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How your student loans affect your credit score


How Student Loans Affect Credit Scores

(Dallas, TX – National Credit Solutions) It’s a fear that most recent grads have: how will my thousands of dollars in student loans affect my credit score?

The fact is, student loans are loans: they can be beneficial to your credit score if you pay them off on time, or they can be harmful if you don’t.

According to FICO, a student loan is treated like an installment loan (mortgage or car note). The good news is that most credit bureaus treat installment loans differently than revolving credit; they look more at your revolving credit (such as how you pay off your credit card bills) than at your installment loans.

The second piece of good news is that student loan deference of forbearance will not hurt your credit score. Deferment or forbearance allow you to put your student loans on hold, whether because you lost a job or suffered another economic hardship. You can defer these payments anywhere from a couple months to a couple of years without damaging your credit score. Student Loans

Many people are under the impression that student loans can only harm their credit score. This is far from true, however, as student loans help you establish credit history – an essential step in building good credit. Your credit scores can actually improve because of your student loans, as you now have an installment loan on your credit resume, and this adds to the diversity of your credit history. The more types of credit you have, the better your score will be (provided you pay off your debts on time).

Although you may have accrued thousands of dollars in student loans, remember that you used this money as an investment in your future. Instead of stacking up debt with superfluous credit card charges, you built up a “good” type of debt. While your credit score does not reflect this “good credit”, individual banks often take this into consideration when deciding whether or not to give you a loan. Since you took out these loans for a productive purpose, most banks view student loans in a positive light.

So despite what most people assume, student loans can actually help your credit score. As long as you make your payments on time (unless, of course, you need to defer your loans for a short period of time), your credit will thank you for taking out those student loans and furthering your education. Not only can pursuing higher education give you a leg up in the job market, but it can also give your credit score a helpful boost that will help you down the road.

Millennials Are the Worst at Managing Debt

Millennials Are the Worst at Managing Debt

Millennials Are the Worst at Managing Debt

(Dallas, TX-National-Credit-Solutions) Millennials have had a rough entry into adulthood: not only have they struggled to find entry-level jobs in a tough economy, but they are also the worst at managing their debt.

Most Millennials (ages 19-29) have piles of student loans to pay off, shaky job prospects, and a poor understanding of how to properly manage their credit. Experian’s “State of Credit” study found that the average credit score of Millennials is shockingly low: 628.

This low number is surprising, considering that Millennials own an average of only 1.5 credit cards and carry an average balance of $2,700. While other generations have higher balances than these Millennials (the national credit card balance average for people 30-65 is $5,300), this younger generation has little knowledge of how to properly manage its debt.

Although Gen-X and Millennials are just as likely to make late payments or max out their credit cards, Gen-X has more assets and longer credit histories than the Millennials, which means that their credit scores do not suffer like those of Millennials.

Experian’s study also showed that Millennials are the most hesitant generation to accept loans, which is largely due to the unstable economy and the poor job market for young adults. Yet despite the fact that more young adults are avoiding borrowing money, their generation still finds itself burdened with debt and at a loss of good debt-management skills.

It seems as though many Millennials were never taught how to properly build credit or how to manage their debt so as not to damage their credit score. So if you are one of the millions of Millennials struggling with debt, here are three ways you can improve your credit score:

1) Get a Credit Card

More and more Millennials are avoiding credit cards, perhaps because they fear they won’t be able to control their spending habits. However, since you need credit history to have a credit score, it is essential for young adults to have a credit card. Even if you only charge a small amount to your credit card every month, you are still building good credit!

2) Pay your bills on time

This one might seem obvious, but many young adults are juggling new careers, student loans, car loans, and rent, so many of them decide that making a late payment now and then is acceptable. Unfortunately, this is not the case. Since Millennials have a short credit history and few assets, it is important that you pay your bills on time. Start budgeting your money to ensure that you can make your payments every month.

3) Choose transportation wisely

Don’t splurge on that expensive SUV that will eat away at your bank account. Instead, find a reasonable, affordable car or rely on public transportation. This will help you save money so that you can pay off your bills on time and keep your credit score strong.

Although Millennials are facing a tough job market and are wary of borrowing money, it is important for them to learn how to manage their debt more effectively in order to improve their credit scores.

Smart Credit Decisions for Entrepreneurs – Business Credit

Smart Credit Decisions for Entrepreneurs – Business Credit

Smart Credit Decisions for Entrepreneurs

(Dallas, TX-National-Credit-Solutions) Without inventive young entrepreneurs, we would have no iPhone, no Facebook, no Starbucks, and no Disneyland. Thankfully, bright young thinkers still continue to take risks and dream big, but many of the most creative entrepreneurs still have trouble funding their startups. Here is a look at how entrepreneurs can make smarter credit decisions that will help them transform their ideas into reality:

 

1) Open a business credit card

Many entrepreneurs do not have a long credit history, which can be problematic when applying for small business loans. However, it is crucial to start building good credit as soon as possible to further your business. Once you have enough personal credit history to open a business credit card, create a separate account for your business so that you can start funding it with credit.

2) Don’t mix business with your personal life

While there are a few success stories where entrepreneurs have used their personal credit cards to build their business, this often causes more problems than not. Separating your personal finances from your business finances can save you a great deal of stress and endless headaches.

3) Create a cash reserve

It is a good idea to build a cash reserve in case of emergencies. Entrepreneurs often hit snags in their plans, and many have to fail a couple of times before they succeed. Don’t let this deter you from pursuing your ideas, though, just consider setting aside a certain amount of cash each month in case you run into a rough spot. This cash can help bail you out of debt that could (if left unpaid) wreck your credit score.

4) Be aware of your debt-to-income ratio

While ambition is one of the most admirable qualities of entrepreneurs, it can also lead them into tumultuous financial situations. Instead of being overly ambitious and optimistic about your new business, play it a little safer so as not to max out your credit cards and become burdened with debt. Keep your debt-to-income ratio low to avoid sinking your business.

Entrepreneurs need to maintain a good financial record for various reasons: to appeal to potential partners, to obtain a loan for business expenses, to start another business, and to attract investors. It’s no secret that entrepreneurship requires risk, but it also requires attentive financial maintenance and smart credit decisions.

5) Know what’s on your Dunn & Bradstreet report

Do you know how potential creditors view your business credit?  If not, it may be time to check your D&B report.  Dun & Bradstreet has a huge database of more than 140 million business records.  Similar to the Credit Report Agencies, Experian, Equifax and TransUnion, D&B is a data furnisher that is used by potential investors, lenders and business owners to determine the credit-worthiness of a business.  If you are the owner or authorized business agent of a business, you can obtain a Dun & Bradstreet Report and Score online for free.
FICO vs VantageScore

FICO vs VantageScore

FICO vs VantageScoreFICO vs VantageScore

 

(Dallas, TX-National-Credit-Solutions) When discussing credit scores, FICO – the credit scoring company, Fair Isaac Corporation – always comes up at some point during the conversation. Because of FICO’s dominance in the lending industry, fewer people know about VantageScore, a second credit scoring company that started as FICO’s rival eight years ago. Both FICO and VantageScore provide lenders with credit scores, but each one takes a different approach to calculating the scores. Here is a look at some of the biggest differences between the two credit scoring companies:

 

 

1) The Scoring Models

FICO’s scoring model consists of combining various elements of your credit history to obtain a score between 300-850. The higher your credit score, the less of a risk you are to lenders, which means you will qualify for better loans, top cash back, and more reward cards. If your score is on the lower end of the scale, you are considered a high-risk borrower, and therefore you may have trouble getting a loan.

The VantageScore is largely based on a 24-month review of your credit report, which includes components similar to that of the FICO score – payment punctuality, your available credit, the amount of debt you have, etc. One of the most noticeable differences between FICO and VantageScore is the scoring model: VantageScore combines a three-digit number ranging from 501-990 with a letter grade to reflect your credit standing. For instance, if you have a VantageScore of 850, you will be assigned a letter grade of “B”, and if you have a score of 920, you will have an “A”.  Similar to the FICO scoring system, a high credit score is desirable, and a low score means you have poor credit.

 

2) Scoring Requirements

It shouldn’t come as a surprise that to have a credit score, you must have some sort of credit history. FICO requires you to have at least six months of credit history and at least one account reported in the past six months. VantageScore, one the other hand, requires only one month of history and an account reported to the Credit Reporting Agencies within the last two years.

So what does this difference mean for credit card users? It means that VantageScore can score millions more people, which can be especially beneficial for those who have just recently started to build credit or those who have not used credit recently.

 

3) Late Payments

Late payments can damage your credit score, which is why it is crucial to always make your payments on time. That being said, VantageScore looks at the various types of late payments differently. If you are late on your mortgage payments, your VantageScore will be negatively impacted more than it would if you made a late payment on a car. Alternatively, FICO treats all late payments similarly; so paying your mortgage late won’t devastate your FICO score as much as it will your VantageScore.

Although many experts see great benefits in the Vantage scoring system, most lenders still rely on FICO. Since FICO remains #1 on the credit scoring scene, you should focus more on your FICO score than your VantageScore. However, it is a good idea to ask your lender which scoring method they use so that you can determine what type of rate you may qualify for before applying for a loan.

 

The credit mistake you’re making

(Dallas, TX-National-Credit-Solutions)

Everybody knows that failing to pay off your credit card balance on time can be devastating for your credit score, but fewer people know about another serious credit mistake – closing credit cards. credit-mistake

While you may think that it is prudent to cancel old or unused credit cards, this seemingly harmless action can actually backfire and hurt your credit score.

“But how?” You may be wondering, as closing a credit card may seem like a financially responsible decision. Many people think that since closing a credit card will lower their credit limit, it will help them spend less or will make their finances easier to manage. Unfortunately, what people don’t realize is that canceling a credit card often directly affects your “credit utilization ratio” – your debt-to-credit ratio.

For instance, if you have a credit limit of $1,000 and have a balance of $800, your debt-to-credit ratio would be 8-10, which is considered extremely high. Ideally, you should try to spend between 10%-30% of your credit limit, and then pay off the balance quickly.

If your credit utilization ratio is high, credit agencies will consider you a financial risk, which can negatively impact your credit score. And even more bad news: your credit utilization ratio is the second largest component of your credit score – a whopping 30%. Therefore, keeping a low debt-to-credit ratio is crucial for maintaining a good credit score.

To understand how closing a credit card can affect your credit utilization ratio, consider this example: if you have three credit cards that, when combined, give you a $10,000 credit limit, and you typically only charge $2,500 to your cards each month, your credit utilization ratio is 25%, which is within the desired range. However, if you decide to close out one of these cards, whether because it is old or because you think it might simplify your finances, your credit limit will drop drastically.

Closing out a card with a $3,000 limit will now give you a debt-to-credit ratio of 2.5-7, or about 36%. So just by canceling one credit card, whether or not it is one you actually use, you have significantly raised your credit utilization ratio, thereby damaging your credit score.

However, there are certain instances when it makes sense to cancel your credit card: when your card is used fraudulently and the credit card company does not cancel the card and issue a replacement, or when you find a lower rate card and want to switch.

In these cases, it is still important to take precautions when closing old credit cards and opening new ones. First, make sure that the credit limit of the new card is equal to or higher than the one you are closing, as this will help ensure that your credit utilization ratio is not affected. Also, timing is everything when canceling a credit card. If you decide to cancel one, avoid doing so before applying for a loan in order to keep the interest rate low. Wait until after the loan is approved to close the card. And, of course, it is always important to manage your credit utilization ratio wisely to keep your credit score strong.

If you feel that having multiple credit cards is causing you to spend beyond your means, shred one of them or hide it somewhere deep inside your closet, just don’t cancel the card!

How to avoid credit card fraud

How to avoid credit card fraud

How to avoid credit card fraud

It may seem odd that a small piece of plastic is more desired by thieves than a stack of cash, but your credit card offers them the possibility to spend significantly more money than if they just swipe a few twenty dollar bills out of your pocket.credit-card-fraud-reports-hastle Unfortunately, credit cards are very susceptible to theft and fraudulent purchases, mainly because they are small, easy to lose, and you regularly enter your credit card information online. So what measures can you take to avoid credit card fraud?

Protect your credit cards – This may seem like an obvious tip, but many people are too cavalier with their credit cards, treating them like disposable pieces of plastic rather than actual money. Keep your cards inside your wallet or zipped up inside your purse at all times to protect them from sticky fingers, and never leave your credit card out in public, as thieves can easily take a picture of your card and use its information to make purchases under your name.

Invest in a shredder – Never throw away your bank statements before shredding them, as these documents contain your personal banking information that thieves can use to steal your money. To avoid someone rifling through your trash and finding your bank account number and other confidential information, shred each piece of paper before tossing it in the trash. This also applies to old credit cards: cut them up before discarding them so that your credit card number is illegible and won’t be of use to potential thieves.

Guard your credit card information – Scammers are rampant online, and guarding your credit card information while browsing the web is crucial. Be wary of online scams that ask you to enter your credit card information, such as shady online vendors or businesses that pretend to have your personal information. If you are ever suspicious of online communication with someone claiming to be from your bank or credit card company, call your company immediately to see if this is, in fact, a scam.

Keep track of your purchases – Some thieves choose to play a more coy game, where they steal small amounts of money each month in hopes that the card’s owner will overlook these small purchases (and most of them do). If you do not pay close attention to your monthly statements, you may fall victim to credit card fraud without ever knowing it. Even if a scammer only takes $20 a month out of your account, this still amounts to $240 a year that is being stolen from you. So keep track of your purchases by saving receipts or keeping a journal documenting your spending so that you can compare your purchases with your credit card statement at the end of the month.

Report lost or stolen cards immediately – As soon as you notice your credit card is missing, contact your bank or credit card issuer immediately and have them cancel the card. If you report a loss or theft immediately, you will decrease your chances of being charged for any fraudulent purchases. Similarly, if you begin to notice fraudulent activity on your bank statements, contact your bank immediately and notify them. The sooner you become aware of credit card theft, the less damage you will be responsible for.

If you do happen to be the victim of credit card theft, your first thought may be that it will damage your credit score. Fortunately, fraud alerts do not hurt your credit score, but it will make creditors more cautious when approving a credit application in your name. In order to make sure that a thief is not applying for credit under your name, they will go through a double-check process, which can slow down the process of getting a loan.

So if you are the victim of credit card fraud, report it immediately, as this will likely save you money and stress, and will not harm your credit score.

 

Why Students Should Start Building Good Credit Now


Why Students Should Start Building Good Credit Now

For many college students, the idea of establishing credit rarely crosses their minds; or if it does, they assume that credit is something that they won’t have to worry about until far after graduation. This isn’t the case, however, as building good credit during your years in school is crucial for preparing you financially for life after college.

Why Good Credit Matters to Recent College Grad

good-credit

1) Employment Opportunities

Your credit score can start impacting your life immediately after college. Many employers conduct credit checks of potential employees, and a bad credit score could make you seem financially irresponsible, which could ultimately deter an employer from hiring you. If you choose to follow your dream of becoming an entrepreneur instead of finding a job right out of college, a good credit score is even more important. Most young entrepreneurs do not have the capital to successfully start their own businesses, and therefore must rely on receiving small business loans, which are difficult to obtain without good credit.

2) Living Situations

Aside from your career, your credit score also affects your day-to-day life. Unless you plan on moving back in with your parents, having a good credit score will help you find a place to live after graduation. Many landlords will conduct credit checks when you apply for a rental to ensure that you have a good history of paying off your debts, and a bad credit score could cause landlords to turn you away.

3) Transportation

Finding a method of transportation can also be difficult when you have bad credit, as both leasing and buying a car is easiest and most affordable with a good credit score. Most recent grads do not have the cash to buy a car, which means that a loan is necessary. Not only does your credit score determine whether or not you qualify for a loan, but it also helps lenders decide on the interest rate of the loan. Establishing a good credit score while you are still a student can help you save money by avoiding high interest rates on car loans.

Ways College Students Can Build Good Credit

Many students are under the impression that they can only start building credit once they have a reliable source of income. Whether you work part-time at your school’s cafeteria or babysit occasionally on the weekends, you can (and should) start building credit immediately.

1) Ask your parents for help

Owning a credit card is a huge responsibility, as you must realize that every time you swipe the card, you are using real money that you are obligated to pay back. Because of the weight of this financial responsibility, students can ease into establishing credit by “piggybacking” on their parents’ account. The parents can monitor the student’s spending since the child is an authorized user of the account, and if the parents have good credit, the student’s credit score will also improve.

2) Apply for your own credit card

It is surprisingly easy for most college students to get a credit card, as many lenders assume that your parents will help you out if necessary. When deciding on which credit card to apply for, make sure to consider the card’s interest rate, credit limit, fees and penalties, and rewards program. Be extremely cautious when using your credit card, however, as many students tend to get carried away with spending when their credit limits are high. To avoid this, ask your credit card issuer to keep your credit limit low so that you can easily pay off any balances you incur.

3) Make small purchases

As a student trying to build good credit, it is important that you do not spend more money than you can afford to pay off. Try to keep your spending under 30% of your card’s limit, and use it mainly for occasional small purchases such as food, music, or movie tickets.

4) Pay off your balance every month

The most important step in building good credit is paying off your balance every month. When you are first trying to establish credit, it is a good idea to avoid carrying a balance on the card. To do this, though, you must be strict in your spending habits and only purchase things that you know you can afford.

College is not only a time to receive a good education and to learn how to live independently, but it is also a great time to start establishing yourself financially. Building and maintaining good credit in college can be easy and hassle-free if done correctly, and a good credit score can be invaluable after graduation.

Books We Recommend You Read

Books We Recommend You Read

We really strive to help and educate our National Credit Solutions customers and friends. Here are some books that we have written and/or recommend:

From the Nation Credit Solution family of business and self help writers:

This is the first book by the NCS president, Brad Boruk. Brad collaborated with Ray Clark to write this book in 2013. Brad and Ray share their insight on how to manage personal finances and how to recover when you are in a bad financial spot. Let’s face it, most of us end up in a bad financial spot at least once in our lives. This book will help you organize your finances and get back on track.

This book is only available from Amazon in a Kindle edition. The great news is that you do not need a Kindle to read the book. You can read if from most computers and iPads. Click on the picture of the book to go to the Amazon page for the book:

a-guide-to-your-financial-health

From other self-help and business writers we recommend:

The 21 Irrefutable Laws of Leadership by John C. Maxwell is an indispensable book on leadership. Click on the picture below to see the Amazon page for John’s book:

Laws-of-Leadership-21

The Five Dysfunctions of a Team: A Leadership Fable by Patrick M. Lencioni is a leadership book that is recommended by Brad and Boiler. Both credit this book with inspiring their leadership. Click on the book below to go to the amazon page for this book:

National-Credit-Solutions

At National Credit Solutions we are avid researchers and readers. If you would like to recommend a book not on this list, drop us a line: info@ncs700.com

The 4 biggest credit card mistakes


I think we all make mistakes with credit cards at one point or another.  I made mine in college, and paid for those mistakes for years.  The trick is to learn from those mistakes—or better yet, learn from other people’s mistakes and never make them yourself.  Here’s a list of what I think are the 4 biggest mistakes.

1. Taking what the credit card companies give you.

I don’t understand why people just take what the credit card companies offer them.  Interest rate is going up?  Okay.  Your credit limit is being lowered?  That’s fine.  This attitude baffles me.  You, yes YOU, can negotiate with credit card companies.  I know this from experience on both sides of the issue—both from working for Household Bank and later HSBC, and from being a consumer myself.  Call the credit card companies and talk with them about better rates.  The credit card industry is a business, and like any business they want to keep their customers.  It’s cheaper for them to give you a better rate than it is for them to find a new customer to replace you.  Advertizing is expensive.

2. Paying late because you forgot.

This is something we’ve all done at one time or another I think.  You get your statement, you open it, and you see the due date is a couple weeks out, so you set it aside intending to mail the payment Friday after you get paid.  Then Friday comes and goes and that bill you set aside is out of sight, out of mind.  A week later you’re opening up a new bill and you go to set it aside and what do you find?  The bill that you set aside 2 weeks ago that’s now late.  It’s a slippery slope; because once you start paying late you open the door to penalty fees and rate changes.  Find an organizational system that works for you.  One thing that works for me is having a file box with 31 folders in it.  When I get a bill that I am not going to pay immediately I decide when I am going to pay it and put it in the appropriate file folder.  I check the folders each day to make sure there isn’t anything there that I forgot about.  This system works for me, but you might be different.  Either way, find fail safe that will keep you from paying a bill late just because you forgot about it.

3. Not paying your balances in full each month.

Hopefully it’s not too late, but if you’re not already in the situation where you are carrying balances on your cards, don’t!  The temptation can be so great.  You know you have the money to afford something if you save up for it, so you justify putting a large expense on your credit cards promising yourself you’ll pay it off quickly.  But like the slippery slope of paying late, this is a slippery slope coated in Teflon and you’re wearing silk.  Use your cards responsibly, don’t put yourself in a situation where you’re carrying a balance and making minimum payments.  Before you know it you’ll look at the new section on your credit card statement that tells you how long it will take you to pay the card off and you’ll be sick to your stomach.

4.Last but not least, denial.

Just like with alcoholism or gambling problems, or any issue really, you first have to acknowledge that you have a problem.  If you’re deep in credit card debt and unwilling to admit to yourself that you have an issue, you’ll never be able to get out of the pit of debt.  You need to honestly evaluate your credit card situation and figure out what needs to change.  Are you in massive debt because you spend money on credit cards because the cost is less real to you because you’re not physically handing someone cash?  Are you addicted to the convenience of cards?  Are you just living beyond your means because you want to keep up with the Joneses or you just have to have the latest gadget?  Whatever the reason is, you have to first admit you have a problem, identify the underlying cause, and work out a solution.  If this is something you need help with, give us a call here at NCS, we can help.

Class Action Lawsuit Filed Against Experian

Chances are you’ve heard the ads for FreeCreditReport.com.  They’re the ones with the catchy jingle and the guy walking around singing about the website and how his life was ruined because he didn’t check his credit.  In one particular commercial he tries to buy a car and ends up in an old jalopy due to his poor credit.  While driving around in the subcompact monstrosity he laments:

F-R-E-E, that spells free-
Credit report dot com, baby
Saw their ads on my TV
Thought about going but was too lazy
Now instead of looking fly and rollin’ phat
My legs are sticking to the vinyl and my posse’s getting
Laughed at
F-R-E-E, that spells free-
Credit report dot com, baby

Well, it turns out F-R-E-E doesn’t really spell free; it spells $14.95 a month for the Experian Triple Advantage credit monitoring program.  Erica Possin, a college student, took the ads to heart and went to FreeCreditReport.com prior to buying a car.  She got her report and went on her merry way, only to realize months later that she, like thousands of other customers, was being charged a $14.95 a month recurring fee.  She tried to get a refund from Experian, the owner of the website, but was denied.  Now she’s suing as the lead plaintiff in a class action lawsuit.  This isn’t a first for Experian either; they’ve already settled one suit with the FTC over ConsumerInfo.com.

So the morale of this story?  Be careful, not everything advertized as F-R-E-E is actually free.  Should you check your credit periodically, absolutely, but keep in mind you can go to AnnualCreditReport.com for a free one, or if you’ve been denied credit you can also get a free copy of your report.  Protect yourself, but keep in mind it may cost you.