10 Tips to Live Credit Smart

Your credit report acts as your financial references when you apply for new credit. Whether you’re trying to build credit for the first time or want to re-build your credit standing, the only way to build a strong credit history is to use credit wisely. Following are 10 tried and true tips to Live Credit Smart:

1. Get a copy of your credit report.

Your personal credit report is an easy-to-read record of your credit accounts and total indebtedness. It is a good idea to review your credit report at least once a year and when you’re getting ready to make a major purchase. You can request a copy of your report directly from Experian. You also should consider reviewing your reports from the other national credit reporting companies.

2. Know your credit score.

A credit score translates the information in your credit report into a number reflecting the risk of doing business with you. While there are many different types of credit scoring models, a higher score generally represents lower risk. To check your risk, request a credit score when you order your credit report. You will receive an explanation of what the score means and what from your credit report is most affecting it.

3. Provide complete, accurate and consistent identification on your credit applications.

This helps set up your credit history correctly from the beginning, ensures that your new accounts will be matched to the correct report and minimizes the chance that your credit file will be incomplete.

4. Set up a budget and live within it.

Credit should not be used to live beyond your means. By setting a budget and living within it, you will avoid using credit to overextend yourself.

5. Have some credit, but not too much.

A credit history shows creditors how you manage your debts. Having no credit history can make it difficult to qualify for new credit because creditors have no information to help them make a lending decision. You only need a few active accounts reported to the credit reporting companies to demonstrate smart credit management.

6. Pay your bills on time.

Late payments, called delinquencies, negatively impact your credit scores and affect your ability to get credit, since they indicate a stronger likelihood that you will make late payments again or will be unable to pay your debts in the future. If you fall behind on your payments, contact your lenders, which may work with you to set up a different payment schedule or interest rate.

7. Have a mixture of credit types.

A mix of accounts can show that you know how to manage all types of credit. It is good to have a history of repaying an installment loan, such as a car or student loan, but a revolving account, such as a credit card, demonstrates more clearly that you can responsibly manage credit because you have to control how much you charge and pay each month.

8. Keep credit card balances low.

High outstanding debt can affect your credit scores because it results in a high utilization rate, or balance-to-limit ratio, making you appear to be an increased credit risk. Keeping your balances low compared with credit limits shows that you aren’t tempted to charge more than you can pay and can handle larger amounts of available credit.

9. Use caution when closing accounts.

Closing an account isn’t always a good thing because it can result in an increase to your utilization rate. However, if you want to eliminate a few cards with high interest rates or fees – and you have ample credit available to you – the impact on your credit score should be relatively minor.

10. Apply for and open new credit accounts only as needed.

Apply for and open new credit accounts only as needed. Recent inquiries indicate you may have taken on new debt that isn’t yet shown on your credit report, and many inquiries in a short time might suggest you are trying to live on borrowed money.

Steps to Lowering Debt and Saving More Money for Your Retirement

The start of a new year is a good opportunity to embark on strategies to lower your debt,increase your savings and maximize your retirement portfolio even if you were not among the fortunate ones to receive a raise or bonus.

Ramping up the balance in your 401(k) or IRA while reducing your credit card debt and increasing your rainy day fund for emergencies can be achieved by paying fewer fees and taxes and devising a plan.

“Whatever your goals are for 2016 or beyond, you need a plan to get there,” said Jamie Hopkins, a retirement professor at the American College of Financial Services in Bryn Mawr, Pa. “This could start with a short term plan for the year and develop into a long-term plan for retirement.”

How to Decrease Debt

Lower and eliminate your debt, especially your credit cards by always paying on time and more than the minimum, said Andrew Housser, co-CEO of Freedom Financial Network, a San Mateo, Calif.-based debt resolution company.

“The first and best rule is to never charge more in any given month than you can repay that month,” he said. “Even adding just $10 to your payment or rounding payments up to the next $10 or $100 increment will make a huge difference.”

Spending less money means taking a harsh look at your budget and financial plan so you can “spot areas that you are overspending,” said Hopkins. Set aside a certain amount of money for savings with each paycheck you receive and saving at least 10% of your income is recommended.

“Another great way to spot areas you overspend is to look at your free year-end review that is offered by most credit card companies and banks,” he said. “This can show you where you spend your money during the year and help you reduce some of those expenses this coming year.”

Ways to Increase Savings

Reduce the amount of your health insurance premiums by quitting smoking since in many states, companies charge smokers more, said Nate Purpura, vice president of consumer affairs at eHealth.com, an online health insurance exchange based in Mountain View, Calif.

In 2015, smokers paid an average monthly health insurance premium of $311 while non-smokers paid only $272, according to eHealth’s data. If you can beat smoking this year, you may qualify for lower premiums next year.

Opening a flexible spending account, or FSA, gives you the opportunity to pay for medical, dependent care or transportation costs with pre-tax dollars set aside with every paycheck, said Greg McBride, chief financial analyst for Bankrate, the North Palm Beach, Fla. based financial content company.

Lower your taxable income by contributing to a health savings account known as an HSA, which you can open as long as your deductible is at least $1,300. Since HSAs mirror IRA accounts, you can save money by paying fewer taxes while also saving for medical expenses such as copays, deductibles or dental care, said Nate Purpura, vice president of consumer affairs at eHealth.com, an online health insurance exchange based in Mountain View, Calif. Any money you don’t spend will rollover like an IRA and can be another vehicle to increase your retirement savings.

“You can deposit money into your HSA until April 15, 2016 for the 2015 tax year,” he said.

Some estimates predict that the average taxpayer will overpay their federal income taxby $1,000 this year, which is “money being held without earning any interest,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C-based non-profit organization.

“If you have too much money being withheld from your paycheck for taxes, take time to adjust your withholding,” he said. “You will want to match the total amount withheld to the amount you will expect to pay when taxes are filed.”

How do I get and keep a good credit score

There are no secrets to building a strong credit score, but following these guidelines should help:

• Pay your bills on time, every time. One way to make sure your payments are on time is to set up automatic payments, or set up electronic reminders. If you’ve missed payments, get current and stay current.
• Don’t get close to your credit limit. Credit scoring models look at how close you are to being “maxed out,” so try to keep your balances low in proportion to your overall credit limit. Experts advise keeping your use of credit at no more than 30 percent of your total credit limit.
  Note: You don’t need to revolve on credit cards to get a good score. Paying off the balance each month helps get you the best scores.
• A long credit history will help your score. Credit scores are based on experience over time. The more experience you have with getting credit and paying your bills on time, the more information there is to determine whether you are a good credit risk.
• Only apply for credit that you need. Credit scores look at your recent credit activity as an indicator of your need for credit. If you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed negatively.

Tip: If you close some credit card accounts and put most or all of your credit card balances onto one card, it may hurt your credit score if this means that you are using a high percentage of your total credit limit.

Tip: Check your CREDIT CHECK TOTAL regularly and make sure the information in your credit reports is correct. Visit www.creditchecktotal.com to get a free copy of your credit report from the nationwide credit reporting companies. You can receive a free credit report from each of the big nationwide credit reporting companies once every 12 months.

How to Establish and Maintain Good Credit

Your credit history is a list of all the pieces of your financial life. It includes every credit card account you've opened and any other loans you've taken out. It also includes your debt repayment history.

Many factors can affect your credit score, including whether you've paid on time or late, been foreclosed upon or filed for bankruptcy. If a court has ordered you to repay a loan or your debt has been deemed un collectible-these, too, affect your score. All of this information stays on your credit history.

Lenders look at your credit history to assess your ability to pay back their money. If you are having money problems, you represent greater risk to a lender. The basic principle with credit is this: use credit wisely and spend within your means.

Establishing Credit

If you don't have credit (or much credit), the key is to start small. One credit card or small loan can get the ball rolling. But make sure your lender reports your on-time payments to one of the three credit bureaus- ExperianSM (experian.com), Equifax (equifax.com) or TransUnion® (transunion.com)-and preferably to all three. If your on-time payments don't get reported, you're accumulating debt but not building credit.

Only credit accounts that report your borrowing and repayment activity will count toward your credit history. Here are some tips to help you establish a credit good history:

• When establishing credit, pay off your charges in full at the end of the month. When you get a card, always pay off the balance in full when the statement arrives. Paying off your balance in full shows the card company that you're fiscally responsible. You're using credit as it was intended: as a short-term loan.
• Pay on time. One of the most important steps in building and maintaining a solid credit history is to pay all of your bills on time each month. By paying on time, you're showing the lender or creditor that you've got enough cash flow to cover your expenses. If you pay late and the creditor reports your late payment to the credit bureaus, it may damage your credit history, and lower your credit score.
• Keep your total charges well within your credit limit. If you want to boost your credit history and credit score, you'll want to keep your total monthly charges well within your credit limit. Why? In calculating your credit score, you'll take a hit if your balance is above that limit because it signals to creditors that you may be having financial difficulties and thus are a riskier borrower.
• Regularly read your credit report. One way to building a positive credit history is to make sure you know what information is being reported. Errors and negative information can damage your credit history and your credit score, so you'll want to regularly check your credit report to see what's there.
• Understand what debit cards can do for you. While they look like credit cards, debit cards actually function more like a checkbook. They provide direct access to the cash in your bank account. So you can pay for items and services with a debit card instead of writing a check. What debit cards don't do is help you build your credit history. That's because you're not using credit to buy these items—you're using something that's treated like cash. Because you're using a cash substitute instead of credit, your debit card activity isn't reported to the credit bureaus and won't help you establish good credit.
• Consider getting a secured credit card. A secured credit card is tied to an account. You deposit a certain amount of money into the account and then you can charge up to that amount. If you default on your payment, the bank can tap into the account to get repaid. After six to 12 months of on-time payments, you may feel you're ready to graduate to a regular credit card or a store card. However, resist the urge to open too many store card accounts to take advantage of discounts. Every time you open one, it results in a credit report inquiry, which may affect your score.
• Ask for a credit line increase. After you've had your first credit card for a while (six months to a year), call the issuer and ask to increase your credit limit. The idea is to raise the credit limit on the card, not your debt load. If you're carrying a balance, raising your limit will help keep your debt-to-credit-limit ratio low. That's an important factor when calculating a credit score.
• Focus on what you want. Your credit history becomes critical when it's time to make those big purchases, like a home or a car. At that point, a one percent difference in the interest on a loan will either cost you or save you thousands of dollars over the life of the loan.
• By keeping your eye on the goal-establishing and maintaining a good credit history-you'll be able to borrow that money when you want it, at the most favorable terms and conditions being offered.

10 Things Everyone Should Know About Credit Scores

1. Credit Reports Are Different From Credit Scores

Credit scores are calculated using the information on your credit reports, which includes details of your credit accounts, how often you apply for credit, debt collection accounts and some public records, among other things.

2. Your Scores Are Based on 5 Core Factors

Those factors are (in order of importance) payment history, credit utilization, average credit age, account mix and inquiries. You can find a more detailed explanation of each of those factors here.

3. You Can Get Your Scores & Reports for Free

You’re legally entitled to a free copy of your annual credit report from each of the three major credit reporting agencies: Equifax, Experian and TransUnion. 

4. Checking Your Own Score Won’t Hurt It

Only hard inquiries (aka when a lender looks at your credit when you apply for a loan or credit card) have a negative impact on your scores, and the effect is small and temporary.

5. There Are Many Different Scores & There Are Different Credit Score Ranges, Too

When you’re trying to figure out where you stand or if your credit is improving, make sure you are comparing the exact same score and that you know the range — wherever you’re getting the score from should tell you that information. For example, a 750 FICO score is not necessarily equivalent to a 750 in another scoring model.

6. Your Credit Can Help You Spot Fraud

If someone runs up a large credit card bill or takes out credit in your name, it will show up on your credit report and affect your credit score. Watch your score for changes you did not anticipate.

7. Your Credit Score Can Cost You Thousands Over a Lifetime

A low credit score means you’ll probably have to pay higher interest rates on things like credit card balances and mortgages. You can see an estimate of how much your credit will cost you using the Lifetime Cost of Debt Calculator.

8. Joint Accounts Affect Your Credit Scores, But There Aren’t Joint Scores

If you open a loan or credit card with a partner, the account activity will be reflected on both your credit reports. Joint accounts are different than authorized users, but whenever you share credit, make sure you’re aware of who will be responsible and who will be affected if a payment is missed.

9. Negative Information Eventually Ages Off

Different kinds of negative information will remain on your credit report for different periods of time (bankruptcy is an exception to this, for example), but generally, negative information ages off your report and no longer affects your score after 7 years.

10. Credit Scores Aren’t the Only Things That Matter for Lending Decisions

A credit score isn’t the only thing lenders consider when reviewing applicants. If you have no credit or poor credit, you may be able to secure a loan through an alternative lender, and in some situations, making a personal appeal or giving a lender more context to your credit report can help you access financial products.

Ways You're Ruining Your Credit Score

Just because you’re disputing one item doesn’t mean you’re suddenly off the hook for paying the rest of your bill on time. A late payment is a late payment as far as your credit score is concerned. “Lose the short-term battle, but win the long-term war,” 

 Co-signing: When you co-sign a loan for a relative or friend, you open yourself up to blow-back from any bad activity that happens down the road.

“It’s like saying, ‘A bank won’t touch you by yourself, but for some reason I trust you and I’ll put my credit reputation on the line,

The loan will show up on your credit reports, almost as if it’s yours, and any missteps like late or missed payments will negatively impact your credit score. While it could make for an awkward conversation at the dinner table, you have to consider the worst case scenario before signing on the dotted line. Imagine if your son suddenly can’t make payments, and you’re faced with making them yourself or accepting the hit to your credit score.

 Taking on too much credit at once: You shouldn’t be opening a lot of accounts in rapid succession, especially if you’re younger and don’t have a long credit history. “It’s a red flag that something is going on, because it indicates to a lender that you might be in financial trouble and grasping for credit.

Plus, every time you apply for a new credit card or loan, a lender makes something called a “hard inquiry” to check you out. This can ding your credit score, although if it does it probably won’t be by much. Or for long. Inquiries aren’t factored into your credit score after 12 months have passed.

 Shunning credit: While it may seem counter intuitive, steering clear of credit and debt isn’t the responsible thing to do either. When it comes time to buy a house or a car, and you don’t have enough cash on hand to do so, the bank you approach for a loan will assess your risk. Do you have a squeaky clean past or skeletons in the closet? If you’re a credit hermit, you’ll have little to show either way.

Along this same line, you don’t really want to go on a simplification binge and close old accounts. About 15% of your credit score is based on the age of your accounts, and older ones help demonstrate your responsibility over a long period of time.What if you have an old credit card in your wallet gathering dust? “Use it to buy a lunch every month just to keep it active,

Plus, don’t forget that by closing a credit card or other account, your total credit limit will go down. This may suddenly give the appearance that you’re spending more, at least relative to your allowance, and inadvertently result in a lower score.

Ways You're Ruining Your Credit Score

You know your credit score is important, but are you clued in on what you might inadvertently be doing to sabotage it?

This three digit number acts like a grade for your financial life and is calculated based on the information in your credit reports, like your history of paying credit card bills and taking out loans.

Lenders use it to determine your eligibility for mortgages, car loans and credit cards, plus how high of an interest rate you’ll pay. Your reports can even be pulled by prospective landlords or employers as they evaluate you for an apartment or job.

A FICO score, which is used by the vast majority of lenders, ranges from 300 to 850. Anything above 780 is considered very good and anything below 600 is considered fair to bad.

Here are some of the top credit score killers:

1. Paying bills late: Your history of making payments is one of the most important factors that goes into your credit score, whether it’s for a credit card, student loan or mortgage. It’s the first thing a lender wants to know, says Fair Isaac Co., which produces the FICO score, and composes about a third of your score. By slipping up and failing to pay your bills on time, your score gets dinged.

It’s devastating for your credit score when you start missing payments entirely (say, you lost your job and can’t afford your mortgage) and they get sent to collections. A collection listed on your credit report will typically remain there for seven years, regardless of whether you pay it off later or not. (That’s right, an unpaid collection is no worse for your score than a paid collection.) With that said, generally the older a collection is the less it will hurt your score.

If you get to the point where you’re forced into foreclosure or bankruptcy, that’s particularly catastrophic and can easily knock 100 points off your score.

It doesn’t matter if you never exceed the limit and you’re religious about paying your bill in full every month. The fact remains: Amassing big balances on your credit card, relative to your allowance, is harmful to your score.

With that said, there are a few tricks you can employ to spend as normal and take full advantage of credit card rewards, without putting your credit score in harms way.

The balance that’s reported is typically the one on your monthly statement, so figure out when this hits your mailbox and pay well in advance. Call your credit card company to check.

You can also try to boost your credit limit, either by requesting a higher limit on your existing card or signing up for another credit card. Your total credit limit rises with each additional credit line you’re extended.

Just “don’t play chicken” with your bill, Your best bet might be to make credit card payments multiple times a month to ensure your balance is always low. Or if you make a big purchase, say a $1,500 flat-screen TV, go home and pay it off right away.

You’re expected to pay your credit card bill every month, even if you’re challenging an item on your statement. Were you charged for a catering job you thought was subpar or hotel parking you thought was free? Shipped a defective product? By all means, fight for a refund with the merchant and call up your credit card company to tell them you’re disputing the charge (they’re supposed to designate that charge as pending.) But then pay your credit card bill.

How rebuilding credit is like losing weight.

Getting healthy credit score is a lot like getting a healthier body. Both come with the same challenges, the same headaches, and the same rewards.

Consider:

Everyone is different. People get into trouble with credit for different reasons: job loss, identity theft, inaccurate reporting from the bureaus, or simply poor credit management. Some people may have just a handful of collections and inquiries to clear up, while others have all that plus bankruptcies, foreclosures and judgments. And not all of these credit report items are handled in quite the same way.

You have to do your own part. There's no magic bullet. Even if you get good professional assistance, you still have to practice good credit-managing habits, like paying your bills on time (even a little ahead of time, if you can) and managing your accounts properly.

You can get misled. Just as there are countless ways to lose weight, there are also countless ways to deal with credit. Since the bureaus don't want to give away their "secret sauce" recipe for calculating credit scores, an entire industry has sprung up to help people with their credit, and not all service providers are the same.

Ignoring it won't make it go away. Just as an unhealthy body affects you every day of your life in ways you may not know, so does an unhealthy credit profile, and you may not know the extent of it until you suddenly need to make a major expense or you lose your job. Even people with great credit have to be vigilant, because they are more vulnerable to identity fraud and other cons that could ruin their profile.

It's not just a temporary fix, it's a lifestyle. Once people see an improvement in their credit score, the temptation is to fall back into old habits and quickly find yourself back in debt with collectors calling you. You have to make good credit a way of life for the restoration process to make the biggest difference.