The Trap of Minimum Payments

How you use your credit card can have a big effect on your credit score, but how you pay them could too.

Our friend Charline Sistrunk, host of  Lunch with the Finance Bunch is back and we are talking about The Trap of Minimum Payments.

Watch this video, then lets discuss how paying only the minimum on your credit cards can affect your credit score.

When it comes to your finances, seeing a small minimum amount due on your credit card statement can give you a false sense of security.  You might think to yourself, great I only have to pay this amount this month.  However, only paying the minimum on your credit cards can affect two factors that help make up your credit score-your payment and your credit utilization.

Payment History
Your payment history measures how often you pay your bills on time. When a credit card company reports to the credit bureaus monthly, it simply indicates whether you’ve paid as agreed or if you are late.  Technically, if you’re making the minimum payment on your credit card, you’re meeting your contractual obligations, and is good news for your credit score.

Credit Utilization
Simply put, credit card utilization refers to how much of your available credit you use on a monthly basis.  How much you owe makes up about 30% of your credit score, and your credit utilization ratio heavily influences that factor.

You can figure out your utilization rate by dividing your total credit card balances by your total credit card limits.  I suggest you keep your ratio below 30%.

Here are a few tips to keep your credit utilization ratio low:

  • Pay off your balance in full every month or make multiple payments allowing you to pay more of the balance off.
  • Find out when your issuer reports to the credit bureaus by calling the issuer’s customer service line. Once you know, make your payment in advance of the reporting date ensuring your payments are showing up for that month.
  • If your card has a low credit limit and you’re not concerned about accumulating debt, consider asking the issuer to increase it.  

While there are no absolutes when it comes to your credit utilization ratio, the 30% rule is a reasonable goal. Consumers who use less of their available credit are seen as less risky borrowers than those who use more of their available credit.

If you have questions about minimum payments, credit utilization or want to talk about rebuilding your credit, give me a call or email me today.

Until next month,
Erik Kaplan

THD Credit Consulting  ・ (800) 822-7120 ・kaperik@gmail.com

 

How a business credit card could impact your personal credit score

If used the right way, a business credit card can help improve both your business and your personal financial health – which ultimately can lead to more attractive opportunities to grow your business. 

Does a business credit card impact my personal credit score?  

As with personal credit cards, if you’re paying your bills on time you can expect to see nothing on your credit reports. However, if you or your employer are not paying credit cards (in your name) on time or missing payments expect to see negative marks posted on your credit report and watch as your personal credit score drops.  This is also true for your employees. Make sure you trust your employer/employees before signing for that credit card. 

How does personal credit affect business credit? 

Let me start off by saying there are significant differences between a business line of credit and getting a business loan. When talking about business loans, personal credit scores work the same way as with any other type of lending. Typically, anything less than a 660 and you will have a hard time finding an “A” bank lender with favorable terms.  A score of 720 or higher gives you a much better chance at approval with more favorable rates and terms. Using personal credit for a business loan or credit line is common if you run a small business or a start up. You can boost your personal credit score and your business credit score by making payments on time and keeping a low balance in relation to your available credit. Experian recommends keeping your balance at 20% to 30% of your credit limit. 

Do you need help with building up your business credit? 

One of the first things new businesses should do is start a business credit in the company’s name.  Like your personal credit, your business has its own business credit scores and reports.

We can help get your Dun and Bradstreet (D&B) business profile and a paydex score of 80! We also can help get you business credit cards and get negative items removed from your business credit. 
Give us a call or email me today!

THD Credit Consulting  ・ (800) 822-7120 ・kaperik@gmail.com

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Employer Credit Checks: How do they affect you?

Hey it’s Erik,     

In most of the country, a potential employer can review your credit report as part of their application process.  Some employers also conduct credit checks on existing employees, often when they are considering a promotion.
The reasons potential employers like to see this information is the belief that long history of unpaid bills, foreclosures and delinquencies could be indicative of a lack of responsibility and the decision making skills that could affect job performance.
Employer Credit Check Regulations
Access to your credit report is governed by the  Fair Credit Reporting Act , which sets the limitations on when and by whom your credit information can be accessed. The FCRA sets a few restrictions specifically on employers who are using credit reports to screen new job applicants.  
When your information is requested, credit bureaus will send over a variation of your credit report meant specifically for employers. This means that they won’t see quite everything that a lender can see – like your credit score.
 
What are employers looking for?

In simple terms, employers are looking to reduce their risk.  A history of negative public records or other  derogatory marks could indicate to employers that an applicant has a record of untrustworthiness or unsavory behavior.   A credit report completely free from late payments and any other negative marks can indicate to an employer that you have the financial maturity and responsibility to handle the position.
 
What can you do?

Here’s where being proactive can work in your favor. Before you begin your job search, it’s a good idea to pull your credit reports to look for errors and identify negative items. If there are errors on the reports, you can get them fixed before there ‘s a chance they’ll harm your potential for being hired. Similarly, if your reports have negative information that’s accurate, you’ll want to see if you can get it fixed before an employer sees it. If you can’t, address it upfront with the potential employer.
While employers do not receive your credit score with employment credit reports, your credit score can be a good reference tool for yourself as you work to build or maintain your credit.  If you see an unexpected drop in your scores, it’s important to check your credit reports for errors or even signs of fraud.
 
If you have questions about employer credit reports, give me a call and we can discuss steps to dealing with these potential employers.
Until next month,
 
Erik Kaplan
(800) 822-7120
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How a Tax lien affects your credit

TaxLienWe all know that when you fail to pay your credit card bills or loans on time, your credit rating can suffer as a result. Did you know that not paying your income taxes can result in a tax lienand have the same affect on your credit score?

What is a tax lien

The federal government takes it very seriously if you fail to pay your taxes. And it can be serious for your credit reports and credit scores, too. A federal tax lien is the U.S. government’s legal claim against your property when you fail to pay a tax debt.

How does it affect your credit?

Once you fail or neglect to pay a tax liability on time, the IRS files a public document, a notice of federal tax lien, alerting creditors that the government has a legal right to your property – and it is one of the worst things that can appear on your credit report!

A tax lien, which may occur at the state, local or federal level, significantly impacts your credit score, affecting your ability to get loans, credit cards and even a cell phone.

How much or how little your credit score will be affected by a tax lien depends on a variety of factors, including other items listed on your credit report and your credit behavior. Even when a tax lien is paid and released, your credit scores will likely continue to be negatively impacted by the lien for many years as long as it’s on your credit files.

Is there any way to remove a lien from my credit file?

There are some instances in which you may be able to have a lien notice withdrawn from your credit file.  To discuss what steps you can take, give me a call (800) 822-7120 or email me at kaperik@gmail.com.

Looking for tax debt relief?

Guidance Tax Services is a tax relief advocate group that strives to protect you from the devastating effects of looming tax debt.  Give them a call at 800-381-8816 and ask for Rick Yeager and tell him I sent you! 

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THD Credit Consulting ・(800) 822-7120 ・kaperik@gmail.com

Am I Liable for My Spouse’s Debt?

It’s no doubt that each partner comes into a marriage with some debt, i.e. student loads, credit card or a mortgage from a home he or she already owns. How you work together to tackle this debt and your finances throughout the marriage will make the road ahead a smooth or bumpy one.

A question I often hear from clients going through a divorce or after the death of a spouse is, “Am I Liable for My Spouse’s Debt?”

Whether you and your spouse are liable for each other’s credit card debts depends on a handful of factors. In most states, you are only responsible for the debt that you sign for. If you are not listed on the account, then the debt is not in your name.

In a divorce situation, you can be liable for credit card debt in two ways — by direct liability (joint credit card) to the credit card company or by the divorce agreement.

However, if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin), you are considered a co-owner of the debt, regardless of whether or not your name is on the account. Therefore, your partner’s debt will affect your credit and you are legally responsible for it as if your name was on the account.

If you are not living in a community property state, you most likely live in a common law state. In a common law state, you are not liable for your spouse’s debt before marriage, and you can typically avoid responsibility for your spouse’s debt after marriage. Common law holds that only the person whose name is on the debt is liable for its repayment. An exception is if the debt was incurred for joint household expenses, such as food, clothing, shelter, medical care, education or childcare.

For example, if your partner has medical problems and has to go to the hospital or emergency room and can’t pay the medical bills for this visit – if you have the money to pay these bills, the creditor can come after you for payment.

Have questions about spousal debt liability? Give me a call, and let’s talk about your situation and what your options are.

Until next month,

Erik Kaplan

THD Credit Consulting ・(800) 822-7120 ・kaperik@gmail.com

What You Should Know About Paying Off Old Debt

I’m always telling clients that even if they’ve made a total mess of their finances, with the right strategy in place and time passed- those financial mistakes can get rectified.

There are several situations however, where you need to clean up your credit report *NOW* and paying off old debt can work to your advantage. For instance, if you’re planning to buy a car, apply for a mortgage loan or refinance your home, your lender is going to take a close look at your credit history. Knocking out those old debts once and for all may not do your score any good but it will show the bank that you’re serious about taking care of your financial obligations.

If old debt is haunting your credit report, here are a few things you should know before paying it off.

Paying off a Delinquent Account

If a credit account is simply overdue and shows as outstanding debt, paying it off will improve your credit score, as will making any payments against it. You will not be able to eradicate the late payments that are showing, but returning the debt to current status and reducing the overall amount owed will both boost up the number.

Paying off a Charge-off

These payments can actually reduce your credit score rather than improve it. If you have an old debt on your credit report that has been charged off by the lender – meaning that they do not expect further payments – setting up a new payment plan can re-activate the debt and make it appear to be more current than it actually is.   Remember, newer debt weighs more heavily on your credit report than older debt.

Settlements

If you choose to settle with a lender for less than the total owed, the arrangement will show on your credit report and depending on how it is reported, may drop your score.  The best possible outcome is to negotiate with lenders to mark the debt as paid, which has a positive affect on your score.

A good credit repair strategy should involve analyzing each debt and predicting how changes to it will affect your overall score.  If you need help with credit repair, debt settlement or payment strategies, give me a call and let’s discuss what your options are.

Until next month,

Erik Kaplan

THD Credit Consulting ・(800) 822-7120 ・kaperik@gmail.com