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Which Credit Card Debt Should You Pay Off First?

If you have a number of credit cards with balances on them, you might feel overwhelmed by having a large number of monthly payments or a total balance that is higher than you are comfortable with. If you have finally decided that it is time to take action and pay off some of this debt, there are several different ways to approach the task.

While each will get you ahead financially, it’s important to understand that they offer different advantages. Let’s discuss some of the common ways that you can pay off your credit cards and get ahead.

Determining Where to Start

There are several ways to approach the problem. Different strategies will appeal to different people. Think about the debt that you have, and what you think will help you most.

For some, paying less interest is important. Other people find that minimizing the number of monthly payments is important. For others still, freeing up liquid cash each month matters most. Some people might choose to use one of the best balance transfer credit cards to help them focus on one payment.

There is no “one size fits all” type of plan. Consider which part of your credit card debt bothers you most and then consider the options below.

Highest Interest Rates First

Many people aim to pay off the credit card with the highest interest rate first because this means that they will be paying lower interest in the long run. If the idea of paying a lot of interest is the part about your debt that bothers you most, this is a good place to start. Often store cards have higher interest rates, and many people will opt to begin by paying these off.

Importantly, you should review the interest rates for all of your cards. Ensure that you are not paying a penalty APR for making a late payment at some point. If you are paying a credit card balance that has a high-interest rate, such as over 22%, you probably want to focus on getting rid of this kind of debt first.

Highest Balance First

Some people become worried when they have a credit card with a large balance or one that is nearing the credit limit. Focusing on putting some extra cash toward payments on these cards can help minimize the stress of having credit card debt. When you put extra money toward this card each month, you will be able to watch the balance drop, getting you closer to financial freedom.

It can be very motivating to watch that high balance get a little lower each month. You may be inspired to devote even more of your extra cash to this project, therefore paying it off more quickly.

Pay Off Smallest Balances First

For some, paying off the smallest balances first can help to eliminate the number of monthly payments that must be made. The fewer the payments that need to be sent out, the less likely it is that you might accidentally forget or miss one and end up with a late payment penalty fee. Plus, as you pay off these smaller-balance cards, you will slowly have more money to make payments on the larger-balance credit cards. Close the credit cards that you don’t plan to use—unless you have had them for a long time and have a great credit history with them.

Final Thoughts

Understanding your credit is important. Keeping track of your credit cards and balances and making all of your payments on time is critical to your financial health. Each of these strategies can help you get closer to being debt free. Plus, each has their advantages.

Make a plan of attack by making a list of all of your debts. Go into detail listing monthly payment options, total balance, interest rate, etc. Then make a plan and stick to it. You will be delighted when you start to see progress!

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How To Prevent Your Card Being Canceled By Credit Grantor

Not everyone uses their credit cards on a regular basis. Imagine the shock of needing to use your credit card only to find that it has been canceled by a credit grantor. You hear horror stories of people vacationing overseas and discovering this problem, then spending hours trying to fix it.

Unfortunately, the credit card grantor reserves the “right” to cancel or change the terms and conditions at any time. While they are supposed to notify you, this could be lost in the mail, sent to your email spam folder, or simply overlooked.

There are a few main reasons why your credit card might be canceled by a credit grantor. Let’s review the most common ones to prevent this from happening to you.

Not Using Your Credit Card Enough

A credit card company issues a card to you so that they can make money. Not only will they make money when you pay interest and fees, but they do make a small amount of money on each transaction that you use the card for.

This is the most common reason for a credit card to be canceled.

When you do not use the card at all, or only for emergencies, the credit card company makes no money from having you as a customer. Fortunately, this is a problem that is extremely easy to avoid. Simply use the card for the occasional purchase. Try to use it at least once every few months so your account will remain open and active.

You can always use one of the best credit cards with no annual fee to help you keep your account active without having to worry about coughing up the money for any fees.

New Debt

Have you recently taken on new debt? Bought an expensive car or a new home? These are changes that can quickly raise your debt level, change your credit utilization ratio (how much of your available credit you owe), and affect your credit score.

The credit card company may see this new debt and quickly cancel your card. New debt on a credit card changes your credit utilization. But taking out a large loan may affect you as well. The credit card grantor may determine that you have too much outstanding debt to pay promptly.

Changes in Your Credit Score

Any time that your credit score changes or drops, you are at risk for having your credit card canceled by credit grantor. This is one of the most important reasons to keep regular tabs on your credit score. You can avoid having your card unexpectedly canceled. It’s also good to know in case of identity theft.

They Don’t Need a Reason

As mentioned before, credit card companies have the right to cancel your card, for no reason, at any time. Having a credit card is not actually your “right.” The credit card company gets to decide who they want to extend credit to. While this might be you, it could change at any time.

They are supposed to give you notice, but, might not always do so. Sadly, getting a credit card canceled, for any reason, looks pretty bad on your credit report. You definitely want to try and avoid having this happen if you can.

What You Can Do To Prevent Being Canceled By Credit Grantor

First, make sure that you at least occasionally use your credit card so that the account does not go completely dormant. Second, make sure that you keep an eye on how much you owe. Keep your credit utilization as low as you possibly can. Third, follow your credit report on a regular basis (at least once per year) to ensure everything is accurate.

Your credit is important and should be treated as such. You can prepare yourself for the unexpected by following all of the rules and staying on top of your debt carefully.

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Tips to Raise Your FICO Credit Score

Your FICO credit score is one of the major factors a lender will consider when determining whether or not to approve you for credit. There are many things that go into your FICO score, which means that there are things that you can do to improve it. Careful attention to your FICO score can help you build your credit.

Here are tips that can help build and raise your FICO score

Apply for credit cards

You may be wondering if applying for credit cards can hurt your credit, but, just the opposite is true when you use them responsibly. The same goes for installment loans. Those with no credit will be a higher credit risk than someone who has demonstrated responsibility by making payments regularly and on time.

Make every payment on time

When you make your payments late, this shows up on your credit report. Lenders do not like to see you making a habit of late payments. As your FICO score is computed, 35% of the score is dependent upon you making timely payments for credit cards and loans. Never missing a payment is the best way to get the most from this factor. The longer the history that you have of making payments on time, the better this part of your score will be.

Pay off balances in full each month

While this is difficult for some, especially those who have accumulated large amounts of debt, making the largest payments you can afford is smart. This will help you lower the balances. Once you get your credit cards paid off, try to pay the entire amount that you owe each month. Never make less than the minimum payment required. The lower your overall balance, or credit utilization, the better your FICO score will be.

Communicate with creditors if there are problems

If you fall on hard times financially, contact your creditors before you begin to miss payments. Often they can work out a temporary solution, or negotiate a payment plan with you before your credit is adversely affected. When you are making regular payments, even when you are struggling financially, you can often keep your credit score from dropping too far.

Don’t rush to close credit cards to raise your FICO score

Closing credit card accounts can actually have a negative impact on your FICO score, especially if you have had the credit card for a long time. If you close credit cards that are paid in full, yet you still have others open that you carry a balance on, then you are going to see your credit score drop because your credit utilization will increase. This means that you will be using a higher percentage of your available credit. You are going to be better off keeping cards open when they have a zero balance, particularly if you have a long history with that creditor.

Keep track of your credit utilization

If you have a high credit utilization or a high debt-to-credit ratio, contact your creditors to see if you can have your credit limit raised. This can help improve your ratio and also your FICO score.

Don’t open too many accounts too close together

This is especially important for new credit users. When you are just starting out, one or two cards is plenty. Even if you have well-established credit, opening too many credit cards in too short a time period will have a negative impact on your FICO score.

Make sure your creditors know how to reach you

Always notify your credit card companies if you have an address change. If you miss a bill because they moved, it will not be their fault. You will likely see a change in your FICO score as a result. This is a common mistake, and one that is completely avoidable.

Immediately report if your card is lost or stolen

Reporting a lost or stolen card as soon as you are aware of it is crucial. Most credit card companies will not hold you liable for unauthorized purchases under these circumstances. If you do not promptly report it, you could be held responsible for large purchases. This will also affect your FICO score.

Check your credit report regularly

You should check your credit report at least once a year. Make sure that there are no inaccuracies. Most free credit reports will get information from the three major credit bureaus—TransUnion, Equifax, and Experian. Checking your credit report will not hurt your credit score. It will help you keep tabs on any accounts that you are responsible for. If you notice any inaccuracies, contact those creditors immediately to have the issue resolved.

Your FICO score is important. You should know what it is and make efforts to keep it solid or improve it. Use these tips to keep your credit great!

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How to improve your credit score through credit cards

Trying to clean up your credit score just before applying for a loan is a lot like working out to get 6-pack abs just a few days/weeks ahead of your beach vacation!

Such shortsighted efforts won’t be good enough to undo months of reckless mistakes. However, people who know how to discipline themselves and who can get into the habit of making well-informed decisions, can definitely see some improvements. That sort of discipline is all the more important for people who’re about to apply for a loan within the next 2-6 months.

Good credit score

While there are some tried and tested methods that can help you build a long-lasting healthy credit score, you can also make some small-small changes into your credit card habits right away and see an improvement in your score in some time.

Just by changing the frequency and timing of your monthly payments, apart from using the right credit cards for your purchases, can lift up your score by around 20 points or even more, in a matter of two months! The extent of improvement will depend on your present financial habits and some other factors. Following are some useful ways in which you can use your credit cards to improve your credit score:

Pay your monthly card bills on time

This is easily the best thing you can do to improve your credit score. The payment history of your credit cards carries a 35% weightage in calculation of your FICO score (used by most lenders). That weightage is higher than any other factor that makes up your credit score. So, ensure that every credit card of yours is paid on time, every month.

Keep your account balances low

The amount of money you owe on your different credit cards carries the second biggest weightage (30%) in calculation of your FICO score.

A good way of understanding this factor is by paying heed to something known as credit utilization ratio. This ratio is the percentage of credit you’re actually using, from the total credit available to you. For instance, if the total credit limit on all your credit cards combined is $ 20,000 and you currently carry a collective balance of $ 4000 on them, you’re using 20% of your available credit.

Normally, people pay off all their cards in full, or to the maximum extent possible, to keep this ratio closest to zero. However, anyone who can’t afford to keep a zero balance must ensure that his/her credit utilization ratio is well below the 10% mark. At any cost, he/she should never exceed 30%.

And that applies to all of your cards. Many times people who’re looking for a loan in the near future, opt for balance transfer cards for bringing their card balances well below the 30% threshold, but they often do so without paying heed to the balance transfer fees involved. This fee can be 3% or more, often resulting in a fee amount that may not be worth paying for a credit score boost.

Make frequent payments

Paying your credit card bill only once every month may not be good enough for improving your credit score. The balance appearing on your credit report is normally the balance from your last statement/s. And people running up high balances on their credit cards may get penalized in terms of their credit score, even if they do clear those balances in full every month.

For instance, if a person makes a $ 5000 purchase on a credit card (with $ 10,000 credit limit) in a specific month, his/her credit report may still show him/her as having used 50% of his/her credit limit on that card, even if s/he pays that card in full by the end of the month.

Such records may not matter much to someone who isn’t planning to apply for a loan anytime soon, but for an individual preparing himself/herself for a credit check, they may make or break the deal. Hence, it’s always better to make multiple credit card payments every month as and when you use your cards.

Put your credit cards to use

Although you should never run up your credit card balances to the extent that you can’t afford to pay them in full, you can’t help using your cards if you want them to be counted as a part of your payment history either.

It’s not necessary to use your cards every month, but make sure that you use them every once in a while, so that there are records of purchases and their timely payments. Furthermore, there is a risk of card issuers cancelling the cards that haven’t been used for many years. A cancelled card can reduce your total available credit, putting a dent into your credit score.

Keep your oldest accounts

Although it may seem tempting to get rid of your old credit cards that you’ve rarely used, people wanting to apply for new loans should hold onto such cards until the completion of their credit checks. Closing a credit card automatically reduces the total available credit to you. Such a step can be even more detrimental if you’re carrying hefty balances on some of your other credit cards, as it can increase your credit utilization ratio. However, such dips are only temporary in nature, and the credit score normally rebounds in the next few months as the credit agencies discover that you’ve actually not taken on more debt. But, even if temporary, such dips can indeed become the cause for loan rejections. So, avoid closing any credit card if you’re planning to apply for a loan in the next 2-6 months’ time.

Keeping or closing the old card accounts can also impact the length of your credit history, which carries a 15% weightage in your FICO score. Nevertheless, the impact is most likely to be minor in nature. Moreover, if you’ve been paying those cards in full every month, your credit score may not drop at all by their closure.

Following these basic suggestions, you can effectively use your credit cards to improve your credit score. Last but not the least, check your credit history at least once every year to ensure everything is in order and all the information in it is correct.

 

 

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Why You Should Apply for a Business Credit Card

If you own a small business, you probably should consider establishing some credit in the name of the business, rather than relying entirely on your personal credit. You might be surprised to know that fewer than 50% of small business owners are using business credit cards that are in the name of the business and not their personal name! Keeping everything in your own name may put your personal assets at risk, so read on and consider these great reasons to apply for a business credit card!

Tips For When You Apply For A Business Credit Card

So what should you look out for when you apply for a business credit card? Here are a couple of tips to consider.

Keep Business Expenses Separate

Keeping business expenses separate not only comes in handy at tax time, but it helps you stick to both a business AND a personal budget. When you are simply comingling all of your money and spending it as needed, it can be difficult to know how much money you are making from your business and how much you may be investing towards the future.

When you carefully keep everything separated, you are protected by a “corporate veil,” which allows you to be separately responsible for profits and losses. Your personal assets will have protection. Having a business credit card helps you to reinforce that protection, and reduce the risk to your personal assets.

Details, Details, Details

When you use a business credit card, it is far easier to keep detailed records of any expenses related to running your business. Whether you keep your own books or use a bookkeeper, the tasks will be monumentally easier when you keep your finances seperate. Business credit cards often offer you special spending reports and graphs that can help you build a balanced budget and stick to it. It also makes it easier for you to quickly see your profits and losses.

Establishing Credit

One final, and very important reason for getting a business credit card is that you can establish a credit history for your business. When it comes time to apply for a loan or any other kind of financing, you will have a solid credit history and be able to show that your company is credit-worthy. You won’t have to worry about depending on your personal credit history. Plus, you will be eligible for different rates and terms for loans as they pertain to a business, rather than an individual.

Additionally, it is important to keep your business credit separate from your personal credit, especially if you are going to incur any significant business debt. You don’t want this appearing in your personal credit history and bringing down your credit score.

Here’s what you need to know before you apply for a business credit card:

Consider the type of business credit card that you need.

How much of a credit limit do you need? Will you be considering a secured or unsecured card? Are you hoping to get a rewards credit card? There are many things to think about before applying!

Find out your credit score.

This means you need to know your personal credit score, as well as any credit score for your business if you have any credit established yet.

Don’t be blinded by perks.

Sure, special benefits and great perks can draw you to a particular card. But, don’t rely only on the perks. Know the actual terms of the credit card—annual fees, APRs, any other charges, and fees, etc., before applying. Make sure you know whether or not any special offers are going to expire after an introductory period, too.

Be selective.

Don’t apply for a ton of business credit cards. In most cases, one is probably sufficient. If you have employees, then make sure you look for a business credit card that offers low cost or free additional users, because these are the kinds of charges that can add up quickly.

Always be careful when applying for credit, whether for business or personal use. You need to protect your personal—and business—assets and maximize profits. When you are educated about the various terms and conditions, and understand what you are getting into, you will be able to make the right decision for your company.

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What Is Needed To Buy A Car?

best deals on car insurance

Let’s face it, most people need to borrow money to buy a car. Only 1 out of 10 new car buyers buy with cash. This is one reason why auto loans are the third most common loan in America, trailing home mortgages loans and student loans. Because so many people need to take out an auto loan, it is very important to have a high credit score to qualify for the lowest interest rates.

What Credit Score Do I Need To Buy A Car?

Pay In Cash

If you are able to pay for your next car with cash, pat yourself on the back! Whether you are the first owner or the third owner of your new vehicle, not having a car loan can be a great feeling. By not having a car loan, the money you would be putting towards a monthly car payment can be invested in a Roth IRA account, pay down other loans, or just about anything else.

When paying in cash, keep in mind that you will also need to pay an additional amount of money above the sales price of the vehicle for registration fees and taxes. Each state charges a different amount, but you can expect to pay more for a $20,000 vehicle than a $5,000 vehicle.

Your Credit Score Determines The Interest Rate

There are several factors that contribute to securing an auto loan. This includes your income and credit history, but your credit score is also important. This three-digit number is what tells the lender and the finance guy at the dealership whether you have good or bad credit. The higher your score, the lower the interest rate on the auto loan.

Here is a breakdown of what type of interest rate you can expect with your credit score if you decide to finance a new car loan:

Estimated Interest Rate For A New Car Loan (Newer than 2 years)
Creditworthiness Credit Score Range Estimated Interest Rate
Excellent 740-850 1.49%
Good 680-739 3.35%
Fair 620-670 4.59%
Credit Needs Improvement 619 or lower 6.99%

The above table is only a guideline to show how interest rates increase as credit scores decrease.  Interest rates will be higher for a used vehicle that is older than two years. Also, lenders will rate credit scores differently. One bank might require you to have a credit score above 750 to get the lowest interest rate, while the dealer might offer the same interest rate if your credit score is around 720.

FICO

Another factor that makes it difficult to estimate your interest rate is that auto lenders use the FICO Auto score instead of the traditional FICO credit score that you can access. Only lenders & dealers have access to this credit score, so it’s impossible to obtain this score before visiting the dealership. You probably will not find out the score until you are signing paperwork to initiate the car buying process.

The FICO Auto score has a similar score range (350-900) to the traditional FICO but puts greater emphasis on payment history with previous auto loans and installment loans. It’s not uncommon for the score to be a couple points different.

What If I Have A Low Credit Score or No Credit History?

Most lenders will only offer decent interest rates to “prime” borrowers with a credit score of 620 or higher. A credit score between 500 and 600 normally falls into the “sub-prime” category with most lenders. The interest rates will be higher than the rates paid by prime borrowers. Also, some traditional banks might not consider lending to “subprime” borrowers. You may have to find an alternative company or dealership.

Don’t worry, if your score falls into the “sub-prime” category you should be able to get a car loan. But, it will most likely have to be through a special financing service or a dealership that specifically advertises financing for those with low credit scores. Just remember that interest rates will be noticeably higher than those advertised to prime borrowers. If the interest rates are too high, you may have to consider a cheaper car to ensure you can make the monthly payments.

Co-Signor

If you have a low credit score or virtually no credit history (even with a good credit score), the lender might require a co-signor on the loan application. Having a co-signor reduces the lender’s risk in case a borrower misses payments. They have a backup source to pay the monthly installments. Having a co-signor might also allow you to get a lower interest rate compared to obtaining a loan outright. You can read more about co-signors and how to acquire an auto loan with a bad credit score here.

Credit History and Proof-Of-Income

Two additional factors that lenders look at is your credit history and employment history. Loan officers value both pieces of information as much as the credit score which is a short summary of your credit history. You might have an “Excellent” credit score of 770 but have not had any previous car loans. Lenders look at your credit history to see if you have made payments on-time for any type of loan or credit card in the recent past.

Because lenders look at the FICO auto score, they place the greatest value on prior car loans. They might give you some grief if the only loan payment history you have is student loans. It isn’t the preferred type of loan when determining an auto loan interest rate.

If you have a little credit history or are currently repairing your credit score, the lender will most likely ask for your two most recent paystubs for proof-of-income. If your take-home pay is high enough, this also will allow you to qualify for a low-interest rate and eliminate the requirement of a co-signor.

Get Pre-Approved

Another proactive action you can take is getting pre-approved for an auto loan through your bank. You might already be receiving the e-mails and brochures periodically from your bank about these pre-approval offers. While obtaining an auto loan isn’t as rigorous as getting a home loan, getting pre-approval can only help you. Dealers will take you more seriously during negotiations. The pre-approval also gives you a starting point with an interest rate and loan limit. For example, you are pre-approved for a 36-month loan at 2.49% interest up to $25,000.

Shop Around

Just as you will probably visit several different dealerships to find your ideal car at the right price, you should also compare interest rates from different banks. If you are pre-approved, you already have a baseline to compare to other bank rates. If you know your credit score, most banks have a detailed breakdown similar to the table earlier in this article. Most do not publish the credit score ranges (i.e. 720 is “Excellent” at Bank A but Bank B requires a 750 to get the “Excellent” interest rate), so you will have to ask if they can disclose that information to you. Interest-rate shopping will allow you to get the lowest rate for your credit score.

Down Payment

Depending on how much you can get a car loan for, you might have to pay a down payment as well. One approach is that the down payment can be the registration taxes and dealer fees. These can finance the cost of the car or put down 5% of the selling price. Each person has different financial circumstances. Keep in mind that the less you borrow, the lower your monthly payment.

Car Insurance

Another expense to think about before purchasing a vehicle is car insurance. If you take out a car loan, the lender will require that you carry collision and comprehensive insurance for the duration of the loan. If your current vehicle only has liability insurance, your monthly bill will be significantly higher carrying these additional policies. Insurance companies will give you a free quote if you buy a particular vehicle. If you are not pleased with the quote, you can “insurance shop” and try to find a lower quote for similar coverage.

Also, car insurance is cheaper for drivers older than 25 years old. So if you are an 18-year old eyeing a nice sports car but can only buy one with a loan, you should probably get an insurance quote first. You might be able to afford the monthly loan payment, but not the monthly insurance payment. If that is the case, you should probably wait a couple years before buying this car as the rates will drop if you have a clean driving record.

Summary

Buying a car is more complex than simply going to the dealership and driving home in a new vehicle.  While obtaining a car loan is less complex than applying for a mortgage, banks still put great emphasis on your credit score, credit history, and current income earnings. The better prepared you are beforehand (knowing your spending limit and how much you can borrow), the better you can get the best deal.

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You May Be Eligible For A Credit Card Retention Bonus

Earning miles and points from your credit card is fun—especially when the annual fee is waived for the first year. Once that anniversary comes around, however, you may be required to pay an annual fee—which might not be what you planned. Since you have earned tons of points, you don’t want to simply cancel the card. Let’s talk a little bit about your options and what might be available to you.

Consider the Retention Bonus

Many of the bigger credit card companies will offer you a special “retention bonus” on your anniversary date. This can range from a tidy sum of extra bonus points to a free baggage check, to a free night in a hotel, and more. Often the value of the retention bonus is far greater than the cost of the annual fee—so consider this part carefully when you are thinking of canceling the card. It might be well worth it to keep the card. While there are some cards that have pretty hefty annual fees, taking a look at what you get is a wise move. See if it is worth it to keep.

Consider the Credit Impact

Closing a credit card can negatively affect your credit score, so consider this move carefully. Now, this doesn’t mean that you should automatically keep a card with an expensive annual fee just because you don’t want a short-term ding on your credit. But, you should not be opening and closing credit cards on a whim if you want your credit to stay clear and clean.

Take an inventory of all of the cards you have and consider the fees and benefits. Also, consider your history with them and your available credit. Then, and only then, should you determine whether or not to close a card when your annual fee is up. Don’t rush to close a card simply because the fee is due.

Make Your Plea

You may not realize this, but you can actually request that the fee is waived for another year. Keep in mind that if you are a good customer, the credit card company will not want to lose your business. They may agree to waive the fee for another year. Sure, that will put you in the same position next year, but that gives you time.

Ask for a Downgrade

Many credit cards offer no-fee versions of their more expensive cards. The perks are fewer, but you don’t have to close the card and take the hit on your credit score. If you have a good history with the credit card, consider this option. When you can keep the line of credit open for free, and not have a hit on your credit card, this is really a win-win.

Final Thoughts

You will hear about loopholes and how you can exploit the system by getting a retention bonus just before the anniversary and canceling. Alternatively, you can pay the annual fee for a huge retention bonus and then cancel and keep the bonus. But the reality is, many of the best credit cards out there will offer you some sort of incentive to stay.

Whether you get a companion certificate, bonus points, or something else, it is up to you to determine if that is worth it for you to stay. Don’t impulsively cancel a credit card. You may regret it when it hits your credit score. As with any decision related to your credit, be careful and do your homework to figure out what is going to be the best decision for your personal situation. Often you won’t be able to reapply for a card once you cancel, so make sure it’s really what you want to do!

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Why Your Credit Score Might Dip When You Pay off Your Debt

When you start reading the advice of financial advisors, you will discover that most of those experts agree that the first step toward getting out of debt is paying off your credit cards. This will make your budget more flexible when you do not have to make credit card payments each month.

But what they don’t tell you is that your credit score may drop a little as a result. Doesn’t make sense? Well, there are a few reasons why it happens. However, it is not usually a serious problem. Let’s discuss some of the reasons so that you can understand and be prepared if this happens to you.

How Good Your Credit Score Is Matters

If your credit score is already high (over 720), then you probably have nothing to worry about when you pay off your credit. You might see a slight, temporary dip in your credit score, but when you have a solid credit history you have nothing to worry about.

Having an 850 is not necessarily required. There is a range when it comes to “excellent” credit. Generally anything in the mid-700s and above will get you approved for any financing you need.

Why Does A Credit Score Drop?

It might seem strange to have your credit score drop when you show that you can pay off what you owe. But, when you understand the various things that go into figuring a credit score, and you understand the concept of credit utilization, it might make more sense.

For most of the credit bureaus, 30% of your credit score is based on credit utilization. While you should aim to keep this figure low—by owing no more than 30% of what you can borrow, having no credit utilization is not necessarily the best thing.

What Should I Do To Keep My Credit Score High?

For the best credit scores, it is wise to utilize your credit cards regularly. Do so within the appropriate credit utilization recommendations, and pay off your credit card monthly. When you do this, your credit score will stay high. Plus, you will show that you are responsible and creditworthy. You will not suffer by having to pay any interest charges.

Applying for more and more credit is not a good idea though. Keep a small number of cards, and choose them well (i.e., based on terms and conditions, rewards, or whatever factors are most important to you). Monitor your credit report regularly to ensure that it is accurate. Immediately address any problems should there be any.

What’s the Bottom Line?

The bottom line is that, when it comes to good credit, you have plenty of control. Make wise credit decisions. Don’t spend beyond what you can pay off. Make every single payment on time. Don’t have more credit than you need.

This is how you can get the best credit score, or raise a poor credit score most effectively! Don’t worry too much if your score dips slightly when you pay off your card. Simply get back to your good credit habits and you will be fine.

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How To Improve Your Small Business Credit Score

It’s probably very likely that you know that you have a personal credit score, and, if you are really on top of things then you probably even know what that score is. But, as a small business owner, do you realize that your business also has a credit score?

Is a Business Credit Score the Same as a Personal Credit Score?

A business credit score does not follow the same index as a personal credit score, typically FICO. Your personal credit score is a three-digit number that ranges from 400-850 (ideally much closer to the top of that range!). Your business credit score is probably based on the most common business credit score system, called Paydex. This index gives your business a score between 0-100, with 75 or above being considered the “good to excellent” range.

Why Do I Need a Business Credit Score?

Building up your business credit score is just as important as your personal credit score. It will help you expand your business over time by being able to secure business loans or get financing for expansions, equipment, and investments. Instead of relying on your personal credit score to get loans and financing, you can get the financing you need based on your business credit score.

Also, it is important to be able to separate your business and personal finances. This is not only important for tax purposes, but also for liability and other reasons. In the event that your business fails, your personal credit will not be affected. That may allow you to head in a different business direction or rebuild, without harming your personal credit. If you had to file bankruptcy because of a failed business, you may have that follow you for up to 10 years.

How Can I Raise My Business Credit Score?

There are several important things that you should do if you want your business credit score to stay strong or improve. Here are four great tips:

  1. Make every payment on time. Just like your personal credit, your business credit score will be affected by your payments. Making every payment on time will help keep your business credit score strong. It will also help it continue to rise as your business looks like a good credit consumer. Not only does this help your credit, you also avoid penalties and late fees!
  2. Keep your debt at a manageable level. Even if you need to take out a loan, you want to make sure that you are not overutilizing your available credit. Monitor any revolving debt to make sure that your ratios stay in a healthy range. If your credit utilization becomes too high, your credit score will drop.
  3. Use the credit that you do have. Don’t just let your business credit card sit there and gather dust. It should not be reserved just for emergencies! Make regular purchases and payments. This will help you to establish and build credit. Plus, if you use the right business credit card, you can accumulate rewards points and get cash back or other rewards!
  4. Monitor your business credit report. Just like your personal credit report, you need to monitor your business credit report. Make sure that the information contained within it is accurate and current. Any inaccuracies should be immediately reported.

When you can build up a great credit score for your business, it becomes easier to separate your business and personal expenses, taxes, and liabilities. Build a stronger business by developing a credit history specific to the business. You will find it easier to invest, build, and watch the business grow.

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Will Canceling My Credit Card Hurt My Credit Score?

We’ve all heard the importance of paying close attention to our credit scores. Many of the credit card companies are beginning to catch on to the importance of having consumers keep it in control, and helping them track it—whether on a monthly statement, like Discover, or through the online account, like Chase and US Bank. But the question remains: will canceling my credit card hurt my credit score?

Once you start to pay attention to your credit score and understand just how it is calculated, you should be doing everything you can to keep it in a good range, or make it better. Canceling a credit card is one thing that many people do without realizing that it can have a damaging effect on your credit score.

Here are the answers to some common questions about canceling credit cards and how it might affect your credit score:

Will closing a card I don’t use hurt my credit score?

In general, it won’t hurt you to keep a credit card open. It will have more of an effect on your credit score if you close it, especially when you have had a card for a long time. The length of time that you have had a card is a factor in determining your credit score. That said, you definitely don’t want to close your oldest cards, even when you no longer use them.

Of course, if they have high annual fees, you may want to weigh this decision heavily. Consider using the card if they offer great perks, downgrading to a no-annual-fee version, or making a request to the credit company to waive the fee for a year. They just might consider this, depending on your relationship with them.

Is there such a thing as too much credit?

Some people are under the assumption that you can have too much available credit. This is not really the case. You can open too many cards in too short of a time period, which can hurt your score. You can ring up too many purchases too quickly, which raises your debt level. This can hurt your credit score. But, for the most part, you can’t have too many credit cards that are paid in full.

If you do choose to close a credit card, the credit history will remain on your credit report. If you were a customer in good standing for 10 years, this will show up on your credit report, and it will help your credit score. If you do take a hit to your credit score for closing an older, unused credit card, the ding should be temporary if your credit is solid.

Are there reasons to close a credit card when trying to raise my credit score?

If you have a good history with a credit card, and there is not a huge annual fee, then, no, there is not really any reason to close a credit card. It won’t help your credit score to close it. Keep it, especially if you have had it for a long time, even if you don’t use it.

What happens if the credit issuer closes the account?

While closing a credit card yourself is usually better, a closed account is a closed account. It will show up as “closed by consumer” or “closed by creditor”. Unfortunately, some reading your credit report may assume you had problems.

The best thing to do is try to avoid having creditors close your account. If it does happen though, don’t worry. It doesn’t really make a difference in the long run. You will take a hit to your credit score either way, and you can get your card closed due to inactivity. Each company has different policies so checking with their terms and conditions may be in your best interest.

Should I close my store credit cards?

Store credit cards are the ones most commonly closed by creditors when they are inactive. Store credit cards do have an impact on your credit utilization. Let’s say you owe $500 to a store and you have a $600 credit limit. This is a high credit utilization for this card.

Make sure that your other cards have lower rates of utilization. It would be even better if you can pay something off. Closing store credit cards does have less of an impact on your credit score than closing major bank credit cards. Your credit report will focus on the bigger picture—mortgages, loans, major credit cards, revolving credit lines, etc. when calculating your score.

While it’s better to keep all your big cards and close the store cards, it’s not the end of the world if you can’t. One thing to keep in mind about store cards is that they may be your oldest credit card since they are often easier for people to get. If you have had a store credit card in good standing for 15 or 20 years, then there is really no reason to close it and more good reasons to keep it open.

Final Thoughts

Closing credit cards can have a temporary effect of lowering your credit score. As long as you are not closing your oldest cards and are keeping all of your cards in good standing, there is no reason to close any. Keep track of what you have. Make sure you are not paying any unnecessary annual fees. Understand how your credit score is calculated. You will likely find that you won’t need to close any cards and can keep your credit shining!