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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…

5 Free Accounting Tools for Freelancers

As a freelancer, you’re responsible for every aspect of your business. Not only do you need to deliver a great product, but you also need to manage your expenses, invoice clients, and handle your own taxes. And as a freelancer, time is money. Instead of juggling spreadsheets and files yourself, check out these five accounting tools that are completely free.

1. Zoho

Zoho is one of the most robust bookkeeping platforms out there. With the free version, you can invoice up to five customers a month. And you can track expenses, customize your invoices, receive online payments, and manage timesheets.

2. Due

If your business is growing and you need to be able to accept credit card payments rather than just cash or check, Due may be the solution for you. Due is free to use, and you can send invoices and get paid online. Due charges a processing fee of 2.8%, and promises to match any lower offer.

3. PocketSuite

For people running smaller businesses, such as dog-walking services or housecleaners,…

8 Ways to Build Credit Even as a Student

Between classes, extracurriculars, and social activities, most college students have no trouble staying busy. Building credit may be low on their list of priorities, but that doesn’t mean it’s too early to start thinking about it. Being mindful of credit as a young adult can make it easier to land a car and a place to live, and secure lower interest rates on loans. Here are some steps that will set you on the path to stellar credit for the times when you need it most.

1. KNOW YOUR CREDIT SCORE.

The first step to building excellent credit is learning your credit score. Even without car payments or credit cards to pay off, anyone with student loans will have a credit history. A federal law makes it easy to check credit reports from the three main reporting agencies online. Annual reports are free, but according to a recent survey only half of college students take advantage of them. Having an idea of your credit score isn’t the only reason to check it: The report may contain mistakes or traces of fraud you weren’t aware of. Staying on top of your credit status means you can take care of any complications before they become an issue.

If you haven’t been checking your report because you’re afraid doing so will lower your score, fear not: When you check your score yourself, you’re initiating what’s called a “soft” credit inquiry. These kinds of inquiries do not have an adverse effect on your credit score—only the hard inquiries conducted by financial institutions do. (Generally speaking, a hard inquiry can only happen with your consent.)

2. FIND THE RIGHT CARD.

Contrary to popular belief, using a debit card exclusively isn’t a savvy financial move. Responsible credit card use shows credit agencies that you can be trusted to make payments on time. But deciding that you want an extra card in your wallet is half the battle—next you’ll need to narrow down your choices. First and foremost, compare the interest rates on different cards—the lower, the better. Next, consider the extras. Some companies offer cards designed for students with perks like rewards for good grades. Not every student will qualify, however—especially those without any income or bad to nonexistent credit history. If this sounds like your situation, a secured credit…

Check Out This Real Estate Deal

The following article is from the new book Uncle John’s Uncanny Bathroom Reader.

(Image credit: Flickr user Ming-yen Hsu)

There’s an old saying that the three rules of real estate are “location, location, location.” In France, there’s a type of real estate transaction where what really matters is “mortality, mortality, mortality.”

BON VIAGER

One problem that confronts cash-strapped senior citizens in many parts of the world is how to access the equity in their homes without having to sell the house and find another place to live. In the United States, so-called reverse mortgages are one solution: seniors receive a lump sum or monthly payments from a lender and continue to live in their homes. Then, after they pass away, the home is sold and the proceeds from the sale are used to repay the loan, along with any accrued interest.

In France, a different system is often used. Homes are sold using a system called en viager, or “for life.” Typically, the buyer pays a lump sum to the seller up front, plus a monthly payment, or “annuity,” until the seller passes away. The seller owns and gets to live in the house until they die, and then when they pass away, the buyer inherits the house. Because many years may pass before the buyer can move in, the buyer purchases the house at a heavily discounted price, called the “occupied value,” which may be as little as 50 percent of market value. Because no lenders are involved, no money is borrowed and no interest is paid.

ON THE HOOK

But there’s a catch: the buyer must continue to pay the monthly annuity to the seller for as long as the seller lives. If the seller drops dead soon after agreeing to the deal, the buyer inherits the property for pennies on the dollar (actually, for cents on the euro). But if the seller lives for many years, the buyer must continue to pay the monthly annuity…even if the total amount paid exceeds the market value of the property. If the buyer ever defaults, they get nothing; the seller keeps the money and the house. The system is designed to give seniors the security of a guaranteed monthly income, while giving younger buyers at least a chance at buying a property for a fraction of its actual value. It’s estimated that as much as 15 percent of all real estate sales in France are transacted using the en viager system.

CAN’T MISS

(Image credit: Google Street View)

Perhaps the most famous example of the en viager system is the deal struck in 1965 between a 47-year-old attorney named André-François Raffray and one of his clients, a 90-year-old woman named Jeanne Calment. Calment owned a large apartment in a beautiful old building in the center of Arles, a city in the south of France. Raffray agreed to pay her 2,500 francs each month (about $500) for the place until she died. The deal apparently did not include a lump sum paid up front.

One of the risks associated with en viager transactions is that the seller can lie about their age or pretend to be sicker than they really are, in order to extract larger monthly payments from a buyer who believes the seller might die at any minute. That was not a problem in this case because Raffray knew his client well….