The Importance of Credit Rating

Nowadays, you’ll hear about the term credit rating all of the time. Commonly, people have associated it with successful credit card and loan applications. However, the importance of your credit score has already reached far beyond those boundaries. More than being your ultimate ticket to borrow money, your credit rating mirrors a part of your personality that some creditors would like to take into consideration.

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Many businesses today check into one’s credit report before lending money or services to an individual as a basis for future payments. These are just some of life’s necessities wherein you will need a good credit standing.

Home

If you’re looking to buy a new home, what mortgage lenders will first look into is your credit rating, which for them will reflect your ability to pay for the mortgage. Basically, your credit score will determine what rates you will have, or if ever you’ll even get approved at all. But not only is your credit score important in buying a home. Even if you’re just seeking to rent an apartment, the landlord will want to see your credit rating as well, which will indicate the likelihood of you paying the rent on time.

Vehicle

One of the major needs of humans is transportation. If you badly need or want your own set of wheels, and like most people you don’t have the cash to pay for it outright, you’ll most definitely need a car loan. Just like in purchasing a home, you will be seen as a high risk borrower if your credit score has not been performing well. If ever you’ll even be approved, chances are slim for you to get the best rates. Moreover, even the rate of your insurance premiums will likely increase.

Employment

Many people are still aren’t aware of the relationship between one’s credit score and his ability to find a job. Basically, there are employers who want to see an individual’s credit score in order to assess his sense of responsibility. If he’s been doing good in paying the bills on time, chances are he’ll be a responsible employee as well.

Utilities

Yes, as simple as applying for utility services might seem, most providers require to see one’s credit report. This will let them see if you were able to pay your past bills timely, which also reflects how good you will be at paying your bills in the future. Whether you’re applying for water, electricity, internet, cable, or mobile phone subscription, you are basically borrowing those services in advance, which is why the provider would want to make sure that you are capable of paying your bills on time.

Business

Starting a business is not an easy venture. The costs are huge, and it’s likely that you won’t have enough cash for all the expenses. Whether you’re just starting out or looking to expand, you will eventually need to borrow small or huge amounts of cash, and in order to make it possible, you will need a good credit rating to back you up.

Life Events That Put People into Debt

There are many reasons why people get into debt, some of them we have no control of, and some of them result from our attitudes towards money. Whether it is one person’s fault or not, death can have many detrimental effects not just on the person’s financial life but with the psyche and emotions as well. These are just some of the life changes that may lead a person to acquire debt.

Divorce

As costly as it is to get married, getting a divorce can be equally expensive. Aside from the emotional strains, divorce can impact your finances and can force you into debt. Most of the time, there will be legal actions to pursue to determine how to divide your assets, in which you have to pay for an attorney and the necessary settlements that your former spouse may demand. Not to mention you have to send continuous financial support for your children, if you have any.

Underemployment

One of the leading causes of debt is underemployment. While its effects are not immediately noticed if you have some savings, you will find eventually that your earnings are not enough to cover for your expenses, not to mention inadequate funds to put into your savings. If this continues, it can lead to debt that is difficult to handle. If you find yourself unemployed or underemployed, you should find a way to control your expenses so that they should not exceed your income, or better yet, start finding a second job.

Gambling Addiction

Gambling itself doesn’t put people into debt, but rather it is the individual’s attitude. Unfortunately, as your chase for your losses becomes never-ending, you will find yourself losing more than winning, to a point that you will risk the money that you cannot afford to lose. Because of gambling behavior, many people find themselves not only short of spare cash, but also with zero savings and lost properties.

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Illness or Disability

The good- people are living longer now due to advances in the field of medicine, science, and technology. The bad- there are more years to worry about being sick or disabled. While there are obvious improvements in medical treatments and procedures, the lifestyles of people don’t change, if anything, they become worse. If you get ill, you have to pay for treatments to keep you alive, which are not cheap, and if you’re unfortunate, this goes on for the entire duration of your life.

Education

While student loans can be considered a type of good debt, it can take a while before you can pay it off after graduation. Keep in mind that entry-level jobs do not earn you high wages immediately, and there will be expenses that you didn’t have to worry about when you were a student. To reduce your debt, try getting a job and don’t rely entirely on your student loan.

You should always remember that finding a way out of debt is harder than preventing it. To make sure you don’t encounter debt problems in the future, start making lifestyle tweaks and put more into your savings.

Signs That You Have Too Much Debt

Debt doesn’t happen overnight. There are a series of happenings that could lead you to debt and it might be too late before you find out. If you happen to experience any of these signs, you might need to accept that you are headed for big debt trouble.

You lost track of how much you owe. Probably the first and most obvious sign that you have too much debt already is when you start to “forget” how much you owe. Once you start to ignore your debts, it could be a sign that they are getting out of control and you become afraid to face them.

You are late on your bills payments because you are short of cash. You’ll know that you have too much debt if you don’t have enough cash to pay for your bills in time. Unfortunately for you, this will lead to even higher debts as the interest charges and late payment penalties accumulate.

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You borrowed money to pay your debts. Whether you took a cash advance or borrowed money from a friend, relative, or lender, it just means that you have more debt than you can handle. This is one of the most dangerous mistakes people do as you are basically just transferring your debt to another.

You haven’t been sleeping well. If you’ve come to a point that you are restless and can’t sleep every night, thinking about your debts and how to pay them, then that’s a sure sign that you have too many debts.

You avoid answering phone calls because it might be the debt collector. When debt collectors begin to call, this just means that your debts have become too big and unmanageable. While you can avoid phone calls for a while, you cannot avoid the actions that they may take, such as suing you.

You’ve emptied your savings. It doesn’t always mean that you have too much debt when you have no savings, but once you’ve drained them all trying to pay for your debts or just to get by, that’s an obvious sign of a problem.

Your work performance is affected. You know it’s serious whenever a problem reaches your workplace. But don’t let it go on, as the last thing you want is to lose your job, which will leave you even more broke than before.

You cannot pay for living expenses without a loan or credit card. If you use your credit card with everyday purchases such as the groceries, you are headed for trouble. It’s either you are not earning enough to sustain your needs or you manage your finances wrong. Whichever it is, you have to figure out how to increase your earnings or make them suffice.

You hide your spending from your family. There’s definitely a problem if you feel the need to hide your spending from your family. It’s either you know that you have too much debt or that you’re afraid they’ll stop you from your spending habits.

5 Reasons Not to Max out Your Credit Cards

Credit limit is the maximum amount you can charge on your credit card without penalties. However, your credit card company doesn’t intend for you to maximize this limit. As a matter of fact, it is not advisable to go near your limit. Here are some of the things that could happen if you max out your credit limit.

1. You can expect a credit score drop

Your credit score is calculated based on many factors, one of them is the available credit that you are using. The ratio of your credit card balance to your credit limits, which is also known as credit utilization, makes up 30% of your credit score. Maxing out your credit cards will bring your credit balances closer to your credit limit, which will significantly hurt your score.

2. There’s the risk of going over your credit limit

If you’re too close to your credit limits, you could end up going over them after finance charges are added to your balance. If you went over your credit limit, bringing it back down can be a challenge because you will be charged an over-limit fee every month for as long as the balance is over the limit.

3. You’ll reduce your chances of getting approved for credit

Whenever you’re trying to apply for a loan or credit card, the bank will check on how much available credit you have. If you’ve maxed out your credit cards, lenders will think that you have more debt than you can handle. This will make you a high-risk borrower and your loan or credit card application can be denied.

4. The default rate can be triggered

Maxing out your credit card is one of the ways in which you can default on your credit card terms, and your credit card company will have the right to increase your interest rate. Typically a minimum of 30%, the default rate is the highest interest rate your credit card company can charge. If you’re already struggling to pay for your credit card debt, the increase interest rate of a high credit card balance can ruin your debt repayment plan.

5. It would be harder to repay the balance

A maxed out credit card balance can take months or even years to repay, depending on your credit limit. This is especially true if you are paying for only the minimum. Even if you try to pay the balance in full, it can be difficult to release a considerable amount of money whenever the bills are due.

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What is a reasonable credit card balance?

It is advisable that you keep your credit card balance below 10% of your credit limit, which is not only good for your credit score but it’s also what lenders would like to see. Furthermore, keeping your balance within that range makes it more manageable for you. In order to avoid maxing out your cards by mistake, review your credit limit before making a purchase.

Guide in Getting Your First Credit Card

Upon reaching the legal age of 18, you will have access to many privileges of adulthood, one of them getting a credit card. If you’re under 21 though, you need to be earning your own income in order to be considered at all. Getting your first credit card can be rewarding but challenging. Here are a few tips to help you out in your first credit card quest.

Student credit card

If you are enrolled in college, you have a very good chance of being approved for a credit card. In fact, credit card companies are more than willing to give you one, and you’ll even find many offers. However, you have to keep an eye out on high APR’s and annual fees, as student credit cards are known to have awful deals. If you’re seeking a credit card as a student, make sure you only get one card and try to get the best possible deal.

Department store or gas credit card

Gas companies and department stores typically have easy credit card approvals, which can simplify getting your first credit card. However, they tend to have higher interest rates and you can only use them on that specific store and gas station. They encourage you to spend more by offering discounts but they tend to limit what you can purchase.

Apply with the bank of your savings or checking account

It would be a good initial step if you’ve already started a savings or checking account since you already have an existing relationship with the bank, which significantly improves your chances of getting approved. Go to your bank and inquire about getting your first credit card with them. Remember that a face-to-face transaction might be more beneficial than if you applied online.

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Get a secured credit card

A secured credit card can be your best and only alternative if getting a standard credit card becomes impossible because of lack of credit history. With this type of credit card, you need to secure a deposit against the card’s credit limit, which the bank holds in case you default on your payments. Many card issuers however will turn a secured credit card to an unsecured one after you’ve paid your bills on time consistently. You don’t have to worry about it affecting your chances of getting other credit cards, because it will not be shown on your credit report that the card you have is a secured one.

Apply for cards specifically for moderate or limited credit

As a new credit card user, there’s no use applying for credit cards that require excellent credit ratings because you’re most likely going to be denied. If you only have a fair credit score, or limited credit history, you can search for credit card companies that accept people with moderate or limited credit. You can find credit card reviews in the internet which include the type of credit history you need before getting approved for a specific card.

Important Things You Should Remember about Credit

Credit is not substitute for cash

Because of the convenience of using credit cards, for example, it’s hard not to see it as cash or cash substitute. However, this mentality is what brings people into bad credit situation. No matter how long you’ve been using credit, it pays to remind yourself of its purpose every once in a while.

It is important to maintain good credit

Most people do not realize the importance of having good credit until the situation asks for it. The value of good credit goes beyond credit card applications. You also need good credit if you’re looking to buy a home or rent an apartment, buy a car, get a job, or apply for utility services.

Debt can happen to anyone

Having maxed-out credits will hurt your credit score and lenders will see you as a risky borrower. In order to avoid debt, make sure you use your credit sparingly and manage your finances accordingly.

There’s no one-size-fits-all credit card

There are many different types of credit cards, and just as easy it is to get one that fits you, it’s quite easy to get one that doesn’t. Make sure you take the time to learn about the different kinds of credit cards before you apply for one.

Creditors talk about you behind your back

All of your credit information is compiled in your credit report, and evaluated using the so-called credit score. Your creditors and lenders share this information with credit bureaus who report them to other businesses whenever you apply for new credits.

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You are entitled to a free copy of your credit report

According to Federal Law, you are eligible for a free copy of your credit report each year from each of the three credit bureaus. You have no obligation to sign up for any of other products or services either.

You can have too many credit cards

Although applying for your first credit card can be a bit of a challenge, once you have one, you’ll find that other credit companies will be more than willing to offer theirs. While it is beneficial to have more than one card in hand, having too many of them can hurt your credit score and even make it harder for you to manage your payments.

You can negotiate for lower interest rates

We all know that high interest rates can make every purchase expensive. While you may not be in place to demand a great deal in the beginning, you may be able to negotiate for better credit card terms in the future once you’ve raised your credit score and have proven to pay your bills on time.

Closing your credit cards can lower your credit score

No matter how frustrated you are with your creditor, you need to think twice before closing out a certain account. You have to take the time and learn the right way of closing a card and which ones you should keep open.

Your Logbook Loan Checklist

Logbook loans have become one of the most popular bad credit loans for people who cannot apply for a loan anywhere else. With fast, no credit check approvals, everyone who owns a vehicle can easily apply for a loan and get approved within the same day. However, as much exciting as it may seem, you should take the time to answer these questions before making up your mind on a logbook loan.

Why Do You Need a Logbook Loan?

This is the first and most important question you need to ask yourself. Logbook loans are risky, and if you’re not careful, you can lose your vehicle. Ask yourself what you want to do with your money. Are you taking out a loan for an emergent need, a not so urgent need, or for pure pleasure? Before you decide if logbook loan is right for you, make sure your purpose outweighs the risk.

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How Bad is your Credit Score?

Most probably, you are looking at a logbook loan because you already have poor credit and you are afraid you’ll be denied a loan with traditional lenders. However, it might not be wise to resort immediately to logbook loans, unless your credit is as bad as having filed a bankruptcy in the past. If there are things you can do to repair your credit, such as fixing errors or paying your balances, do them first.

Have You Explored Other Borrowing Options?

If your credit score is pretty bad and quick fixes are not possible, logbook loan should not be your first choice either. You may want to ask the help of a friend or relative who might be willing to trust in you when no one else can. Just make sure you don’t break this trust, as the last thing you want in your complicated financial life is the addition of relationship issues.

For How Long Are You Planning to Pay for the Loan?

Logbook loans are expensive. With their soaring interest rates, you can end up paying for more than double of your original loan amount. This is why it is important to determine how quickly can you pay for the loan. No matter how small or huge you intend to borrow, dragging the debt for such a long time can incur very high interest rates. Logbook loans are perfect for immediate needs which you can pay back in only a short span of time, reducing the amount of interest accumulated.

Are You Dealing With a Reputable Company?

With the logbook loan’s popularity, finding a lender is easy, choosing the best out of the hundreds is not. Your major concern is not only to grab the cheapest rates, but you need to make sure that the company you are dealing with is authorized by the FSA (Financial Services Authority) to conduct business in the UK. Furthermore, you have to make sure that there are no hidden charges and that the company abide by the Code of Practice.

Life Aspects Affected by Debt

While getting in debt doesn\’t take that much hard work, getting out of it does. While swiping your plastic cards may seem like a breeze, it could be too late when you realize that it has affected all aspects of your life.

Retirement

If you’re in too much debt, your early retirement dream might be postponed, either because you don’t have enough savings or because your retirement money won’t suffice for future debt repayments. While delaying your retirement is already bad, having to go back to work after quitting your job because you realized your retirement income isn\’t enough is depressing.

Education

Before you are accepted for a private student loan, the lender will most definitely check your ability to repay before lending you the money. If you have too much debt, your application may be denied, which may lead to delaying your schooling or not earn any degree at all.

Standard of Living

Everyone has a different perspective about what a comfortable lifestyle means. While some are okay with watching home movies during Friday nights, there are those who prefer outside get-togethers sipping martinis. Some, however, use debt as a means to afford the kind of lifestyle they want, which unfortunately ends when you have to pay the bills and you have no more savings to dip into. Instead of bringing you closer to your dream luxuries, debt will drag you away from them. Debt can prevent you from buying a better home, a better car, or even new clothes and gadgets until you\’ve increased your income or have paid for all that you owe.

Career

Another major life aspect affected by debt is your career. While it may be hard already to find a new job as employers would like to look into your credit score, you can’t even think of leaving a job you hate because you have debts to pay. Furthermore, if you want to start your own entrepreneurial venture, you’ll have to constantly worry about how to balance debt payments and keeping your business alive.

Health

Not many people are aware of it, but debt predisposes a person to higher risks of stress, muscle tension, migraine, anxiety, depression, and even heart diseases. Worst case scenario, this can lead to further debt problems if you become sick and your medical expenses aren\’t fully covered.

Vacation

Everyone deserves a break from time to time, to bond with their loved ones or just to clear the head and recharge batteries. However, this can be difficult if you have debts. Not only raising the money for your vacation is hard, but how can you fully enjoy it if you’re worried about your debts right? In addition, it might not be a practical idea to splurge on a vacation even if you have the cash, if there are debt collectors waiting when you come back.

Back view of a happy family on tropical beach; Shutterstock ID 152536469; PO: today-daivd
Back view of a happy family on tropical beach; Shutterstock ID 152536469; PO: today-daivd

Lost Money in Interests

You won’t realize the bearings of your monthly interests until you compute for the long-term. Imagine just how much they are worth 20 years from now, if you\’ve put them on a savings account instead.

A Close Look at Secured and Unsecured Loans

The need to borrow money is something that you can never predict, but it seems to happen at least at one point in life. All of us can experience financial struggles that would warrant the need to take out a loan. In knowing your way around loans, you need to be aware of the two basic types, which are the secured and unsecured loans.

Secured Loans

The key word to remember in this type of loan is security. As the term implies, this type of loan requires “security” against the borrowed money, in the form of a valuable asset such as a house or a vehicle. Because of the collateral, secured loan is less risky for the lender, since there’s a property to seize or repossess to cover for the unpaid balance.

One of the advantages of secured loans is that they can offer lower interest rates for the borrower, since the collateral itself is valuable and limits the lender’s risk. This also lets you borrow huge amounts of cash, which might not be possible with unsecured loans. In addition, if you have poor or inadequate credit history, securing collateral can make your loan approval possible. If you got rejected an unsecured loan, your best alternative is a secured loan.

The most obvious disadvantage with a secured loan is that you can lose a valuable property should you default on your payments. If you loaned a large amount, this may take a while before you can pay off the balance in full, and a lot of things could happen during those times. An unfortunate life event for example can make it difficult for you to make the repayments, which can result to foreclosure or repossession.

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Unsecured Loans

Meanwhile, unsecured loans do not require collateral against the loan, but rather you will be granted a loan based on your financial resources and previous payment history. Examples of unsecured loans are credit cards, personal lines of credit, and student loans.

The advantage with unsecured debts is that there’s no collateral at stake, so you won’t have to worry about losing a property. It may also be a perfect option if you don’t need to borrow a huge amount and you are sure to pay back the loan in just a short period of time.

However, because the lender is taking more risk in letting you borrow without collateral, unsecured loans naturally have higher interest rates compared to secured loans. Furthermore, there’s also a smaller limit to the amount you can borrow, since it is not backed up by security. In addition, because of all the credit checks and stricter requirements by the lender, unsecured loans can take longer to get approved.

Both options let you spend your money in any way you want, although some lenders may want to know the reason for you taking out a loan in order to give you advice on what type of loan to consider and how to schedule your repayments.

Worst Mistakes You Can Do in Repairing Your Credit

Credit repair is one of those things which are way easier said than done. While debt doesn’t happen overnight, getting out of it can take a longer time. These are the common mistakes you should avoid during your pursuit of debt freedom.

Transferring your balances

When you are transferring your balances, you are basically just replacing debt with another debt, and doesn’t help in addressing the problem of why you’ve been put into a bad credit situation and how can you come out of it. This option should only be considered if there’s a chance to transfer your balances from a high-interest account to a low-interest account.

Closing a credit card with balance

Thinking this can erase their debts and their problem is solved, many people commit this mistake, not knowing how badly it can hurt their credit score. If you are having difficulty managing your credit cards and feel the need to close some, make sure they are the newer credit cards and those without balances.

Closing your only credit card

Many people blame their debt to having a credit card and decide to just close any cards they have to prevent getting in debt again. However, a percentage of your credit score is actually based on the types of credit that you have, and having a credit card in the mix will show lenders that you are experienced in this type of credit and is likely to improve not only your credit score but also your chances of loan approval at the same time.

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Applying for new credits

Another misconception about credit repair is that applying for new credit cards can boost credit score. However, it does just the opposite. When you open new accounts, your average credit age becomes shorter, which affects your credit score.

Hiring credit repair companies

Some people become overwhelmed when it comes to fixing their credit and feel the need to hire experts to lift off the burden from their shoulders. However, these supposed to be experts do not perform magic that would make your debt disappear. In fact, there’s nothing they can do that you can’t do yourself. In most cases, you even end up paying more than you should if you had done it on your own. You might have that peace of mind knowing that someone’s assisting you with your debt problem, but these companies charge you extra for delaying your debt payment, not to mention that some of them are scams and aren’t actually paying your money to your creditors.

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Filing bankruptcy

Bankruptcy is like a nightmare that can haunt you forever. Once you filed bankruptcy, it will stay on your record for at least 7 to 10 years, and during that span of time, you’ll never know when the need to borrow money may arise. Unfortunately for you, having filed bankruptcy will make it virtually impossible to borrow or apply for utility services and other types of loans. Even if you managed to survive those years without the need for credit, your future lenders will ask if you ever filed bankruptcy in the past, so there’s no escape.