Debt

5 Myths About Credit Cards That Won’t Go Away

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The idea of evaluating a person’s creditworthiness goes back as early as 1899, when Equifax (originally called Retail Credit Company) would keep a list of consumers and a series of factors to determine their likelihood to pay back debts. However, credit cards didn’t make an appearance until the 1950s, and the FICO score as we know it today wasn’t introduced until 1989.

Due to these timing differences, many U.S. consumers hold on to damaging myths about credit cards. Let’s dispel five of these widely held but false beliefs and find out what to do to continue improving your credit score.

Myth #1: Closing unused cards is good for credit

Remember when United Colors of Benetton used to be all the rage and you shopped there all the time? Fast forward a decade; you don’t shop there anymore, and you’re thinking about shutting down that store credit card. Not so fast! Closing that old credit card may do more harm than good to your credit score.

Your length of credit history contributes 15 percent of your FICO score. If that credit card is your oldest card, then closing it would bring down the average age of your accounts and hurt your score. This is particularly true when there is a gap of several years between your oldest and second-to-oldest card. Another point to consider is that when you close a credit card, you’re reducing your amount of available credit. This drops your credit utilization ratio, which makes up 30 percent of your FICO score.

What to do: Keep those old credit cards open, especially when they are the oldest ones that you have. Just make sure that you’re keeping on top of any applicable annual fees and they’re not tempting you to spend beyond your means.

Myth #2: Holding a credit card balance is good for credit

Your payment history is a more influential factor to your FICO score than your total amount owed to lenders (35 percent versus 30 percent, respectively). This means that if you have a choice between paying off and holding on to debt, it’s generally better to pay it off. However, responsible…

4 Questions to Ask Before Getting a Credit Increase

Feeling penned in by the low credit limits on your credit card? You might be able to boost your credit limit to a higher amount. Often, all it takes is a single call to your card provider. The bigger question, though, is whether you’re financially prepared for a higher limit.

Your credit card providers will always set a credit limit on your cards, the maximum amount you can borrow. If you have a short credit history or a low FICO credit score, your credit limits might be low ones, sometimes under $1,000. If you have a long credit history and high scores, your limit might be $10,000, $20,000, or more.

How do know if you’re ready for the financial responsibility of a higher credit limit? Here are some questions to ask yourself.

Do You Pay Your Credit Card Bill Late?

Do you pay your credit card bills by their due dates every single month? Or have you missed payments in the past? If it’s the latter, you might want to hold off on requesting a higher credit limit.

Paying your credit cards 30 days or more late will cause your FICO score to drop by 100 points or more. Your credit card provider will also charge you a penalty, and your card’s interest rate might soar. If you have a higher credit limit and a high balance, an interest rate spike could cost you quite a bit in extra interest payments.

Having a history of late payments will also give your credit card provider pause; the financial institution might not want to boost your limit if you don’t always pay your bill on time.

Do You Carry a Balance on Your Card?

The smart way to use a credit card is to pay off your balance in full each month. This way, you boost your credit score by making on-time payments, and you won’t get hit by the high interest that is often…

Here’s What Happens If You Don’t Pay Your Taxes

As Tax Day looms, you may wonder how high the tax man should rank on your list of creditors. Is it better to postpone paying taxes in order to pay off credit card debt, or to keep the electricity running?

Here’s what happens if you’re not able to pay everything you owe to the IRS, as soon as you owe it.

1. You’ll Pay a Penalty

Assuming that you filed your tax return on time but didn’t pay your full tax bill, the IRS will charge you 0.5% of what you owe, every month until you pay, up to 25% of the debt. So if you still owed $1,000 when you filed your return on April 18, you’ll owe an additional $5 a month.

It’s a very good idea to file your return on time, or file an extension, even if you won’t be able to pay right away — fees increase if you haven’t filed a return by Tax Day. Also, filing on time might get you a break: The IRS says that if you file for an extension or file your return, you may not have to pay the penalty if you’ve paid 90% of what you owe by Tax Day.

2. You’ll Pay Interest

The IRS isn’t going to lend you that money interest-free. The rate on money you owe to the IRS is currently 4%.

3. You’ll Get a Bill

If you haven’t filed your tax return at all, the government will kindly figure out how much you owe for you and send a bill. Actually, not so kindly, because the way they’ll calculate your taxes, you’ll end up owing more than you would have if you’d done them yourself. The government doesn’t have access to all your financial records, so they may not give you credit for your deductions.

Even if you file your return, if you owe money, eventually you’ll start getting mail about it from the IRS.

4. You Could Get a Lien on Your Home

If you don’t pay those bills (or show the IRS they’re wrong and you don’t owe), the next step is putting a lien on your property — usually your house, if you own one. This tends to happen if you owe $10,000 or more and haven’t worked out a…

You Got a Raise! Now What?

So, you got a raise! Now, it’s time to start putting that money to work for you. While your first thought might be shopping spree, consider instead these other options that will build your wealth and secure your financial freedom.

Have Realistic Expectations

Your raise may sound like a lot, but once you receive your paycheck, you may be surprised to find how little your take-home pay actually changed. Don’t make plans based on a quick mental calculation. Get the actual amount from your paycheck to know how the raise will actually impact you.

Make a Plan

Of course it’s okay to reward yourself a bit for working hard and getting a raise. But don’t just pocket the extra money and add it to your fun budget. Check your savings, credit card debt, and investments to see which areas can use a boost, and put your raise there. You can decide to put three months’ worth to pay down your debt, and then take a one month break to splurge. Consider your financial goals and how every dollar makes a difference toward reaching them.

Increase Your Emergency Savings

In an ideal world, you should have a three to six month cushion in your emergency fund. If you already have a sizable emergency fund, then you don’t need to worry about saving more with your increased income. Otherwise, saving more now will mean less stress later when an…

8 Most Common Mistakes When Doing a Balance Transfer to Eliminate Debt

This post contains references to products from our advertisers. We may receive compensation when you click on links to those products. The content is not provided by the advertiser and any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any bank, card issuer, airline or hotel chain. Please visit our Advertiser Disclosure to view our partners, and for additional details.

Many credit cards offer 0% APR promotional financing on balance transfers, allowing you to move debt from high-interest cards onto one that offers zero interest for an introductory promotional period. These promo periods are nothing to sneeze at. They can last as long 21 months.

So what’s the catch? The truth is that balance transfer offers can be incredibly valuable, but only when you use them properly and avoid making some common mistakes.

1. Assuming You’ll Get the Best Balance Transfer Deal

You might not always be approved for the balance transfer card you want. For example, the best 0% APR deals are only given to those with excellent credit. While you may have had excellent credit in the past, having a large balance for a long time might have caused your credit score to slip. (See also: One Ratio Is Key to a Good Credit Score)

Even if you are approved for the card, it may come with a credit line that’s substantially lower than you need. If that’s the case, you may want to consider applying for a second balance transfer card.

2. Trying to Transfer a Balance From the Wrong Card

Consumers sometimes don’t realize that you can’t transfer a balance between two cards issued by the same bank. So if you have an outstanding balance on your Chase Freedom Unlimited card, you can’t open up a new Chase Slate card and expect to transfer your balance to it.

Keep this in mind before you apply for a balance transfer card. Every time you apply for a credit card your credit score takes a little hit. It can usually recover fairly quickly, but there’s no need to ding it unnecessarily for a card that doesn’t even serve your needs. (See…

5 Providers of Debt Consolidation Services and Loans for Businesses

Debt Consolidation Services

Business and entrepreneurship in particular is among the riskiest endeavors you will ever take. Most of the time, you find that you have a unique business idea and a ready market. Things look up and to generate more revenue, you may choose to use your business credit card or take up a few loans just to finance and to build your business.

Unfortunately, there is an economic crisis, and you are unable to repay your loans and your sales drop. What do you do then? File for bankruptcy? Of course, this is the first idea that will cross your mind, but it may not be the best way out for you.

There is a better alternative – debt consolidation.

Debt consolidation refers to the putting together all your existing loans and credit card debts into one. Basically, you will take up a loan to repay your loan, now consolidated into one unit with a lower interest rate. The one big loan taken up pays off all your existing loans and credit debts and you will have one loan to service.

Your business is eligible for debt consolidation if you have several creditors breathing on your accountant’s neck monthly and when you need a better system of repaying all your creditors.

The first step is to determine the amount you owe against the amount you have or what you can afford to repay monthly. Choose a plan[1] that will work well for your business. After that, you should find a company or a reliable debt consolidation service provider. There are various service providers, but the main ones include:

1. Online debt consolidation companies/peer-to-peer lenders

There are many of these nowadays and you may be stuck on which company to choose, especially when inexperienced. As a rule of thumb, research, review, and ask, even though online businesses have debt consolidation loans[2] made easy. Your financial counsellors, colleagues, or acquaintances will guide you in the right direction. Some of the leading online debt consolidation loan companies include:

  1. LendingClub: This is one of the nation’s biggest peer-to-peer lenders. If your business’ credit score is strong, then you will enjoy debt consolidation services at low interest rates from this online entity. Their rates are easy to understand and calculate because all the necessary items are described clearly. The LendingClub has been accredited and you can trust…

A Few Surprising Facts About Student Debt

Americans’ accumulated student debt has topped $1.4 trillion, an all-time high. While that debt came in the service of providing valuable education, it can be a formidable hurdle for individual workers to overcome as they transition from student life into their careers. Check out nine surprising facts about the past, present, and future of the academic loan industry.

1. SCHOOL WASN’T ALWAYS SO EXPENSIVE.

After World War II ended with an Allied victory, the U.S. government rewarded those who served with scholarships under the GI Bill. Millions of veterans got a free education, while millions more who didn’t serve could attend for extremely low tuition rates that could be covered by working a summer job. This kind of nearly unrestricted access continued for decades until the economy took a downturn in the 1970s. As oil embargoes and inflation led to a sharp increase in tuition, private lenders started to take the place of federal aid, and the debt boom began.

2. DEBT HAS SURGED 58 PERCENT IN THE PAST 10 YEARS.

It’s easy to blame inflation for the ballooning student debt balances of the past decade. Graduates in 2005 owed an average of $17,233, while those exiting school in 2012 owed an average of $27,253. But average debts in the auto and credit card industries have fallen in the same period. The difference? Economists believe students have become more likely to take on higher loan amounts in the belief they’ll be able to secure higher-paying jobs after graduation. Unfortunately, those jobs can fail to materialize, leading to growing amounts of debt.

3. …BUT MOST DEFAULTS ARE ON LOANS LESS THAN $10,000.

Economists say that it’s a misconception that enlarged debt amounts are responsible for many of the defaults. By some estimates, two-thirds of delinquent loans are for $10,000 or less. Surprisingly, totals of less than $5,000 make it eight times more…