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Why Is It Important To Pay Your Bills On Time, Every Time?

A late payment is simply a payment that you have not made to the lender before the due date. This happens to the best of us as we can make mistakes due to oversight or shortage of cash. Unfortunately, these mistakes will negatively affect your credit score and cause it to drop dramatically as your payment history is the key component used to calculate your credit score.

In this article, we will discuss how late payments affect your credit score, the other potential penalties, and tips on how to keep your future credit in tip-top shape.

THE EFFECTS OF LATE PAYMENTS ON YOUR CREDIT SCORE

You know that late payments can negatively affect your credit scores. However, you may not be aware of how much your credit scores can fall or how long it will take you to repair the damage. You should because credit scores can boost or drain one’s finances.

According to Experian, a single 30-day-late payment will lead to the ding of 90-110 points if you have a good credit score of above 780 and a drop of 60-80 points if you have a score of say 680. However, the number of points that your credit score can drop when a late payment is added to your score depends on many factors. The FICO scoring models will consider all the points given below to determine the impact a late payment will have on your credit score.

  • It depends on how long you wait before paying the bill. Your payment will be reported after 30 days past the due date and again after 60 days, then 90 days and then again after 150 days. The longer your bill goes unpaid the greater will be the impact on your credit score. And after that, your account will be written off as a loss of charge and that will be very bad news for your credit scores.
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  • Late payments that have occurred in the past year do more damage than from several years ago. So, your recent credit history severely harms your credit score but this negative impact lessens over time.
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  • The number of points your credit score can take a ding also depends on the number of late payments on your credit report. If you have many late payments already then you are on the low end so the addition of one more late payment may not cause a lot of damage to your credit score as most of the damage has already been done.
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  • The amount of your late payment can also play a role as a small amount of say $200 and $300 will not harm your credit score as say a $300 and $3000 late payment. So the more you owe the more your score drops.

OTHER POTENTIAL PENALTIES OF LATE PAYMENT

  • You will usually be charged a late fee by the lender and if you continue to miss the due date you can be charged additional late fees too.
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  • The interest rates of your future loans will increase.
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  • Your interest rate can be reset to a penalty annual percentage rates (APRS) or default, depending on the creditor’s policy. Credit cards penalty APR can go up to 29.99%
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  • You can also forfeit your 0% promotional rate on a balance transfer card if you have one and it can be reset to the default interest rates. So, you will pay much more interest on your outstanding balance if this is done.
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  • It will remain in your credit report for seven years so you may not qualify for a mortgage (at the best interest rates), get a personal or auto loan, or even receive the best credit cards or rewards programs.

HOW TO MASTER YOUR LATE PAYMENTS

You may be just forgetting to pay your bills or struggling to pay your bills, or just forgot to pay one small bill. Either way, there are ways to master your late payments.

  • You should select a payment due date that coincides with your paydays or a time when you pay all your bills together. Many credit card issuers do allow you to select a due date.
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  • Set up bill payment email reminders or text alerts that will remind you about the bills that are due in a few days. If you require more than one alert you can set up multiple electronic prompts.
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  • Consider setting up automatic payments, especially if you have made late payments in the past due to forgetfulness or being too busy. However, you should ensure that you have sufficient funds in your account so that you do not get to pay overdraft fees. Once you start paying your bills on time your credit scores will begin to improve over time.
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  • Even if money is tight you can review your budget. You may be able to find ways to cut back on spending and make it easier to pay your bills on time
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  • Prioritize which payments you need to pay if you do not have sufficient money to pay all bills. The essential bills like mortgage, rent, and utilities should be paid first. Then pay the bills that have a hefty late fee. Finally you can pay the bills that are about to go into collections.
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  • Finally, a smart move would be to set up an emergency fund that will help you when you have unexpected expenses.
 

 If you need help to improve your credit scores do contact our financial experts at Zinucreditrepair.com.

Can Medical Debt Impact Your Credit Scores?

Are you worried that your medical bills will harm your credit score? The answer is that determining the impact of your medical bills on your credit report and credit scores is not a perfect science. It depends on an individual’s credit history which will be factored into the formula for determining one’s credit score.

Here we are going to examine how unpaid medical bills can impact your credit score. 

The Danger of Ignoring Medical Bills

You may maintain good health insurance and do everything you are supposed to do like choosing in-network doctors and hospitals. But, despite your best efforts your medical bills can still rack up quickly and affect your credit standing. And, if you are uninsured even a simple emergency visit can turn into an alarming amount of debt.

The myth that medical bills will automatically spell trouble for your credit reports and scores – is just a myth. Simply acquiring medical bills will not have any impact on your credit score. It is not the doctors and hospitals you visited that report your medical bills to the credit bureaus. Medical providers will usually turn over your unpaid bills to a debt collection agency after attempting to collect fees from you for a few months. The debt collector, in turn, reports it to the credit bureaus. So, it is only unpaid medical debt that can typically lead to credit problems as they can turn into collection accounts. They can even lead to potential court judgments if your debt collector decides to sue you for your outstanding medical bills and will stay on your credit report for seven years.  

Therefore, if you are overwhelmed with large medical bills that begin to arrive in your mailbox, you should not ignore them.   Ignoring them is a very big mistake as they can show up in your credit report. But, the degree of damage will depend on other score factors from your credit reports.

Medical Collections and Credit Scores

Many people believe that medical collections are not a big deal because no one would choose to get into medical-related debt. According to a survey a staggering 52% of collection accounts on credit reports are medical bills. It is estimated that 43 million consumers with a credit report have one or more medical accounts in collections.

 Credit scores are inclined to take the line of least resistance. That is to say, it is very easy for a good credit score to turn into a bad one than it is for a bad credit score to turn into an awful one. If your credit score is currently very good then the addition of a collection account or “just” a medical collection may potentially have a very damaging impact on your credit score. However, if you already have problems with derogatory information appearing on your credit reports then one more medical collection may not have a much additional negative impact on your credit scores.

New Regulations May Help

The older FICO scores were designed to treat medical collection bills like any other collection accounts. But, the good news is that after an agreement between the three credit bureaus (Experian, Equifax, and TransUnion) and a group of the state attorney general the FICO and VantageScore have released a new set of rules. These scoring models (FICO Version 9 and VantageScore 4.0) which have come into effect from June 2018 have made it harder for medical debt to kill your ability to borrow money. Collection agencies cannot report medical collections to the credit bureaus unless it is 180 days past due. Secondly, the new regulations also require collection agencies to remove from your reports any medical bills that are eventually paid by your insurance company. This is great news as the time frame of 180-days will give you time to make payments or payment arrangements with insurance companies and medical providers before it goes for collections. Secondly, it will help if a medical collection has been unfairly added to your credit reports when it should have been covered by your insurance plan. Matt Schulz industry analyst at Creditcards.com says, “It is a big deal as it builds time into the mess of getting insurance claims taken care of.”

Debunking the Myth

 No doubt, when these newer and better scoring models (FICO Version 9 and VantageScore 4.0) become more widely adopted a new medical collection will cause fewer credit score problems.

 Though, this special treatment of credit scores may make life a little easier for medical debts but, it is important to keep in mind that many lenders still use older versions of credit scores. So, it is likely that creditors would view a medical collection account negatively when applying for insurance, credit or loan as medical debt. 

Your goal should be to prevent your medical bills from being turned into collections or being reported to the credit bureaus. That may mean that you should:

  • Call the doctor and your insurance company monthly to check on the progress of any reviews that are delaying the payment of your medical bill. In some cases, you may need to pay the bill and then seek reimbursement from your health insurer.
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  • Negotiate with your health provider if you cannot afford to pay a medical bill and try to reduce the amount owed or set up a payment plan.
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  • Examine all the medical bills you receive carefully and compare it with the benefits provided by your health insurance provider. If you feel you have found an error you should contact your health insurance company and file a dispute with the three major credit bureaus.
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    No doubt all this may cause some inconvenience, but it is better than another blow to your credit scores.

    Can Small Business Credit Cards Hurt Your Personal Credit?

    There are many reasons why a business credit card can be invaluable for small business owners. Besides building commercial credit and earning rewards for office supplies it can also make cash flow easier to manage and allows them to put expenses on credit that can be paid later when they are paid by their customers. 

    No doubt business credit cards offer rewards and benefits that are more suited to the needs of small companies, but how does its use affect your credit scores?

    The answer is not just a simple “yes” or “no.” It depends on your provider’s policies and how you use it. So before you apply for a small business credit card it is important to know how it can affect your personal credit and how you can meet your goals. 

    1. Application

    If you do not own a successful business you will most likely have to apply for a small business credit card. When you apply for this type of card the card issuer will check your credit score and credit history. It will run what is called a hard inquiry on your credit report. This will knock about five points off your credit score according to FICO.com. , and can also lower the chances of your application getting approved.

     Most importantly, almost all small business credit cards are backed up by a personal guarantee which makes you take personal responsibility for any debts the business cannot pay. These debts will likely appear on your credit reports and severely damage your personal credit scores.

    2. Ongoing Reporting

    Some business credit card issuers report only commercial credit bureaus, and not to consumer credit bureaus. There are few other credit card issuers who do not report monthly payments at all. If you are a small-business owner you can choose a credit card that does not regularly report your account activity to consumer bureaus and so will not make a difference to your score but if you do so you need to avoid missing payments.

    Assuming that you have a credit card that regularly reports your personal credit, then once your card is approved the new account will affect your credit history and lower the age of your lines of credit. If you have a very limited history this will cause a small drop in your score. 

    This new account can also help you build your credit history because your payments and balances on this new account will appear on your credit report as well. This is good for your credit score. So, your use of credit card accounts may or may not affect your credit score in one way or another.

    But you should not make the mistake of thinking that you are not personally liable for the debt on your card because all small-business cardholders have to sign a personal guarantee on almost all small-business card agreements as already mentioned above. So, if the issuer sends the accounts to collections or sues you for balance amounts, it will probably turn up on your credit reports. To make sure if your credit card issuers are reporting your payments and balances or not you can check your credit reports each year from the three major credit card bureaus (Equifax, Experian, and TransUnion)

    3. Always pay on time and in full

    You must always make minimum payments on your business credit card each month. If you miss a payment either by mistake or because your business is struggling it will impact your payment history. This is very important because your payment history makes up 35% of your FICO credit score. One or two late payments can also trigger a penalty APR on your card and could make it harder to stay on top of payments in the future. 

    As a business owner, you must weigh your company’s cash flow and your goal should be to pay your bills completely and not just make minimum payments. This will not only save a lot of interest but if they are not paid for a long time it can greatly damage your scores. 

    4. Credit utilization

    One of the ways that may affect business owners most is carrying too much debt on their business credit card as it raises their credit utilization ratio or a debt-to-credit ratio (the total amount of debt divided by the total amount of credit you have available). Both personal and business credit card balances are combined to calculate the credit utilization ratio which makes up 30% of your FICO score.

    Business credit cards usually tend to have higher credit limits than a personal card and can raise your amount of available credit, but you should not quickly max out the business card as it will definitely hurt your debt-to-credit ratio. By limiting how often you use your credit card each month or by multiple payments every month you can keep your balance low and keep the credit utilization score below 30%. So having a new line of credit may or may not reduce your credit utilization ratio.

    5. Use small business loans for larger capital needs.

    Business cards are no doubt a great way to finance operational expenses but if you need a larger capital to expand the business you should consider using a small business loan instead of business credit cards. You will have the flexibility to use your credit card for your everyday business expenses without the fear of spoiling your credit utilization. Besides, you may also qualify for a lower interest rate than what is available on your credit card depending on your credit history and your company’s financial situation. 

    There are many benefits of using a small business credit card including separating your personal affairs from those of your business. But when it comes to your credit score it is almost impossible to have a complete separation as it has the same impact as a personal credit card.

    Can You Boost Your Credit Score By Paying Your Rent On Time

    The apparent “American Dream” of owning a home is changing.   For many people, renting not only suits their need for flexibility but it is also an economic necessity due to soaring student loan debt and rising prices.

    Credit History and Rent Payments

    Credit history plays a vital role in your life and it is necessary for accessing bank loans, credit cards, mortgages, and auto loans. About 45 million people in the US who have a solid track record of paying rent on time (which constitutes 35% of their income) lack a credit score.  A pilot program in New York found that credit scores of 76% of renters can be raised by tracking on-time rental payments.  

    Rent is one of the largest monthly payment that you make. All these timely payments should count for something right? So does it mean that your rent payments can affect your credit score? The simple answer is not necessarily. The track record of on-time payments does not reflect on your credit history but fortunately, the situation is changing for the better and timely payments can boost your credit score. Several criteria need to be satisfied before you reap the benefits.

    How Can You Get Your Rental History on Your Reports

    If you are currently renting or intend renting, it is important to understand that a consumer cannot report his rental payments to a credit bureau. Here are some tips that will help you as to how you can go about getting your rental payments on your credit reports.

    1. Many landlords began sharing rental data to credit bureaus after 2011 when they began to include rental history to credit reports and credit scores. Some landlords also offer online systems that report rental payments. However, it is not a universal practice for landlords to “automatically” report rental data. So you should, first of all, ask your landlord or property manager if they report rental payments to the credit bureaus or not. As your rental payments will affect your credit score if your credit report does not reflect your payment history.

    2. If you rent from property management or individual landlord who does not report data, you should pay your rent through a rental payment service. Some of the popular renting services are Rent Reporters, RentTrack, Experian RentBureau, Rental Karma, ClearNow and PayYourRent. All these do not report rental payments to all three bureaus. While RentReporters and RentTrack report to all three bureaus, PayYour Rent reports to Experian and TransUnion, ClearNow reports to Experian and Rental Karma reports to TransUnion. It is to be noted that the above does not include all the rent reporting services. Some of these services do not charge any fees whatsoever but there are others that charge you as much as $100 or more for their services.

    3. Each consumer can have a number of credit scores depending on the formula and scoring model. Some of these may include rent payments in their reports while others may not. So when you apply for credit you do not know which credit bureau ( TransUnion, Equifax or Experian) report or which score the lender is likely to use.

    4. Finally, you should keep in mind that while calculating your credit scores only the newest credit scores consider rental data. FICO 9 and FICO XD do use rental data to calculate scores whereas the most commonly used versions of FICO® Score do not do so.

    Vantage Score is a more popular credit scoring option with lenders as it has been reporting utilities and rental payments for many years now. According to VantageScore “By adding rental payments to credit reports more than 30 million consumers who do not have a credit history will be able to have a credit score and they will be able to borrow.”

     How Will This Impact Your Score?

    It is difficult to say how much reporting credit bureaus will affect your credit scores as it depends on your current credit history. However, there are some interesting studies on the subject.

    1. An Experian study showed that 100% of tenants who did not have a credit score before had a credit score after reporting rent, and almost three-fourths of the people who were studied experienced a credit score increase. 

    2. A study by TransUnion showed that eight out of ten subprime borrowers had an increase in their VantageScore after only one month of reporting rent payments.

    3. Lastly, a study from RentTrack found that reporting rent payments for 6 months increased their VantageScore by about 9 points and the average increase for those with a credit score below 650 was 29 points.   

    Using Your Credit Card to Pay Your Rent

    You can indirectly boost your credit score by using your credit card to pay your rent. (that is if  your landlord accepts credit card as a payment mode) . If you pay your credit card balance in time it will help you boost your credit score. But you should be aware that some landlords may charge you a processing fee if you use your credit card for paying rent.

    TO KNOW MORE ABOUT YOUR CREDIT REPORTS AND CREDIT SCORE  CONTACT  US AT (800) 400-ZINU(9468)

    The Practical Reasons Why Married Couples Should Share Finances

    Money management can be tough when you are single, but incorporating your spouse’s finances when you get married can be overwhelming. It is nothing new that financial conflicts can cause major problems in relationships and is one of the main reasons couples end up in divorce.

    Traditionally sharing finances was a part of the journey after marriage but nowadays it is becoming more and more common for couples to either divide expenses down the middle, or delegate certain expenses to each. This is becoming more common especially for working couples.

    However, at the end of the day, there are advantages of sharing your money with your life partner. This does not mean that you cannot have separate bank accounts for certain things. But you have to make a financial plan TOGETHER and consider all the money to be family money to make both your money and your marriage work. Here are a few practical reasons why married couples should share their finances.

    1. Builds A Stronger Relationship

    Many couples avoid discussing finances and it is the number one issue that they wind up bickering about. It is also the second leading cause of divorce in America.

    However, by sharing your finances with your spouse you start to work as a team to build your financial roadmap and start thinking in terms of “us”. You also learn to see individual financial decisions from your partner’s perspective instead of your own which will result in an overall stronger and happier relationship.  

    2. Enables You to Understand Household Budget in Totality

    When you share finances you have what you call a “household income”. You can figure out what lifestyle you as a couple have together if you have a full picture of your total income including both your earnings, investment income, and income stream. Also, you will fully understand where the money is going after each paycheck, which would not have been possible if you had kept your spending from your spouse and your spouse did the same to you. It will also lead to transparency which has a positive impact on your overall relationship and will help you to figure out where to cut costs to save money for the future. However, having a   “household income” does not mean that you cannot assign money for yourself, to spend as you see fit.

    3. Allows You to Save For Short-term and Long Term Goals

    Sharing finances will fully allow you to plan for your future and create a list of actionable steps that can bring your short-term as well as long-term goals to fruition. Whether you saving for the holidays, a vacation, or a buying a vehicle you can achieve your goal faster and also reduce the risk that your partner may become upset or bitter about money matters in the future. 

    Your spouse’s cooperation maybe even more important if you are planning to buy a home together because if you are applying for a mortgage together, both your incomes and debt and credit histories are applicable. Secondly, you may also have to address issues such as credit utilization before you are approved for a mortgage. This process will be more of a headache if you have two sets of accounts instead of one.

     Sharing finances and having a shared budget can make these decisions easier and can envisage a future that meets both partner’s desires.

    4. Allows You to Make Retirement Goals

    Saving for retirement needs to be coordinated as one day neither of you will be working. When you share finances your “retirement savings plan” will be the result of a joint decision based on your long term commitment and saving level you are both comfortable with. But if each of you contributes for retirement separately it will be much harder to coordinate these goals. That is probably why couples who share finances tend to save more.

    5. Leads to a Family Focus, not a Self-Focus

    One of the benefits of sharing your finances is that if one person goes through a period of unemployment the other steps in and helps. If one of you is sick (or just delivered a baby) or if one wants to start a business the other one covers. You may be more likely to take certain career risks if you have someone to back you up. And in the end, these risks can be good for you. But on the other hand, if you keep paying your share of bills you might be less likely to take the leap. When you are committed to the relationship then both of you can start to do what is best for your family.

    6. Help in Case of Emergency

    Marriage means complete transparency. If you do not provide your spouse with your financial information it can build distance. It can also be dangerous if one of you is incapacitated, hurt or worse and the other needs access quickly.  Your spouse will be able to continue managing your financial assets and also help support your responsibilities. But if you keep your spouse in the dark about your financial situation it will a challenge for him/her to help out in the case of an emergency.

    Final Word

    If you are looking to build a life together than the best thing is to be open and share goals. The goals between two people cannot be aligned without talking about money matters and coming up with a solid plan to deal with budgeting, spending, and investing. In the long run, this will help you to grow closer financially as well as emotionally.  

    Here’s Why Your Credit Score May Have Recently Gone Up

    Credit Scores and credit reports play a vital role in the life of most Americans today. It determines the interest rates consumers pay for the credit card, mortgages and car loans and can ascertain if they qualify for a loan or not. 

    Your credit report may get a makeover as the three big reporting agencies (Experian, Equifax, and TransUnion) are doing things a little differently and have started excluding certain items from your credit report that used to damage your credit. This comes in the wake of a study by the New York Federal Reserve which found problems with credit reporting. It has recommended some reforms to improve the accuracy of their credit reports and also remove some negative items so that it can help consumers’ improve their credit scores. Some of the changes that can boost your all-important three-digit credit scores are:

    CREDIT SCORE

    1. Tax Liens and Civil Judgments

    Because of improved standards for utilizing new and existing public records, Experian, Equifax, and TransUnion have scraped most of the tax liens and civil judgments from consumer credit files in July 2017. Again in April this year, they went a step further by deciding to remove all tax liens from credit reports. Once this data is removed some credit scores can go up by as much as 30 points.

    According to an estimate by LexisNexis Risk Solutions, about 11% population had a tax lien or judgment removed from their credit file. 

    2. Collections

    Credit Bureaus have also been removing certain collection accounts from credit reports under the terms of the National Credit Assistance Plan (NCAP). Since the new rules came into effect in June 2017 some eight million people had collection accounts completely removed from their credit reports, according to the New York Fed.

    3. Medical Debt

    The new rules will make it harder for medical debt to hurt your credit scores. Medical billing process can be complicated and confusing. To give time to resolve medical issues the three important credit bureaus have agreed to exclude medical bills on credit reports until they are at least 180 days due. Another plus is that unpaid medical bills that later get paid by your insurance should be removed from the credit bureau files so that it does not linger on and damage your score.

    4. Fines and Tickets

     Due to the recent changes by NCAP, library fines, unpaid gym memberships or traffic tickets that have been lurking in your life will now be removed from your credit records and not damage your credit score.

    As a result of these changes consumers are now witnessing a steady stream of changes which have boosted up their scores and according to the findings of New York Federal Reserve report the:  

    • Credit scores of consumers’ have gone up by 11 points on an average.
    • 18% of people saw credit scores go up by 30 points. In some cases, this increase was enough to make a difference between qualifying for a loan and getting it turned down.
    • About 8 million people had collection accounts completely removed from their credit reports after the second half of 2017.
    • The study also found $11 billion reductions in the total collection account balances.

    According to Bruce McClary, Vice president of Communications at the National Foundation of Credit Counseling, “If anyone has experienced a jump in their credit scores due to these changes, they should take advantage of the momentum and work towards improving their credit health.”

    If your credit score has also seen an increase, you could consider calling your credit card company and negotiate a lower interest rate. This can result in major savings.

    The other financial moves you could consider with this better score is taking out a new loan for a mortgage, refinancing your car, getting a better credit card or checking insurance rates, said Kimberly Palmer, the personal finance expert at NerdWallet.  However, you should be strategic, she added.

    It is important to note that because of the prevalence of reporting errors, FICO recommends that you should double-check your reports for inaccuracies that can hurt your score.  The recipe to keep your score moving and reaching a good score is that you should consistently pay your bills on time and keep your credit utilization low. You should also apply for credit only when needed and reduce the amount of debt you owe as much as possible.

    6 Times When You Are Smart Not to Pay Off Your Mortgage Early

    Plenty of homeowners would like to pay off their mortgage early as it is a hassle and a headache. Itis their largest monthly payment and takes out a good chunk out of their budget.

    It is understandable as there are many reasons to pay off your mortgage early. It will not only help yousavehundreds (even thousands) in interestbut will also helpyoufeel secure at the thought of owning your own home.

    At the same time, there are benefits of not paying your home loan ahead of schedule.

    The approach which is better for you will depend on your financial situation and goals. If the following situations apply to you, sticking to your mortgage payment schedule and using the extra cash for other purposes will be the best option.

    1. You Do Not Have a Hefty Source of Emergency Cash.

    Financial ups and downs are inescapable. Though the house you own free and clear is a significant piece of wealth, it is not something that you can quickly convert into cash in a crisis. It takes months even in a strong market to sell a house. You could secure a home equity loan more quickly but this also will take a few weeks and will put you back into debt with possibly a higher interest rate than you had on your original mortgage.  So, the best way to ensure that you can cover any unexpected expenses like a job loss or medical bills without having to take on new debt is to make sure that you have set aside a healthy “rainy day” fund to cover at least six months’ worth of household expenses. 

    2. You Want to Lower Your Tax

    Before you decide to reduce your mortgage debt, make sure you have fully funded any tax-advantaged account such as 401(k) or individual retirement accounts(IRAs). According to Patrick Whalen, a certified financial planner at Whalen Financial Planning in Los Angeles “Paying off a mortgage early competes with the priorities that can help lower your taxes, like funding a 401(k) plan up to the maximum amount.”

    The tax advantages of these contributions coupled with the potential for long-time growth in your retirement investments makes them the first place you should be stowing any extra cash you have.

    3. Is There A Prepayment Penalty On Your Mortgage?

    Prepayment penalties are rare in new mortgage contracts but some older mortgages containrequirements that you must pay several thousand dollars if your mortgage loan is paid off ahead of schedule.

    Prepayment penaltiescould be the equivalent of a certain number of monthly interest payments or equal to a percentage of the mortgage loan amount. So, if your mortgage loan contains such a prepay penalty clause you should compare the penalty amount with what you will save in interest by paying off the loan early. You should make sure that you do not lose money by triggering a penalty.

    4. You Can Earn a Better Rate By Investing

    The smartest choice to make when you have extra cash to pay off a mortgage loan with a low-interest rate is putting it into the stock market or mutual funds and building up a diversified portfolio. It is reasonable to expect a long-term return of 6 to 8 percent when you invest in a broader market.Meanwhile, your mortgage rate may be around 4.5%, so over time you are likely to earn better returns on your money and can benefit from years of tax breaks and be much better off in the long haul.

    5. You Have Other Debt

    The mortgage loan should be the last debt you pay off. If you are payingother debt that has higher interest rate such as car loans, school loans, credit card debt or home equity lines of credit, it is technically better to put any extra funds towards these debts than your mortgage.

    Many of these debts can carry 0%interest at least for a time. However, in most cases, these 0% deals apply to either temporary or relatively short term loans. So, paying off these loans should always be a higher priority than your mortgage loan.  

    6. You Are Still Savings For Big Purchases

    It is not enough to only pay off debt and save before tackling the mortgage, you should make sure all your future cash needs are addressed. Generally, you should plan to cover all significant expenditure for at least the next five years or preferably for ten years that include:

    • Child’s education
    • Home remodeling,
    • Car purchase
    • Wedding
    • Vacations

    There is no point of paying off a mortgage early if you are getting into more debt for a large purchase.

    HOW WOULD PAYING OFF YOUR MORTGAGE LOAN AFFECT YOUR CREDIT SCORES?

    They will not be a dramatic change in your credit scoreas a consequence of closing your mortgage loan. But closing credit cards can hurt your credit score as it reduces the total amount available to you to borrow. Mortgage loans like paid off student loans and auto loans will remain on your credit reports for 10 years as a “closed account in good standing.”

    FINAL WORD

     Whether you should pay off your mortgage early or not depends on how much money you have to spare, what other alternatives you have and other factors that are unique to you. If paying off your mortgage loan early is on your radar you should seriously consider all your options so that you are sure it is the best path forward for you. 

    What Is A Hardship Program & How Can It Impact Your Credit Score?

    While we all hope that we will never be in a situation where we can’t afford to keep up with our payments, things do happen. Rising debt can cause excessive stress, especially if you are facing financial hardship due to circumstances beyond your control like health issues, unemployment, sudden major expenses or any other change in income. Even if your financial hardship is temporary it does not mean it is easy to handle. Things can become tricky if you rely on your credit card to make ends meet on your bills. This strategy can greatly raise your debt and lower your credit score.

    The good news is that assistance is available. Your card issuer likely offers an unadvertisedhardship programthat could give you the breathing space you need to dig out and get back on the road to good credit. Let us dive into what a credit card hardship plan is and how it might impact your credit in unexpected ways.

    1. WHAT IS A HARDSHIP PLAN?

    A hardship plan is also known as a credit card payment plan. It is offered by banks to provide immediate relief to customers who are dealing with a financial crisis and cannot make regular payments due to unforeseen circumstances. This plan allows a consumer to temporarily reduce monthly payments to a manageable level.

     Hardship plans are either short-term (i.e. six months or one year), or permanent (till the card balance is paid).  They often involve lowered interest rate, altered repayment plan, or a combination of the two. Some companies also waive certain late payment fees, over-limit charges, and the like.

    2. WHO IS IT FOR?

    You may be eligible to enroll in this type of plan if you are struggling to make your credit card payments each month and have some sort of financial hardshipgoing on in your life. The eligible hardships situations include:

    • Major medical issues.
    • Loss of employment.
    • A death in the family.
    • The breakup of a marriage.
    • Unexpected home or automobile repair costs. 
    • Emergency event or natural disaster.
    • HOW TO ENROLL:

    The credit card companies typically do not advertise this benefit so it is you who should initiate it. Shore says that most creditors will have a phone number right on the statement which will not be obvious, but you should look for language along the lines “If you have problems paying your balance, call this number.” The number could connect you to the hardship departmentor, more likely, a customer service departmentthat will screen you. But, before you contact the company make sure you have organized your finances and know what kind of help you need. You must be honest with your credit card company about why you need to enroll in such a plan and offer details about your hardship (including the reasons), and how much you can afford to pay monthly and how long expect you expect the problems to last.

    3. HOW IT CAN IMPACT YOUR CREDITCREDIT SCORE?

    Just signing up for a hardship plan has no effect on your credit. However, figuring out how it will impact your creditwhile you are in it (and after)can be tricky. According to Barry Paperno, consumer operations manager for FICO, “It depends on how it appears on your credit report.” He says, that how the issuer will report your agreement to the credit bureaus is the first question that you ask.So, before you sign up for a payment plan, you should talk with your issuer about what note (if any) will be sent to credit bureaus.

    Secondly, while you are participating in a hardship program there is a likelihood that your card company will close or suspend your account until your payment scheduled is complete. This can affect your credit scores by:

    • Increasing your credit utilization ratio. When an account is closed, you eliminate some of the available credit and your score will drop to reflect the increase in  utilization ratio
    • It will also affect the credit mixas FICO® rewards you for having a combination of credit cards, car payments, mortgage and other types of loans. So when a card is shut down your credit mixture changes and that could affect your scores.
    • It can also affect the length of credit historyif your company closes one of your older cards when putting you on a payment plan. As a result, your average credit age will decrease, and your scores could go down.

    However, if you successfully complete your program, the initial dip in your credit scores could get your credit back to where you would like it to be. Here is why:

    If you are signing up for a hardship program, it is likely that you have already missed some minimum payments on one or more of your credit cards. This means that you have already seen your credit scores decline.

    Fortunately, if you stick to a hardship plan’s payment schedule you will rebuild your history of timely debt repayment. Your lender who reported your late payments to the credit bureaus will now report your consistent, on-time payments.  This means good news for your scores.

    Bottom line

    Do you think a hardship plan is right for you?

    Nitzche says “They are not right for everybody.”

    If you are facing a relatively minor problem or a temporary financial crisis with just a few cards you can call up your credit card issuer and make your case. This could be a turning point in conquering your credit card debt.

     However, if you are somebody who is struggling with being organized, have multiple creditors, or are intimidated by contacting all of them directly and feel that managing all individual payments is daunting then you should see a credit counselor and consider debt management.

    Rapid Rescoring Can Help Raise Your Credit Scores Quickly

    When you apply for a loan, a credit card or any other form of
    credit, every point in your credit score counts. So, you may
    want to consider boosting your credit score before applying
    for any type of credit as even a few points added can make a
    large difference. With a higher credit score, you can save on
    fees, annual percentage rates, higher bonuses, and perks.
    There are many things that you can do to improve your credit
    score over time, but credit bureaus often do not make the
    relevant adjustments for several months. So if you do not have
    the time to wait for creditors and credit reporting agencies to
    update your scores, especially if your credit score is just
    below the range to qualify for a large loan like a mortgage you
    can consider rapid rescoring.
    What is Rapid Rescoring?
    Rapid rescoring is a service offered by some lenders,
    including banks and credit unions to make updates to your
    credit reports. The goal is to improve and update the
    information in your credit reports considerably quicker than if
    you were to work directly with the credit bureaus. Normally it
    takes 30-60 days but with rapid rescoring, you can update
    your credit within 3-5 days. By reflecting the most recent
    positive information your credit score will increase to meet
    the time-sensitive aspects of a low-cost loan.

    How it can help you?
    A rapid rescore is best used when your credit score is within a
    few points of qualifying for a large loan, credit card or any
    form of credit. It will ensure that your entire credit profile is
    completely updated and ready for any loan application
    process. Your updated credit score will also result in a
    significant difference in the interest rate available to you.
    The rapid rescoring process is fairly predictable as lenders
    generally use simulator beforehand to see how the update
    would affect your credit score. According to Adam Carroll,
    Chief Education Officer at National Financial Educators, “A
    0.5%-1% difference in interest rate may not seem much when
    you are not looking at long term costs. But, every single
    percentage that you can decrease means massive amounts in
    savings later on.”
    For example, say your current credit score will get you a
    4.75% interest rate on a typical 30-year fixed-rate loan of
    $250,000 and after rapid rescoring, your new credit score
    qualifies you a 4.25% rate. Then this can help you save you
    $74 a month or $26,737 over the life of your loan. You can
    use online calculators to calculate the exact difference in your
    case.
    When it may not work
    A rapid rescore does not raise your credit score alone but
    rather updates your current credit profile. So, it will not work
    if have recently missed a credit card payment, closed out a

    line of credit, had a raise in hard inquiries, or any other form
    of negative entry.
    Rapid rescoring will also not work if the reporting creditor
    does not acknowledge the item in question is a mistake. For
    example, if you dispute a late payment and the creditor has no
    record of timely payment or you cannot prove it then the
    lender will not even attempt a rapid rescore.
    It isn’t Magic
    To succeed with rapid rescoring you need to participate in the
    process. For example, if you are late on payments you will
    have to pay up and get it to your lender before you order an
    updated credit score. Likewise, you would also collect the
    documentation to prove that the accounts were paid up. This
    takes time and effort and you cannot depend on your lender to
    do all the work.
    Are there fees involved?
    Rapid rescoring is a service provided by your lender or
    mortgage broker and typically you do not have to pay a
    separate fee for the service under the federal law (FCRA).
    But nothing comes for free, so sometimes there may be a
    small fee involved in using the service or even if they do not
    charge you will be paying for your lender’s capabilities in the
    interest rate and closing costs that you pay. However, in the
    long run, this service can save you much more money than
    what you pay.
    Plan Ahead

    Would it not be better to have one less thing to worry about
    when you are in the middle of a stressful and complicated
    transaction? Rapid rescoring does help fix inaccuracies
    quickly. But ideally, if you check your credit reports
    regularly, fix errors and keep your credit card balances low
    you will have nothing to fix the next time you apply for a live

    5 Credit Card Myths Unveiled

     

    Credit Cards are a keystone of Americans’ purchasing habits. They are no doubt the best financial tool available today as it is easy to carry, provides funds for an emergency and increases your credit scores.

    However, like any other financial product credit cards do seem to create a certain amount of anxiety. A Nerd Wallet survey found that a surprising number of Americans are struggling with basic credit card issues ranging from credit scores to revolving debt to reward cards. This is due to the fact that credit cards are surrounded by certain rumors and myths.

    So, when it comes to credit cards, it is important to know how to separate truth from myth. Here are five popular credit related myths which plague the consumers, plus the facts that repudiate them.

     

    Myth 1: Using a Credit Card can hurt your credit score.

    Fact-   Credit card usage does not hurt your credit score.

    One common misconception regarding the usage of credit cards is that many people fear that it would hurt their credit score. Well, it is time to burst this myth. The fact is that it should be the first step a person must take towards building a credit score. Credit scores are calculated on the basis of the past use of debt and credit. The irony of credit score is that if you do not have debt or you do not use your credit, you don’t have a score. It will be difficult for you to get certain jobs, apartments and loans in the future.

    Tip:  Even if you like paying your bills as you go, it is wise to get a credit card and pay off your credit every month to maintain a credit history. You should also keep your credit utilization ratio between 20-30%.  A credit card can hurt your credit score if you do not use it wisely and rake up huge outstanding bills.

     Myth 2: Maintaining a balance on your credit card helps your credit score

    Fact: Not paying your dues can hurt your credit score.

    A majority of consumers (54%) are under the impression that carrying a monthly debt balance improves their credit history. This is entirely wrong as this is the worst financial mistake you can make. The minimum amount due is the amount you need to pay to avoid any late charges. It is only a fraction of your total due and varies from bank to bank.

    In a short term it is nothing but a myth. You will be relieved that a burden has been lifted from your shoulders but the trouble will start when the interest on the balance unpaid amount accumulates and will be bouncing back to be paid. Your debt will build up in a huge pile and you will soon find yourself neck deep in a pool of debt. Your credit scores will see new lows along with your finances and it will also hamper your ability to raise funds in future.

     

    TIP: The best strategy is to use your credit cards and pay off your bills in full each month, so you can keep your overall debt-to-credit limit low. 

     

    Myth 3: Getting Rid of Old Cards Helps Your Credit Score

    Fact: No, it is just the opposite

    Another myth about credit cards is that old credit cards hurt your Credit Score. But, the truth is just the opposite. The saying “old is gold” is very true in this scenario. If you leave your old cards open it may have a number of benefits.  Firstly, they bear testimony to your long time money management skills. Secondly, the older the credit account the more value it adds to your credit history (determines 15% of your score). The other important benefit is that it will keep your credit utilization ratio (the amount of available credit compared to the credit limit) low. It influences 30% of your FICO score.

    TIP:  You should avoid closing an old card without a good reason to do so. If you find that the fees associated with your old card are outweighing the benefits you might consider closing the account.

    MYTH 4: You can improve your credit score by using a debit card. 

    Fact: It will have no effect on your credit score.

     

    Though both credit cards and debit cards appear identical, they are at the opposite side of the spectrum and serve different purposes. With a debit card you withdraw money out of your own account whereas, on the other hand a credit card means borrowing short-term funds from financial institutions which you should pay back in full. Your credit score reflects your repayment ability and lenders look at your behavior when you borrowed previously. Prepaid cards and debit cards will not help you better your CIBIL score as there is no involvement of debt in the process.

    TIP: You should use your credit card for everyday purchases and loans which you really need and pay them off in full before the due date. Avoid withdrawing money from your credit card as you will be subjected to high fees and high-interest rates and this   will quickly subtract any short-term gains.

     

    Myth 5 – Keeping many cards is bad for my credit score.

    Fact- The number of credit cards that you’re holding will have no bearing on your credit score.

    This myth is conceived from the belief that every card plays a role in increasing your debt.  But the fact is no one credit card can satisfy all your needs. You may need an Airline Credit Card for discounts on flights and hotels, a cash-back credit card to get some hard earned money back in your account and a shopping credit card to get special discounts. Your friends and relatives may discourage you to have more than one card as they are worried that it would play a role in increasing your debt. But as long as you are using your credit cards wisely it will not negatively affect your credit scores. You just have to keep a tab on the amount you spend on each card and pay your bills in time.

    TIP: You should not apply for too many credit cards at one go. This could lead banks to reject your request as you will look like a person who is desperate for finance and you have no means to repay your debt. So you should space out your applications for credit cards.  Secondly you should not be impulsive with your purchases. Finally, avoid piling up tons of credit cards that have high annual fees.

    If you have been assailed by any such myths it is time to embrace facts. It will help you to be more discerning in decision making and build a strong financial foundation.

    If you know about any other credit card myth or rumor you want details on you can connect with us on Facebook or Twitter.