credit debt Archives | Ovation Credit Repair Services

Pre-Approved Credit Card Not a Golden Ticket

By | Credit Cards, Credit Scores, Personal Finance, Revolving Debt

There is a part of us that really likes getting offered items of all kinds, especially things that are free. It could be something as inconsequential as a free sample from the local market, or it may go as far as winning the lottery. When someone is willingly handing you something, how can you possibly refuse? That’s just rude. Therefore, when a pre-approved credit card offer comes through the mail, our first thought is to seriously consider the proposal. The credit card companies ask so nicely, and the sample card they include even has our name on it.

Thinking it will be good to have a credit card for emergencies, you jump through all the hoops, fill out the paperwork and wait expectantly for your shiny, new pre-approved card to come through the mail. Unfortunately, many never receive the card for which they were supposedly pre-approved. It turns out that the credit card company was not as nice as we initially thought; many people get turned down after they apply.  Think of the credit card companies as deep sea fishers: they cast the net as wide as possible in order to pull in as many fish as they can.  You are a fish.

The offer, pre-approved or not, is just that. It’s an offer, not a promise. (There’s fine print that says so, but we often overlook that in the eagerness to take advantage of the great deal they’re offering to help us pay off high-interest debt, at the same time taking a 0% APR cash advance).  Credit card companies simply establish a bandwidth of possible customers and distribute offers based on limited criteria. However, once you apply, the same company takes a more in-depth look at your credit history to decide whether you truly fit the bill.

For those who are always a day or two late on payments, applying for more credit cards can seriously hurt your credit and make you a less desirable candidate for future financing. A high balance on a card can hurt as well, and although the balance does not have to be at zero, you should try to keep the balance at less than 50%. Maxing out the credit card every month does not bode well for your credit history. Another thing that can hurt your credit report is a history of repeated rejections. If you are not getting accepted for a pre-approved credit card after multiple tries, take the hint and refrain from damaging your credit further.

As much as we all want to believe that we are special enough for credit card companies to select us for their pre-approved card, we are nothing more than another address that met the preliminary marketing criteria. As depressing as a rejection from a credit card company is, it is a good reminder to take a look into our credit report and make sure all is well. If you are getting rejected, there is a reason for it, and it is wise to know the details of your history so you can make corrections as quickly as possible. Fixing any problems now can save you headaches in the future, and you can aspire to finally receive that pre-approved offer that has eluded you in the past.

3 Credit Myths Debunked

By | Credit Repair, Credit Reports, Credit Scores, Your Credit

There have been a lot of great movies in recent years based on mythological characters: Percy Jackson & the Olympians: The Lightning Thief (2010), Clash of the Titans (2010), Immortals (2011), and Thor (2011). Myth-based movies are great entertainment, but myths about your credit score can be expensive. The following three myths about your credit score can end up being very costly.

Myth One: If I Pay Off the Debt, They’ll Report It

One of the biggest myths about your credit score is believing that the company to whom you’ve paid a debt will properly report it to the credit agencies. People often believe that as soon as they’ve paid off a debt, the company will immediately report that to the credit agencies and their score will improve. Unfortunately, depending on the company’s reporting practices, they may wait three months to report the payoff, or they may never report it at all.

What you actually owe a lender and what’s reporting on your credit report are often two different things. It’s crucial to review your credit report regularly and take charge of making sure it stays up to date if you really want to improve your credit rating.

Myth Two: If It’s Not on the Report, I Don’t Owe the Debt

Another myth that hurts consumers is the assumption that if something does get removed from your credit report that you no longer owe the money. For example, let’s say you really do owe $4,000 on a charge off, but we’re able to get it removed from your credit report because it isn’t being accurately reported. That doesn’t mean you don’t still owe the money.

Myth Three: Paying Off Debt Fixes Everything

Many consumers believe that the minute they pay off their debts that their credit rating will increase significantly. But if you’ve had a history of late payments and delinquencies, companies can still report all the late and missed payments for seven years. It can take that long for your credit to fully recover.

Paying off your debts and bringing payments current will help your overall credit score. Making the debt go away, especially if it is in collection, helps in two ways: one, it shows paid instead of still owed. Two, it stops the date of last activity, which means seven years from that date it goes away. Otherwise, it just keeps being a current reporting, and the seven years keeps being seven years in the future.

Don’t Fall Down the Rabbit Hole!

By | Budgeting, Credit Cards, Credit Laws, Credit Repair, Debt

Once upon a time (2008, to be exact), bankers were shrunken down into little white rabbits, wearing top hats, and sporting coat tails. These joyful little imps foisted one alluring 0% interest rate credit application after another in consumers’ faces, leading them down a financial rabbit hole. Consumers were giddy with dollar signs in their eyes, glowing from the purchase of their HDTV! And then one day, the magic money cards that they used to make such purchases stopped allowing such free spending. Consumers were tossed out of the rabbit hole.

This snapped many back to reality. Consumers could no longer afford the cable bill that gave their TV an even more special glow. They were at their credit limit, paying exorbitant interest rates, and barely capable of making minimum payments. Then, they lost their jobs. Since 2008, consumers have seen the credit card companies and banks not as happy rabbits spreading wealth and joy but as financial sorcerers who schemed to make them part easily with their money.

This whole credit crunch had one unexpectedly positive result (for consumers). It forced them to use credit cards in a more responsible manner, while paying down debts. Credit cards gasped (a bit) for breath, experiencing a drop in usage. Banks paused and stepped back, until they came up with their next scheme.

The financial sorcerers worked on the “responsible” credit card customers this time. Credit utilization beyond 30% negatively impacts a consumer’s credit report. Essentially, consumers are rewarded for having a lot of credit that is not being utilized. Customers with a $10,000 limit on a credit card should stop spending before they hit a $3,000 balance to stay under 30% given interest and fees.

If that wasn’t enough, in 2010, credit card companies diminished the credit limit for many of their customers to equal the actual debt they were carrying. So your $2,800 balance on your $10,000 card was suddenly maxed out. Overnight, these good customers, who were below 30% usage one day, over night were turned into customers worthy of outrageous interest rates. They were now at 100% utilization of their credit and were forced to endure an automatic review from the banks. The higher the debt to limit ratio, the higher the interest rates that banks can charge.

When your credit score is impacted this way, in many states it can impact your reasonable car insurance rates, and result in a consolation letter rather than a “You’re hired” email from potential employers. Insurance companies and employers are just two of the major players outside the credit industry who may look at your credit report.

By 2011, consumers gained ground, reducing credit card spending and their debt to limit ratios. They took into account how much that HDTV costs on credit versus cash. And the credit card companies realized they need their consumers to be more than just hanging on in order to make money.

They’re opening up the credit to consumers again. Fair warning – they aren’t doing this to be nice. They’re doing it banking on the hope that you will be tempted to use the credit they give you and once again fall down the rabbit hole of never ending minimum payments and high interest rates.

This is not an open invitation to dispel all your new fiscally healthy habits you have been grooming. Don’t be fooled again!

Keep Your Plastic Under Wraps

By | Credit Cards, Credit Laws, Credit Repair, Revolving Debt, Your Credit

Making a quick pit stop for gas. Hitting the drive-thru at McDonalds. Picking up toothpaste and deodorant from the store. These are just a few of the everyday purchases we make, and far too often we use credit cards to make them. These small charges add up over time. Before you know it, the balance on your card has gotten out of control and that $5 Hot-N-Ready pizza from Little Caesars ends up costing you much, much more.

So are credit cards altogether bad? Like most financial tools, their benefits and liabilities all depend on how you use them.

Most credit cards offer some type of rewards program. Rewards can be a nice perk, but don’t let them entice you into using your credit card to make purchases that are beyond your financial means. That $25 Amazon gift card might seem like a really sweet deal, but if you have to make $100 in purchases to get it, you aren’t exactly getting a great deal are you? So pay careful attention to your reward terms and requirements.

And, if you want to get the most mileage out of your credit, try to pay off the balance each month. Most cards have a 30-60 day grace period for purchases, which means that during this window you won’t be charged interest for the things you buy on credit. Most consumers carry balances for several months at a time, which means that they end up paying far more than the original cost of their purchases. With interest, that new $1200 high definition flat screen could end up costing you over $3000 by the time it’s paid off.

The best way to use your card is for small purchases for which you might otherwise carry cash. Use it at the pump, at the drug store, even at McDonalds if you want. But be sure to keep track of what you’re spending. And don’t forget to pay it off and the end of the month – if you’re charging more than you can afford to pay off each month, you are living beyond your means.

Paying off your credit card balance at the end of the month helps you build your credit score. It also gives  you the advantage of racking up those reward points without the drawback of having to pay interest on that Big Mac. It might be tasty, but is it really worth $15 or more to you for the privilege of getting to pay for it over time instead of up front?

Didn’t think so.

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