Closing Credit Cards: When Should You Do It

Cutting Cards

You’ve gotten a new credit card and are looking to get rid of the old one that’s been with you since the dawn of time. Sure, you’ve had some good times together. After all if it wasn’t for your trusty credit card you wouldn’t have been able to pay for all those dates to impress your now wife or purchase that rug that really ties your living room together. So the question is… should you really be parting ways with your credit card just because it’s showing its age?

The answer is…. it depends. First ask yourself why? Why are you planning on closing your credit card? You should think twice before closing any old credit cards just “because they are old.” Positive revolving credit is a huge factor when building your credit score. If you’re looking to make the split with a card make sure you have good reason. If you are still using the card consider keeping it alive and well. Length of credit history makes up 15% of your FICO score. In this case, your old credit card might be your best source of positive credit.

When closing an old account your credit utilization ratio will remain at zero, making it hard to help your score out. If this credit karma study has taught us anything, it’s that your utilization should remain somewhere between 1%-20%.

Avg Credit Utilization Ratio (Source CreditKarma.com)
Avg Credit Utilization Ratio (Source CreditKarma.com)

Another factor for determining your score is the number of accounts. Getting a new credit card doesn’t mean you should close an old one. Having only one revolving tradeline opened at a time places all of your utilization on the single card. Try to keep a few cards active and remain below 20% of the credit limit.

If you are applying (or planning to apply) for a loan you should wait until after your application process to close any credit card accounts. The drop in score you get from closing an account may affect your ability to get approved, especially if you are just above qualifying range.

When Should I Close My Credit Cards?

Ideally you would want to close your credit cards when you are slammed with high interest rates, stuck with annual fees or trying to get out of debt. When an individual with bad credit is approved for a credit card, they are usually met with super-high interest rates. Maybe this was you a few years ago and now your credit is exceptional. Before swapping your card out for a new one, ask your credit card company if they can lower your interest rate. If not, then do away with them. Having good enough credit will get you approved for another card with better interest.

Annual fees are another pain. If your card has been collecting dust for months and you’re still paying the annual fee, consider closing it. There’s plenty of other cards out there that can collect dust with no annual fee (but in all seriousness, use your cards regularly as it will be beneficial to your score.)

According to NerdWallet, the average US household credit card debt stands at $15,706. That’s a pretty big amount of debt. One of the quickest ways to get out of debt is with the use of balance transfer cards. Balance transfer cards do exactly what their name entails. They allow you to transfer the balance from one credit card to another and make interest-free payments for a set time frame. You will be surprised how quickly you can pay off your debt when you aren’t paying the interest. If you feel trapped by your debt, check out our Get Out Of Credit Card Debt blog post Here.

What to Know Before Closing Credit Cards

You’ve made the decision, it’s time to let go and move on, but before you do make sure you prepare yourself for what’s coming!

Your Credit Will Be Effected

As stated above, after closing accounts your credit score will most likely drop. Consider closing the newer accounts before the older ones as older accounts hold more weight when determining your score. Once the account is closed your payment information will remain on your report for years to come. Positive payment info can remain for up to 10 years on your report (This is a good thing.) Whereas negative payment info can last up to 7 years.

Satisfy Your Balance/Redeem Rewards

Most (but not all) credit card companies won’t close accounts until your balance is at zero. Find what your credit card company allows. It’s always better to pay the account off first before closing. If you don’t think you can pay the account off, consider 0% balance transfer cards as previously mentioned.

If your credit card gives out rewards, make sure you redeem them before you close the account. If the account is closed before redeeming your rewards, you’ll most likely miss out on everything you’ve “earned.”

Closing Your Account

You’ve read the risks, you’ve satisfied the balance and you’ve redeemed your rewards. The time has come to put your card to rest (R.I.P.)

RIP Steve's Card

Contact your credit card company and break the news to them. Some companies will let you cancel online while others will require you to talk over the phone to a representative. Visit your credit card company’s website and/or give them a call to let them know you wish to close your account. Double check with the representative to ensure there’s no residual interest about to hit your account that you may need to pay. Too many times have I seen a situation where someone thinks they closed their account only to have it remain open and go derogatory.

Get Verification! This should go without saying. After you confirm your account as closed ask the representative to send you a verification email. Be patient, sometimes it can take a month for the account to close. Once you get verification of the closed account, check your report. Check your report on your credit monitoring service or go to a free credit report site like credit karma or credit sesame. Get in contact with the credit card company if your credit report is still reporting the account as open. If you don’t have credit monitoring, take advantage of our 3 months free offer here.

Need Help with Your Credit?

Afraid your credit might not be where it needs to? Can’t read your credit report? We know credit is confusing. That’s why we give out free credit consultations. We’ll take a look at your report and point you in the right direction. Fill out the form below and find out what you can do to better your credit score.


RE Business Credit Q & A | REI Diamond Interview w/Bob Morales

Last week, Better Qualified’s own Bob Morales was featured in REI Diamonds’ interview. Bob spoke about business credit profiles and how to obtain business credit in an LLC.

Here are some of the highlights from the interview. For full interview, please listen above.

Dan Breslin: “Bob, What is the benefit of having business credit?”

Bob Morales: “The true benefit is, if you already have an LLC established it gives you the opportunity for that company to become self sufficient if done correctly. Your personal credit at some point will reach limits from your debt to income ratio. The beauty of business credit is that will not have this come into play at all. It’s based off of you establishing credit and building it the right way so you can own commercial properties solely through your Tax ID number, not your social security number.”

DB: “Do I need to have strong personal credit in order to make moves with my business credit, Bob?”

BM: “Not Necessarily, I mean it definitely helps. It’s always going to be a benefit because if you run into a situation where you needed something short term- Because there’s going to be certain things that come into the criteria for how much you’re going to be able to borrow. It’s going to tie into the length of time that you’re in business, the number of accounts that you have outstanding, the dollar amount of credit that your showing available. So, the more things you have non personally guaranteed solely under your business credit, the stronger your business credit profile is. Personal credit is actually the reverse. On the personal side, your debt to income is going to limit you. On the business credit side, the more credit that you have available and the more credit that you are current on, the more credit they will allow to you.”

DB: “What would be like the maximum credit limit that you’ve seen someone build up to using your program?”

BM: “I’ve seen, short term us be able to turn around and get individuals credit  of up to $400,000-$500,000 within 5 to 6 months.” “I’ve seen us finding individuals who’ve had difficulty getting loans, using our program the correct way – and because they’ve already had the groundwork laid for their business credit profile – we’ve gotten them upwards of $700,000 to $800,000 in a very short period of time, less than 3 months…”

“The foundation has to be built correctly, it’s kind of like a recipe. You can take all the ingredients and just throw them in the bowl, it’s not going to work out. But if you add the eggs and the flour and everything at the right time, it’s going to build a foundation correctly. The flour is going to rise the right way. Now it’s the same premise, you have to establish 3 levels of credit and a lot of people want to jump the gun, they want to go from vendor credit right to cash credit, or you know, they just want to go at store level. It’s something that has to be built properly and as long as those steps are followed, the ability to build credit is just your ability to make payments. As long as you continue to stay in good standing with these loans, there’s no limit.”

DB: “So what’s the specific difference between personal and business credit?”

BM: “Personal Credit side is always going to be tied into a debt to income ratio. I don’t care how much money you make, at some point you’re going to be limited… and if you’re not limited you can still go out and get credit but you’re going to have to put down larger down payments, you’re going to get hit with higher interest rates. On the business credit side, like I said, it’s establishing a payment history, it’s making sure you have the correct number of experiences, it’s… it’s going to come down to your tradelines. So if you’re walking in and your debt to income ratio is at, you know, 13%… you pretty much write your own ticket. You know, as long as you have solid credit score. A credit score isn’t a magic wand, it has to be used the right way. On the business credit side, there’s over half a million companies that issue credit. Only 6,000 of them actually report to the business credit bureau so you have to leverage it to the right types of lenders and that’s the important thing.”

Listen to the entire interview in the link above.

If you are interested in building business credit with your business, fill out the form below and Bob will reach out to you.



 

Bad Credit Will Control Your Life

oburning money

How your credit looks can affect the way you live your life. Having bad credit can destroy you financially and be the difference between spending and saving some serious dough each month. A prime example of this would be an auto loan.

Cars are necessities. Bad credit will cause you to pay thousands extra on an auto loan compared to someone with good credit. A vehicle that costs $22,000 will cost $379/month for someone with good credit. That’s assuming they have a 5% interest rate and a 72 month term. After it’s all said and done $27,295 will be the amount paid out after interest.

If you have bad credit that same auto loan will cost you $636/month. This is because your interest rate will quadruple to an insane 21% and your term will be shortened to 60 months. The total amount to be paid will jump to $38,210 after interest. That’s over $10,000 more for the same car mentioned above!

Good and Bad Credit

The same goes for mortgages. An individual with bad credit and a $100,000 mortgage may wind up paying well over $300,000 in the long run. Bad credit can halt you from being approved and will suck your finances dry due to incredible rates.

Bad credit can be a tough hole to get out of. Making loan payments with bad credit will leave you in a financial battle and make it nearly impossible to save money. It’s no joke, Bad credit is expensive! Aside from being declined and extremely high interest rates, bad credit may be costing you your hard earned money. So what can be done to obtain better credit?

Raise Your Score

Set out on a path to take back your credit. Raising your credit score will allow you to refinance your loans. Refinancing will give you a better rate and ultimately allow you to pay less. Here are some quick tips to raise your credit:

Stay current on all your accounts.

Bring those late payments to a current status and you could see a big increase in your score. Although the accounts can still remain in derogatory standing for up to 7 years, a current account is way more beneficial to your credit than an account that is late or charged off.

Bring down your credit card balance.

Once your credit card balance hits 30% or higher of your limit prepare to start seeing your credit score decline. In fact, the average score for consumers with maxed out cards is 563 (yuck.) Use your cards, but don’t overuse them. Paying your accounts down to 30% or lower is a quick way to boost your score.

Remove Negative Accounts

Removing negative accounts from your credit report can increase your credit score tremendously. You can do this by disputing the negative accounts on your credit report, or by seeking professional help. Better Qualified has a team of credit experts that will go after your negative accounts and point you in the right direction. For a free credit consultation, fill out the form below:


Game of Loans – A Guide to Defeating Student Loan Interest

GameofLoansInterest

Interest is Coming….

In the hit HBO series Game of Thrones, royal families prepare to go to war against each other in a quest for power. Recent college graduates are about to go to war as well…. war with student loan interest.

Maybe you’ve been out of college for some time now and are currently battling interest. If that’s true then you know it’s a long exhausting fight. A fight most of us are unprepared for as we blindly pay away our earnings. Worry not, there are some weapons you have to gain the upper hand against interest.

Times have changed and with change most graduates are met with crippling student loan debt that will limit their ability to buy a home, save for retirement, or start a business. Student loan debt is at an all time high of $1.2 Trillion (yes, trillion,) which is well beyond the amount of America’s credit card debt, which is only $884.8 Billion.

Part of the problem are the high interest rates on student loans. Once you’re locked into a student loan, there is no refinancing and the interest is stuck with you forever.

Prepping For the War Against Interest

Iron_Thronecrowcap

If you recently graduated and have not started paying your loans yet, the first thing you should do is get familiar with your loans. Keep track of your lender, balance, and repayment status. Make sure you contact loan services with any questions you may have. Update loan services with any current contact changes. Out of date contact information can be detrimental to your account if your lender needs to contact you and cannot do so.

Know When Your First Payment is Due

After graduation, your first payment will be here before you know it. Make sure you know how long your grace period is. When is your first payment? Stafford loans are typically due 6 months after graduation, Perkins loans are usually 9. Private loans usually start much sooner. Find out when your first payment is and DON’T MISS IT! Don’t be afraid to contact your lender to find out when your grace period ends.

Pre-Pay Your Accounts

If you are financially able to do so, pay more towards your accounts. This could be your greatest weapon in the war against student loan interest. Making payments before your first payment is due and/or paying more than the amount due will result in paying less interest in the long run. Make sure you let your lender know the extra amount is to be applied to the loan balance. Otherwise, they may “credit” the amount to a future payment.

Target the Most Expensive Loan First

GameOfThrones Giant Loans

Gain the advantage in the interest war and take out the giant first! Find out which loan you are paying the most interest on and attack! Make extra payments towards that big loan and keep at it until it is no more. Once you’ve knocked off that loan, take aim at the next loan with the most interest, and so on. Private loans will most likely be the first to go. This is due to the fact that they have higher interest rates and aren’t as flexible as federal loans.

Eliminating loans with the most interest means you’ll ultimately be paying less in the long run.

Don’t Default

Missing or making late payments will not only make your loans more difficult to pay off and will destroy your credit for years to come. Missing enough payments will put your loan in default, causing your a lifetime of financial trouble. Once a loan hits default, prepare for battle with collection companies. Collection companies can be ruthless and will stop at nothing to get you to pay.

Defaulting on your loans may even cause your wages to be garnished. When this happens, the government will forcibly go into your bank account or paycheck and take out what it needs until your loans are paid off. Leaving you with nothing but an empty bank account and horrible credit score.

It’s also worthy to note that defaulting on private loans will bring your co-signers down with you. This will affect their credit and can potentially hurt them from getting approved. If you can’t afford your loans, don’t just ignore them. There are ways to get back on track without destroying your or your co-signer’s credit.

Trouble Making Payments? Don’t Surrender!

Braveheartnever surrender

Everyone goes through rough times and student loans aren’t exactly cheap.  Don’t give up if you are struggling to pay your loans! You have options to help get you back on track.

Change Your Repayment Plan

Contact loan services and see if you can change your repayment plan. You may be able to pay less each month with extended payments. Another option is a graduated payment plan. This will start you off with lower payments that increase over time. You may also tie your payments into your income. Making your loan your number one priority. Automated payments on dates your paycheck gets cashed can ensure you have enough to pay and are paying on time.  Changing your repayment play will have you paying more in interest over time, but it’s much better than destroying your credit.

Deferring Payments

If you will be out of work for some time you may be able to defer your loans to a later date. Going back to school, unemployment, or enlisting in military service are all reasons someone may want to defer their loans.

Just keep in mind you are still accruing interest during those months you aren’t paying.

Forbearance

If you’re struggling to pay the bills and don’t meet the requirements for deferment, forbearance might be your solution. If your loan servicer grants you forbearance you may be able to stop making payments or reduce your payments for up to 12 months. Financial hardship and illness are just a few reasons individuals seek forbearance.

Consolidation

Student loan consolidation comes with its many pros and cons. consolidating multiple loans will help you keep track of your debt and better manage your loans. The interest rate of all your loans will be averaged out into a fixed interest rate. If you’re struggling, this could mean less in monthly payments. There is also no minimum or maximum needed to consolidate your loans, making it easier for consumers to obtain.

You cannot include private loans in a federal consolidation. However, on the flip side, you may included federal student loans into a private loan consolidation. This is usually not a good idea as the interest rates for private loans are usually much higher. Another downside is you may be missing out on some cancellation benefits (more on these later.) Perkins Loans have cancellation benefits that will be voided if you consolidate it. Police, firefighters, and teachers are among those who may qualify for cancellation benefits that will disappear once the loan is consolidated. Keep in mind also, once you consolidate there is no going back. Your interest rate is fixed and you are stuck with it even if rates fall after your consolidation.

Winning the Fight

Emperor-Commodus-gladiator-gameofloans

So you’ve managed your loans pretty well, you’re on a good path, but you’re looking for that secret weapon to win the fight. Under the right circumstances you may qualify for student loan forgiveness, cancellation, or discharge.

School Closing Discharge

If your school closed during your enrollment or shortly after you withdrew (120 days.) Your loans can be discharged. If this is something that has happened to you, contact your loan servicer to get the application.

You are not eligible for School Closing Discharge if you withdrew more than 120 days prior to the closing, are completing a similar program at a different school, or have completed all of your coursework.

Teacher Loan Forgiveness

Teachers rejoice! You may qualify for Teacher Loan Forgiveness. The Teacher Loan Forgiveness program was created to encourage individuals to enter the teaching profession. If you qualify, you may be eligible for forgiveness up to a total of $17,500. Those who are eligible must not be in default of their loan and must be teaching full time 5+ years. One of those years must be in a qualifying school district.

Public Service Loan Forgiveness

Any current full time employees working in public service jobs may be eligible for the Public Service Loan Forgiveness Program. To qualify, you must make 120 on-time, full, scheduled, monthly payments on your loan. The only loans eligible for forgiveness are loans received under the William D. Ford Federal Direct Loan Program. Federal Family Education Loans and Federal Perkins Loans are ineligible. However, you may become eligible by consolidating your FFEL or Perkins loans, but your 120 payments won’t count until you start making payments on the new consolidated loan.

Perkins Loan Cancellation Benefits

There are a variety of jobs eligible for Perkins Loan Cancellation Benefits. Some qualifying jobs include: teachers, nurses, police officers, and firefighters. To find out if you qualify, contact your loan servicer.

Take Action!

Now it’s up to you. Prepare for war with interest. Map out your game plan and student loans may not seem as intimidating as they were before. If student loans have gotten the best of you in the past or you would just like some little more information, fill our the form below and we would be more than happy to take a look and point you in the right direction.

The Steps to Good Credit – Credit’s Do’s and Don’ts

Excellent Credit score BQ blog

The Dos and Don’ts to Good Credit

Your credit score is the most important number in your life. It can determine whether or not you will be owning a new home, driving the car of your dreams, or even securing that new job you just had an interview for.

Having a good credit score can lead you to a long enjoyable lifestyle…. But having a bad score can feel like you’re trapped inside a terrible nightmare.

If it’s one thing I’ve learned working in this business, it’s that credit is confusing and always changing. Back in March, the Credit Reporting Agencies made an announcement regarding new ways to report medical debt and disputed accounts. This change will benefit most Americans, especially those plagued by medical debt.

In an industry that’s consistently changing, how can a consumer know how to obtain a positive credit score? The general public is uneducated when it comes to credit and most are even unaware of their own scores. Well, you’re in luck! I’m here to give you the basic steps to good credit:

DO: Secure different trade lines of credit.

The first rule for the steps to good credit is to secure different trade lines. The more types of credit you have, the better your score will be (assuming the accounts are in good standing.) Ten percent of your credit score is determined by the different types of credit used. That doesn’t mean go out and start applying for as many accounts as you can (that will hurt you.) What that means is the credit bureaus like to see variety. A consumer with a mortgage, a few credit cards, student loan, and auto loan on his/her report should have pretty good credit score (again, assuming all accounts are in a good standing.)

DON’T: Close Out Old Credit Cards

“I’ve had this card for years. It’s old, and I just got a new one should I close this out?” The answer is NO! Old credit cards aren’t like old TVs or computers. You shouldn’t close them just because they are old. In fact fifteen percent of your credit score is based upon credit history. Closing old accounts can instantly decrease your credit score. If you have an old account you no longer use, you’re better off waiting for them to become inactive rather than closing them out.

What Determines your credit score? (Source myfico.com)
What Determines your credit score? (Source myfico.com)

DO: Use Credit Cards Regularly

Not long ago I met a gentleman who told me he only opens up credit cards to boost his credit score. He never uses them, just opens them up and locks them away.

While this may improve the score a little, his score can be substantially increased if he actually used the cards. A recent study from Credit Karma shows an average score of 692 for consumers that hold their cards at a zero balance. The same study shows average scores of 753 for consumers who used 1-10% of their credit limit, and 715 for those who used 11-20%. Which brings me to our next “don’t”…

DON’T: Go Over 20% of the Credit Limit

The bureaus want to see you using your cards, but they don’t want to see you overusing them. This is also a good strategy for your wallet, as the more in debt you go, the more interest you will pay.

It’s easy to start charging away on your credit card and not realize where your utilization lies. Stay on top of your balance. Make sure you budget yourself and keep track of where your account is at. In the same Credit Karma study mentioned above, the average credit score is 563 for consumers with maxed out cards.

Avg Credit Utilization Ratio (Source CreditKarma.com)
Avg Credit Utilization Ratio (Source CreditKarma.com)

DO: Pay More Towards Accounts

Any type of loan will have you make monthly payments. Do your best to pay more than the minimum. While making minimum payments won’t necessarily hurt your credit score, you’ll get a score boost if you pay them off in a timely manner.

Making minimum payments will cause you to pay more interest, which is money you could be saving. If the minimum payment is all you can afford at the moment, then there’s not much else you can do. When you do come into some extra cash, put it towards your debt. The quicker your debt is paid off, the quicker you’ll have some extra dough.

DONT: MAKE LATE PAYMENTS!

The most important Don’t on the list! Making a late payment with drop your credit tremendously and will remain on your report for up to 7 years. All derogatory accounts start with just one late payment so make sure you pay everything on time.

In today’s fast paced world it’s easy to forget when payments are due. It’s always a good idea to setup payments through autopay. Just double check to ensure the payments go through. If you’re not doing autopay, set reminders for yourself to pay. One late payment is all it takes to destroy your credit score.

DO: Monitor Your Credit

Always keep a watchful eye on your credit. Credit monitoring can alert you to any new accounts that will appear on your report. If you see something fraudulent, report it to the bureaus and the FTC immediately. It’s easier to get a recent mistake removed rather than a lingering old mistake.

DONT: Assume Your Credit is Fine

1 in 4 consumers have errors on their credit reports. Most consumers aren’t even aware of what is on their report. Get a credit report and find out what is on it. If you need help reading the report, consult a credit expert like the ones at Better Qualified. They can tell you exactly what is on the report and provide you with the steps toward better credit. They also specialize in removing negative items from credit reports. Don’t just assume your credit is doing great. Make sure you know what is being reported!

If you follow the steps to good credit, your score will increase tremendously. If you need help getting your credit back on track, just ask! We’ll provide you with a free credit analysis, go over your report with you, and determine what actions need to be made to improve your credit. Just fill out the form below:

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