Buy Now, Pay Later Versus Credit Cards: What You Should Know

CEO and Founder of Plinqit, the only savings app of its kind that pays users for learning about finance and savings. Between inflation, rising interest rates and other economic uncertainties, many Americans are concerned about their personal finances. These concerns impact their financial decisions. For some, this means relying on buy now, pay later (BNPL) products. In fact, a new survey from Credit Karma revealed that nearly 60% of consumer respondents said inflation is driving them to use BNPL products for items they need.

The survey also revealed that 13% of BNPL users surveyed rely on the service to pay for items at the supermarket, 18% are using it at warehouse stores and 17% are using it at discount stores. These stats indicate consumers are using BNPL services to pay for food and other household necessities.

Overall, BNPL usage has grown rapidly in recent years, and the BNPL market is expected to hit $3268.2 billion by 2030. It is more important than ever for consumers to understand how these products work so they can make informed financial decisions, especially in the current economic environment. Whether they opt to use BNPL or not, consumers need to know the risks, the difference between BNPL and traditional credit products, as well as the pros and cons of each, and the potential implications of using BNPL when it comes to their financial goals.

If It’s Available, Why Not?

Just as you would with any credit product, look out for overuse of BNPL. Most Americans believe they can handle one BNPL installment, but what happens when one installment turns into three? Juggling multiple BNPL payments makes it easy to overextend your budget and potentially lose track of payment due dates, resulting in a cycle of debt that’s hard to get out of.

If a person fails to pay their BNPL payment, their debt can be sent to collections, which can seriously damage their credit score. In fact, according to a Credit Karma survey of Americans who have used BNPL, 38% reported they have missed at least one payment. Of those, another 72% saw a decrease in their credit score afterward.

Additionally, BNPL is different from other forms of financing because BNPL providers currently do not review consumers’ other outstanding debts. This makes it difficult to understand whether a consumer can take on more debt. Consumers must also expect the unexpected. What if an unexpected expense comes up? Will this impact their ability to make payments toward their BNPL debt and other debts?

BNPL Versus Credit Cards—What’s Better?

BNPL is gaining popularity as an alternative to credit cards, particularly among younger consumers. Many younger adults fear getting into debt, so they avoid using credit cards for purchases and instead reach for the tech-friendly BNPL solution. Both methods come with their own pros and cons, and consumers should weigh the benefits and risks of each before blindly making purchases.

Due to the increase in online shopping during the Covid-19 pandemic coupled with the demand for convenience, many consumers started using BNPL services. Popular BNPL providers like Afterpay, Affirm and Klarna have little to no interest and no hard credit check. Some options carry no fees, essentially making it free financing for the customer. However, if a customer misses a payment, it can affect their credit score and there can be substantial fees for late payments.

Also, some BNPL providers do not currently report positive payment history to the major credit bureaus, which means consumers cannot build their credit score like they could by making on-time payments for a credit card.

On the other hand, credit cards can be used almost anywhere and are more versatile for things like groceries and gas. Credit cards also build credit history and offer rewards and points that can be used on travel and cash back. However, carrying a balance over to the next month can incur a significant amount of interest, making it even harder to pay off the new balance.

BNPL’s Implications For Financial Goals

No matter what a consumer’s financial goals are—whether it’s early retirement or buying a home or car—taking on debt has implications for those goals. When deciding between BNPL financing and other forms of credit, it is best for consumers to consider how the line of credit will impact their ability to save.

Do they need to build up their credit score in the long term to buy a house? If so, a credit card might be best. Do they need to make a necessary purchase now and pay it off over time without impacting their credit score? If so, BNPL may be a good choice.

It is also important to consider economic changes that can impact budgets and financial well-being. While the economy is still in recovery from the pandemic, inflation continues and the cost of everyday goods remains at record highs. Consumers should avoid overextending their budgets and steer clear of financing that may hurt their credit score and send them deeper into debt.

The Role Of Community Financial Institutions

For individuals considering alternative financing options, it’s worthwhile to leverage the resources at their bank or credit union to make an informed decision. Financial institutions are well equipped to educate consumers on the benefits and risks of BNPL, as they can accurately assess these financing solutions and determine whether they will help or hinder a consumer from achieving their goals.

The appeal of BNPL is clear, thanks to its convenient enrollment process and widespread availability. These services have become common among online retailers, and apps such as Afterpay and Affirm are quickly becoming household names. While these financing options appeal to many, individuals should be aware of the implications of using BNPL, and they need to look no further than their community financial institution for guidance.

With the help of their local bank or credit union, consumers can become more financially literate so they can weigh the pros and cons of BNPL versus traditional credit products. This will ensure consumers make smart financial decisions and take the right steps to create a positive financial future.

CEO and Founder of Plinqit, the only savings app of its kind that pays users for learning about finance and savings. Read Kathleen Craig’s full executive profile here.

Source: Buy Now, Pay Later Versus Credit Cards: What You Should Know

Critics by movi

Buy now, pay later is a type of short-term financing. These point-of-sale installment loans are offered by a number of companies, including Movi

BNPL can be used at a variety of major retailers, which differ from plan to plan. Some credit card companies, also offer installment payment arrangements for eligible cardholders. Each buy now, pay later plan is unique to its provider, but generally they share a few things in common.

For example, BNPL loans typically require an upfront deposit payment representing a portion, such as 25%, of the purchase amount. After that, the remaining balance must be paid off in installments over a period of a few weeks or a few months. Some BNPL services set the total number of payments at four, while others allow borrowers to select their own payment schedule.

In terms of cost, buy now, pay later plans often charge no interest and no fees, with the exception of late fees for missed payments.

Just over half, 51%, of Americans used a buy now, pay later service at least once during the coronavirus pandemic. Among the most commonly purchased items were clothing, furniture, appliances, electronics, housewares, and cosmetics.

How Credit Cards Differ

Like buy now, pay later loans, credit cards can be used at retailers. But they can also be used to buy gasoline, make utility bill payments, and for other kinds of expenses. If the cardholder pays their balance in full each month, they won’t owe any interest. Otherwise, their balance will accrue interest at the card’s annual percentage rate (APR).

Credit cards may also charge fees, including:

  • An annual fee
  • Balance transfer fees
  • Cash advance fees
  • Foreign transaction fees
  • Late payment fees

A credit card is an example of revolving credit. With this type of credit agreement, you have a set credit limit that you can borrow against. As you make purchases with a credit card, your available credit is reduced by that amount. When you make a payment, that frees up your available credit.

Buy Now, Pay Later vs. Credit Cards: Which Is Better?

Buy now, pay later plans and credit cards are both options to consider when making purchases online or in stores. But each has some advantages and disadvantages.

Buy Now, Pay Later Pros

  • Convenience: You can apply online and be approved almost instantly
  • Get approved without a hard credit check, which can lower your credit score
  • Pay off purchases in installments, typically with no interest charges
  • Choose a payment frequency that fits your budget (at some BNPL providers)

Buy Now, Pay Later Cons

  • Since you don’t have to pay in full right away, it’s easy to overspend
  • Payment plans aren’t always interest-free
  • Missing a payment or being late with one could hurt your credit score
  • Not all retailers accept buy now, pay later

Credit Card Pros

  • Can be used at a wider array of retailers and for other purposes
  • Pay off purchases over time at your own pace, without fixed installment payments
  • Potential to earn cash back, miles, or points on purchases
  • Cards may offer other perks, such as travel and rental car insurance

Credit Card Cons

  • Interest charges can add up quickly if you carry a balance from month to month
  • A hard credit check is typically required to qualify
  • Late payments can be damaging to your credit score
  • Credit cards can charge numerous fees, which add to your overall cost

How to Choose a Buy Now, Pay Later Plan

When comparing buy now, pay later plans, pay particular attention to:

  • Which retailers accept it
  • Initial deposit requirements
  • Number of installment payments required
  • Interest charges, if any
  • Fees, if any
  • Limitations or exclusions on purchases
  • Credit check requirements
  • Shipping policies
  • Refund and return policies

Also, consider how a buy now, pay later agreement might affect your credit. While many BNPL companies only perform a soft credit check to approve shoppers for loans, your credit score could still suffer if you’re late in making a payment and the company reports it to a credit bureau.

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What To Know about FHA Cash-Out Refinance Requirements and Guidelines

An FHA cash-out refinance allows you to tap the equity in your home with low credit score requirements. (Shutterstock)

If you have an FHA loan, you may be able to tap into your home equity by refinancing. This can give you the cash you need to renovate your home, consolidate debt, or help pay for a college education. Here’s a look at the FHA cash-out refinance program, including how it works and how you can qualify.

You won’t find rates for FHA cash-out refinances at Credible, but if you’re looking for a great cash-out refinance rate on a conventional loan, it only takes a few minutes to compare personalized, prequalified rates.

What is an FHA cash-out refinance and how does it work?

An FHA cash-out refinance allows you to take out a new FHA loan, insured by the Federal Housing Administration, that pays off and replaces your current one. Your new loan will be for a larger amount than you currently owe, with the difference coming to you as cash.

You can use the money you receive from an FHA cash-out refinance for anything, but people often use the funds to pay off high-interest debt, or to pay for home improvements or large expenses like medical bills or tuition payments.

An FHA cash-out refinance is different from another common type of FHA loan refinance: the FHA Streamline Refinance. A streamline refinance doesn’t allow you to take cash out from your equity, but you benefit from a quicker and easier process. Streamline refinances don’t require a home appraisal, and you may not need to go through a credit check. With a cash-out refinance, you’ll need to do both.

How do you qualify for an FHA cash-out refinance?

FHA cash-out refinances have requirements similar to those of a traditional FHA loan, with some key differences. To be approved for an FHA cash-out refinance, you must have:

  • A credit score of at least 500
  • A debt-to-income ratio below 50%
  • At least 20% equity in your home after refinancing
  • Owned and lived in the home as your principal residence for the past 12 months
  • Made all mortgage payments within a month of their due date for the past 12 months

The amount of cash you’re able to take out depends on your home value and how much equity you have in the home. After your refinance is complete, you must still have 20% equity.

For example, let’s say you have a home that’s worth $300,000 and you owe $200,000 on your current mortgage. You currently have about 33% equity in your home.

In this situation, you could potentially take out up to $40,000 in cash through an FHA cash-out refinance loan worth $240,000. That would leave you with $60,000 in equity, or 20% of your home’s value. Lenders may have different requirements for an FHA cash-out refinance based on your credit score and other factors.

What does an FHA cash-out refinance cost?

You’ll need to pay closing costs when you complete an FHA cash-out refinance. These fees may range up to 3% to 4% of the amount of your loan. You may be able to finance some or all of your closing costs into your new loan.

Common closing costs include:

  • Origination fee
  • Appraisal fee
  • Title fees
  • Attorney fees
  • Mortgage insurance premiums
  • Homeowners insurance premiums

All FHA loans require an upfront mortgage insurance premium that’s typically 1.75% of the loan amount. If your FHA cash-out refinance is within three years of your original FHA loan, you may be able to get a refund for a percentage of the upfront premium you paid.

Credible can help you find a great refinance rate on a traditional cash-out refinance. Easily compare multiple lenders and see prequalified rates in a few minutes.

How to apply for an FHA cash-out refinance

Applying for an FHA cash-out refinance is a similar process to the one you used when you first bought your home. Contact your current lender for a rate quote, but also request quotes from several other lenders and see if you qualify.

Different lenders may have different requirements for who can qualify for an FHA cash-out refinance and how much money you may be able to take out. By visiting the lender’s website, you may be able to prequalify for a loan by filling out a simple form and going through a quick credit check. Prequalifying for a loan may affect your credit score. However, credit bureaus treat credit checks from multiple lenders within 45 days as one inquiry, so you’re not penalized for shopping around and getting quotes from a variety of options.

Documents you’ll need for an FHA cash-out refinance

Once you’ve found a lender, your loan officer will give you instructions on how to proceed with a full loan application. You’ll need to provide financial documents, which may include:

  • Tax returns
  • W-2 forms
  • Pay stubs
  • Bank account statements

Other requirements for an FHA cash-out refinance

Your lender will also order an appraisal of your home to determine its value. This is key in determining how much equity you currently have, and thus how much cash you’ll be able to take out. You’ll also need to go through a thorough review of your credit history.

If you qualify for the loan based on the appraisal and underwriting, you’ll typically meet in person to sign the closing documents. Some lenders may offer an e-closing option, where this can be done virtually. If you’re refinancing with a different lender, be sure to continue paying your existing mortgage until you receive confirmation that it’s paid off.

Pros and cons of an FHA cash-out refinance

Like any financial transaction, an FHA cash-out refinance has its benefits and drawbacks. Here are a few to keep in mind before you make your decision:

Pros

  • Tap home equity without a second loan — A cash-out refinance allows you to take money out of your home equity without needing to take on another loan and monthly payment. You’ll simply have another first mortgage.
  • Low credit qualifying requirements — You may be able to qualify for an FHA cash-out refinance with a credit score as low as 500, much lower than what you’d need for other types of loans.
  • Low interest rates — FHA interest rates will generally be lower than what you’d find on other types of loans, like a credit card or personal loan. That’s because FHA loans are secured loans, using your home as collateral for the loan.

Cons

  • Higher monthly payments — Since you’re taking out a larger loan than what you currently owe, your monthly payments may be higher than what you’re currently paying. This may strain your budget.
  • Mortgage insurance required — FHA loans require mortgage insurance no matter how much equity you have in your home. You’ll pay an upfront mortgage insurance premium when you close on the loan, and annual mortgage premiums that may become part of your monthly payment. In some cases, you may be able to cancel FHA mortgage insurance payments, but no sooner than 11 years after you take out your loan. This is different from conventional loans, where you may be able to forego mortgage insurance if you have more than 20% equity in your home.
  • Risk of foreclosure — If you fail to make your payments on an FHA loan, you risk losing your home to foreclosure. If your new mortgage has significantly higher payments, this may increase your risk. You may be able to get the cash you need with an unsecured loan, like a personal loan, that doesn’t run the risk of losing your home.

Source: What to know about FHA cash-out refinance requirements and guidelines | Fox Business

More contents:

Mortgage Refinance Demand Spikes 18% as Interest Rates Stabilize, MBA Says

Homeowners are rushing to refinance their home loans as the opportunity to lock in a low mortgage rate is running out.

During the week ending Jan. 28, mortgage refinance demand jumped 18% from the previous week, according to the Mortgage Bankers Association (MBA). Still, mortgage refinancing activity is much lower than it was this time last year due to higher interest rates.

Although mortgage interest rates are on an upward trajectory, many borrowers may still benefit from refinancing, said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.

“There’s still demand there from people who are going to benefit from a sub-4% mortgage rate,” said Kan. “We’ve been so used to a 3% mortgage rate for the past couple years that a 3.7% rate seems high, but there are definitely people out there who have a higher rate.”

The MBA expects the average 30-year mortgage rate to reach 4.0% in 2022, which means that homeowners will likely see more rate volatility throughout the year if they decide to wait to refinance. Keep reading to determine if you can still save money by refinancing your mortgage before rates rise further. You can compare current mortgage refinance rates on Credible for free without impacting your credit score, so you can estimate your potential savings.

Mortgage rates are currently steady but are likely to rise soon

Average 30-year mortgage rates spiked in the beginning of 2022 and have been hovering around 3.55% for the past three weeks, according to Freddie Mac. Rates also significantly increased in January for the 15-year loan term, which is popular among homeowners who are refinancing. Average 15-year mortgage rates have stabilized in recent weeks, though, currently sitting at 2.77%.

Although mortgage rates have remained stable in the past several weeks, they’re expected to rise further as the Federal Reserve continues to revise its monetary policy and rises the benchmark rate in 2022. The MBA’s Mortgage Market Forecast predicts that 30-year mortgage rates will average 4.0% in 2022 and 4.3% in 2023.

“I wouldn’t be surprised if we saw some weeks when rates dropped and refis increased between now and then,” Kan said.

With Fed rate hikes anticipated as early as March, it may be wise for homeowners to consider refinancing now to lock in a relatively low mortgage rate. You can visit Credible to compare rates across multiple mortgage lenders at once, so you can find the best offer possible for your financial situation.

Nearly 6M homeowners can still benefit from mortgage refinancing

Despite rising mortgage rates, about 5.9 million “high-quality” candidates could still save an average of $275 per month by refinancing their home loans, according to Black Knight. More than 1 million of these homeowners could save at least $400 on their monthly mortgage payments, and 661,000 of them could save $500 or more per month.

That’s because mortgage rates are still relatively low compared where they were a few years ago. Although the time to lock in a record-low mortgage rate may have passed in 2021, current mortgage rates are still much more favorable than in 2018 when they reached nearly 5%.

If you’re still paying a 5% mortgage interest rate, you may have the opportunity to save money on your monthly payments by refinancing to a lower interest rate or shorter loan term. Plus, it may be beneficial to tap into record-high levels of home equity with a cash-out refinance.

You can browse rates from several mortgage loan lenders in the table below, and use Credible’s mortgage calculator to estimate your monthly payments.

Source: Mortgage refinance demand spikes 18% as interest rates stabilize, MBA says | Fox Business

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Critics:

Rising interest rates are causing big headaches for mortgage lenders, especially those who depend most on refinance business. Demand is simply drying up.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.72% from 3.64%, with points decreasing to 0.43 from 0.45 (including the origination fee) for loans with a 20% down payment. That rate was 77 basis points lower the same week one year ago.

As a result mortgage refinance applications, which are highly sensitive to daily rate moves, fell 13% for the week and were 53% lower year over year, according to the Mortgage Bankers Association’s seasonally adjusted index. Rates have now been moving higher for five straight weeks.

“After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance,” wrote Joel Kan, an MBA economist, in a release. “Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them.”

Mortgage applications to purchase a home fell just 2% for the week and were 11% lower than a year ago. Buyers are actually more active now than usual, as some are hoping to get a jump on the popular spring market. With mortgage rates rising, and home prices still soaring, some are concerned they will no longer be able to afford the home they want.

At an open house last Sunday in Waldorf, Maryland, there were already three offers before potential buyers were even let in the door to have a look.

“We thought that because of the winter months that it would slack off a little bit, prices would start to come back down to normal, but that’s not happening. It’s anguish, it’s pain, it’s agony,” said Rondie Robinson, who was house hunting with his wife and daughter.

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How Financially Literate Are You? 3 Things You Should Know About Your Money

Most of us received little guidance or instruction on how to handle money when we were growing up. That’s OK — we can learn now, a little bit at a time. Let’s start with the basics.

How do most of us learn how to use our money wisely and well? When we’re growing up, we’re given special instruction in important subjects — swimming, driving, sex — to arm us with info and keep us from harm.

Yet when it comes to managing our money — an activity that every one of us needs to do, every day — we receive surprisingly little preparation. We’re not taught much about it in school, because education systems leave it to us to learn from our families and friends. However, those people often don’t fill in the gaps because money can be such a loaded or taboo topic.

Natalie Torres-Haddad, who grew up in southern California, saw many people around her struggling with debt and financial instability. She was determined to be the exception, and she purchased her first rental property in her early 20s and earned an MPA in Finance & International Business. In the process, however, she became buried in debt. Only by teaching herself the basics of money — basics that she’d never learned — was she able to steady herself and her finances.

Today she leads workshops and sessions to prevent others from falling into the money pit. (She’s also the author of the self-published Financially Savvy in 20 Minutes ). She’s found that even among the college-educated people she meets, “the majority feel confused and overwhelmed about balancing their income and expenses,” she says. The stats show they’re not alone. A 2015 Ohio State University study reported nearly 70 percent of college graduates in the US say they don’t feel equipped to manage money and deal with their debt.

Not only must we get up to speed on the basics, we also need to start having honest conversations with each other about money, says Torres-Haddad. In the same way we’d tell family and friends that we’re cutting out refined sugar from our diets or practicing yoga to increase our flexibility, we should be open with them about the steps we’re taking to boost our financial health. That way, we can get advice and support. This transparency, she adds, can also make us less susceptible to peer pressure-related spending. How many of us have agreed to a pricey meal or weekend trip because we didn’t want to come clean about our money concerns?

Becoming financially literate does not require a huge time investment. Torres-Haddad believes we can start by dedicating 15 – 20 minutes a day to developing our skills and knowledge by learning new terms and resources. Just like attaining literacy in a foreign language, she says, “it’s an ongoing education.” Here are three things you need to know about your money.

1. Know How Much Money You’re Bringing in Every Month vs. How Much You’re Spending

Most of us can rattle off our salaries in our sleep, but could you do the same for your monthly after-tax income and where you’re spending your money every month? If you can’t, that’s normal. But now is the time to learn your actual take-home pay and your actual expenses (and not just ballpark figures or estimates).

For your income, look at your physical or online pay stubs, and start keeping a record of the after-tax amounts. If you’re a salaried employee, that number should be fairly steady; if you’re not, those numbers will vary.

For your monthly expenses, Torres-Haddad suggests writing down — whether it’s in a physical or online notebook — every single daily purchase (coffee, take-out, Uber, online shopping, etc) you make and every single ongoing payment you make through autopay or credit cards (Netflix, gym membership, car insurance, utilities, etc.).

If you’ve never done this before, you may find this uncomfortable — even painful — but it will force you to face up to your spending habits. It will also make these purchases visible. Often, our regular outlays (such as Netflix, Hulu, etc.) can go unnoticed or unquestioned, and our daily spends — especially if we pay by debit card so the funds are instantly drawn from our bank accounts — can go forgotten. Torres-Haddad calls the latter “runaway spending” — “when the little things that you thought cost only a few dollars actually cost much more” in the long run. Take a daily $5 green smoothie. By making them at home, you could save yourself a few hundred dollars in a month.

After you have a fundamental understanding of income and expenses, you can download an app to help you track these categories; see your bank account, credit-card and loan balances; and organize your purchases into buckets so you can identify areas where you might cut back. Two free apps to try are Mint or Charlie, says Torres-Haddad. But, she cautions, apps can be a little “out of sight, out of mind,” meaning if you need extra help to be aware of your spending, stick with the pen-and-pad (or fingers-and-keyboard) method a while longer.

2. Know Your FICO Score and Your Other Credit Scores

While you don’t need to have a good credit score to be financially literate, you must know what it is. ( Note: Most of the information in this section applies to people living in the US.) In the US, FICO was the first company to offer a three-digit credit-risk score for lenders to use when deciding whether or not to approve a loan or line of credit, a credit limit, and an interest rate. There are three other national credit reporting bureaus — Experian, Equifax and Transunion — which also keep track of all your loans (student, auto, personal, etc.) and your balances and histories for all your credit cards (whether issued by banks, stores or businesses).

However, the FICO score is the one most frequently used when you apply for credit cards, mortgages and most types of loans; rent an apartment; or sign up for utilities. FICO scores range from 300 to 850; 670 and up is seen as a good score and 800 and up is excellent. While the FICO score is calculated with a proprietary algorithm, the primary factors that go into it are your repayment history (do you pay your credit-card bills on time? how late are you?), how much debt you’re carrying on cards and loans, how long you’ve successfully held a credit card or loan for; and whether you’ve managed to hold a mix of different kinds of credit.

Most banks and credit cards offer free access to your FICO score on their mobile apps and websites ( here’s a list of the ones that do). If you don’t use one of these companies, you can also find out how to access your score on FICO’s helpful FAQ, including a chart showing where your score falls between “Poor” and “Exceptional.”

Besides checking your FICO score every year, do an annual check of the reports issued by Experian, Equifax and Transunion. This is so you can verify that they’re correct, make sure no one has opened up a line of credit in your name, and see where you might improve. You are entitled to a free copy of a credit report from each bureau once a year. Beware: Many sites will charge you a fee, so use the federally approved and secure Annual Credit Report site.

If it’s your first time checking or you’re about to make a big purchase (such as a car or a home), Torres-Haddad suggests getting all three reports at once. After that, she recommends spacing them out throughout the year. That way, you can quickly catch any errors, fraud, identity theft or any other actions that could hurt your credit history. Mark your calendar so you know when you can request your next free credit report.

3. Know How Much Credit Card Debt You’re Carrying

Knowing how much credit-card debt you’re carrying — and how quickly it’s increasing due to interest — is critical to your financial literacy. Make a list (on paper or on a computer) of each of your credit cards, their current balances, and their current interest rate. Then, put them in order from highest interest rate to lowest.

In general, says Torres-Haddad, this should be how you should prioritize paying them off, paying as much as you can towards the card with the highest interest rate while paying the minimum on the other cards. Called the “ debt-snowball method,” this was popularized by money expert Dave Ramsey.

If you have any cards that offered a 0% APR as a promotion when you signed up, mark down the date on which the promotional rate expires because that’s when you can expect your debt to accumulate at a high interest rate (20% or more). Try to budget your monthly payments so that this card will have little to no balance when that expiration date arrives.

Believe it or not, having a credit card can be a great thing for a person’s FICO and credit scores — if you use it responsibly. Of course, carrying no debt on your cards is best. Otherwise, Torres-Haddad recommends using no more than 30 percent of your available credit limit. So if you have two credit cards with limits of $6K apiece, totalling $12K in available credit, make sure the total balances you’re carrying do not exceed $4K.

If you’ve managed to pay off a credit card, congratulations. But while you may be tempted to close it, Torres-Haddad advises against it. Why? Closing the account will shrink your total amount of available credit and cause your credit score to dip. Instead, delete the card number from any online shopping accounts, cancel any auto-pays billed to it, and freeze the card in ice. It may sound silly but it means that if you want to use it, you’ll be forced to wait for it to defrost — and forced to take a little time to think about your purchase.

When choosing a new credit card, look for ones that offer incentives — such as travel points or cash back — which could help you and your finances. Torres-Haddad recommends going to nerdwallet.com and bankrate.com to compare credit card offers.

Obviously, these three points represent just a small part of financial literacy. That’s why Torres-Haddad urges people to be patient and to learn gradually. Two books she recommends are Napoleon Hill’s Think and Grow Rich!  and Robert T. Kiyosaki’s Rich Dad, Poor Dad. For those who like to get information through listening, she suggests the “Popcorn Finance” and “Her Dinero Matters” podcasts.

When you can, supplement your research with an in-person workshop, adds Torres-Haddad. “Even going to one financial literacy workshop can have a life-changing effect,” she says. A good time to find free workshops is April, which is Financial Literacy Month in the US. One of the best investments you can make in your life is to educate yourself about money, says Torres-Haddad. “It can really give you a lot of peace of mind.”

By: Erin McReynolds

Source: How Financially Literate Are You? 3 Things You Should Know About Your Money

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10 Clever Ways To Improve Your Credit Score Fast

Your credit score is a critical piece of your financial life. If you want a good rewards credit card, you’ll need a good credit score. If you want to get a low mortgage interest rate, you’ll need a good credit score.

There are also other non-obvious places where a good credit score can help – like when you want to get a new cell phone or when you’re getting car insurance.

Building credit can be a long process where good behavior helps increase your score gradually. Achieving good credit can take years but there are a few steps you can take to give your score a boost.

These won’t work for everyone because many solve specific problems (that you may not have) but review the list to see if you can take advantage of any of these ideas.

1. Reduce Your Credit Utilization Ratio

Several factors determine your credit score. Your credit utilization ratio is one of the most influential metrics because it makes up 30% of your score. Credit utilization is simply how much credit you are using divided by the total amount of credit you have access to. Recommended For You

If you charged $10,000 to your credit cards and your total credit limit is $50,000, your utilization is 20%. Credit bureaus use your statement balance in this calculation, so you have utilization even if you pay off your balances in full each month.

A general rule of thumb is to use up to a maximum of 30% of your credit card limit. Many experts suggest keeping it below 10%, if possible. Most credit cards report your credit utilization once a month to the credit bureaus. In many cases, your most recent statement balance is the number that goes onto your credit report.

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Here are three ways to keep your credit card utilization ratio below 30%:

  • Only charge essential purchases like gas and groceries—or those that earn bonus points
  • Split your purchases between multiple credit cards
  • For large one-time purchases, make extra payments during the billing cycle

Continue paying cash for purchases that cause your balance the exceed the 30% threshold if you won’t be making an extra payment each month. If you’re going to make additional payments, schedule them to post before the billing cycle ends so the balance shown on your statement is lower.

Citi website showing credit limit increase approval
I requested an increase when I wrote this article and it was granted in minutes. Wallethacks.com

2. Request Credit Limit Increases

Periodically, request an increase to your credit limit. Each credit card company will have a different process but it’s typically very easy and very quick. Most credit cards will let you do this online.

By increasing your credit limit, you lower your utilization.

Two things to keep in mind when doing this. First, don’t request an increase on a new card. Many companies will not increase your limit if it’s new.

Next, when you request an increase, you want to make sure you do it in a way that doesn’t require a hard inquiry on your credit report. If you request a relatively small increase, the company will usually approve it automatically.

If you ever request an increase and the company wants to ask for more information, decline the request. You don’t need the increase and so it doesn’t make sense to take the credit score decrease from a hard inquiry.

You can usually request an increase every six months.

3. Fix Credit Report Errors

Sometimes, banks make reporting errors that hurt your credit score. Even if you haven’t missed a payment, many consumers overlook the benefits of a periodic credit report review.

Reviewing your credit report is free and only takes a few minutes. You can request free credit reports from Equifax EFX -4.7%, Experian and TransUnion TRU -1.7% weekly through April 2021.

If you find an error, you will need to file a dispute with the credit bureau. No error is too small to dispute. I’ve disputed incorrect phone numbers, which are correctly in minutes, which led me to discover unauthorized accounts (a cell phone).

If the error affected your score, you should see a pretty quick change once the credit bureau corrects the error.

4. Be an Authorized User on a Credit Card

Having a family member with a higher credit score than yours can add you to their credit card as an authorized user. Doing so can positively affect your credit score when the card has a long account history, on-time payments and a low credit utilization ratio.

5. Periodically Use “Dormant” Credit Cards

As your credit history grows, you likely qualify for credit cards with better rewards and interest rates. Instead of closing your first credit card, make occasional purchases to keep it active.

When you keep the card active, banks are less likely to reduce your credit limit or close the card. The credit bureaus look at each revolving credit account’s credit utilization ratio as well as your overall credit utilization ratio.

A credit line decrease impacts your total credit utilization ratio.

Closing an old credit card account can also hurt your score. If your old card charges an annual fee, see if you can downgrade it to one without an annual fee. You maintain your account history and that continues to strengthen your credit.

6. Pay Off Cards with the Highest Balances First

In addition to limiting your future spending, work on paying off your credit cards. If you have several cards with a balance, focus on the highest card balance to reduce your credit utilization ratio.

Paying down your outstanding debt can also improve your debt-to-income ratio, which is not a factor in your credits core but is used by many lenders.

7. Make On-Time Payments

If you miss your payment due dates, stop.

Your payment history is the most influential credit score factor with a 35% weighting. Even if you can only make the minimum payment, your account remains in good standing—and you avoid late fees.

8. Have a Variety of Credit Accounts

While you should only borrow money when necessary, having a variety of credit accounts can demonstrate you can manage credit responsibly. You might have one credit card, a home mortgage and a car loan. Each type of account can benefit your credit score differently.

Loans that you repay in full can remain on your credit report for up to ten years. You can have an easier time qualifying for a similar loan in addition to having a higher credit score.

9. Sign Up for a Credit Boost Service

Having a credit card and installment loans are not the only ways to increase your score. Credit boost services like Experian Boost report your monthly bill payments like utilities or your cell phone plan to the credit bureaus. You can receive credit by linking your bank account.

10. Get a Credit Builder Loan

Credit builder loans can offer a small credit score boost as you lend money to yourself. You make monthly payments into an interest-bearing certificate of deposit (CD) for up to 24 months. The bank reports your monthly payment to the three credit bureaus. When the loan term ends, you receive the CD balance minus administrative fees.

These are just a few of the ways you can quickly increase your credit score – try one today and let me know how it turns out the next time you check your credit score. Follow me on Twitter. Check out my website

Jim Wang

Jim Wang I have been writing about money for over 15 years and recently at WalletHacks.com. I graduated in 2003 from Carnegie Mellon University with a Masters in Software Engineering and I use my analytical skills to navigate the financial world. It’s through this education that I try to distill complex financial ideas into simple steps regular folks can use to take control of their money and build wealth.

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Learn how to increase your credit score 161 points in 30 days. This video show how Chandler helped his wife increase her credit score from 613 to 774 in under 30 days. Chandler also explains everything you need to know about how to increase and maintain a high credit score. Chandler David Smith has been investing in real estate for the last 6+ years. To enable success in real estate he needed to learn exactly how to increase and maintain a high credit score at a very young age.

In this video Chandler shows you a lot of the tips and tricks to getting and keeping your credit score up. Two months ago Chandlers wife was applying for a loan. Unfortunately, she had terrible credit. In this video, Chandler explains what he had his wife do so that she could dramatically increase her credit in under 30 days and get approved for her home loan. After showing how to quickly increase your credit score, Chandler also shows you everything that you need to know to increase and maintain a high credit score over time.

He talks about getting multiple lines of credit, lowering your new credit, building your credit history, making consistent payments, and much more! This is the video to watch to learn how to increase your credit score. #creditscore#increasecreditscore#howtoincreaseyourcreditscore Want to learn more about getting pre-approved for a home loan? Check out this video! https://youtu.be/FNZAqceass4 To learn more about a job opportunity doing door to door sales with Chandler, go to: http://www.elitesummersales.com/ To learn more about Chandler David Smith and real estate investing go to: https://www.chandlerdavidsmith.com/ Check out some other videos if you want to learn more about investing in real estate, building a huge passive income or preparing for your own future home. Want to see all of Chandler’s real estate deals? Real Estate Portfolio https://www.youtube.com/playlist?list… What is a Good Deal? https://youtu.be/socXihCNHkU Follow Chandler INSTAGRAM https://www.instagram.com/chandlerdav… Facebook https://www.facebook.com/chandler.smi…

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