5 Things to Know Before Applying for a Credit Card

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If you have never had a credit card before, the application process can be confusing. Deciding which credit card is right for you can be overwhelming. Don’t be fooled into applying for the first offer you receive. Research to find the credit card that works best for your situation.

Is there an annual fee?

While an annual fee may not be a deal breaker, it is best to know if the rewards or benefits of the card are worth the amount the credit card company charges annually. Annual fees range from $55-105/year depending on the type of credit card. If you do not plan on using a rewards card in order to earn more than that in points or credits in the year, then this card may not be the right one for you.

Is there an introductory period?

Introductory periods are great because you can usually get 0% interest for some extended period of time. If you plan to make a big purchase that you cannot pay for in cash immediately, but will be able to afford in a few months, this option could be perfect for you. This means that you could make your purchase, but not pay interest on it for a number of months. If you do not plan on paying off your purchases quickly, then it may be best to reconsider getting a new credit card.

Are balance transfers free?

If you are trying to pay off your debt, balance transfers can really help. Balance transfers allow you to transfer the balance of one credit card to another. Why would you do this? Let’s say you have a credit card with a 20% interest rate and one with an 8% interest rate. If you want to pay the credit card off, transferring it to the lower interest rate would allow you to pay more towards the principal, or non interest balance, which will allow you to pay the credit card off faster.

What is the APR?

When most people apply for a credit card, they look at all of the introductory benefits of the card. Well, let’s say you apply for a new credit card with the intention of paying the balance off within a few months. What happens if you lose your job during this time? You may no longer be able to pay off the card, but you will still have the balance due. Once your introductory period is over, you will have to pay the standard APR. If the interest rate is high, you could end up paying much more than you bargained for. Pay attention to the standard rates before applying for a new card.

Are there any rewards points offered?

Rewards cards can range from cash-back options to redeemable points. Consider your need for a credit card and use that to decide whether or not you should look for a rewards or loyalty cards. If you are planning a vacation in the next year, you may decide that a travel card with a introductory points would be most beneficial. Many of these cards will provide points for each dollar spent on approved purchases that can be used for travel, food, or cash.

Which credit cards do you prefer?

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5 Things You Should Know About Credit

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Your credit report and your credit score are not the same

While your credit score is calculated by the information on your credit report, these two things are different. Your credit report is made up of all inquiries, account history, debt accounts, public records, and much more information. The score may determine the interest rate you are offered on an offer of credit, but many times, the credit history on your report will decide if you are approved or declined for credit.

Credit reports help you stop fraud

Viewing your free credit reports once a year, as suggested by the federal government, can help to spot and stop fraud. If someone has stolen your identity, there will likely be credit inquiries and/or accounts that you are not aware of. You should contact the credit bureaus immediately and start the process of regaining your identity.

Your credit score is based on 5 areas

There are 5 core areas that make up a credit score. They are credit inquiries, credit utilization, average credit age, payment history, and account mix.

Credit inquiries refers to companies reviewing your credit report after you have submitted an application. These inquiries stay on your credit report for two years; however, only the previous 12 months will have an effect on your credit score.

Credit utilization accounts for a large percentage of your credit score because it is based on the amount you currently owe your creditors. Installment loans such as, mortgage, car notes, etc. are included in this number; however, revolving credit, such as credit cards, has the biggest impact on this score.

Credit age measures how long you have had a credit history and how long your accounts have been open. The longer you have had credit, the better this score will be. This is why it’s important to not close old accounts if not needed.

Payment history has the largest impact on  your score because it is what tells a creditor that you will make the necessary payments to them in a timely fashion. It is very important to pay your accounts on time to prevent losing excessive points for late or derogatory payments.

Account mix is the mixture of different account types on your credit report. Having a mix of accounts including credit cards, auto loans, mortgage loans, etc. will help to improve this section.

Your credit score influences your interest rates

If you are in the market for a new home or car purchase, your credit score will impact the amount you are paying. Interest rates are generally decided based on your credit score; the higher the score, the lower the interest rates. Be sure to shop around for the best rates before buying a new home or car.

Joint accounts affects your credit the same as individual accounts

Contrary to popular belief, if you co-sign a loan with someone, you are held equally liable for repayment of the loan. Therefore, if the loan defaults, your credit score will be impacted.

Tell us something you’ve learned about your credit score!

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How Secured Loans Help Build Credit

pablo-7What is a secured loan?

A secured loan is money that you borrow from a financial institution that is secured against an asset that you own or money that you place on hold. These loans are great for people who want to build or repair their credit because they do not require credit history and they have lower interest rates.

If you are securing your savings account, you are able to build credit with an amount of money that you have already saved. Some institutions may require a minimum balance in order to fund a loan, but most of them have low minimum requirements, making this type of loan possible for many Americans.

What is an unsecured loan?

An unsecured loan is money borrowed from a bank or lender where you agree to make payments until the loan is paid in full. Because the loan isn’t secured on your home or car, the interest rates are usually higher. Missing payments could lead to late fees and negative history reported to the credit bureau.

Securing assets

Generally, you can secure a home or car can be used to secure a loan. If you are interested in either of these options, you will want to ensure you own the asset you would like to use. You can talk to your financial institution regarding their specific requirements.

What happens if you don’t make payments?

If you decide to secure your home or car for a secured loan, you run the risk of having a foreclosure or repossessed car if a payment is missed. Therefore, you will want to ensure that you are able to make the payments as required prior to taking out the loan.

How these improve credit score and history

Over time, a secured loan helps to establish a positive credit history. If you have little, no, or derogatory credit, talk to your financial institution to find the best loan for you. If a secured credit card is available, your credit purchasing amount will increase as you make payments. Be sure to ask about any additional fees to have these accounts.

Have you tried a secured loan? Share your experience with us.

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The Dark Truth About Payday Loans

pablo-11Payday loans, also known as cash advance loans or check advance loans, are loans that are given based on proof of income, some personal information, and government issued identification. These loans generally are targeted towards low-income earners who may not qualify for a loan from a bank or credit union due to poor credit history.

Payday loans may seem like a good resource when in a bind, but should not be used if they cannot be immediately repaid or if there is a high likelihood that you will need another one in the near future. If your debt is not repaid by the specified loan term, you face additional fees for failure to repay.

According to Pew Charitable Trusts, over twelve million Americans take out a payday loan each year. They also found that most of these borrowers earn less than $40,000/year and are not married. This same report also shows that the average borrower takes eight loans at $375 and end up paying $520 in interest only before the initial loan is repaid.

Beware of their tricky loan practices

Instead of advertising the interest rates, a monthly or weekly fee is advertised. For example: Just $50/week until the payment is made in full. This may sound great, until you realize that your loan term is 6-12 months and that this means you will be paying $200/month in interest alone. Once you realize that you aren’t actually able to make these payments, you are charged late payment fees. In most cases, you can end up paying over 200% back on the amount you initially borrowed. These payday lenders use these tactics to keep you in debt, but there are other ways to get the funds you need.

Before applying for a payday loan, you should consider other options:

Ask your employer for a check advance

While this may not be an option for everyone, it never hurts to ask your Human Resources department for an early wage payout or even a paid-time-off payout in advance. This may keep you from hefty repayment fees from the payday loan.

Withdraw from your savings or investment account

If you have an investment account that you cannot withdraw from without penalty, this may be a time to reach out to your accountant or a tax advisor to see if the penalty is worth paying. If you have a savings account that you are trying not to use, it is the best option when you need money in a pinch.

Auto refinance

This option may not help you today, but if you are noticing that you are short on a monthly basis, a payday loan is definitely not for you. Refinancing may allow you to skip your next payment and then also provide a lower payment going forward. This may help with the ongoing struggle of living paycheck-to-paycheck.

Mortgage refinance

If you have a mortgage and your credit or the market has improved since your purchase, it may be worth discussing with your bank or credit union. Again, this may provide a way to ease the burden of your monthly bills.

Reputable personal loans

FDIC or NCUA-insured banks and credit unions offer different types of personal loans. Speaking to your bank is a great option to ensure you are not being taken advantage of with ridiculous interest rates.

Lower insurance premiums

Lowering your home, life, auto, and health insurance are all ways to make sure you are getting the best deal on your monthly payments. Shop around for rates here.

Request an extension from your creditor

Some creditors are willing to work with you if you have a plan to pay them back. A simple phone call explaining your situation may keep your accounts out of collections and buy you some time to come up with a plan to repay.

Ask family for help

While most people are not interested in asking for help, this may the be best option in most cases as you can potentially have access to the money you need immediately. If you take out a payday loan instead and have issues repaying, you may end up asking for help later to get out of a worse situation. Weigh your options and talk to your family.

If you have ever used a payday loan, we would love to hear about your experience.

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5 Reasons To Start Planning Your Retirement Now

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Many people ask when they should start saving for retirement, and the simple answer is: When you get a job. It is absolutely never too early to start putting away a little at a time.

Whenever you start saving, be sure to avoid withdrawals unless absolutely necessary. You can choose to self-fund your retirement or you can contribute to your employer’s retirement plan. Research investment options and choose the one that makes the most sense for your situation.

Inflation

Simply put, if you are preparing for retirement, you cannot forget to factor inflation into the mix. Inflation is the rise of prices for goods and services over time. Therefore, you can save $100,000 and inflation will not affect the amount you have saved; however, it will affect your purchasing power—meaning the amount you can buy with that amount of money. Inflation can deplete your budget and saving accounts fast. Speak with a financial advisor to see how much inflation you should add to your plan.

Medical bills

While no one hopes to have a medical emergency late in life, it is best to prepare for the what-ifs. Even with health insurance, there may still be a need to pay out of pocket. Saving in advance can help you prepare for these possibilities without the added stress.

Unplanned early retirement

There are many reasons why someone would retire unexpectedly; including career layoffs, failed businesses, and disabilities. Since life is full of unknowns, saving for retirement early can help you to avoid a personal finance crisis late in life.

Bad investments

Maybe you started planning for retirement and make some investments that you thought would pay out in the long term. Perhaps you put most of your money into investing in a company or property that did not yield the ROI (return-on-investment) that you anticipated. This is why it is important to not only start saving early on, but also to make sure you have a well balanced investment portfolio.

Earn higher dividends

Preparing for retirement early can lead to higher dividends, or interest, accrued over time. Make your money work for you by speaking with an investment advisor to see what investment accounts work for you. If you start saving early, you could double the amount you have at the time of retirement.

What are you doing to prepare for retirement? Do you think retirement will look differently in the next 20 years? Let us know your thoughts.

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