CreditScore.net http://www.creditscore.net Credit Score Fri, 03 May 2013 15:33:43 +0000 en-US hourly 1 College Grads: You Only Live Once, So Avoid These 7 Money Mistakes http://www.creditscore.net/college-grads-you-only-live-once-avoid-money-mistakes http://www.creditscore.net/college-grads-you-only-live-once-avoid-money-mistakes#respond Fri, 03 May 2013 15:33:43 +0000 http://www.creditscore.net/?p=7449 Little has changed for this year’s college grads. Jobs can still be tough to find, and student loan debt is at record highs. One difference: this year’s class is graduating in the age of “YOLO,” which, for those who haven’t heard of it, stands for “you only live once.” While the phrase implies life isread more

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college-grads-you-only-live-onceLittle has changed for this year’s college grads. Jobs can still be tough to find, and student loan debt is at record highs.

One difference: this year’s class is graduating in the age of “YOLO,” which, for those who haven’t heard of it, stands for “you only live once.” While the phrase implies life is about taking risks and enjoying today to the fullest, being a smart planner for the future can lead to a great life, too.

Before throwing YOLO at any problem, here’s money mistakes for college grads to avoid for making their only life a better one.

1. Pushing back student loan payments

While federal loan payments start becoming due six months after graduation, there are ways to stop or reduce payments right from the get-go. While this can help those who are truly having trouble making payments, it can be a danger to those who simply decide they want to pay less now without regard for the future.

For federal loans, ample opportunities are available to reduce student loan payments. Many student loan repayment options allow grads to reduce monthly payments, increasing total interest due and the term of the loan.

Various income-based repayment plans cap student loan repayment at 10%-20% of discretionary income, with remaining balances forgiven after 20-25 years. While this helps those who can’t make payments, it still ends up being an expensive and lengthy repayment option.

Unless you have a compelling reason to extend student loan repayment terms, don’t. A good rule of thumb is to put about 10%-15% of your income towards student loans. If you’re comfortably paying this much already, consider continuing to make monthly payments without altering your repayment plan.

2. Moving out too soon

Many grads are moving back home after college, with about 29% of Americans between the ages of 25 and 34 moving back in with parents. While this might seem undesirable or strange to some, it can be a smart money move.

Grads working to pay off loans or find a job should consider moving home to save money first. It’s better than moving out and going broke or racking up more credit card debt.

If you don’t want to live at home with parents, set a move-out goal instead. Mark it on the calendar and save like mad to move out of your parents’ place for good.

3. Adding instead of reducing credit card debt

According to a 2009 survey by Sallie Mae, college students who hold credit cards graduate with about $4,100 in credit card debt. When combining this with student loans, it can be large burden to pay back.

But don’t ignore the problem just because you don’t feel like dealing with it yet. Paying the minimum on credit cards, which typically charge much higher rates than student loans, will cost even more interest and prolong the time until pre-graduation balances are paid off.

4. Botching the job search

From applying to just any job to screwing up resumes, college grads can run into problems with their job search.

It’s not about sending out as many resumes as possible. A one-size-fits-all resume may be more likely to be rejected for any job.

Applying to any and every job decreases the chances you’ll start a career you enjoy. Instead, focus your search to the jobs you’re most interested in and put all your effort towards getting those positions.

Watch for red flags in your social media profiles, too. Remove anything that might disqualify you from a job. Use tools like Reppler to automatically monitor offensive language or photos you wouldn’t want potential employers to see.

5. Feeling entitled to “adult” things

Finishing college moves grads even further into adulthood. But that doesn’t mean you can have everything your parents and other adults have right away.

It’s silly to expect to own a house, cars, and other luxuries on day one after college. With a new job you might feel rich, but don’t forget: you’re likely still in debt and have little savings to show for even with your new salary.

Instead, start with a budget to keep your spending in check. Consider saving about 10% of your income before spending the rest. Gradually work towards the adult life that your parents and other adults enjoy.

6. Failing to negotiate salary

You might be a excited to get your first job, especially if the salary is more than you’ve ever earned before. But that doesn’t mean you should just jump at any offer.

Don’t be afraid to negotiate for your first job offer. If you’re the selected candidate, that means they want you. As long as you’re tactful and reasonable, negotiating doesn’t mean they’ll pull their job offer. At worst, they may say “no.”

Don’t lose your chance to negotiate now and be sorry you didn’t later. Raises are often given on a percentage basis, meaning the larger your starting salary, the larger the raise later.

For example, if you start with a salary of $40,000 and earn a 3% raise each year, you’ll be making just over $46,000 in the 6th year on the job.

If you negotiate a slightly-higher starting salary of $43,000 and you earn the same 3% raise, you’ll make a salary of almost $50,000 starting your 6th year on the job.

In five years, you’ll have made almost $20,000 more even though you only made $3,000 more with your initial salary.

7. Putting off saving for retirement

You’ve just finished school, so retirement may seem like a long way off. But it’s never to early to start saving. Thanks to compound returns on investments, starting early may be one of the biggest factors to being able to comfortably retire someday.

Don’t skip a 401(k) match or other retirement perks offered by your new employer. This is free money that’s just as valuable as a higher salary.

Even if you don’t have access to a 401(k), an IRA can be a valuable retirement tool. Contributions are capped each year, so once the year passes, your opportunity to fund your account is gone.

(image: ralph and jenny)

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More Debt Than Savings? Here’s How To Flip It Around http://www.creditscore.net/more-debt-than-savings-how-to-flip-the-numbers http://www.creditscore.net/more-debt-than-savings-how-to-flip-the-numbers#respond Wed, 01 May 2013 17:17:07 +0000 http://www.creditscore.net/?p=7430 Americans continue to struggle to pay down debt and save money. According to a Bankrate survey, 24% of Americans have more credit card debt than they do savings. Another 16% don’t have credit card debt but have no savings, either. Add these together and a total of 40% of Americans surveyed are at risk inread more

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pay-down-debt-and-save-piggy-bankAmericans continue to struggle to pay down debt and save money.

According to a Bankrate survey, 24% of Americans have more credit card debt than they do savings. Another 16% don’t have credit card debt but have no savings, either. Add these together and a total of 40% of Americans surveyed are at risk in an financial emergency. Just one car accident, medical emergency, or other financial trouble can mean disaster, leading to more debt, foreclosure, or bankruptcy.

If you’ve found yourself with more debt than savings, take action to pay down debt and save money using these steps as a guide.

Save an emergency fund first

The first step to paying off debt actually involves saving money. The reason: having zero savings is risky and can lead to taking on debt if cash isn’t available in an emergency.

Save an emergency fund if you don’t already have one. An emergency fund is considered savings, although it’s restricted to use for true emergencies and not vacations, shopping, or other unplanned-for expenses.

Shoot for a fund of at least $1,000 to start, and increasing it to at least three months of living expenses over time. The idea is to have a cushion in extreme situations so you’re not relying on credit cards when you unexpectedly need money.

Change your priorities

The Bankrate survey reveals that a similar percent of Americans at all different income levels have the same problem of more debt than savings.

While 30% of those making $30,000-$49,900 have more debt than savings, so do 23% who make $75,000 or more. This suggests the core problem isn’t just an across-the-board lack of income. For some, it’s more likely an issue of prioritizing where money goes.

Once your emergency savings are secure, take a hard look at your budget. You may be living paycheck to paycheck, but should you be? Have you already exhausted all options for cutting down expenses and using the cash for paying off debt or saving?

Instead of saving whatever’s left over, save first and then spend on discretionary expenses. Set aside a certain percentage of your income, like 10%, to pay towards debt or save in a separate account.

Consider your short- and long-term financial goals, too. If you’re looking to buy a house, you’ll need savings for a down payment. If you’re stacked with debt, your debt-to-income ratio, which is used for your mortgage application, won’t look so great either.

Aggressively pay down debt

For most, targeting debt before stacking up on savings is the best strategy. The reason: interest on debt typically costs more than interest rates or returns from saving and investing money.

This is almost always true with credit card debt. With interest rates exceeding 20% APR in some case, this dwarfs interest rates paid on checking accounts, which may be only 1-2%.

When paying off debt, be strategic about interest rates to save the most money. Start paying off accounts with the highest rates first and work your way down. Or if you prefer the debt snowball method, which costs more but can be more motivating, get to work on the lowest balances first.

While saving money might not be the preferred financial approach before paying off debt, go with the option that lowers your stress levels and mentally helps accomplish goals faster.

Pay lower interest rates

Interest rates aren’t set in stone. In some cases, you may be able to refinance debt to save money.

Focus on high-interest debt, like credit cards. Can you transfer balances to a card with low or no-interest and pay off the balance before rates go up? If so, you’ll be able to pay off more debt faster.

Others have used peer-to-peer lending to pay lower rates by refinancing credit card balances and auto loans with a loan issued by other consumers.

Avoid adding debt

If you’re trying to pay down debt, adding more makes little sense.

Put down the credit cards and forget about financing a new car while you’re battling debt. Wait until after you’ve surpassed debt with savings to considering borrowing money again. It’s simply easier to stay on track when your balances only move in one direction: down.

Turn debt payments into savings deposits

Once you’ve paid off your debt, you’ll still need to work on increasing your savings, which might still be close to zero at this point.

The easiest way to put more into savings: Take anything you were paying towards debt and save the full amount. If you’ve been able to live without this money while paying bills, why not stay on the same track? Just treat your savings account like a bill you need pay, and you might never notice this money missing in your life.

What is your best strategy to pay down debt and save money?

(image: Images_of_Money)

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9 Situations When Credit Cards Make Life Easier http://www.creditscore.net/situations-when-credit-cards-make-life-easier http://www.creditscore.net/situations-when-credit-cards-make-life-easier#respond Mon, 29 Apr 2013 15:18:02 +0000 http://www.creditscore.net/?p=7415 Many of us use credit cards simply because it’s more convenient than carrying and using cash, especially for large purchases or splitting the restaurant bill. Rewards provide an extra incentive for many cardholders, too. In some cases, credit cards go beyond basic convenience and become a near necessity with clear advantages over using cash. Hereread more

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hotel-credit-cards-easierMany of us use credit cards simply because it’s more convenient than carrying and using cash, especially for large purchases or splitting the restaurant bill. Rewards provide an extra incentive for many cardholders, too.

In some cases, credit cards go beyond basic convenience and become a near necessity with clear advantages over using cash. Here are several situations where it pays carry and use credit instead of cash.

1. Travel

While cash-only travel can be done, credit cards will likely make your journey easier.

Renting a car and checking into a hotel are typically less of a hassle with credit cards. The reason: rental car agencies and hotels need some sort of protection in case you damage their property. Credit provides the easiest way for them to take a deposit without having to collect cash. If you’re using debit, you may be subject to a hold on your card, a credit check, needing to provide proof of round-trip travel, or other additional checks.

Credit cards can make covering expenses, like expensive meals, transportation costs, and lodging easier, especially with international travel. Carrying large amounts of cash can be risky due to loss or theft. A credit card that doesn’t charge foreign transactions fees can be a money-saver compared to paying fees to withdraw cash at the ATM.

Be careful not to finance your travel on a credit card as it could cost more than using cash.

2. Working to build credit

Credit cards are one of the best ways to build credit. Attempting to improve your credit without credit cards can be more difficult, especially if you don’t use credit to buy a car or house.

Credit bureaus are working to build more non-credit factors, like rent and utility payments, into credit score calculations. The new VantageScore 3.0 does this, although it’s still a less-commonly used score than FICO.

Credit cards factor into every component of FICO scores, including payment history and amounts owed, which account for more than half the average score. Responsibly using a credit card and making on-time payments can be one of the best tools for maintaining and improving your credit score.

3. Losing a wallet

Losing a wallet full of cash can be a big financial loss. It’s very possible you won’t recover this money.

With credit cards, the loss is minimal. Most users can just call up and ask for a new card. Fraudulent charges can typically be disputed and easily removed. While liability for unauthorized charges is capped at $50 by law on credit cards, many issuers waive all charges with zero-liability policies.

4. When other financing options are worse

In many cases, carrying a balance on credit cards isn’t a good idea. Unless you have a card with 0% introductory APR or can transfer a balance, you’ll pay expensive interest charges.

But let’s assume you need to pay for something, like a medical bill, on credit. You can do much worse than credit card interest. A title loan, payday loan, or other high-interest loan will likely charge interest at multiple times the rate of a credit card.

Not paying bills probably isn’t in your best interest, either. You’ll be hit with fees and interest, not to mention calls from debt collection agencies and dealing with a credit score hit.

In extreme situations, don’t be afraid to use credit. Have a plan to pay off balances as quickly as possible to eliminate interest charges.

5. Emergencies

In an ideal world, everyone would have an emergency fund that’s easily accessible. But according to Bankrate.com, 28% of Americans don’t have any money saved for emergencies. For those who do, tapping a bank account with this money isn’t always convenient.

When faced with emergencies, credit cards might be the best options to cover costs right away. They’re widely accepted and often provide a credit line large enough to cover many emergency situations.

6. Disputed transactions

Paying with cash offers almost no protection at all. If there’s a problem with your purchase and you’ve been ripped off, you may have trouble finding recourse.

Credit cards provide protection in this situation, usually automatically and for free. It’s as easy as disputing the transaction with your credit issuer and, once approved, getting the money credited back to your account.

7. Repairing credit

Just as with building a credit score, using credit cards responsibly may be an integral part to fixing your credit.

Many credit repair services just don’t work. Tactics they use to get negative information erased from your credit report or to start over with a new credit identity are ineffective at the least and illegal in some cases.

One of the best fixes: use credit cards responsibly. MyFICO warns that past problems aren’t easily fixed but does say making on-time payments consistently can give your score a boost. You don’t need to keep a balance on your credit card to help your credit score, which means you can make a small purchase each month and pay it off to keep credit card accounts in good standing.

8. Tracking tax deductions, business expenses, and more

Credit cards make tracking expenses and budgeting easier for many, especially when it comes to record keeping for tax-related spending.

Credit card statements automatically track transactions including businesses expenses, charitable deductions, and anything else in your budget. Budgeting software that pulls and categorizes these transactions automatically can make bookkeeping even easier.

9. Avoiding the cost of extended warranties

Consumer Reports calls store-bought extended warranties “notoriously bad deals” that serve as “cash cows” for retailers. They say products rarely break during the extended warranty coverage period, and when items do break, the repairs don’t cost much more than the warranty coverage cost.

Credit cards make turning down extended warranties an easier choice. Purchases are typically covered without having to enroll in any services, and this coverage extends the warranty for up to one year.

(image: dmytrok)

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The Frugal Lifestyle: How to Balance Cheap and Spendy http://www.creditscore.net/the-frugal-lifestyle-how-to-balance-cheap-and-spending http://www.creditscore.net/the-frugal-lifestyle-how-to-balance-cheap-and-spending#respond Fri, 26 Apr 2013 13:07:15 +0000 http://www.creditscore.net/?p=7402 Frugality is often misunderstood. Some lump it together with being “cheap,” as in leaving small tips or stealing packets of ketchup. Others take the term to the opposite extreme by “saving” money by choosing the $20,000 new car instead of the $30,000 model. While “frugal” is a subjective term, acting frugal falls perfectly in the middleread more

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frugal-lifestyle-cheapFrugality is often misunderstood. Some lump it together with being “cheap,” as in leaving small tips or stealing packets of ketchup. Others take the term to the opposite extreme by “saving” money by choosing the $20,000 new car instead of the $30,000 model.

While “frugal” is a subjective term, acting frugal falls perfectly in the middle of the two examples above.

Whether you think you’re already frugal or not, here’s how to find the balance between spendy and cheap and embrace a frugal lifestyle.

Don’t be a cheapskate

“Frugal” and “cheap” aren’t synonyms. According to Dictionary.com, cheap in this context is defined as “stingy” and “miserly.” Frugal is defined as “economical in use or expenditure; prudently saving or sparing; not wasteful.” See the difference?

To be a little more clear as it relates to money, here’s behavior that could be considered cheap:

  1. Always choosing the lowest-priced option, regardless of quality or value
  2. Shortchanging others, like when splitting a group check at a restaurant and purposely not including tax and tip
  3. Refusing to splurge on anything, like going out to dinner, a movie, etc.

Those who are cheap might not have bad intentions. They’re doing a lot right to be perfectly frugal, but simply taking things too far.

Not cheap, not frugal

I’m not trying to discourage anyone who thinks they’re being frugal. But some who believe they’re frugal live paycheck to paycheck because they spend more than they need to.

Some warning signs you’re far from frugal (and may be in worse trouble) include:

  1. You buy lunch at work every day.
  2. You can’t pay your bills until the next paycheck comes in.
  3. You have zero retirement savings.
  4. You’ve never heard of an emergency fund, nevermind keep one.

Spenders need a reality check. They might think they save money here and there, but they’re likely living in denial if they think they’re frugal.

Getting started being frugal

Before you can be frugal, you need to understand what frugal is. Here are some examples of frugal behavior, compared to being cheap and spending too much.

When it comes to friends and family, letting a few dollars go here and there. Don’t pick up the tab every time, but don’t keep track of every cent, either.

Cooking a homemade dinner and spending $15 on a bottle of wine. Eating at home is often a “win” compared to going out, and $15 of wine isn’t going to break most budgets.

Clipping coupons, keeping a grocery list, and shopping mindfully at supermarkets is frugal. Spenders just buy whatever they feel like, never even comparing prices. Cheap people always go for the lowest price and never buy things they can get for free, like napkins, ketchup, and salt shakers.

See the the trend here? The idea is to embrace the middle of the road instead of falling to either extreme.

Once you’re ready to be frugal, it’s not as simple as just making the decision. It’s an entire lifestyle change and not something that just happens overnight.

So how do you work on being frugal? Start with what you want to accomplish.

Donna Freedman puts it best: “I save where I can so I can spend where I want.”

Decide what your goals are, or more specifically, where can you save so can afford to spend where you want and still be frugal.

For example, consider buying a used car instead of a new one. If you’re not a car person, the difference between choosing new or used might not make a difference but the savings will.

Maybe you don’t even like buying lunch every day. You just do it because it’s easy. Instead, you could make an effort to start bringing your lunch, even just one day a week. Doing that could save you $250 a year assuming packing your own saves $5 every time.

While you’re saving, don’t forget the good part: Spending where you want. This is the great part about being frugal instead of cheap. It’s about spending on things that you care about and love instead of not spending at all.

No one said you can never have dinner at an expensive restaurant. Don’t be afraid to splurge here and there.

Love taking a yearly trip to your favorite vacation spot? Go ahead. Being frugal helps you get there and still keep your other financial goals intact.

Where do you fall on the frugal meter? Have you ever struggled to keep a balance?

(image: jridgewayphotography)

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8 Tips for Avoiding Mortgage Mistakes http://www.creditscore.net/tips-to-avoid-mortgage-mistakes http://www.creditscore.net/tips-to-avoid-mortgage-mistakes#respond Wed, 24 Apr 2013 13:09:31 +0000 http://www.creditscore.net/?p=7387 Buying a home involves a lot of moving parts: dealing with brokers, lawyers, inspectors, homeowners, paperwork, deeds, and more. Top it all off with the most important piece of the whole process: closing on a mortgage. Mortgages are one of the most complex and significant documents you’ll ever sign. They likely involve the biggest purchaseread more

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mortgage-mistakes-house-for-saleBuying a home involves a lot of moving parts: dealing with brokers, lawyers, inspectors, homeowners, paperwork, deeds, and more. Top it all off with the most important piece of the whole process: closing on a mortgage.

Mortgages are one of the most complex and significant documents you’ll ever sign. They likely involve the biggest purchase of your life, and you may spend half of your adult life paying it off.

Before you sign on the line, here are mortgage mistakes you’ll want to avoid.

1. Applying for new credit at the wrong time

Applying for new credit is never a good idea right before looking to take out a mortgage. New credit cards or additional debt can lower your credit score. At the very least, you’re risking higher interest rates on your mortgage. At worst, you might be turned down for a mortgage altogether.

Hold off on opening any new accounts in the months before applying for a mortgage. Having the best credit score possible is crucial to keep interest rates low on your mortgage.

2. Untimely j0b change

Both assets and income are important components of the mortgage qualification process. A recent job change before buying a home can be a red flag for lenders who want to see stability and a consistent income. Experts caution even further against a career change, which may appear even more risky.

If you’re looking to change careers, wait until after you’ve bought your home.

3. Applying for a mortgage without planning

A sudden decision to buy and apply for a mortgage is often the wrong approach. If your credit isn’t in top shape, you’ll need time to make things right.

Instead of starting with the mortgage application right away, start with checking your credit score and credit report. Doing this months before you start searching for a mortgage will give some key advantages.

Most importantly, you’ll have time to increase your score. While boosting your credit score can take some time, there are ways to increase your score quickly. Look over your credit report and dispute any errors that may be hurting your score. Without sacrificing savings for your down payment, pay off credit card debt that might be bringing your score down.

Before you apply, make sure to check your credit score yourself so you know where you stand. Don’t rely on your lender’s word. If you don’t know your score, you’re asking to be ripped off.

4. Not getting pre-approved

The mortgage pre-approval process makes homebuying easier. You’ll know how much house you can afford, which narrows down the options when shopping for a home. You’ll also benefit from speedier closing when you’re ready to buy rather than rushing to obtain a mortgage once you find your dream home.

Sellers want to know you’re a serious buyer before accepting your offer. Pre-approval is often their best sign you’re ready to close.

Make sure you don’t confuse “pre-qualified” with “pre-approved.” The former often doesn’t mean you’ve been approved for a mortgage yet, while the latter means your financials have been checked and you’re closer to being able to close.

5. Money moving last minute

Lenders want to see you have assets readily available. But they don’t just look at your current balance. Don’t try to play tricks by transferring a big chunk of money into your account right before you apply. Lenders know to look for this. You won’t be fooling anyone.

Instead, make sure your accounts show a steady presence of cash months before applying for a mortgage. Be ready to explain any deposits that aren’t related to your salary.

6. Comparing interest rates but not closing costs

In most cases, closing costs are unavoidable with mortgages. Don’t just look at the interest rate to compare mortgage offers. Zillow has a list of more than 30 different closing costs that could be tacked on. These fees often add up to 3% to 5% of the mortgage amount.

This is a big chunk of change, so make sure to compare lenders based on these costs, too. Don’t be afraid to negotiate fees, especially when one lender charges a higher fee than another for the same item.

7. Borrowing too much

Banks are still eager to lend you money. Because of this, you need to figure out for yourself how much you can really afford.

One common mistake: not taking into account the expenses of homeownership beyond the mortgage payment. Be sure to include property taxes and insurance premiums due annually. You’ll also need to consider maintenance, utilities, and other recurring expenses.

If you’re unsure how to estimate all this, check out Zillow’s affordability calculator, which factors in many of these extras.

8. Making a small down payment

Certain mortgages allow for smaller down payments, such as little as 3.5% percent for an FHA mortgage. Just because this is allowed doesn’t mean it’s a good idea.

Many money experts, like Dave Ramsey, recommend paying at least 10% down. Make a 20% down payment, and you’ll be able to avoid paying private mortgage insurance.

Just be careful: using all your savings on a down payment can be dangerous. Make sure you have money saved for emergencies so you’re not at risk of falling behind on your new mortgage.

Have you made any of these or other mortgage mistakes?

(image: How I See Life)

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How Student Loans Affect Your Credit Score http://www.creditscore.net/how-student-loans-affect-your-credit-score http://www.creditscore.net/how-student-loans-affect-your-credit-score#respond Mon, 22 Apr 2013 14:52:15 +0000 http://www.creditscore.net/?p=7369 According to FinAid.org, total student loan debt in the U.S. tops $1 trillion — and counting. Average loan debt for a student in the class of 2011 was just shy of $23,000. While grads work on paying off their debt, there’s a bright side for those who do so responsibly. The potential reward: a betterread more

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student-loans-how-affect-credit-scoreAccording to FinAid.org, total student loan debt in the U.S. tops $1 trillion — and counting. Average loan debt for a student in the class of 2011 was just shy of $23,000.

While grads work on paying off their debt, there’s a bright side for those who do so responsibly. The potential reward: a better credit score.

Here’s how student loans affect your credit score and how they can help your credit, especially when starting to establish a credit history.

Student loans help get a credit score

Getting the first line of credit is often the toughest. Even with student credit cards, approval isn’t guaranteed for young adults. The reason: banks are hesitant to lend to those with no credit history.

Student loans help solve this problem. Just as with other loans, student loan activity is sent to the credit bureaus. After having a student loan account open for at least six months and with activity reported within the last six months, students become eligible for a FICO score if they don’t already have one.

Federal Stafford and Perkins loans don’t require a credit check for eligibility, making them one of few loans those with no credit or bad credit can obtain. Students won’t have to prove creditworthiness or find a cosigner for these federal student loans, unlike credit cards or other lines of credit.

Paying off loans early won’t hurt your score

Student loans are no exception to credit myths. Several myths are related to the effects of paying off student loans early. But paying student loans off sooner is actually more likely to help credit in addition to saving money.

One myth: Paying off loans early will hurt your credit score because less interest is paid and banks don’t like this. This doesn’t matter, especially since interest payments aren’t reported to credit bureaus.

Another: Paying off loans early will hurt credit age, a factor in FICO scoring. Credit age is reported the same whether loans are active or paid off, so pay back loans early without fear of bringing down your score.

On-time payments greatly influence credit score

Payment history on payment accounts is often the most influential in terms of credit score, accounting for about 35% of the FICO calculation. Student loans count no differently than other loans or lines of credit. Making sure to pay on time is important to achieve credit score benefits.

Keep in mind: Forbearance and deferment won’t hurt your credit score as they’re servicer-approved options.

Even more helpful is that federal loans automatically come with several repayment options that can make on-time payments even easier. Student loan holders can lower payment amounts to avoid credit damage from falling behind on student loan payments.

Provide access to good credit mix

Diversity in the types of credit used accounts for about 10% of your FICO score. Keeping a good mix of credit can be difficult without taking on extra debt, especially for young adults. Student loans might give the best opportunity to young graduates to raise their score with credit other than credit cards.

Student loans are reported as installment loans while credit cards are considered revolving loans. These two types of loans are complementary when it comes to credit scoring.

Other installment loan options might not suit students as well. Students may not be looking to take out a mortgage immediately after college. Auto loans require buying a car, and the interest isn’t deductible like it is for student loans or a home mortgage.

Consolidating can help credit

Consolidating student loans may have some hidden benefits beyond simplifying paying off loans.

Having several student loan accounts with an outstanding balance can be bad for your credit score. When consolidating, student loans accounts are bundled into one, which can bring up your score.

Even if you don’t choose to consolidate, paying off accounts can have a positive effect. This gives you good reason to use a debt snowball or another approach to whittle down multiple accounts one after the other.

Having large amounts of debt might not be as harmful as you think, either. Since student loans are considered installment loans, the balance isn’t weighted as heavily into your credit score as it is for revolving debt, like credit cards.

Don’t over-estimate the benefits

The information above might sound like an endorsement for student loans, but don’t be fooled. Student loans are still debt, and with standard interest rates on federal loans at 6.8%, they’re far from a bargain.

Despite the credit score benefits student loans offer, I’m not advocating taking out loans to get these benefits. The credit benefits from student loans aren’t automatic, either. Student loans can harm your credit score if you’re not careful, as just one late payment can bring down your credit score. Student loan debt can affect the eligibility for loans like a home mortgage based on debt-to-income ratio.

My final advice: Work to minimize student loans and pay them off early whenever you can.

(image: mer chau)

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9 Hidden Credit Card Tricks Revealed http://www.creditscore.net/hidden-credit-card-tricks-revealed http://www.creditscore.net/hidden-credit-card-tricks-revealed#respond Wed, 17 Apr 2013 16:19:27 +0000 http://www.creditscore.net/?p=7356 Credit cards are advertised with their benefits prominently displayed while fees, rates, and other catches are buried in the fine print. Some of the biggest credit card tricks aren’t found in the fine print at all. They’re really just clever marketing that can make an offer sound better than it really is. Here’s the lowdownread more

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credit-card-tricksCredit cards are advertised with their benefits prominently displayed while fees, rates, and other catches are buried in the fine print. Some of the biggest credit card tricks aren’t found in the fine print at all. They’re really just clever marketing that can make an offer sound better than it really is.

Here’s the lowdown on the many credit card tricks card issuers play on consumers.

1. Interest calculations can be confusing

Confused by how credit card interest is charged? Maybe you haven’t looked so closely before, but it’s typically not assessed on your statement balance.

Instead, it’s often charged on your average daily balance during the billing cycle. To calculate interest, you’ll need to add up your balance each day of the billing cycle, and divide by the number of days.

You’re typically only free from interest charges calculated this way if you pay the entire balance, not just a portion of the bill, during the grace period.

For cash advances, there’s typically no grace period, so interest starts adding up from day one.

2. Pre-approved doesn’t mean automatically approved

Got mail that says you’re pre-approved for a new card? You might be disappointed to find you’re not eligible for the card after all.

As it turns out, their offers are more like targeted ads than an actual offer. You’ll still need to apply and meet all the usual terms for opening a new account, which includes a credit inquiry that can work against your credit score.

Needless to say, these offers often aren’t any better (and can actually be worse) than shopping for your own credit card offers.

3. Gold cards don’t mean a thing

There are many cards with fancy names, like “silver,” “gold,” and “platinum.” While a gold card might’ve meant something in the past, that’s not true anymore. It’s just about marketing, and credit card companies know consumers may think these cards are better to own.

Don’t fall for the hype with the name. Shop around based on offers, and don’t be afraid to select plain cards that still offer great benefits.

4. Rewards aren’t so rewarding

Cash back and other rewards sound lucrative, but once you do the math, they’re often less than stellar.

Many cards offer up to 5% cash back on purchases, but that’s often only for certain categories. Many cards offer just 1% back on your purchase. That’s a measly $10 reward for every $1,000 you spend on the card.

Worse: some cards have spending tiers. For these cards, you’ll have to cross an annual spending threshold before earning higher rewards rates.

5. International charges come at a price

Excited to see MasterCard and Visa cards accepted in foreign countries? Don’t be too thrilled. Many cards tack on a fee to use cards for foreign transactions. This fee is often 1%-3% of your purchase.

6. You can transfer a balance, but it’s not free

Transferring a balance to a 0% interest card might seem like your saving grace from high interest rates, but it’s usually not a free transaction.

You’ll likely pay a fee equal to 3% of the balance. Do the math, and it might be months before you break even compared to keeping your old card and paying interest.

7. Late payments cost more than just a fee

Missing a payment might seem like a small slip-up. But making this mistake can be costly beyond the late fee.

After paying your late payment fee of up to $35, get ready to potentially pay a penalty APR. These penalties can push the interest rate on your card to more than 30% APR.

If you’re late on a payment, your credit score will be dinged, too. The cost of just one late payment can be devastating, and you could be forced to pay higher interest rates on any loans you’re applying for.

8. Business cards aren’t subject to CARD act

The Credit CARD Act of 2009 capped many fees and added rules that helped protect consumers on personal credit cards. But there’s a catch: small business credit cards aren’t included.

If you have a business credit card, watch out for higher fees and charges compared to your personal card. If you miss payments or default on your debt, it’s your personal credit on the line.

9. Big sign-up bonuses come with a catch

Many credit cards offer big bonuses for opening an account. But those free miles or bonuses come at a cost.

Many airline credit cards require a minimum spend within a specified time period to earn the full reward, such as spending $3,000 within three months of opening the account.

Keep in mind that many of these cards have annual fees, too. While some waive the fee for the first year, others tack on a charge of $75 or more right away. Even if the fee is waived, you’ll need to cancel the card after the first year to avoid the costly annual fee.

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Overflowing Wallet? Switch to a Digital Wallet http://www.creditscore.net/overflowing-wallet-switch-to-digital-wallet http://www.creditscore.net/overflowing-wallet-switch-to-digital-wallet#respond Mon, 15 Apr 2013 17:09:21 +0000 http://www.creditscore.net/?p=7337 If your wallet is bulging, disorganized, or often misplaced, there’s a new solution: digital wallets. Digital wallets are smartphone apps that replace some or all the functions of a regular wallet. They allow you to pay for in-store purchases without cash and make checking out with credit and debit faster and easier. Here’s why youread more

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digital-wallet-google-walletIf your wallet is bulging, disorganized, or often misplaced, there’s a new solution: digital wallets.

Digital wallets are smartphone apps that replace some or all the functions of a regular wallet. They allow you to pay for in-store purchases without cash and make checking out with credit and debit faster and easier.

Here’s why you should carry a digital wallet followed by several app options to check out.

Why use a digital wallet?

A digital wallet adds handy functionality and convenience while eliminating the bulk and chaos of a normal wallet.

Digital wallets make checking out at the register fast and easy. They allow you to store credit card information on your phone. Thanks to near-field communication (NFC) technology available on many phones, you just need to hold your phone at checkout kiosks to pay. Some apps, like Square, are developing even easier ways to pay where you don’t need to pull out your phone at all.

Most digital wallet apps are free to download and use without extra fees. Just like with credit cards, merchants typically pick up the tab for transaction costs.

In addition to credit cards, digital wallets hold information for many others things you’d normally have to tote around, including:

  • Public transportation passes
  • Gift cards
  • Receipts
  • Store membership cards
  • Concert tickets
  • Coupons
  • Airline boarding passes

Digital wallets can be more secure than a physical wallet. If you lose your real wallet, credit cards, IDs, and other financial information is gone and potentially in the hands of thieves. This problem is eliminated with digital wallets, which keep a copy of all your financial documents. Digital wallets store this information securely, and many can be deactivated remotely if your smartphone is lost.

Digital wallets aren’t accepted everywhere yet, but they’re becoming more and more common. Phone compatibility restricts their use somewhat, too, as not all smartphone have NFC technology.

For now, you’ll be limited to merchants that accept your particular wallet of choice. The good news is just about every smartphone can take advantage of some form of digital wallet even with fewer features available.

Popular digital wallets

Digital wallets offer a variety of unique features. Here are a few digital wallet applications to keep in your pocket.

Google Wallet

Google Wallet can be used to store credit card information for faster checkout. While the mobile feature is handy for in-store purchases, Google Wallet works from your computer for online checkout, too.

Google Wallet secures your credit card information in the cloud, and allows you to remotely deactivate the smartphone app if your phone is lost or stolen.

Square Wallet

Square Wallet links with the popular Square payment system that many stores now use.

One neat feature: “hands-free” checkout. Turn the hands-free option on, and give your name to the cashier. Your photo will pop up for him and her to verify, and your linked payment method will be charged automatically.

Square Wallet comes with a built-in rewards, too. A digital punch card tracks visits, and merchants can reward you for your loyalty.

Lemon Wallet

Lemon Wallet users can take picture of all their cards, a handy feature if your real wallet is lost or stolen and cards and identification needs to be replaced or canceled to prevent fraud.

Lemon Wallet also syncs with credit card accounts, making it easy to check balances all in once place.

Passbook

Passbook by Apple lets you keep track of almost anything with a barcode. Store cards, passes, and coupons as well as tickets for flights, concerts, movie theaters, and more instead of fumbling with paper printouts.

Users can add different passes to Passbook using compatible iOS apps, email messages, and directly from retailer websites.

PayPal

If you already use PayPal for online transactions, the PayPal mobile app can make sending and receiving money even more convenient. With PayPal, you can send money to friends and family on the spot.

PayPal is currently rolling out a mobile payment feature as well.

Isis

Isis contains many similar features for making purchases at select merchants that accept the service. When you sign up for Isis, you’ll get an Isis Cash card preloaded with $10 when you activate your Isis Wallet. You can earn another $15 when you make your Isis card reloadable.

Isis is currently accepted at hundreds of merchants in Salt Lake City and Austin.

LevelUp

LevelUp features different technology than other digital wallets on this list. It works with any iPhone or Android phone. Users pay by displaying a LevelUp Code on their smartphone screen and scanning it at the merchant’s checkout.

LevelUp users can get bonus credit to spend at merchants, too.

For more money-related apps, see our post on apps for improving your credit score.

(image: SNarvasa)

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Avoid These 6 Top Scams that Damage Your Credit Score http://www.creditscore.net/avoid-these-top-scams-that-hurt-your-credit-score http://www.creditscore.net/avoid-these-top-scams-that-hurt-your-credit-score#respond Mon, 15 Apr 2013 15:18:39 +0000 http://www.creditscore.net/?p=7297 When you think of scams, stolen cash or unauthorized charges on your credit card might come to mind first. While these losses can have an immediate impact, there’s the potential for credit score damage, too, with even more costly long-term effects. Whether it’s credit scams or other tricks that hurt your score, watch your walletread more

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damage-credit-scamsWhen you think of scams, stolen cash or unauthorized charges on your credit card might come to mind first. While these losses can have an immediate impact, there’s the potential for credit score damage, too, with even more costly long-term effects.

Whether it’s credit scams or other tricks that hurt your score, watch your wallet and your credit in these six cases.

1. Credit card debt scams

Companies offering debt settlement programs may be a scam if they promise big results and charge fees upfront before they start. They may guarantee to settle your debt for “pennies on the dollar,” a potential red flag of a scam.

Other companies that offer to help you reduce credit card interest rates may really be looking to steal your credit card information to commit fraud. If you turn over account numbers and other personal information on the phone or by mail, they may turn around and use your card to make unauthorized purchases.

Avoid paying upfront fees or signing up for services that guarantee results that sound too good to be true.

If you’re looking to reduce credit card interest rates, call customer service and ask for lower rates yourself.

For more, see the FTC’s warnings on debt settlement scams and interest rate reduction scams.

2. Bogus accounts and charges

There are many ways identity theft can hurt your credit. Identity theft that results in credit card fraud can lead to fraudulent charges and bogus accounts you didn’t sign up for. When thieves open up credit cards or other accounts in your name with your Social Security number, your score can suffer.

Don’t fall for the tricks. Identity thieves take your information from a variety of methods, like card skimmers, phishing scams, and stolen documents. Stay up to date on how to protect yourself. Be careful with emails that look like they’re from a trusted business, especially when they’re asking for account information. Shred your documents, as many thieves go through trash to steal information.

3. Tax refund scams

Scammers may send notices, emails, or make calls pretending to be the IRS. This communication can be a phishing scam designed to get you to hand over personal information.

Once scammers have your Social Security number or other personal information, they can turn around and use it to file a false tax return to claim your refund.

The IRS never contacts taxpayers by email, social media, or text message, so don’t give personal information to anyone requesting it through these channels. Instead, call the IRS on your own or check their page on phishing scams for more information.

4. Fake mortgage help

Mortgage scams can hit hard, especially since many target homeowners are already struggling to make their payments.

Common mortgage scams include offers to help get out of foreclosure and save your home in exchange for paying for services.

Homeowners can fall behind on payments and end up in default when they find the “business” they hired took their money and didn’t provide any real help. Homeowners who are delinquent or in foreclosure will likely suffer serious credit score damage as well as be at risk for losing their home.

The FTC says to watch for these warning signs from agencies that offer foreclosure help:

  • Tells you to stop paying your mortgage and pay them instead
  • Tells you not to contact your lender, a lawyer, or a housing counselor
  • Asks for upfront fee before providing any services
  • Tells you to transfer your property deed or title to them
  • Pressures you to sign papers

For more on your mortgage and foreclosure, see our posts on steps for avoiding foreclosure and when refinancing makes sense.

5. Credit repair scams

Credit repair is supposed to be about improving your score. But credit repair scams can cost you money while hurting your credit score.

Credit repair agencies might guarantee to repair your credit if you’ve had problems in the past, which is possible sign of a scam, according to the FTC. They might require an upfront fee or use ineffective or even illegal tactics, like telling you to dispute accurate information on your credit report. Credit repair involving creating a “new credit identity” by using an Employer Identification Number (EIN) is against the law.

Don’t fall for the hype. Much of what credit repair agencies offer won’t help your credit or isn’t worth paying for. Stick to do-it-yourself methods that don’t cost anything or work with a reputable credit counseling agency to deal with credit and debt problems. For more, see our guide to credit score repair.

6. Auto financing ripoffs

According to a Gallup poll, car salesmen are the least-trusted professionals in America. In some cases, they’re known for offering bad financing deals by claiming you don’t qualify for the best rates.

They may also offer a loan with a longer term, a common trick to bring down monthly payments and convince buyers they can afford a more expensive car.

Don’t fall for loans that cost more in interest and prolong the length of time you’ll be in debt from your auto loan. Shop around for the best deals on financing, including banks and credit unions where you can get pre-approved.

For more, see our post on how to avoid getting ripped off on your auto loan.

Fixing a credit mess

If you’ve been a victim of credit scams, you’ll likely need to do some work yourself to erase the damage. Don’t forget: Any inaccurate information appearing on your credit report, which determines your credit score, can be removed. Follow our guide for disputing credit report errors.

(image: ajimixx)

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A Consumer Guide to Credit Score Repair http://www.creditscore.net/a-consumer-guide-to-credit-score-repair/ http://www.creditscore.net/a-consumer-guide-to-credit-score-repair/#respond Thu, 11 Apr 2013 12:00:26 +0000 http://www.creditscore.net/?p=7317 A credit score is a three-digit number that a number of entities use to form a judgment about you. This score reflects your ability to meet your financial obligations on time, and to do so consistently. Your credit score comes into play when you need to finance a large purchase such as a home orread more

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A credit score is a three-digit number that a number of entities use to form a judgment about you. This score reflects your ability to meet your financial obligations on time, and to do so consistently. Your credit score comes into play when you need to finance a large purchase such as a home or a vehicle, fund home improvements using the equity in your house, establish a line of credit with a bank or retailer or even apply for a new job. Unfortunately, a bad credit score can be established quickly and then haunt you for years.

Such a credit score indicates that you are not considered a good financial risk. Lenders can and will charge you higher interest rates to borrow money, if they agree to lend you money at all. This holds true for credit cards, auto loans, home mortgages and any other credit-based loan transaction. If you have a sloppy or inconsistent history of repaying loans, the only remedy is to consistently pay your bills on time for long enough to assure lenders you have mended your ways.

Sometimes the information that is reported to credit bureaus is incorrect or incomplete. If you discover that your credit report contains inaccuracies, you are not without resources. Legally, you have the right to dispute incomplete or inaccurate entries on your credit report and have them permanently removed. Because this process can be time-consuming, you may be tempted by companies that offer to clean up your credit report for you.

The Fair Credit Reporting Act (FCRA), established by the Federal Trade Commission (FTC), clearly identifies your rights, as well as how credit counselors can help you while staying within the law. Unfortunately, there are shady companies who do not deliver on their promises and in fact operate illegally. If you participate in these illegal activities, even without your knowledge, you could be committing a felony that is punishable by prison; it pays to be aware of the proper procedures for repairing your credit score.

Know Your Rights

Under the FRCA, three entities monitor credit scores: Equifax, Experian and TransUnion. While these companies operate similarly, not all lenders report to all three bureaus, so it is possible that your credit report may differ from one agency to another. The actions of these three entities are enforced by the FTC. Under the FRCA, your rights are as follows:

  • You are entitled to one free credit report every 12 months from each agency.
  • You are entitled to request a free copy of your credit report within 60 days of any negative action due to poor credit history, such as denial of credit.
  • You are entitled to a free credit report if you are unemployed and plan to job-hunt within 60 days.
  • You are entitled to a free credit report per year if you receive welfare.
  • You are entitled to a free credit report if you have been a victim of fraud, including identity theft.
  • You may open an inquiry free of charge to dispute a notation on your credit report at any time.

Inaccuracies must be removed when proof is properly established to the credit bureau. If negative data is accurate, no one may legally remove that information. Only good behavior over time can correct a true pattern of non-payment.

Generally seven years of history is reported on your credit report, though bankruptcy filings may be listed for 10 years. If your nonpayment resulted in a lawsuit, this information may be reported for seven years or until the applicable statute of limitations expires. If you were convicted of a crime, applied for a job with a salary exceeding $75,000, or applied for life insurance or a credit line in excess of $150,000, this information remains on your credit report for life.

How Do I Spot a Credit Repair Scam?

An old business adage applies here: if it seems too good to be true, it probably is. Accurate items may never be removed from your credit history. Incorrect items may be removed, but any business offering to do the legwork for you should be scrutinized. Some companies bombard the credit bureaus with paperwork so that an account in dispute is “removed;” what often happens is that after your money is collected, that black mark is found to be legitimate and reappears on your credit history a month later.

Be especially wary of any company that promises to remove negative items from your credit history regardless of their veracity. These companies may tell you not to contact the credit bureau directly; they may ask for a large payment in advance, advise you to dispute factual history or suggest you use false information when applying for credit. These are all red flags for improper business practices.

However tempting a clean slate or new credit identity may sound, it is fraudulent. If you are provided with a nine-digit number that looks suspiciously like a Social Security number, it likely is – and you are engaging in identity theft if you use this number to apply for credit. Scammers may disguise the number as a credit profile number or account number, but in reality it is a stolen Social Security number.

Scammers may also direct you to apply for an Employer Identification Number (EIN) from the IRS. While an EIN is perfectly legal, it is a federal crime to request one under false pretenses. It is also illegal to use an EIN and a Social Security number simultaneously when applying for loans. Another way scammers operate is by hiding fees within a program that is otherwise advertised as an avenue to free credit reports – something you are already legally entitled to; the scammers usually direct you to pay-for-service schemes that offer no real value.

Legitimate credit counselors do exist. In return, you receive counseling and advice on managing your money. Credit counselors examine your finances as a whole and help you find ways to reduce spending and manage your debt. Some assist you with budgeting and some offer free seminars on debt reduction and do-it-yourself credit repair. Some will act as third-party agents and negotiate better interest rates while you pay down your debt. However, credit counselors will never offer to alter your credit report.

How Do I Dispute an Inaccuracy Myself?

Inaccuracies do happen. For example, you may have paid off a credit card and closed the account with a zero balance, but your report states that the credit provider closed the account for nonpayment. You may have noticed accounts in your ex-spouse’s name that appeared on your credit report after your divorce. In a worst-case scenario, you may discover that you are a victim of identity theft and that accounts opened in your name are unpaid.

  1. Fortunately, the FTC has a process in place for disputing items that are inaccurate. When disputing anything on your credit report, persistence and paperwork are your best friends. Document every step of the way, make copies of everything for your personal files and monitor the progress of your dispute regularly until the negative items have been removed.
  2. Write to the credit bureau in question, or all three if necessary. Detail which historical item is inaccurate, and include supporting documentation that backs your claim. Send paper copies of bills that show balances paid, copies of divorce agreements if necessary or copies of bank statements that reflect withdrawals. Make a copy of everything in your initial inquiry, and send it certified mail with return receipt requested. If you have difficulty resolving the dispute, a paper trail will be helpful.
  3. The credit bureau must respond to your inquiry within 30 days of receipt. Any corresponding changes to your credit report must be made, and you may request that an updated report be sent to any entity that requested your credit history within six months prior. If the bureau cannot verify the information, it may reject your request. You may write a statement of up to 100 words that explains your version of your history; this document must be supplied to every entity that requests your credit report thereafter.
  4. The FRCA allows you to appeal by opening a new inquiry. At this point, the involvement of the original creditor may be helpful, and they may even be persuaded to intervene on your behalf to have a negative item removed. Write to the original creditor, provide them with your supporting documentation and a copy of your credit report with the inaccuracy highlighted, and request that they provide corrected information to the credit bureau. Make copies of everything and send via certified mail with return receipt requested. When you have new documentation in hand, repeat the process with the credit bureau and follow the same steps. Rinse, lather and repeat until the inaccuracies have been removed.

Depending on the scope of the inaccuracies in your credit file, this process may be burdensome and time-consuming. It’s also frustrating to rely on snail mail in today’s world of instant, online gratification. However, credit report scammers are relying on your impulses when they offer to do the work “for” you. It’s much wiser in the end to avoid potentially illegal activity via a scammer and do the legwork yourself. It is also good practice to regularly monitor your report to avoid nasty surprises; take advantage of your annual free credit report and carefully review it for inaccuracies.

For reference, here’s the FTC-approved template for a dispute letter. This is the appropriate way to initiate a discussion surrounding just about any credit dispute:

Date

Your Name

Your Address

Your City, State, Zip Code

Complaint Department

Name of Company

Address

City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,

Your name

Enclosures: (List what you are enclosing)

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