A minimum payment is generally calculated as 2-3% of your balance, or 1% of your balance plus interest and fees. This minimum payment is specifically calculated to maximize the amount of interest you pay, and the length of your repayment. Keep in mind, the interest you pay is profit for the credit card companies.

To put this into perspective, a consumer paying $10,000 in credit card debt at the national average industry rate of 19.24%, would end up paying roughly $19,500 for that debt when all is said and done.

Surprisingly, this information is shown right on your statement, just very small and quite difficult to understand. The CARD Act requires statements to now show how long it will take you to get out of a given debt if making just the minimum payment, and it’s shocking.

For high balances, it will take decades to repay the debt. And, you will have paid nearly double for the credit spent. All of this because debt is a business. For creditors and collectors, the longer you stay in high interest debt, the more they make.

You have debt collection rights

Very few people know about the Fair Debt Collection Practices Act of 1977 awarded significant rights to consumers against creditor and collector harassment. For instance, did you know that if you ask a creditor to stop contacting you, they must comply?
If they don’t, they can be fined for every phone call, and it can even result in compensation for the debtor.

Of course, telling your creditor not to contact you by no means the debt is forgiven or forgotten, you still owe it. A collector can still pursue legal action to collect this debt. They simply can’t contact you regarding it. This is a good tactic for aggressive collectors that harass consumers into making a payment.

Whatever you do, avoid late payments.

Late charges on credit cards can be as high as $75 – not to mention the additional struggle this causes when you fall behind. A late payment, when quickly corrected can be no big deal. But when it becomes common, or you’re not able to quickly rectify, the problem can snowball.

How many times have you said, I’ll push it back a week and just pay it then? A week goes by, another bill has taken precedence – but don’t forget, you’ve committed to paying last week’s bill, too. This compounding effect can be felt quickly, and is very difficult to dig out from.

Make sure you don’t gracefully miss the end of your grace period.

A grace period can be a blessing… and a curse. While it can afford you some much needed time to realign your finances, it has to be managed. When a grace period ends, you could be facing some pretty tough repayment terms.

For many consumers, they simply forget they’re operating in a grace period. You’ll quickly realize it when you receive the first statement with accrued interest.

Credit card cash advances are paid last.

People sometimes use their credit card for a cash advance. typically this function of a credit card carries a higher interest rate than your standard purchase rate.

When you make a payment towards your card balance, you don’t get to choose which part of your balance the payment goes toward. Credit card companies will save your cash advance for last, after all, it’s garnishing the most interest.

If you must take a cash advance from your card, it’s wise to do so on one without an existing balance. This way you’re certain your payments on that card are going towards the higher interest advance balance.

High interest and credit cards go hand in hand.

Credit cards carry high interest. This is a fact. While some may reach 30% or more, the national average as of 2019 is 19.24%. This fact is what makes credit card debt some of the most dangerous kind.

With this type of interest, making minimum payments will lead to years of repayment, and more than double your original balance. Unless you’re making additional payments directly to the principal, you’ll find yourself in an endless cycle of interest payments.

Interest is profit for credit card companies, and profits are up.

Credit card companies want you to make the minimum payment. It usually represents about 1-3% of your balance, with the majority going to interest. For instance, the average credit card debt in the states is currently $8,402 per household. Using the average interest rate of 19.24% and making minimum payments, this debt would take 93 months to pay off, and you will have paid a total of $16,275.

As you can see, it is very much in the card companies interest for you to continue making minimum payments. If you find yourself in this position, it’s best to explore debt relief options. Obviously if you’re spending recklessly and able to make some lifestyle changes, this should be entertained first.

The post 7 Things the Credit Card Companies Don’t Want You To Know appeared first on Consumer Credit News.

A credit card balance transfer is a common way of avoiding interest rates. This is done by frequently moving your debt to new sources, chasing low introductory rates. While this can be an effective way to avoid excessive interest rates, it can be equally dangerous.

For consumers with excellent money management skills, balance transfers are a staple of their financial plan. In fact, some people even view it as a game, consistently tricking the creditors by never paying interest.

If consumers go down this path and an unexpected loss of income occurs, things can go sideways quickly. Low interest introductory offers are followed by a hefty interest rate applied to the balance when they expire.

If your income is reduced, or credit damaged, you may not qualify for that next credit card. This is where consumers can get into trouble.

What is a Balance Transfer?

When you possess high-interest debt on one or more lines of credit, a balance transfer moves that debt to a new loan or credit card with a zero or low interest rate. This rate is introductory, and generally expires one year from signing up. This tactic ensures all your payments are going to principle, and never accruing interest.

To be clear, a balance transfer does not reduce the amount you owe in any way. Instead, its purpose is to get a lower interest rate, save money on finance charges and pay off the owed amount faster.

In order to qualify for an unsecured credit card with a 0% interest rate, you will have to maintain good credit.

Transfer-fee on balance transfer.

Many credit card issuers offer 0% interest balance transfers, but some of them also charge a transfer fee. This fee usually ranges from 0–5%. It’s very important to fully understand the scope of the promotion. Make sure you ask the right questions, and stay within the guidelines if you choose to transfer.

Some good questions to start with are:

• What is the introductory interest rate?
• How long does the promotional period last?
• Is there a balance transfer fee? If so, what is it?

How do balance transfers affect your credit score?

Balance transfers are generally deployed as a way to avoid high interest, late payments, or to try to improve credit scores. It can be a good way to pay down credit card debt. But, it can either help your credit score or hurt it depending on several factors.

Applying for credit cards with low introductory rates can negatively affect your credit scores. While a balance transfer saves money on interest in the short term, if you falter, the credit implications can be severe.

Is it effective to transfer credit card balances or does it just prolong the inevitable?

So, is a balance transfer really worth it. A credit transfer fee between 3 to 5 % of the balance is charged by most credit card companies. For example, if you’re repaying a $15,000 debt, some balance transfer offers will add 5% ($750) to your total as a charge for the balance transfer.

Once the promotional period is over, the full interest along with any fees will begin compounding. In short, it’s a strategy that can help you save extremely costly interest rates. But, you need to be careful about details like fees, interest rates and other restrictions on transfer amounts.

Transferring a balance, of course, does not mean the elimination of the debt. Instead, moving the balance to a low-interest credit card is a temporary reprieve. It typically comes with fees, and interest will surely have to be paid on whatever balance is transferred.

The hidden trick behind these balance transfers is consistency. Without it, you may find yourself in a bind when the introductory 0% APR period ends. In order to avoid this, it is vital to pay off the entire balance during the no-interest introductory period, or, continue your transfer plan if you can keep it up.

Bottom line

Balance transfers can prove to be a good subway to consolidate the credit card debts and more quick payments, provided close attention is paid to the terms and conditions.

The post Balance transfer: Beating high interest rates or path to perpetual debt? appeared first on Consumer Credit News.

A great deal of attention is put on the three-digit credit score that summarizes your creditworthiness. Have you ever wondered how the credit reporting system came to be? Or, what are the credit systems in different countries in the world? Do you need to rebuild credit if you move to a new country? Let’s find out…

History of the credit system.

Until the 1970s, credit scores were not as important in lending as they are now. The modern iteration of the FICO score, based on credit files from the three credit agencies Equifax, Experian and TransUnion was introduced in 1989.

Before credit scores, people still had credit reports which were based on the loan officer’s subjective judgment. Meaning the reports were essentially accounts of past experiences, and at the mercy of the lender handling.

There was a time when walking in to a bank with a rock solid business plan, location, and product was enough. This is of course if the lender determined you were worthy based simply on your interaction with them. Eventually, the need for a universal credit system became evident.

Do other countries have credit reporting systems?

Each country has its own way of deciding the creditworthiness of the borrowers. While there is no single international credit rating or international credit score, a few countries use similar systems. Some, like Japan, use none at all. Other nations use completely different credit scoring systems, due to different country-specific regulations regarding credit reporting.

The credit bureau Equifax operates in 15 countries through Europe and Latin America and the complexity of reporting varies in each country with their own regulations.

Is there an international credit system you can use in different countries or does each country have its own system?

Settling and moving to new countries would be significantly easier if we could use the same credit score system around the world. Unfortunately, there are no completely international credit agencies as of 2019.

While there is no common international credit rating or international credit score, a few countries use similar systems. This is because each of them uses a different combination of credit reporting agencies and are based on different factors.

Below are the credit reporting systems followed in some of the countries in the world:

• Japan: Credit in Japan is usually between the consumer and the bank and is based on factors like length of employment and salary.
• U.K.: Their credit system is much similar to the one in the U.S. It has three major credit bureaus Equifax, Experian, Callcredit. UK consumer credit is based on factors like payment history, age of accounts, and credit utilization.
• Netherlands: Here, a person with a steady income who isn’t defaulting on any existing debts is generally judged creditworthy.
• Canada: Its credit system is also similar to that of the US. TransUnion Canada and Equifax Canada are affiliated to the US TransUnion and Equifax credit agencies with the only difference that the Canadian credit scores range from 300 to 900 points with the majority requiring to score a 680 to receive good interest rate on a loan.
• Spain: It has a credit register to track all the loans, credits, bank endorsements, and risks in general that financial institutions have with their customers.

Credit history when moving abroad.

The credit reference agency like Equifax compiles the credit report by collecting information on your activity only in a particular country, so if you move to a new country, you have to essentially start right from the scratch!

For those thinking this seems like a great way to wipe the slate and start over, think again. Although your credit history may not follow you when you move abroad, any debts you owe will remain active. This means your creditors and debt haven’t gone anywhere. They will still pursue their balances regardless of where you live.

With that said, you do have the opportunity to start over with new credit in a new Country with a different system. Just don’t forget about those debts back home, they’re still affecting you in one way or another.

Rebuilding your credit.

If you’re moving abroad temporarily, it might not be the case that you need to close all your accounts. They will continue to be part of your credit history which include bank accounts and credit cards. If you are using a credit card abroad, however, you should notify the card issuer to avoid any problems.

If you have to start from scratch, then you will need to follow the same steps as someone who has never had a history of credit. For those of you who remember building credit from scratch, it can take some time.

Since there is no International credit check, this does not mean that people can escape from debts by moving to a new country. Government agencies enquire for any uncleared debts when applying for visas for different countries. If it appears that you have uncleared debts, the visa will not be approved.

Perhaps one day, there will be an international credit report recognized in multiple countries, making travel to a new country and life much easier.

The post How does credit reporting work outside of America? appeared first on Consumer Credit News.

The task of landing in your dream apartment doesn’t end with just signing a lease notice, paying the rent, and shifting your things. You also have to set up some or all of your utilities. These include Electricity, Water, gas, sewer, and TV/Internet, etc. Are you prepared to pay a deposit to open these accounts?

When you create a new account with utility companies, they require you to pay a deposit in advance before they will turn on your utilities. As with the other security and pet deposits, utility deposits are meant to insure against losses that may result from your unpaid or underpaid bills.

The deposits are based on your credit score, which is checked during the signup process for most utilities. Often times, the initial deposit is equal to one month utility cost of the previous resident at that address. However, with bad credit it may be 2 or 3 times that amount.

When I moved into my first apartment, age 18, I remember paying a $350 deposit for electric in a 650 square foot loft. I had very little credit, and what I did have wasn’t good. This changed in later years, once my credit was back on track the deposits were lower or non-existent.

You have to pay a deposit on utilities, and other recurring services.

If you are a new utility customer, utility companies create a new account which means they are actually issuing you credit. Because you are going to use the utilities and services before their payments are made. A utility is much like an unsecured debt. Obviously, they can’t repossess used water or power, so they rely on your credit to determine trustworthiness. Therefore, individuals with a good credit history will be welcomed by them with little to no deposit.

There are utility deposits to be paid on almost all utilities and recurring services like Electricity, Water, Telephone, Sewer, Natural Gas, etc. Moreover, Service connection fee is also applied to newer, transferring or reconnecting after disconnection for non-payment residential utility accounts.

These reconnection fees are typically $30 to $40 and add up quickly if you’re habitually behind on your payments.

What factors contribute to deposit amounts for consumers? How can I avoid deposits?

Your utility deposit may be reduced or waived if your credit history is good. If you have a bad credit history, you may have to pay a higher deposit amount. The good news is, unlike a car loan, the utility company is not going “turn you down” – they are just going to impose higher deposit amounts on you.

Also, utility companies may ask new customers to provide a “letter of guarantee,” a letter from a person who agrees to pay the bill if their customer fails to do so.

Utility deposit amounts vary widely

The amounts for utility deposits vary widely, as there are no strict regulations on what service providers and landlords can charge. For example,

According to Duke Energy, which covers several states across the Southeast, electricity deposit may range anywhere from $100 to $250 depending on the user’s monthly bill.

Other utility companies require a lump sum deposit of $300 or more for residential electricity service agreements. If your cable or Internet provider requires a deposit, it may also cover equipment usage. Some utility companies will charge new customers a deposit amount equal to the cost of a month’s service.

Security Deposits.

A security deposit is a deposit of money deferred to the landlord to ensure that rent will be paid and other responsibilities of the lease performed (e.g., paying for any type of damage caused by the tenant). The laws pertaining to these deposits vary from state to state.

Security Deposits: Receipts and Interest

On receiving a last month’s rent and/or a security deposit, the landlord should give the tenant a receipt for each prepayment. If he or she does not, it is perfectly advisable for the tenant to claim one. In many states, the landlord is required to give the tenant a receipt.

What can I do to improve my credit and not have to pay a deposit?

Your credit score numbers give an impression of your financial management. Hence, a good credit history will tempt utility companies to create your new account easily. Adversely, a bad credit score will end up in higher deposit amounts due to lack of faith and trust on your money management. Here are a few tips to improve your credit score.

Accurate credit reports

Check your credit reports from each of the three major credit reporting agencies. Free credit reports can be accessed via AnnualCreditReport.com – Ensure they are correct. You don’t want any mistakes on there costing you money and credit score points.

Avoid your late payments

Set up payment-due date alerts and get organized with all your credit cards and loans. Even better, use auto-draft payment options for some or all of your bills. This ensures you’re never late, and keeps your credit score healthy.

Clear off any outstanding debts

It’s important that you clear off all outstanding dues to get a good credit score. Old collections, debts never paid, forgotten credit cards don’t go away just because you’ve forgotten them. Review your credit report and make a plan to pay off each outstanding debt. This may take some time, but will raise your score significantly once complete.

Use a credit card wisely – Good credit means you wont have to pay a deposit for most things.

If you qualify for a credit card, and don’t currently have one, consider getting one. Now, the card you’re going to qualify for will have an outrageous interest rate.

This is the cost of poor credit. However, if you use the card wisely, you can build your credit and not feel the impact of the APR too severely.

One of the best ways to use a credit card for rebuilding is what I like to call “the gas card” – Put you weekly gas fill up on your card, take the money you would have spent on it and set it aside. At the end of the month, pay your balance in full. This will lead to very little interest paid, because your debt has not sat with the lender for more than a month. And, it will build your credit as lenders will view you as a consistent payor, always good in the banks eyes.

The post I have to pay a deposit on everything: What can I do to improve my credit? appeared first on Consumer Credit News.

In order to pay off your loan sooner, you ought to make extra payments towards your principal balance. Most people are not aware that extra payments do not always go directly to the principal, but are applied to the interest instead.

Remember, the interest is the lenders profit. If you make a $250 payment on a $100 minimum due balance, where does the $150 go? For you, it makes sense to go directly towards the principal, which reduces your debt much quicker than paying interest. For the bank, they’d prefer to apply it towards the principal and balance just like a normal payment.

It looks like a very simple and straightforward process, but there are things you can do to make sure the extra payments go directly to the principal amount not interest.

How Are Extra Payments Applied to Your Loan?

When you make extra payments, your intention is to lower the original amount of debt. You can get rid of your debt sooner by doing this because no portion of your payment is removed for interest.

Some banks provide the option of applying the full amount to the principal of the loan or credit cards directly. Generally, in order to do this you need to call them directly to make a payment. This way you can verbally tell them you want the payment applied to the principle.

Are There any hidden Fees for Extra Payments or Principal Only Payments?

According to the terms of the loan, some banks charge a fee for extra payments on the loan. In other cases, they may charge on a principal only payment.

Though it might be frustrating to pay a fee, you will still save money on interest if you pay the loan or credit card off sooner. Interest payments for a few months will usually be less than a penalty of $1,000.

Choose the Best Strategy for Extra Payments

Now you understand the fees associated with extra payments and the way your payments are applied to the principal.  With this information, you can now work on the best strategy to pay off your loan. You may need to pay just one large monthly payment on the loan in order to avoid fees and to pay it off as quickly as possible. If you are paid multiple times a month, you may need to put the money for payments into savings so you will not be tempted to spend it.

If no extra fee is charged by the bank, you can opt for paying the extra amount received by bonuses or tax returns. This strategy will also help you to avoid overspending your money so that you don’t fall in an over-debt situation.

Making the Last chunk of Payment

When it’s time to pay off your loan, you ought to contact your bank and enquire about the final payment figure. The interest accrued will change daily. The bank may quote the amount of payoff for a set period. You can make the extra payment personally if you wish to, or you can do the same by email or pay it online.

Four alternatives to paying extra towards your mortgage principal

Before you plan to make extra principal payments on your mortgage, it’s best to plan to take into account your overall financial goals. Assess your current financial position and future goals to identify the ideal use for your funds.

1. Clearing off credit card debt

If you’re having a tough time with credit card debt like many Americans, it’s more than likely you don’t have enough available cash to pay extra on your mortgage. Your credit card rates are going to be significantly higher than your home loan interest rate so it makes sense to tackle credit card debt first.

2. Refinance to an affordable rate

This can prove to save you more and still let you keep the extra money you’d pay toward your principal for other alternatives.

3. Build up an emergency fund

It is recommended to save for an emergency and unexpected costs. Without those financial reserves in place, you could put your extra money to put toward it if you’re making extra mortgage payments.

Conclusion.

Focusing on clearing just one debt at a time will enable you to channelize your extra payments and also to clear your debt faster because this will lower the principal on one loan and reduce the amount of interest payment. Paying off your highest interest loans first can help you in saving money.

The post How do I ensure my extra payments are going to the principal and not interest? appeared first on Consumer Credit News.

There’s a three digit number that matters greatly to your financial well-being. This number can make or break a big financial decision, or be the reason for hefty deposits. If you haven’t figured it out by now, we’re talking about your credit score.

First of all, your credit scores being different is no cause for panic. While most of the credit scoring agencies report different numbers, most of them contain the same common details regarding your credit history. So, if they all contain the same basic information, why do they have differing scores?

The simple answer to this question is, because they are different organizations. Each has their own algorithms, scoring factors, etc. that determines your overall score.

FICO scores:

One of the famous and reliable credit scoring company FICO keeps track of all your credit activities. FICO Scores depend on the data listed by your lenders on the credit reports. FICO has expanded to offer 28 unique scores that are optimized for various credit cards, mortgages and auto lending decisions. Achieving a high FICO score requires having a combination of credit accounts and maintaining a neat and clean payment history.

Major credit-bureaus in the US.

There are three other major credit-reporting agencies – Equifax®, Experian®, and TransUnion®. While each of these credit-reporting agencies takes different criteria into account to calculate your credit scores differently, the common thing about them is that they all focus on how responsible you are with the money you borrow. Sounds good, right? Not for everyone.

Equifax offers numerical credit scores that range from 280 to 850. However, if their Equifax report is much stronger than their Experian report or FICO score, then they have the ability to search for lenders that prioritize Equifax. They all compete to capture, update and store credit histories on most U.S. consumers.

Nevertheless, there is only a little difference in the information they collect from the consumers for calculation of the credit scores. But, a bureau getting some unique information might lead to the calculation of a different score from the other two.

Why are your credit scores different?

What causes variance in credit score and report across credit reporting agencies? There’s are a few reasons why you might get different credit scores from FICO and each of the three major credit-reporting agencies. Here are some of the most common criteria which influence your three-digit numbers:

• Scores may be from different dates.
• Since your scores may change at any time, it’s vital that you compare your credit scores from the same date.
• Scores are calculated using unique credit bureau algorithms.

Keep in mind, there are dozens of credit scoring models out there that may calculate your score a little differently. Do not panic. It’s just their own way and decision as to which factors they take into account for calculating your credit score.

Scores are calculated using different credit reports.

Some lenders report to all three major credit agencies, but some others might report to only one or two and not to all. This means that a credit agency may not be having information that helps or hurts your score. This missing detail might lead to your different credit scores by different credit models.

It can prove really difficult to keep track of all your credit scores because there are so many on the list, and that too when each score changes over a certain period of time.

With a multitude of scoring models, how do we determine which score a specific lender will use?

According to Fair Isaac, 90% of reputed U.S. lenders use FICO scores. While that helps narrow the field, remember that Fair Isaac has introduced more than 60 FICO scores since 2011. Following FICO scores are used for availing different credits.

• Financing a new car: FICO® Auto Scores, the industry-specific scores used in the majority of auto financing-related credit evaluations.
• Getting a new credit card: FICO® Bankcard Scores or FICO® Score 8, the score versions used by many credit card issuers.
• Getting a mortgage: Base FICO® Score versions previous to FICO® Score 8, as these are the scores used in the majority of mortgage-related credit evaluations.

These complicated facets of credit scores results in varying scores between the bureaus. Thanks to consumer resources like Credit Karma, you can stay up to date on your score and health in real time. Remember, while your score will likely be different between the bureaus, it shouldn’t be wrong on any of them. If you find a discrepancy, dispute it right away with the bureau in question.

The post Why is my credit score different at all three reporting bureaus? appeared first on Consumer Credit News.

Debts of any kind have to be paid under the set terms in order to maintain your credit score. Unfortunately, the terms of the multiple loans don’t care much about each-other, or your wallet. Now, to prioritize your debt debts, you have to understand the types of debt.

Excessive credit card debts are considered ‘bad debts’ because they come with high interest rates and are generally not beneficial in the long run. On the other hand, student loan debts are considered to be ‘Good debts’ as it is an investment for your future and helps to build credit.

To prioritize the payment of credit card debt and student loan debt, a few things need to be understood.

Prioritize your debt by interest rate.

Debts with higher interest rates should be paid first:

The debts with higher interest rates need to be dealt with and paid off first. It will save you paying more interest over a longer period of time. Focus on paying the credit card with the highest interest rate first. Then, follow the same for the other cards in descending order of interest rates. Remember, the interest rate is the “cost” of the credit to you. Eliminating the debt that costs you most first is key in digging yourself out.

Effect on your credit score:

The accumulation of credit card debts will substantially damage your credit score, while a student loan debt will not. The reason being, a student loan is an installment loan and is a fixed amount scheduled to be paid regularly. Credit cards are not issued for a fixed amount making it a revolving debt. In addition, lenders for credit cards and auto loans tend to view student loan debts at a lesser degree.

Credit Utilization ratio:

The ratio between the credit card balance and credit limit is called ‘Credit Utilization Ratio’. Student loan debts are not categorized in this ratio as they are to be paid regularly in fixed limits. This means they’re not having a long term effect on this key part of your FICO score.

Staying current on payment of debts:

Always try to stay current on your student loan payments which will create good-will that you are managing your payments aptly and wisely. The goal here is to stay current with your student loans, but any extra money should go towards high interest debts.

Avoid complete ignorance of payment on one debt while paying off the other:

It is very crucial that you don’t completely ignore the payment on one debt while paying off the other. This will not only lead to a bad credit score but also make it more difficult to catch up.

Flexibility of Repayment:

There are more options available for repayment of student loans depending on the financial status whereas credit cards do not have many repayment options.

Occasionally you can move your payment date one time for some breathing room, but this is temporary.

Which debt costs more:

This is a no brainer. The interest rates of credit cards are much higher than that of the student loans. Non-payment of debt for a longer time will increase the amount of interest.

Obviously, you must resort to payment of credit card debts first.

Conclusion – How to prioritize your debt

Having discussed different factors which may affect your credit score, budget, and savings, it is advisable to knock out the credit card debts first. This debt costs you significantly more in the long run, and causes more severe impact on your credit. You need to be sure to maintain your student loan repayments in tandem with credit cards. Once the credit cards are lowered, consider paying extra towards your student loan principles.

Remember, the ultimate goal is to have no debt.

The post How to prioritize your debt, the smart way appeared first on Consumer Credit News.

Secured loans with negative equity

An example of a secured loan would be a title loan. Title loans use your automobile title as collateral. In case you don’t repay the initial loan amount the lender will take ownership of your vehicle. This is known as repossession.

Real estate property that is valued below the current amount owed is also considered to be a negative equity loan. Negative equity essentially refers to any asset which is valued at below the amount owed on said asset. You can have a negative equity loan with pretty much any physical asset if the value has decreased over time.

So, how is it affecting my credit?

Having an outstanding negative equity loan doesn’t necessarily directly affect your credit score, however you want to clear up any issues as soon as possible. You may have heard the phrase “upside-down” mentioned before in relation to auto loans. This is another term for negative equity. Having an upside-down loan can happen to anyone if you aren’t paying attention. Automobiles are the most common asset that people have negative equity on. This is because cars depreciate in value quite quickly.

Negative equity in real estate

For real estate owners, a significant drop in property value or market rates can seriously impact the value of your property. This leads to the initial loan becoming a negative equity loan. The really tough part to deal with when it comes to negative equity is that you don’t really have many options for resolving the situation besides simply paying it off. You can also wait for the asset value to increase however this very rarely happens in a sufficient amount of time that would provide any immediate benefit to you.

if you have an upside-down loan, it can affect the interest rate at which you pay the current loan amount. This puts the lender at a larger risk for losing money if you default, which leads to increases in interest rates over time. While your credit won’t be directly impacted by this situation, it can certainly become affected if the negative equity loan defaults or goes into collections.

Having a negative equity loan on your credit history can also affect how potential lenders will process your applications in the future. Seeing that you have a history of upside-down loans, many lending companies will charge you more interest upfront so it’s wise to always stay on top of the status of your loan.

Many people have negative equity loans

Negative equity is never a good thing to have. This is due to the possibility of loan inflation, credit denial, increased interest rates and a wide range of other potential hazards. The best way to avoid a negative equity loan is by contacting the initial lender to see if they offer refinancing options. By refinancing your initial loan, you’ll receive a new estimated value for the asset in question based on current market conditions and its value.

Refinancing your loan is basically like getting a new loan at current market value instead of being stuck paying the amount you were originally financed for. Banks, loan companies, mortgage lenders, and more offer refinancing services so if you suspect or know that you’re in a negative equity loan situation, you may want to consider contacting them to see what options are available to you.

The post What is negative equity? How does it affect my credit and buying power? appeared first on Consumer Credit News.

Many people ask about the time it takes for their credit report to update once they pay off a past debt. If you’re anything like me, you wait a few weeks and then start checking to see if the derogatory mark has dropped. It can never happen soon enough; the suspense of just how much it may improve your score gets me every time.

With that said, is there a hard and fast rule as to when a satisfied debt may fall off your credit report? It’s a simple yet tricky question, with an equally tricky answer.

Congratulations on paying off some debt!

The most important step in re-establishing your credit history is paying off your debts and removing negative marks. So, congratulations on that. As far as when the derogatory mark may drop off, well, there’s a few possibilities:

• Moneylenders, including credit card workers, typically update your account information once a month. For this reason, we advise you to let a minimum of 30 days and up to 50 days for the account information to be updated.
• Though, the updates could be finished much sooner depending on how rapidly the lender reports the updated account status. Some lenders do this at the end of every month, some throughout. It depends on where you fall in the cycle for that particular creditor.
• The best solution is also to continue using your credit card each month and keeping your balance well under your limits. Also, try to pay in full each month.
• This careful and current usage will demonstrate that your credit is being managed well. It will help with removing negative marks from your reports and also will update credit score rather quickly.

When you will finish paying off your credit card loans, it’s natural to feel you’ll get the reward of a better credit score. And, you’re right, you will, but it won’t happen overnight. Remember, once you’ve pay off a past debt, it’s up to the creditor’s schedule for reporting that information back to the credit bureaus.

A few important things in updating credit history:

Credit Usage Ratio

It’s safe to say that your credit utilization will fall to zero once your debts are paid off. But it’s a bonus for you as credit usage accounts for 30 percent of your score. The lower the better in this case.

Credit History

A score’s most important part is credit history, consisting 35 percent of your final amount. The reason for its importance is obvious as it’s the best predictor of your future payment and report history. The thing is that anyone can make huge payments to get a zero balance but it will not erase a history of missing payments. It will take years to clean negative scores.

Credit Score Updates

Recalculating credit scores immediately after a final payment clears would be nice. In reality, the card companies report to the three main credit bureaus once in a month. So, it will make a minimum of 30 days to show any actual improvements.

Credit Score Improvement

Credit card agencies are deliberately vague concerning precisely how long it takes to recover your credit score. What is identified, though, is the bureaus retain negative information such as public records, late payments, and foreclosures on your report for seven to ten years. The influence of negative information weakens over time, which is great if you’ve behaved well and balanced after a few minor slip-ups. If you have fresh or extreme negative marks on your credit report, it’ll take an extended time for your score to recover even if your balances are as low as zero.

How long will Credit Bureaus take to Update Your Scores?

The important thing is that when the bureaus receive information related to your accounts, they usually add it to your credit immediately. They will recalculate credit scores on the basis of this new information. You might not see a quick change in your credit scores, though, if the current information doesn’t have an important effect.

For example: if you are paying your credit card payments on time for a year, then the one payment on time will not cause your scores to jump significantly high. You are just managing a positive status queue. But when you miss a payment, you will see your scores dropping down. In other words, maintaining steady on time payments builds positive credit slowly, while missing payments hurts credit quickly.

Rapid Rescoring in a Pinch

This is something that can help bring the situation back into your control, but it’s not something that can be done on your own. A moneylender must demand a rapid rescore on your behalf, typically when you smear for a mortgage and your credit score is close to getting you a better interest rate. If you can pay down a balance or any similar action to update your credit scores, the lender can request one or more credit bureaus to include this information in your report and recalculate your score at a specific point in time. The results can be tremendous as credit score changes can be reflected in days.

Note: Rapid rescoring cannot handle faults on your part as in if you made a payment late, it can’t be erased.

Check your report consistently after you pay of a past debt

It’s always best to check your report and try to correct errors ahead of time using the dispute process. As mentioned, it may take up to 30 days for the change to be reflected, so keep your eye on it. If the change is not reflected, you can use one of several dispute filing methods through the credit agencies. When you pay off past debt you may have to wait a little while to see the reward, but it’s worth it. Keep up this strategy of eliminating small, manageable, debts and your credit will be on a fast track to improvement.

The post Once I pay off a past debt, how long until my credit updates? appeared first on Consumer Credit News.

The average credit card debt in the U.S. is $5,331 on an individual level. But, if you’re new to the credit game, you’re not likely part of this statistic. For those of us that have been building and maintaining credit for a while now, we know there are some common techniques to keep balances and interest rates low. You’ve likely heard of balance transfers between credit cards. This is essentially chasing low or no interest initial offers, then moving your balance once the incentive runs out.

I know, this sounds great, right? Well, before you go any further and transfer your balance, we suggest you have a look at how it works and what the pros and cons are:

How does it work?

The process is pretty simple to understand. When you have a high interest rate on your credit card, you try to move that balance to a new credit card with a lower APR (annual percentage rate). This way, you reduce the amount of interest you are paying on all of your credit card debts. This is usually done by moving your balance as incentives expire.

Credit cards are a competitive business, and offering a 0% introductory interest rate is a common practice. After the first year, the interest jumps back up to a standard rate. Before this happens, the borrower opens a new line of credit, transfers the balance and closes the old line.
It seems like a solution to all of your debt problems like a messiah for your finances, right? Well, that’s because you don’t know its drawbacks yet.

Remember, if it is too good to be true, it sometimes is! If you want to know the common advantages and disadvantages associated with credit card balance transfer, then have a look at some below:

Pros of Credit Card Balance Transfers:

• Lower Interest Rate: A new credit card can provide you with as low as 0% APR for a temporary time.
• Get Better Terms: You may get better terms like lower fees, purchase rewards or more grace period.
• Consolidate Your Debt: You can combine multiple balances onto one credit card. This is good for credit utilization and simplicity of payments.

Cons of Credit Card Balance Transfers:

• Higher Interest Rate: You will only be able to qualify for the promotional lower APR if you have an excellent credit score. Otherwise you may end up with the regular higher interest rate. And even if you qualify, the lower APR won’t last forever; it will eventually expire, and at various times.
  Balance Transfer Fee: You may have to pay a balance transfer fee which is usually 3-5% on the amount you transfer and also a minimum of $5-$10.
• Your Credit Score Could Get Hurt: Applying for a new credit card hurts your credit score. Also, if your new card has a low balance limit and you transfer your debt to this card, and the total balance goes 30% above the limit, you will get a decrease in your credit score as well. Credit utilization is a major factor in your credit score.
• You May Get More Debt: When you transfer the debt to a new credit card, you will have more credit available. This means you can spend more money now and if you are not self-disciplined. Our advice, close the card as soon as the balance is transferred. Otherwise you may end up with more debt than what you originally had.

In Conclusion

Now you may be wondering, is it a good idea to transfer balance? In short, NO! Not only it can it hurt your credit score, it’s a slippery slope to more debt. With that said, if you have excellent credit and money management skills, then yes, you can use this method to your advantage. Just tread carefully, it can be a full time job to manage finances using advanced techniques like this successfully.

The post Is transferring my credit card balance for a better interest rate a good idea? appeared first on Consumer Credit News.