Bad Credit Credit Card Balance: 3 Reasons to Pay It Off Now

If you rack up more purchases with your bad credit credit card than you can pay off by the end of the month, you’ll find yourself carrying a balance. Or you may have heard misguided financial advice that carrying a balance is good for your credit score, so you deliberately don’t pay your balance in full.

We’re sorry to be the bearers of bad news, but carrying a balance on credit cards for people with bad credit just isn’t a smart idea. Here are three reasons why you should aim to pay your balance in full instead of carrying a balance.

1. You’ll pay high interest rates

Credit cards for poor credit have some of the highest interest rates out there, often over 20%. When you carry a balance instead of paying it off in full each month, you have to pay interest on that borrowed money. Not only is this high interest fee a waste of money, but you can’t make as much progress on debt because a large portion of your payments go toward interest instead of the actual amount you owe. This alone is enough to get some people stuck in a cycle of debt for longer than anticipated.

2. It won’t improve your credit

You may have been told that carrying a balance improves your credit score, but this is a bad myth that just won’t die. Carrying a balance on a bad credit credit card, or on any credit card for that matter, won’t do anything for your credit. Instead, try other proven tactics for improving your credit score, such as carrying a low balance and paying your bills on time. These strategies also don’t require you to spend any money on interest payments.

3. It can actually hurt your credit score

Many factors go into determining your credit score, but one of the big ones is your credit utilization ratio. A massive 30% of your credit score is determined by how much of your available credit you are using at any given time. Using credit isn’t necessarily bad, but carrying a large balance can hurt you. According to myFICO, “When a high percentage of a person’s available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments.” Aim to use no more than 30% of your credit limit on each of your credit cards for optimal credit health.

---

Online shopping image via Shutterstock.

The post Bad Credit Credit Card Balance: 3 Reasons to Pay It Off Now appeared first on NerdWallet Credit Card Blog.

Source Article :http://bit.ly/1IKsbJI

Read More

Bad Credit Credit Card Balance: 3 Reasons to Pay It Off Now

If you rack up more purchases with your bad credit credit card than you can pay off by the end of the month, you’ll find yourself carrying a balance. Or you may have heard misguided financial advice that carrying a balance is good for your credit score, so you deliberately don’t pay your balance in full.

We’re sorry to be the bearers of bad news, but carrying a balance on credit cards for people with bad credit just isn’t a smart idea. Here are three reasons why you should aim to pay your balance in full instead of carrying a balance.

1. You’ll pay high interest rates

Credit cards for poor credit have some of the highest interest rates out there, often over 20%. When you carry a balance instead of paying it off in full each month, you have to pay interest on that borrowed money. Not only is this high interest fee a waste of money, but you can’t make as much progress on debt because a large portion of your payments go toward interest instead of the actual amount you owe. This alone is enough to get some people stuck in a cycle of debt for longer than anticipated.

2. It won’t improve your credit

You may have been told that carrying a balance improves your credit score, but this is a bad myth that just won’t die. Carrying a balance on a bad credit credit card, or on any credit card for that matter, won’t do anything for your credit. Instead, try other proven tactics for improving your credit score, such as carrying a low balance and paying your bills on time. These strategies also don’t require you to spend any money on interest payments.

3. It can actually hurt your credit score

Many factors go into determining your credit score, but one of the big ones is your credit utilization ratio. A massive 30% of your credit score is determined by how much of your available credit you are using at any given time. Using credit isn’t necessarily bad, but carrying a large balance can hurt you. According to myFICO, “When a high percentage of a person’s available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments.” Aim to use no more than 30% of your credit limit on each of your credit cards for optimal credit health.

---

Online shopping image via Shutterstock.

The post Bad Credit Credit Card Balance: 3 Reasons to Pay It Off Now appeared first on NerdWallet Credit Card Blog.

Source Article http://ift.tt/1y39EC7

Read More

Should I Use a 0% Balance Transfer Credit Card for Student Debt?

If you’re mired in student debt — like 40 million Americans, according to CNN — receiving a balance transfer credit card offer in the mail may seem like a good omen. After all, if you can pay off even part of your loan at 0%, you’ll avoid the 4.66% rate on new undergraduate Stafford loans and the often-higher rates charged by private lenders.

But those savings aren’t assured until you’ve successfully paid off your balance. Many things can go wrong between the day you sign up for a balance transfer and the day you become debt free. Here are a few reasons to be cautious:

You may be ineligible for a balance transfer credit card

Before you can move your student debt to a zero balance transfer credit card, you need to qualify for the card. This may be difficult if you have a short credit history or have missed payments in the past. And even if you do qualify, not all lenders accept credit card payments. For example, you can pay federal loans with a credit card only if you’re in default. Private lenders’ policies vary.

You may not save as much as you think

It’s possible to find a free balance transfer, and some credit card companies are open to negotiation. However, you should expect to pay a few percentage points when you move your debt. This alone won’t erase your savings, but you should factor it into your budget.

You may miss the flexibility of student loans

Making a late payment on a credit card — or missing a month — is much worse than falling behind on student loans. For one, it could cause your interest rate to increase, leaving you with a higher payment than you had before your balance transfer. Student loan borrowers are also eligible for income-based repayment, tax incentives or loan forgiveness in some circumstances. Credit card users have none of these perks.

You may be committing fraud

Unlike student debt, credit card debt is dischargeable in bankruptcy. This may sound like a good reason to take a balance transfer credit card offer, but it’s not. Transferring your student debt to a card with the intent to file bankruptcy is fraud. And even if you perform a balance transfer with good intentions, but declare bankruptcy later, your lender might object.

The bottom line

That said, many people have used 0% APR balance transfer credit cards to pay off student debt. If you’re determined to take this path, make sure you’ve budgeted carefully, so that you’ll have paid off your balance in full — including any additional fees — by the time the introductory offer expires. And then stick to your budget! Consider automatic payments and be certain you can cover them on the date due. Overdraft fees will only eat into your savings — and make this risky proposition even worse.

---

College students image via Shutterstock.

The post Should I Use a 0% Balance Transfer Credit Card for Student Debt? appeared first on NerdWallet Credit Card Blog.

Source Article :http://bit.ly/12XlDpO

Read More

Should I Use a 0% Balance Transfer Credit Card for Student Debt?

If you’re mired in student debt — like 40 million Americans, according to CNN — receiving a balance transfer credit card offer in the mail may seem like a good omen. After all, if you can pay off even part of your loan at 0%, you’ll avoid the 4.66% rate on new undergraduate Stafford loans and the often-higher rates charged by private lenders.

But those savings aren’t assured until you’ve successfully paid off your balance. Many things can go wrong between the day you sign up for a balance transfer and the day you become debt free. Here are a few reasons to be cautious:

You may be ineligible for a balance transfer credit card

Before you can move your student debt to a zero balance transfer credit card, you need to qualify for the card. This may be difficult if you have a short credit history or have missed payments in the past. And even if you do qualify, not all lenders accept credit card payments. For example, you can pay federal loans with a credit card only if you’re in default. Private lenders’ policies vary.

You may not save as much as you think

It’s possible to find a free balance transfer, and some credit card companies are open to negotiation. However, you should expect to pay a few percentage points when you move your debt. This alone won’t erase your savings, but you should factor it into your budget.

You may miss the flexibility of student loans

Making a late payment on a credit card — or missing a month — is much worse than falling behind on student loans. For one, it could cause your interest rate to increase, leaving you with a higher payment than you had before your balance transfer. Student loan borrowers are also eligible for income-based repayment, tax incentives or loan forgiveness in some circumstances. Credit card users have none of these perks.

You may be committing fraud

Unlike student debt, credit card debt is dischargeable in bankruptcy. This may sound like a good reason to take a balance transfer credit card offer, but it’s not. Transferring your student debt to a card with the intent to file bankruptcy is fraud. And even if you perform a balance transfer with good intentions, but declare bankruptcy later, your lender might object.

The bottom line

That said, many people have used 0% APR balance transfer credit cards to pay off student debt. If you’re determined to take this path, make sure you’ve budgeted carefully, so that you’ll have paid off your balance in full — including any additional fees — by the time the introductory offer expires. And then stick to your budget! Consider automatic payments and be certain you can cover them on the date due. Overdraft fees will only eat into your savings — and make this risky proposition even worse.

---

College students image via Shutterstock.

The post Should I Use a 0% Balance Transfer Credit Card for Student Debt? appeared first on NerdWallet Credit Card Blog.

Source Article http://ift.tt/1y39EC7

Read More

Length of Credit History: What Does It Mean?

Let’s face it: When it comes to credit scoring, you can’t assume anything. For example, if you think you know what “length of credit history” means and how this factor affects your FICO score, you might very well be wrong.

But never fear, the Nerds will tell you everything you need to know about this important credit score category. Let’s dig in.

How length of credit history fits into your FICO score

First, let’s review how length of credit history fits into your overall FICO credit score. The FICO score is the one most commonly used by lenders in the United States, so knowing its ins and outs is key.

The FICO model looks at a consumer’s credit profile and determines his or her score based on following factors:

• Payment history (35% of the score)


• Amounts owed (30% of the score)


• Length of credit history (15% of the score)


• Mix of accounts (10% of the score)


• New credit inquires/applications (10%)

After payment history and amounts owed, length of credit history is the most influential aspect of your FICO score. As a result, it’s essential to do a deep dive into this category to figure out what it exactly means.

How length of credit history is calculated

If you think “length of credit history” is one simple figure, i.e., the years or months since you started using credit, this is a good starting point – it’s just not the complete picture.

To get some answers, the Nerds reached out to Anthony Sprauve, senior consumer credit specialist at FICO. In an email statement, he pointed us to the information that’s found on the company’s website. It states that length of credit history refers to the following data points, which are crunched into your overall FICO score:

• The age of a consumer’s oldest credit account.


• The age of a consumer’s newest credit account.


• The average age of all of the consumer’s credit accounts.


• How long different types of credit accounts (mortgages, credit cards, auto loans, etc.) have been established.


• How long it’s been since different types of credit accounts have been used.

To get a better sense of which of these is most influential, the Nerds followed up with Sprauve. In an email he told us that:

“Age of oldest account and average age of all accounts [count the most]. The longer credit history a person has, the better for them.”

We also asked why it matters how long it’s been since a person used one of their credit accounts – as long as it’s still showing up on a consumer’s credit report, doesn’t it have the same bearing on the FICO score? Actually, no. Sprauve explained:

“Active accounts have a larger bearing on a consumer’s FICO Score because they show the most recent activity. Recent activity has more impact on the FICO Score than older activity.”

Tips for scoring high in this FICO category

Now that it’s clear how length of credit history is determined, you’re probably wondering what you can do to score high in this category. Here are the Nerds’ top tips:

• Start using credit responsibly as soon as you can. For most folks, the easiest way to do this is by getting a credit card in early adulthood.


• Be cautious when opening new accounts. Every time you get new credit, you’ll be lowering your average age of accounts. Only apply for loans or cards you actually need.


• Think twice before closing an old credit card . Although a closed account with positive information will stay on your credit reports for up to 10 years, its effect on your score will diminish over time.


• In that same vein, keep old accounts active if you can. For most people, the easiest way to do this is by linking an old credit card to a monthly subscription service, like Netflix or a gym membership. According to Sprauve: “It’s prudent to continue to use older accounts so they don’t go dormant and run of the risk being closed …”

The takeaway : The length of credit history portion of your FICO score is a little complex than meets the eye. But by using credit responsibly from an early age, minimizing new credit applications, and keeping old credit accounts active, everyone can score high in this category.

Confused image via Shutterstock

The post Length of Credit History: What Does It Mean? appeared first on NerdWallet Credit Card Blog.

Source Article :http://bit.ly/1uv1H4g

Read More

Length of Credit History: What Does It Mean?

Let’s face it: When it comes to credit scoring, you can’t assume anything. For example, if you think you know what “length of credit history” means and how this factor affects your FICO score, you might very well be wrong.

But never fear, the Nerds will tell you everything you need to know about this important credit score category. Let’s dig in.

How length of credit history fits into your FICO score

First, let’s review how length of credit history fits into your overall FICO credit score. The FICO score is the one most commonly used by lenders in the United States, so knowing its ins and outs is key.

The FICO model looks at a consumer’s credit profile and determines his or her score based on following factors:

• Payment history (35% of the score)


• Amounts owed (30% of the score)


• Length of credit history (15% of the score)


• Mix of accounts (10% of the score)


• New credit inquires/applications (10%)

After payment history and amounts owed, length of credit history is the most influential aspect of your FICO score. As a result, it’s essential to do a deep dive into this category to figure out what it exactly means.

How length of credit history is calculated

If you think “length of credit history” is one simple figure, i.e., the years or months since you started using credit, this is a good starting point – it’s just not the complete picture.

To get some answers, the Nerds reached out to Anthony Sprauve, senior consumer credit specialist at FICO. In an email statement, he pointed us to the information that’s found on the company’s website. It states that length of credit history refers to the following data points, which are crunched into your overall FICO score:

• The age of a consumer’s oldest credit account.


• The age of a consumer’s newest credit account.


• The average age of all of the consumer’s credit accounts.


• How long different types of credit accounts (mortgages, credit cards, auto loans, etc.) have been established.


• How long it’s been since different types of credit accounts have been used.

To get a better sense of which of these is most influential, the Nerds followed up with Sprauve. In an email he told us that:

“Age of oldest account and average age of all accounts [count the most]. The longer credit history a person has, the better for them.”

We also asked why it matters how long it’s been since a person used one of their credit accounts – as long as it’s still showing up on a consumer’s credit report, doesn’t it have the same bearing on the FICO score? Actually, no. Sprauve explained:

“Active accounts have a larger bearing on a consumer’s FICO Score because they show the most recent activity. Recent activity has more impact on the FICO Score than older activity.”

Tips for scoring high in this FICO category

Now that it’s clear how length of credit history is determined, you’re probably wondering what you can do to score high in this category. Here are the Nerds’ top tips:

• Start using credit responsibly as soon as you can. For most folks, the easiest way to do this is by getting a credit card in early adulthood.


• Be cautious when opening new accounts. Every time you get new credit, you’ll be lowering your average age of accounts. Only apply for loans or cards you actually need.


• Think twice before closing an old credit card . Although a closed account with positive information will stay on your credit reports for up to 10 years, its effect on your score will diminish over time.


• In that same vein, keep old accounts active if you can. For most people, the easiest way to do this is by linking an old credit card to a monthly subscription service, like Netflix or a gym membership. According to Sprauve: “It’s prudent to continue to use older accounts so they don’t go dormant and run of the risk being closed …”

The takeaway : The length of credit history portion of your FICO score is a little complex than meets the eye. But by using credit responsibly from an early age, minimizing new credit applications, and keeping old credit accounts active, everyone can score high in this category.

Confused image via Shutterstock

The post Length of Credit History: What Does It Mean? appeared first on NerdWallet Credit Card Blog.

Source Article http://ift.tt/1y39EC7

Read More

You Can Get Your Money Abroad, but It’ll Cost You

One of the headaches of traveling internationally is figuring out the least expensive way to make payments in foreign currency. Here are the most common options for accessing your money abroad and the fees you should know about.

Credit cards

Cost: Foreign transaction fee of 1% to 3%

Credit cards are one of the safest options abroad because you have zero liability if your card is lost or stolen. Plus, Visa and MasterCard have massive global acceptance.

The downside is that many credit cards charge a foreign transaction fees on every swipe made in foreign currency, often as high as 3%. An increasing number of credit cards no longer have this fee, but many still do. Read the fee schedule for your card carefully.

Debit cards

Cost: Foreign transaction fee of 1% to 3%, withdrawal fee up to $5

Most debit cards also have foreign transaction fees, and they don’t offer the same financial protections, so they have fewer advantages than credit cards. On top of that, most debit cards also charge a fee of several dollars, sometimes as much as $5, for withdrawing foreign currency at ATMs. Even worse, some banks ding you with both a foreign transaction fee and ATM fee for withdrawing cash.

Some issuers, such as Bank of America, have partnerships with international banks that let you use their ATMs for free. Ask your bank if they have any such partnerships. If not, keep your withdrawals to a minimum, or apply for an account that doesn’t have these fees (Capital One 360 is one of the few).

Prepaid travel cards

Cost: Varies

Visa and MasterCard offer prepaid travel cards in the currency of your choice, as do some third-party companies like Travelex. It’s free to make purchases, so there are no foreign transaction fees to worry about. But expect to pay an ATM fee of several dollars for cash withdrawals. Some prepaid travel cards also tack on fees for buying the card, reloading money and even for inactivity.

Cash in foreign currency

Cost: Delivery fee under $10

Cash is still accepted almost everywhere. But don’t get suckered into exchanging currency at the airport or tourist traps, where you’re likely to get hit with hidden fees and poor exchange rates. Before you travel, order cash from a major bank. Not only will you get the best exchange rates, but you will probably only be charged small delivery fee if you’re a customer. Some customers may even get the fee waived. If you don’t have accounts there, you may have to pay a small service fee.

Travelers checks

Cost: Varies

Once a tried-and-true way for spending abroad, travelers checks (or cheques) are past their heyday. They aren’t accepted by all merchants, you may pay a service fee of 1% to 3% to buy them and some businesses charge a fee for accepting or cashing them. The benefit is you’ll be reimbursed if they are lost or stolen, but savvy travelers no longer find them worth the fees and trouble.

---

Travel photo via Shutterstock.

The post You Can Get Your Money Abroad, but It’ll Cost You appeared first on NerdWallet Credit Card Blog.

Source Article :http://bit.ly/1urMJNi

Read More