Good Credit Score

Credit Score Pitfalls To Avoid

In today’s economy, a good credit history makes life’s major expenses, such as buying a car or a home, much easier. However, a lack of awareness about financial black holes can threaten an otherwise good credit report. How do you know you’re making good credit decisions?

Whether you have good credit or are trying to stop your credit from suffering further, read on for some pitfalls to look out for.

Acquiring Credit Card Debt

Opening a credit card and collecting a small debt can be practical, since it establishes credit history. When buying a car or a home, a higher credit score always yields good interest rates with low monthly payments. However, many people unintentionally fall into debt and have a hard time getting out, contributing to a snowball effect that spreads over many years.

In fact, according to the Federal Reserve, the average American with a credit card has over $5,000 in debt. This figure can quickly skyrocket with secondary credit card bills, increasing dependency on them to buy essential items or to pay bills.

As an initial line of defense against debt, people may apply their own financial tactics. For example, they may be inclined towards paying off the credit card with the highest interest rate first or the credit card with the lowest balance. However, sometimes bills and unforeseen medical expenses don’t allow these plans to pan through, and the person can fall deeper into debt.

In these instances, consider a debt settlement, which differs from debt consolidation and is still a great alternative to bankruptcy. With debt settlement, a team of financial arbitrators use their pre-established relationships with creditors to reduce an overall balance, rather than simply lowering your interest rates. With a team of professionals, your path to financial stability can be closer than you think.

Neglecting Personal Loans

One of the biggest financial pitfalls of today is neglecting personal loans. Often, paying the minimum monthly balance may seem like a good idea, since you’re staying current on your bills. While paying the minimum is good, credit scores are determined by the overall amount of debt you owe.

Minimum payments not only extend your loan term, they also accrue interest rate; this means that you end up paying significantly more (maybe even double) of your principle amount. Among the many types of personal loans out there, two of the most common are student loans and car title loans.

As of 2016, about 43.3 million Americans have student loan debt. While there are some federal loan forgiveness programs, and even tuition reimbursement through some employers, private loans often do not qualify for these offers. One common example of this is a car title loan.

These car title loans range anywhere from $5,000 to $50,000, and are based on the value of a person’s vehicle, which is held as collateral. This type of loan may be beneficial in moments of severe need, but they also target people with a poor credit history. Falling behind on payments is a bad situation in any case, but an even higher risk with car title loans. Creditors will essentially own your vehicle if you fall behind on payments, and with full legal authority, they can seize, impound, and sell your car.

To protect yourself and make sure you’re in the best financial shape, don’t neglect your personal loans and always try to give more than the minimum on a monthly payment.

Poor Credit Score

A poor credit score can affect everyone equally, regardless of debt. However, with high interest rates and monthly payments, it could be easier than you think to fall behind on payments. Luckily, with a little bit of work, it is possible to raise a low credit score.

Looking up your credit score can be intimidating and therefore often avoided, but it’s the first step you’ll need to take on your path to financial stability. A good credit score is anything above 700, with 850 considered the perfect score. The “fair” credit range is from 699-650, and anything below 649 is considered “poor” to “bad.” Now that you know your credit score range, the easiest way to raise it is to stay current on your monthly bills and submit your payments on time.

When keeping a current balance isn’t possible, some people opt for opening a new credit card with a low interest rate for the first year to pay off old debt. Although this may work in some instances, you’re simply moving your debt from one card to another—not eliminating it.

Don’t be afraid to ask questions or even seek advice from a professional. Many debt settlement experts and mortgage note buyers are a simple phone call, and can offer you specific information based off your specific type of debt.

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