Credit & Debt

A lot of people struggle with their credit score. They try their best to work towards having good credit. Without a good score, life can be difficult. You might face higher monthly payments, big interest tacked on, and so much more. If you have great credit score, you’re trusted a bit more with the credit you use.

That’s why it can be super frustrating when your credit score suddenly drops and you’re unsure why. You didn’t really do anything, right? One day it was higher, then the next you see it dropped. What could be the cause of this? Well, there are a hundred different factors that impact your credit score. Let’s take a look at 5 of them.

1) Identity Theft Impact Credit Score

Identity theft is one of those things that happens without you knowing about it. There’s never any warning that someone has somehow stolen your information. They might open a credit card account and make a bunch of purchases. You won’t really know about it until it’s time to pay for those purchases. When no payment is made, it will hit your credit score. Signing up for credit monitoring is one of the best ways to prevent this from happening.

2) There’s an Error

If you’ve taken out credit and are making payments on it, usually the person you have the loan with will report those payments. A record of on-time payments is wonderful! It shows you can be trusted. Over time, those on-time payments will improve your credit score. Yet, mistakes happen. Something isn’t reported the right way or there’s a typo. It’s even possible that something shows up on your credit that’s not supposed to be there. That’s why it’s important to routinely check your credit score.

3) You Missed a Payment

Sometimes life gets in the way of having a perfect on-time record. You sent the payment in, but it got lost in the mail. Maybe you got your due dates wrong or mixed up. Anything can happen. When it does, you have to be proactive. Having a perfect record of on-time payments is the best way to improve your credit score. If you’ve missed a due date, contact the creditor immediately. Explain what happened and they may cut you some slack.

4) You Used a Lot of Your Available Credit

Let’s say, for example, you have two credit cards. Both cards have a $500 limit. If you max both of them out, then you have zero available credit. That can send your credit score plummeting. When you pay off those cards and the balances are back to maximum, your score will shift back to the good score it was. The best course of action is to not max out your cards every month. That makes it harder to pay back, especially as interest is added on. Make smaller payments every month.

5) The Average Age of Your Credit Score Has Changed

The age of the credit you have plays a factor in determining your score. The older your credit, the better. It shows you’ve been trustworthy for a long period of time. Yet, if you have a bunch of new credit added on, it shifts the average age of your credit to being younger. That will drop your score.

ITT Technical Institute was one of the many colleges that scammed students by making promises it couldn’t, or wouldn’t fulfill. In a fight to cancel student debt, Senator Elizabeth Warren sent a letter to Secretary DeVos asking that she finally cancel the debt of defrauded ITT Tech students. She finally did, adding that she will do it with “extreme displeasure.”

It was back in 2016 when the school officially closed all 136 of their doors for good. There are several other schools forced to do the same. They faced multiple lawsuits and claims of deception, using marketing tactics to bring students in, only to leave them hanging in the end. Still, years later, students of the defunct school are still paying on their loans.

This is why several Democrats, including Warren, decided to send DeVos a letter to ask about when the students would finally have their loans taken care of. The federal government has obviously been dragging its feet on this issue, declaring that the loans would be forgiven around the time the schools closed.

Warren tweeted about the response she got from DeVos: “We got this note back from @BetsyDeVosED. I’m not sure which is better news: that she’s cancelling thousands of ITT Tech students’ loans, or that it gave her “extreme displeasure” to do so.”

Student Debt Causes Havoc

It’s difficult to understand why so many students were continuing to pay on their debt even after the schools closed down. Of course, the government loaned out this money and wanted it back, regardless of what happened to the school. Under the Trump Administration, they’ve taken a different tone on this issue than the left.

They believe it’s the personal responsibility of someone to pay back the loans they take out. If they were defrauded by the school, that isn’t the government’s fault. Yet, taxpayers are on the hook for canceling the student debt. It’s not a debate that’s going away anytime soon. The majority of Democratic candidates running for president have run on a platform of forgiving all (or most) student debt and making college free.

There are many pros and cons to that and it certainly wouldn’t be an easy bill to get passed. The government shouldn’t be in a position to have to cut out the $1.6 trillion students have borrowed over the past few decades. Yet, as the problem continues to get worse, it devastates the lives of those students and harms the economy.

Credit cards have a long history in our country. They date back to the early 1900s have been used mainly as specific store cards. For example, you can get a Sears card they gave you credit to use it at your local Sears store. Since that time, everything is changed. Credit became a viable way for companies to make money off of interest. It also allowed customers the convenience of purchasing things and paying for it later or through installments.

Now you can buy just about anything with your credit card. Let’s take a look at five unexpected ways you may not have known you can use your credit card.

1) Credit Cards Can Be Used to Pay Off Traffic Tickets

Courts will now use and accept credit cards as payment for traffic tickets. Just like with stores or other entities that deal with money, there’s always a risk of checks bouncing or payment getting lost in the mail. When you get a ticket, usually has to be paid within a certain amount of time, so timing is important. Paying with a credit card removes the risk. You get to pay your bill in a timely manner, the court gets the money everything is settled. You also get the peace of mind of getting a confirmation that the ticket was paid.

2) Pay People for Small Jobs

As a society we seem to be moving away from cash. Of course, you can always go to the ATM and pay a large fee to pull some money out. This happens if you want to pay her babysitter or if you want to pay someone to mow the lawn or do some other small job. You might even be an entrepreneur looking for an alternative way to accept money for your work. Now there are little devices you can connect to your cell phone. They allow you to swipe your credit card to receive or make a payment.

3) Pay to Park

Parking meters is the bane of many people’s existence. This is especially true if you live in a big city. If you don’t live in the big city and you’re just visiting, you may not be aware that you must have small change on your person to be allowed the privilege of parking. What happens if you don’t have some change to feed the meter? Luckily, many places are replacing old outdated meters with new smart meters that accept credit cards. You also don’t have to worry about the meter running out because you didn’t put enough change in. It will charge your card when you’re done.

4) Pay for Goods at Flea and Farmer’s Markets

This is sort of connected to point number two, as now places you might enjoy going to, like flea markets and Farmer’s markets, with usually a cash game. But thanks to the advancement of technology in those devices you can attach to your cell phone and an app, you can use your credit card to pay for purchases at these vendors.

5) Buy Legal Marijuana

As marijuana has become legalized in many states, and is even sold as a medical treatment in others, you could never use a credit card to purchase it, even legally. For the most part, banks are not allowed to accept or give financial services to marijuana companies. It’s still a federally banned substance, but now the doors are opening. Washington state and Colorado are just a few places that have legalized marijuana sales through use of a credit card.

Debt is one of those things where we have to seriously consider whether it can positively or negatively influence our life. Yes, that can have its good moments. You need to have debt in order to build your credit. There has to be a period of time in which you can prove that you’ll regularly make on-time payments toward debt. You should learn about the 3 biggest debt traps out there today.

Were debt gets people and the problems is that they often struggle and paying it back. They want to buy something even though they can afford it. So, they use their credit and at times it can be difficult, especially when they add on tons of interest and the monthly payments are higher than anticipated.

A lot of people do not know how to manage their debt the right way. They continue piling debt until they eventually maxed out. This is a dangerous situation that can dramatically set you back in the future. You may have a need to take out a loan, but if you have so much debt or history of not being able to pay it back, you will lose out

Let’s look at 3 debt traps you should avoid:

1) Credit Card Rewards are Debt Traps

Credit card companies often offer a lot of rewards in order to entice people to get one. Again, using a credit card the right way can be good towards improving your credit. If you go with a credit card that offers tons of rewards, it will be a long time before you see those rewards. We’re talking spending thousands of dollars before you see a single reward. Even then, they’re not good rewards that they advertise for.

Before you know it, you racked up hundreds and interest payments and that, going broke just to get a ‘free’ airline ticket your trip that you would have paid for five times over if you didn’t get that credit card. If you need a credit card, and you want to build your credit, do it the smart way. Make small payments and pay it off each month.

2) Getting a Brand-New Car

This is one of the biggest debt traps out there today. Having a brand-new car is a status symbol to the world. You may have been eyeing that luxury car for many years, but many people don’t understand exactly how expensive that is. Not only are you expected to pay full-time coverage for insurance, you’ll also be taking a loan out for many tens of thousands of dollars which carries with it many thousands of dollars of additional interest. Owning a brand-new car is a burden that you must be ready for. Wait until you’re financially secure and have no other debts. In the meantime, there’s nothing wrong with getting something used.

3) Clothing

Just like the brand-new car, the close that we swear is indicated of our status. People love to wear expensive clothing to impress. The problem with this is, you could easily spend hundreds to thousands of dollars on designer clothing. People who buy these types of clothing also are not content after they buy something expensive. They wear it once or twice and in the ready to buy something else. If you look at a lot of the current billionaires, their wearing flip-flops and hoodies, not thousand dollars suits.

There’s nothing like instant gratification and urging people to buy things they cannot afford. Yet, it’s certainly the tactic many new startups are using to get the younger generation into using credit. Klarna is one of the larger new websites that does just that. They get over one million visitors each day and sell beauty products and clothing to young people.

The difference between Klarna and Amazon or any other ecommerce website is that you don’t have to buy the products right away. They offer several options that include paying for your purchase on the spot or spreading out your payments a bit. Once the product has shipped, you have 30 days to use the product and will be asked to pay for it after those 30 days have expired.

Once you’re ready to check out with the items you want to try, you only have to provide your name, address, and even date of birth. The site will attempt to make a soft credit check on you to see what your credit score is and whether you can be trusted to essentially borrow the products to see if you like them. If it’s determined that you’re okay, you then have the option to choose your payment plan.

The smaller items can be paid over interest-free payments, but the larger items will require more time. They will try to get you into a 36-month payment plan with interest included. The idea is to allow younger people to buy the things they want without being forced to pay for it right away. They see the payment options and still get instant gratification rather than waiting to afford it.

A Different Way of Doing Business Using Credit

The concept of buying now and paying for that item later isn’t exactly new. Credit cards allow for that option all the time. The difference is, there are clear advantages websites like Klarna has and it may change the credit industry. They don’t start off by charging interest and fees. You don’t even have to sign up or register an account with them.

Instead, the vendors who choose to sell products on the website do have to pay a transaction fee and a tiny bit of the sale price. Rather than passing that price to the customer (which may be built into the price anyway), Klarna charges the vendor. This allows them to take more risk in trusting the customer to choose the payment option that works for them.

The website even claims this helps them increase the number of orders they get and people actually spend more money. The checkout process is simple and all the additional fees are put on the vendor. Gymshark started using this same model and saw an immediate jump in the number of sales and even had customers buying more products. The order value increased by 33% by passing the fees on to the vendors.

The downside with this platform is that it’s more likely to trigger buyer’s remorse. You’re ‘buying’ a lot of products because you don’t have to worry about payment right away. But just like student loans, it’s fine until you have to spend the next few months paying off all the products you probably already used up or sits in your closet. The joy of the purchase can wear off and if the customer doesn’t pay, it will be reported to the credit bureau and hurt your credit.

Back in December, CreditCards.com did a survey asking 1,000 Americans about their debt and their thoughts surrounding it. What the survey revealed was quite shocking. As much as 25% of the population believes their debt is so great, they’ll never pay it off. In fact, they expect to die with a large amount of debt left to be dealt with.

41% of those surveyed say they have no clue when they’ll be able to pay their debt off. They’re working on it, but apparently don’t have it budgeted out. 65% say they’re not sure when or even if they’ll ever. These are terrible statistics that are making life difficult for everyone. Having significant amounts of debt hurt the economy as a whole.

An analyst for CreditCards.com, Ted Rossman, described these stats as “depressing” and one that everyone should try to avoid.

“You’ve got to do whatever you can — whether it’s a balance transfer, taking on a second job, cutting expenses, or whatever you have to do,” he added. “Credit card debt has a much greater impact on your finances than something like a mortgage, an auto loan, or a student loan, because those products are all in the 4, 5, 6% range. Credit card rates are so much higher.”

Growing Credit Card Rates

Credit card interest rates are currently higher than any type of loan out there. These rates recently came into focus. Both Bernie Sanders and Alexandria Ocasio-Cortez came out in favor of legislation to see the rate at 15%. They hope lowering the interest rates will help all Americans, but especially the working class.

“There is no reason a person should pay more than 15% interest in the United States,” the freshman representative wrote on Twitter. “It’s a debt trap for working people + it has to end.”

“Practically speaking, I don’t think that’ll become law any time soon,” Rossman said of the proposal, “but I still think it’s an important discussion to have because credit card rates are really high.”

“We know … that about 40% of cardholders are already paying their bills in full each and every month, so that’s great,” Rossman said. “Those are the kinds of people that are great candidates for rewards. But, the 60% who are carrying debt really need to prioritize their interest rate over all else. Unfortunately, a lot of people aren’t doing that.”

Reality Sets In for Debt Holders

The reality is, overall household debt has been creeping up in recent years. Despite a robust economy, people are leaning more on debt than ever before. Perhaps they believe they can afford it with the extra cash in their pockets, but it’s still only 40% of people who pay their credit card debt in full.

“We feel like most people are being responsible,” Rossman said. “Most people who have credit card debt didn’t get there because of a vacation. They didn’t get there because of a shopping spree. They got there because something happened with their health, their car, their home, or they’re just having trouble making ends meet.”

“That’s a tough situation to be in,” Rossman added. “I think it brings up some of the fundamentals of personal finance about doing whatever you can to budget, live within your means.”

Most of us had a lot of learning experiences when it came to money. Our eyes got bigger than our wallet. Even if we were fairly responsible, building credit takes time and we all start with a big, fat 0. Unless you’re getting student loans, most banks and lenders won’t even touch you at that point. You have a lot of work of proving you can pay your bills ahead of you.

So, what happens when you do finally put in all the work and get a good score? Are there any noticeable benefits that can make life easier for you? The answer is YES! Improving your credit score may not be easy, but it can be one of the best moves you make, along with paying off debt. Let’s look at five ways your life will improve with a better credit score.

1) You Have a Better Chance at Reaching Your Goals

Whatever your goals are in life, having a great credit score can set you up for success. If you want to go back to school, you can’t do it if you’ve defaulted on previous loans. Want that new car or truck? Starting a family and need a bigger home? Want to start a business and need to borrow cash? All these things require a great credit score. You can still attain some of them with a lower score, but that ultimately is not the way to go, as we’ll discuss below.

2) You Might Need Help

Emergencies come when you least expect it. You might be living paycheck-to-paycheck and suddenly your vehicle breaks down. If you have credit cards, you have the money to get the repairs you need. You can name anything that might happen where you’ll need money. You can get injured and lose out on work and only get a percentage of your normal pay. The roof can cave in. Whatever the reason, having good credit means you have more options.

3) Life is Cheaper

Interest payments are a major killer of budgets. If your credit score is low, odds are you’ll be expected to make higher monthly payments and shell out more for interest. Once you begin to work on your credit score and have a record of on-time payments, you can refinance. If you decide to get a loan in the future, not only will you be accepted, but the loan might even be interest free!

4) Housing Options Open Up

With bad credit, it can be difficult to get a landlord to accept you or even an apartment to rent. Buying a house is out of the question. You may be forced to live in a bad area for a time if you can’t figure it out. Most housing places want to see a history of on-time payments before they’ll let you rent or buy with a mortgage.

5) It Just Feels Good

Believe it or not, there’s a major sense of accomplishment for having all your financial ducks in order. In a great scenario, you’d have money saved in the bank, debts paid off, and a good score for if you ever need it. Life will be much easier, cheaper, and less anxiety ridden. So many people struggle through many decades of their life, so finally having it all in order will feel really good.

If you’re a borrower, this is great new for you! The Federal Reserve is expected to drop interest rates for the second time this year later on today. This cut could be as much as 2%, according to policymakers. Many investors are cheering this move, which might go a long way in helping the economy and our own personal finances.

Most of us pay interest rates on a lot of the things we buy. From cars to credit cards and other things we purchase with credit, how much we pay each month is determined by the interest rates. When the interest rates go up, consumers pay more money for their loans. And, obviously, when the rates are cut, it can save consumers thousands of dollars each year.

It’s not all good news, though. Curt Long, an economist with the National Association of Federally Insured Credit Unions says it’s not a great move for people who save money.

“It kind of depends on which side of the fence they’re on,” he said. “If you’re potentially going to be a borrower in the near future, the fact that the Fed seems determined to be patient, in their words, is probably good news. It means rates will probably stay lower than they would have otherwise. On the other hand, if you’re a saver, that might not be as good of news for you.”

Making Up for It

By lowering the interest rate, the banks sort of lose money on the interest they would’ve collected. Just like with any other economic sector, they then pass that cost on to consumers. Others, like the managing director of Bel Air Investment Advisors says that a 2% interest cut really won’t be felt by too many people.

Still, right now is the perfect time to start getting rid of your bed. “Interest rates at some point will go higher, and it’s important to reduce in good times so as to not feel overburdened in leaner economic times,” he said.

Interest rates are often lowered when the Fed wants people out there spending more money. President Trump has been calling Fed boss Jerome Powell an “enemy of the people” as he pushes for the Fed to drop rates. As the trade war increases costs for consumers, lowering interest rates can be a good way to counter that and encourage spending.

The trade war continues to offer many uncertainties, along with a possible no vote with the Brexit deal. The global economy is also facing a recession and many countries are feeling the hurt. The U.S. is still going strong with job numbers looking encouraging.

A new survey conducted by Bankrate.com has revealed that as many as 58% of all millennials who have applied for a credit card has been denied. Credit cards can be an important tool if used correctly to help build credit. The problem is, you can’t get one if you don’t at least pass a basic minimum credit score, which is exactly the problem millennials are facing.

These numbers are compared to 53% of Generation X and 27% of all baby boomers that have also been denied. It’s astonishing to see that more millennials are being denied than Gen-Xers, but that discrepancy mostly has to do with very few of that generation out in the working market and applying for credit cards. The number might increase over the next few years.

“An unintended consequence of the CARD Act, which went into effect in 2010, is that it has become much harder for people in their early and mid-twenties to obtain credit,” Bankrate credit card industry analyst Ted Rossman said in the report. “Establishing credit is a lot like getting started in your career. Everyone wants you to have experience, but it’s hard to get that first experience,” Rossman added.

Most Credit Card Rejections

Most people with bad credit are often denied car loans and credit cards. Without a clear history of on-time payments and proper history using credit, no one will trust you. It can take several years to build up your credit to the appropriate levels needed, but if you have lots of debt, that can complicate matters. Then you’re running around trying to make a lot of payments to keep your head above water.

Any small mistakes can really hurt your credit score. This is why knowing the basics behind credit will help prevent you from making those mistakes. The best advice is to get a credit card for beginners. You might have to pre-pay to use it, and the interest rates won’t be that good, but it’s a good way to get started.

One you develop a good history, your credit score will start to rise. Then you will be able to take on other credit cards to continue the process. Having a few credit cards and only using a little bit of them each month so you can pay them off completely is the smart way to do it. Whatever you do, refrain from maxing out your cards to prevent yourself from being able to pay the back reliably each month.

As you may know, debt can take on more than one form. You have to deal with current debts you’re paying off and sometimes, that debt can be considered expired. Yes, even debt comes with a statute of limitations. A debtor may not be able to sue you or take any action against you for the debt, but that doesn’t mean they won’t try.

Expired debt can remain on your credit report long after it has expired and since debt collectors can still come after you and make attempts to collect it, there are several options you have in dealing with it. Let’s talk about expired debt and how to handle it.

1) Just Ignore the Debt

If the debt remains on your credit report, that can hurt you in the long run. But if you no longer have a concern that requires credit, then you can just ignore it. Decide you won’t need to borrow money in the future and everything will be great. The debt has expired, so you no longer have any legal requirement to pay it off. There’s nothing they can do legally to come at you to collect on it, so you’re in the clear that way. Just throw up your hands and walk away!

2) Just Get Rid of It

On the flip side of point number one, even though it’s expired, you might want to get that debt off your credit report. It will still haunt you later on if you need a loan. You may no longer be required to pay it back and you might be tempted to shrug your shoulders and walk away from it, but the only real way to be absolutely done and to get the debt collectors off your back is to pay it off.

3) Take Other Actions to Counter It

An old, lingering debt will remain on your credit report, sure, but you can take other actions to improve your credit score. If you still have other loans and credit cards, make regular, on-time payments. Show that you’ve learned from your earlier mistakes and improve your on-time payment record. This is really the best way to get through the situation if you’re ready to walk away from the previous debt. You can still improve your credit score in other ways.

4) File for Bankruptcy

This is not a decision you should take lightly. It’s really the nuclear option when you have no other choice but to wipe the slate clean and start over. You won’t be able to get any more credit for seven years and most likely no one will touch you with a ten-foot pole. Understand the consequences before declaring bankruptcy, but if the debt is just way too much to handle, it might be your only chance to deal with it once and for all. And once you’ve declared bankruptcy and the slate is wiped clean, the debt collectors can no longer come after you legally.