What You Don’t Know That Affects Your Credit Score
Say you miss a payment, bounce a check, or overdraft your direct pay. Happens to the best of us even under the best of circumstances. A few hours or a few days late isn’t the end of the world. Even a 30 day or 60 day late payment is considered short term and, if the planets are aligned, may never be reported to a credit bureau. A quick call to your creditor and you’ll be spared any dings on your score.
If you’ve gone 90 days or more on a late payment, watch out. You’ve surfed into choppy waters where creditors are unlikely to come to your rescue. Prepare for credit damage up to seven years. It doesn’t matter if the late payment was a $9.99 balance for the latest iTunes download or a $1000 house payment.
Creditors will also look at how much you owe compared with your available balances. It’s not always best to pay off your credit cards because keeping a balance between 30-50 percent makes for healthy scores.
Creditors also consider how long you have been using your credit. Longer is better. And if you recently applied for more credit. Hold off on that Macy’s card if you’re considering a big purchase in the next few months. And finally, they want to know what your credit soup looks like. Like a good gumbo, variety makes it hardy.
Just starting out or trying to rebuild your credit? You’ll need to have at least one account that’s been active for a minimum of six months and one that has been updated in the past six.
Overdue Library Books & Parking Tickets Can Ding Your Credit
If you just found that library copy of Gone With the Wind under your daughter’s bed where the dog dragged it six months ago, chances are that unpaid library fine has dinged your credit report. So will that late child support payment, utility bill, and parking ticket. Unfortunately, paying them on time doesn’t get you extra credit points on your credit score.
Are you the perfect tenant? You may win points with your landlord, but unless he reports your responsible payment habits to a credit bureau, your timely rent payment will not improve into your score. The good news is that this works vice versa, when you find yourself a day late and a dollar short knocking at the landlord’s door.
Fallen upon hard times? Loss of a job or unexpected medical bills aren’t factored into your payment history. You can cry to your creditor first, but your mother (or an emergency savings plan) is more likely to nurse you back to financial health.
How about those pesky credit card offers that clog your mail slot every week? Nope, they don’t ding your credit report unless you apply for the card because then lenders actually have to check your report.
Your credit can even affect what you pay for car insurance. The San Antonio Business Journal reported that people with poor credit scores make twice as many car insurance claims than those with the best scores.
Race, sex, age or where you live do not affect your credit score. Neither does your salary history, your job title, or who employed you. But it will reveal if you’ve been involved in civil suits, arrests, and of course, bankruptcy. Your credit report will show who’s been checking up on you, such as banks, mortgage companies, or potential employer.
How Credit Card Companies Take Advantage of Customers
Be on the look out for several goblins of credit card scare. They make high interest APR’s appear from thin air and nickel and dime you into a debtor’s grave with extra fees.
The Goblin of Identity Theft Protection is eager to chip away at your monthly income through excessive fees. You don’t need it. Credit card companies already protect you.
There’s the Over-The-Limit Goblin. This one is will eat into your bank account with unannounced late and overdraft fees.
The Goblin of Non-disclosure is his close cousin. This guy likes to hedge around so you can’t find out what your interest rate will be. He also likes to jacks up interest rates when he catches you just hours late with your payment.
And finally, the Home Invaders Goblin; he comes in the form of a telemarketer. He calls your home five times a day, finally leaving an urgent personal message instructing you to please call him immediately regarding your account. Panic strikes as you imagine you’re the next fraud victim. You dial only to find out that he’s the goblin of identity theft protection.
The False Security of the Debit Card
Debit cards are good tools to help you keep better track of your spending, but if you spend more than what’s in your account, you can rack up overdraft fees of an average of $30 per purchase.
When you use a debit card for hotels and rental cars, the company blocks off a couple hundred dollars, tying up your available funds and putting you at greater risk for overdraft. Use a credit card in these situations will ensure that the exact amount of your expenses are rung up at the time the purchase is made.
Credit cards can also offer more protection if your card or numbers are stolen because the credit card company is carrying your debt and will work harder to resolve the account and stop the theft. If a thief steals your debit card, he can quickly drain your account and you’ll have a much longer fight to get your money back. If you don’t catch debit card fraud in two days, you may not be able to get larger amounts of cash back. Wait up to 60 days and your chances of recovering your losses are about as good as finding the Loch Ness Monster.
Exploiting The Innocents of Credit
The most targeted credit card customers are young adults because they are inexperienced in using credit. Eighteen year-olds often receive up to eight credit card offers in the six months following their birthday. Companies may try to lure teens with credit card offers for things like free frisbees and Jamba Juice. Offers may promise no-interest APR, but fine print tells a different story. Some lenders may change the APR at any time for any reason without notifying the customer. It’s important that teens learn responsible credit card use so they don’t end up swimming in debt.
Pollster, Zogby International, reported that almost a quarter of all college students they surveyed finished college with more than $5,000 in credit card debt. And The U.S. Senate Committee on Banking, Housing and Urban Affairs stated in 2002 that the fastest-growing group of bankruptcy filers are 25 or younger. The answer isn’t “no credit cards,” but better education. Credit bureaus, legal offices, and other financial institutions all over the country are responding by offering financial literacy classes in high school to try to save teens from bad credit or bankruptcy damage.
Tempting the Small Business Owner into Expensive Debt
If you’re starting or supporting a small business, you know that it’s harder than ever to find cash. Stocks and housing values are down, severely hampering a your choices to draw from dividends or equity. You might be tempted to turn to credit card. Note that this might start a pattern where the profit from the business goes to pay off credit card debt, says Panda Morgan of the Greater Sacramento Small Business Development Center. Take the time to write a business plan and apply for a business loan, which will hold an interest rate in the single digits. Credit card companies have been known to charge 15-19 percent, so shop around for the best rates if you choose to go this route.
At the end of the day, credit reports and credit scores can be as stone-hearted as a jail warden on the night shift; but you can keep him happy by paying on time, not getting in over your head, studying the fine print, and reviewing your credit report for errors at least once a year.
Information for this article was gathered from a variety of sources including: Phoenix Business Journal, Birmingham Business Journal, Pittsburgh Business Times, The Tigard Times, Fair Isaac Corporation, Lawyers Title Agency of Washington, S. Michael Windsow, Helen Hecker of Articlesbase.com, Liz Pullliam Weston,Personal Finance Columnist, and The Today Show
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Tags: check, credit cards, report, score
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