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6 Ways Your Credit Score Impacts Your Life

By | Credit Scores

If you’re like most people, you won’t know your credit score until you suddenly realize it’s important. Normally, this happens when you apply for a mortgage or another large loan.

You see, you might be ignoring your credit score, but banks, businesses and other lenders aren’t. For these users, your credit score is a vital snapshot of your financial well-being and trustworthiness, and it enables them to manage their risk when lending to you, hiring you or selling you their services. It’s the culmination of every large financial decision you’ve ever made — and it can have a significant impact on your future decisions.

Let’s take a look at some of the significant ways in which your credit score impacts you.

1. The Interest Rate on Your Mortgage

Your mortgage is likely to be the biggest loan you take out in your life, and your credit score plays a significant role in determining which mortgage you can get and how much it is going to cost you. Applicants with a low credit score, indicating potentially risky financial behavior, are likely to have to pay a higher interest rate on their loan and, in some cases, may be rejected outright.

A small change in the percentage of interest you pay might not seem like much, but with many mortgages stretching from 25 to 35 years, it represents thousands of dollars of extra spending.

2. Whether You Get the Rental Property You Want

Not bought a house yet? Your credit rate still affects your choice of home. After your earnings-to-rent ratio, your credit score is the most important factor in deciding whether your rental application is accepted. Given the choice of two applicants with similar earnings, the one with the higher credit score will always win — landlords know that by reducing their risk, they save money.

3. The Car You Drive

In 2017, the average auto financing loan had an APR of 4.21 percent, with most loans falling between 3 percent and 10 percent APR. The difference between a great credit score and a very poor one is even bigger: Someone with a very bad record might receive as much as 20 percent, while some users with a great record can still get zero percent APR. The difference between the two can easily amount to hundreds or even thousands of dollars per year.

4. Your Refinancing Options

As interest rates change, what seemed like a good deal a few years ago can quickly become expensive; by refinancing your mortgage or student loan, you can save a lot of money. Unfortunately, if you have poor credit your ability to do this may be limited or nonexistent.

It doesn’t matter what your credit score looked like when you first got the loan, either. Many borrowers have a good score when they get their mortgage, then fall into bad practices. When they try to refinance, their now-reduced credit score limits their options and gives them a nasty shock.

5. Your Employment Opportunities

Many employers like to credit-check job applicants before making a hire, particularly if the role comes with a large amount of financial responsibility. Although they’re not lending you money, the business is exposing themselves to risk of another kind by putting their finances and reputation in your hands. By screening out applicants with a poor credit score, businesses aim to reduce workplace theft and fraud.

6. Taking Out a Student Loan

If you’ve already borrowed the maximum federal student loan amount, it’s likely you’ll need to turn to a private loan to make up the difference to cover your tuition. These private loans (issued by a bank, credit union or school) are affected by your credit score, just like a mortgage or auto loan. This can come as a shock to students who have only dealt with federal loans before (which aren’t affected by credit score).

You’ll probably be paying off your student loan for years to come — a poor credit score could add thousands of dollars to the amount.

The Impact Can Be Positive or Negative

We’ve primarily focused on the negatives of having a poor credit score in this article, but at the other end of the spectrum are a bunch of people who get great deals on everything. Their above average credit score enables them to get better mortgages, cheaper loans, and superior work and housing opportunities. And because their interest rates are lower, maintaining their score is easier — it’s an unfortunate fact that the high interest rates those with a low score receive make it harder for them to improve that score.

Achieving Your Desired Credit Score

There’s no such thing as an irredeemable credit score; with time, effort and discipline, anyone can improve their score and access better rates. But, it doesn’t happen overnight — it takes time. Which means that the best time to improve your score is always now. You need to start preparing your credit score in advance if you want to get the best deals on a mortgage.

Unfortunately, the information on your credit profile doesn’t always tell the whole story — through no fault of your own, this information can be incomplete or even inaccurate. When that happens, your best bet it to repair your credit profile.

Ovation Credit Services helps the 79 percent of consumers whose credit reports contain a mistake of some kind. Sign up today and take the first step toward repairing your reputation!

Buying A Home: 5 Reasons to Buy Now

By | Home Buying

Buying a home is a big step in anyone’s life. Whether you are considering your first home, moving to a new place, or changing up your residence, purchasing a new home can be stressful and expensive. Picking the right time to take the leap can be a challenge. After all, what if a better home comes available next week or something changes in your personal life? However, sometimes the climate is particularly well-suited to buying a home – and that time is now.

Read on for our top reasons why you shouldn’t wait to buy a home in 2017.

Buying a Home

1. Interest Rates are on the Rise

The first thing you need to know is that interest rates are rising. In June, the Federal Reserve announced its third short-term interest rate hike in six months. USA Today interviewed three economists after the increase. The each said that they expect interest rates to increase by another quarter-point before the end of the year – making for a full percentage point increase in 12 months. Right now, 30-year fixed mortgage interest rates are close to a seven-month low – buoyed by weaker central banks abroad – but the low prices will not hold. “Fixed-rate mortgage rates are likely to gradually edge higher over the next six to 12 months,” explains CoreLogic chief economist Frank Nothaft, “Rates are likely to rise to 4.25 percent to 4.50 percent by the end of 2017” – and that is only the beginning. Chief economist for the Mortgage Bankers Association, Mike Fratantoni, is estimating that 30-year rates will be over 5 percent before the end of 2018.

Nothaft put the mortgage rate increases into perspective: “For example, with fixed-rate loan rates up by 0.5 [percentage point] since last summer, and house prices in national indexes up at least 5 percnet, the monthly principal and interest payment is more than 10 percent higher than it was last summer, adding to affordability challenges for first-time buyers.”

2. The Federal Reserve Takes Action

But wait. There’s more. The Federal Reserve is not only increasing interest rates. It is also divesting many of its mortgage-backed securities. “During the financial crisis, the Fed lowered short-term rates to zero. In an effort to further stimulate the economy by lowering long-term interest rates, such as mortgage rates, it began buying mortgage-backed securities. Higher demand raises bond prices, resulting in lower yields,” writes USA Today. “The Fed now holds more than $1.7 trillion in mortgage-backed securities, about one-third of all those outstanding.”

By selling off some of its portfolio, the Fed can get back to business as usual. This might streamline things for the Federal Reserve but it could spell trouble for home buyers. When the Fed adjusts its balance sheet like this, it puts pressure on mortgage rates. This action could push interest rates higher even if the Fed makes only minimal hikes going forward.

3. Home Inventories are Shrinking

There is also an issue with regard to home inventories. As of November 2016, there were almost 1.9 million homes for sale (1.85 to be exact). It might sound like a lot but that is almost 10 percent fewer homes than the year before. Moreover, the decrease in home inventories is not a blip. The number of homes for sale in the United States has been on a steady decline since the housing bubble burst so many years ago – and it looks as though the decrease will continue.

“Real estate experts predict that inventory will continue to shrink, at least for the foreseeable future. That means that in most areas of the country, buyers have more homes to choose from today than they will next year. Or even next month” says Realtor. “Bottom line: Every day you wait to start looking for a new home, you face stiffer competition for fewer homes.”

4. Home Prices are Increasing

This leads to the next issue – home prices are on the rise. “We are at a very, very unusual and historic time again… if you recall, we were in a historic time when prices were falling and rates were falling and we had a lot of inventory, and so buyers sort of had their pick of the litter, right?” says Chicago Association of Realtors president Matt Silver. “Now it’s the exact opposite.” With more competition for homes, it becomes a seller’s market. While it’s impossible to predict just how high home prices will go, Charles Nathanson of Kellogg School of Management says that when prices start to rise in a given year, they usually continue to rise the next year by an average of 70 percent or so of the amount they rose in the previous year.

5. Missed Opportunities

It costs money to buy a home. In addition to your new mortgage payment, you have closing costs, home insurance, maintenance and real estate taxes to consider – and that’s after the down payment – but the cost of postponing buying a home can be even steeper. Realtor economist Jonathan Smoke says that waiting just one year will cost you almost $19,000 between rising mortgage rates and increase in home prices. Over three years, that benefit is just under $55,000. Now, put this cost over 30 years and compound it and the financial benefit of buying a home today is over $217,000.

With the Federal Reserve’s current agenda, shrinking home inventories, and rising real estate prices, there is a huge cost of missed opportunities when you postpone buying a home. So, what are you waiting on? Ovation Credit Services can help make sure your credit report is mortgage ready. Contact us today for a free consultation.


Bundrick, Hal, “What the Latest Fed Rate Hike Means for Mortgage Rates,” USA Today, June 14, 2017. [Accessed: https://www.usatoday.com/story/money/personalfinance/2017/06/14/nerdwallet-mortgage-rates-fed-rate-hike-home-buyers-sellers/397475001/]

Gordon, Lisa, “3 Crucial Reasons You Should Buy a Home Before 2017 Ends,” Realtor, January 23, 2017. [Accessed: http://www.realtor.com/advice/buy/reasons-buy-a-home-2017/]

McGuire, Nneka, “Should You Buy a Home in 2017? Here’s What 3 Experts Say,” Chicago Tribune, May 24, 2017. [Accessed: http://www.chicagotribune.com/classified/realestate/ct-re-0528-experts-say-buy-now-20170525-story.html]

Stults, Rachel, “$217,726: That’s What You’ll Save (Give or Take) If You Buy a Home Now,” Realtor, May 28, 2015. [Accessed: http://www.realtor.com/news/trends/financial-benefit-buying-a-home-now/]

Repair Your Credit – “Waiting It Out” Doesn’t Work

By | Credit Repair

Repair Your Credit Now

You ran into a few problems with credit and now you have negative accounts listed on your report. Derogatory information no longer appears after seven years, so you may be tempted to wait it out as a way to repair your credit. However, you run into several major issues when you take this approach.

1. Creditors Reselling Debt

Once you miss a few payments on an account, a creditor typically claims a loss on the debt through a process called a charge-off. They may sell the account to a collection agency. This company attempts to get payment for the delinquencies. If they’re unsuccessful, the debt may pass to other debt collectors. These accounts may linger on your credit report, particularly if you make a payment to one of the businesses. You may get stuck waiting several additional years past the seven-year limit due to this activity and debt reselling.

You also get into a position where it’s difficult to keep track of the agency holding your debt. Some scam companies may act as though they are the responsible party, but they’re simply trying to get your personal information. With identity theft on the rise, you put yourself at risk.

2. Delayed Drop-offs

Why repair your credit when the negatives will just go away in seven years? Well actually, your bad debt doesn’t disappear from a credit report when the account reaches seven years in total. It’s calculated based on the date of the first delinquency, which is when you began missing payments. If you skipped several months then attempted a payment plan with the company before the charge-off, you may end up adding months or years to the predicted drop-off rate.

3. Multiple Listings

Another issue with waiting out seven years instead of repairing your credit, is the number of negative account listings you end up with on your credit report. You may only have one charge-off, but you can have the original listing, plus another one for every collection agency that purchased the debt. Waiting it out actually causes you to accumulate even more bad debt. Time is of the essence when you need to repair your credit. These entries bring down your credit report and can make your credit-worthiness look worse than it is.

4. Legal Consequences

You are legally liable for the debt you incur, even after the original creditor charges the amount off. The company has a certain statute of limitations in which they can take legal action against you for the account. This period varies from state to state but lasts for several years. You can get served with a lawsuit for the full amount, plus legal costs. Not only do you need to go to court, but you get a judgment against you that also ends up on your credit report.

5. Financial Consequences Costing You Thousands

Bad credit does more than stop you from getting credit cards. You end up with higher interest rates on mortgages, personal loans and car loans, if you can even qualify for them at all. Insurance companies use credit scores as part of their risk profiling, so you get a higher premium when you pick up vehicle or home insurance. Some creditors may place a wage garnishment or bank account lien on you after winning a judgment. You get money taken out of your paycheck or directly from your checking account, which can have disastrous consequences if it happens at the wrong time.

If your delinquent accounts come from the same company that holds your checking or savings account, it may end up pulling money from your accounts to cover these costs.

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6. Career Consequences

Government contracting often requires a security clearance for employees. If you have significant debt, you may not qualify for the right level to get the job. Many companies, particularly those in the financial industry, also look at your report as part of the hiring process. They may feel that many collection accounts show a lack of responsibility. To think you could be fully qualified but not get the job because you didn’t repair your credit.

7. Personal Consequences

Finding a place to live becomes difficult with bad credit. Landlords look through credit reports to determine whether you can afford to live in the apartment and whether you would be a good tenant. If they see a lot of charged-off accounts, you could get passed over for other applicants. Most professionally managed properties look at this information, so you would have to search out a private landlord instead.

The stress associated with bad credit is also significant. You have to worry about constant application rejections, wage garnishments, lack of access to credit products and an inability to get good rates on anything. In an emergency, you can’t turn to a credit card, which leaves you at the mercy of predatory lenders.

Since you can’t get credit cards, you don’t have access to incentives such as cash back, rewards points, roadside assistance and travel insurance. If you do qualify, you may have to pay an annual fee to keep the card open or secure the credit limit with your own money.

Sitting back and waiting for everything to blow over works well in a natural disaster, but it’s not a great tactic when you need to repair your credit. You face legal action, personal consequences and financial instability when you aren’t proactive about your credit health. Start looking into credit repair assistance, so you don’t have to put your life on hold for seven, 10 or even 15 years.






Buying a Car: Cash vs. Financing

By | Ask a Credit Expert, Loan

auto-financingThere are so many reasons to need a car – and many more reasons to want a car. Oh the love affair we have with our vehicles. But deciding how to pay for a new car can sometimes be as difficult as choosing the paint color.

Pay in cash or finance? There are pros and cons to both options. Ultimately, the best course of action will be determined by your overall financial health and goals.

Cash Pros

Imagine a life without a monthly car payment – sounds great right? That money could be used for savings, paying down debt or investing for retirement. And that’s not the only reason to pony-up cash at the dealership. Cash buyers usually pay less than those who finance. Even if the dealership is offering 0% APR, there are often rebates for cash customers, not to mention having cash-in-hand puts you in a stronger bargaining position. Owning your vehicle from day one also gives you the ability to decide when and if you want to sell your car

Cash Cons

Paying cash will seem a lot less fun when you realize what your budget allows. Even for luxury vehicles the financing terms may seem affordable, but when you need to scrimp and budget your way to a lump-sum payment for a vehicle, your dream car might be out of reach. Another con of paying in cash is handing-over that hard earned savings. Maybe you had to deliver newspapers or swear off Starbucks to save your car money and now that you bought your car, you no longer have that financial cushion you worked so hard to build. But, remember, without a monthly car payment you should be able to rebuild a sizeable savings account (even if you do return to your latte habit).


Financing Pros

Banks, Credit Unions, car dealerships – they all want to pay for your car, so let them. When you finance a vehicle, the lender technically “owns” the car and they will want to protect their asset. That means warranty programs that may not be available if you pay in cash. Financing is also particularly smart for people, like students, who need to build credit history. Part of your credit score is determined by the types of credit you have (mortgage, credit cards, student loans, etc.) and a car loan is one type of credit. Also, if your credit score is good (in the 700s) you will likely get offered one of the best interest rates.

It may seem counter-intuitive, but if you have a really great credit score and you have enough savings to pay cash (without depleting your emergency fund), you should finance. If you take the cash to pay for your car and put in a high-interest savings account, finance your car for 0%APR and have the car payments set-up to automatically come out of that savings account – you will actually make a little money from the interest earned. You get the benefits of not “paying” for your car every month, plus the warranty benefits of financing.


Financing Cons

Of course, there are cons to financing. As mentioned before, the monthly payment can really drain your budget and eat-up your free cash. Also, cars always lose value. When your financing terms are over and you decide to sell, you will sell the car for much less than you paid for it. If your credit score is suffering, that vehicle purchase can get really expensive, really quick. No matter what your credit score, there are many lenders who are willing to offer car loans – but, at very high interest rates. That monthly car payment will hurt a lot more if it’s the size of your mortgage payment.

Consider your entire financial picture when you decide how to purchase your next vehicle. Do you have a good enough credit score to secure reasonable financing? Will a used car fit your needs until your debt is under control? Your car needs to be able to get you where you need to go in life, but it shouldn’t detour your financial goals on the way there. If your credit is on a detour then call Ovation Credit for a Free Consultation and see what you can do to bring your credit report and score back on track.


De-coding Credit Scores – What your Score Really Means

By | Credit Scores

what-your-credit-score-meansYour credit score – that three-digit number on your credit report – has significant implications on your ability to borrow money and how much interest you pay. But, do you know what your credit score means? What is considered good or bad?


The 400 and Under Credit Score

A score this low is nearly impossible to accomplish. But, maxing out a bunch of credit cards immediately after receiving them and then filing for bankruptcy might do the trick. Unfortunately, most lenders can’t do anything for you, with a score this low. But, some car dealerships may be able to give you a car loan at an insanely high interest rate.


The 500 Credit Score

You might fall into this scoring range if you defaulted on some credit cards, have significant late payment history and/or have a high debt-to-limit ratio. A common misconception is that credit reports reflect your debt-to-income ratio; however, your income has no bearing on your credit. How much you owe vs. how much your credit limits are play a large part in your report.

If you’re in the 500 range, getting credit from traditional lenders will be tough, so you may want to opt for a pre-paid credit card. These cards require cash up-front to establish the credit limit (a $500 payment gets you a $500 credit limit). While technically you are borrowing your own money, using the card and making on-time payments will help you build your score. Also, some lenders specialize in finding credit for low scores, but the interest rates are very high.


The 600 Credit Score

While you have more lending options available to you than someone with a 500 score, you are still considered a somewhat risky borrower. That means that banks will be reluctant to lend money to you and if they do you will have to pay higher interest rates. The goal with this score is to try and improve. Perhaps consolidating some student loans could do the trick, lowering the balances on your credit cards, or simply setting-up some calendar reminders to ensure on-time payments. Aim for a score in the high 600s or 700s.


The 700 Credit Score

This is the above average category and borrowing at decent interest rates should not be a problem. However, keep in mind that the best interest rates are reserved for scores above 740 – depending on your exact score you may have some work to do to reach the preferred rates. Take a look at your credit utilization ratio on your credit cards – this ratio accounts for 30% of your score. Lowering your credit card balances might be all you need to push upwards to 800 or beyond.


How to Buy with a Bad Credit Score

If you found yourself in the 500 or below categories, you probably already know how difficult it can be to secure lending. But, there are still some options for buying what you want. The first option is to pay cash. Learning to save and wait are budget skills that will help you maintain a higher credit score once you achieve it. Credit card-debit cards (like Visa-debit or MasterCard-debit) allow you do make purchases that are usually reserved for credit card holders, but the purchase is made with cash from your checking account. This includes shopping on-line, airline tickets, hotel rooms and car rentals.

As mentioned above, there are some lenders who are willing to take a risk on borrowers with low scores – but you have to be willing to pay the price. Interest rates can be as much as 6% higher (meaning a higher monthly payment) and the down-payment required on a car loan or mortgage may be as high as 35%.

No matter what your credit score is, you probably have some room to make it better. The factors that contribute to your FICO score are: payment history, amount of total debt, how long you’ve had credit (the longer the better), how often do you apply for new credit and the types of credit you use (mortgages, car loans, credit cards etc.) The past has already happened; look forward to your future and your new and improved credit score.


Photo Credit: telegraph.co.uk


Use Savings on Mortgage to Pay off Credit

By | Credit Cards, Mortgage

use-savings-on-mortgage-to-pay-off-creditNot everything to come out of the recession was bad news. One of the best things that happened thanks to the recession was a downward pressure on interest rates. The Federal Reserve Chairman, Ben Bernanke, sets the interest rate based on the country’s economy. Recently, Bernanke announced that the Fed would keep rates low (near 0%) through 2015 or until the unemployment rate falls below 6.5%.

The rate set by the Fed is how much banks pay for money, and when the rates are low for them, they are typically low for consumers as well. Right now, mortgage lending rates are nearly the lowest they have been in decades. A 30-year fixed mortgage is at 3.75% and a 15-year fixed mortgage is at 3.0%. (We don’t recommend choosing adjustable rate mortgages).

These rates mean a lot to homeowners and potential homeowners. When rates are low, more people can qualify to buy homes, and the homes you do buy cost less per month to own. A $200,000 house would cost less than $1200 per month, without taxes and insurance, at these low rates, where the same house would have cost nearly $2000 per month  at 8.75% interest. In addition to making the monthly payment more manageable, lower interest rates also mean you pay less interest over the life of the loan. The difference between 3.75% and 8.75% on a 30-year fixed mortgage is $291,226!

If you already own a home, you can take advantage of these low rates by refinancing. Refinancing is the process of obtaining a new loan, either with the same lender or a different lender, on an asset you already own. When refinancing your home, the new loan pays off the existing loan and can often include additional money in your pocket for things like home improvements or to pay off other debts. You can either shorten the term of the loan or extend it back out over 30 years again, which can lower the monthly payment even more. When you consider that the average credit card interest rate hovers around 16-18% and a home loan can be had at 3.75%, there’s no question that it can cost you less to refinance, take cash out, and pay off your credit debt. If you’re not comfortable adding more debt to your mortgage to pay off your credit cards, you can simply use the money you save on your monthly house payment to pay down credit debt.

When deciding whether or not to refinance, the rule of thumb is that you can typically recover the cost of refinancing if you plan to remain in the home for longer than two years. If you are under water on your mortgage or if the value of your home is less than it was when you bought the home, you may qualify for special refinance programs like HAFA and HAMP. To learn more about these programs, visit Making Home Affordable, the official government information site for special lending and refinance programs.


Why You Should Open a Credit Union Savings Account

By | Personal Finance

benefits-of-credit-unionsYou don’t have to be part of Occupy Wall Street to have a bad taste in your mouth about big banks. Big banks – the “too big to fail” bailout banks like Bank of America and Citibank, seem to have come through the recession relatively unscathed compared to the typical American consumer. But even with all the talk there has been from the Occupy movement and others about switching from big banks to local credit unions, some consumers shy away from the idea. When consumers are trying to decide between banks and credit unions, the common misperception is that banks offer higher interest rates for savings accounts.

Bank vs. Credit Union Rates

The truth is, big bank savings account interest rates are at an all-time low, sometimes so low that you lose money putting the money in savings because inflation is growing too fast to make it worth saving the money at all. Rather than ditch the idea of savings credit unions offer much better interest rates – rates you can save with – that are five to ten times higher than big bank rates (the average credit union savings account earns about .11% interest annually, compared to the .01% at big banks).

Benefits of Choosing a Credit Union

Choosing a credit union for your savings account is a good idea for other reasons, too. Credit unions are non-profit and owned by those who have accounts. By depositing money in a credit union, you become part owner of the credit union. You get a voice in the management of the credit union. And there is no fat-cat CEO pocketing money with one hand while foreclosing on homeowners with the other.

Credit Union Memberships

Credit unions usually have membership requirements, but there are credit unions for nearly anyone. There are credit unions for veterans, teachers, and even for people who live in certain regions. Some credit unions are for employees of specific businesses. Because credit unions offer higher interest rates, there are usually strings attached. Some credit unions will not let you withdraw the money for a certain period of time, while others require you to maintain a minimum balance to get the best rates. Some credit unions, however, offer great rates no matter how much you deposit. Credit unions often have special incentives to help kids open an account and learn the benefits of saving. There are a variety of websites through which you can compare different credit unions; when choosing a credit union, the most important factor is to make sure it offers the banking products and services you need.

Hidden Downfalls of Credit Unions

One of the biggest drawbacks of credit union banking is the limited number of branches and ATMs that are available. However, the ATM card will work at ATMs across the nation, so if you’re traveling outside the area of your credit union, you can still access your money.

Another issue that occurs with credit unions is cross-collateralization. Cross-collateralization occurs when the same asset is used to secure more than one debt. For example, if you get a loan to buy a vehicle through your credit union and you also have a credit card at the same credit union, the vehicle may also be used to secure the debt on the credit card, making it more difficult to sell or trade assets.

If you are in the unfortunate position of having to file bankruptcy, being a member of a credit union can be a hindrance. Where a bank will allow you to keep your checking and savings accounts open even after the bankruptcy is discharged, most credit unions will close your checking and savings accounts. Because it can be difficult to open new accounts after a bankruptcy is on your record, this can be a real drawback.

For most people, the drawbacks to banking with a credit union are fairly minor in comparison to the advantages. If you want to find a credit union in your area, the best place to start is at the government website, National Credit Union Administration. From there you can use the credit union locator to find the right credit union for your needs.

When Do Interest Rates Vary?

By | Budgeting, Credit Cards, Credit Laws, Debt, MasterCard, Revolving Debt, Visa

You probably see credit card offers all over the place. They’re in the mail box, in your email, on TV, and on the web. Every one of them boasts about the great interest rate they’re offering, and the temptation to click and apply or fill out a form is great, especially when you need some financial relief.

Suppose you accept one of the offers. Will the sponsoring credit card company increase their rate after a couple of months? And what excuse will they use?

In the past, credit card companies could make changes with the wind, but new laws have stopped practices such as raising the rate on your card simply because a competitor raised your rate on their card. Credit card companies can still raise your rate, but they have to let you know when and why.

General Change of Rate: If you’re in good standing, your interest rate can change only if the credit card company changes the rate for everyone having the same kind of account with them, and they have to give you 45 days notice. The notice gives you time to pay the outstanding amount and cancel the card before the rate goes up.

Late Payment: Sometimes the credit card company will raise your rate to their default rate if your payments are late for two months. To do that, they have to give you the 45 day notice, and, if you make the required payments for six months – on time – at the new rate, then the company has to reduce the rate to the rate you had before the increase.

Cash Advances: A credit card company can offer a teaser rate coupled with a flat fee. After a period of time, the interest rate on cash advances can increase to a rate that’s higher than your credit card rate. What many companies don’t advertise is that your payments are applied to the minimum payment requirement on your credit account first. Only after that payment is made is anything applied to the cash advance, which is why we don’t recommend taking cash advances from credit cards.

Balance Transfers: Credit card companies will offer a lower interest rate on balance transfers to entice you to transfer your credit debts to their card so you have a bigger balance with them. They know that most folks won’t pay off large transfers during the teaser period and will end up paying the normal interest rate on the larger amount they now owe. Of course, you come out ahead if you do pay the transfer off during the teaser period, particularly if they offered you a zero percent interest rate.

Resist the temptation to fall for the pleas from credit card companies. Instead, take stock of the credit cards you currently have, work with them to lower your interest rate as much as possible, and focus on managing and reducing the debt you have instead of adding more.

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