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Proper Spending Habits will Protect Your Credit Card Health

By | Credit Laws, Credit Repair, Credit Scores

When we bag our groceries, we are encouraged to choose paper over plastic, in the effort to protect our environment. We suggest you do the same when protecting your credit card health: choose paper, not plastic.

Banks make their money from plastic. Every time you as a consumer use your credit card instead of cash, a percentage of your purchase goes into the coffers of the bank.  Subsequently, banks want you to use plastic as much as possible. They will bribe you to use your credit cards even when you don’t need to – or when you shouldn’t – use plastic instead of cash.

Points are often awarded to frequent credit card users. As travelers are awarded points for flying with a particular airline regularly or frequenting a specific hotel, credit card users are awarded points for regularly using a particular credit card and often for a particular purchase.

Seasoned credit card users realize that a different interest rate is assigned to cash advances; this rate is higher, and fees are often added to this higher rate. In contrast, lower interest rates are assigned to balances transferred from a competitor’s credit card, as the lender offering the lower rate wants your business. In their efforts to remain competitive, however, banks are now awarding points, double points, and triple points.

One lender may give you double points if you use their credit card for gas. Perhaps the lender may give you double points if you use their credit card for groceries. Another lender may offer triple points if you use their credit card to pay utility bills. Beware!

Banks will try a multitude of tactics to get you to use their credit cards and to continue using them on a regular basis. You will find that you are developing habits that will cost you more in the long run, and unless you are a credit card user that pays off your full balance every month, you are building interest that increases the cost of the service or item for which you are paying.  Develop habits that will protect your credit health.

Do not pay interest for gas. Do not pay interest for groceries. Both gas and food prices have increased enough over the past couple of years; do not make the situation worse.  If you must use your credit card, use the purchasing power of the card for larger ticket items, saving your cash for basic energy and grocery essentials. Also, realize your spending habits. If you are one to buy impulsively, train yourself to walk away from a prospective purchase. Give yourself 24 hours; you may find that you do not want a particular item as much as you originally thought you did. If you don’t need the item and you don’t have the cash, don’t buy it.

Credit card rewards are a bonus for those consumers who can afford to pay their balances and avoid hefty interest rates. These same rewards, however, are bait used to lure the user into a dangerous cycle of revolving debt that siphons additional money from the consumer that the user does not have.

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.

What Is Your Lucky Number?

By | Ask a Credit Expert, Credit Reports, Credit Scores, Fair Credit Reporting Act, Personal Finance

We may play the date of our wedding anniversary in the lottery, remember that magnificent eighteenth birthday when we got to drive our father’s car for the first time, and long to lose that extra ten pounds, but the number that most impacts our life – both in what we decide and in what others decide about us – is our credit score.

Our credit score affects whether or not we can buy a house, the interest rate we can get on a new car loan, and sometimes even whether or not we get a job interview. A credit score is more than a memorable number or date, it is something we must actively manage to improve our quality of life.

Credit scores range from 350-850, and the higher the score the better. These numbers are guidelines, so while many folks aspire to achieve a credit score of 850, most people top out at 815 or 820. Some people who actively work to maintain a credit score over 800 call themselves the 800 Club. They get together online or in person and discuss ways to increase their score. It pays off – if you have a credit score of 800 or higher, refinancing your mortgage is a piece of the proverbial cake.

For the rest of us, a credit score of 620-650 is enough to secure a mortgage (albeit at a higher interest rate than the folks with credit scores of 750-800). A credit score under 650, though, sets the borrower up for additional scrutiny and potential problems with securing credit. (620 works for a mortgage because the mortgage is secured with the house itself; however, someone with a credit score of 620 is unlikely to get a credit card since that line of credit would be unsecured.)

If your credit score is below 620, the only credit offers you’ll receive are for secured cards. With secured cards, you put money down up front to back the line of credit. For instance, you would give the lender something like $500 to hold as collateral. $500 would then be your credit limit on a credit card that you can utilize and pay off like any other credit card. When the credit card is paid off, you would get your $500 back.

On the other end of the spectrum is American Express, one of the hardest credit cards to get these days. Most American Express cards have to be paid off each month – compared to most Visa, MasterCard, and Discover cards that have only a minimum payment due each month – so America Express has a higher standard (and a higher credit score requirement) for its card holders.

Wherever you are in the credit score spectrum, it is time to learn what your score is and why. It is time to own, and not be owned by, the most influential number of your financial life and to manage it to make it work for you.

Forget the 1% or the 99%, be in the 21%!

By | Consumer Rights, Credit Reports, Credit Scores, Your Credit

Human error. Our idiosyncrasies are charming, and our pet peeves make great cocktail party banter, but our errors can be maddening to others. This is especially true in credit reporting, where 79% – yes, SEVENTY NINE PERCENT – of credit reports include inaccurate information. Sure, many errors are small, such as a misspelling of your name, but 25% of the errors are large enough to cause you to be denied credit.

Each lender and creditor has its own database of information. The timeliness of reporting from these databases to the credit bureaus can vary dramatically (some report immediately, some on a 2-3 month rolling period, some never report at all). Further, some lenders report to all three major bureaus while others report to only one or two. When data is reported, the information is often transferred via manual data entry, passing through several sets of human hands (and thus human foibles) as the data is consolidated and moved from system to system. Some errors, large and small, are destined to occur, and they can be time consuming and labor intensive to correct.

A place where errors often occur is with bankruptcy. Some errors are from data entry, but the far more nefarious error in this case is an inaccurate Charge Off…

Each and every account should be included in a bankruptcy filing, even the accounts that are in good standing. Lenders though will sometimes write off an account once they stop receiving regular payments, and this is called a Charge Off. This happens due to the timing of the bankruptcy paperwork, and it allows the lender to write the loss off on their books and lower their tax liability. However, a Charge Off on a consumer’s credit report can have devastating long-term effects, even worse than the bankruptcy. The Charge Off continues to carry an unpaid balance on the credit report, and that is a red flag to potential lenders that this consumer doesn’t pay his or her debts. Current lenders can use a Charge Off as a reason to change the terms of their lines of credit and start charging more interest.

Errors, mistakes, slip-ups, and blunders – they happen. Thankfully, even credit reporting errors can be remedied with early detection (periodically review your report – at least annually – to ensure there aren’t any inaccuracies) and diligent correspondence with lenders. In the event of a bankruptcy, ensure all outstanding accounts are included and aren’t charged off to help you get back on your financial feet as soon as possible.

Don’t Wreck Your Credit with Trade Lines

By | Credit Repair, Credit Reports, Credit Scores, Personal Finance

“An innocent girl, a harmless drive, what could possibly go wrong?” That’s the tagline from the 80s film starring Corey Haim. In License to Drive, Haim’s character flunks his driver’s test but decides to sneak out with his grandfather’s Cadillac for a date with a beautiful girl. As if his one indiscretion tempts the roadways, the car is basically demolished by the end of the film.

If you have credit that’s riding on shaky ground, you may understand his impetus to defy the law, his parents, and grandfather, because when you’re desperate, it may be tempting to pull one over on the credit reporting agencies, granting yourself a license to charge. You can certainly relate if your credit is shot, whether from a job loss, huge medical bills, short sale, bankruptcy, foreclosure, ignoring inaccuracies on your credit report, or forgetting or forgoing your bill payments.

There are companies that will help you make it look like you have better credit, by unethically adding current and timely paid trade lines to your credit report. Trade lines are any account that is listed on your credit report, such as a mortgage, car loan, credit cards, or any account with a credit line attached to it. If you have a serious spending problem that will not improve with anything but time, faking financial worthiness can further dent your relationship with lenders. It is akin to assuming a false credit identity that demonstrates a real sense of fiscal responsibility, while your credit is still unstable.

It gets worse, because beyond being quite unethical, it is like watching a slow motion car wreck. The worst part is that just as grandpa could see his car was totaled, the reporting agencies can differentiate between your real trade lines, and “bought” trade lines, and they may not calculate these fallacies in your credit score. The credit agencies will not even tell you that they know; it will merely be reflected in your credit score. So, practice prudence rather than letting the emotionally exhausting tugs of poor credit steer you in the wrong direction.

Fraudsters use false trade lines to elevate credit report ratings and open new lines of credit, with the intention of charging up the credit without paying back the loans. Desperation to sit in the driver’s seat of a nice new car may drive you to do it, but you will get caught. And, while selling trade lines is not an offense, opening and not intending to pay any lines of credit may constitute fraud.

As tempting as it may be for you to buy trade lines, your time and money are better spent pursuing other avenues. Stay away from these firms. It is far better to rebuild your own credit by correcting any inaccuracies with the credit reporting agencies, as nearly 80% of credit reports have inaccuracies. In the meantime, work with lenders that specialize in helping customers whose credit is not perfect rebuild their reputation.

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.

Ovation Has New Tools To Help You Manage Your Credit

By | Ask a Credit Expert, Credit Repair, Personal Finance, Revolving Debt, Save Money, Your Credit

Everyone loves a bad boy. There’s something alluring, tantalizing, and wrongly rewarding about chasing what we can never have. They tell you what you want to hear, until they get what they want and then run away with your heart. And they can end up costing you much more money than you thought they would. Wait, did you think we were talking about dating? No, we’re talking about the plastic you carry around in your wallet or purse.

And, when it comes to money, it’s all about how you play your cards. There are debit cards, credit cards, pre-paid cards, and even gift cards. We have all heard the message about credit cards, and we know they can prove as rough on you as, well, a bad boy, in the dating sense. Yet, like dating, there are good ones and ways to keep them in your good graces.

Now, we have to start with the mother of all bad boys: the banks. They are the ones, after all, who issue the cards. As far as debit cards are concerned, many consumers had switched to them as better than cash. Not to miss out on an opportunity to make some money off of their hard-working customers, many banks initiated monthly usage fees for those customers who decided to spend money using a debit card (a change that’s been backfiring as of late).

Customers bucked that trend by returning to the big brother of all bad boys: the credit cards. It may sound surprising to hear, but consumers have racked up 368% more debt in the second quarter of 2011 than they had in the same quarter in 2009, and 66% more than they had in that same time period in 2010. Now, the issue is that most rates are not as low as they used to be, now hovering in the neighborhood of 20%. In addition, the credit card ceilings are lower; meaning, you have a lower spending limit.

One way around this might be to put your cash on pre-paid cards or gift cards, but then you miss out on the benefits of responsible spending and timely repayment of your debts, which brings you a healthy credit score. If you are one of the many who have returned to using credit cards, it is important that you take advantage of one of Ovation Credit Law’s online tools.

These tools are designed to help our customers see the true cost of making a purchase on a particular credit card and what the purchase will ultimately cost you.  If you’re just making minimum payments or paying a certain amount additional above the minimum each month, our tools will help you see how long you’re carrying the debt for a particular item. Credit  cards, like bad boys, can be an expensive habit.

“No Reason” Is No Excuse

By | Credit Laws, Credit Repair, Credit Reports

Looking at your credit report is a bit like being in an episode of CSI. You’ll need to carefully pick apart the scene of the credit crime looking for the right clues. “No reason” really means “I don’t know” when it comes to credit score drops, and it usually takes nothing more than a little old-fashioned sleuthing to discover the no-reason reason.

The first step in your CSI Credit Crime adventure is to request copies of your credit report, which are available free to you once per year by law. The first crime you should eliminate is length of credit history. Not having enough of a credit history is an often hidden clue. In the industry this is called a thin credit file.

Have you closed a credit card lately? Recently closed accounts also provide a reason for “no reason” credit drops. Solve this credit crime by opening new accounts and being careful about what accounts you close in the future.

To get away with a credit crime or two, you need to know how to close accounts when you need to. As with all things in credit, there’s a right way and a wrong way. Keeping between four and six accounts open allows you to show companies you are using credit regularly and responsibly. Use one, pay it off in full every month and pay down on the rest. This is what creditors and credit-reporting bureaus want to see.

Don’t, however, close the oldest account you have. This is one of the most serious credit crimes you can commit. It makes your credit history appear shorter than it is and can cause your credit score to take a hit. Definitely don’t cancel several accounts all at once and don’t over-consolidate your cards so that you have too much debt in one place. Another reason your credit score can drop for “no reason” is when you use too much of a single available line of credit. Keep your credit balance below 30% of the total available credit.

Many no-reason credit crimes are committed unintentionally. While it’s often stated that your credit score takes a hit due to inquiries, this is largely overstated. You credit rating likely receives several inquiries per month from people wanting to issue you credit. These have a negligible effect on your credit. Even an inquiry into your credit rating from an employer or credit card application has a minor effect on your credit rating. Don’t spend too many crime scene investigation resources looking into inquiries.

When your credit score takes a dive for “no reason,” chances are it’s taken a dive for a reason – just not one you understand. Investigating your credit report with the attention of a CSI unit allows you to better appraise what “no reason” is the reason for your credit score’s recent dip so you can make the necessary repairs.

Managing Your Credit to Protect Your Credit Score

By | Credit Cards, Credit Repair, Credit Scores, Revolving Debt

The responsible use of any kind of line of credit, whether it is home equity or credit card, can have a tremendous affect on your overall credit score. High balances and late payments can sink your score fast. If you’re going to have a balance on your card, you want it to be 30 percent or less of your available credit.  And, you always want to be focusing on moving your balance down. Think of credit like a pie. You may want to eat the whole thing, but it isn’t good for your waistline. So you nibble on and savor one little piece. It’s the same thing with credit: nibble at your credit and don’t gorge yourself.

You should be able to pay your credit balance(s) in full each month.  This reduces the impact of interest rates and keeps a healthy line of credit to use when needed. It may not always be possible, but it should be a goal. Think of it like a marathon race. People don’t start out going full force and maintain it for the whole 30 miles because they would eventually drop to the ground exhausted. Instead, they pace themselves.

Lines of credit are often used for emergency situations, such as car repairs, when the money isn’t there. It may be impossible to take care of the bill in a single month, but you should set a goal to pay a specific amount off every month (far more than the minimum) until it is paid off. Pace yourself. An emergency line of credit isn’t any good if your balance is too high to pay for the emergencies.

Be cautious when using lines of credit as a buffer for expenses. If you have a  $10,000 or $12,000 limit on a credit card with a $3,000 balance you are paying on, then something happens to drop your credit score significantly, you risk an evaluation at the bank level. The bank can decide that whatever balance you currently have is your new limit. There’s nothing like having the rug pulled out from under you by a credit card company.

Credit is expensive. Even low interest rates on large balances can be financially crippling to the point where even minimum payments can be tough to make. Lines of credit are an important part of maintaining and improving your credit score and can be important financial tools, but only when used correctly. Too many people become caught in the credit quagmire and become lost, with their credit gone, their credit score decimated and their lives impacted. Don’t be ruled by credit debt. Use it sparingly and in ways that it will give you the most financial gain. Time for pie?

Handling Credit

By | Ask a Credit Expert, Credit Cards, Credit Reports, Credit Scores, Debt

A line of credit can be a valuable tool for a consumer, but only if it’s used responsibly. It can also be a trap that is very difficult to escape. Your new credit card may have a $5,000.00 limit, but should you go out right away and buy $5,000.00 worth of home theater equipment? If you couldn’t afford to buy all that gear before the card, chances are you’ll be stuck making just minimum monthly payment and carrying the balance for a very long time. By handling your line of credit irresponsibly, you’ve essentially trapped yourself.

So how do you avoid the trap? Under ideal circumstances, you should only carry a balance on your line of credit that can be paid in full every month. Two key things are accomplished when you get into this habit of credit use:

1)      You establish discipline over your spending patterns.

2)      You avoid revolving interest charges incurred by carrying an ongoing balance.

This approach, however, isn’t achievable for everyone’s financial situation. If you must use a line of credit to make a purchase, come up with a plan to pay off that balance in four to five months. You will incur some interest charges along the way, but you still get the all-important benefit of practicing discipline in your spending and reduce the amount of interest you pay. Remember, the goal here is responsible use.

A common pitfall is the idea that an available line of credit can serve as a buffer in times of financial hardship. If you’re carrying a balance of $3000.00 on a card with a $12,000.00 limit, you’re probably thinking, “Hey, I’ve got a $9,000.00 cushion I can use if something bad happens.” What most people don’t realize, however, is that banks and other credit lenders have the power to lower your credit limit if your risk level changes.

Let’s say the crisis hits. You lose your job, start paying bills a little later, and before you know it your credit score starts to drop. The bank’s risk evaluation department now determines that you are a higher credit risk and decides to drop your limit all the way back down to $3000.00 until you pay off the balance. Poof! The buffer you were depending on to get you through this financial drought is gone in the snap of a finger. The lesson here is that, in the end, saving money is the only way to create a reliable financial buffer to get you through life’s stormy seasons.

Use credit lines wisely. Don’t trap yourself with undisciplined spending and no savings. Make a payment plan and stick to it. Handling credit well is one of the most important keys to your overall financial freedom.

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