Tag: credit score

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Bankruptcy Credit Financial Legal

How to Rebuild Credit After Bankruptcy

How to Rebuild Credit After Bankruptcy

Deciding to declare bankruptcy is never an easy choice. It is painful, nerve-wracking, and embarrassing. However, it is ultimately the right choice for millions of people. Why should you declare bankruptcy? There are multiple reasons why it might be the right approach for someone suffering from financial woes. But the biggest reason why someone should declare bankruptcy is because it ends the impossible task of paying off debts you cannot overcome.

In many ways, bankruptcy is giving you a clean slate with your finances and the ability to finally start rebuilding and stop beating back against an endless tide of financial stress. But it can cause a huge hit to your credit. Make no mistake, declaring bankruptcy is one of the worst things you can do for your credit score. However, rebuilding that score isn’t impossible after bankruptcy. There are ways to come back from bankruptcy and have a good credit score again.

Invest in a Credit Product

Have you ever heard of a secured loan or secured credit card? These are just two tools that can greatly help your credit after you declare bankruptcy. These cards and services will slowly build your credit back up. With the secured credit card, you put a deposit into the card and then use it like you would a credit card. It’s your money but you are helping your credit score by spending it. While these cards can be super helpful, they also carry a high interest rate too so be forewarned and be prepared to use the secured credit card for the near future but only the near future.

Practice Good Credit Habits

Once you do land a credit card, secured or not, you need to be extra careful when spending and paying it back. Now is your chance to have good credit habits. The best piece of advice to follow with your new credit card? Pay on time! Don’t spend too much credit, do not overspend and use money you don’t have. Look at these cards as a tools to rebuild credit, not as a way to live lavishly.

Have a Co-Signer Get You a Card or Loan

A co-signer is a great way to get yourself a credit card or loan after you have declared bankruptcy. They will sign off on you and help you get the card of loan and put themselves on the line. That is a big risk they are taking but if you are really serious about staying on top of your finances, it is a choice that will help you and not hurt them in the slightest. Make sure your co-signer is someone you can trust and someone who can trust you. Perhaps a family member or life long friend. A co-signer is a great way to get a new card or loan and that is a major step to starting to rebuild your credit. Once you have secured your card or loan because of the co-signer, make them proud by paying it back on time and show them that you were an investment worth making.

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Career & Education Education Financial Loans

How Student Loans Affect Credit

How Student Loans Affect Credit

How Do They Affect Your Credit?

Student loans can have a major effect on your credit score. Taking out loans and paying them back will vastly improve your credit score, but it is detrimental when you so much as miss a payment—in fact, it can drop your score by more than 100 points!

The credit score affected is the one of the person who took the loan out; sometimes by parents and others by co-sign with parent and child. For example, if your parent took out a loan to help you pay for school, it would only affect their credit, not yours.

When You Are Missing or Behind on Payments

Most student loans are installments, which means that you pay a certain amount for an allotted time period. The good news is that your score won’t start to decrease until after the missed payment has been reported by the lender:

  • Federal student loan servicers can wait up to 90 days to report
  • Private student loan servicers can wait up to 30 days
  • They still have the option of charging immediately, however

Another consequence of missing/late payments is that it can increase your debt-to-income ratio (DTI):

  • It represents the amount of your monthly income that goes towards paying off debts (higher is worse)
  • Since the amount of debt you owe accounts for a large portion of your credit score, the DTI is a good reflection of your debt repayment status, though it does not directly change your credit score
  • Too much installment debt (ie. student loan debt), can impact your ability to take out more loans in the future because it determines whether or not you can afford their payments

In the worst-case scenario, you could end up in default:

  • Federal student loans usually consider this to begin at 270 days behind, and private at 120 days
  • This stays on your credit report for seven years
  • You will likely face collection and legal action in order to collect on the debt

If your student loan payments become unfeasible and you are becoming concerned about going into default, there are several options:

  • You may contact the lender to see if there is an alternative payment plan available. For example, extended deferment period or income-driven repayment.
    • This is based off of your current income
  • See if you are eligible for a student loan forgiveness program—this can get rid of your student loan debt
  • Look into refinancing your student loans (replacing existing debt with another lower-costing loan through a private lender)
  • This may decrease your monthly payments, but it can also extend your payment period by a number of years, which then adds to your interest costs

Student Loans and Improving Credit

Though there are many negative consequences to neglecting your student loans, there is also the potential for achieving greatness within your credit. Because most college students haven’t yet had many credit cards or loans taken out—if any—they could serve as the foundation for your credit history. Granted they are paid regularly and on time:

  • Student loans can be add to your credit mix (types of credit used) to increase eligibility for future loans—lenders like to see diversity in credit history
  • They can also add to positive payment history, which is the bulk of your credit score
    • Some lenders even allow for small payments during deferment, which is when you are not required to make payments yet
    • This is usually when you are enrolled in school and the subsequent grace period
    • However, if you choose to start paying these installments during deferment, they still show up as payments in your credit history, thus raising your score

Conclusion

As long as you make sure to pay your student loans off on time and in full, they can be an extremely beneficial asset when building a line of credit. If you neglect them, however, it will take years to recover from the damage. Making a solid plan for your future payments or reallocating your finances are the best ways to assure that your student loans work in your favor rather than against you.

Categories
Credit Financial

Will Multiple Credit Cards Hurt My Credit Score?

multiple credit cards will affect your credit

Everyone’s been there. You are standing at a checkout counter when the clerk tells you that “today only” you can get a great discount on the purchase you are making. All you have to do is open an account for a great new credit card. Of course, you want 40% off, who wouldn’t.

Or maybe you check the mailbox and discover you’ve been pre-approved! Get this great new card loaded with rewards and perks. Who doesn’t love mail telling them how awesome they are?

With all of the options out there, who hasn’t wondered, “Is it good to have multiple cards?” or “Will this hurt my credit score?”

How Too Many Cards Can Hurt You

Having too many credit cards can hurt your credit score.

  1. Some creditors might think you are a risk if you have too many open lines of credit. This is particularly true if you carry a significant balance from month to month.
  2. Too many accounts that you are regularly using can make it more challenging to manage your spending. Having your purchases split between multiple cards can also make it more challenging to follow your ideal budget.
  3. You can quickly lose track of when each payment is due. Late payments can be particularly harmful to your credit as 30% of your score is depends on making payments on time.
  4. It is much too easy to use “too much” of your available credit. If your overall credit utilization goes up over 30%, your credit score will begin to drop.
  5. Applying for too many cards too quickly can also hurt your credit. Every time a new hard credit inquiry appears on your report, it affects your score. Those hard inquires stay on your account for 12 months.
  6. Often once you realize you might have too many accounts, it is easy to be tempted to close one or two of them. Closing accounts can also damage your credit, particularly if you close the accounts you have had the longest.

How Multiple Can Help

Of course there, are ways that having multiple cards can help. Receiving a new credit line increases your total of available credit and can improve your overall credit utilization.

Having multiple cards can also increase the amount of credit you have available to use when an emergency arrives or can even be a big help when you need to make a big purchase. In fact, it is always a good idea to purchase big-ticket items with a credit card so that you can take advantage of any cashback perks you might have.

There is no concrete answer to this question. Ultimately how you manage your credit will always be far more important. It is possible to keep a good credit score no matter how many accounts you have.

Any time you are considering opening a new account, you should have a solid plan for exactly how to use that card.