit card balances under 30 percent of your credit limit.
To increase or maintain your credit score, your balance on any one credit card should be no more than 30 percent of your limit. For instance, if you have a $10,000 spending limit on your Visa card, keep your balance at no more than $3,000, even if you pay your credit cards in full each month. The debt you carry on a credit card in proportion to your balance is called a “utilization rate,” and credit bureaus respond more favorably if your utilization rate is low.
If your utilization rate is too high, do one or more of the following:
1.     Transfer funds among your credit cards so that each card has a 30 percent balance or less; and/or
2.     Pay off any debts that put your balance above 30 percent of the limit; and/or
3.     Ask your credit card company to increase your limit so that your balance is less than 30 percent; and/or
4.     Open another credit card account and transfer balances accordingly (but only after reading STEP 2).

Step 2: Have at least three revolving credit lines.
Credit bureaus give higher scores to people with at least three revolving credit card accounts, which include major credit cards such as Visa, MasterCard, American Express, and Discover. If you do not have at least three active credit cards, you should open some.
If you have poor credit, you might not be able to open a typical credit card. In this case, consider opening a secured credit card. Lenders that offer secured credit cards will require you to make a deposit that is equal to or more than your limit, thereby guaranteeing the bank that you will repay the loan. If you do not make your monthly payment, the deposit is applied toward your balance.
Another option for borrowers with poor credit is to be added as an authorized user to an existing account in good standing.

If you have more than five credit card accounts, do not close the accounts. Most credit experts agree that once you have opened the excess accounts, the damage is done. In fact, closing them might hurt your score and will never help it.

Step 3: Verify the accuracy of your reported credit limits.
Credit card companies often fail to report your credit limit, or they report a lower limit than you have. This causes your utilization rate to be reported as higher than it actually is, which degrades your credit score.
Why do credit card companies fail to report correct credit limits? They do not want to lose their client base. If other companies see that you have a high limit and a positive credit score, they might solicit your business. By failing to report the correct credit limit, credit card companies keep your name off mailing lists and better retain your business.

If your credit limit is not listed on your credit report, or if it is inaccurate, contact your credit card company and ask it to correct the mistake. Follow up with the credit card company by sending a letter. If you are still having problems getting the proper limit reported, contact the credit bureaus directly, send copies of your statements, and ask that they make the proper corrections.

Step 4: Have at least one helpful active or paid installment loan on your credit report.
Having a healthy mix of credit is a great way to increase your credit score. Therefore, to maximize your credit score you should have at least one installment loan, a mortgage, and three major revolving credit cards (Visa, MasterCard, American Express, or Discover). Typically, an installment loan is used to purchase a car, but it also can be used to purchase a computer, furniture, or major household appliances.
Make your installment payments on time. As helpful as an installment loan can be to your credit rating, it can be equally harmful if not paid on time.

Beware of harmful installment loans—those that delay payment on an item for more than 30 days. This type of credit will always hurt and never help your credit score.

Step 5: Remove high-priority errors from your credit report.
An error can be as simple as having the wrong address or name listed on an account. It can be a limit that is not listed. It could be investments you did not make or accounts you do not own. People with accounts in collection often have duplicate collection notices reported for the same account.
Errors come in two forms: high priority and low priority. By removing high-priority erroneous information from your report, you could see your score jump 20, 50, or even 100 points!
Beware, however, of spending too much time on this step. Errors that are older than two years are likely not hurting your credit score that much. As well, do not waste your time correcting low-priority errors. Faster, more efficient ways to increase your credit score are described in the other six steps.

High-Priority Errors Low-Priority Errors
Active collection accounts less than two years old and listed more than once Incorrect address of a mistake in your address (low priority, unless you think you might be a victim of identity fraud or a victim of merged credit reports)
Someone else’s Social Security number or a mistake in your Social Security number (this could indicate that you are a victim of identity fraud, or this could result in your credit report being merged with another person’s report) Wrong date of birth (low priority, unless you think you might be a victim of identity fraud)
Someone else’s name or a mistake in your name (this could indicate that you are a victim of identity fraud, or this could result in your credit report being merged with another person’s report) Other incorrect information, such as your employer
Accounts that do not belong to you Typos in your account numbers (low priority, unless you think you might be a victim of identity fraud)
Mistakes in your payment history that occurred within the past two years Mistakes in your payment history that occurred more than two years ago
Accounts in good standing that are not listed in your credit report Delinquencies older than seven years
Incorrect credit limits
Collection notices that are not yours
Account information—other than duplicate collection notices—listed more than once (high priority if the account is harming your credit; low priority if it is helping your credit



Step 6: Negotiate before paying a bill in collection.
Paying off a credit card after it has been in collection might further damage your credit. Bills that have been turned over for collection affect your score only minimally after two years and are all but erased after four years. Collection notices do remain on your credit report, but they affect your credit score only slightly. However, each time you make a payment on a bill in collection, your credit score will be damaged, and it will extend the amount of time the item stays on your credit report.

If you have a bill that has been in collection, you should not pay it until you get an agreement from the creditor or collection company to submit a letter of deletion to the credit bureaus asking that the derogatory item be wiped from your credit report. When negotiating for this letter, you should never admit that the debt belongs to you.

Step 7: Create a structured plan to protect your credit.
Your credit report changes daily. Once you have started to build good credit, you will need a plan for maintaining it. Otherwise, your good credit can turn into bad credit before you can say FICO. Once you have completed STEP 1 through STEP 6, develop a plan to maintain your credit, as described below.

Create a budget and spend frugally. Make sure you are never late on payments and that you can keep your utilization rate below 30 percent.

Use technology to keep your bills current. Set up automatic payments on all bills that you pay regularly. This way, you will never forget to pay these bills, and your credit will be protected.

Review your credit card bills and bank statements monthly. Check the limit and interest rate and adjust your balance accordingly. Review your credit card and bank statements and compare against purchases you’ve made. If you notice any unfamiliar items on your credit card statement or bank statement, immediately contact the credit card company or bank to determine whether you have been a victim of identity fraud.

Pull your credit report regularly and review the POCKET GUIDE. Contrary to popular belief, if you request your own credit report, you will not hurt your credit score, so request it freely. In fact, the worse your credit, the more often you should pull your credit report. After receiving your credit report, review the POCKET GUIDE and modify your plan accordingly. Make sure that no new derogatory information has been added to your credit report. Also make sure that previously corrected errors on your credit report have not resurfaced. Check for any indications that you have been a victim of identity fraud. For instance, look for names, Social Security numbers, and accounts that are not yours.

Cash-Only Is Dead Wrong

Posted on July 9, 2011 by - CREDIT BLOG

Many so-called experts say that if you want to build credit, you should adopt a cash-only policy. But here’s the truth …
They are dead wrong.
Avoiding credit won’t make life easier. In fact, it will make life a heck of a lot harder.
If you adopt a cash-only policy, you won’t be able to build credit. In fact, you’ll end up with no credit. And no credit is just as bad as poor credit.
You see, the credit-scoring bureaus want to see that you can responsibly handle many different types of credit before they award you a good credit score. If you don’t accumulate a proven track record, you won’t get a good credit score.
This is why I always say that having no credit score is just as bad as having a poor credit score.
No credit score means …

  • You’ll have a hard time getting great insurance premium rates.
  • You might be unable to find a job.
  • Landlords might not want to rent to you.

And if you ever need a loan (and you probably will!), you will get lousy terms and pay an arm-and-a-leg in interest.
Most likely, the banks are spreading vicious rumors!
Here’s the cold-hard truth …
The banks have intentionally kept consumers in the dark about credit scoring.
The banks fare better if your score is lousy. Simply put, the lower your credit score, the more you will pay in interest.
But what if you learned all the secrets and beat the banks at their own game?

Click here for an article I wrote about the biggest misconceptions of credit scoring. And feel free to pass the article on.
Oh, one last thing. Here’s a pop quiz …
Is the following statement true or false?
“If you shut down some of your credit card accounts, your score will go down.” Click here to read the full answer.

Teaching Children About Credit: An Introduction

Posted on June 6, 2011 by - CREDIT BLOG

I’m about to say something about teaching children about credit cards. And you are probably going to think I’m crazy.
Here goes …
If you have teenage children, you should give them access to your credit accounts.
Now, I know what you are thinking …
What? My teenagers can’t even pull their pants to their waists, much less manage credit responsibly.
And this is exactly why I think you should give kids access to your credit accounts.
Because most minor children never buy homes, apply for lines of credit, or purchase cars with installment loans, most have no credit. And credit bureaus assign really terrible credit scores to people with no credit. In some ways, no credit is just as bad as poor credit.
So if your kids go out into the real world without first establishing credit, they will pay higher car insurance premiums, and they will pay higher interest rates on their first car loan and credit cards. Landlords might not want them as tenants (or you might be required to co-sign), and some employers might not hire your kids.
In other words, your children will be at a disadvantage when they leave the next.
So while I might sound a little crazy for suggesting that you give your teenager access to your credit, weigh the dangers associated with not teaching children about credit cards.
Teaching Children About Credit? If you aren’t, here is Danger Number 1:
As soon as they become adults, your kids will be heavily solicited by credit card companies. They will receive offers for credit cards with astronomically high interest rates and fees. Your kids might walk by booths on their college campus, pick up a credit card application, fill it out, and agree to lousy terms with interest rates that will cost them an arm and a leg.
Teaching Children About Credit? If you aren’t, here is Danger Number 2:
If your kids don’t know about credit cards, and have experience using them, they will likely try to establish credit by using methods that don’t work. So they will end up with lousy scores, and overpay on car loans and credit cards. And, like I said, they might even be turned down for job opportunities.
Teaching Children About Credit? If you aren’t, here is Danger Number 3:
Guess who your kids will turn to when they need financial assistance? Probably you, the parent. And if they are paying high interest rates and unschooled in debt management, they will likely need to borrow money from you.
But as the old adage goes, if you give them the tools to fish and teach them how to fish, you will never need to give them fish again.
Over the next few weeks, I’ll take you through my seven-step plan for teaching children about credit! Stay tuned!

Build Your Credit Score in Five Minutes

Posted on May 18, 2011 by - CREDIT BLOG

Want to know how to build your credit score in just five minutes?
I’ve got an easy tip that you can accomplish in about five minutes…
Ask your credit card company to increase your credit limit. This will lower your utilization rate and, as a result, help you build your credit score.
You see, the credit-scoring bureaus place a lot of emphasis on your balance-to-limit ratio (also known as your utilization rate). The lower your balance as a percentage of your limit, the higher your credit score will be. Credit bureaus prefer that your utilization rate is never higher than 30 percent, meaning that if your credit limit is $1,000, your balance is never more than $300.
So when a credit card company increases your limit, be sure you do not increase your balance.
A lot of people worry that asking for a limit increase will hurt their credit scores. While it is true that your credit card company might need to pull your credit report, the credit inquiry will hurt your score only nominally, and only for a few months. In the long run, the limit increase (coupled with a balance that stays the same or decreases) will help build your credit score.
And in some cases, you might be able to ask for a limit increase without having an inquiry added to your credit score.
If you are worried about adding another inquiry to your credit request, ask the credit card company these three questions before making a request for a limit increase.
1. “Do I qualify for a limit increase without having you run my credit report?”
If you do, simply ask for the full amount you want your limit increased to. If the creditor wants to run your credit report, remember that an inquiry will be added to your credit report, and your score will drop slightly. Ask the next two questions and decide whether you want to take the chance or not. Like I said, if your request is granted, the inquiry won’t matter because the limit increase will help your score in the long run. But if your request is denied, your score will suffer for a few months.
2.     “Can I request the maximum increase, or must I provide you with a specific limit request?” If the creditor requires that you provide a dollar figure to which you want your limit increase, you will need to ask the third question. If not, you can request the maximum increase.
3. “If I request too much, will you deny the request completely, or will you make a counteroffer?”
If asking for too much means that creditor will deny the request completely, you might want to start by requesting a 10 percent or 20 percent increase, especially if your credit report is going to be pulled. If the creditor will make a counteroffer, request the full amount you need to raise your limit enough so that your balance is less than 30 percent.
If your request is denied, your score might drop a little due to the inquiry. But don’t worry too much about it—inquiries stay on your credit report for two years, but they only affect your credit score for twelve months. And inquiries from several months prior won’t impact your score more than a few points. Just work on lowering your balance, which will build your credit score by lowering your utilization rate.

How to Build Credit from Scratch

Posted on March 14, 2011 by - CREDIT BLOG

When you’re faced with the situation of having no credit, you might be surprised at how creditors treat you. It can often feel like you’ve been lumped into the same group as people with bad credit. This is because creditors use your past credit history to determine whether you are or will be a responsible borrower. If you have no past history, there’s no pattern to establish your credit worthiness.
This wouldn’t be a significant issue if it weren’t for the fact that credit has become such an integral part of our society. Employers use it when looking for potential hires, auto insurance companies use it to determine rates, not to mention the savings a high credit score can bring you in interest rates alone. The problem is that you need credit in order to have credit. Luckily, there are a few steps you can take to get you on the right track towards building credit and achieving a high credit score.
Get a secured credit card.
Secured credit cards work the same way as regular credit cards, except they require a deposit. The amount you are allowed to borrow usually reflects the exact amount of the deposit you paid or a percentage of that deposit. One common misconception regarding secured cards, however, is that they work like debit cards. This is not true. The creditor only uses your deposit as a guarantee in the event of non-payment. When you make a charge on your card, you need to pay that amount back just like a normal credit card. The payment will not be taken out of your deposit. There are a number of secured credit cards to choose from.
Only charge what you KNOW you can pay off in FULL each month.
Now that you have a card, you need to show that you are a responsible borrower. To do this, you need to make sure that you only charge what you absolutely know you can pay off each month. If you pay off your balance in full each month, you’ll avoid interest rates.
As much as the temptation exists to spend your newfound access to money on something splurge-worthy, the best use for your credit card money is to pay something you’ve already budgeted for each month. Some ideas include gym memberships, subscription services and other routine purchases.
Keep your balance under 30%.
A very little known fact is what we like to call the 30% rule or your utilization rate. When your overall balance goes over 30% of your credit limit, your credit score is negatively affected. That means if your credit limit is $500, your balance should never go over $150. In fact, it’s wise to keep it even lower because many credit card companies actual report lower credit limits than what you actually have, therefore increasing your percentage.
Pay your bills on time, EVERY month.
There’s no need to fall into the trap of creating more debt. To avoid unnecessary interest rates and dips in your credit report, make sure you pay your bills on time every single month. To make sure you’re covered, we recommend setting up automated payments. That way no matter what is going on in your life, your credit score isn’t going to suffer from forgetfulness.
Monitor your credit report.
The point of building your credit is to get a high score, so it makes sense to keep an eye on that statistic. 80% of all credit reports have errors, making it even more crucial to stay on top of things. Don’t fall victim to the free credit report sites either. When you need to get your credit report, make sure it’s giving you your FICO score.
Apply for an unsecured card after about a year.
Once you’ve had a good amount of time with good credit payment history you should be eligible to receive an unsecured credit card. Call your creditor to see if you qualify for a move from an unsecured account to a secured account. Unsecured cards carry many benefits such as higher limits and reward perks. Just keep in mind the same tips when using your credit card.
Building credit can be a slow process that requires a lot of patience. However, like most things, it will be worth the wait whenever you need to make a large purchase or an emergency situation arises.

How to Improve Your Credit Score in 5 Easy Steps

Posted on March 7, 2011 by - CREDIT BLOG, CREDIT SCORING

There are a variety of reasons why you’d want to improve your credit score. You could be getting ready to make a big purchase such as buying a house, or you may want to make sure your options are open in the case of an financial emergency. In fact, in today’s world, your credit score is a key element to financial freedom. In addition to higher interest rates, low credit scores can affect your life in many other areas as well. Companies run credit checks before employment, and low credit scores can affect your auto insurance rates. All of these are great motivators for making improvements, but there isn’t always a great amount of information on exactly how to improve your score.
To help address these concerns, we’ve compiled a list of five ways you can improve your credit score. Some actions may have an immediate positive result, while others will help improve your score over time. It’s important to remember that there are no fast fixes, however, your efforts will be rewarded with lower interest rates and better credit opportunities. To get started, read on…
1. Keep your credit balance below 30% of your credit limit.
Credit bureaus determine whether you are living within your means by evaluating how much debt you obtain in relation to your credit limit. This is referred to as your utilization rate. The bureaus reward consumers with a rate of 30% or lower. That means if you have a $1,000 credit limit, you will never want your credit balance to exceed $300. In fact, to be safe, it’s better to aim lower than the 30% rate because some credit card companies erroneously report lower credit limits, which would result in a higher utilization rate.
2. Make your monthly payments on time every month.
Your credit history is one of the largest factors in determining your credit score, with your recent activity weighing in considerably. In fact, your payment history makes up roughly a third of your credit score. That’s more than any other factor. If you’re at a loss as to where to start building your credit, creating a good payment history would be the best place to focus.
3. Maintain three to five credit cards and one installment loan.
Credit bureaus need to see credit history to determine whether you are a good investment. To provide this, you need to show credit activity. Having three to five credit cards that never go over the 30% utilization rate and a monthly installment loan that is reported to the credit bureaus each month will help to establish your credit habits. Keep in mind that retail credit cards are NOT a good option. This is due to the fact that they typically have very high interest rates and you are forced to shop at their location to keep the card active. If you do not shop there on a frequent basis, you may find yourself making unneeded purchases to maintain current credit history.
4. Check your credit report for inaccuracies and report them.
Did you know that nearly 80% of all credit reports have errors on them? These errors can negatively affect your score and therefore increase your interest rates resulting in higher payments. As a beginning step to building your credit, you should always get your credit report and check for errors. If you find any, you’ll want to report the credit errors to the appropriate credit bureaus.
5. Don’t close older or unused credit accounts.
Fifteen percent of your credit score is derived from the age of your credit cards, with older credit accounts giving you a better score. If you close these accounts, your average age immediate lowers and can result in a lowered credit score. Instead of closing these accounts, use them to pay small recurring fees such as Netflix or gym memberships. Then set up an auto-payment from your bank to pay the credit card a day afterwards. This way, you never have to actually use the card, however, you still reap the benefits of active payment history and an aged credit card.
For more information on how your credit score is determined, download our free eBook, What Your Bank Won’t Tell You About Credit.

Build Credit: The Three Keys to Creating Good Debt

Posted on February 28, 2011 by - CREDIT BLOG

At first glance, the words “good” and “debt” don’t seem to be a symbiotic match, but there are indeed some instances where creating debt does generate a surplus of income or personal wealth. There are certain schools of thought that agree if a debt is going to increase your potential for income, it could be a good opportunity. However, many people don’t stop and think before they agree to take on a new financial responsibility. If you’re currently considering obtaining a debt to help get you through a specific situation you may want to keep these following advice in mind.
Always Question Your Motives
A good rule of thumb to follow when considering creating a debt is to ask yourself the following question.
“How is borrowing this money going to help me make money or get me out of debt?”
If you’re using credit to do your basic living, you’re not helping yourself pay down your debt, or even create new income. You may feel temporarily relieved, but in actuality you’re increasing your debt and just pushing off the inevitable need to pay until another day. If you approach debt from the perspective of using it help you create wealth, you’ll have a much healthier personal financial situation.
So, in short, if your motive is to create more debt, it’s not a good idea to keep digging yourself into a hole. However, if you are using the debt to increase your opportunities to generate more or new income, it may be the right move for you.
Determine What Is A Good Debt
An easy way to decide what a good debt for you would be is to determine to what degree that debt will increase your wellbeing or expand your potential financial growth. For some ideas, consider these five scenarios for creating good debt:

  • Take out a loan to start a side business or to expand your current business. However, you’ll want to get the loan in your business’s name as soon as possible so that your liabilities are divided.
  • Get a college education.
  • Take a class or learn a skill that will help you be more employable. This can be anything from going to therapy to becoming a better communicator or even taking a sewing class so that you can sell your creations on Etsy.
  • Consider getting a consolidation loan with lower interest rates.
  • Buying a home or some other investment that is going to increase in value is also good debt, albeit with a bit of risk. Before you buy a home, you have to think worst-case-scenario: If this home never increases in value, can I always afford the payment?

Investing in Your Family
It isn’t a traditional approach to personal finance or debt to consider investing in your family, however, while it may not increase your revenue stream directly, it does increase the overall quality of your life and the future of your family. The main factor to consider before you agree to the debt is to honestly answer, “Can you afford to pay it back?”
If you don’t have solid proof that you can pay it back, it would not be financial prudent to consider it a good debt. The key here is establishing solid proof that you can pay it off. Many people have a feeling they can pay it back, but don’t run the numbers to determine whether that feeling is based on fact. To establish proof, you need to know exactly what you need to live on each month and exactly what income is coming in. If you have enough left over to cover the new debt comfortably, than it might be something of value to consider. Some examples of investing in your family include:

  • Investing in your family’s future by sending your kids to college.
  • Hiring a tutor for your children.
  • Sending your overworked spouse on a vacation to relive their stress.
  • Buying a home that your family is going to live in forever might be good debt even if it’s a seller’s market and the home is likely to lose value.

When it comes right down to do it, life is a balancing act. Some people preach that you should never use credit unless it can increase your income. All other debt is bad debt. That isn’t always the case, and you can’t live your life by absolutes. There are some times in life when you will need to use credit and pay interest for things that will increase you or your family’s well-being. The trick is in making educated financial decisions and balancing the risk of the debt versus the opportunities it will create.
How have you used debt to increase your wealth or help your family? Share your stories below!

Build Credit: The Truth About Living Debt Free

Posted on February 21, 2011 by - CREDIT BLOG, CREDIT SCORING

For a lot of people, living with credit card debt is simply a way of life. We have all heard of the credit crunch where banks lent more to people than they could afford to pay back. When people fell behind on their repayments, the banks were in trouble and drastically cut back on the amount of money they were lending. This then led to a collapse in the housing market as a glut of foreclosures suddenly came up for sale. A lot of people, during this depression, decided that credit was actually a bad thing and they started to live a debt free lifestyle. While this is a great idea in principle, it is not a good idea to close your credit card accounts and attempt to live life on a cash only basis.
The problem is that your credit score affects many areas of your life. For example, car insurance companies now use credit scoring as a way to determine how responsible you are behind the wheel of a car. More and more companies are now using credit scoring to decide how responsible you will be as an employee. Also, if you ever need cash in an emergency, it is essential to have a good credit score to ensure you get the money you need quickly and at the best rate.
What most people do not understand is that not having credit is just as bad as having bad credit. We no longer live in a society where you can be good friends with your bank manager and he, knowing who you are and how you live, can decide whether to lend you the money you need. Most bank managers know little more than sales department managers.
At US Bank, for example, the local branch no longer has control over whether a check that overdrafts your account will be paid or bounced. If you call the branch and ask them to pay it, they will tell you that they have no control over it. They will tell you, however, that you should apply for overdraft protection so that it does not happen again, and they will happily help you fill out an application. Of course, whether or not they grant you overdraft protection depends on your credit score.
The problem with not having credit is that the credit bureaus will no longer be able to assess your credit worthiness. Rather than assume you are a good person to lend to and risk being wrong, they will err on the side of caution and assign you a poor credit score. This could lead to higher rates on your car insurance, mortgage or even stop you from getting a job or promotion.
Unfortunately, it is not a good idea to simply put the credit cards into a drawer and never use them either. A lot of companies will declare unused cards as inactive and therefore they will not count towards building your credit score. However, there is a solution that will not cost you extra money in interest and will still build your credit score.
The solution is to have between three and five credit cards and set them up to automatically pay one monthly bill each. For example, your cable bill could be paid out of one card, your car insurance could be paid out of another and your gym membership could be paid out of a third card. In order to avoid interest charges, you could then set up an automatic payment to these cards from your bank.
In essence, using this method, your money leaves your bank and arrives at the place it needs to get to; it just passes through your credit card accounts on the way. This allows you to essentially live debt free, but give you the benefits of a healthy credit score so you have access to the cash you need in case of an emergency.